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• W2260399901 abstract "During 1989, three of the four largest airlines in the United States became targets for leveraged buy outs (LBOs): Northwest, United and American. As of this writing, only the former has been successfully concluded. The failure of the United LBO sent the Dow Jones Industrials skidding 190 points on Friday, October 13, 1989 - the twelfth most serious collapse in Wall Street history.Two reasons account for the sudden surge of interest in airline acquisitions. First, after more than 150 bankruptcies and 50 mergers, the industry has become an oligopoly. Eight megacarriers dominate 94% of the domestic passenger market. With fortress hubs and shared monopolies, ticket prices are ascending into heaven. Now that airlines are becoming money machines, they have become targets for LBOs.Second, the glamor of the industry has always attracted men with huge egos. In the old days, it was buccaneers like Howard Hughes, Eddie Rickenbacker and Juan Trippe. These days it is Marvin Davis, Donald Trump, and Peter Uberroth. Owning an airline is more prestigious than owning an NFL franchise, for there are fewer of them. Owning an airline also means becoming emperor of several fiefdoms, for the fortress hubs are a stranglehold over the cities they serve.For example, in buying Northwest for $3.7 billion, Alfred Checchi became king of Minneapolis, Detroit and Memphis-Northwest's hubs. If Marvin Davis' $6.2 billion bid for United had been successful, he would have been lord of Chicago (O'Hare is the world's busiest airport), Denver, San Francisco and Washington-United's hubs. Prior LBOs reveal that corporate raiders leverage airlines to the teeth to pay for their acquisitions. In the mid-1980s, Frank Lorenzo gobbled up Continental and Eastern, while Carl Icahn grabbed TWA and Ozark. Both added millions in indebtedness to these once proud airlines, while stripping them of assets. Before Eastern fell into bankruptcy, it carried $2.5 billion in long-term debt; its debt service was a crushing $575 million annually. TWA carries $2.4 billion in debt and lease obligations, and has a negative net worth of $30 million. Checchi may load Northwest with more than $3 billion in debt. United will carry more than $6 billion, no matter who buys it. This article will introduce the reader to several of the major actors in the Monopoly game, their enormous egos and their ruthless game plan.Foreign airlines are gobbling up significant shares of U.S. airlines. Already Northwest, Delta, Texas Air, America West and Hawaiian Airlines have significant foreign equity. Not only does debt pose significant problems for the long-term viability of airlines, foreign ownership adds national security concerns. This article will examine the motivations behind airline LBOs and the policy reasons why they are not in the public interest. Criticism of LBOs centers on the impact massive amounts of debt will have on the ability of airlines to make new aircraft purchases or maintain existing aircraft properly, expand operations, maintain competition, and withstand the vicissitudes of the market cycle. A deep and prolonged recession will likely cause a new round of bankruptcies and consolidations among debt ridden airlines which will leave the industry even more concentrated than it is today. Finally, foreign ownership of U.S. airlines raises competitive and national security concerns. We begin with a look at deregulation." @default.
• W2260399901 created "2016-06-24" @default.
• W2260399901 creator A5004273381 @default.
• W2260399901 date "1989-01-01" @default.
• W2260399901 modified "2023-09-26" @default.
• W2260399901 title "Corporate Pirates Assault the Heavens - Leveraged Buy-Outs and the Airline Industry" @default.
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