Trans World Airlines Inc/New – ‘S-4/A’ on 2/5/98

As of:  Thursday, 2/5/98   ·   Accession #:  950130-98-512   ·   File #:  333-44661

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4/A       Amendment No. 1 to Form S-4                          213   1.35M 

Document Table of Contents

S-4/A
1st Page of 213
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1998      

                                          REGISTRATION NO. 333-44661

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549  

----------------  

AMENDMENT NO. 1       

TO      
FORM S-4  
REGISTRATION STATEMENT  
UNDER 
THE SECURITIES ACT OF 1933  

----------------  

TRANS WORLD AIRLINES, INC.  
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)  

DELAWARE                     4512                    43-1145889 
(STATE OR OTHER           (PRIMARY STANDARD          (I.R.S. EMPLOYER 
  JURISDICTION OF        INDUSTRIAL CLASSIFICATION     IDENTIFICATION NO.)
INCORPORATION OR              CODE NUMBER)                              
ORGANIZATION)                                                       

ONE CITY CENTRE, 515 N. SIXTH STREET  
ST. LOUIS, MISSOURI 63101 
(314) 589-3000  

(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)  

GERALD L. GITNER  
CHAIRMAN AND CHIEF EXECUTIVE OFFICER  
TRANS WORLD AIRLINES, INC.  
ONE CITY CENTRE, 515 N. SIXTH STREET  
ST. LOUIS, MISSOURI 63101 
(314) 589-3000  

(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) 

----------------  

COPIES TO:  
JOSEPH P. HADLEY, ESQ.  
DAVIS POLK & WARDWELL 
450 LEXINGTON AVENUE  
NEW YORK, NEW YORK 10017  
(212) 450-4000  

----------------  

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as 
practicable after this Registration Statement becomes effective.                

----------------  

If the securities being registered on this Form are being offered in        
connection with the formation of a holding company and there is compliance      
with General Instruction G, check the following box: [_]                        

If this form is filed to register additional securities for an offering     
pursuant to Rule 462(b) under the Securities Act, check the following box and   
list the Securities Act registration statement number of the earlier effective  
registration statement for the same offering. [_]                               

If this form is a post-effective amendment filed pursuant to Rule 462(d)    
under the Securities Act, check the following box and list the Securities Act   
registration statement number of the earlier effective registration statement   
for the same offering. [_]                                                      

----------------  

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR    
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT      
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS              
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH     
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE             
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,   
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.                            

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

S-4/A
2nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 2nd
PROSPECTUS                                                                      

$140,000,000      
OFFER TO EXCHANGE 
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER  
THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND 
ALL OUTSTANDING 11 1/2% SENIOR SECURED NOTES DUE 2004 

OF      

TRANS WORLD AIRLINES, INC.      

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 9,
1998, UNLESS EXTENDED.                                                          

Trans World Airlines, Inc., a Delaware corporation (the "Company" or "TWA"),
hereby offers, upon the terms and subject to the conditions set forth in this   
Prospectus and the accompanying letter of transmittal (the "Letter of           
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to      
exchange its 11 1/2% Senior Secured Notes due 2004 (the "Exchange Notes"),      
which have been registered under the Securities Act of 1933, as amended (the    
"Securities Act"), pursuant to a Registration Statement of which this           
Prospectus is a part (including all amendments, including post-effective        
amendments, and exhibits thereto, the "Registration Statement"), for an equal   
principal amount at maturity of its outstanding 11 1/2% Senior Secured Notes    
due 2004 (the '"Old Notes," and together with the Exchange Notes, the           
"Notes"), of which $140 million aggregate principal amount at maturity is       
outstanding as of the date hereof.                                              

The Company will accept for exchange any and all Old Notes that are validly 
tendered and not withdrawn on or prior to 5:00 P.M., New York City time, on     
the date the Exchange Offer expires (the "Expiration Date"), which will be      
March 9, 1998 (30 days following the commencement of the Exchange Offer),       
unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn    
at any time prior to 5:00 P.M., New York City time, on the Expiration Date.     
The Exchange Offer is not conditioned upon any minimum principal amount of Old  
Notes being tendered for exchange Old Notes may be tendered only in integral    
multiples at maturity of $1,000. See "The Exchange Offer."                      

The Exchange Notes will bear interest at the rate of 11 1/2% per annum,     
payable semi-annually on June 15 and December 15 of each year, commencing on    
June 15, 1998. The Exchange Notes will mature on December 15, 2004. The         
Exchange Notes will be redeemable, in whole or in part, at the option of TWA,   
at any time on or after December 15, 2001 at the redemption prices set forth    
herein, plus accrued and unpaid interest and Special Interest, if any, to the   
redemption date. In addition, prior to December 15, 2000, TWA may, at its       
option, use the Net Cash Proceeds from one or more Public Equity Offerings to   
redeem up to $49.0 million aggregate principal amount of the Notes at a price   
equal to 111 1/2% of the principal amount thereof, plus accrued and unpaid      
interest and Special Interest, if any, to the redemption date; provided, that   
at least $91.0 million aggregate principal amount of the Notes is outstanding   
immediately following each such redemption. Upon entering into certain merger   
or acquisition agreements, TWA shall have the right, without the consent of     
holders of the Exchange Notes, to redeem the Exchange Notes in whole, but not   
in part, at a redemption price equal to 100% of the outstanding principal       
amount of the Exchange Notes plus Applicable Premium and accrued and unpaid     
interest and Special Interest, if any. Upon a Change in Control, each holder    
of Exchange Notes shall have the right to require TWA to purchase all, or any   
part of, such holder's Exchange Notes at a purchase price equal to 101% of the  
principal amount thereof, plus accrued and unpaid interest and Special          
Interest, if any, to the purchase date. Upon the incurrence of Acquired         
Indebtedness, each holder of Exchange Notes shall have the right to require     
TWA to purchase all, or any part of, such holder's Exchange Notes at a          
purchase price equal to 100% of the principal amount thereof, plus Applicable   
Premium and accrued and unpaid interest and Special Interest, if any, to the    
purchase date. In addition, upon the occurrence of an Asset Disposition, the    
Company will, under certain circumstances, make an Offer to Purchase the        
Exchange Notes at 100% of their principal amount plus accrued and unpaid        
interest and Special Interest, if any. See "Description of Notes."              

The Exchange Notes will represent senior secured obligations of the Company 
and will rank pari passu in right of payment with all other senior obligations  
of the Company. As of December 31, 1997, the Company had approximately          
$1,061.3 million of total outstanding indebtedness (including $140 million for  
the Old Notes), all of which will rank pari passu in right of payment of        
principal and interest with the Exchange Notes. None of the Company's           
outstanding indebtedness is senior to the Notes. The Exchange Notes will be     
secured by a lien on (i) certain aircraft spare parts, (ii) TWA's beneficial    
interest in 30 Federal Aviation Administration-designated take-off and landing  
slots at Washington National Airport and (iii) the Pledged Collateral.          

THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO     
HOLDERS OF OLD NOTES ON OR ABOUT FEBRUARY 6, 1998.                              

The Exchange Notes will be obligations of the Company evidencing the same   
indebtedness as the Old Notes. The Exchange Notes will be issued under and      
entitled to the benefits of the same Indenture (as defined) pursuant to which   
the Old Notes were issued such that the Exchange Notes and Old Notes will be    
treated as a single class of debt securities under the Indenture. The form and  
terms of the Exchange Notes are generally the same as the form and terms of     
the Old Notes, except that (i) the exchange will be registered under the        
Securities Act and, therefore, the Exchange Notes will not bear legends         
restricting the transfer thereof, and (ii) holders of the Exchange Notes will   
not be entitled to any of the registration rights of holders of Old Notes       
under the Registration Rights Agreement (as defined), which rights will         
terminate upon the consummation of the Exchange Offer. See "Description of the  
Notes."                                                                         
                                                   continued on following page

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 17, 
"RISK FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED 
BY PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER.  

----------------  

THESE  SECURITIES HAVE NOT  BEEN APPROVED OR  DISAPPROVED BY THE  SECURITIES  
AND EXCHANGE COMMISSION OR ANY  STATE SECURITIES COMMISSION, NOR HAS THE  
SECURITIES  AND   EXCHANGE  COMMISSION   OR  ANY   STATE   SECURITIES 
COMMISSION   PASSED  UPON  THE   ACCURACY  OR  ADEQUACY   OF  THIS  
PROSPECTUS. ANY REPRESENTATION  TO THE CONTRARY  IS A CRIMINAL  
OFFENSE.                                                    

S-4/A
3rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 3rd
Based on interpretations by the staff of the Securities and Exchange        
Commission (the "Commission"), as set forth in no-action letters issued to      
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley &   
Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available  
June 5, 1991) and Warnaco, Inc. (available October 11, 1991), the Company       
believes that a holder who exchanges Old Notes for Exchange Notes pursuant to   
the Exchange Offer may offer for resale, resell and otherwise transfer such     
Exchange Notes without compliance with the registration and prospectus          
delivery requirements of the Securities Act, provided, that (i) such Exchange   
Notes are acquired in the ordinary course of such holder's business, (ii) such  
holder is not engaged in, and does not intend to engage in, a distribution of   
such Exchange Notes and has no arrangement with any person to participate in    
the distribution of such Exchange Notes, and (iii) such holder is not an        
affiliate of the Company (as defined under Rule 405 of the Securities Act).     
However, the staff of the Commission has not considered the Exchange Offer in   
the context of a no-action letter and there can be no assurance that the staff  
of the Commission would make a similar determination with respect to the        
Exchange Offer as in such other circumstances. A holder who exchanges Old       
Notes for Exchange Notes pursuant to the Exchange Offer with the intention to   
participate in a distribution of the Exchange Notes may not rely on the         
staff's position enunciated in the Exxon Capital Letter, the Morgan Stanley     
Letter or similar letters and must comply with the registration and prospectus  
delivery requirements of the Securities Act in connection with any resale       
transaction.                                                                    

Each broker-dealer that receives Exchange Notes for its own account in      
exchange for Old Notes, where such Old Notes were acquired by such broker-      
dealer as a result of market-making activities or other trading activities,     
must acknowledge that it will deliver a prospectus in connection with any       
resale of such Exchange Notes. See "Plan of Distribution." The Letter of        
Transmittal states that by so acknowledging and by delivering a prospectus, a   
broker-dealer will not be deemed to admit that it is an "underwriter" within    
the meaning of the Securities Act. This Prospectus, as it may be amended or     
supplemented from time to time, may be used by a broker-dealer in connection    
with resales of Exchange Notes received in exchange for Old Notes where such    
Old Notes were acquired by such broker-dealer as a result of market-making      
activities or other trading activities. The Company has agreed that, for a      
period of 180 days after the Expiration Date, it will make this Prospectus      
available to any broker-dealer for use in connection with any such resale. See  
"Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS  
MAY NOT BE USED FOR ANY OFFER, SALE OR OTHER TRANSFER OF EXCHANGE NOTES.        

Prior to this Exchange Offer, there has been no public market for the Old   
Notes or Exchange Notes. The Old Notes have traded in the National Association  
of Securities Dealers, Inc. Private Offerings, Resales and Trading through      
Automated Linkages ("PORTAL") market. If a public market were to develop, the   
Exchange Notes could trade at prices that may be higher or lower than their     
principal amount at maturity. The Exchange Notes have been approved for         
listing on the American Stock Exchange. However, there can be no assurance      
that an active public market for the Exchange Notes will develop. See "Risk     
Factors--Risk Factors Relating to the Notes and the Exchange Offer--Absence of  
Public Trading Market."                                                         

THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER. THE     
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER    
IS BEING USED IN CONNECTION WITH THIS EXCHANGE OFFER.                           

No person has been authorized to give any information or to make any        
representations not contained in this Prospectus in connection with the offer   
of securities made by this Prospectus and, if given or made, such information   
or representations must not be relied upon as having been authorized by the     
Company or by any underwriter, dealer or agent. This Prospectus does not        
constitute an offer to sell or a solicitation of an offer to buy any of the     
securities offered hereby in any jurisdiction to any person to whom it is       
unlawful to make such offer or solicitation in such jurisdiction. This          
Prospectus does not constitute an offer to sell or a solicitation of an offer   
to buy any securities other than those to which it relates. Neither the         
delivery of this Prospectus nor any sale of, or offer to sell, the securities   
offered hereby shall, under any circumstances, create an implication that       

2 

S-4/A
4th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 4th
there has been no change in the affairs of the Company since the date hereof    
or that the information herein is correct as of any time subsequent to its      
date.                                                                           

----------------  

The Company believes that a substantial improvement in its operating results
is necessary for TWA to maintain adequate liquidity to meet its obligations     
through 1998. The Company's auditors included in their report dated March 24,   
1997 on TWA's consolidated financial statement for the year ended December 31,  
1996, an explanatory paragraph to the effect that substantial doubt exists      
regarding the Company's ability to continue as a going concern due to the       
Company's recurring losses from operations and limited sources of additional    
liquidity. See Consolidated Financial Statements.                               

3 

S-4/A
5th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 5th
AVAILABLE INFORMATION 

TWA is currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance        
therewith files reports, proxy statements and other information with the        
Commission. Reports, proxy statements and other information filed by the        
Company with the Commission may be inspected and copied at the public           
reference facilities maintained by the Commission at Room 1024, 450 Fifth       
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices   
located at Room 1400, 75 Park Place, New York, New York 10007 and Suite 1400,   
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-   
2511. Copies of such materials may be obtained from the Public Reference        
Section of the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C.  
20549 at prescribed rates, and such reports, proxy statements and other         
information regarding the Company can also be inspected at the offices of the   
American Stock Exchange, 86 Trinity Place, New York, New York 10006-1881, on    
which the Company's Common Stock, $.01 par value per share (the "Common         
Stock") is listed. The Commission maintains a Web site that contains reports,   
proxy and information statements and other materials that are filed through     
the Commission's Electronic Data Gathering, Analysis and Retrieval System.      
This Web site can be accessed at http://www.sec.gov.                            

This Prospectus contains summaries, believed to be accurate in all material 
respects, of certain terms of certain agreements, however, in each such case,   
reference is made to the actual agreements (copies of which will be made        
available upon request to the Company) for complete information with respect    
thereto, and all such summaries are qualified in their entirety by this         
reference.                                                                      

This Prospectus forms a part of the Registration Statement which the Company
has filed under the Securities Act with respect to the securities offered       
hereby. This Prospectus does not contain all the information otherwise set      
forth in the Registration Statement, certain parts of which are omitted in      
accordance with the rules and regulations of the Commission. For further        
information, reference is made to the Registration Statement and the exhibits   
filed as part thereof. The Registration Statement may be inspected at the       
public reference facilities maintained by the Commission at the addresses set   
forth in the preceding paragraph. Statements contained herein concerning any    
document filed as an exhibit are not necessarily complete and, in each          
instance, reference is made to the copy of such document filed as an exhibit    
to the Registration Statement.                                                  

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

The Company hereby incorporates by reference in this Prospectus the         
following documents filed with the Commission pursuant to the requirements of   
the Exchange Act (File No. 001-07815): (i) the Company's Annual Report on Form  
10-K for the year ended December 31, 1996, as amended on June 30, 1997          
pursuant to Form 10-K/A; (ii) the Company's Quarterly Reports on Form 10-Q for  
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii)  
the description of the Common Stock contained in the Company's Form 8-A dated   
August 1, 1995 filed under the Exchange Act, including any amendment or         
reports filed for the purpose of updating such description; and (iv) the        
Company's Proxy Statement and Notice of Meeting relating to the Annual Meeting  
of Stockholders held on May 29, 1997.                                           

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and prior to the    
termination of the offering of the securities offered hereby shall be deemed    
to be incorporated by reference in this Prospectus and to be a part hereof      
from the respective dates of filing such document. Any statement contained in   
a document incorporated or deemed to be incorporated by reference herein shall  
be deemed to be modified or superseded for purposes of this Prospectus to the   
extent that a statement contained herein or in any other subsequently filed     
document that also is or is deemed to be incorporated by reference herein       
modifies or supersedes such statement. Any such statement so modified or        
superseded shall not be deemed, except as so modified or superseded, to         
constitute a part of this Prospectus.                                           

THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED 
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE      
UPON THE WRITTEN OR ORAL REQUEST OF EACH PERSON, INCLUDING ANY BENEFICIAL       
OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED. REQUESTS SHOULD BE MADE TO THE     
CORPORATE SECRETARY OF TRANS WORLD AIRLINES, INC., ONE CITY CENTRE, 515 N.      
SIXTH STREET, ST. LOUIS, MISSOURI 63101, TELEPHONE (314) 589-3285. IN ORDER TO  
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST    
FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER.            

4 

S-4/A
6th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 6th
FORWARD-LOOKING STATEMENTS  

CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY", 
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     
OPERATIONS" AND "BUSINESS", IN ADDITION TO CERTAIN STATEMENTS CONTAINED         
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE       
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS    
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,              
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER      
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING     
STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER         
FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS" IN THIS PROSPECTUS AND   
HOLDERS OF THE OLD NOTES AND PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE    
URGED TO CAREFULLY CONSIDER SUCH FACTORS.                                       

5 

S-4/A
7th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 7th
PROSPECTUS SUMMARY

 This summary does not purport to be complete and is qualified by reference to
the detailed information and financial statements appearing elsewhere in this   
Prospectus or incorporated by reference herein. Terms not defined in this       
summary are defined elsewhere herein.                                           

THE COMPANY                                                                     

TWA is the eighth largest U.S. air carrier (based on revenue passenger miles
("RPMs") for the first nine months of 1997), whose primary business is          
transporting passengers, cargo and mail. During the first nine months of 1997,  
the Company carried more than 17.6 million passengers and flew approximately    
19.2 billion RPMs. As of September 30, 1997, TWA provided regularly scheduled   
jet service to 86 cities in the United States, Mexico, Europe, the Middle East, 
Canada and the Caribbean. As of September 30, 1997, the Company operated a      
fleet of 186 jet aircraft.                                                      

 TWA's North American operations have a primarily domestic hub in St. Louis at
Lambert International Airport ("St. Louis") and a domestic-international hub at 
New York's John F. Kennedy International Airport ("JFK"). TWA is the            
predominant carrier at St. Louis, with approximately 365 scheduled daily        
departures as of September 30, 1997 and approximately a 72% share of airline    
passenger enplanements in St. Louis for the first nine months of 1997. Given    
its location in the center of the country, St. Louis is well-suited to function 
as an omni-directional hub for both north-south and east-west transcontinental  
traffic. Therefore, TWA believes it can offer more frequencies and connecting   
opportunities to many travelers in its key Midwestern markets than competing    
airlines.                                                                       

TWA's international operations are concentrated at JFK, from which TWA      
currently serves 28 domestic and international cities with approximately 42     
daily departures. JFK is both the Company's and the industry's largest          
international gateway from North America. As of September 30, 1997, the Company 
offers non-stop flights from JFK to 8 cities in Europe and the Middle East as   
well as 17 destinations in the U.S. and the Caribbean. As described below,      
during 1997, the Company has taken steps to refocus and improve the operating   
and financial performance of its JFK operations.                                

RECENT FINANCIAL AND OPERATING RESULTS                                          

 For the third quarter of 1997, TWA reported operating income of $63.8 million
and pre-tax income of $47.2 million. These results compare to operating income  
of $26.0 million and pre-tax income of $10.0 million in the third quarter of    
1996. In addition, the Company's yield (passenger revenue per RPM) for the      
third quarter of 1997 increased 3.2% to 11.24c versus comparable prior year     
period and passenger revenue per available seat mile ("RASM") increased 5.8% to 
8.08c versus comparable prior year period. The Company's unit costs remained    
essentially unchanged at 8.29c, despite a 13.7% decrease in capacity for the    
quarter versus the third quarter of 1996, as measured by total available seat   
miles ("ASMs").                                                                 

TWA also has significantly enhanced its operational reliability and schedule
integrity since the first quarter of 1997. According to statistics reported to  
the U.S. Department of Transportation (the "DOT"), TWA ranked first among the   
10 largest U.S. scheduled commercial airlines in domestic on-time performance   
in both the second and third quarters of 1997. This compares to tenth (last)    
and eighth place finishes, respectively, for the same periods of 1996. TWA has  
also recorded a significant improvement in its percentage of scheduled flights  
completed. In the second and third quarters of 1997, TWA completed an average   
of approximately 99% of scheduled flights, which management believes is among   
the highest in the industry. In contrast, TWA completed 97.4% of scheduled      
flights in the second and third quarters of 1996 and 96.2% for 1996 overall.    

6 

S-4/A
8th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 8th
RECENT STRATEGIC INITIATIVES                                                    

Management believes that certain strategic initiatives undertaken by the    
Company beginning in late 1996 have contributed to the improved financial and   
operating results described above. TWA's management began to implement such     
strategic initiatives in response to a significant deterioration in the         
Company's operating performance and financial condition during the second half  
of 1996. This deterioration was primarily caused by (i) an overly aggressive    
expansion of TWA's capacity and planned flight schedule, particularly during    
the 1996 summer season, which forced the Company to rely disproportionately on  
lower-yield feed traffic and bulk ticket sales to fill the increased capacity   
of its system; (ii) the delayed delivery of four older 747s intended to         
increase capacity for incremental international operations during the summer of 
1996; and (iii) unexpected maintenance delays due to the capacity increase,     
higher levels of scheduled narrow-body heavy maintenance and increased contract 
maintenance performed for third parties. These factors caused excessive levels  
of flight cancellations, poor on-time performance, increased pilot training     
costs and higher maintenance expenditures and adversely affected the Company's  
yields and unit costs. In addition, the crash of TWA Flight 800 on July 17,     
1996 distracted management's attention from core operating issues and led to    
lost bookings and revenues. The Company also experienced a 27.6% increase in    
fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the        
average fuel price paid per gallon during the year.                             

The primary focus of the Company's new strategic initiatives is to          
reestablish TWA's operational reliability and schedule integrity and overall    
product quality in order to attract higher-yield passengers and improve its     
financial results. As the initial steps in implementing this strategy, the      
Company temporarily reduced its flight schedule during the first quarter of     
1997 to more closely match aircraft available for active service and worked to  
reduce the number of aircraft in maintenance backlog by increasing overtime and 
utilizing maintenance capacity made available by the termination of an          
unprofitable aircraft maintenance contract with the U.S. government.            

Other new strategic initiatives being pursued by TWA are:                   

Accelerated Fleet Renewal. In the first quarter of 1997, as part of its     
efforts to improve near-term operational performance, TWA announced plans to    
accelerate the retirement of the 14 747s and 11 L-1011s remaining in its fleet  
at December 31, 1996. As a result, TWA's last L-1011 was retired in September   
1997 and its last 747 is scheduled to leave active service in February 1998.    
Under its fleet renewal plan, the Company has been replacing these older, less  
reliable and less efficient wide-body aircraft with new or later-model used     
757, 767 and MD-80 aircraft. Management believes that these smaller aircraft    
are more appropriately sized to the routes served, and, by reducing the         
Company's reliance on lower-yield feed traffic to fill capacity, have resulted  
in higher load factors and improved yields. Further, these newer, twin-engine,  
two-pilot aircraft are expected to provide efficiencies in fuel, flight crew    
and maintenance expenses, while reducing long-term pilot training costs by      
enabling TWA to have fewer aircraft types in the fleet. TWA also expects to     
retire eight 727s during 1998. As a result of this fleet restructuring, it is   
estimated that the Company's mix of narrow-body and wide-body aircraft shifted  
to approximately 91%/9% as of December 31, 1997 versus approximately 80%/20% as 
of year-end 1996, and that TWA's average number of seats per aircraft declined  
to 141 from 161 over the same period. Management estimates that as of December  
31, 1997, the average age of its fleet had decreased to slightly under 17 years 
from 19 years at year-end 1996.                                                 

The Company believes that this rationalization of fleet size, together with 
the decrease in international operations described below, will help             
deseasonalize TWA's business, with the difference between TWA's seasonal        
average daily peak and trough capacities anticipated to be approximately 4.1%   
in 1998, versus 26.2% in 1996 and 20.2% in 1997. As a result, the Company       
expects the seasonal variability of its financial performance will be reduced;  
however, there can be no assurance that such deseasonalization will occur.      

Restructuring of JFK Operations. As part of its efforts to position the     
Company for sustained profitability, TWA restructured its operations at JFK     
during 1997 by eliminating certain unprofitable international destinations      

7 

S-4/A
9th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 9th
(such as Frankfurt and Athens), as well as certain low-yield domestic feed      
service into JFK. The Company also consolidated for the near term most of its   
JFK operations from two terminals into a single terminal in order to reduce     
operating costs, increase facility utilization and improve passenger service.   
In addition to enhancing yields and load factors, the substitution of 757s and  
767s for 747s and L-1011s on international routes also has increased operating  
efficiencies at JFK, since these smaller aircraft are better suited to the      
physical limitations of TWA's terminals. As a result of these changes, TWA's    
international scheduled capacity (as measured by ASMs) decreased 31.2% in the   
first nine months of 1997 versus the same period in 1996 and represented 20.0%  
of total scheduled capacity for the first nine months of 1997 versus 26.1% for  
the same period in 1996.                                                        

Productivity Enhancements. The Company has sought to improve its financial  
performance through productivity enhancements. During 1997, TWA has realized    
cost efficiencies in maintenance, reflecting the elimination of TWA's           
maintenance backlog during the first quarter of 1997, as well as the reduced    
maintenance requirements for the newer aircraft added to TWA's fleet. In        
addition, as described above, the Company's fleet renewal plan is expected to   
provide efficiencies in fuel, flight crew and training expenses, while the JFK  
restructuring has eliminated certain unprofitable routes and reduced certain    
operating costs. TWA's average number of employees per aircraft has decreased   
from 131 as of December 31, 1996 to 121 as of September 30, 1997, and to 119 as 
of December 31, 1997, which is generally consistent with industry standards.    

Marketing Initiatives. The Company has also begun to introduce a series of  
marketing initiatives designed, in combination with its enhanced operational    
reliability and schedule integrity, to attract a greater percentage of higher-  
yield business passengers. These initiatives include branded service products   
such as an improved international business class, Trans World One SM ("Trans    
World One"), expanded first class cabins in the domestic narrow-body fleet      
(launched with an enhanced service package as Trans World First in January      
1998), and a branded short-haul business market service in the first quarter of 
1998. The Company has also enhanced its frequent flier program by introducing a 
Platinum level for its highest mileage customers and, for certain travelers, a  
system for recognizing dollar amounts paid as well as miles flown, and by       
joining the American Express Membership Miles program, which allows members to  
earn additional frequent flier miles on TWA. The Company is also in the early   
phases of a series of facilities upgrades, including a newly opened Ambassadors 
Club in St. Louis, a renovated club at LaGuardia, a completely refurbished club 
in its JFK terminal and improved new check-in counters and backwalls. The       
Company's advertising features the improved on-time and operational             
performance, new aircraft, and the programs outlined above.                     

