Ailing Pan Am Corp. said yesterday that its debt-ridden rival, Trans World Airlines Inc., has offered to buy it for $450 million in what would be a merger of two of the nation's weakest airlines.
The proposed transaction underscores the precarious condition of some of the nation's carriers and might signal the start of further consolidation in the airline industry as weak airlines look to partners for help.
A merger of TWA and Pan Am, both based in New York, would create an airline with prized European routes and a lot of debt.
TWA made its offer late Friday, about two weeks after cash-starved Pan Am ended merger talks with it and sold its crown jewels -- routes to London and some of its other European destinations -- to UAL Corp., the parent of United Airlines.
Pan Am, which put itself up for sale a year ago, had no comment on TWA's offer, but indicated it had no desire to cancel its agreement with UAL.
TWA, in its letter to Pan Am, said its offer expires Nov. 16 -- two days after Pan Am is expected to close its $400 million deal with United. TWA said it would withdraw its offer if Pan Am did not cancel the United deal, a prospect that seemed unlikely Sunday.
The offer from TWA seems to raise the stakes in what is shaping up as an auction for Pan Am. American Airlines already has tried to outbid United for Pan Am's coveted European routes. Others, including America West Airlines, have shown interest in Pan Am's money-making Northeast shuttle.
Two weeks ago, Pan Am was said to have turned down a merger offer from TWA Chairman Carl C. Icahn because he would not provide Pan Am with a much-needed $200 million cash infusion. TWA's proposal seems to address that problem.
TWA has offered to buy Pan Am in two steps. It said it would buy its Northeast shuttle by the end of the year, immediately providing Pan Am with some cash. It would then buy the rest of the company from shareholders sometime in March.
TWA said it would pay $3 a share for the airline -- $1 in cash and $2 in notes or preferred stock. It did not say how it would obtain the money, but TWA has about $1 billion in cash and short-term securities that it can sell quickly, if needed, to pay for Pan Am.
Airline industry analysts said the transaction would quickly pay for itself, since Icahn could probably sell the overlapping European routes for more than he is willing to pay for Pan Am. "He can probably get at least $500 million, and possibly as much as $700 million," for Pan Am's European routes, analyst Raymond Neidl of Dillon Read in New York estimated. "He can pay for the deal and pay off some of the debt too."