Carl Icahn and TWA

«You learn in this business: If you want a friend, get a dog.**

Carl Icahn


WA was one of the original “Big Four,” cre­ated out of the so-called “Spoils Conference” in 1930 by the edict of Walter Folger Brown, which forced the combination of Western Air­lines and Transcontinental Air Transport (TAT). TWA had participated in the major developments of American airline history under the leadership of Jack Frye, and later under the secretive and unpredictable Howard Hughes. It had pioneered both the early transcontinental routes and the early airliners used on those routes, like the DC-3 and later the Constellation. TWA had contributed significantly to the war effort between 1941 and 1945, flying the only land-based four-engine air­craft in existence at that time (the Boeing 307) on transatlantic routes to Africa from South America and to Europe. By war’s end, TWA had gained transatlantic experience that only Pan Ameri­can could rival. Howard Hughes, then firmly in control of TWA, changed the name of the com­pany. Since 1930, the initials TWA had stood for Transcontinental and Western Airlines, but after the war the company name became Trans World Airlines, still using the TWA brand.

Perhaps owing largely to its war effort, TWA was rewarded after World War II with the first transatlantic routes that went to any estab­lished American airline other than Pan Ameri­can. On February 5, 1946, TWA made its first scheduled international flight, from New York to Paris. TWA was also granted access to London’s Heathrow Airport, known as the “Gateway to the World,” and it continued its international route expansion for years to come, including the polar route in 1957 from Los Angeles to London.

In 1961, TWA severed its relationship with Howard Hughes, who by that time had become a recluse, and by 1965 the company had redeemed all of his shares of stock. New management, led by Charles Tillinghast, made changes within the company that caused it to prosper. TWA’s profits in 1965 were the largest of any airline.

TWA thrived under the regulatory scheme in place during the 1960s and 1970s, but with deregulation, things began to come undone. The very nature of TWA’s routes, including many long distance ones, had mandated that its fleet be composed of large airplanes. The use of large aircraft when smaller ones would have sufficed, with the resulting substantial expense differen­tial, increased the financial burden. TWA was also slow to appreciate the hub concept, and its

labor costs were way out of line. Its unions were not willing to grant the wage and working condi­tion concessions that looked necessary. By the 1980s, TWA was losing money, some $100 mil­lion by the middle of the decade. TWA began to look appealing as a corporate takeover target. All of the symptoms were there, including low stock valuation, troubled management, and relatively high asset value. It had also accumulated $200 million in depreciation, which could be used as a tax deduction directly against income. This scenario drew the Wall Street raider types like sharks to blood in the water.

Carl Icahn (see Figure 27-1), like Frank Lorenzo, grew up in Queens, New York. He received his A. B. degree from Princeton in 1957, and then attended New York University School of Medicine, without graduating. As a young man, he had some talent at chess and, it was rumored, at poker as well. When he left medical school he joined the Army, where he gained a reputation for his gambling skills. By 1961, he was employed on Wall Street in New York in the stock brokerage business and drifted into the super-specialty of arbitrage, the trad­ing of both the long and the short side of stocks and options that allows the taking advantage of slight differentials in price. This led to trading in

FIGURE 27-1 Carl Icahn began buying up shares of TWA in 1985, and by April he had acquired enough stock in the company to trigger the mandatory public filings with the Securities and Exchange Commission.

issues of companies rumored to be the object of takeover strategies, companies that usually expe­rienced large and volatile price fluctuations.

Icahn went from simply trading the stocks of these companies to practicing strategies to gain actual management control of them. Control of a company can be gained either by outright stock purchase or through proxy fights. Proxy fights involve persuading other stockholders, usually through intensive mailing campaigns, to allow their shares to be voted by someone who is lead­ing the proxy fight. The rationale is usually to effect a change in management through gaining seats on the board of directors.

Icahn’s aggressive corporate acquisition strategies were originally bona fide efforts to win stock proxy fights in order to gain control of undervalued corporations so that their man­agement and value could be improved. In 1979, Icahn won his first proxy fight for a seat on the board of directors of the stove manufacturer, Tappan, by which he subsequently forced the sale of the company, rendering him a profit of $3 million for his stock.

He soon learned that he did not always have to be successful in his takeover bids in order to make money. This tactic usually involved iso­lating a target company, starting to buy up its stock or gaining control through a proxy fight, running up the stock’s price, and then retiring from the field with a nice profit when the target’s management successfully fought him off with counter offers for control. This practice came to be known as “greenmail,” a play on the better understood word “blackmail.” Icahn gained the reputation as a “corporate raider”1 when the busi­ness community realized that he had adopted this practice as a vocation and business lifestyle.

– Icahn followed the Tappan bid with raids I of Marshall Field’s, Anchor Hocking, American m Can, and Owens-Illinois. His image was black­ened forever when he attempted to take over the textile company Dan River in 1982. Dan River was a 100-year-old Danville, Virginia company and mostly locally owned when Icahn began

buying up stock. The employees and the people of Danville got together to fight the takeover, using their retirement money to successfully buy up the stock. When it was all over, Icahn was roundly seen as a villain.