Employee Initiatives. Through the SCORE Program (or Safe, Clean, On-time and
Reliable), TWA has sought to institutionalize throughout all levels of its      
organization the importance of running an airline with operational reliability. 
This program provides certain operating and procedural guidelines for enhancing 
performance and improving overall product quality. In addition, in 1996 the     
Company introduced Flight Plan 97, which pays eligible employees a $65 bonus    
for each month that TWA finishes in the top five in all three performance       
categories tracked by the DOT (on-time performance, customer complaints and     
baggage handling) and a total of $100 if TWA also ranks first in at least one   
of such categories. Based on the Company's performance in September 1997,       
eligible employees earned their first bonus under this program, a $100 payment  
for ranking first in on-time performance, fourth in customer complaints and     
fifth in baggage handling.                                                      

CHANGES TO MANAGEMENT TEAM                                                      

On February 12, 1997, the Company's Board of Directors (the "Board of       
Directors" or the "Board") named Gerald L. Gitner, a member of the Board since  
1993, as Chairman and Chief Executive Officer of the Company. Mr. Gitner, who   
had been named acting Chief Executive Officer in December 1996, replaced        
Jeffrey H. Erickson, who on October 24, 1996 announced his intention to leave   
as the Company's President and Chief Executive Officer. On December 3, 1997,    
the Board named William F. Compton, a TWA pilot and a director of               

8 

S-4/A
10th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 10th
the Company since November 1993, as President and Chief Operating Officer of    
the Company. Mr. Compton had been appointed Executive Vice President,           
Operations on March 13, 1997, subject to Board approval which was given on      
March 27, 1997. He had been acting in such position since December 14, 1996. On 
May 29, 1997 the Board elected Donald M. Casey as Executive Vice President,     
Marketing. On October 29, 1997 James F. Martin was elected as Senior Vice       
President, Human Resources. On December 31, 1997, Roden A. Brandt resigned as   
Senior Vice President, Planning, but will remain as a consultant to the         
Company. On January 28, 1998, Richard P. Magurno resigned as Senior Vice        
President and General Counsel, and the Board of Directors elected Kathleen A.   
Soled, formerly Vice President, Legal and Corporate Secretary, to succeed Mr.   
Magurno. See "Risk Factors--Risk Factors Related to the Company--Changes to     
Management Team."                                                               

LABOR MATTERS                                                                   

On March 6, 1997, the International Association of Machinists and Aerospace 
Workers (the "IAM") was certified to replace the Independent Federation of      
Flight Attendants ("IFFA") as the bargaining representative for the Company's   
flight attendants. Negotiations on a new collective bargaining agreement with   
the IAM with regard to the flight attendants commenced in July 1997 and are     
currently ongoing. Negotiations regarding the Company's ground employees        
represented by the IAM commenced in February 1997 and are also currently        
ongoing. At the request of the IAM, a mediator was appointed on August 6, 1997  
in connection with the negotiation on the collective bargaining agreement       
covering the ground employees. Negotiations on a new collective bargaining      
agreement with the Air Line Pilots Association ("ALPA") commenced in June 1997  
and are currently ongoing. See "Certain Provisions of the Certificate of        
Incorporation, the By-laws and Delaware Law--Board of Directors" and "Risk      
Factors--Risk Factors Related to the Company--'94 Labor Agreements."            

1997 PREFERRED STOCK OFFERING                                                   

 On December 2, 1997, the Company consummated a Rule 144A/Regulation S private
placement offering of 1,725,000 shares of 9 1/4% Cumulative Convertible         
Exchangeable Preferred Stock (the "1997 Preferred Stock") which raised net      
proceeds of approximately $83.2 million. The 1997 Preferred Stock has a         
liquidation preference of $50.00 per share, plus accrued and unpaid dividends.  
See "Management's Discussion and Analysis of Financial Condition and Results of 
Operations--Liquidity and Capital Resources."                                   

Concurrently with this Exchange Offer, the Company plans to file a shelf    
registration statement to register resales of the 1997 Preferred Stock. The     
Company will use its reasonable best efforts to cause such shelf registration   
statement to become effective within 150 days from the date of original         
issuance of the 1997 Preferred Stock and to keep such shelf registration        
statement effective until the earlier of (i) the sale of all securities covered 
by such shelf registration statement, and (ii) the expiration of two years      
after the date of original issuance of the 1997 Preferred Stock or, if the      
period applicable under Rule 144(k) under the Securities Act, or any successor  
provision for such securities is shortened, such shorter period.                

RECEIVABLES SECURITIZATION OFFERING                                             

On December 30, 1997, the Company consummated a Rule 144A/Regulation S      
private placement offering (the "Receivables Securitization Offering") of $100  
million aggregate principal amount of 9.80% Airline Receivable Asset Backed     
Notes due 2001 (the "Receivables Securitization Notes"). Proceeds from the      
offering were used to repay the Company's remaining debt to Karabu Corp. See    
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations--Liquidity and Capital Resources."                                   

----------------

TWA is a Delaware corporation organized in 1978 and is the successor to the 
business of its predecessor corporation, Transcontinental & Western Air, Inc.,  
originally formed in 1934. The Company's principal executive offices are        
located at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101 and  
its telephone number is (314) 589-3000.                                         

9 

S-4/A
11th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 11th
THE OLD NOTE OFFERING 

Old Notes.................  On December 9, 1997, the Company issued and sold    
                          $140,000,000 aggregate principal amount of its Old
                        Notes to Lazard Freres & Co. LLC and PaineWebber
                         Incorporated, as initial purchasers (the "Initial
                         Purchasers"). The Initial Purchasers subsequently
                     offered and resold the Old Notes to Qualified
                           Institutional Buyers (as defined in Rule 144A under
                           the Securities Act) pursuant to Rule 144A under the
              Securities Act, to a limited number of
                   institutional investors that are Accredited
                         Investors (as defined in Rule 501(a)(1), (2), (3)
                        or (7) under the Securities Act) and in offshore
                           transactions complying with Rule 903 or Rule 904 of
                       Regulation S under the Securities Act (the "Old
Note Offering").        

EXCHANGE OFFER

Exchange Notes............  Up to $140,000,000 aggregate principal amount of 11 
                         1/2% Senior Secured Notes due 2004 (the "Exchange
                         Notes") of the Company. The terms of the Exchange
                    Notes and the Old Notes are identical in all
                       respects, except that the offer of the Exchange
                 Notes will have been registered under the
                        Securities Act and therefore, the Exchange Notes
               will not be subject to certain transfer
                        restrictions and registration rights and related
                       provisions for an increase in the interest rate
              payable on the Old Notes under certain
                          circumstances if the Company defaults with respect
                  to its registration requirements under the
                           Registration Rights Agreement applicable to the Old
Notes.                  

Exchange Offer............  The Company is offering, upon the terms and subject 
                   to the conditions of the Exchange Offer, to
                          exchange $1,000 principal amount of Exchange Notes
                          for each $1,000 principal amount of Old Notes. See
                     "The Exchange Offer" for a description of the
                         procedures for tendering Old Notes. In connection
                       with the Old Note Offering, the Company entered
                   into the Registration Rights Agreement (the
                    "Registration Rights Agreement") dated as of
                          December 9, 1997 among the Company and the Initial
                         Purchasers, which grants holders of the Old Notes
                     certain exchange and registration rights. The
                         Exchange Offer is intended to satisfy obligations
                    of the Company under the Registration Rights
                         Agreement. The date of acceptance for exchange of
                         the Exchange Notes will be the first business day
      following the Expiration Date.

Tenders, Expiration Date;                                                       
Withdrawal...............                                                     

                        The Exchange Offer will expire at 5:00 p.m., New
                       York City time, on March 9, 1998, or such later
                         date and time to which it is extended. The tender
                          of Old Notes pursuant to the Exchange Offer may be
                           withdrawn at any time prior to the Expiration Date.
                       Any Old Notes not accepted for exchange for any
                       reasons will be returned without expense to the
                           tendering Holder thereof as promptly as practicable
                           after the expiration or termination of the Exchange
Offer.                  

10

S-4/A
12th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 12th
Accounting Treatment......  No gain or loss for accounting purposes will be     
                          recognized by the Company upon the consummation of
                     the Exchange Offer. See "The Exchange Offer--
Accounting Treatment."  

Federal Income Tax          The exchange pursuant to the Exchange Offer will    
Consequences..............  not result in any income, gain or loss to the       
                       Holders of the Notes or the Company for federal
                        income tax purposes. See "Exchange Offer--United
                     States Federal Income Tax Consequences of the
Exchange Offer."        

Use of Proceeds...........  There will be no proceeds to the Company from the   
                      issuance of the Exchange Notes pursuant to the
Exchange Offer.         

Exchange Agent............  The First Security Bank, National Association is    
                           serving as exchange agent (the "Exchange Agent") in
           connection with the Exchange Offer.

CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER 

The Company has not requested, and does not intend to request, an           
interpretation by the staff of the Commission with respect to whether the       
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old    
Notes may be offered for sale, resold or otherwise transferred by any holder    
without compliance with the registration and prospectus delivery provisions of  
the Securities Act. Based on interpretations by the staff of the Commission set 
forth in no-action letters issued to third parties, the Company believes that   
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes  
may be offered for resale, resold and otherwise transferred by any holder of    
such Exchange Notes, other than broker-dealers which must sell in accordance    
with the provisions set forth below and other than any holder that is an        
"affiliate" of the Company within the meaning of Rule 405 under the Securities  
Act, without compliance with the registration and prospectus delivery           
provisions of the Securities Act, provided that such Exchange Notes are         
acquired in the ordinary course of such holder's business and such holder has   
no arrangement or understanding with any person to participate in the           
distribution of such Exchange Notes. Any holder who tenders in the Exchange     
Offer for the purpose of participating in a distribution of the Exchange Notes  
or who is an affiliate of the Company may not rely on such interpretations by   
the staff of the Commission and must comply with the registration and           
prospectus delivery requirements of the Securities Act in connection with any   
secondary resale transaction. Each broker-dealer (whether or not it is also an  
"affiliate"of the Company) that receives Exchange Notes for its own account in  
exchange for Old Notes, where such Old Notes were acquired by such broker-      
dealer as a result of market-making activities or other trading activities,     
must acknowledge that it will deliver a prospectus in connection with any       
resale of such Exchange Notes. See "Plan of Distribution."                      

By executing the Letter of Transmittal, each holder of Old Notes will       
represent to the Company that, among other things, (i) the Exchange Notes       
acquired pursuant to the Exchange Offer are being obtained in the ordinary      
course of business of the person receiving such Exchange Notes, whether or not  
such person is such holder, (ii) neither the holder of Old Notes, nor any such  
other person has an arrangement or understanding with any person to participate 
in the distribution of such Exchange Notes, (iii) if the holder is not a        
broker-dealer, or is a broker-dealer but will not receive Exchange Notes for    
its own account in exchange for Old Notes, neither the holder nor any such      
other person is engaged in or intends to participate in the distribution of     
such Exchange Notes and (iv) neither the holder nor any such other person is an 
"affiliate" of the Company within the meaning of Rule 405 under the Securities  
Act or, if such Holder is an "affiliate," that such Holder will comply with the 
registration and prospectus delivery requirements of the Securities Act to the  
extent applicable. If the tendering Holder is a broker-dealer (whether or not   
it is also an "affiliate") that will receive Exchange Notes for its own account 
in exchange for Old Notes that were acquired as a result of market-making       
activities or other trading activities, it will be required to acknowledge that 
it will deliver a prospectus in connection with any resale of such Exchange     

11

S-4/A
13th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 13th
Notes. See "Plan of Distribution". To comply with the securities laws of        
certain jurisdictions, it may be necessary to qualify for sale or register the  
Exchange Notes prior to offering or selling such Exchange Notes. The Company    
does not currently intend to take any action to register or qualify the         
Exchange Notes for resale in any such jurisdictions.                            

Following the consummation of the Exchange Offer, holders of Old Notes not  
tendered will not have any further registration rights and the Old Notes will   
continue to be subject to certain restrictions on transfer. In general, the Old 
Notes may not be offered or sold, unless registered under the Securities Act,   
except pursuant to an exemption from, or in a transaction not subject to, the   
Securities Act and applicable state securities laws. Failure to comply with     
such requirements in such instance may result in such Holder incurring          
liability under the Securities Act for which such Holder is not indemnified by  
the Company. See "Exchange Offer--Consequences of Failure to Exchange."         

SUMMARY DESCRIPTION OF THE NOTES

The terms of the Exchange Notes and the Old Notes are identical in all      
respects, except that the offer of the Exchange Notes is registered under the   
Securities Act and, therefore, the Exchange Notes will not be subject to        
certain transfer restrictions, registration rights and related provisions       
requiring an increase in the interest rate on the Old Notes under certain       
circumstances if the Company defaults with respect to its registration          
requirements under the Registration Rights Agreement applicable to the Old      
Notes.                                                                          

Exchange Notes Offered....  Up to $140,000,000 aggregate principal amount of    
      Exchange Notes of the Company.

Maturity Date.............  December 15, 2004                                   

Interest Payment Dates....  June 15 and December 15, beginning June 15, 1998.   
                           The Exchange Notes will bear interest from December
                         9, 1997. Holders of Old Notes whose Old Notes are
                           accepted for exchange will be deemed to have waived
                      the right to receive any payment in respect of
                           interest on such Old Notes accrued from December 9,
                        1997 to the date of the issuance of the Exchange
                           Notes. Consequently, holders who exchange their Old
                      Notes for Exchange Notes will receive the same
                    interest payment on June 15, 1998 (the first
                           interest payment date with respect to the Old Notes
                    and the Exchange Notes) that they would have
                          received had they not accepted the Exchange Offer.

Mandatory Repurchases.....  The Company will be required to make an Offer to    
                 Purchase the Notes in the case of (i) the
                       incurrence of certain Acquired Indebtedness (as
                       defined) or (ii) certain Asset Dispositions (as
                          defined). See "Description of Notes--Repurchase of
                       Notes in Connection with Incurrence of Acquired
                          Indebtedness" and "--Limitation on Sales of Assets
and Subsidiary Stock."  

Optional Redemption.......  The Notes will be redeemable prior to December 15,  
                         2001 only in the event that on or before December
                           15, 2000 the Company uses the Net Cash Proceeds (as
                           defined) of one or more Public Equity Offerings (as
                        defined) to redeem up to $49.0 million aggregate
                           principal amount of the Notes. On or after December
                          15, 2001, the Notes will be redeemable on at least
                      30 days' prior notice to the Company, in whole

12

S-4/A
14th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 14th
                        or in part, at any time, at the redemption price
                    set forth herein, in each case together with
                        accrued and unpaid interest and Special Interest
                   (as defined), if any, to the date fixed for
               redemption. See "Description of Notes--
                          Redemptions." The Notes will also be redeemable in
                        whole, but not in part, in the event the Company
                       enters into any merger or acquisition agreement
                         which is prohibited by the terms of the indenture
                  governing the Notes (the "Indenture"). See
                        "Description of Notes--Certain Covenants--Merger
and Consolidation."     

Change in Control.........  Upon a Change in Control, each holder of Notes      
                    shall have the right for a limited period to
                         require the Company to repurchase all or any part
                         of such holder's Notes at a price, in cash, equal
                     to 101% of the principal amount thereof, plus
                         accrued and unpaid interest and Special Interest,
                 if any, to the date fixed for repurchase.

Ranking...................  The Notes will represent senior secured obligations 
                           of the Company and will rank pari passu in right of
                         payment with all other senior secured obligations
                    of the Company. As of December 31, 1997, the
                           Company had approximately $1,061.3 million of total
                        outstanding indebtedness (including $140 million
                       for the Old Notes), all of which will rank pari
                           passu in right of payment of principal and interest
                      with the Exchange Notes. None of the Company's
                        outstanding indebtedness is senior to the Notes.

Collateral Security.......  The Notes will be secured by a lien on (i) a pool   
                        of aircraft spare parts as constituted at August
                       31, 1997 with an appraised fair market value of
                          approximately $234 million as of December 3, 1997,
                    (ii) TWA's beneficial interest in 30 Federal
                           Aviation Administration ("FAA") designated take-off
                           and landing slots at Washington National Airport, a
                          high-density, capacity-controlled airport, with an
                        appraised fair market value of approximately $36
                         million as of November 17, 1997 and (iii) Pledged
                           Collateral (as defined). These appraised values are
                        based on certain assumptions and limitations and
                          are only an estimate of value. See "Description of
    Notes--Collateral Security."

Certain Covenants.........  The Indenture and certain related security          
                     documents contains provisions relating to the
                          preservation of and release of Collateral Security
                         (as defined), including a prohibition against the
                         Company allowing certain additional liens against
                        such Collateral Security. The Indenture contains
                           certain covenants, which, among other things, limit
                        (i) the incurrence of additional indebtedness by
                       the Company and its Restricted Subsidiaries (as
                           defined) and the issuance of preferred stock by the
                           Company's Restricted Subsidiaries, (ii) the payment
                        of dividends on capital stock of the Company and
                         the purchase, redemption or retirement of capital
                         stock or subordinated indebtedness, (iii) certain
                   investments, (iv) certain transactions with
                        affiliates, (v) the incurrence of liens and sale
                        and leaseback transactions, (vi) sale of assets,
                          including the capital stock of subsidiaries, (vii)
                      certain consolidations and mergers and certain
                        guarantees by Restricted Subsidiaries and (viii)
                         distributions from Restricted Subsidiaries. These
                        limitations are subject to a number of important
                          qualifications. See "Description of Notes--Certain
Covenants."             

13

S-4/A
15th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 15th
Exchange Offer;             In the event that applicable law or interpretations 
Registration Rights.......  of the staff of the Commission do not permit the    
                           Company to effect this Exchange Offer or if certain
                        holders of the Old Notes notify the Company that
                          they are not permitted to participate in, or would
                      not receive freely transferable Exchange Notes
                    pursuant to, the Exchange Offer, or upon the
                           request of an Initial Purchaser (as defined herein)
                         under certain circumstances, the Company will use
                       its best efforts to cause to become effective a
                       registration statement (the "Shelf Registration
                         Statement") with respect to the resale of the Old
                          Notes and to keep the Shelf Registration Statement
                         effective for a period of two years from the date
                     of original issuance of the Old Notes or such
                         shorter period that will terminate when Old Notes
                        covered by the Shelf Registration Statement have
                          been sold pursuant thereto or can be sold pursuant
                          to Rule 144(k). The interest rate on the Old Notes
                          is subject to increase under certain circumstances
                   if the Company defaults with respect to its
                       registration obligations under the Registration
               Rights Agreement. See "Exchange Offer."

Lack of Prior Market for                                                        
the Exchange Notes.......                                                     

                          The Exchange Notes are being offered to holders of
                       the Old Notes. The Old Notes were resold by the
                     Initial Purchasers to Qualified Institutional
                         Buyers (as defined in Rule 144A of the Securities
                  Act), to a limited number of institutional
                       accredited investors within the meaning of Rule
                        501(a)(1), (2), (3) or (7) of the Securities Act
                         and in offshare transactions, complying with Rule
                 903 or Rule 904 of Regulation S under the
                          Securities Act and are eligible for trading in the
                     PORTAL Market. The Exchange Notes will be new
                  securities for which there is currently no
                         established trading market, and none may develop.
                           Although the Initial Purchasers are making a market
                          in the Old Notes and have indicated to the Company
                          that they currently intend to make a market in the
                           Exchange Notes, as permitted by applicable laws and
                           regulations, they are under no obligation to do so;
                           and such market-making could be discontinued at any
                          time without notice, at the sole discretion of the
                           Initial Purchasers. In addition, such market making
                           activities may be limited during the Exchange Offer
                           and the pendency of a Shelf Registration Statement.
                      Accordingly, no assurance can be given that an
                         active trading market for the Exchange Notes will
                        develop or, if such a market develops, as to the
                         liquidity of such market. The Exchange Notes have
                       been approved for listing on the American Stock
                        Exchange. If the Exchange Notes are traded after
                   their initial issuance, they may trade at a
                   discount from their initial offering price,
                     depending upon prevailing interest rates, the
                         market for similar securities, the performance of
              the Company and certain other factors.

RISK FACTORS

See "Risk Factors" for a discussion of certain factors which should be      
considered in connection with the Exchange Offer or an investment in the        
Exchange Notes.                                                                 

14

S-4/A
16th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 16th
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA 

 The summary consolidated financial and operating data presented below relates
to the three year period ended December 31, 1996, the nine month periods ended  
September 30, 1996 and 1997 and the three month periods ended September 30,     
1996 and 1997. This data should be read in conjunction with "Management's       
Discussion and Analysis of Financial Condition and Results of Operations." The  
Company's 1996 consolidated financial statements (including the notes thereto,  
the "1996 Consolidated Financial Statements") and the Company's condensed       
consolidated financial statements for the nine months ended September 30, 1996  
and 1997 and the three months ended September 30, 1996 and 1997 (including the  
notes thereto, the "1997 Interim Consolidated Financial Statements"), together  
referred to herein as the "Consolidated Financial Statements." The consolidated 
financial data for the periods in the three year period ended December 31, 1996 
were derived from the audited consolidated financial statements of the Company. 
For a discussion of factors affecting the comparability of this data, see       
"Selected Consolidated Financial Data." See "Risk Factors--Risk Factors Related 
to the Company--Liquidity; Substantial Indebtedness; Capital Expenditure        
Requirements" for a description of the auditor's report issued in connection    
with the 1996 Consolidated Financial Statements.                                

                                                        [Enlarge/Download Table]

                         PREDECESSOR COMPANY                   REORGANIZED COMPANY                      
                         -------------------   -------------------------------------------------------- 
                                      EIGHT      FOUR                                   THREE MONTHS    
                           YEAR      MONTHS     MONTHS     YEAR    NINE MONTHS ENDED        ENDED       
                           ENDED      ENDED     ENDED     ENDED      SEPTEMBER 30,      SEPTEMBER 30,   
                         DECEMBER    AUGUST    DECEMBER  DECEMBER  ------------------  ---------------- 
                         31, 1994   31, 1995   31, 1995  31, 1996    1996      1997      1996     1997  
                         ---------  ---------  --------  --------  --------  --------  --------  ------ 
                                     (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)                    
                                                                                                        
STATEMENT OF OPERATIONS                                                                                 
 DATA:                                                                                                  
 Operating revenues..... $ 3,407.7  $ 2,218.4  $1,098.5  $3,554.4  $2,751.1  $2,515.1  $1,002.9  $908.4 
 Operating income                                                                                       
  (loss)(1).............    (279.5)      14.6      10.4    (198.5)     33.9     (29.8)     26.0    63.8 
 Income (loss) before                                                                                   
  income taxes and                                                                                      
  extraordinary                                                                                         
  items(2)..............    (432.9)    (338.3)    (32.3)   (274.6)    (18.3)    (68.3)     10.0    47.2 
 Income (loss) before                                                                                   
  extraordinary                                                                                         
  items(2)..............    (433.8)    (338.2)    (33.6)   (275.0)    (18.8)     68.8      (6.9)   13.3 
 Extraordinary items(3).      (2.0)     140.9       3.5      (9.8)     (7.4)    (10.9)     (7.4)   (7.0)
 Net income (loss)......    (435.8)    (197.3)    (30.1)   (284.8)    (26.2)    (79.7)    (14.3)    6.3 
 Earnings (loss) per                                                                                    
  share.................       --         --      (1.05)    (7.27)    (1.36)    (1.75)    (0.40)   0.04 
 Weighted average shares                                                                                
  outstanding...........       --         --       33.3      44.2      43.2      52.0      45.1    56.1 
 Ratio of earnings to                                                                                   
  fixed charges(4)......       --         --        --        --        --        --        --     1.21 
OTHER DATA:                                                                                             
 Operating lease                                                                                        
  rentals...............     261.4      182.5      96.4     303.0     222.1     268.8      77.3    94.4 
 Interest expense.......     195.4      123.2      45.9     126.8      95.5      85.5      30.9    27.4 
 Capital expenditures...      44.9       16.6      43.0     121.5     109.9      58.2      34.9    24.8 

                                                                [Download Table]

                                                             SEPTEMBER 30, 1997
                                                             ------------------
                                                               (IN MILLIONS)   
                                                                               
BALANCE SHEET DATA:                                                            
 Total assets...............................................      $2,676.6     
 Current maturities of long-term debt and capital leases....         104.6     
 Long-term debt and long-term obligations under capital                        
  leases....................................................         783.4     
 Shareholders' equity(5)....................................         219.8     

                                                        [Enlarge/Download Table]

                                                                         THREE MONTHS   
                                                    NINE MONTHS ENDED       ENDED       
                         YEAR ENDED DECEMBER 31,      SEPTEMBER 30,     SEPTEMBER 30,   
                         -------------------------  ------------------  --------------- 
                          1994     1995     1996      1996      1997     1996     1997  
                         -------  -------  -------  --------  --------  -------  ------ 
                                                                                        
AIRLINE ONLY OPERATING                                                                  
 DATA(6):                                                                               
 Revenue passenger miles                                                                
  (millions)............  24,906   24,902   27,111    20,906    19,169    8,028   7,113 
 Available seat miles                                                                   
  (millions)............  39,191   37,905   40,594    30,708    27,590   11,450   9,894 
 Passenger load factor..    63.5%    65.7%    66.8%     68.1%     69.5%    70.1%   71.9%
 Passenger yield                                                                        
  (cents)...............   11.31c   11.39c   11.35c    11.44c    11.54c   10.89c  11.24c
 Passenger revenue per                                                                  
  available seat mile                                                                   
  (cents)...............    7.19c    7.48c    7.58c     7.79c     8.01c    7.64c   8.08c
 Operating cost per                                                                     
  available seat mile                                                                   
  (cents)...............    8.45c    8.12c    8.76c     8.58c     8.99c    8.27c   8.29c

--------                                                                        
(1) Includes special charges of $138.8 million in 1994, $1.7 million in the     
eight months ended August 31, 1995 and $85.9 million in 1996. For a     
  discussion of these and other non-recurring items, see Note 16 to the 1996
Consolidated Financial Statements.                                      
(2) The eight months ended August 31, 1995 include charges of $242.2 million    
related to reorganization items.                                        
(3) The extraordinary item in 1994 represents the charge for a prepayment       
 premium related to the sale and leaseback of four McDonnell Douglas MD-80
  aircraft. The extraordinary item in the eight months ended August 31, 1995
represents the gain on the discharge of                                 

15

S-4/A
17th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 17th
indebtedness pursuant to the consummation of the '95 Reorganization, while  
the extraordinary item in the four months ended December 31, 1995 was the   
result of the settlement of a debt of a subsidiary. The extraordinary items 
in 1996 and 1997 result from the early extinguishment of certain debt.      

