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Carl Icahn's Crazy Like A Fox Grab For Pan Am

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Not one to be rushed or bullied, Delta Air Lines Inc. held back earlier this year as rivals American and United scrambled to pick up choice routes to Europe from failing U. S. carriers. In mid-July, Delta Chairman Ronald W. Allen calmly suggested a $260 million deal for bankrupt Pan Am's expansive European routes and its East Coast shuttle. Gentlemanly indeed.

Not so fast. American Airlines Inc. and financier Carl C. Icahn, chairman of Trans World Airlines Inc., are looking for a brawl. On July 22, Icahn announced a crafty $450 million deal for nearly all of Pan American World Airways Inc. (table). While Icahn's buying power--given TWA's tattered finances--is questionable, American's muscle means Pan Am's creditors can't dismiss him out of hand. American has agreed to buy $250 million worth of Pan Am's assets from Icahn if he can pull off the deal.

Even with American's backing, Icahn faces enormous hurdles. Delta and United Airlines Inc. are prepared to swallow nearly all of Pan Am for a combined $495 million. Icahn may find that hard to beat as he struggles to restructure TWA's $4 billion in debt. Creditors threaten to repossess planes and engines. "He's clearly gambling with other people's money," says Steven Tananbaum, a TWA creditor. Toughest of all: The TWA-American bid must win favor with the bankruptcy court and regulators, who see declining competition in the skies.

TRUMP CARD. Icahn is gambling that the Pan Am deal could help solve his problems at TWA. He figures that creditors have nothing to gain by forcing him into bankruptcy court. Instead, if the Pan Am bid succeeds, TWA bondholders gain prized assets of a top rival. Even if the larger TWA isn't viable over the long haul, Icahn will have more time to liquidate. He vows to put together within a few months a prepackaged Chapter 11 filing that would force holdouts among TWA's bondholders to go along with his plans for slashing debt. Says Icahn: "This is the way to survive."

American, by contrast, has little at risk in this high-stakes game. At best, it could plug a hole in its growing European operations with Pan Am's routes to Italy, Spain, and Portugal. And the Pan Am Shuttle could feed traffic to American's international routes and open valuable space for American at crowded airports in New York, Washington, and Boston. Some analysts figure these assets may be worth at least $25 million more than American is offering.

At the least, American has temporarily thwarted its two major rivals and could make them pay more for key routes. American has already made Delta effectively raise its bid. Negotiators now say Delta would agree to take fewer routes and fewer of Pan Am's Airbus A310s in a deal, but pay the same price. United is making a separate bid for Pan Am's Latin American operations. American has a stronghold there, and to take up the challenge, United now has boosted its tentative offer by $45 million, to $235 million.

'IN THE BANK.' Robert L. Crandall, American's chief executive, fumed that, at $290 million, Pan Am sold its London routes to United too cheaply. American recently paid $445 million for three of TWA's routes to London. "They started off very stupidly," in the London route sale, Crandall says. "When you start stupidly, it's hard to finish smart."

While Pan Am creditors are wary of Icahn, they're cheered by the bidding. "If Delta wants to stay in the game, they need these routes," says Robert W. Kneisley, an aviation lawyer in Washington. Delta now isn't ready to budge much. "What you have is a very complex, highly conditional proposal from TWA vs. ours, which is backed up by money alreadyin the bank," says Delta spokesman William Berry.

But even skeptics concede Icahn's deal promises something for everyone. Besides buying assets, Icahn would round up $140 million from other investors for a reorganized Pan Am that would consist mostly of the Latin American operations. Creditors would get a stake in the new company. "Bondholders want to save face. They want a piece of paper that says they have equity in a new entity that could make some money," says one creditor.

Still, Delta could easily top TWA with its deeper pockets and rock-solid credibility. The question now is whether gentlemanly Delta will have to get into a bare-knuckled fight.



Delta would get:

-- New York-to-Europe service

-- Pan Am Shuttle

-- Frankfurt hub

-- Miami-London and Detroit-London routes

Pan Am would get:

-- $260 million

-- Possible financing from Delta

-- Obligation to honor tickets issued by Pan Am on routes it sells through Feb. 1, 1992


American would get:

-- Pan Am's routes and facilities in Italy,

Spain, and Portugal

-- Pan Am Shuttle

TWA would get:

-- Pan Am's routes to London from Miami

and Detroit

-- Frankfurt hub

-- Eastern European routes

-- Landing slots at New York's LaGuardia

and JFK and Washington National

Pan Am would get:

-- $310 million for assorted assets

-- $140 million equity infusion to reorganize

-- $60 million in financing from TWA

DATA: BWWendy Zellner, Todd Vogel, Chuck Hawkins and bureau reports Dallas, New Haven, Atlanta

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