Along the way Icahn developed deep pock­ets for financing his deals, including the invest­ment banking house of Drexel Burnham and junk bond king Michael Milken. Icahn next suc­cessfully acquired the rail car manufacturing and leasing company, ACF Industries, which was fol­lowed by the unsuccessful, but profitable, take­over effort of Phillips Petroleum. Icahn’s targets appeared to be getting bigger and bigger.

Icahn began buying up shares of TWA in 1985, and by April he had acquired enough stock in the company to trigger the mandatory public filings with the Securities and Exchange Com­mission. TWA management sprang into action. By this time one thing was known for sure: Icahn could not be a good steward for any company. Icahn’s corporate raider reputation was seen as having developed from “greenmail” to “acquisi­tion and dismemberment,” and TWA pulled out the stops in mobilizing against him.

At first there was a combined effort by both management and labor against the takeover attempt. Suits for injunctions were filed on vari­ous grounds, the unions conducted campaigns against Icahn, and both groups lobbied Con­gress for help. An Employee Stock Option Plan (ESOP) was considered. TWA sought merger partners, but only Eastern made any attempt to investigate the possiblities. A TWA-Eastern merger would probably not have survived the anticompetitive test by the government anyway, but the unions at Eastern defeated that effort.

By the beginning of the summer of 1985, Icahn had invested over $100 million in TWA. With all defensive stratagems failing to prevent a hostile takeover, management began to consider alternatives to Icahn, including Frank Lorenzo (Texas Air). This is where management and labor parted company. Lorenzo’s use of the bankruptcy court to void labor contracts and cut wages at

Continental, as well as his starting his new shut­tle airline in New York as a nonunion airline, were to have a long legacy. The unions were con­vinced that if Lorenzo won control, TWA would be folded into the Texas Air-Continental opera­tion and would cease to exist. Yet Lorenzo was not about to go away. Management brought in Drexel Burnham to broker a deal between Icahn and Lorenzo that would have paid Icahn $95 million and given control of TWA to Lorenzo. Management believed that they could work better with Lorenzo than Icahn.

During the negotiations, Lorenzo and Icahn were about $7 million apart on the money when the unions, led by the Airline Pilots Associa­tion, began negotiations directly with Icahn. The pilots and the machinists offered concessions to Icahn that they would not offer to Lorenzo and had not offered even to TWA management— they agreed to wage cuts (26 percent) and to work rules changes in exchange for a profit­sharing arrangement and stock ownership. This allowed Icahn to raise his stock offer price to match Lorenzo’s rather than sell out his stock investment in TWA under the Drexel Burnham deal. Lorenzo actually offered slightly more than Icahn for stock control, but by this time Icahn had acquired over 50 percent of the stock, and because of the bitter resentment of the unions against Lorenzo, the board acceded to the deci­sion to go with Icahn.

In the end, it was labor that handed TWA to Icahn.2 Lorenzo, once again, pocketed a nice gain in the value of his stock acquired while pursuing control of the company—in this case $50 million. Icahn meanwhile set out to maximize his invest­ment with further acquisitions by TWA.

TWA’s main competition in St. Louis in 1986 was Ozark Airlines. In the middle 1980s the Department of Transportation under Elizabeth Dole was in charge of reviewing pro­posed mergers, and the stance at DOT at that time was rather relaxed on airline mergers. This was, after all, the era of deregulation. Still, many people, like Alfred Kahn, the so-called father of deregulation, were concerned that the industry was rapidly becoming too centralized, too anti­competitive, and that the benefits of deregulation as they saw it would suffer from such lack of competition. Their views were largely dismissed as the DOT routinely signaled its approval of anticipated combinations in the industry, particu­larly with relatively minor players like Ozark.

Icahn closed the deal for the acquisition of Ozark for $239 million. The Justice Department decried the merger and came out against it. But it was the DOT’S call (the DOJ would not be given authority over mergers until 1988), and the merger was approved as expected. With this deal, Icahn had essentially eliminated competition out of St. Louis. It came as no surprise that St. Louis fares were quickly raised, now that the CAB no longer existed, but it was also clear that this was not what deregulation was supposed to be about. It became obvious that the anticompetitive safe­guards formerly monitored by the CAB, and now by the DOT, were being ignored—another unin­tended consequence.

As TWA proceeded under the new arrange­ment and Icahn’s management practices took hold, the unions at TWA would learn what bitter fruit their deal with Icahn was about to produce. The flight attendants had not been part of the deal with Icahn, and their labor working agree­ment expired in 1986. When no progress was seen in their attempted negotiations with Icahn, they walked out. Icahn hired replacements, at a significant savings to the company, and when the flight attendants called off the strike a few months later and wanted to return to work, Icahn refused to rehire them. Lawsuits abounded.

The wage concessions that the pilots and machinists had earlier agreed to in their deal with Icahn provided for “snap back” wage increases when their labor agreements were to be renewed. To their dismay, Icahn insisted that they extend their contracts at present wage rates. When the unions resisted, Icahn threatened to dismantle the airline—and he meant what he said. The unions folded.