(4) For purposes of determining the ratio of earnings to fixed charges,         
"earnings" consist of earnings before income taxes, extraordinary items 
and fixed charges (excluding capitalized interest) and "fixed charges"  
 consist of interest (including capitalized interest) on all debt and that
  portion of rental expense that management believes to be representative of
interest. Earnings were not sufficient to cover fixed charges as follows
  (in millions): for the year ended December 31, 1994, $435.0; for the eight
months ended August 31, 1995, $338.3; for the four months ended December
31, 1995, $32.3; for the year ended December 31, 1996, $280.0; for the  
nine months ended September 30, 1996 and 1997, $21.8 and $72.5,         
respectively; and for the three months ended September 30, 1996, $8.5.  

(5) No dividends were paid on the Company's outstanding common stock, $0.01     
par value per share (the "Common Stock") during the periods presented   
above.                                                                  
(6) For a definition of the items presented, see "Management's Discussion and   
Analysis of Financial Condition and Results of Operations."             

16  

S-4/A
18th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 18th
RISK FACTORS  

In addition to the other information appearing in this Prospectus, the      
following risk factors should be considered carefully in evaluating the         
Company and its business before participating in the Exchange Offer or          
investing in the Exchange Notes.                                                

RISK FACTORS RELATED TO THE COMPANY                                             

Liquidity; Substantial Indebtedness; Capital Expenditure Requirements         

The Company believes that continued improvement in its operating results is 
necessary for TWA to maintain adequate liquidity. The Company's auditors        
included in their report dated March 24, 1997 on TWA's Consolidated Financial   
Statements for the year ended December 31, 1996 an explanatory paragraph to     
the effect that substantial doubt exists regarding the Company's ability to     
continue as a going concern due to the Company's recurring losses from          
operations and limited sources of additional liquidity. See "Management's       
Discussion and Analysis of Financial Condition and Results of Operations--      
Liquidity and Capital Resources" and the Consolidated Financial Statements.     

The Company is highly leveraged and has and will continue to have           
significant debt service obligations. As of September 30, 1997, the Company's   
ratio of long-term debt and capital leases (including current maturities) to    
shareholders' equity was 4.0 to 1. After giving effect to the Old Note          
Offering, the 1997 Preferred Stock Offering and the Receivables Securitization  
Offering and the application of the net proceeds therefrom, the aggregate       
principal amount of the Company's total outstanding indebtedness is             
approximately $1,061.3 million, all of which constitutes senior obligations.    
The ratio of such long-term debt and capital leases (including current          
maturities) to shareholders' equity, including net proceeds from the 1997       
Preferred Stock Offering, is 3.32 to 1. TWA's estimated minimum payment         
obligations under noncancellable operating leases in effect at September 30,    
1997 were approximately $330 million for 1998 and approximately $2,339 million  
for periods thereafter. Over the last several years, the Company's earnings     
have not been sufficient to cover fixed charges. The Company's earnings were    
not sufficient to cover fixed charges by $72.5 million and $21.8 million for    
the nine months ended September 30, 1997 and 1996, respectively, $280.0         
million for the year ended December 31, 1996, $32.3 million for the four        
months ended December 31, 1995, $338.3 million for the eight months ended       
August 31, 1995, $435.0 million for the year ended December 31, 1994, $88.4     
million for the two months ended December 31, 1993, $364.7 million for the ten  
months ended October 31, 1993, and $317.4 million for the year ended December   
31, 1992. See "Selected Consolidated Financial Data," "Capitalization,"         
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations--General" and the Consolidated Financial Statements.                 

The degree to which the Company is leveraged could have important           
consequences to holders of the Notes offered hereby, including the following:   
(i) the Company's ability to obtain additional financing in the future for      
working capital, capital expenditures, acquisitions, general corporate          
purposes or other purposes may be impaired; (ii) a substantial portion of the   
Company's cash flow from operations must be dedicated to the payment of         
principal and interest on the Company's existing indebtedness; (iii) the        
Company is placed at a relative competitive disadvantage to its less highly     
leveraged competitors and is more vulnerable to economic downturns; and (iv)    
such indebtedness contains restrictive and other covenants, which, if not       
complied with, may result in an event of default which, if not cured or         
waived, could have a material adverse effect on the Company (including, under   
certain circumstances, a cross-default of other debt).                          

On September 30, 1997, the Company's total cash and cash equivalents balance
was approximately $104.6 million (including amounts held in TWA's               
international operations and by subsidiaries which, based upon various          
monetary regulations and other factors, might not be immediately available to   
the Company). This balance represented a decrease of approximately $77.0        
million from the Company's corresponding cash balance at December 31, 1996.     
This reduction in the Company's cash balance resulted primarily from the        
repayment of                                                                    

17  

S-4/A
19th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 19th
long-term debt and capital lease obligations and from TWA's net losses in the   
first half of 1997. See "Management's Discussion and Analysis of Financial      
Condition and Results of Operations--Liquidity and Capital Resources--          
Liquidity."                                                                     

TWA has no unused credit lines and must satisfy all of its working capital  
and capital expenditure requirements from cash provided by operating            
activities, from external capital sources or from the sale of assets. See "The  
Company--Business Strategy" and "Management's Discussion and Analysis of        
Financial Condition and Results of Operations--Liquidity and Capital            
Resources--Liquidity" for a description of the actions taken by the Company to  
improve its liquidity during the first nine months of 1997. Substantially all   
of TWA's strategic assets, including its owned aircraft, have been pledged to   
secure various issues of outstanding indebtedness of the Company. In            
connection with the Old Note Offering, the Company repaid the 12% Reset Notes,  
thereby releasing certain collateral which, based on current fair market        
value, the Company believes has a value of approximately $278 million. Of such  
released collateral, the aircraft spare parts, valued at approximately $234     
million, has been used together with certain of the Company's take-off and      
landing slots, valued at approximately $36 million, to secure the Notes. To     
the extent that pledged assets are sold, the applicable financing agreements    
generally require the sale proceeds to be applied to repay the corresponding    
indebtedness. To the extent that the Company's access to capital is             
constrained, the Company may not be able to make certain capital expenditures   
or to continue to implement certain other aspects of its strategic plan, and    
the Company may therefore be unable to achieve the full benefits expected       
therefrom. See "Management's Discussion and Analysis of Financial Condition     
and Results of Operations--Liquidity and Capital Resources --Availability of    
NOLs" for a discussion of the status of the Company's net operating loss        
carryforwards.                                                                  

The Company's long-term viability as well as its ability to meet its        
existing debt and other obligations and future capital commitments depends      
upon the Company's financial and operating performance, which in turn is        
subject to, among other things, prevailing economic conditions and to certain   
other financial, business and other factors beyond the Company's control. As    
discussed elsewhere herein, in late 1996 and early 1997, the Company began      
implementing certain operational changes which are intended to improve the      
Company's financial results through, among other things, improved operational   
reliability; higher yields and load factors; increased fuel, pilot and other    
aircraft operating efficiencies; and a decrease in maintenance-related          
expenditures, employee headcount and JFK-related operating costs. Although      
management believes that such operational changes will be successful and that   
the Company's cash flow from its operations and financing activities should     
therefore be sufficient in the foreseeable future to meet the Company's debt    
and other obligations and future capital commitments, the airline industry in   
general and the Company in particular are subject to significant risks and      
uncertainties referred to in this Prospectus including under these Risk         
Factors and "Management's Discussion and Analysis of Financial Condition and    
Results of Operations--General" and "--Liquidity and Capital Resources."        

Prior Operating Losses and Future Uncertainties Relating to Results of        
Operations                                                                      

TWA's long-term viability depends on its ability to achieve and maintain    
profitable operations. Although the airline industry has generally seen         
strengthened performance in recent years, particularly since 1995 when many     
airlines reported record profits, the Company has reported significant net      
losses. For example, the Company reported a net loss of $227.5 million for the  
combined 12-month period ended December 31, 1995 (including extraordinary       
gains related to the '95 Reorganization (as defined)), while reporting an       
operating profit of $25.1 million (including $58.0 million of non-cash expense  
relating to the distribution of stock to employees as part of the '95           
Reorganization), which represented the Company's first operating profit since   
1989. The Company's reported net loss of $284.8 million for 1996 represented a  
$57.3 million increase over the 1995 net loss, while the Company reported a     
$198.5 million operating loss for 1996 (including special charges of $85.9      
million), which represented a $223.6 million decline from its operating profit  
in 1995. For the first nine months of 1997, the Company reported a net loss of  
$79.7 million, which represented a $53.5 million increase over the $26.2        
million net loss for the first nine months of 1996, and a $29.8 million         
operating loss, which represented a $63.7 million adverse change from the       
$33.9 million operating profit reported for the first nine months of 1996. For  
a                                                                               

18  

S-4/A
20th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 20th
discussion of such operating results and the substantial net losses incurred    
during such periods, see "Management's Discussion and Analysis of Financial     
Condition and Results of Operations" and "The Company--Business Strategy."      
Although the Company has taken a number of actions which management believes    
will improve future results, the Company will incur additional expenses         
relating to these actions, including pilot training and aircraft leases, and    
there can be no assurance that such actions will make the Company's future      
operations profitable. See "--Liquidity; Substantial Indebtedness; Capital      
Expenditure Requirements" and "The Company--Business Strategy."                 

TWA has historically experienced significant variations in quarterly and    
annual operating revenues and operating expenses and expects such variations    
to continue. Due to the greater demand for air travel during the summer         
months, airline industry revenues for the third quarter of the year are         
generally significantly greater than revenues in the first and fourth quarters  
of the year and moderately greater than revenues in the second quarter of the   
year. In the past, given the Company's historical dependence on summer leisure  
travel, TWA's results of operations have been particularly sensitive to such    
seasonality. While the Company, through an acceleration of its fleet renewal    
program and restructuring of its JFK operations, anticipates that the           
deseasonalization of operations affected thereby will reduce quarter to         
quarter fluctuations in the future, there can be no assurance that such         
deseasonalization will occur.                                                   

The Company's results of operations have also been impacted by numerous     
other factors that are not necessarily seasonal. Among the uncertainties that   
might adversely impact TWA's future results of operations are: (i) competitive  
pricing and scheduling initiatives; (ii) the availability and cost of capital;  
(iii) increases in fuel and other operating costs; (iv) insufficient levels of  
air passenger traffic resulting from, among other things, war, threat of war,   
terrorism or changes in the economy; (v) governmental limitations on the        
ability of TWA to service certain airports and/or foreign markets; (vi)         
regulatory requirements necessitating additional capital or operating           
expenditures; (vii) the outcome of certain ongoing labor negotiations (see "--  
'94 Labor Agreements"); and (viii) the reduction in yield due to the continued  
implementation of a discount ticket program entered into between the Company    
and Karabu Corporation ("Karabu"), a Delaware corporation controlled by Carl    
Icahn, in connection with the '95 Reorganization, on the terms currently        
sought to be applied by Karabu, which terms are, in the opinion of the          
Company, inconsistent with, and in violation of, the agreement governing such   
program (see "Management's Discussion and Analysis of Financial Condition and   
Results of Operations--General" and "Business--Legal Proceedings--Icahn         
Litigation"). The Company is unable to predict the potential impact of any      
such uncertainties upon its future results of operations.                       

Crash of Flight 800                                                           

On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en
route to Paris, France. There were no survivors among the 230 passengers and    
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully   
with all federal, state and local regulatory and investigatory agencies to      
ascertain the cause of the crash, which to date has not been determined. The    
National Transportation Safety Board held hearings relating to the crash in     
December 1997 and is continuing its investigation. While TWA is currently a     
defendant in a number of lawsuits relating to the crash, it is unable to        
predict the amount of claims which may ultimately be made against the Company   
or how those claims might be resolved. TWA maintains substantial insurance      
coverage and, at this time, management has no reason to believe that such       
insurance coverage will not be sufficient to cover the claims arising from the  
crash. Therefore, TWA believes that the resolution of such claims will not      
have a material adverse effect on its financial condition or results of         
operations. The Company is unable to identify or predict the extent of any      
adverse effect on its revenues, yields, or results of operations which has      
resulted or may result from the public perception of the crash or from any      
future findings by the National Transportation Safety Board. See "Business--    
Legal Proceedings."                                                             

Changes to Management Team                                                    

Commencing in June 1996, the Company experienced a substantial number of    
changes in its executive management team. In June 1996, the Company announced   
the separation of Messrs. Robert A. Peiser and Mark J. Coleman, Executive Vice  
President and Chief Financial Officer and Senior Vice President, Marketing,     

19  

S-4/A
21st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 21st
respectively, from the Company. Messrs. Peiser and Coleman differed with the    
determination of the Board of Directors, as expressed by its unanimous vote,    
to continue the management approach of the Company's President and Chief        
Executive Officer at that time relating to the Company's rebuilding process.    
On August 21, 1996, Edward Soule was elected to the position of Executive Vice  
President and Chief Financial Officer. On September 3, 1996, Roden A. Brandt    
was elected to the position of Senior Vice President, Planning. On October 24,  
1996, the Company announced that Jeffery H. Erickson, President and Chief       
Executive Officer, had informed the Board of his intention to leave the         
Company in January 1997. On December 14, 1996, the Board appointed Gerald L.    
Gitner, a member of the Board, to serve as Vice Chairman and Acting Chief       
Executive Officer; David M. Kennedy, a member of the Board, to serve as Acting  
Executive Vice President and Chief Operating Officer; and William F. Compton,   
also a member of the Board, to serve as Acting Executive Vice President,        
Operations. On December 20, 1996, Michael J. Palumbo was appointed as Senior    
Vice President and Chief Financial Officer, succeeding Mr. Soule, who had       
resigned from the positions of Executive Vice President and Chief Financial     
Officer on December 19, 1996. On February 12, 1997, the Board of Directors      
elected Mr. Gitner to serve as Chairman and Chief Executive Officer. On         
February 14, 1997, Don Monteath, who had served as the Company's Senior Vice    
President, Operations, left the Company. On March 27, 1997, the Board elected   
Mr. Compton to serve as Executive Vice President, Operations. On May 29, 1997,  
Donald M. Casey was elected to serve as the Company's Executive Vice            
President, Marketing. It was also announced on May 29, 1997 that Mr. Kennedy    
would leave his interim position as Acting Executive Vice President and Chief   
Operating Officer. Mr. Kennedy, whose services have been retained on a          
consulting basis, will also remain as a director and as chairman of the         
Finance Committee of the Board of Directors. On October 29, 1997 James F.       
Martin was elected to the office of Senior Vice President, Human Resources,     
replacing Charles J. Thibaudeau who retired effective October 1, 1997. In       
addition, on December 3, 1997, the Board elected Mr. Compton to serve as the    
Company's President and Chief Operating Officer. On December 31, 1997, Mr.      
Brandt resigned as Senior Vice President, Planning, but he will remain as a     
consultant to the Company. On January 28, 1998, Richard P. Magurno resigned as  
Senior Vice President and General Counsel, and the Board of Directors elected   
Kathleen A. Soled, formerly Vice President, Legal and Corporate Secretary, to   
succeed Mr. Magurno. The Company does not believe that such changes have        
unduly affected its ongoing operations or implementation of the Company's       
business strategy.                                                              

'94 Labor Agreements                                                          

As of September 30, 1997, the Company had approximately 22,540 full-time    
employees (based upon full-time equivalents which include part-time             
employees). Of these, approximately 84.6% were represented by ALPA and the      
IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining  
representative of the Company's flight attendants. The Company's currently      
effective collective bargaining agreement with each such union (collectively    
the " '94 Labor Agreements") contain more favorable work rules than in prior    
contracts and wage levels which the Company believes to be below many other     
U.S. airlines. The '94 Labor Agreements are three year agreements which became  
amendable as of August 31, 1997. Negotiations on a new collective bargaining    
agreement with the IAM with regard to the flight attendants commenced in July   
1997 and are currently ongoing and negotiations regarding the Company's ground  
employees represented by the IAM commenced in February 1997 and are also        
currently ongoing. Negotiations on a new collective bargaining agreement with   
ALPA commenced in June 1997 and are currently ongoing. Under the Railway Labor  
Act (the "RLA"), workers whose contracts have become amendable are required to  
continue to work under the "status quo" (i.e., under the terms of employment    
antedating the amendable date) until the RLA's procedures are exhausted. Under  
the RLA, the Company and its unions are obligated to continue to bargain until  
agreement is reached or until a mediator is appointed and concludes that        
negotiations are deadlocked and mediation efforts have failed. The mediator     
must then further attempt to induce the parties to agree to arbitrate the       
dispute. If either party refuses to arbitrate, then the mediator must notify    
the parties that his efforts have failed and, after a 30-day cooling-off        
period, a strike or other direct action may be taken by the parties. At the     
request of the IAM, a mediator was appointed on August 6, 1997 with respect to  
ground employees represented by the IAM. The mediator has not yet met with the  
parties and has not rendered a conclusion that negotiations are deadlocked.     

In the opinion of management, the Company's financial resources are not as  
great as those of most of its competitors, and, therefore, management believes  
that any substantial increase in its labor costs as a result of                 

20  

S-4/A
22nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 22nd
any new labor agreements or any cessation or disruption of operations due to    
any strike or work action could be particularly damaging to the Company. See    
"Business--Employees."                                                          

Age of Fleet; Noise                                                           

At September 30, 1997, the average age of TWA's operating aircraft fleet was
17.6 years, making TWA's fleet one of the oldest of U.S. air carriers. As a     
result, TWA has incurred increased overall operating costs due to the higher    
maintenance, fuel and other operating costs associated with older aircraft.     
During the first ten months of 1997, TWA acquired 23 new or later-model used    
aircraft. The Company expects to continue the process of acquiring a number of  
new and later-model used aircraft and, including aircraft delivered in the      
fourth quarter of 1997, TWA's composite fleet age was reduced to slightly       
under 17.0 years at December 31, 1997. As of September 30, 1997, TWA's fleet    
included 64 aircraft which did not meet the noise reduction requirements under  
the Airport Noise and Capacity Act of 1990 (the "Noise Act") and must           
therefore be retired or substantially modified by the end of 1999. Although     
the Company has plans to meet the Noise Act's noise reduction requirement,      
there can be no assurance that such plans will be achieved. In addition, in     
1990 the FAA issued several Airworthiness Directives ("ADs") mandating changes  
to maintenance programs for older aircraft to ensure that the oldest portion    
of the nation's fleet remains airworthy. Many of the Company's aircraft are     
currently affected by these aging aircraft ADs. In 1995 and 1996, TWA spent     
approximately $2.6 million and $3.4 million, respectively, to comply with       
aging aircraft maintenance requirements and spent approximately $3.1 million    
on such requirements during the first nine months of 1997. Based on             
information currently available to TWA and its current fleet plan, TWA          
estimates that costs associated with complying with these aging aircraft        
maintenance requirements will aggregate an additional approximately $19.8       
million through the year 2001. These cost estimates assume, among other         
things, that newer aircraft will replace certain of TWA's existing aircraft     
and that as a result certain aircraft will be retired by the Company before     
TWA would be required to make certain aging aircraft maintenance expenditures.  
There can be no assurance that TWA will be able to implement fully its fleet    
plan or that the cost of complying with aging aircraft maintenance              
requirements will not be significantly increased. See "--Liquidity;             
Substantial Indebtedness; Capital Expenditure Requirements," "Business--        
Regulatory Matters--Noise Abatement" and "--Aging Aircraft Maintenance."        

Corporate Governance Provisions; Special Voting Arrangements                  

As a result of provisions of the '94 Labor Agreements, the Company's Third  
Amended and Restated Certificate of Incorporation (the "Certificate of          
Incorporation") and Amended and Restated By-laws (the "By-laws") contain        
provisions (the "Blocking Coalition Provisions") which allow certain corporate  
actions requiring board approval, including mergers, consolidations and sale    
of all or substantially all the assets of the Company, to be blocked by a vote  
of six (four union elected directors and two other directors) of the Company's  
fifteen directors, which together constitute a "Blocking Coalition." Actions    
subject to disapproval by the Blocking Coalition include: (a) any sale,         
transfer or disposition, in a single or series of transactions, of at least     
20% of the Company's assets, except for transactions in the ordinary course of  
business including aircraft transactions as part of a fleet management plan;    
(b) any merger of the Company into or with, or consolidation of the Company     
with any other entity; (c) any business combination within the meaning of       
Section 203 of the Delaware General Corporation Law (the "DGCL"); (d) any       
dissolution or liquidation of the Company; (e) any filing of a petition for     
bankruptcy, reorganization or receivership under any state or federal           
bankruptcy, reorganization or insolvency law; (f) any repurchase, retirement    
or redemption of the Company's capital stock or other equity securities prior   
to their scheduled maturity or expiration, except for redemptions out of the    
proceeds of any substantially concurrent offering of comparable or junior       
securities and mandatory redemptions of any redeemable preferred stock of the   
Company; (g) any acquisition of assets, not related to the Company's current    
business as an air carrier, in a single transaction or a series of related      
transactions exceeding $50 million adjusted annually by the consumer price      
index; or (h) any sale of the Company's capital stock or securities             
convertible into capital stock of the Company to any person if (i) at the time  
of issuance or (ii) assuming conversion of all outstanding securities of the    
Company convertible into capital stock, such person or entity would             
beneficially own at least 20% of the capital stock of the Company.              

21  

S-4/A
23rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 23rd
Anti-takeover Provisions in Certificate of Incorporation and By-laws; Rights  
Plan                                                                            

The Certificate of Incorporation and By-laws contain provisions which       
authorize the Board of Directors to issue preferred stock without stockholder   
approval, prohibit action by written consent of the stockholders, authorize     
only the Chairman of the Board of Directors or a majority of the Board of       
Directors to call special meetings of the stockholders and require advance      
notice for director nominations. These provisions of the Certificate of         
Incorporation and By-laws and the Blocking Coalition Provisions, as well as     
federal laws limiting foreign ownership of U.S. flag carriers and the           
prohibition on certain business combinations contained in Section 203 of the    
DGCL, could have the effect of delaying, deferring or preventing a change in    
control or the removal of existing management. In addition, the Board of        
Directors declared a dividend distribution of one Right for each outstanding    
share of Common Stock and Employee Preferred Stock payable to holders of        
record as of the close of business on January 12, 1996 and, thereafter all      
Common Stock issued by the Company has had an equivalent number of rights       
attendant to it. The Rights are intended to protect TWA's shareholders from     
certain non-negotiated takeover attempts which present the risk of a change of  
control on terms which may be less favorable to TWA's stockholders than would   
be available in a transaction negotiated with and approved by the Board of      
Directors of the Company. See "Certain Provisions of the Certificate of         
Incorporation, the By-laws and Delaware Law" and "Business--Regulatory          
Matters--Foreign Ownership of Shares" and "Description of Capital Stock--       
Rights Plan."                                                                   

Certain Potential Future Earnings Charges                                     

There are a number of uncertainties relating to agreements with employees of
the Company, the resolution of which could result in significant non-cash       
charges to TWA's future operating results. Shares granted or purchased at a     
discount under the employee stock incentive plan (the "ESIP") will generally    
result in a charge equal to the fair market value of shares granted plus the    
discount for shares purchased at the time when such shares are earned. If the   
ESIP's target prices for the Common Stock are realized, the minimum aggregate   
charge for the years 1997 to 2002 would be approximately $58 million based      
upon such target prices and the number of shares of Common Stock and Employee   
Preferred Stock outstanding at December 31, 1996. The charge for any year,      
however, could be substantially higher if the then market price of the Common   
Stock exceeds certain target prices, see "Business--Employees."                 

Fresh Start Reporting                                                         

In connection with the '95 Reorganization, the Company adopted fresh start  
reporting in accordance with the American Institute of Certified Public         
Accountants' Statement of Position 90-7 "--Financial Reporting by Entities in   
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The fresh start         
reporting common equity value of the Company was determined by the Company,     
with the assistance of its financial advisors, to be approximately $270.0       
million based, in part, on assumptions as to future results of operations. The  
carrying value of the Company's assets does not reflect historical cost but     
rather reflects current values determined by the Company as of the August 23,   
1995 effective date (the "'95 Effective Date") of the '95 Reorganization        
(including values for intangible assets such as routes, gates and slots of      
approximately $458.4 million). The difference between (i) the equity valuation  
of the Company plus the estimated fair market value of the Company's            
liabilities and (ii) the estimated fair market value of its identifiable        
assets was allocated to "reorganization value in excess of amounts allocable    
to identifiable assets" in the amount of approximately $839.1 million. In       
future periods, these intangible assets will be evaluated for recoverability    
based upon estimated future cash flows. If expectations are not substantially   
achieved, charges to future operations for impairment of these assets might be  
required and such charges could be material. Due to the significant             
adjustments relating to the '95 Reorganization and the adoption of fresh start  
reporting, the pre-reorganization consolidated financial statements are not     
comparable to the post-reorganization consolidated financial statements. A      
vertical black line is shown in the Consolidated Financial Statements and       
Selected Consolidated Financial Data presented herein to separate TWA's post-   
reorganization Consolidated Financial Statements from its pre-'95               
Reorganization consolidated financial statements since they have not been       
prepared on a consistent basis of                                               

22  

S-4/A
24th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 24th
accounting. See "Management's Discussion and Analysis of Financial Condition    
and Results of Operations" and Note 19 to the Consolidated Financial            
Statements.                                                                     

In the fourth quarter of 1996, the Company reported a special charge of     
$26.7 million relating to the write-down of the carrying value of TWA's JFK-    
Athens route authority, reflecting the Company's decision to terminate service  
on such route after April 18, 1997.                                             

RISK FACTORS RELATED TO THE INDUSTRY                                            

Competition                                                                   

The airline industry operates in an intensely competitive environment. TWA  
competes with one or more major airlines on most of its routes (including on    
all routes between major cities) and with various forms of surface              
transportation. The airline industry is also cyclical due to, among other       
things, a close relationship of yields and traffic to general U.S. and          
worldwide economic conditions. Small fluctuations in RASM and cost per          
available seat mile ("CASM") can have a significant impact on the Company's     
financial results. Airline profit levels are highly sensitive to, and during    
recent years have been adversely affected by, among other things, changes in    
fuel costs, fare levels and passenger demand. Vigorous price competition        
exists, and TWA and its competitors have frequently offered sharply reduced     
discount fares in many markets. Airlines, including TWA, use discount fares     
and other promotions to stimulate traffic during normally slack travel          
periods, to generate cash flow and to increase relative market share in         
selected markets. TWA has often elected to initiate or match discount or        
promotional fares in certain markets in order to compete vigorously in those    
discounted markets or to stimulate traffic. Passenger demand and fare levels    
have also been affected adversely by, among other factors, the state of the     
economy and international events.                                               

The airline industry has consolidated in recent years as a result of mergers
and liquidations, and further consolidation may occur in the future. This       
consolidation has, among other things, enabled certain of the Company's major   
competitors to expand their international operations and increase their         
domestic market presence. In addition, certain of the Company's competitors     
have in recent years established alliances with one or more large foreign       
carriers, allowing those competitors to strengthen their overall operations     
by, among other things, transporting passengers connecting with or otherwise    
traveling on the alliance carriers. Although the Company has established a      
code share arrangement with one foreign carrier and has filed an application    
with the DOT to establish an alliance with another foreign carrier, it does     
not have an alliance with a large foreign carrier.                              

