High-altitude losses at TWA put Icahn's takeover in doubt. But airline's unions are adamant against his rival from Texas Air

Perhaps nobody but financier Carl Icahn himself knows whether he is likely to come out of his latest deal with Trans World Airlines smelling like a rose -- or something a bit less sweet. Although Mr. Icahn's deal to gain control of the airline looked solid only a few weeks ago, he recently told TWA management the airline's heavy losses had made it impossible to get investors to finance a purchase of 52 percent of the airline's stock. He has sought to renegotiate the agreement.

Left sitting in the hot seat was TWA management, which recently put out feelers to see if there were any alternative buyers. Only lukewarm interest was shown by American Airlines, Northwest Orient, and Resorts International.

But the heat was turned up several notches Monday when Houston-based Texas Air Corporation, owned by Frank Lorenzo, offered to plunk down $22 a share in cash for all the company's shares. This was not thrilling for TWA pilots and machinist unions, which last summer rushed to aid Icahn when Mr. Lorenzo made a strong bid to take control. Lorenzo is known for attempts to break unions, which include taking one of his airlines (Continental) into bankruptcy to void labor contracts.

Icahn outmaneuvered Lorenzo, in part, because the two unions agreed to wage and other concessions worth between $200 million and $300 million if Icahn took over. The unions got stock, profit sharing, and a promise that Icahn would vote his shares against a sale to Texas Air.

In an all-day meeting in New York Wednesday with TWA management, union leaders were asked what their members reaction would be if Lorenzo's offer were accepted.

``In plain and simple terms we told them [that the union members] will destroy the airline before they work for him [Lorenzo],'' said a union official who was at the meeting. ``He's an impossible individual to work for. He doesn't come to us with clean hands. . . . We've got a deal with Icahn. He's legally locked to us.''

Time and the unions' attitude have become crucial factors for any potential buyer -- who must get financing and approval from the Department of Transportation to take control. Months might go by as TWA losses mount, slowly or more rapidly, depending on union cooperation.

As profits slip, so does the airline's worth. That makes financing difficult as wary investors edge away from such an unstable $700 million-to-$1.2 billion deal.

``You cannot get approval before next summer on any deal [from the Department of Transportation], and TWA might be losing so much money it wouldn't be worth $22 a share,'' says Robert Joedicke, an airline analyst at Shearson Lehman Brothers.

Industry analysts say TWA's fourth-quarter losses may be heavier than expected. Losses for the first nine months were $69.7 million on revenues of $2.89 billion.

``They're up against some pretty heavy competition. You've got a lot of companies expanding, and TWA is just sitting there dead in the water,'' says Marilyn McKellin, an airline analyst at Value Line Investment Survey. ``TWA's equipment isn't in great shape and their reservation system isn't very good.''

But there are several reasons that Lorenzo would buck the odds despite the union and deteriorating profits.

``From Texas Air's standpoint I know that Lorenzo wants it,'' Ms. McKellin says. ``He's lost on a couple of deals now, and he's a man who doesn't like to lose. . . . He knows how to run an airline. Icahn doesn't.''

Although the Icahn-Lorenzo battle over TWA last summer was described by some as ``a cat fight,'' Icahn is now reported to be willing for TWA management to consider any offer.

Besides being doggedly persistent, Lorenzo may also see TWA as a key element for pushing his airline empire into the first rank, along with United and American.

Snapping up TWA would give Lorenzo the company's lucrative international routes and more north-south routes, says McKellin.

Hostile unions might be handled by slowly turning TWA planes and equipment into Texas Air equipment, industry observers say.

``The big cities are locked up,'' says Peter Cappelli, associate professor of business at the University of Pennsylvania's Wharton business school. ``The question is how to expand the route system. You can't do it piecemeal.''