In what might be considered to be less than good faith follow through, Icahn sold all of the Ozark fleet of airplanes and then leased them back to TWA. As majority shareholder, this was like cash in Icahn’s pocket. The airplanes then had to be paid for out of operating expense.

TWA’s assets also included its com­puter reservation system (PARS). Icahn sold a 50 percent interest in the CRS to Northwest Airlines for $140 million, thus raising even more cash. Icahn denied that his management style included “dismemberment,” but it did bear some resemblance to what Lorenzo was doing to East­ern Air Lines at the same time.

In fairness to Icahn, the steps he took to streamline TWA’s operations, including con­verting hard assets to cash, laying off nonunion workers, and fighting union wage and rules demands began to show up at the bottom line. From a stock price of around $14 per share when he took over, TWA stock was trading at $34 two years later.

This was when he decided to take the com­pany private by merging TWA into a newly formed private company, where he would own 90 percent of the stock (he held 73 percent in the public company), and which would free him from many regulatory requirements and much government oversight necessary in a public cor­poration. The company’s cash would go to par­tially pay for shares not controlled by Icahn. The 10 percent of stock not owned by Icahn would be owned by the employees. Since this deal was a leveraged buyout, Icahn was able to recover $469 million personally. TWA assumed over $539 million in debt.

This heavy debt load gave TWA a negative net worth, and it required a lot of money to pay interest on the debt. Profitability was short lived as its domestic and foreign market shares fell to new lows. TWA had failed to appreciate the necessity of the hub concept after deregulation and it did not develop adequate feeder lines to supply its long-range routes, resulting in lower passenger counts.

TWA’s fortunes did not improve over the following years, as competition increased with new entrant airlines amid rising fuel prices. The first Iraq war in 1990 coupled with an economic downturn that resulted in reduced travel demand. Airline losses as a group in 1990 were $1.9 bil­lion, in 1991 $1.8 billion, and in 1992 they were $2.4 billion. Icahn continued the dismemberment of the airline by selling TWA’s most valuable routes. In 1991, he sold the prized Heathrow London routes to New York, Los Angeles, Bos­ton, and Chicago to American Airlines for $445 million.

On January 31, 1992, TWA entered into Chapter 11 reorganization. As debtor in posses­sion, Icahn still had control over TWA’s assets, and he sold its London routes to Philadelphia and Baltimore to USAir for $50 million. All that was left of the proud world-wide network of TWA was the London-St. Louis route.

During reorganization, Icahn agreed to step down and sell his shares to the employees and the creditors. The deal was solidified with TWA’s three primary unions taking a 45 per­cent equity stake in the company in return for concessions. TWA’s creditors would forgive some $1 billion in debt in return for 55 percent of company stock. Icahn would loan the air­line $200 million for operating cash, secured by TWA’s remaining assets, until the company emerged from bankruptcy. Everyone, it seemed, was tired of Icahn, and Icahn was tired of the air­line business.

TWA came out of bankruptcy in November 1993 and a succession of senior executives went through the head office until Jeffrey Erickson, from Reno Air, took over as CEO. Over the next two years, management and the labor groups, the latter of which owned 45 percent of the com­pany, together made extraordinary efforts to see TWA succeed, but it was not enough as share prices continued down, reflecting the lack of profit. TWA entered Chapter 11 for the second time in 1995 under a prearranged deal with its creditors to shed some $500 million in debt, so the company was able to reemerge quickly from reorganization in August 1995.

In 1996 things looked up for TWA, with plans to purchase new aircraft and to make new hires of around 10 percent. But on July 17, 1996, flight 800, a Boeing 747 bound from JFK to Paris, exploded over Long Island killing all 230 people on board. Theo­ries abounded as to the cause of the explosion of flight 800, including a rocket attack by ter­rorists, conspiracy theories of various kinds, as well as a fuel tank detonation. The cause was ultimately determined by the NTSB to be due to a short-circuit spark in the center wing fuel tank, but that did not really matter to the profit and loss question that controlled the fate of TWA. At the end of 1996, all TWA had to show for its efforts was a $259 million loss. Erickson resigned and was replaced by Gerald L. Gitner, who ironically had previously been with Lorenzo at Texas Air.

The late 1990s were good times for United States airlines, yet TWA was unable to post a profit for 1997, the only airline, in fact, that lost money for the year. It lost money the next year too, the 10th straight year in the red. The board of directors appointed one of their own pilots, William Compton, as president in 1998 to bring a hands-on approach to operations, with Gitner remaining as chairman of the board.

Compton ventured out on an airplane buy­ing spree, concentrating on smaller aircraft like the Boeing 717-200s, to replace TWA’s large aircraft and aging fleet. He ordered 125 planes and took options on 125 more. Still, TWA had not turned a profit since 1988. TWA lost $353 million in 1999 and over $115 million during the first nine months of 2000.

TWA finally threw in the towel and reached an agreement with AMR Corporation, Amer­ican Airlines parent company, to acquire the airline. TWA entered Chapter 11 for the third time in 2001 in order to be able to finalize the AMR takeover. The Justice Department approved the acquisition and the proud and historic Trans

World Airline, the “Lindbergh Line,” became just TWA Airlines, LLC. AMR Corporation now controlled 22.6 percent of the entire air­line market, another unintended consequence of deregulation.