The emergence and growth of low cost, low fare carriers in domestic markets 
represents an intense competitive challenge for the Company, which has higher   
operating costs than many of such low fare carriers and fewer financial         
resources than many of its major competitors. In many cases, such low cost      
carriers have initiated or triggered price discounting. In part as a result of  
the industry consolidation referred to above, aircraft, skilled labor and       
gates at most airports continue to be readily available to start-up carriers.   
To the extent new carriers or other lower cost competitors enter markets in     
which the Company operates, such competition could have a material adverse      
effect on the Company. Certain of the traditional carriers that compete with    
TWA have implemented, or are in the process of implementing, measures to        
reduce their operating costs including the creation of low cost regional jet    
airline affiliates. In addition, the Company is more highly leveraged and has   
significantly less liquidity (and in certain cases, a higher cost structure)    
than certain of its competitors, several of whom have available lines of        
credit, significant unencumbered assets and/or greater access to capital        
markets. Accordingly, TWA may be less able than certain of its competitors to   
withstand a prolonged recession in the airline industry or prolonged periods    
of competitive pressure.                                                        

Demand for air transportation has historically tended to mirror general     
economic conditions. During the most recent economic recession in the United    
States, the change in industry capacity failed to mirror the reduction in       
demand for domestic air transportation due primarily to continued delivery of   
new aircraft. While in the period following such recession, industry capacity   
leveled off, such capacity has again begun to expand. TWA expects that the      
airline industry will remain extremely competitive for the foreseeable future.  

23  

S-4/A
25th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 25th
Aircraft Fuel                                                                 

Since fuel costs constitute a significant portion of the Company's operating
costs (approximately 15.6% in 1996 and approximately 14.5% for the first nine   
months of 1997), significant increases in fuel costs would materially and       
adversely affect the Company's operating results. Fuel prices continue to be    
susceptible to, among other factors, political events and market factors        
beyond the Company's control, and the Company cannot predict near or longer-    
term fuel prices. In the event of a fuel supply shortage resulting from a       
disruption of oil imports or otherwise, higher fuel prices or curtailment of    
scheduled service could result. During 1996, the Company's average per gallon   
cost of fuel increased approximately 22.3% versus 1995, from approximately      
57.0c per gallon to approximately 70.0c per gallon. During the first nine       
months of 1997, the Company's average per gallon cost of fuel decreased         
approximately 2.1%, from approximately 67.9c per gallon to approximately 66.5c  
per gallon. See "Management's Discussion and Analysis of Financial Condition    
and Results of Operations." A one cent change in the cost per gallon of fuel    
(based on consumption during the first nine months of 1997) impacts operating   
expense by approximately $620,000 per month. Increases in fuel prices may have  
a greater proportionate and more immediate impact on TWA than many of its       
competitors because of the composition of its fleet and because the Company     
does not presently maintain substantial reserves of fuel required for its       
operations or otherwise hedge the cost of anticipated purchases of fuel. See    
"Business--Aircraft Fuel."                                                      

Regulatory Matters                                                            

The airline industry is subject to extensive federal and international      
government regulations relating to airline safety, security and scheduling, as  
well as to local, state, federal, and international environmental laws.         
Adoption of newly proposed regulations relating to these matters could          
increase the Company's cost of compliance with governmental regulations, and    
could therefore increase operating expenses and in some cases restrict the      
operations of airlines, including TWA, thereby adversely affecting TWA's        
results of operations.                                                          

During the last several years, the FAA has issued a number of maintenance   
directives and other regulations relating to, among other things, collision     
avoidance systems, airborne windshear avoidance systems, noise abatement and    
increased inspection requirements, including added requirements for aging       
aircraft. TWA believes, based on its current fleet, that it will incur          
substantial capital expenditures to comply with the aging aircraft and noise    
abatement regulations. The Company expects that a number of aircraft will be    
retired before major aging aircraft modifications and noise compliance will be  
required; however, required capital expenditures will vary depending upon       
changes in TWA's fleet composition. Management expects that the cost of         
compliance will be funded through a combination of internally generated funds   
and utilization of cost sharing and/or funding provisions under certain lease   
agreements and loan agreements. See "--Risk Factors Related to the Company--    
Liquidity; Substantial Indebtedness; Capital Expenditure Requirements."         

Additional laws and regulations have been proposed from time to time which  
could significantly increase the cost of airline operations by, for instance,   
imposing additional requirements or restrictions on operations. For example,    
several airports have recently sought to increase substantially the rates       
charged to airlines, and the ability of airlines to contest such increases has  
been restricted by federal legislation, DOT resolutions and judicial            
decisions. In addition, laws and regulations have also been considered from     
time to time that would prohibit or restrict the ownership and/or transfer of   
airline routes or takeoff and landing slots. Also, the award of international   
routes to U.S. carriers (and their retention) is regulated by treaties and      
related agreements between the United States and foreign governments which are  
amended from time to time. The Company cannot predict what laws and             
regulations will be adopted or what changes to international air                
transportation treaties will be effected, if any, or how they will affect TWA.  
See "Business--Regulatory Matters."                                             

Management believes that the Company benefitted from the expiration on      
December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which      
imposed certain taxes including a 10% air passenger tax on tickets for          
domestic flights, a 6.25% air cargo tax and a $6 per person international       
departure tax. The Ticket                                                       

24  

S-4/A
26th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 26th
Tax was reinstated on August 27, 1996 and expired again on December 31, 1996.   
At the end of February 1997, the Ticket Tax was reinstated effective March 7,   
1997 through September 30, 1997. Congress recently passed tax legislation       
reimposing and significantly modifying the Ticket Tax. The legislation          
includes the imposition of new excise tax and significant fee tax formulas      
over a multiple year period, an increase in the international departure tax,    
the imposition of a new arrivals tax, and the extension of the Ticket Tax to    
cover items such as the sale of frequent flier miles. Management believes that  
the reimposition and modification of the Ticket Tax will have a negative        
impact on the Company, although neither the amount of such negative impact nor  
the benefit previously realized by its expiration can be precisely determined.  
However, management believes that the recent tax legislation and any other      
increases of the Ticket Tax will result in higher costs to the Company and/or,  
if passed on to consumers in the form of increased ticket prices, might have    
an adverse effect on passenger traffic, revenue and/or margins. See             
"Business--Regulatory Matters."                                                 

RISK FACTORS RELATING TO THE NOTES AND THE EXCHANGE OFFER                       

Certain Bankruptcy Considerations                                             

If the Company were to become a debtor in a proceeding under Title 11 of the
United States Bankruptcy Code, as amended (the "Bankruptcy Code"), it is        
likely that there would be delays in payment with respect to the Notes and      
delays in or prevention from enforcing remedies and other rights that may       
otherwise be available to holders of the Notes, including rights with respect   
to the Collateral (as defined). It is also possible that holders of Notes       
would not ultimately receive repayment, in whole or in part, of the Notes. See  
"Description of Notes --Certain Bankruptcy Limitations."                        

Ranking of the Notes                                                          

The Notes represent senior secured obligations of the Company and rank pari 
passu in right of payment with other senior obligations of the Company. None    
of the Company's outstanding indebtedness is senior to the Notes. As of         
September 30, 1997, after giving effect to the issuance of the Notes and the    
application of the proceeds therefrom, the aggregate principal amount of the    
Company's total outstanding indebtedness would have been approximately          
$1,032.7 million, all of which constitutes senior obligations. While unsecured  
indebtedness ranks pari passu with the Notes in right of payment, the holders   
of the Notes may, to the exclusion of unsecured creditors, seek recourse        
against the Collateral as security for the Notes unless and until the Notes     
are satisfied in full. See "Description of Notes--Collateral Security" and "--  
Certain Bankruptcy Limitations." The Notes are not presently guaranteed by any  
subsidiary of the Company and as a result effectively rank junior to all        
creditors (including trade creditors) of, and holders of preferred stock        
issued by, subsidiaries of the Company. As of September 30, 1997, the           
subsidiaries of the Company did not have any outstanding indebtedness or        
preferred stock. Although the Notes contain restrictions on the incurrence of   
indebtedness by subsidiaries, the amount of indebtedness which is permitted to  
be incurred could be substantial. The Notes contain no limitations on the       
ability of subsidiaries to incur trade credit and other obligations. See        
"Description of Notes."                                                         

Fraudulent Conveyance                                                         

Under certain circumstances, subsidiaries of the Company will be required to
guarantee the Company's obligations with respect to the Notes. The Company      
believes that any such guarantee will be for proper purposes and in good        
faith. See "Description of Notes--Certain Covenants--Limitation on Guarantees   
by Restricted Subsidiaries."                                                    

If a court of competent jurisdiction in a suit by an unpaid creditor or a   
representative of creditors (such as a trustee in bankruptcy or a debtor-in-    
possession) were to find that, at the time such subsidiary incurred its         
obligations under its guarantee, either such subsidiary incurred such           
obligations with the intent to hinder, delay                                    

25  

S-4/A
27th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 27th
or defraud its present or future creditors, or that it was insolvent or was     
rendered insolvent by reason of such incurrence, was engaged or was about to    
engage in a business or transaction for which its remaining unencumbered        
assets constituted unreasonably small capital to carry on its business or       
intended to incur, or believed or reasonably should have believed that it       
would incur, debts beyond its ability to pay such debts as they matured, and    
the indebtedness was incurred for less than reasonably equivalent value, such   
court could avoid such subsidiary's obligations under its guarantee,            
subordinate such guarantee to any or all other indebtedness of such subsidiary  
or take other action detrimental to the holders of the Notes. In that event,    
there can be no assurance that any repayment on such guarantee could ever be    
recovered by the holders of the Notes.                                          

The measure of insolvency for purposes of the foregoing will vary depending 
upon the law of the jurisdiction in which it is being applied. Generally,       
however, an entity would be considered insolvent for these purposes if, at the  
time it incurred indebtedness such as a guaranty obligation, either the sum of  
its debts was then greater than all of its property at a fair valuation, or     
the then fair salable value of its assets was less than the amount that was     
then required to pay its probable liabilities on its existing debts (including  
contingent liabilities such as guarantee obligations) as they become absolute   
and matured or if, at any time, it proved unable to satisfy its liabilities     
immediately due and payable with its current cash flow and available assets.    

Slots as Collateral                                                           

The FAA has designated certain congested U.S. airports as "High Density     
Traffic Airports." At those airports, the FAA determines the maximum hourly     
number of Instrument Flight Rule take-offs and landings which may be reserved   
for use by air carriers and other airport operators. The authority granted by   
the FAA to conduct one take-off or landing in a specified time period at one    
of such airports is referred to as a "slot." A portion of the Collateral        
securing the Company's obligations under the Notes is the Company's beneficial  
interest in 30 of the Company's slots at Washington National Airport. These     
slots are subject to complete control by the FAA and may be withdrawn from the  
Company without compensation at any time to fulfill the FAA's operational       
needs, including, but not limited to, providing slots for international or      
essential air service operations or eliminating slots. The availability of      
slots to serve as collateral and the ability of the Trustee on behalf of the    
holders of the Notes to foreclose upon or realize any value from the sale or    
transfer of such slots may be impaired. Further, FAA regulations provide that   
except in certain circumstances, the FAA shall recall any slots not utilized    
by an airline 80% of the time over a two consecutive month period. The FAA has  
proposed that this utilization requirement be increased to up to 90% under      
certain circumstances and with respect to certain slots. See "Description of    
Notes--Collateral Security" and "Business--Regulatory Matters--Slot             
Restrictions."                                                                  

Appraisal of Collateral; Sufficiency of Collateral                            

The appraisal of the aircraft spare parts and slots constituting part of the
Collateral was prepared by Simat, Helliesen & Eichner, Inc. As of the date of   
such appraisal, the fair market value, as therein defined, of these portions    
of the Collateral was approximately $270 million. The appraisal is subject to   
certain assumptions and limitations and is only an estimate of value. The       
appraisal should not be relied on as a measure of realizable value of such      
Collateral, which may be more or less than the value indicated in the           
appraisal. The value of such Collateral in the event of liquidation will        
likely be less than fair market value and could be considerably below such      
value depending on market and economic conditions, the rapidity with which      
such Collateral is sought to be sold, the availability of buyers, the           
existence of liens and/or claims with respect to such Collateral and similar    
factors. A substantial portion of the aircraft spare parts component of the     
Collateral consists of spare parts for Lockheed L-1011 and Boeing 747           
aircraft. The Company retired its last L-1011 aircraft in September 1997 and    
its last 747 aircraft is scheduled to leave active service in February 1998,    
which factors have been taken into consideration in determining the fair        
market value of the spare parts relating to such aircraft in the appraisal. In  
addition, given that the Collateral Documents (as defined) contain provisions   
permitting the use, release, substitution and sale of Collateral, the           
composition and amount of Collateral will continually change. Accordingly,      
there can be no assurances that the proceeds of any sale of Collateral          
pursuant to the Indenture and Collateral Documents following a default would    
be sufficient to satisfy all payments due on the Notes. If such proceeds were   
not sufficient to repay all such amounts due on the Notes, then holders (to     
the extent not repaid                                                           

26  

S-4/A
28th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 28th
from the proceeds of the sale of Collateral) would have only an unsecured       
claim against the Company's remaining assets. In addition, the ability of       
holders to realize upon the Collateral may be subject to certain federal        
bankruptcy law limitations and, due to the nature of the Collateral             
(particularly the Slots), significant restrictions imposed by governmental      
authorities including the DOT and FAA. The Collateral Documents will require    
the Company to maintain a minimum ratio of collateral value to outstanding      
principal balance of Notes, but this ratio requirement will only be triggered   
if certain minimum threshold values of spare parts Collateral are not met. See  
"Description of Notes--Collateral Security."                                    

Change in Control; Cross Default Provisions                                   

Upon a Change in Control, each holder of Notes will have the right, for a   
limited period of time, to require the Company to repurchase all or any part    
of such holder's Notes at a price in cash equal to 101% of the principal        
amount thereof, plus accrued and unpaid interest and Special Interest, if any,  
to the date fixed for repurchase. However, there can be no assurance that upon  
the occurrence of such a Change in Control, the Company will be able to         
repurchase the Notes. In the event the Company fails to repurchase the Notes    
upon a Change in Control, it would be in default under the Indenture and the    
maturity of substantially all of its long-term debt could be accelerated. See   
"Description of Notes--Repurchase of Notes Upon a Change in Control."           

Lack of Prior Market for the Exchange Notes                                   

The Exchange Notes are being offered to the holders of the Old Notes. The   
Old Notes were offered and sold in December 1997 to "Qualified Institutional    
Buyers" and to a limited number of other institutional "Accredited Investors"   
(as defined in Rule 144A and Rule 501(a)(1), (2), (3) or (7) under the          
Securities Act, respectively) and in offshore transactions complying with Rule  
903 or Rule 904 of Regulation S under the Securities Act and are eligible for   
trading in the PORTAL Market.                                                   

The Exchange Notes will constitute a new issue of securities for which there
is currently no established trading market, and the Exchange Notes may not be   
widely distributed. Although the Initial Purchasers are making a market in the  
Old Notes and have indicated to the Company that they currently intend to make  
a market in the Exchange Notes, as permitted by applicable laws and             
regulations, they are not obligated to do so and any such market-making may be  
discontinued at any time without notice at the sole discretion of the Initial   
Purchasers. In addition, such market making activities may be limited during    
the Exchange Offer and the pendency of a Shelf Registration Statement.          
Accordingly, no assurance can be given that an active trading market for the    
Exchange Notes will develop. If a market for any of the Exchange Notes does     
develop, the price of such Exchange Notes may fluctuate and liquidity may be    
limited. If a market for any of the Exchange Notes does not develop,            
purchasers may be unable to resell such Exchange Notes for an extended period   
of time, if at all. The Exchange Notes have been approved for listing on the    
American Stock Exchange. The Company has agreed to maintain such listing for    
so long as any of the Exchange Notes is outstanding.                            

Historically, the market for non-investment grade debt has been subject to  
disruptions that have caused substantial volatility in the prices of such       
securities. There can be no assurance that the market for the Old Notes or the  
Exchange Notes will not be subject to similar disruptions. Any such             
disruptions may have an adverse effect on holders of the Old Notes or the       
Exchange Notes.                                                                 

Consequences of Failure to Exchange                                           

Holders of Old Notes who do not exchange their Old Notes for Exchange Notes 
pursuant to the Exchange Offer will continue to be subject to the restrictions  
on transfer of such Old Notes as set forth in the legend thereon. In general,   
the Old Notes may not be offered or sold, unless registered under the           
Securities Act, except pursuant to an exemption from, or in a transaction not   
subject to the Securities Act and applicable state securities laws. The         
Company does not intend to register the Old Notes under the Securities Act.     
The Company believes that, based upon interpretations contained in letters      
issued to third parties by the staff of the SEC, Exchange Notes issued          
pursuant to the Exchange Offer in exchange for Old Notes may be offered for     
resale, resold or                                                               

27  

S-4/A
29th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 29th
otherwise transferred by each Holder thereof (other than a broker-dealer, as    
set forth below, and any such Holder which is an "affiliate" of the Company     
within the meaning of Rule 405 under the Securities Act) without compliance     
with the registration and prospectus delivery provisions of the Securities Act  
provided that such Exchange Notes are acquired in the ordinary course of such   
Holder's business and such Holder has no arrangement or understanding with any  
person to participate in the distribution of such Exchange Notes. Eligible      
Holders wishing to accept the Exchange Offer must represent to the Company in   
the Letter of Transmittal that (i) the Exchange Notes acquired pursuant to the  
Exchange Offer are being obtained in the ordinary course of business of the     
person receiving such Exchange Notes, whether or not such person is such        
holder, (ii) neither the holder of Old Notes nor any such other person has an   
arrangement or understanding with any person to participate in the              
distribution of such Exchange Notes, (iii) if the holder is not a broker-       
dealer or is a broker-dealer but will not receive Exchange Notes for its own    
account in exchange for Old Notes, neither the holder nor any such other        
person is engaged in or intends to participate in a distribution of the         
Exchange Notes and (iv) neither the holder nor any such other person is an      
"affiliate" of the Company within the meaning of Rule 405 or if such holder is  
an "affiliate", that such holder will comply with the registration and          
prospectus delivery requirements of the Securities Act to the extent            
applicable. Each broker-dealer (whether or not it is also an "affiliate") that  
receives Exchange Notes for its own account pursuant to the Exchange Offer      
must represent that the Old Notes tendered in exchange therefor were acquired   
as a result of market-making activities or other trading activities and must    
acknowledge that it will deliver a prospectus in connection with any resale of  
such Exchange Notes. The Letter of Transmittal states that by so acknowledging  
and by delivering a prospectus, a broker-dealer will not be deemed to admit     
that it is an "underwriter" within the meaning of the Securities Act. This      
Prospectus, as it may be amended or supplemented from time to time, may be      
used by a broker-dealer in connection with the resales of Exchange Notes        
received in exchange for Old Notes where such Old Notes were acquired by such   
broker-dealer as a result of market-making activities or other trading          
activities. The Company has agreed that, for a period of 180 days after the     
Expiration Date (as defined herein), it will make this Prospectus available to  
any broker-dealer for use in connection with any such resale. See "Plan of      
Distribution." However, to comply with the securities laws of certain           
jurisdictions, if applicable, the Exchange Notes may not be offered or sold     
unless they have been registered or qualified for sale in such jurisdiction or  
an exemption from registration or qualification is available and is complied    
with. The Company does not currently intend to take any action to register or   
qualify the Exchange Notes for resale in any such jurisdictions.                

In the event the Exchange Offer is consummated, the Company will not be     
required to register the transfer of the Old Notes under the Securities Act or  
any applicable securities laws. In such event, holders of Old Notes seeking     
liquidity in their investment would have to rely on exemptions to the           
registration requirements under such laws. The Old Notes currently may be sold  
to "Qualified Institutional Buyers" and to a limited number of other            
institutional "Accredited Investors" (as defined in Rule 144A and Rule 501(a)   
(1), (2), (3) or (7) under the Securities Act, respectively) and in offshore    
transactions complying with Rule 903 or Rule 904 of Regulation S under the      
Securities Act or pursuant to another available exemption under the Securities  
Act without registration under the Securities Act. To the extent that Old       
Notes are tendered and accepted in the Exchange Offer, the reduction in the     
principal amount of Old Notes outstanding could have an adverse effect upon,    
and increase the volatility of the market price for, the untendered and         
tendered but unaccepted Old Notes.                                              

Exchange Offer Procedures                                                     

To participate in the Exchange Offer, and avoid the restrictions on Old     
Notes, each holder of Old Notes must transmit a properly completed Letter of    
Transmittal, including all other documents required by such Letter of           
Transmittal, to the First Security Bank, National Association (the "Exchange    
Agent") at the address set forth below under "Exchange Agent" on or prior to    
the Expiration Date. In addition, (i) certificates for such Old Notes must be   
received by the Exchange Agent along with the Letter of Transmittal, (ii) a     
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of   
such Old Notes, if such procedure is available, into the Exchange Agent's       
account at The Depository Trust Company ("DTC" or the "Depositary") pursuant    
to the procedure for book-entry transfer described below, must be received by   
the Exchange Agent prior to the Expiration Date or (iii) the Holder must        
comply with the guaranteed delivery procedures. See "The Exchange Offer."       

28  

S-4/A
30th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 30th
USE OF PROCEEDS 

The Company will not receive any proceeds from the Exchange Offer. The      
Company has agreed to pay the expenses of the Exchange Offer. No underwriter    
is being used in connection with the Exchange Offer.                            

THE EXCHANGE OFFER  

PURPOSE OF THE EXCHANGE OFFER                                                   

On December 9, 1997, the Company issued $140 million aggregate principal    
amount of Old Notes to the Initial Purchasers. In connection with the issuance  
and sale of the Old Notes, the Company entered into the Registration Rights     
Agreement with the Initial Purchasers, which obligated the Company to (i) file  
the Registration Statement of which this Prospectus is a part for the Exchange  
Offer within 60 days after December 9, 1997, the date the Old Notes were        
issued (the "Issue Date"), (ii) use its best efforts to cause the Registration  
Statement to become effective within 150 days after the Issue Date, and (iii)   
consummate the Exchange Offer within 180 days of the Issue Date. A copy of the  
Registration Rights Agreement has been filed as an exhibit to the Registration  
Statement of which this Prospectus is a part. The Exchange Offer is being made  
pursuant to the Registration Rights Agreement to satisfy the Company's          
obligations thereunder.                                                         

Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to Exxon Capital Holdings Corporation (available May 13,  
1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay     
Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc. (available October   
11, 1991), the Company believes that a holder who exchanges Old Notes for       
Exchange Notes pursuant to the Exchange Offer may offer for resale, resell and  
otherwise transfer such Exchange Notes without compliance with the              
registration and prospectus delivery requirements of the Securities Act;        
provided, that (i) such Exchange Notes are acquired in the ordinary course of   
such holder's business, (ii) such holder is not engaged in, and does not        
intend to engage in, a distribution of such Exchange Notes and has no           
arrangement with any person to participate in the distribution of such          
Exchange Notes, and (iii) such holder is not an affiliate of the Company (as    
defined under Rule 405 of the Securities Act). However, the staff of the        
Commission has not considered the Exchange Offer in the context of a no-action  
letter and there can be no assurance that the staff of the Commission would     
make a similar determination with respect to the Exchange Offer as in such      
other circumstances. A holder who exchanges Old Notes for Exchange Notes        
pursuant to the Exchange Offer with the intention to participate in a           
distribution of the Exchange Notes may not rely on the staff's position         
enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar    
letters and must comply with the registration and prospectus delivery           
requirements of the Securities Act in connection with any resale transaction.   
Each broker-dealer that receives Exchange Notes for its own account in          
exchange for Old Notes, where such Old Notes were acquired by such broker-      
dealer as a result of market-making activities or other trading activities,     
must acknowledge that it will deliver a prospectus in connection with any       
resale of such Exchange Notes. See "Plan of Distribution." The Letter of        
Transmittal states that by so acknowledging and by delivering a prospectus, a   
broker-dealer will not be deemed to admit that it is an "underwriter" within    
the meaning of the Securities Act. This Prospectus, as it may be amended or     
supplemented from time to time, may be used by a broker-dealer in connection    
with resales of Exchange Notes (other than a resale of an unsold allotment      
from the original sale of the Notes) received in exchange for Old Notes where   
such Old Notes were acquired by such broker-dealer as a result of market-       
making activities or other trading activities. The Company has agreed that,     
for a period of 180 days after the Expiration Date, it will make this           
Prospectus available to any broker-dealer for use in connection with any such   
resale. See "Plan of Distribution."                                             

TERMS OF THE EXCHANGE OFFER                                                     

Upon the terms and subject to the conditions set forth in this Prospectus   
and in the accompanying Letter of Transmittal (which together constitute the    
Exchange Offer), the Company will accept any and all Old Notes validly          
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the       
Expiration Date. The                                                            

29  

S-4/A
31st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 31st
Company will issue a principal amount at maturity of Exchange Notes in          
exchange for an equal principal amount at maturity of outstanding Old Notes     
validly tendered pursuant to the Exchange Offer and not withdrawn prior to the  
Expiration Date. Old Notes may only be tendered in integral multiples at        
maturity of $1,000. Holders may tender some or all of their Old Notes pursuant  
to the Exchange Offer.                                                          

The terms of the Exchange Notes and the Old Notes are substantially         
identical in all material respects, except that (i) the exchange will be        
registered under the Securities Act and, therefore, the Exchange Notes will     
not bear legends restricting the transfer of such Exchange Notes, and (ii)      
holders of the Exchange Notes will not be entitled to any of the registration   
rights of holders of Old Notes under the Registration Rights Agreement, which   
rights will terminate upon the consummation of the Exchange Offer. See          
"Description of Exchange Notes." The Exchange Notes will evidence the same      
indebtedness as the Old Notes. The Exchange Notes will be issued under and      
entitled to the benefits of the Indenture pursuant to which the Old Notes were  
issued such that the Exchange Notes and Old Notes will be treated as a single   
class of debt securities under the Indenture.                                   

As of the date of this Prospectus, $140 million aggregate principal amount  
at maturity of the Old Notes are outstanding. This Prospectus, together with    
the Letter of Transmittal, is being sent to all registered holders of the Old   
Notes.                                                                          

Holders of Old Notes do not have any appraisal or dissenters' rights under  
the DGCL or the Indenture in connection with the Exchange Offer. The Company    
intends to conduct the Exchange Offer in accordance with the provisions of the  
Registration Rights Agreement and the applicable requirements of the Exchange   
Act, and the rules and regulations of the Commission thereunder. Old Notes      
which are not tendered and were not prohibited from being tendered for          
exchange in the Exchange Offer will remain outstanding and continue to accrue   
interest and to be subject to transfer restrictions, but will not be entitled   
to any rights or benefits under the Registration Rights Agreement.              

Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept, promptly after the Expiration Date, all Old Notes          
properly tendered and not withdrawn and will issue Exchange Notes in exchange   
therefor promptly after acceptance of the Old Notes. For purposes of the        
Exchange Offer, the Company shall be deemed to have accepted properly tendered  
Old Notes for exchange when, as and if, the Company has given oral or written   
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for  
the tendering holders for the purposes of receiving the Exchange Notes from     
the Company.                                                                    

In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt  
by the Exchange Agent of such Old Notes, a properly completed and duly          
executed Letter of Transmittal and all other required documents; provided,      
however, that the Company reserves the absolute right to waive any defects or   
irregularities in the tender or conditions of the Exchange Offer. If any        
tendered Old Notes are not accepted for any reason set forth in the terms and   
conditions of the Exchange Offer or if Old Notes are submitted for a greater    
principal amount at maturity than the holder desires to exchange, such          
unaccepted or nonexchanged Old Notes or substitute Old Notes evidencing the     
unaccepted portion, as appropriate, will be returned without expense to the     
tendering holder thereof as promptly as practicable after the expiration or     
termination of the Exchange Offer.                                              

Holders who tender Old Notes in the Exchange Offer will not be required to  
pay brokerage commissions or fees or, subject to the instructions in the        
Letter of Transmittal, transfer taxes with respect to the exchange of Old       
Notes pursuant to the Exchange Offer. The Company will pay all charges and      
expenses, other than certain applicable taxes described below, in connection    
with the Exchange Offer. See "--Fees and Expenses."                             

EXPIRATION DATE; EXTENSION; AMENDMENTS                                          

The term "Expiration Date" shall mean 5:00 p.m., New York City time, on     
March 9, 1998 (30 days following the commencement of the Exchange Offer),       
unless the Company, in its sole discretion, extends the                         

30  

S-4/A
32nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 32nd
Exchange Offer, in which case the term "Expiration Date" will mean the latest   
date and time to which the Exchange Offer is extended.                          

In order to extend the Exchange Offer, the Company will notify the Exchange 
Agent of any extension by oral or written notice and will mail to the           
registered holders an announcement thereof, prior to 9:00 a.m., New York City   
time, on the next business day after the then Expiration Date.                  

The Company reserves the right, in its sole discretion, (i) to delay        
accepting any Old Notes, to extend the Exchange Offer or to terminate the       
Exchange Offer if any of the conditions set forth below under "--Conditions"    
shall not have been satisfied, by giving oral or written notice of such delay,  
extension or termination to the Exchange Agent or (ii) to amend the terms of    
the Exchange Offer. Any such delay in acceptance, extension, termination or     
amendment will be followed as promptly as practicable by oral or written        
notice thereof to the registered holders. If the Exchange Offer is amended in   
a manner determined by the Company to constitute a material change, the         
Company will promptly disclose such amendment in a manner reasonably            
calculated to inform the holders of Old Notes of such amendment.                

Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange  
Offer, the Company shall have no obligation to publish, advertise, or           
otherwise communicate any such public announcement, other than by making a      
timely release to an appropriate news agency.                                   

INTEREST ON THE EXCHANGE NOTES                                                  

The Exchange Notes will bear interest from December 9, 1997 at the rate of  
11 1/2% per annum, payable semi-annually in arrears, in cash, on June 15 and    
December 15 of each year, commencing June 15, 1998. Holders of Old Notes whose  
Old Notes are accepted for exchange will be deemed to have waived the right to  
receive any payment in respect of interest on the Old Notes accrued from        
December 9, 1997 until the date of the issuance of the Exchange Notes.          
Consequently, holders who exchange their Old Notes for Exchange Notes will      
receive the same interest payment on June 15, 1998 (the first interest payment  
date with respect to the Old Notes and the Exchange Notes) that they would      
have received had they not accepted the Exchange Offer.                         

CONDITIONS                                                                      

Notwithstanding any other term of the Exchange Offer, the Company will not  
be required to exchange any Exchange Notes for any Old Notes, and may           
terminate or amend the Exchange Offer before the acceptance of any Old Notes    
for exchange, if: (a) any action or proceeding is instituted or threatened in   
any court or by or before any governmental agency with respect to the Exchange  
Offer which seeks to restrain or prohibit the Exchange Offer or, in the         
Company's judgment, would materially impair the ability of the Company to       
proceed with the Exchange Offer, or (b) any law, statute, rule or regulation    
is proposed, adopted or enacted, or any existing law, statute, rule, order or   
regulation is interpreted, by any government or governmental authority which,   
in the Company's judgment, would materially impair the ability of the Company   
to proceed with the Exchange Offer, or (c) the Exchange Offer or the            
consummation thereof would otherwise violate or be prohibited by applicable     
law.                                                                            

If the Company determines in its sole discretion that any of these          
conditions are not satisfied, the Company may (i) refuse to accept any Old      
Notes and return all tendered Old Notes to the tendering holders, (ii) extend   
the Exchange Offer and retain all Old Notes tendered prior to the expiration    
of the Exchange Offer, subject, however, to the rights of holders who tendered  
such Old Notes to withdraw their tendered Old Notes, or (iii) waive such        
unsatisfied conditions with respect to the Exchange Offer and accept all        
properly tendered Old Notes which have not been withdrawn. If the Company's     
waiver constitutes a material change to the Exchange Offer, the Company will    
promptly disclose such waiver by means of a prospectus supplement that will be  
distributed to the registered holders, and the Company will extend the          
Exchange Offer for a period of five to ten business days, depending             

31  

S-4/A
33rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 33rd
upon the significance of the waiver and the manner of disclosure to the         
registered holders, if the Exchange Offer would otherwise expire during such    
five to ten business day period.                                                

The foregoing conditions are for the sole benefit of the Company and may be 
asserted by the Company regardless of the circumstances giving rise to any      
such condition or may be waived by the Company in whole or in part at any time  
and from time to time in its sole discretion. The Company's failure at any      
time to exercise any of the foregoing rights will not be deemed a waiver of     
any such right, and each such right will be deemed an ongoing right which may   
be asserted at any time and from time to time. Any determination by the         
Company concerning the events described above will be final and binding on all  
parties. NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE     
EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.     

PROCEDURES FOR TENDERING                                                        

Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. 
To tender in the Exchange Offer, a holder must (i) complete, sign and date the  
Letter of Transmittal, or a facsimile thereof, have the signatures thereon      
guaranteed if required by the Letter of Transmittal, and mail or otherwise      
deliver such Letter of Transmittal or such facsimile, together with the Old     
Notes (unless such tender is being effected pursuant to the procedure for       
book-entry transfer described below) and any other required documents, to the   
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date,  
or (ii) comply with the guaranteed delivery procedures described below.         
Delivery of all documents must be made to the Exchange Agent at its address     
set forth herein. Each broker-dealer that receives Exchange Notes for its own   
account in exchange for Old Notes, where such Notes were acquired by such       
broker-dealer as a result of market-making activities or other trading          
activities, must acknowledge that it will deliver a prospectus in connection    
with the resale of such Exchange Notes. See "Plan of Distribution."             

The tender of Old Notes by a holder as set forth below will constitute an   
agreement between such holder and the Company in accordance with the terms and  
subject to the conditions set forth in this Prospectus and in the Letter of     
Transmittal.                                                                    

THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL   
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF   
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN  
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE     
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.    
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS    
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST          
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.        

Any beneficial owner(s) whose Old Notes are registered in the name of a     
broker, dealer, commercial bank, trust company or other nominee and who wishes  
to tender should contract the registered holder promptly and instruct such      
registered holder to tender on such beneficial owner's behalf. If such          
beneficial owner wishes to tender on such owner's own behalf, such owner must,  
prior to completing and executing the Letter of Transmittal and delivering      
such owner's Old Notes, either make appropriate arrangement to register         
ownership of the Old Notes in such owner's name or obtain a properly completed  
bond power from the registered holder. The transfer of registered ownership     
may take considerable time.                                                     

Signatures on a Letter of Transmittal or a notice of withdrawal (described  
below), as the case may be, must be guaranteed by an "eligible guarantor        
institution" (banks, stockbrokers, savings and loan associations and credit     
unions with membership in an approved signature guarantee medallion program),   
pursuant to Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")     
unless the Old Notes tendered pursuant thereto are                              

32  

S-4/A
34th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 34th
tendered (i) by a registered holder who has not completed the box entitled      
"Special Issuance Instructions" or "Special Delivery Instructions" on the       
Letter of Transmittal or (ii) for the account of an Eligible Institution.       

If a person other than the registered holder of any Old Notes listed therein
signs the Letter of Transmittal, such Old Notes must be endorsed or             
accompanied by a properly completed bond power, signed by such registered       
holder as such registered holder's name appears on such Old Notes, with the     
signature thereon guaranteed by an Eligible Institution. If the Letter of       
Transmittal or any Old Notes or bond powers are signed by trustees, executors,  
administrators, guardians, attorneys-in-fact, officers of corporations or       
others acting in a fiduciary or representative capacity, such persons should    
so indicate when signing, and unless waived by the Company, evidence            
satisfactory to the Company of their authority to so act must be submitted      
with the Letter of Transmittal.                                                 

The Company will determine, in its sole discretion, all questions as to the 
validity, form, eligibility (including time of receipt), acceptance of          
tendered Old Notes and withdrawal of tendered Old Notes and the Company's       
determination will be final and binding. The Company reserves the absolute      
right to reject any and all Old Notes not properly tendered or any Old Notes    
the Company's acceptance of which would, in the opinion of counsel for the      
Company, be unlawful. The Company also reserves the right to waive any          
defects, irregularities or conditions of tender as to particular Old Notes.     
The Company's interpretation of the terms and conditions of the Exchange Offer  
(including the instructions in the Letter of Transmittal) will be final and     
binding on all parties. Unless waived, any defects or irregularities in         
connection with tenders of Old Notes must be cured within such time as the      
Company shall determine. Although the Company intends to notify holders of      
defects or irregularities with respect to tenders of Old Notes, neither the     
Company, the Exchange Agent nor any other person shall incur any liability for  
failure to give such notification. Tenders of Old Notes will not be deemed to   
have been made until such defects or irregularities have been cured or waived.  
Any Old Notes received by the Exchange Agent that are not properly tendered     
and as to which the defects or irregularities have not been cured or waived     
will be returned by the Exchange Agent to the tendering holders, unless         
otherwise provided in the Letter of Transmittal, as soon as practicable         
following the Expiration Date.                                                  

In addition, the Company reserves the right in its sole discretion to       
purchase or make offers for any Old Notes that remain outstanding subsequent    
to the Expiration Date or, as set forth above under "Conditions," to terminate  
the Exchange Offer and, to the extent permitted by applicable law, to purchase  
Old Notes in the open market, in privately negotiated transactions or           
otherwise. The terms of any such purchases or offers could differ from the      
terms of the Exchange Offer.                                                    

By tendering, each holder will represent to the Company that, among other   
things, (i) the Notes to be acquired pursuant to the Exchange Offer are being   
obtained in the ordinary course of business of such holder, (ii) such holder    
has no arrangement or understanding with any person to participate in the       
distribution (within the meaning of the Securities Act) of the Exchange Notes   
and (iii) such holder is not an "affiliate," as defined in Rule 405 under the   
Securities Act, of the Company, or that if it is an "affiliate," it will        
comply with applicable registration and prospectus delivery requirements of     
the Securities Act.                                                             

BOOK-ENTRY TRANSFER                                                             

Within two business days after the date of this Prospectus, the Exchange    
Agent will make a request to establish an account with respect to the Old       
Notes at the book-entry transfer facility for the Old Notes, DTC, for purposes  
of the Exchange Offer. Any financial institution that is a participant in       
DTC's systems may make book-entry delivery of Old Notes by causing DTC to       
transfer such Old Notes into the Exchange Agent's account with respect to the   
Old Notes in accordance with DTC's procedures for such transfer. Although       
delivery of Old Notes may be effected through book-entry transfer into the      
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any  
required signature guarantee and all other required documents must in each      
case be transmitted to and received and confirmed by the Exchange Agent at its  
address set forth below on or prior to the Expiration Date, or, if the          
guaranteed delivery procedures described below are complied with, within the    
time period provided under such procedures.                                     

33  

S-4/A
35th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 35th
GUARANTEED DELIVERY PROCEDURES                                                  

Holders who wish to tender their Old Notes and (i) whose Old Notes are not  
immediately available, (ii) who cannot deliver their Old Notes, the Letter of   
Transmittal or any other required documents to the Exchange Agent prior to the  
Expiration Date, or (iii) who cannot complete the procedures for book-entry     
transfer of Old Notes to the Exchange Agent's account with DTC prior to the     
Expiration Date, may effect a tender if:                                        

(a) The tender is made through an Eligible Institution;                 

(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (by facsimile transmission, mail or hand          
delivery) a properly completed and duly executed notice of guaranteed       
delivery substantially in the form provided by the Company (the "Notice of  
Guaranteed Delivery"), setting forth the name and address of the holder,    
the certificate number(s) of such Old Notes (if possible) and the principal 
amount at maturity of Old Notes tendered, stating that the tender is being  
made thereby and guaranteeing that, within five business trading days after 
the Expiration Date, (i) the Letter of Transmittal (or facsimile thereof)   
together with the certificate(s) representing the Old Notes and any other   
documents required by the Letter of Transmittal will be deposited by the    
Eligible Institution with the Exchange Agent, or (ii) that book-entry       
transfer of such Old Notes into the Exchange Agent's account at DTC will be 
effected and confirmation of such book-entry transfer will be delivered to  
the Exchange Agent; and                                                     

(c) Such properly completed and executed Letter of Transmittal (or      
facsimile thereof), as well as the certificate(s) representing all tendered 
Old Notes in proper form for transfer and all other documents required by   
the Letter of Transmittal, or confirmation of book-entry transfer of the    
Old Notes into the Exchange Agent's account at DTC, are received by the     
Exchange Agent within five business trading days after the Expiration Date. 

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be 
sent to holders who wish to tender their Old Notes according to the guaranteed  
delivery procedures set forth above.                                            

WITHDRAWAL OF TENDERS                                                           

Except as otherwise provided herein, tenders of Old Notes may be withdrawn  
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.     

To withdraw a tender of Old Notes in the Exchange Offer, the Exchange Agent 
must receive at its address set forth herein a telegram, telex, facsimile       
transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New  
York City time, on the Expiration Date. Any such notice of withdrawal must (i)  
specify the name of the person having tendered the Old Notes to be withdrawn    
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the   
certificate number or numbers and principal amount at maturity of such Old      
Notes), (iii) be signed by the holder in the same manner as the original        
signature on the Letter of Transmittal by which such Old Notes were tendered    
(including any required signature guarantees) or be accomplished by documents   
of transfer sufficient to have the Trustee with respect to the Old Notes        
register the transfer of such Old Notes into the name of the person             
withdrawing the tender and (iv) specify the name in which any such Old Notes    
are to be registered, if different from that of the Depositor. If Old Notes     
have been tendered pursuant to the procedure for book-entry transfer, any       
notice of withdrawal must specify the name and number of the account at DTC to  
be credited with the withdrawn Old Notes or otherwise comply with DTC's         
procedures. All questions as to the validity, form and eligibility (including   
time of receipt) of such notices will be determined by the Company, whose       
determination shall be final and binding on all parties. Any Old Notes so       
withdrawn will be deemed not to have been validly tendered for purposes of the  
Exchange Offer and no Exchange Notes will be issued with respect thereto        
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which   
have been tendered but which are not accepted for payment will be returned to   
the holder thereof without cost to such holder as soon as practicable after     
withdrawal, rejection of tender or termination of the Exchange Offer. Properly  
withdrawn Old Notes may be retendered by following one of the procedures        
described above under "--Procedures for Tendering" at any time prior to the     
Expiration Date.                                                                

34  

S-4/A
36th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 36th
UNTENDERED OLD NOTES                                                            

Holders of Old Notes whose Old Notes are not tendered or are tendered but   
not accepted in the Exchange Offer will continue to hold such Old Notes and     
will be entitled to all the rights and preferences and subject to the           
limitations applicable thereto under the Indenture. Following consummation of   
the Exchange Offer, the holders of Old Notes will continue to be subject to     
the existing restrictions upon transfer contained in the legend thereon. In     
general, the Old Notes may not be offered for resale or resold, unless          
registered under the Securities Act, except pursuant to an exemption from, or   
in a transaction not subject to, the Securities Act and applicable state        
securities laws. The Company will have no further obligations to such holders,  
other than the Initial Purchaser, to provide for the registration under the     
Securities Act of the Old Notes held by them after the Expiration Date. To the  
Extent that Old Notes are tendered and accepted in the Exchange Offer, the      
trading market for untendered and tendered but unaccepted Old Notes could be    
adversely affected.                                                             

EXCHANGE AGENT                                                                  

First Securities Bank, National Association, has been appointed as Exchange 
Agent of the Exchange Offer. Questions and requests for assistance, requests    
for additional copies of this Prospectus or of the Letter of Transmittal and    
requests for Notices of Guaranteed Delivery should be directed to the Exchange  
Agent addressed as follows:                                                     

By Mail, Overnight Courier or Hand: 

First Security Bank, National Association 
79 South Main Street  
Salt Lake City, Utah 84111  
Attention: Corporate Trust Department 

(registered or certified mail recommended)  

Telephone: 801/246-5630 
Facsimile: 801/246-5053 

Delivery to an address other than as set forth above or transmission of     
instructions via facsimile to a number other than as set forth above will not   
constitute a valid delivery.                                                    

FEES AND EXPENSES                                                               

The Company will bear the expenses of soliciting tenders. The principal     
solicitation is being made by mail; however, officers and regular employees of  
the Company and its affiliates may make additional solicitation by telegraph,   
facsimile transmission, telephone or in person.                                 

The Company has not retained any dealer-manager in connection with the      
Exchange Offer and will not make any payments to brokers, dealers or other      
soliciting acceptances of the Exchange Offer. The Company, however, will pay    
the Exchange Agent reasonable and customary fees for its services and will      
reimburse it for its reasonable out-of-pocket expenses in connection            
therewith.                                                                      

The Company will pay the cash expenses to be incurred in connection with the
Exchange Offer. Such expenses include registration fees and expenses of the     
Exchange Agent and Trustee, accounting and legal fees and printing costs,       
among others.                                                                   

The Company will pay any and all transfer taxes applicable to the exchange  
of Old Notes pursuant to the Exchange Offer. If, however, certificates          
representing Exchange Notes or Old Notes for principal amounts not tendered or  
accepted for exchange are to be delivered to, or are to be registered or        
issued in the name of, any person other than the registered holder of the Old   
Notes tendered, or if tendered Old Notes are registered in the name of any      
person other than the person signing the Letter of Transmittal, or if a         
transfer tax is imposed for                                                     

35  

S-4/A
37th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 37th
any reason other than the exchange of Old Notes pursuant to the Exchange        
Offer, satisfactory evidence of the payment of the amount of any such transfer  
taxes must be submitted with the Letter of Transmittal (whether imposed on the  
registered holder or any other person). Certificates representing Exchange      
Notes will not be issued to such persons until satisfactory evidence of the     
payment of such taxes, or an exemption therefrom, is submitted.                 

CONSEQUENCES OF FAILURE TO EXCHANGE                                             

Upon consummation of the Exchange Offer, holders that were not prohibited   
from participating in the Exchange Offer and did not tender their Old Notes     
will not have any registration rights under the Registration Rights Agreement   
with respect to such nontendered Old Notes and, accordingly, such Old Notes     
will continue to be subject to the restrictions on transfer contained in the    
legend thereon as a consequence of the issuance of the Old Notes pursuant to    
exemptions from or in transactions not subject to, the registration             
requirements of the Securities Act and applicable state securities laws. In     
general, the Old Notes may not be offered for resale or resold, unless          
registered under the Securities Act, except pursuant to an exemption from, or   
in a transaction not subject to, the Securities Act and applicable state        
securities laws. The Company does not intend to register the Old Notes under    
the Securities Act. Based on interpretations by the staff of the Commission,    
as set forth in no-action letters Exxon Capital Holdings Corporation            
(available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5,  
1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc.      
(available October 11, 1991), issued to third parties, the Company believes     
that a holder who exchanges Old Notes for Exchange Notes pursuant to the        
Exchange offer may offer for resale, resell and otherwise transfer such         
Exchange Notes without compliance with the registration and prospectus          
delivery requirements of the Securities Act, provided, however, that (i) such   
Exchange Notes are acquired in the ordinary course of such holder's business,   
(ii) such holder is not engaged in, and does not intend to engage in, a         
distribution of such Exchange Notes and has no arrangement with any person to   
participate in the distribution of such Exchange Notes, and (iii) such holder   
is not an affiliate of the Company (as defined under rule 405 of the            
Securities Act). However, the staff of the Commission has not considered the    
Exchange Offer in the context of a no-action letter and there can be no         
assurance that the staff of the Commission would make a similar determination   
with respect to the Exchange Offer as in such other circumstances. A holder     
who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer with  
the intention to participate in a distribution of the Exchange Notes may not    
rely on the staff's position enunciated in the Exxon Capital Letter, the        
Morgan Stanley Letter or similar letters and must comply with the registration  
and prospectus delivery requirements of the Securities Act in connection with   
any resale transaction. Each broker-dealer that receives Exchange Notes for     
its own account in exchange for Old Notes, where such Old Notes were acquired   
by such broker-dealer as a result of market-making activities or other trading  
activities, must acknowledge that it will deliver a prospectus in connection    
with any resale of such Exchange Notes. See "Plan of Distribution." The         
Exchange Notes may not be offered or sold unless they have been registered or   
qualified for sale under applicable state securities laws or an exemption from  
registration or qualification is available and is complied with. The            
Registration Rights Agreement requires the Company to register the Exchange     
Notes in any jurisdiction requested by the holders, subject to certain          
limitations. To the extent the Old Notes are tendered and accepted in the       
Exchange Offer, the trading market for untendered and tendered but unaccepted   
Old Notes could be adversely affected.                                          

RESALE OF THE EXCHANGE NOTES                                                    

Under existing interpretations of the staff of the Commission contained in  
several no-action letters to third parties, the Exchange Notes would in         
general be freely transferable after the Exchange Offer without further         
registration under the Securities Act. However, any purchaser of Old Notes who  
intends to participate in the Exchange Offer for the purpose of distributing    
the Exchange Notes (i) would not be able to rely on the interpretation of the   
staff of the Commission, (ii) will not be able to tender its Old Notes in the   
Exchange Offer and (iii) must comply with the registration and prospectus       
delivery requirements of the Securities Act in connection with any sale or      
transfer of the Notes unless such sale or transfer is made pursuant to an       
exemption from such requirements.                                               

36  

S-4/A
38th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 38th
By executing the Letter of Transmittal, each holder of the Old Notes will   
represent that (i) it is not an affiliate of the Company or if such Holder is   
an "affiliate," that such Holder will comply with the registration and          
prospectus delivery requirements of the Securities Act to the extent            
applicable, (ii) any Exchange Notes to be received by it were acquired in the   
ordinary course of its business and (iii) at the time of commencement of the    
Exchange Offer, it had no arrangement with any person to participate in the     
distribution (within the meaning of the Securities Act) of the Exchange Notes.  
In addition, in connection with any resales of Exchange Notes, any broker-      
dealer (a "Participating Broker-Dealer") who acquired the Notes for its own     
account as a result of market-making or other trading activities must deliver   
a prospectus meeting the requirements of the Securities Act. The Commission     
has taken the position that Participating Broker-Dealers may fulfill their      
prospectus delivery requirements with respect to the Exchange Notes (other      
than a resale of an unsold allotment from the original sale of the Old Notes)   
with the prospectus contained in the Exchange Offer Registration Statement.     
Under the Registration Rights Agreement, the Company is required to allow       
Participating Broker-Dealers and other persons, if any, subject to similar      
prospectus delivery requirements to use this Prospectus as it may be amended    
or supplemented from time to time, in connection with the resale of such        
Exchange Notes.                                                                 

OTHER                                                                           

Participation in the Exchange Offer is voluntary and holders should         
carefully consider whether to accept. Holders of the Old Notes are urged to     
consult their financial and tax advisors in making their own decisions on what  
action to take.                                                                 

Upon consummation of the Exchange Offer, holders who were not prohibited    
from participating in the Exchange Offer and who did not tender their Old       
Notes will not have any registration rights under the Registration Rights       
Agreement with respect to such nontendered Old Notes and such Old Notes will    
continue to be subject to the restrictions on transfer contained in the legend  
thereon. Accordingly, such Old Notes may not                                    
be offered, sold, pledged or otherwise transferred except (i) to a person whom  
the seller reasonably believes is a "Qualified Institutional Buyer" within the  
meaning of Rule 144A under the Securities Act purchasing for its own account    
or for the account of a Qualified Institutional Buyer in a transaction meeting  
the requirements of Rule 144A, (ii) in an offshore transaction complying with   
Rule 904 of Regulation S under the Securities Act, (ii) pursuant to an          
exemption from registration under the Securities Act provided by Rule 144       
thereunder (if available), (iv) pursuant to an effective registration           
statement under the Securities Act or (v) to the Company and, in each case, in  
accordance with all other applicable securities laws.                           