In September 2001, operations of TWA were consolidated with those of American Air­lines, 138,000 TWA employees were let go, and the TWA terminal at JFK was closed. The brand TWA ceased to exist.

Market Share

After deregulation, and for many years thereafter, the incumbent (legacy) airlines increased mar­ket share over that which existed during CAB regulation. In 1978, for instance, the five largest (incumbent) airlines took in 66 percent of domestic revenues. This excessive control of market share was recited by proponents of deregulation during the Congressional hearings to demonstrate the anti­competitive impact of CAB regulation. The impli­cation was that under a deregulated market, the share of the largest carriers in the overall market would decrease. In 2001, the five-carrier share had actually increased to 72 percent, revealing a central failure of deregulation theory. By 2010, largely because of mergers and acquisitions (American took over TWA, US Airways merged with America West, Delta merged with Northwest, and United merged with Continental), the largest legacy carri­ers still owned 72 percent of market share.

Figure 30-2 is an interesting and informative graphic. Represented here is the period of time between 1975 and 2009, depicting six surviving airlines (four legacy carriers and two low-cost car­riers) as of 2009, along with their merger histories with numerous other airlines over that period. Shown also on a continuum is the market share, based on passengers flown (not revenues), of each surviving airline over the applicable period of time.

Mergers have also altered the rankings of airlines based on measures most tradition­ally used. As of 2012, the largest airlines ranked by passengers carried were 1. Delta Airlines,

2. United Airlines, 3. Southwest Airlines, 4. American Airlines, 5. US Airways, 6. Air Canada, 7. Republic Airways, 8. JetBlue Air­ways, 9. Alaska Airlines, 10. WestJet, 11. Fron­tier Airlines, 12. AeroMexico, 13. Spirit Airlines, 14. Hawaiian Airlines, and 15. Allegiant Air.


The airline accident rate has been steadily declining since the 1940s. With the introduc­tion of jet aircraft into the civilian airline fleet, the rate of decline increased even faster, so that by the late 1980s, the total annual number of airline accidents had become historically minis­cule. Commuter carriers, flying more turboprop equipment than their larger brethren, have had a proportionately higher accident rate, but over the last two decades even that rate has declined by 90 percent. Since deregulation, the overall fatal accident rate per million miles flown has averaged 0.0009, compared to 0.0135 during the 40 years of regulation. It can be logically surmised that the difference in the accident rate before and after deregulation probably has more to do with the technological advance of aircraft and equipment than with regulation. It should be remembered that economic deregulation did not extend to safety issues. The United States airline industry remains today one of the most heavily regulated endeavors in the world.

Worldwide, the year 2012 marked the low­est rate of fatal accidents since the dawn of the jet age. Including both passenger and cargo flights, in 2012 there were 22 fatal crashes, down from 28 in 2011. The 10-year average is 34. None occurred in the United States. Of those 22 crashes, just 10 involved passenger aircraft and only 3 of those were jets. The remaining 7 involved Western-built or Russian turboprops.

Turboprop operations have significantly higher crash rates, particularly world-wide. Turboprops serve smaller airfields and use less advanced air traffic control equipment than major Western airports.

Russian-built planes historically have accounted for much higher crash rates than Ameri­can or European-built planes. Crash rates in under­developed areas of the world, like Africa, Latin America, and the Caribbean are over four times that of the rest of the world. These regions account for only 7 percent of all global passenger traffic but have recorded nearly half of all accidents in 2012.3

I Employment

From the passage of the Airline Deregulation Act through the first year of the 21st century, the number of airline employees had increased by 50 percent, to 536,400 as measured in full­time equivalents (FTEs).4 Due to the effects of September 11, 2001 and other economic factors during the first decade of the new century, airline employment fell to a low of 376,200 FTEs in April 2010, at which point a slow recovery began.

The Department of Transportation after 1988

Even though the DOJ now has primary author­ity over domestic airline mergers and acquisi­tions, the DOT retains jurisdiction to regulate and investigate some aspects of domestic air­line operations, including carrier fitness, owner­ship, and advertising. The DOT also has express authority to prohibit unfair and deceptive prac­tices and unfair methods of competition. Section 411 of the Federal Aviation Act, recodified as 49 U. S.C. 41712, provides:

«[The] Secretary may investigate and decide whether an air carrier. . . has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transpor­tation… If the Secretary, after notice and an opportunity for hearing, finds that an air carrier… is engaged in an unfair or deceptive practice or unfair method of competition, the Sec­retary shall order the air carrier… to stop the practice or method, w

DOT takes the position that it is authorized to prohibit conduct that does not amount to an actual violation of the antitrust laws, but is such that it could be considered anticompetitive under antitrust principles.5 DOT also has authority to approve or immunize from U. S. antitrust laws cooperative agreements between domestic carri­ers and foreign carriers relating to international routes.6

Aviation Impacts

Aviation activities impact the environment pri­marily in two ways: (1) engine-generated emis­sions into the air and (2) noise. Noise legislation has been addressed by the Congress in separate, specific legislation, and we will discuss those statutes later in this chapter. Engine emissions result from both aircraft operations and airport ground operations and are regulated by the EPA under its “mobile source” pollution authority.