ACCOUNTING TREATMENT                                                            

The Exchange Notes will be recorded in the Company's accounting records at  
the same carrying value as the Old Notes as reflected in the Company's          
accounting records on the date of the exchange. Accordingly, the Company will   
recognize no gain or loss for accounting purposes upon the consummation of the  
Exchange Offer. The expenses of the Exchange Offer will be amortized over the   
remaining term of the Exchange Notes.                                           

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER             
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer 
will not result in any United States federal income tax consequences to         
Holders. When a Holder exchanges an Old Note for an Exchange Note pursuant to   
the Exchange Offer, the Holder will have the same adjusted basis and holding    
period in the Exchange Note as in the Old Note immediately before the           
exchange.                                                                       

37  

S-4/A
39th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 39th
THE COMPANY 

TWA is the eighth largest U.S. air carrier (based on RPMs for the first nine
months of 1997), whose primary business is transporting passengers, cargo and   
mail. During the first nine months of 1997, the Company carried more than 17.6  
million passengers and flew approximately 19.2 billion RPMs. As of September    
30, 1997, TWA provided regularly scheduled jet service to 86 cities in the      
United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As    
of September 30, 1997, the Company operated a fleet of 186 jet aircraft.        

NORTH AMERICAN ROUTE STRUCTURE                                                  

TWA's North American operations have a hub-and-spoke structure, with a      
primarily domestic hub at St. Louis and a domestic-international hub at JFK.    
The North American system serves 37 states, the District of Columbia, Puerto    
Rico, Mexico, Canada and the Caribbean. The JFK and St. Louis hub systems are   
designed to allow TWA to support both its North American and transatlantic      
connecting flights. During the first nine months of 1997, TWA's North American  
revenues accounted for approximately 84% of its total revenues versus           
approximately 79% during the same period of 1996.                               

St. Louis                                                                     

TWA is the predominant carrier at St. Louis, with approximately 365         
scheduled daily departures as of September 30, 1997 serving 75 cities. For the  
first nine months of 1997, TWA had approximately a 72% share of airline         
passenger enplanements in St. Louis, while the next largest competitor          
enplaned approximately 15%. Since 1995, TWA has added service from its St.      
Louis hub to Reno, Nevada, Knoxville, Tennessee, Shreveport, Louisiana,         
Steamboat Springs, Colorado, Toronto, Canada and the Mexican resort cities of   
Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo. On December 18, 1997, TWA       
added service to Palm Springs, California.                                      

JFK                                                                           

TWA serves 28 domestic and international cities from its JFK hub, with      
approximately 42 daily departures. JFK is both the Company's and the            
industry's largest international gateway from North America. The Company        
offers non-stop flights from JFK to 8 cities in Europe and the Middle East as   
well as 17 destinations in the U.S. and the Caribbean.                          

Commuter Feed                                                                 

TWA coordinates operation of its commuter feed into the Company's hubs at   
St. Louis and JFK with Trans States Airlines, Inc. ("Trans States"). Trans      
States, an independently owned regional commuter carrier, currently operates    
approximately 173 daily flights into St. Louis and 57 flights into JFK. Trans   
States' operations are coordinated to feed TWA's North American and             
international flights. Management believes that these commuter operations are   
an important source of traffic into the Company's domestic and international    
route networks.                                                                 

INTERNATIONAL ROUTE STRUCTURE                                                   

TWA's international operations consist of both nonstop and through service  
from JFK and St. Louis to destinations in Europe and the Middle East. TWA's     
international operations are concentrated at JFK, where TWA has built a hub     
system primarily designed to provide domestic traffic feed for its              
transatlantic service. International cities served include: Barcelona, Cairo,   
Lisbon, Madrid, Milan, Riyadh, Rome, Tel Aviv from JFK; Paris from JFK and St.  
Louis; and London--Gatwick from St. Louis. On January 13, 1997, as part of its  
plans to improve the operating and financial performance of its international   
operations, the Company discontinued service on certain European routes,        
including JFK to Frankfurt and Boston to Paris, as well as non-stop feed        
service to JFK from several domestic cities. In addition, service to Athens     
was discontinued on April 18, 1997. In the first nine months of 1997, TWA's     
international revenues accounted for approximately 16% of total revenues        
versus approximately 21% during the same period in 1996.                        

38  

S-4/A
40th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 40th
On April 28, 1997, TWA announced it had filed an application with the DOT   
seeking approval of code-share service with Royal Jordanian Airline. The DOT    
approved the code-share on October 1, 1997. The agreement calls for the joint   
coding of TWA domestic flights between seven U.S. cities and JFK and of Royal   
Jordanian Airline's direct flights between JFK, Amsterdam and Amman, Jordan.    
Service began on November 1, 1997. On October 24, 1997, TWA announced that it   
had signed an agreement with Spanish carrier Air Europa to provide code share   
service. Under the agreement, which still requires governmental approval, TWA   
will place its TW flight code on Air Europa flights operating between Madrid    
and Barcelona, on the one hand, and Palma and Malaga, Spain, on the other       
hand. Air Europa will place its UX flight code on TWA flights operating         
between both Madrid and Barcelona, on the one hand, and JFK, on the other       
hand, and to numerous U.S. points beyond JFK. The code share service is         
anticipated to commence in the first quarter of 1998. The Company anticipates   
that, pursuant to the code-share agreements, both Royal Jordanian Airline and   
Air Europa will move their operations to the Company's JFK terminal. TWA is     
exploring the possibility of entering into marketing and code-share alliances   
with additional foreign carriers. These alliances, if consummated, would allow  
the Company to provide its passengers with extended service to foreign          
destinations not served directly by the Company, while feeding TWA's North      
American operations from these foreign destinations.                            

BUSINESS STRATEGY                                                               

In late 1996, the Company began implementing certain initiatives designed to
further its strategic objectives. These initiatives were implemented in         
response to a significant deterioration in the Company's operating performance  
and financial condition during the second half of 1996. This deterioration was  
primarily caused by (i) an overly aggressive expansion of TWA's capacity and    
planned flight schedule, particularly during the 1996 summer season, which      
forced the Company to rely disproportionately on lower-yield feed traffic and   
bulk ticket sales to fill the increased capacity of its system; (ii) the        
delayed delivery of four older 747s intended to increase capacity for           
incremental international operations during the summer of 1996; and (iii)       
unexpected maintenance delays due to the capacity increase, higher levels of    
scheduled narrow-body heavy maintenance and increased contract maintenance      
performed for third parties. These factors caused excessive levels of flight    
cancellations, poor on-time performance, increased pilot training costs and     
higher maintenance expenditures and adversely affected the Company's yields     
and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996       
distracted management's attention from core operating issues and led to lost    
bookings and revenues. The Company also experienced a 27.6% increase in fuel    
costs in 1996 versus 1995, primarily due to a 22.3% increase in the average     
fuel price paid per gallon during the year.                                     

The primary focus of the Company's late 1996 strategic initiatives was to   
reestablish TWA's operational reliability and schedule integrity and overall    
product quality in order to attract higher-yield passengers and improve its     
financial results. As the initial steps in implementing this strategy, the      
Company temporarily reduced its flight schedule during the first quarter of     
1997 to more closely match aircraft available for active service and worked to  
reduce the number of aircraft in maintenance backlog by increasing overtime     
and maintenance capacity made available by terminating an unprofitable          
aircraft maintenance contract with the U.S. government. The other key           
initiatives which TWA began implementing in late 1996 included: (i)             
acceleration of the Company's fleet renewal plan; (ii) a restructuring of       
TWA's operations at JFK; (iii) a focus on improving productivity; (iv)          
implementation of a series of revenue-enhancing marketing initiatives; and (v)  
implementation of a number of employee-related initiatives to reinforce the     
Company's focus on operational performance.                                     

The key elements of the Company's overall ongoing business strategy, as well
as the late 1996 strategic initiatives, are outlined below.                     

Fleet Upgrade and Simplification                                              

TWA's fleet modernization plans seek to realize operating cost savings by   
replacing a number of older, less efficient aircraft with more modern,          
technologically advanced, twin-engine, two-pilot aircraft. New flight           
equipment acquisition plans initiated in 1996, are intended to achieve a        
decrease in operating and maintenance costs as the older, heavier maintenance   
aircraft are phased out and replaced by newer aircraft. These changes are       

39  

S-4/A
41st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 41st
intended to simplify the Company's fleet structure, thereby reducing the        
number of aircraft types to decrease overall crew training and aircraft         
maintenance costs (although resulting in increased short-term transition crew   
training costs). Additional efficiencies should be realized through increased   
standardization of aircraft parts, supplies and cabin equipment that must be    
inventoried throughout TWA's system. Despite the higher capital costs           
associated with owning or leasing new and later model aircraft, the Company     
believes that corresponding reductions in operating costs should result in a    
lower overall cost per seat mile. Management believes this initiative offers    
the potential for greater proportionate benefit to TWA than perhaps any other   
major U.S. airline.                                                             

In the first quarter of 1997, as part of its efforts to improve near-term   
operational reliability, the Company announced plans to accelerate retirement   
of the 14 747s (four-engine, 3-pilot wide-body jets with an average age of      
approximately 25.6 years) and the 11 L-1011s (three-engine, three-pilot wide-   
body jets with an average age of approximately 22.6 years) remaining in its     
fleet as of December 31, 1996. As of September 30, 1997, all of the L-1011s     
and 8 of the 747s had been retired, with the last 747 scheduled to leave        
active service in February 1998. These older, less efficient and less reliable  
aircraft are being replaced with new or later-model used 757, 767 and MD-80     
aircraft. Management believes that these smaller aircraft are more              
appropriately sized to the routes served and, by reducing the Company's         
reliance on lower-yield feed traffic to fill capacity, have resulted in higher  
load factors and improved yields. Further, these newer twin-engine, two-pilot   
aircraft are expected to provide efficiencies in fuel, flight crew and          
maintenance expenses, while reducing long-term pilot training costs by          
enabling TWA to have fewer aircraft types in the fleet. Such aircraft should    
also permit TWA to more effectively utilize its yield management system. In     
1996, TWA entered into agreements to lease 10 new 757s and to purchase an       
additional 10 new 757 aircraft. As of October 24, 1997, TWA had taken delivery  
of 15 of such aircraft. The Company also acquired the right, subject to         
certain conditions, to purchase up to 20 more new 757 aircraft from the         
manufacturer. In addition, the Company entered into agreements with a major     
operating lessor to lease two 767-300ERs with deliveries in 1998. In 1996, the  
Company entered into an agreement with the manufacturer to acquire 15 new MD-   
83s. As of December 3, 1997, the Company had taken delivery of seven of the     
MD-83s, and expects to take delivery of six additional planes during 1998 and   
two additional planes in 1999. The Company has also entered into an agreement   
for the lease of nine late-model used MD-82s with deliveries scheduled in 1997  
and 1998. The Company also intends to retire eight of its older 727s, which     
are expected to be replaced with MD-80s. As a result of this fleet              
restructuring, the Company's mix of narrow-body and wide-body aircraft shifted  
to approximately 91%/9% as of December 31, 1997 versus 80%/20% as of year-end   
1996, while TWA's average number of seats per aircraft declined to 141 from     
161 over the same period. Management estimates that as of December 31, 1997,    
the average age of its fleet had decreased to slightly under 17 years from 19   
years at year-end 1996. TWA is also in discussions with certain other lessors   
to lease other aircraft as part of TWA's fleet modernization program.           

During 1996 and 1997, the Company outfitted 30 of its DC9-30 aircraft with  
"hush-kits" in order to bring such aircraft into compliance with Stage 3        
requirements of the Noise Act. The Company is considering "hush-kitting"        
additional DC9-30, DC9-40 and DC9-50 aircraft as well as other alternatives to  
assure compliance with Stage 3 noise requirements. See "Business--Regulatory    
Matters--Noise Abatement." While the Company is seeking financing for certain   
of its planned capital expenditures, a substantial portion of such              
expenditures is expected to utilize internally generated funds. The inability   
to finance or otherwise fund such expenditures could materially adversely       
affect the ability of the Company to continue to implement its strategic plan.  
See "Risk Factors--Risk Factors Related to the Company--Liquidity; Substantial  
Indebtedness; Capital Expenditure Requirements."                                

Route Structure Optimization                                                  

The Company has been optimizing its route structure by redeploying assets to
markets in which it believes it has a competitive advantage and limiting its    
commitments in other markets.                                                   

Domestically, the Company believes the greatest opportunities for improved  
operating results will continue to come from focusing additional resources on   
its St. Louis hub in order to leverage its strong market position. The Company  
already dominates operations at St. Louis, with approximately 72% of total      
enplanements in the                                                             

40  

S-4/A
42nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 42nd
first nine months of 1997. In addition, the Company enjoys certain advantages   
in the Midwest due to its established route system, strong brand identity and   
concentrated presence in that market. Because St. Louis is located in the       
center of the country, it is well-suited to function as an omni-directional     
hub for both north-south and east-west transcontinental traffic. Therefore,     
TWA believes it is better positioned to offer more frequencies and connecting   
opportunities to many travelers in its key Midwestern markets than competing    
airlines. To capitalize on these advantages, the Company has increased its      
number of daily departures at St. Louis from 229 in 1993 to 365 as of           
September 30, 1997. In addition, beginning in 1995, the Company has been        
consolidating domestic routes in order to strengthen its position further, and  
has increased service to the north and south with service to Knoxville,         
Tennessee, Shreveport, Louisiana, Toronto, Canada and the Mexican resort        
cities of Cancun, Ixtapa/Zihuatenejo and Puerto Vallarta.                       

Internationally, the Company's operations are concentrated at JFK. The      
Company's strategy is to reduce and streamline international operations to      
focus on business markets that it believes can support non-stop service and to  
maximize utilization of the JFK facility. As a result, since 1994, the Company  
has eliminated service to several European cities including Berlin, Zurich and  
Vienna and reduced its service to and from Paris. In addition, during 1996 the  
Company increased service from JFK to the Caribbean, Florida and to certain     
other domestic cities to increase utilization of the Company's JFK facility,    
particularly during off-peak time periods, and to provide feed traffic for its  
international operations.                                                       

As part of its efforts to position the Company for sustained profitability, 
TWA restructured its operations at JFK during 1997 by eliminating certain       
unprofitable international destinations (such as Frankfurt and Athens), as      
well as certain low-yield domestic feed service into JFK. The Company also      
consolidated for the near term most of its JFK operations from two terminals    
into a single terminal in order to reduce operating costs, increase facility    
utilization and improve passenger service. In addition to enhancing yields and  
load factors, the substitution of 757s and 767s for 747s and L-1011s on         
international routes also has increased operating efficiencies at JFK, since    
these smaller aircraft are better suited to the physical limitations of TWA's   
terminals. As a result of these changes, TWA's international scheduled          
capacity (as measured by ASMs) decreased 31.2% in the first nine months of      
1997 versus the same period in 1996 and represented 20.0% of total scheduled    
capacity for the first nine months of 1997 versus 26.1% for the same period in  
1996. The Company believes that this decrease in international operations,      
together with the rationalization of fleet size described above, will help      
deseasonalize TWA's business, with the difference between TWA's seasonal        
average daily peak and trough capacities anticipated to be approximately 4.1%   
in 1998, versus 26.2% in 1996 and 20.2% in 1997. As a result, the Company       
believes the seasonal variability of its financial performance will be          
reduced; however, there can be no assurance that such deseasonalization will    
occur.                                                                          

Customer Service; Travel Agent Commissions                                    

The Company is focusing on improving the quality of its air travel product  
and the service provided to passengers by TWA personnel. The Company believes   
that its increased focus on quality, certain new marketing initiatives and the  
steps taken to restore operational reliability and schedule integrity in 1997   
have resulted and will allow TWA to attract a greater percentage of higher-     
yield passengers. Ongoing initiatives include:                                  

Focus on Business Traveler. Based on customer research, the Company has     
targeted business travelers and is therefore tailoring its marketing and        
advertising efforts to emphasize the Company's positioning as a full-service,   
high-value airline providing service to popular business destinations           
throughout the U.S. The Company believes that its convenient flight schedules   
and connections, as well as its centrally located hub at St. Louis, are         
important in providing service which is attractive to these travelers.          

The Company is introducing a series of marketing initiatives designed to    
attract a greater percentage of higher-yield business passengers.               

In March 1995, TWA introduced Trans World One, a premium business class     
service in its international and certain trans-continental non-stop markets.    
This product has recently been enhanced and relaunched with                     

41  

S-4/A
43rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 43rd
advertising and promotional support. Trans World One is available in 767        
aircraft and will also be available commencing in early 1998 in selected 757    
equipment. Overall service is being improved, including check-in, on-board      
comfort, food service and priority baggage return. TWA is also increasing       
first class cabin seating in its narrow-body domestic aircraft by 60% and is    
planning a series of airport and in-flight enhancements. When complete in       
early 1998, the domestic service will be launched as Trans World First. The     
Company is also beginning to implement a specially designed service for short-  
haul business markets, which will be branded and launched in the first quarter  
of 1998. The Company is also in the early phases of a series of facilities      
upgrades, including a newly opened Ambassadors Club in St. Louis, a renovated   
club at LaGuardia, a completely refurbished club in its JFK terminal and        
improved new check-in counters and backwalls. A new electronic passenger and    
baggage processing system is being installed in St. Louis.                      

TWA plans to launch a revamped and rebranded frequent flier program in the  
first quarter of 1998. The Company has already implemented several new          
initiatives to improve its frequent flier program. A Platinum level was         
introduced in the third quarter of 1997 to offer the Company's most attractive  
travel benefits for its highest mileage customers. Platinum level travelers     
and travelers purchasing first class or full fare coach tickets will also be    
given mileage bonuses equal to the dollar amount paid for their tickets, in     
addition to other existing bonuses. Further, TWA joined the American Express    
Membership Miles Program, allowing members the opportunity to earn additional   
miles for amounts charged on the American Express Card.                         

Leisure Traveler. Within the leisure travel market, TWA is positioned as a  
high-quality, competitive-fare carrier. Management believes that TWA's cost     
structure and attractive route system position it well to compete for leisure   
traffic. Further, TWA's Getaway Program, which was the original airline tour    
program, has a leading position in this sector.                                 

Travel Agent Commissions. Until recently TWA paid the full traditional 10%  
commission on tickets for domestic transportation on TWA sold by independent    
travel agents without the cap of $50 and $25 per domestic round-trip and one-   
way tickets, respectively, which most other major airlines imposed in 1995,     
and paid an 11% commission on tickets for international transportation. On      
October 2, 1997, the Company reduced its commissions on tickets for domestic    
and international transportation to 8% and 10%, respectively, without the cap   
imposed by most other major airlines. Although the Company can not quantify     
the current or potential future impact of this decision, the Company believes   
the uncapped commission structure is a positive factor in maintaining and       
improving its long-term relationships with such travel agents and encourages    
the booking of higher fare tickets. See "Business--Travel Agencies--Travel      
Agent Commissions."                                                             

Labor Relationship                                                            

Management believes TWA has a generally cooperative relationship with its   
employees, including employees represented by trade unions. At various times,   
the Company's employees have demonstrated significant loyalty and commitment    
to TWA's future by, among other things, agreeing to various wage and work rule  
concessions to improve productivity in connection with the '93 and '95          
Reorganizations. As a result of these agreements (i) the Company's employees    
received approximately 30% of the voting equity of TWA outstanding immediately  
following the '95 Reorganization and (ii) certain corporate governance          
provisions were effected, including provision of the right of employees         
currently represented by ALPA and the IAM to elect four of the Company's 15     
directors. See "Description of Capital Stock--Description of Employee           
Preferred Stock" and "Certain Provisions of the Certificate of Incorporation,   
the By-laws and Delaware Law." On March 6, 1997, the IAM assumed                
representation of the Company's flight attendants formerly represented by       
IFFA, and IFFA was decertified. Union and non-union employees are also          
eligible under the ESIP to increase their level of stock ownership through      
grants and purchases of additional shares over a five year period commencing    
in 1997. For information concerning the ESIP, see "Business--Employees."        

Each of the Company's union contracts became amendable as of August 31,     
1997, and negotiations have begun with respect to all three of the contracts.   
While management believes that the negotiation process for the                  

42  

S-4/A
44th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 44th
new contracts will result in extended contracts mutually satisfactory to the    
parties, there can be no assurances as to the ultimate timing or terms of any   
such new contracts. As the Company's financial resources are not as great as    
those of most of its competitors, any substantial increase in its labor costs   
as a result of any new labor agreements or any cessation or disruption of       
operations due to any strike or work action could be particularly damaging to   
the Company. The Company believes that the status of its employees as           
substantial stockholders and participants in corporate governance and the       
Company's efforts to involve employees in developing and achieving the          
Company's goals will result in continued dedication to the efforts to improve   
the Company's financial and operational performance.                            

In January 1997, TWA implemented the SCORE Program (or Safe, Clean, On-time 
and Reliable), through which TWA has sought to institutionalize throughout all  
levels of its organization the importance of running an airline with            
operational reliability and schedule integrity. This program provides certain   
operating and procedural guidelines for enhancing performance and improving     
overall product quality. In addition, in 1996 the Company introduced Flight     
Plan 97, which pays eligible employees a $65 bonus for each month that TWA      
finishes in the top five in all three performance categories tracked by the     
DOT (on-time performance, customer complaints and baggage handling) and a       
total of $100 if TWA also ranks first in at least one of such categories.       
Based on the Company's performance in September 1997, eligible employees        
earned their first bonus under this program, a $100 payment for ranking first   
in on-time performance, fourth in customer complaints and fifth in baggage      
handling.                                                                       

Investment in Technology                                                      

Management believes significant opportunities exist for the Company to      
increase revenues and reduce costs by investing in available technology that    
provides the Company and its employees with the information necessary to        
operate its business more effectively and to improve customer service. The      
Company has recently taken a significant step forward in this area by           
installing a new computerized yield management system. The need to build a      
historical database for such yield management system has delayed full           
realization of benefits expected from such system; however, as this database    
grows during the remainder of 1997 and into 1998, this system is expected to    
allow the Company to improve significantly its ability to estimate demand       
flight-by-flight for each class of fares and manage the allocation of seats     
accordingly. Given TWA's prior lack of a computerized yield management system,  
the Company's management believes that as this database grows this new system   
will offer significant opportunities for revenue improvement. In 1996, the      
Company implemented a "QIK-Res" system at its reservation center in Norfolk,    
Virginia. QIK-Res is a front-end reservations software program designed to      
improve customer service. Management believes the system has demonstrated its   
effectiveness at Norfolk and intends to pursue the possibility of extending     
the system to its reservation centers in St. Louis, Los Angeles and Chicago.    
TWA is also in the process of installing state-of-the-art computer hardware     
for ticket counter and gate podiums at St. Louis using "QIK-Chek" software to   
improve passenger service and data collection while simplifying the ticket and  
check-in process.                                                               

Cost and Efficiency Initiatives                                               

Management believes that maintaining a low cost structure is crucial to the 
Company's business strategy. TWA's airline operating cost per ASM (adjusted     
for subsidiaries, restructuring and earned stock contributions) increased from  
8.12c in 1995 to 8.76c in 1996 and from 8.58c for the first nine months of      
1996 to 8.99c for the first nine months of 1997. The primary contributors to    
these increases were increases in maintenance costs and costs associated with   
flight crew training which occurred primarily during the first six months of    
1997. Despite these increases, management believes that TWA's operating costs   
remain below the average of the six largest full service carriers. See          
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations." The Company intends to continue to pursue, among other things,     
route optimization, increased labor efficiencies, fleet modernization and       
rationalization, and investment in technological advances in order to improve   
operating results. During 1997, TWA realized cost efficiencies in maintenance,  
reflecting the elimination of TWA's maintenance backlog during the first        
quarter of 1997, as well as the reduced maintenance requirements for the newer  
aircraft already added to TWA's fleet. In addition, as described above, the     
Company's fleet renewal                                                         

43  

S-4/A
45th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 45th
plan is expected to provide efficiencies in fuel, flight crew and training      
expenses, while the JFK restructuring has eliminated certain unprofitable       
routes and reduced certain operating costs. As a result of such efficiencies,   
the Company's unit costs remained essentially unchanged at 8.29c for the third  
quarter of 1997 versus the third quarter of 1996. TWA's average number of       
employees per aircraft has decreased from 131 as of December 31, 1996 to 121    
as of September 30, 1997, and to 119 as of December 31, 1997, which is          
generally consistent with industry standards.                                   

The Company has increased to 12 the number of "banks" of flights operating  
into its St. Louis hub to increase further the utilization of its aircraft.     
TWA has installed a new ticketless system and has begun to test automatic       
ticket machines in selected markets. In mid-1996, the Company initiated         
programs allowing customers to book reservations directly via on-line network   
systems, and during the second quarter of 1997, TWA began to provide bookings   
via the Internet. It is expected that distribution costs will be reduced as     
travelers use these on-line booking vehicles and ticketless systems. In         
addition, TWA is implementing a number of programs to reduce computer           
reservation systems booking fees, both internally and from travel agents. Such  
booking fees are separate transaction fees that are paid in addition to any     
travel agent commission. TWA will continue to explore other opportunities to    
reduce costs and improve efficiency in the areas of aircraft maintenance,       
airport operations, purchasing, distribution, ticket delivery, food service,    
cargo delivery operations and administrative functions.                         

CORPORATE REORGANIZATIONS                                                       

During the early 1990s, the U.S. airline industry, including the Company,   
experienced unprecedented losses, which were largely attributable to, among     
other things, the Persian Gulf War (which caused a substantial increase in      
fuel costs and reduction in travel demand due to concerns over terrorism),      
recessions in the United States and Europe, and significant industry-wide fare  
discounting resulting from another U.S. airline's attempt to introduce a new    
pricing structure into the domestic airline business. In addition, TWA had      
incurred significant debt as a result of the leveraged acquisition in 1986 of   
a controlling interest in the Company by Carl Icahn. The substantial losses     
sustained by the Company during this period, coupled with the Company's         
excessive debt obligations, made it necessary for TWA to restructure its debt   
obligations and equity, lower its labor costs and severely reduce its capital   
outlays.                                                                        

'93 Reorganization                                                            

On November 3, 1993 (the "'93 Effective Date"), TWA emerged from the        
protection of Chapter 11 of the United States Bankruptcy Code pursuant to a     
bankruptcy case filed on January 31, 1992. During the pendency of the '93       
Reorganization, the Company (i) negotiated, effective September 1, 1992, a      
series of three-year concession agreements with its unions providing for,       
among other things, a 15% reduction in wages and benefits and certain work-     
rule concessions designed to reduce costs substantially (the "'92 Labor         
Agreements"), (ii) obtained confirmation of a reorganization plan which         
eliminated more than $1 billion of debt and lease obligations, and (iii)        
reached a settlement with the Pension Benefit Guaranty Corporation (the         
"PBGC") with respect to the Company's underfunded pension plan obligations.     
During the pendency of the '93 Reorganization, the Icahn Entities (as defined)  
released their claims against and interests in TWA and Mr. Icahn resigned as    
Chairman of the Board of Directors and as an officer of TWA. The Icahn          
Entities also agreed to provide up to $200 million of financing pursuant to     
the Icahn Loans (as defined) (see "Management's Discussion and Analysis of      
Financial Condition and Results of Operations").                                