The history of EPA regulation of aircraft engine emissions is long-standing:

1974—for engine smoke (revised several times over the years since) and fuel venting; 1984—for hydrocarbon emissions;

1997—for nitrous oxides and carbon monoxide;

2005—for additional nitrous oxides emis­sions standards;

2012—for additional nitrous oxides emis­sions standards.

Emissions Generated from Aviation-Related Combustion Processes

Carbon Monoxide (CO) is produced due to the incomplete combustion of the carbon in fuel;

Particulate Matter (PM) consists of small solid or liquid particles that form as a result of incomplete combustion, and are small enough to be inhaled;

Sulfur Oxides (SOx) are produced when small quantities of sulfur, present in essen­tially all hydrocarbon fuels, combine with oxygen from the air during combustion;

Hydrocarbons (HC) are emitted due to incomplete fuel combustion. They are also

referred to as volatile organic compounds (VOCs);

Nitrogen Oxides (NOx) are produced when air passes through high temperature/high pressure combustion and nitrogen and oxy­gen present in the air combine to form NOx;

Carbon Dioxide (C02) is the product of incomplete combustion of hydrocarbon fuels like gasoline, jet fuel, and diesel. Carbon in fuel combines with oxygen in the air to pro­duce C02;

Water Vapor (H20) is the other product of incomplete combustion as hydrogen in the fuel combines with oxygen in the air to pro­duce H20.

Ozone (03) is not emitted directly into the air but is formed by the reaction of VOCs and NOx in the presence of heat and sunlight. Ozone forms readily in the atmosphere and is the pri­mary constituent of smog.

Since 1985, aggregate emissions of the air pol­lutants the EPA regulates (nitrogen dioxide, ozone, sulfur dioxide, particulate matter, carbon monoxide, and lead) have declined by 25 percent nationally.

Success in reducing particulate matter (PM) in the exhaust of jet engines was realized fairly early. This was due in part to the fact that this
type of emission was the most noticeable and a solution was, therefore, quickly sought. In addi­tion, jet-engine-produced black smoke consists of fine carbon particles, partially burned fuel, and raw fuel. These PMs contain carcinogen content and descend to earth, creating health hazards. The reduction of exhaust smoke was accom­plished by developing a more complete combus­tion process whereby the hydrocarbons in jet fuel are converted to carbon dioxide and water. Figure 34-1 shows the decline in air-quality pollutants since 1980. Aircraft emissions have also declined over time but increases in pollution from air traf­fic are likely to occur as aviation itself increases.

Take off and landing operations produce the highest rates of PMs and NOx. Nitrogen oxides are a primary contributor to the formation of ozone, which is the most significant air pollutant in urban areas and which is a greenhouse gas in the upper atmosphere. Paradoxically, as inno­vative jet engine designs have produced more power while using less fuel and with lower car­bon monoxide emissions, NOx emissions have increased due to their higher operating tempera­tures. This also accounts for the comparatively high regulatory concern at the EPA over NOx in recent years, as shown above. See Figure 34-3 for comparatively high measures of NOx. Since essentially all NOx comes from combustion

Lung function impairment, effects on exercise performance, increased airway responsiveness, increased susceptibility to respiratory infection, increased hospital admissions and emergency room visits, and pulmonary inflammation, lung structure damage

Cardiovascular effects, especially in those persons with heart conditions (e. g., decreased time to onset of exercise-induced angina)

Lung irritation and lower resistance to respiratory infections Premature mortality, aggravation of respiratory and cardiovascular disease, changes in lung function and increased respiratory symptoms, changes to lung tissues and structure, and altered respiratory defense mechanisms

Eye and respiratory tract irritation, headaches, dizziness, visual disorders, and memory impairment

TABLE 34-1 Representative health effects of air pollutants.

Pollutant Representative Environmental Effects

Ozone Crop damage, damage to trees and decreased resistance to disease for both

crops and other plants

Carbon Monoxide Similar health effects on animals as on humans

Acid rain, visibility degradation, particle formation, contribution toward ozone formation

Visibility degradation and monument and building soiling, safety effects for aircraft from reduced visibility

Contribution toward ozone formation, odors and some direct effect on buildings and plants

TABLE 34-2 Representative environmental effects of air pollutants.

processes, electric utilities, manufacturing plants and factories, and transportation companies make up the largest share of such emissions. Still, the aviation sector contributes only 0.4 percent of total emissions, which is a miniscule part of the whole. See Figure 34-4 for a graphic comparison of different transportation sources of NOx.

Aircraft idle and taxi operations produce the highest rates of VOCs and carbon monoxide. Ground-operated support equipment is mostly powered by gasoline or diesel engines, which pro­duce VOCs, carbon monoxide, NOx, and PMs.

Carbon dioxide, while not considered a pol­lutant in the lower atmosphere, can form ozone. Greenhouse gases as a separate measured cat­egory are contributed by the transportation sector to the total at 27 percent, but with aviation con­tributing only 2.7 percent.

Airport operators have no direct control over aircraft emissions, although two foreign countries have imposed landing fees based on the amount of aircraft emissions. Airports are theoretically sub­ject to nationally supervised state control of emis­sions through State Implementation Plans (SIPs). These plans must be submitted by the states to the EPA for reducing emissions in areas that fail to meet the National Ambient Air Quality Stan­dards set by the EPA under the Clean Air Act. The power of states in controlling pollution at airports is limited, however, since the EPA retains control of regulating mobile sources of emissions and because states are preempted from regulating air­craft operations generally. This is a federal respon­sibility (in order to maintain a consistent national policy) and the FAA is responsible for enforcing emission standards. For these reasons only three states have even attempted to target airports for emission reductions.3 Operators of some of the busiest airports in the country have initiated vol­untary programs to reduce emissions from sources over which they have control under the Voluntary Airport Low Emission Program (VALE).

VALE is an FAA program established in 2003 under the Vision 100 Century of Aviation Reau­thorization Act. It provides funding to be used to reduce ground emissions from static and mobile equipment at airports. It promotes the use of elec­tric-powered ground support equipment, such as baggage tugs, belt loaders, and pushback tractors. It also promotes capital construction projects such as the installation of underground fuel distribution sys­tems to eliminate the need for aircraft fuel trucks.

Hawaiian Airlines

Founded in 1929 as Inter-Island Airways, Hawai­ian Airlines had the distinction of being the old­est U. S. carrier never to have had a fatal accident in its history. Conditions after 9/11 forced HAL to begin a restructuring process, in which it negotiated significant concessions from its labor forces. The company was unable to satisfactorily

In August 2002, American announces a reorganization amid an industry-wide recession. It laid off staff, grounded jets, and changed how it connected passengers at its hubs In 2003, American Airlines workers took some $1,8 billion in concessions to help avoid Chapter 11 bankruptcy.

In January 2007, AMR posted a small profit in the fourth quarter due to lower fuel prices, continued cost-cutting, and higher ticket prices.

In July 2010, AMR secured antitrust approval for its trans-Atlantic alliance with British Airways and others.

In November 2011, AMR filed for Chapter 11 bankruptcy protection and Thomas Horton became CEO, replacing Gerard Arpey.

FIGURE 35-21 Airline bankruptcy chart.

restructure its aircraft leasing contracts, and entered bankruptcy on March 21, 2003.

Aloha Airlines

Aloha Airlines received its operating certificate in 1949. The company went private in 1986 with 100 percent ownership in two Hawaiian families. Aloha received a $45 million loan guar­antee from the Air Transportation Stabilization Board in 2002, but by December 30, 2004, it was unable to continue operations outside of Chapter 11 bankruptcy. When it entered bank­ruptcy protection, it had repaid about half of the government-backed loan. The filing was attrib­uted to competition factors, likely including its chief competitor, Hawaiian Airlines, which had
already secured creditor relief from bankruptcy protection.

Environmental Initiatives

As mentioned in Chapter 34, an FAA-industry program called Continuous Lower Energy, Emis­sions, and Noise (CLEEN) is underway to reduce aircraft fuel burn by 33 percent and to reduce oxides of nitrogen by 60 percent, while reducing aircraft noise by 32 decibels, all from the cur­rent ICAO standard. CLEEN technologies include alternative fuels, noise reducing engine nozzles, adaptable wing trailing edges, optimized flight trajectories using onboard flight management sys­tems, and open rotor and geared turbofan engines. Target date for beginning implementation is 2015.

NextGen: Tomorrow at a Glance

2012: Issue final investment decision 2015: Initiate revised departure learances

2018: initiate en route capability

• 2012: Publish FAA response to Aviation Rulemaking Committee recommendations

• 2012: issue final investment decision

FIGURE 36-4 Elements of the NextGen program in the works.

Another joint program is in the process of developing the use of “drop-in” alternative jet fuels. While there are several definitions as to what constitutes a “drop-in” alternative jet fuel, one popular one says that it is any renewable fuel which can be blended with petroleum prod­ucts and utilized in the current infrastructure of pumps, pipelines, and other existing equip­ment. They are functionally identical to conven­tional jet fuel and do not differ in performance or operational capability. ASTM International has so far approved two drop-in alternative jet fuels.5

There is no single renewable jet fuel that will meet all of aviation’s needs because of the lack of predictable availability, which is a function of crop availability, climate factors, and related variables. The FAA, therefore, is working to secure ASTM approval for as many
alternative biofuels as possible through the CLEEN program.

The International Air Transport Association (IATA)

The roots of IATA go back to 1919, the year that saw the world’s first scheduled air transport ser­vice, when six “air transport” companies formed the organization known as the International Air Traffic Association. Membership comprised solely European carriers until Pan American joined in 1939. The present organization was founded in Havana, Cuba, in 1945, and was originally composed of 57 airlines mostly operat­ing in Europe and North America. The purposes of the new organization were to promote safe and

economical international air transport, to provide a means for collaboration of airline companies, and to cooperate with the newly formed Inter­national Civil Aviation Organization (ICAO) as the representative of member airlines. As liaison to ICAO, through its members IATA supplied technical input for the Standards and Recom­mended Practices (SARPs) found in the Annexes to the Chicago Convention. IATA contributed to documentation and procedures standardiza­tion that has allowed countries with differing languages and cultures to commercially interact with little difficulty. It also assisted in structuring a sound legal basis for international commercial transactions, meshing treaty law with existing air transport law of the United States. Ongoing work involves revision and modernization of the legal, basis of carriage of persons and cargo in interna­tional aviation, as liability provisions of the War­saw Convention have given way to subsequent amendments and superseding agreements.

After World War II, IATA began develop­ing tariffs containing fares and rates (Traffic Coordination) for international carriage of pas­sengers and cargo at meetings called Traffic Conferences, subject to the approval of the gov­ernments involved. A consistent schedule of rates and fares was also established, allowing airlines to accept each other’s tickets on multisector itin­eraries, which in turn led to interlining between the world’s airlines. It had been argued for years that IATA was, through its Traffic Coordination practices, engaged in price fixing that would normally be in violation of antitrust laws and in derogation of competition. Yet the United States, and other countries having similar laws, routinely granted antitrust exemptions for the activity. The truth was that international air transportation was among the least competitive industries in the world.

With the “father of deregulation,” Alfred Kahn, at the helm of the CAB when deregulation was enacted in 1978, the deregulators turned their attention to international aviation. In 1979, hearings were conducted by the CAB in the United States

to ascertain whether antitrust immunity should be removed from the Traffic Coordination activities of IATA. The world’s airlines lined up in uniform opposition. The hearings concentrated on the North Atlantic routes, which were served by 40 airlines. The Justice Department supported the CAB, but the Department of Transportation urged a “go slow” position. Nevertheless, on May 5, 1981, the CAB issued a “show cause” order that raised the issue of whether antitrust immunity should be removed from IATA Tariff Coordinating Conferences. No decision was reached by the CAB prior to its demise at the end of 1984 pursuant to the “sunset” provisions of the Airline Deregulation Act. The Department of Transportation, having inherited the antitrust responsibilities of the CAB beginning in 1985, terminated the proceeding that year.

IATA, taking its cue, then reorganized itself into two parts, a Trade Association and a volun­tary Traffic Conference, the latter dealing with the controversial issues of fare setting. In this way, IATA members sought to avoid further antitrust scrutiny of the United States antitrust regulators. No further proceedings have been ini­tiated by the United States on this issue. IATA is still an influential trade association.

The organization has also served since the early days as the clearinghouse for interline accounting, and today services the accounts for 240 airlines in over 115 countries. Multilateral Interline Traffic Agreements have been signed by most of the international carriers, which facili­tates the seamless flow of passengers and cargo throughout the world.

The First Multilateral Open Skies Agreement

On November 15, 2000, agreement was reached between the United States and four of its avia­tion partners for a comprehensive liberalization of aviation services: the first multilateral Open Skies agreement. Brunei, Chile, New Zealand, and Sin­gapore, countries from diverse areas of the globe, agreed with the United States to unrestricted ser­vice by the airlines of each country to, from, and beyond the other’s territory, as well as unrestricted destinations (except cabotage), routes, number of flights, and prices charged. This multilateral accord was finalized in 2001 and it has been sub­sequently joined by Samoa, Tonga, and Mongolia.

Deregulation and the United Kingdom

In contrast to the apparent worldwide move toward liberalization, efforts to secure agree­ment with the U. K. failed, and the restrictions in the current bilateral agreement between the United States and Britain, known as Bermuda 2, are severe. Bermuda 2 was signed 30 years after the original agreement between these countries,6 and while the new agreement relaxed some of the requirements and restrictions of the original pact, air transportation between the two countries remained heavily constrained. This “anachro­nistic agreement,” as labeled by the Secretary of Transportation,7 still limited the number of cities in the two countries that can be served, the num­ber of airlines that can serve the market, the fares that can be charged, and the level of service that can be provided. Under Bermuda 2, for instance, only American Airlines and United Airlines were allowed to serve Heathrow airport.8

According to the DOT, the U. K. position is nothing other than protectionism of British Airways, which opposes entry into the world of free and fair competition. The effect of the British position has created a degree of British isolation in an increas­ingly progressive European aviation community.


The Skylab space station was launched on May 14, 1973 in the program designed for the conduct of scientific experiments in zero gravity, earth resources experiments, and solar observations in long-duration missions. Three separate crews were launched in Apollo-type command modules on May 25, July 28, and November 16, 1973. These crews remained, respectively, for mis­sion periods of 28 days, 59 days, and 84 days. The Skylab mission also proved that humans can remain for extended periods of time in space without adverse health or psychological conse­quences and that resupply of space vehicles is workable.

Skylab’s orbit deteriorated because there were no spacecraft, nor any program ready (the Space Shuttle had been delayed), to boost its orbit. On July 11, 1979, Skylab reentered the earth’s atmosphere and disintegrated over the Indian Ocean and across Western Australia.

Apollo-Soyuz Mission

This mission was the first international manned space flight and had as one of its main goals the proving of the reliability of rescue plans of international crews. The Apollo spacecraft used was essentially the same as that used in the lunar program and the Soviet Soyuz was the same that had been in use since 1967. The flight was conducted between July 15 and July 24, 1975, with launches in the United States and the Soviet Union, docking over a two-day period, and return of the spacecraft to their respective countries after separation.

The return of Apollo marked the beginning of a six-year hiatus in the American manned space flight program. In addition to the human space flight program, NASA also maintained a small aeronautics research program, a space sci­ence program (including deep space and inter­planetary exploration), and an earth observation program.

Blazing the Trail to Chicago


Ще first person account of the original survey flight from New York to Chicago on Septem­ber 5, 1918, made to determine the feasibility of carrying airmail between those two cities, by Max Miller, Aerial Mail Pilot No. 1. Miller died on September 1, 1920 when his mail plane caught fire in the air and crashed.

Blazing the air trail to Chicago would have been a “cinch” if I had started at 6 a. m. on Sep­tember 5th, as had been planned. This would have enabled me to start one hour ahead of the storm, and I could have reached Chicago by evening without trouble.

I left Belmont Field, Long Island, at 7:08 a. m., with a good wind in back of me, flew over the City of New York, the Hudson River and Hobo­ken, and headed west 284 degrees.

There was a bank of low clouds near the ground and another layer of clouds at a high alti­tude. I kept right between them and flew on my compass course. I could not see the ground, but ran for about two hours and at ten o’clock I came down through the lower strata of clouds and landed one mile from Danville, N. Y., about 155 miles from New York City. There I inquired to find out my bearings and found that I was not more than two miles out of my course. I did not kill the motor, but left it running, and after five minutes started up again and headed for Lock Haven.

I entered the fog which hung low over the ground and over the tops of the mountains, and I
figured that it would take me about three-quarters of an hour to make Lock Haven. I came down and saw the field through a notch in the mountains and made a good landing. My motor was missing, so I changed spark plugs which took me about an hour, filled up with oil and gas, got a couple of sandwiches, and left about 11:45 a. m.

I climbed up through the fog again and went on over the mountains. I sailed on my compass course for an hour, 283 degrees, and I figured I was about 100 miles further on. Then I came down to see where I was and get my bearings, and the first thing I knew I hit the top of a tree. That sure gave me a good scare. I hustled back up again into the fog, determined to get plenty of altitude and keep on going as long as my gas held out.

I went fifty miles, and then I found my radia­tor was leaking and I came down and I saw a town with a fair going on. There was such a mob of people that I did not land there, but went on about twenty miles to a town named Cambridge. I inquired where I was and was told “Jefferson.” On looking on my map I found a town called Jef­ferson lying to the north of my route, so on leav­ing I headed toward the south in order to cross the route again; but I found that it was Jefferson Country, PA, instead of the town of Jefferson, Ohio, and I went about 150 miles out of my way before reaching Cleveland, where I had to remain all night on account of darkness.

The next morning I got my radiator fixed and rested up after being buffeted about by the storm and rain, and got away at 1:35 p. m. for Bryan on the compass course of 275 degrees, a little south of due west about 140 miles. I had to stop sev­eral times to fill up my radiator with water. The weather was very much better, and I was able to make Bryan, where I was received by Postmas­ter Jordan and got away at 4:35 p. m. I skirted the southern shore of Lake Michigan and arrived over Grant Park at an altitude of 5,000 feet at 6:55 p. m.

I circled around and made a good landing and was received by Postmaster Wm. B. Carlile, Mr. Chas. Dickenson, President of the Aero Club of Illinois, Capt. В. B. Lipsner, Superinten­dent of Aerial Mail Service, Mr. Thos. Downey, Assistant Superintendent of Mails, Mr. James O’Conner, Director of the U. S. War Exposition, Mr. James Stevens, Secretary of the Aero Club of Illinois, and Mr. Augustus Post, Secretary of the Aero Club of America, who had come on from New York to witness the inauguration of the first aero mail service between New York and Chicago.

The weather on the return trip was much bet­ter. 1 started from Chicago on September 10, at 6:26 a. m. I carried about three thousand pieces of mail. The weather looked so good that I expected to make a record trip. There was some haze on the ground, but not nearly enough to prevent land­marks being distinct. Just as I was over Cleve­land, I found a broken connection in the radiator and I landed there to get it repaired.

This took some time, but I got away from there by 4:30 p. m., in time to make a pleasant flight to Lock Haven, one of the scheduled stops, before dark, a distance of 210 miles. I stayed at Lock Haven all night, leaving there at 7:20 a. m. As a path finding trip it was an immense success. We gathered a lot of information which will be very valuable in the future trips.

The radiator trouble was the only thing that prevented me from making the trip within the ten hours set. If I had had a spare aeroplane even, I could have done it. We will, of course, have spare machines for the permanent route, so it will not happen again.