'95 Reorganization                                                            

Notwithstanding the reduction in levels of debt and obligations achieved    
through the '93 Reorganization, the Company emerged from the '93                
Reorganization in a too highly leveraged position and, despite progress in      
increasing revenues and reducing costs, continued to experience significant     
operating losses. With the hiring of a new management team in 1994, the         
assumptions underlying the Company's operating plans, upon which its ability    
to service its post '93 Reorganization obligations depended, were recognized    
as unrealistic and unachievable. As a consequence, the Company was forced to    
seek a second financial restructuring.                                          

44  

S-4/A
46th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 46th
In the second quarter of 1995, the Company solicited and received sufficient
acceptances to effect the proposed "prepackaged" plan of bankruptcy.            
Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan    
of reorganization, which with certain modifications was confirmed by the        
United States Bankruptcy Court in St. Louis (the "Bankruptcy Court") on August  
4, 1995. On August 23, 1995, approximately eight weeks after filing the         
prepackaged Chapter 11 plan, the '95 Reorganization became effective and the    
Company emerged from the protection of this second Chapter 11 proceeding. In    
connection with the '95 Reorganization, the Company (i) exchanged certain of    
its then outstanding debt securities for a combination of newly issued 12%      
Preferred Stock, Common Stock, warrants and rights to purchase Common Stock,    
and debt securities, (ii) converted its then outstanding preferred stock to     
shares of Common Stock, warrants and rights to purchase Common Stock, (iii)     
obtained certain short-term lease payment and conditional sale indebtedness     
deferrals amounting to approximately $91 million and other modifications to     
certain aircraft leases, and (iv) obtained an extension of the term of the      
approximately $190 million principal amount of the Icahn Loans. The Company     
also (i) effected a reverse stock split of its then outstanding common stock    
and exchanged such shares for Common Stock, (ii) raised approximately $52       
million through an equity rights offering; (iii) distributed certain warrants   
to its then current equity holders, and (iv) implemented certain amendments to  
the Certificate of Incorporation relating to the recapitalization and various   
corporate governance matters. See "Description of Capital Stock--Description    
of Employee Preferred Stock."                                                   

In connection with and as a precondition to the '95 Reorganization, in      
August and September of 1994, the Company entered into the '94 Labor            
Agreements, amending existing collective bargaining agreements, with the IAM,   
ALPA and IFFA, the three labor unions who then represented approximately 84%    
of the Company's employees. The '94 Labor Agreements provided for an extension  
of certain previously agreed wage concessions, modifications to work rules and  
the deletion of certain provisions of the then existing labor agreements,       
including elimination of so-called snapbacks, i.e., the automatic restoration   
of wage reductions granted in such agreements at the end of their term to       
levels that prevailed prior to the concessionary agreement. During 1994 and     
1995, the Company also implemented a number of similar cost savings             
initiatives with respect to domestic non-union and management employees,        
primarily through reducing head count, altering benefit packages, and           
continuing wage reductions which had been scheduled to expire. See "Business--  
Employees."                                                                     

45  

S-4/A
47th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 47th
CAPITALIZATION  

The following table sets forth the consolidated cash and the capitalization 
of the Company as of September 30, 1997 and as adjusted to give effect to the   
issuance of the Old Notes and the application of the proceeds therefrom, the    
issuance on December 2, 1997 of the 1997 Preferred Stock and the application    
of the net proceeds therefrom and the issuance on December 30, 1997 of the      
Receivables Securitization Notes and the application of the net proceeds        
therefrom. This information should be read in conjunction with the              
Consolidated Financial Statements appearing elsewhere in this Prospectus.       

                                                                [Download Table]

                                                              SEPTEMBER 30,    
                                                                  1997         
                                                            ------------------ 
                                                                        AS     
                                                             ACTUAL   ADJUSTED 
                                                            --------  -------- 
                                                              (IN MILLIONS)    
                                                                               
Cash and cash equivalents(1)............................... $  104.6  $  251.6 
                                                            ========  ======== 
Long-term debt and capital lease obligations (net of                           
 unamortized discounts and including current                                   
 maturities)(2):                                                               
 9.80% Airline Receivable Asset Backed Notes, Series 1997-                     
  1........................................................ $    --   $  100.0 
 11 1/2% Senior Secured Notes due 2004..................... $    --      138.4 
 12% Senior Secured Notes due 2002.........................     43.0      43.0 
 12% Senior Secured Reset Notes due 1998...................     67.8       --  
 8% IAM Backpay Notes......................................     13.0      13.0 
 PBGC Notes................................................    164.9     164.9 
 Icahn Loans...............................................     71.4       --  
 Various secured notes, 4.0% to 12.4%, due 1997-2001.......     50.3      50.3 
 Installment Purchase Agreements, 10.00% to 10.53%, due                        
  2002-2003................................................     93.5      93.5 
 Boeing Co. 757 Purchase Agreements, 11.85% to 12.38%, due                     
  2015.....................................................    111.7     111.7 
 IRS Deferral Note.........................................      7.1       7.1 
 Predelivery Financing Agreement...........................      6.2       6.2 
 Worldspan Note............................................     31.2      31.2 
 Capital lease obligations.................................    228.0     228.0 
                                                            --------  -------- 
     Total long-term debt and capital lease obligations....    888.1     987.3 
                                                            --------  -------- 
Shareholders' equity:                                                          
 Preferred Stock, $0.01 par value; 137,500,000 shares                          
  authorized:                                                                  
   8% Preferred Stock, 3,869,000 shares authorized;                            
    3,869,000 shares issued and                                                
    outstanding, as adjusted...............................      --        --  
   9 1/4% Preferred Stock, no shares authorized; no shares                     
    issued and outstanding;                                                    
    1,725,000 authorized, issued and outstanding, as                           
    adjusted...............................................      --        --  
 Employee Preferred Stock; 6,959,860 shares authorized;                        
  6,943,239 shares issued and outstanding, as adjusted                         
  (3)......................................................      0.1       0.1 
 Common Stock, $0.01 par value; 150,000,000 shares                             
  authorized;                                                                  
  50,665,706 shares issued and outstanding, as adjusted                        
  (4)......................................................      0.5       0.5 
 Additional paid-in capital................................    613.8     696.0 
 Accumulated deficit.......................................   (394.6)   (399.3)
                                                            --------  -------- 
     Total shareholders' equity............................    219.8     297.3 
                                                            --------  -------- 
     Total capitalization.................................. $1,107.9  $1,257.0 
                                                            ========  ======== 

--------                                                                        
(1) Includes cash and cash equivalents held in its international operations     
  and by its subsidiaries which, based upon foreign monetary regulations and
other factors, might not be immediately available to the Company. "As   
adjusted" reflects receipt of the net proceeds from the sale of the Old 
  Notes of approximately $133.5 million and the application of approximately
$23.1 million and $76.6 million to purchase Pledged Securities and to   
prepay at par, plus accrued and unpaid interest, its 12% Reset Notes,   
respectively; the receipt of the net proceeds from the sale of the 1997 
  Preferred Stock of $82.2 million; the receipt of the net proceeds from the
sale of the Receivables Securitization Notes of $97.0 million and the   
application of approximately $74.0 million of such proceeds to repay the
  Icahn Loans, including accrued and unpaid interest, and approximately $8.0
million of certain cash collateral released following repayment of the  
Icahn Loans.                                                            
(2) Current maturities of long-term debt and capital lease obligations at       
September 30, 1997 were $66.2 million and $38.4 million, respectively.  
(3) Comprised of 4,072,508 shares of the Company's IAM Preferred Stock, par     
value $0.01 per share, 974,672 shares of the Company's IFFA Preferred   
Stock, par value $0.01 per share, and 1,896,059 shares of the Company's 
  ALPA Preferred Stock, par value $0.01 per share, distributed and allocated
to employees through employee stock ownership plans for the benefit of  
  employees represented by IAM and ALPA. See "Description of Capital Stock--
Employee Preferred Stock."                                              
(4) Does not include (i) approximately 10.9 million shares of Common Stock      
initially reserved for issuance upon conversion of the 1997 Preferred   
 Stock, (ii) approximately 6.3 million shares of Common Stock reserved for
issuance upon exercise of warrants issued in connection with the March  
1997 offering of the Company's 50,000 Units, (iii) approximately 9.5    
million shares of Common Stock reserved for issuance upon conversion of 
the 8% Preferred Stock, (iv) approximately 3.7 million shares of Common 
Stock which may be issued upon exercise of outstanding stock options    
  granted to officers and employees of the Company under the KESIP at prices
 ranging from $4.64 to $18.37 per share and Common Stock issuable upon the
 exercise of warrants, and (v) shares of Common Stock which may be granted
 or sold at a discount to employees under the ESIP. See Notes 11 and 12 to
the Consolidated Financial Statements and "Risk Factors--Risk Factors   
Related to the Company--Corporate Governance Provisions; Special Voting 
Arrangements."                                                          

46  

S-4/A
48th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 48th
SELECTED CONSOLIDATED FINANCIAL DATA  

The selected consolidated financial data presented below relate to the year 
ended December 31, 1992, the ten months ended October 31, 1993, the two months  
ended December 31, 1993, the year ended December 31, 1994, the eight months     
ended August 31, 1995, the four months ended December 31, 1995, the year ended  
December 31, 1996, the nine months ended September 30, 1996 and 1997 and the    
three months ended September 30, 1996 and 1997. This data should be read in     
conjunction with "Management's Discussion and Analysis of Financial Condition   
and Results of Operations" and the Consolidated Financial Statements. The       
consolidated financial data for periods in the year ended December 31, 1992,    
the ten months ended October 31, 1993, the two months ended December 31, 1993,  
the year ended December 31, 1994, the eight months ended August 31, 1995, the   
four months ended December 31, 1995 and the year ended December 31, 1996 were   
derived from the audited consolidated financial statements of the Company.      
Certain amounts have been reclassified to conform with presentations adopted    
in 1997. See "Risk Factors--Risk Factors Related to the Company--Liquidity;     
Substantial Indebtedness; Capital Expenditure Requirements" for a description   
of the auditor's report issued in connection with the 1996 Consolidated         
Financial Statements.                                                           

During the period from 1992 through 1995, TWA underwent two separate Chapter
11 reorganizations, the first in 1992-93 and the second in 1995. In connection  
with the '95 Reorganization, TWA has applied fresh start reporting in           
accordance with SOP 90-7, which has resulted in the creation of a new           
reporting entity for accounting purposes and the Company's assets and           
liabilities being adjusted to reflect fair values on the '95 Effective Date.    
For accounting purposes, the '95 Effective Date is deemed to be September 1,    
1995. Because of the application of fresh start reporting, the financial        
statements for periods after the '95 Reorganization are not comparable in all   
respects to the financial statements for periods prior to the reorganization.   
Similarly, the Consolidated Financial Statements for the periods prior to the   
'93 Reorganization are not consistent with periods subsequent to the '93        
Reorganization. Accordingly, a vertical black line separates these periods.     
Preferred stock dividend requirements and earnings per share of the             
predecessor companies have not been presented as the amounts are not            
meaningful.                                                                     

47  

S-4/A
49th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 49th
                                                        [Enlarge/Download Table]

                      PRIOR PREDECESSOR                                                                                       
                           COMPANY                  PREDECESSOR COMPANY                              REORGANIZED COMPANY      
                   ------------------------ ------------------------------------ ---------------------------------------------
                                                                        EIGHT                                                 
                                TEN MONTHS   TWO MONTHS                 MONTHS   FOUR MONTHS               NINE MONTHS ENDED  
                    YEAR ENDED     ENDED       ENDED      YEAR ENDED    ENDED       ENDED      YEAR ENDED    SEPTEMBER 30,    
                   DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------ 
                       1992        1993         1993         1994        1995        1995         1996       1996      1997   
                   ------------ ----------- ------------ ------------ ---------- ------------ ------------ --------  -------- 
                                                        (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)                       
                                                                                                                              
STATEMENT OF                                                                                                                  
 OPERATIONS DATA:                                                                                                             
 Operating                                                                                                                    
  revenues.......    $3,618.7    $2,633.9      $520.8      $3,407.7    $2,218.4    $1,098.5     $3,554.4   $2,751.1  $2,515.1 
 Operating income                                                                                                             
  (loss) (1).....      (420.4)     (225.7)      (58.3)       (279.5)      (14.6)       10.4       (198.5)      33.9     (29.8)
 Income (loss)                                                                                                                
  before income                                                                                                               
  taxes                                                                                                                       
  and                                                                                                                         
  extraordinary                                                                                                               
  items (2)......      (314.3)     (362.6)      (88.1)       (432.9)     (338.3)      (32.3)      (274.6)     (18.3)    (68.3)
 Provision                                                                                                                    
  (credit) for                                                                                                                
  income taxes...         3.4         1.3        (0.2)          0.9        (0.1)        1.3          0.4        0.5       0.5 
 Income (loss)                                                                                                                
  before                                                                                                                      
  extraordinary                                                                                                               
  items..........      (317.7)     (363.9)      (87.9)       (433.8)     (338.2)      (33.6)      (275.0)     (18.8)    (68.8)
 Extraordinary                                                                                                                
  items (3)......         --      1,075.6         --           (2.0)      140.9         3.5         (9.8)      (7.4)    (10.9)
 Net income                                                                                                                   
  (loss).........      (317.7)      711.7       (87.9)       (435.8)     (197.3)      (30.1)      (284.8)     (26.2)    (79.7)
 Preferred stock                                                                                                              
  dividend                                                                                                                    
  requirements                                                                                                                
  (4)............                                 2.4          15.0        11.6         4.8         36.7       32.7      11.6 
 Income (loss)                                                                                                                
  applicable to                                                                                                               
  common shares..                               (90.3)       (450.8)     (208.9)      (34.9)      (321.5)     (58.9)    (91.3)
 Weighted average                                                                                                             
  shares                                                                                                                      
  outstanding ...                                                                      33.3         44.2       43.2      52.0 
 Per share                                                                                                                    
  amounts (5):                                                                                                                
 Income (loss)                                                                                                                
  before                                                                                                                      
  extraordinary                                                                                                               
  items and                                                                                                                   
  special                                                                                                                     
  dividend                                                                                                                    
  requirement....                                                                     (1.15)       (6.60)      (.73)    (1.54)
 Net income                                                                                                                   
  (loss).........                                                                     (1.05)       (7.27)     (1.36)    (1.75)
 Ratio of                                                                                                                     
  earnings to                                                                                                                 
  fixed charges                                                                                                               
  (6)............         --          --          --            --          --          --           --         --        --  
OTHER DATA                                                                                                                    
 Operating lease                                                                                                              
  rentals........       203.1       173.5        36.6         261.4       182.5        96.4        303.0      222.1     268.8 
 Interest                                                                                                                     
  expense........       110.0        91.9        31.2         195.4       123.2        45.9        126.8       95.5      85.5 
 Capital                                                                                                                      
  expenditures...        44.1        30.2        10.4          44.9        16.6        43.0        121.5      109.9      58.2 


                    THREE MONTHS                                                                                              
                        ENDED                                                                                                 
                    SEPTEMBER 30,                                                                                             
                   -----------------                                                                                          
                     1996     1997                                                                                            
                   --------- -------                                                                                          
                                                                                                                              
STATEMENT OF                                                                                                                  
 OPERATIONS DATA:                                                                                                             
 Operating                                                                                                                    
  revenues.......  $1,002.9  $908.4                                                                                           
 Operating income                                                                                                             
  (loss) (1).....      26.0    63.8                                                                                           
 Income (loss)                                                                                                                
  before income                                                                                                               
  taxes                                                                                                                       
  and                                                                                                                         
  extraordinary                                                                                                               
  items (2)......      10.0    47.2                                                                                           
 Provision                                                                                                                    
  (credit) for                                                                                                                
  income taxes...      16.9    33.9                                                                                           
 Income (loss)                                                                                                                
  before                                                                                                                      
  extraordinary                                                                                                               
  items..........      (6.9)   13.3                                                                                           
 Extraordinary                                                                                                                
  items (3)......      (7.4)   (7.0)                                                                                          
 Net income                                                                                                                   
  (loss).........     (14.3)    6.3                                                                                           
 Preferred stock                                                                                                              
  dividend                                                                                                                    
  requirements                                                                                                                
  (4)............       3.9     3.9                                                                                           
 Income (loss)                                                                                                                
  applicable to                                                                                                               
  common shares..     (18.2)    2.4                                                                                           
 Weighted average                                                                                                             
  shares                                                                                                                      
  outstanding ...      45.1    56.1                                                                                           
 Per share                                                                                                                    
  amounts (5):                                                                                                                
 Income (loss)                                                                                                                
  before                                                                                                                      
  extraordinary                                                                                                               
  items and                                                                                                                   
  special                                                                                                                     
  dividend                                                                                                                    
  requirement....      (.24)    .17                                                                                           
 Net income                                                                                                                   
  (loss).........      (.40)    .04                                                                                           
 Ratio of                                                                                                                     
  earnings to                                                                                                                 
  fixed charges                                                                                                               
  (6)............       --     1.21                                                                                           
OTHER DATA                                                                                                                    
 Operating lease                                                                                                              
  rentals........      77.3    94.4                                                                                           
 Interest                                                                                                                     
  expense........      30.9    27.4                                                                                           
 Capital                                                                                                                      
  expenditures...      34.9    24.8                                                                                           

                                                        [Enlarge/Download Table]

                            PRIOR                                                            
                         PREDECESSOR                                                         
                           COMPANY   PREDECESSOR COMPANY          REORGANIZED COMPANY        
                         ----------- -------------------    ---------------------------------
                                   DECEMBER 31,               DECEMBER 31,                   
                         ---------------------------------  ------------------  SEPTEMBER 30,
                            1992       1993        1994       1995      1996        1997     
                         ----------- ---------  ----------  --------  --------  -------------
                                                  (IN MILLIONS)                              
                                                                                             
BALANCE SHEET DATA:                                                                          
 Cash and cash                                                                               
  equivalents(7)........  $    67.9  $   187.7  $    138.5  $  304.3  $  181.6    $  104.6   
 Current assets.........      602.0      728.3       603.8     737.3     625.7       593.3   
 Net working capital                                                                         
  deficiency............     (316.2)    (106.7)   (1,238.2)    (81.9)   (336.4)     (425.9)  
 Flight equipment, net..      827.7      660.8       508.6     455.4     472.5       558.2   
 Total property and                                                                          
  equipment, net........    1,114.3      886.1       693.0     600.1     614.2       678.5   
 Intangible assets, net.        --     1,024.8       921.7   1,276.0   1,184.8     1,134.7   
 Total assets...........    2,158.1    2,958.9     2,512.4   2,868.2   2,681.9     2,676.6   
 Current maturities of                                                                       
  long-term debt and                                                                         
  capital leases (8)....      327.3      108.3     1,149.7     110.4     134.9       104.6   
 Liabilities subject to                                                                      
  Chapter 11                                                                                 
  reorganization                                                                             
  proceedings (9).......    2,026.9        --          --        --        --          --    
 Long-term debt, less                                                                        
  current maturities                                                                         
  (8)...................        --     1,053.6         --      764.0     608.5       593.8   
 Long-term obligations                                                                       
  under capital leases,                                                                      
  less current                                                                               
  maturities............        --       376.6       339.9     259.6     220.8       189.6   
 Shareholders' equity                                                                        
  (deficiency) (10).....   (1,149.7)      18.4      (417.5)    302.9     238.1       219.8   

                                                   (See notes on following page)

48

S-4/A
50th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 50th
-------                                                                         
(1) Includes special charges of $138.8 million in 1994, $1.7 million in the   
eight months ended August 31, 1995 and $85.9 million in 1996. For a   
discussion of these and other non-recurring items, see Note 16 to the 
1996 Consolidated Financial Statements.                               
(2) The 1992 results include non-recurring gains of $254.6 million from the   
 disposition of assets. The ten months ended October 31, 1993 includes a
   charge of $342.4 million related to the settlement of pension obligations
 and income of $268.1 million related to reorganization items. The eight
 months ended August 31, 1995 includes charges of $242.2 million related
to reorganization items.                                              
(3) The extraordinary item in 1993 represents the gain on discharge of        
  indebtedness pursuant to the consummation of the '93 Reorganization. The
   extraordinary item in 1994 represents the charge for a prepayment premium
related to the sale and leaseback of four McDonnell Douglas MD-80     
aircraft. The extraordinary item in the eight months ended August 31, 
   1995 represents the gain on the discharge of indebtedness pursuant to the
 consummation of the '95 Reorganization, while the extraordinary item in
  the four months ended December 31, 1995 was the result of the settlement
of a debt of a subsidiary. The extraordinary items in 1996 and 1997   
result from the early extinguishment of certain debt.                 
(4) On March 22, 1996, the Company called for redemption of all of its        
   outstanding 12% Preferred Stock. The excess of the early redemption price
over the carrying value of the 12% Preferred Stock is reflected as a  
$20.0 million "special dividend requirement" in 1996.                 
(5) No effect has been given to stock options, warrants or potential          
   issuances of additional Employee Preferred Stock as the impact would have
been anti-dilutive.                                                   
(6) For purposes of determining the ratio of earnings to fixed charges,       
 "earnings" consist of earnings before income taxes, extraordinary items
and fixed charges (excluding capitalized interest) and "fixed charges"
   consist of interest (including capitalized interest) on all debt and that
 portion of rental expense that management believes to be representative
of interest. Earnings were not sufficient to cover fixed charges as   
  follows (in millions): for the year ended December 31, 1992, $317.4; for
 the ten months ended October 31, 1993, $364.7; for the two months ended
 December 31, 1993, $88.4; for the year ended December 31, 1994, $435.0;
 for the eight months ended August 31, 1995, $338.3; for the four months
ended December 31, 1995, $32.3; for the year ended December 31, 1996, 
  $280.0; and for the nine months ended September 30, 1996 and 1997, $21.8
and $72.5, respectively; and for the three months ended September 30, 
1996, $8.5.                                                           
(7) Includes cash and cash equivalents held in its international operations   
and by its subsidiaries which, based upon foreign monetary regulations
and other factors, might not be immediately available to the Company. 
(8) Long-term debt in 1994 was reclassified to current maturities as a result 
  of certain alleged defaults and payment defaults. See Note 7 to the 1995
Consolidated Financial Statements.                                    
(9) For periods after January 31, 1992 and before the effective date of the   
 '93 Reorganization, certain prepetition liabilities, which were subject
to compromise pursuant to the '93 Reorganization, were classified as  
liabilities subject to Chapter 11 reorganization proceedings, and the 
accrual of interest was discontinued on prepetition debt that was     
unsecured or estimated to be undersecured.                            
(10) No dividends were paid on the Company's outstanding Common Stock during    
the periods presented above.                                          

49  

S-4/A
51st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 51st
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

In late 1996, the Company began implementing certain strategic initiatives  
in response to a significant deterioration in the Company's operating           
performance and financial condition during the second half of 1996. This        
deterioration was primarily caused by: (i) an overly aggressive expansion of    
TWA's capacity and planned flight schedule, particularly during the 1996        
summer season, which forced the Company to rely disproportionately on lower-    
yield feed traffic and bulk ticket sales to fill the increased capacity of its  
system; (ii) the delayed delivery of four older 747s intended to increase       
capacity for incremental international operations during the summer of 1996;    
and (iii) unexpected maintenance delays due to the capacity increase, higher    
levels of scheduled narrow-body heavy maintenance and increased contract        
maintenance performed for third parties. These factors caused excessive levels  
of flight cancellations, poor on-time performance, increased pilot training     
costs and higher maintenance expenditures and adversely affected the Company's  
yields and unit costs. In addition, the crash of TWA Flight 800 on July 17,     
1996 distracted management's attention from core operating issues and led to    
lost bookings and revenues. The Company also experienced a 27.6% increase in    
fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the        
average fuel price paid per gallon during the year.                             

The primary focus of the Company's new strategic initiatives was to         
reestablish TWA's schedule integrity, operational reliability and overall       
product quality in order to attract higher-yield passengers and improve its     
financial results. As the initial steps in implementing this strategy, the      
Company temporarily reduced its flight schedule during the first quarter of     
1997 to more closely match aircraft available for active service and worked to  
reduce the number of aircraft in maintenance backlog by increasing overtime     
and utilizing maintenance capacity made available by the termination of an      
unprofitable aircraft maintenance contract with the U.S. government. The other  
key initiatives which TWA began implementing in late 1996 included: (i)         
acceleration of the Company's fleet renewal plan; (ii) a restructuring of       
TWA's operations at JFK; (iii) a focus on improving productivity; (iv)          
implementation of a series of revenue-enhancing marketing initiatives; and (v)  
implementation of a number of employee-related initiatives to reinforce the     
Company's focus on operational performance.                                     

GENERAL                                                                         

The airline industry operates in an intensely competitive environment. The  
industry is also cyclical due to, among other things, a close relationship of   
yields and traffic to general U.S. and worldwide economic conditions. Small     
fluctuations in RASM and cost per ASM can have a significant impact on the      
Company's financial results. The Company has experienced significant losses     
(excluding extraordinary items) on an annual basis since the early 1990s,       
except in 1995 when the Company's combined operating profit was $25.1 million.  
The airline industry has consolidated in recent years as a result of mergers    
and liquidations, and further consolidation may occur in the future. This       
consolidation has, among other things, enabled certain of the Company's major   
competitors to expand their international operations and increase their         
domestic market presence. The emergence and growth of low cost, low fare        
carriers in domestic markets represents an intense competitive challenge for    
the Company, which has higher operating costs than many of such low fare        
carriers and fewer financial resources than many of its major competitors. In   
many cases, such low cost carriers have initiated or triggered price            
discounting.                                                                    

The '94 Labor Agreements became amendable after August 31, 1997.            
Negotiations on a new collective bargaining agreement with the IAM with regard  
to the flight attendants commenced in July 1997 and are currently ongoing, and  
negotiations regarding the Company's ground employees represented by the IAM    
commenced in February 1997 and are currently ongoing. At the request of the     
IAM, a mediator was appointed on August 6, 1997 in connection with the          
negotiations on the collective bargaining agreement covering the ground         
employees. Negotiations on a new collective bargaining agreement with ALPA      
commenced in June 1997 and are also currently ongoing. While wage rates         
currently in effect will likely increase, management believes that it is        
essential that the Company's labor costs remain favorable in comparison to its  
largest competitors. See "The Company--Business Strategy." The Company will     
seek to continue to improve employee productivity as an offset to any wage      
increases and will continue to explore other ways to control and/or reduce      
operating                                                                       

50  

S-4/A
52nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 52nd
expenses. There can be no assurance that the Company will be successful in      
obtaining such productivity improvements or unit cost reductions. In the        
opinion of management, the Company's financial resources are not as great as    
those of most of its competitors, and therefore, any substantial increase in    
its labor costs as a result of any new labor agreements or any cessation or     
disruption of operations due to any strike or work action could be              
particularly damaging to the Company.                                           

There are a number of uncertainties relating to agreements with employees,  
the resolution of which could result in charges to future operating results of  
the Company. Shares granted or purchased at a discount under the ESIP will      
generally result in a charge equal to the fair value of shares granted plus     
the discount for shares purchased at the time when such shares are earned. If   
the ESIP's target prices for the Common Stock are realized, the minimum         
aggregate charge for the years 1997 to 2002 would be approximately $58.0        
million based upon such target prices and the number of shares of Common Stock  
and Employee Preferred Stock outstanding at December 31, 1996. The charge for   
any year, however, could be substantially higher if the market price of the     
Common Stock exceeds certain target prices. See "Business--Employees."          

Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees
represented by the IAM a cash bonus for the amount by which overtime incurred   
by the IAM from September 1992 through August 1995 was reduced below specified  
thresholds. This amount was to be offset by the amount by which medical         
savings during the period for the same employees did not meet certain           
specified levels of savings. The obligation is payable in three equal annual    
installments beginning in 1998. The Company has estimated the net overtime      
bonus owed to the IAM to be approximately $26.3 million and has reflected this  
amount as a noncurrent liability in the Consolidated Financial Statements.      
Such amount reflects a reduction of approximately $10.0 million pursuant to an  
agreement to reduce proportionately the obligation based upon the size of the   
reduction of indebtedness achieved by the '95 Reorganization. The IAM, while    
not providing a calculation of its own, has disputed the method by which        
management has computed the net overtime bonus and has indicated that it        
believes the amount due to the IAM is much greater than the amount which has    
been estimated by management.                                                   

In addition, in connection with certain wage scale adjustments afforded to  
non-contract employees, employees previously represented by the IFFA have       
asserted and won an arbitration ruling with respect to the comparability of     
wage concessions made in 1994 that, if sustained, would require that the        
Company provide additional compensation to such employees. The Company          
estimates that at December 31, 1996 such additional compensation would          
aggregate approximately $6.0 million. The Company denies any such obligation    
and is pursuing an appeal of the arbitration ruling and a court award           
affirming the ruling. Effective September 1, 1997, the Company also reduced     
the overall compensation and benefits package for non-contract employees so as  
to offset, in the Company's view, any claims by such employees previously       
represented by IFFA for any retroactive or prospective wage increases. As       
such, no liability has been recorded by the Company at December 31, 1996.       

In connection with the '95 Reorganization, the Company entered into a letter
agreement with employees represented by ALPA whereby if the Company's flight    
schedule, as measured by block hours, does not exceed certain thresholds, a     
defined cash payment would be made to ALPA. The defined thresholds were         
exceeded during the measurement periods through December 31, 1996 and no        
amount was therefore owed to ALPA as of that date. A payment of approximately   
$2.6 million was due under the agreement on August 14, 1997 for the period      
January through June 1997. The Company made this payment in January 1998.       
Although the Company can not, at this time, determine the amount that the       
Company will be obligated to pay under the agreement for the period July        
through December 1997, management believes that its obligation for 1997 will    
not exceed $12.0 million. See Notes 7 and 12 to the Consolidated Financial      
Statements. For a description of certain additional employee related            
uncertainties, see "Risk Factors--Risk Factors Related to the Company--Certain  
Potential Future Earnings Charges."                                             

TWA has historically experienced significant variations in quarterly and    
annual operating revenues and operating expenses and expects such variations    
to continue. Due to the greater demand for air travel during the summer         
months, airline industry revenues for the third quarter of the year are         
generally significantly greater than revenues in the first and fourth quarters  
of the year and moderately greater than revenues in the second quarter          

51  

S-4/A
53rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 53rd
of the year. In the past, given the Company's historical dependence on summer   
leisure travel, TWA's results of operations have been particularly sensitive    
to such seasonality. While the Company, through an acceleration of its fleet    
renewal program and restructuring of its JFK operations, anticipates that the   
deseasonalization of operations affected thereby will reduce quarter to         
quarter fluctuations in the future, there can be no assurance that such         
deseasonalization will occur. See "Risk Factors."                               

The Company's results of operations have also been impacted by numerous     
other factors that are not necessarily seasonal. Among the uncertainties that   
might adversely impact TWA's future results of operations are: (i) competitive  
pricing and scheduling initiatives; (ii) the availability and cost of capital;  
(iii) increases in fuel and other operating costs; (iv) insufficient levels of  
air passenger traffic resulting from, among other things, war, threat of war,   
terrorism or changes in the economy; (v) governmental limitations on the        
ability of TWA to service certain airports and/or foreign markets; (vi)         
regulatory requirements necessitating additional capital expenditures; (vii)    
the outcome of certain ongoing labor negotiations; and (viii) the reduction in  
yield due to the continued implementation, of a discount ticket program         
entered into by the Company with Karabu in connection with the '95              
Reorganization on the terms currently sought to be applied by Karabu, which     
terms are, in the opinion of the Company, inconsistent with and in violation    
of, the agreement governing such program. See""--Liquidity and Capital          
Resources" and "Business--Legal Proceedings--Icahn Litigation." The Company is  
unable to predict the potential impact of any of such uncertainties upon its    
future results of operations.                                                   

On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en
route to Paris, France. There were no survivors among the 230 passengers and    
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully   
with all federal, state and local regulatory and investigatory agencies to      
ascertain the cause of the crash, which to date has not been determined. The    
National Transportation Safety Board held hearings relating to the crash in     
December of 1997 and is continuing its investigation. While TWA is currently a  
defendant in a number of lawsuits relating to the crash, it is unable to        
predict the amount of claims which may ultimately be made against the Company   
or how those claims might be resolved. TWA maintains substantial insurance      
coverage and, at this time, management has no reason to believe that such       
insurance coverage will not be sufficient to cover the claims arising from the  
crash. Therefore, TWA believes that the resolution of such claims will not      
have a material adverse effect on its financial condition or results of         
operations. The Company is unable to identify or predict the extent of any      
adverse effect on its revenues, yields or results of operations which has       
resulted or may result from the public perception of the crash or from any      
future findings by the National Transportation Safety Board. See "Business--    
Legal Proceedings."                                                             

Following the crash of TWA Flight 800 in July 1996, the FAA implemented new 
security measures primarily impacting international operations. The Company     
does not believe that these measures have had any material effect on its        
revenues or operating costs to date. Additionally, a special committee          
appointed by the President to review aviation safety and airport security       
issued its final report on February 12, 1997. The report contains several       
recommendations. However, the Company is unable to predict which                
recommendations will be adopted or their impact on the Company's future         
operating results. Additional government mandated security measures could have  
a direct adverse impact on the Company's operating costs to the extent any      
such costs are directly assessed to commercial airlines or, if funded through   
new taxes or user fees, could indirectly have an adverse impact on the          
Company's future operating results in the event that the Company is not able    
to fully pass on those charges in the form of ticket price increases.           

Management believes that the Company benefitted from the expiration on      
December 31, 1995 of the Ticket Tax, which imposed certain taxes including a    
10% air passenger tax on tickets for domestic flights, a 6.25% air cargo tax    
and a $6 per person international departure tax. The Ticket Tax was reinstated  
on August 27, 1996 and expired again on December 31, 1996. At the end of        
February 1997, the Ticket Tax was reinstated effective March 7, 1997 through    
September 30, 1997. Congress recently passed tax legislation reimposing and     
significantly modifying the Ticket Tax. The legislation includes the            
imposition of new excise tax and significant fee tax formulas over a multiple   
year period, an increase in the international departure tax, the imposition of  
a new arrivals tax, and the extension of the Ticket Tax to cover items such as  
the sale of frequent flier miles. Management believes that the imposition and   
modification of the Ticket Tax have a negative impact on the                    

52  

S-4/A
54th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 54th
Company, although neither the amount of such negative impact nor the benefit    
previously realized by its expiration can be precisely determined. However,     
management believes that the recent tax legislation and any other increases of  
the Ticket Tax will result in higher costs to the Company and/or, if passed on  
to consumers in the form of increased ticket prices, might have an adverse      
effect on passenger traffic, revenue and/or margins. See "Business--Regulatory  
Matters."                                                                       

During the period from 1992 through 1995, TWA underwent two separate Chapter
11 reorganizations, the first in 1992-93 and the second in 1995. In connection  
with the '95 Reorganization, TWA has applied fresh start reporting in           
accordance with SOP 90-7 which has resulted in the creation of a new reporting  
entity for accounting purposes and the Company's assets and liabilities being   
adjusted to reflect fair values on the '95 Effective Date. A description of     
the adjustments to financial statements arising from consummation of the '95    
Reorganization and the application of fresh start reporting is contained in     
Note 19 to the Consolidated Financial Statements. For accounting purposes, the  
'95 Effective Date is deemed to be September 1, 1995. Because of the            
application of fresh start reporting, the financial statements for periods      
after the '95 Reorganization are not comparable in all respects to the          
financial statements for periods prior to the reorganization. Similarly, the    
Consolidated Financial Statements for the periods prior to the '93              
Reorganization are not consistent with periods subsequent to the '93            
Reorganization.                                                                 

As a result of the application of fresh start reporting as of the '95       
Effective Date, substantial values were assigned to routes, gates and slots     
($458.4 million) and reorganization value in excess of amounts allocable to     
identifiable assets ($839.1 million). The Company has evaluated its future      
cash flows and, notwithstanding the operating loss experienced since the '95    
Effective Date, expects that the carrying value of the intangibles at December  
31, 1996 will be recovered. However, the achievement of such improved future    
operating results and cash flows are subject to considerable uncertainties. In  
future periods these intangibles will be evaluated for recoverability based     
upon estimated future cash flows. If expectations are not substantially         
achieved, charges to future operations for impairment of those assets may be    
required and such charges could be material.                                    

The Company's ability to improve its financial position and meet its        
financial obligations will depend upon a variety of factors, including:         
significantly improved operating results, favorable domestic and international  
airfare pricing environments, absence of adverse general economic conditions,   
more effective operating cost controls and efficiencies, and the Company's      
ability to attract new capital and maintain adequate liquidity. No assurance    
can be given that the Company will be successful in generating the operating    
results or attracting new capital required for future viability.                

The Company's auditors included in their report dated March 24, 1997 on the 
Consolidated Financial Statements an explanatory paragraph to the effect that   
substantial doubt exists regarding the Company's ability to continue as a       
going concern due to the Company's recurring losses from operations and         
limited sources of additional liquidity. See "Risk Factors--Risk Factors        
Related to the Company--Liquidity; Substantial Indebtedness; Capital            
Expenditure Requirements" and the Consolidated Financial Statements.            

RECENT FINANCIAL AND OPERATING RESULTS                                          

For the third quarter of 1997, TWA reported operating income of $63.8       
million and pre-tax income of $47.2 million. These results compare to           
operating income of $26.0 million and pre-tax income of $10.0 million in the    
third quarter of 1996. In addition, the Company's yield (passenger revenue per  
RPM) for the third quarter of 1997 increased 3.2% to 11.24c versus the          
comparable prior year period and passenger RASM increased 5.8% to 8.08c versus  
the comparable prior year period. The Company's unit costs remained             
essentially unchanged at 8.29c, despite a 13.7% decrease in capacity for the    
quarter versus the third quarter of 1996, as measured by ASMs.                  

53  

S-4/A
55th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 55th
RESULTS OF OPERATIONS                                                           

TWA's passenger traffic data, for scheduled passengers only and excluding   
Trans World Express, Inc. ("TWE") a wholly-owned subsidiary of the Company      
that provided a commuter feed service to the Company's New York hub prior to    
November, 1995, are shown in the table below for the indicated periods(1):      

                                                        [Enlarge/Download Table]

                                                      NINE MONTHS     THREE MONTHS   
                               YEAR ENDED                ENDED            ENDED      
                              DECEMBER 31,           SEPTEMBER 30,    SEPTEMBER 30,  
                         -------------------------  ----------------  -------------- 
                          1994     1995     1996     1996     1997     1996    1997  
                         -------  -------  -------  -------  -------  ------  ------ 
                                                                                     
NORTH AMERICA                                                                        
 Passenger revenues                                                                  
  (millions)............ $ 2,221  $ 2,292  $ 2,515  $ 1,936  $ 1,884  $  671  $  655 
 Revenue passenger miles                                                             
  (millions)(2).........  17,543   17,902   19,513   14,884   14,930   5,388   5,357 
 Available seat miles                                                                
  (millions)(3).........  27,963   28,194   30,201   22,688   22,072   7,959   7,707 
 Passenger load fac-                                                                 
  tor(4)................    62.7%    63.5%    64.6%    65.6%    67.6%   67.7%   69.5%
 Passenger yield                                                                     
  (cents)(5)............   12.66c   12.80c   12.89c   13.01c   12.62c  12.46c  12.23c
 Passenger revenue per                                                               
  available seat mile                                                                
  (cents)(6)............    7.94c    8.13c    8.33c    8.53c    8.54c   8.43c   8.50c
INTERNATIONAL                                                                        
 Passenger revenues                                                                  
  (millions)............ $   597  $   544  $   563  $   455  $   327  $  203  $  144 
 Revenue passenger miles                                                             
  (millions)(2).........   7,363    7,000    7,598    6,022    4,239   2,640   1,756 
 Available seat miles                                                                
  (millions)(3).........  11,228    9,719   10,393    8,020    5,518   3,491   2,187 
 Passenger load fac-                                                                 
  tor(4)................    65.6%    72.1%    73.1%    75.1%    76.8%   75.6%   80.3%
 Passenger yield                                                                     
  (cents)(5)............    8.10c    7.78c    7.41c    7.56c    7.71c   7.70c   8.20c
 Passenger revenue per                                                               
  available seat mile                                                                
  (cents)(6)............    5.31c    5.60c    5.42c    5.67c    5.93c   5.82c   6.59c
TOTAL SYSTEM                                                                         
 Passenger revenues                                                                  
  (millions)............ $ 2,818  $ 2,836  $ 3,078  $ 2,391  $ 2,211  $  874  $  799 
 Revenue passenger miles                                                             
  (millions)(2).........  24,906   24,902   27,111   20,906   19,169   8,028   7,113 
 Available seat miles                                                                
  (millions)(3).........  39,191   37,905   40,594   30,708   27,590  11,450   9,894 
 Passenger load fac-                                                                 
  tor(4)................    63.5%    65.7%    66.8%    68.1%    69.5%   70.1%   71.9%
 Passenger yield                                                                     
  (cents)(5)............   11.31c   11.39c   11.35c   11.44c   11.54c  10.89c  11.24c
 Passenger revenue per                                                               
  available seat mile                                                                
  (cents)(6)............    7.19c    7.48c    7.58c    7.79c    8.01c   7.64c   8.08c
 Operating cost per                                                                  
  available seat mile                                                                
  (cents)(7)............    8.45c    8.12c    8.76c    8.58c    8.99c   8.27c   8.29c
 Average daily utiliza-                                                              
  tion per aircraft                                                                  
  (hours)(8)............    9.30     9.45     9.63     9.82     9.34    9.90    9.64 
 Aircraft in fleet being                                                             
  operated at end of pe-                                                             
  riod..................     185      188      192      191      186     191     186 

--------                                                                        
(1) Excludes subsidiary companies.                                              
(2) The number of scheduled miles flown by revenue passengers.                  
(3) The number of seats available for passengers multiplied by the number of    
scheduled miles those seats are flown.                                  
(4) Revenue passenger miles divided by available seat miles.                    
(5) Passenger revenue per revenue passenger mile.                               
(6) Passenger revenue dividend by available seat miles.                         
(7) Operating expenses, excluding special charges, earned stock compensation    
and other nonrecurring charges, divided by available seat miles.        
(8) The average block hours flown per day in revenue service per aircraft.      

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED    
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996                                  

Total operating revenues of $908.4 million during the third quarter of 1997 
were $94.5 million (9.4%) less than the comparable 1996 period. This reduction  
occurred primarily because of decreases in scheduled passenger revenues ($75.1  
million) and cargo revenue ($6.4 million) which were primarily due to           
decreases in domestic and international capacity and because of a decrease in   
contract work ($10.0 million), which declined primarily due to the elimination  
of a government maintenance contract.                                           

Capacity and traffic decreased in the third quarter of 1997 from the        
comparable period of 1996. System wide capacity, measured by scheduled ASMs,    
decreased by 13.7% during the third quarter of 1997 (representing decreases in  
domestic and international ASMs of 3.2% and 37.4%, respectively). The decrease  
in capacity was primarily attributed to the ongoing replacement of B-747 and    
L-1011 aircraft with smaller B-767 and B-757 aircraft and the elimination of    
unprofitable international routes. Passenger traffic volume, as measured by     
total                                                                           

54  

S-4/A
56th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 56th
RPMs in scheduled service, during the third quarter of 1997 decreased 11.4%     
compared to the same period of 1996. Passenger load factor for the three        
months ended September 30, 1997 was 71.9% compared to 70.1% in the same period  
of 1996. TWA's yield per passenger mile increased from 10.89 cents in 1996 to   
11.24 cents for the three months ended September 30, 1997.                      

Operating expenses of $844.6 million in the third quarter of 1997 reflected 
a decrease of $132.2 million (13.5%) from the operating expenses of $976.8      
million for the three months ended September 30, 1996, representing a net       
change in the following expense groups:                                         

. Salary, wages and benefits of $304.3 million for the third quarter of     
1997 were $13.2 million (4.2%) less than the same period in 1996,       
primarily due to a decrease of 1,979 in the average number of employees.
The Company had an average of 23,038 full-time equivalent employees in  
the third quarter of 1997 as compared to 25,017 in the third quarter of 
 1996. Flight attendants, mechanics, and passenger service agents were the
primary groups affected by the decrease.                                

. Earned stock compensation charges of $1.1 million for the third quarter   
of 1997 versus a credit of $735 thousand for the third quarter of 1996  
 represents primarily the non-cash compensation charge recorded to reflect
 the expense associated with the distribution of shares of stock on behalf
of employees as part of the '95 Reorganization. Additional non-cash     
 compensation charges may be recorded in the future, a substantial portion
of which will depend on the market price of the Common Stock. For a     
further discussion of future charges related to non-cash compensation,  
 see "Risk Factors--Risk Factors Related to the Company--Certain Potential
Future Earnings Charges" and Notes 11 and 12 to the Consolidated        
Financial Statement.                                                    

. Aircraft fuel and oil expense of $122.2 million for the third quarter of  
1997 was $40.2 million (24.8%) less than the expense of $162.4 million  
for the three months ended September 30, 1996. Approximately $14.4      
million of the decrease was due to a reduction in the average cost of   
fuel from 69.67 cents per gallon in the third quarter of 1996 to 62.31  
cents per gallon in the third quarter of 1997 and the remaining $25.8   
million decrease was due to the reduction in gallons consumed (196.2    
 million gallons in the third quarter of 1997 versus 233.1 million gallons
 in the third quarter of 1996) resulting from the replacement of B-747 and
L-1011 aircraft with B-757 and B-767 aircraft and a reduction in        
international flying.                                                   

. Passenger sales commission expense of $66.0 million for the third quarter 
 of 1997 was $10.0 million (13.2%) less than the comparable period in 1996
primarily due to the 8.6% decrease in scheduled passenger revenues and  
reduced sales development commissions.                                  

. Aircraft maintenance materials and repairs expense of $27.5 million for   
 the third quarter of 1997 represented a decrease of $26.0 million (48.6%)
from the $53.5 million for the same period of 1996. The decrease was    
primarily the result of the introduction of new B-757 and MD-80/83      
aircraft into the fleet as replacements for B-747, L-1011 and B-727     
aircraft and a reduction in contract maintenance work performed.        

. Depreciation and amortization expense decreased $2.9 million in the third 
quarter of 1997 compared to the same period of 1996. Depreciation       
generated by the L-1011 and B-747 fleets was approximately $4.7 million 
less in the third quarter of 1997 than the same period of 1996 primarily
 because of special charges recorded in the fourth quarter of 1996 related
 to international route authorities and aircraft to be disposed of and the
sale/leaseback of one B-747 in 1997. The remaining increase is primarily
attributed to the addition of B-757 aircraft to TWA's fleet.            

. Operating lease rentals of $94.4 million for the third quarter of 1997    
 were $17.1 million (22.1%) more than the rentals of $77.3 million for the
third quarter of 1996. The increase was primarily due to an increase in 
the average number of leased aircraft from 144 in the third quarter of  
1996 to 158 in the comparable period of 1997, and higher lease rates    
 attributable primarily to the addition of new B-757 and MD-80/83 aircraft
to the fleet.                                                           

55  

S-4/A
57th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 57th
. Passenger food and beverage expense of $21.6 million during the third     
 quarter of 1997 represented a decrease of $9.6 million (30.8%) from $31.2
million during the third quarter of 1996. The decrease was primarily due
to the 33.7% reduction in the number of passengers boarded for          
 international flights resulting from the 37.4% reduction in international
 scheduled ASMs and savings derived from changes and improved efficiencies
in food and beverage service.                                           

All other operating expenses of $170.9 million during the third quarter of  
1997 decreased by $49.3 million (22.4%) from $220.2 million for the three       
months ended September 30, 1996. The decrease was primarily due to a decrease   
in outside services purchased ($12.3 million). Additionally, international      
navigational facility user charges and advertising expenses decreased year      
over year for the third quarter by $4.9 million and $7.0 million,               
respectively, due, in large part, to the 37.4% reduction in international       
scheduled ASMs. Decreases were also noted in landing fees ($1.8 million),       
personnel related expenses ($2.2 million), uncollectible accounts ($1.9         
million), taxes other than payroll and income ($1.8 million), and numerous      
other miscellaneous expenses.                                                   

Other charges (credits) were a net charge of $16.6 million for the third    
quarter of 1997 as compared to $16.0 million for the same period in 1996.       
Interest expense decreased $3.5 million in the third quarter of 1997 over the   
third quarter of 1996 as a result of the reduction of debt in the third         
quarter of 1997. Interest income decreased by $2.5 million in the third         
quarter of 1997 primarily as a result of lower levels of invested funds. Net    
gains from the disposition of assets were $2.8 million in the third quarter of  
1997 as compared to a net loss of $87 thousand in the same period of 1996. The  
net gain in the third quarter of 1997 included a gain of $1.8 million related   
to the sale of a B-727 aircraft. Other charges and credits net decreased from   
a net credit of $9.5 million for the third quarter of 1996 to a net credit of   
$5.1 million for the third quarter of 1997, primarily caused by a $2.8 million  
decline in the Company's share of Worldspan's earnings and a $1.3 million       
adjustment to reflect the weakening of the U.S. dollar against currencies of    
foreign countries in which TWA operates.                                        

A tax provision of $33.9 million was recorded in the third quarter of 1997  
compared to a tax provision of $16.9 million recorded in the third quarter of   
1996. The tax provision recorded in the third quarter reflects the reversal of  
previously recorded tax benefits, as management currently expects a taxable     
loss at year-end and the realization of the benefits of any such tax loss in    
future periods is presently subject to substantial uncertainty.                 

As a result of the above, the Company's operating income of $63.8 million   
for the three months ended September 30, 1997 increased $37.8 million from      
operating income of $26.0 million for the third quarter of 1996. The Company    
had a net income of $6.3 million for the third quarter of 1997 compared to a    
net loss of $14.3 million for the third quarter of 1996. The third quarter      
1997 net income included a $7.0 million non-cash extraordinary loss related to  
the early extinguishment of debt versus a $7.4 million non-cash extraordinary   
loss in the third quarter of 1996.                                              

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO  
THE NINE MONTHS ENDED SEPTEMBER 30, 1996                                      

Total operating revenues of $2,515.1 million for the nine months ended      
September 30, 1997 were $236.0 million (8.6%) less than the comparable 1996     
period. This reduction occurred primarily because of a $180.0 million (7.5%)    
decrease in scheduled passenger revenue, a $33.7 million (55.2%) decrease in    
contract revenue and a $16.6 million (14.9%) decrease in cargo revenues.        

Capacity and traffic decreased in the nine months ended September 30, 1997  
from the comparable period of 1996. System wide capacity, measured by           
scheduled ASMs, decreased 10.2% during the first nine months of 1997            
(representing decreases in domestic and international ASMs of 2.7% and 31.2%,   
respectively). The decrease in capacity was primarily attributed to the         
ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757   
aircraft and the elimination of unprofitable international routes. Passenger    
traffic volume, as measured by total RPMs in scheduled service, during the      
first nine months of 1997 decreased 8.3% compared to the same period of 1996.   
Passenger load factor for the nine months ended September 30, 1997 was          

56  

S-4/A
58th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 58th
69.5% compared to 68.1% in the same period of 1996. TWA's yield per passenger   
mile increased from 11.44 cents in 1996 to 11.54 cents in the first nine        
months of 1997.                                                                 

Operating expenses of $2,544.9 million in the first nine months of 1997     
reflected a decrease of $172.4 million (6.3%) from the operating expenses of    
$2,717.3 million for the nine months ended September 30, 1996, representing a   
net change in the following expense groups:                                     

. Salary, wages and benefits of $922.2 million for the first nine months of 
1997 were $1.1 million less than the same period of 1996, primarily due 
to a decrease in the average number of full-time equivalent employees   
from 24,212 during the first nine months of 1996 to 23,785 during the   
comparable 1997 period.                                                 

. Earned stock compensation charges of $4.2 million for the first nine      
months of 1997 and $4.3 million for the first nine months of 1996       
 represent primarily the non-cash compensation charges recorded to reflect
 the expense associated with the distribution of shares of stock on behalf
of employees as part of the '95 Reorganization.                         

. Aircraft fuel and oil expense of $369.5 million for the first nine months 
of 1997 decreased $63.3 million (14.6%) from expenses of $432.8 million 
 for the nine months ended September 30, 1996. Approximately $55.7 million
of the decrease was due to a 12.8% reduction in consumption (555.7      
million gallons in the first nine months of 1997 versus 637.5 million   
 gallons in the first nine months of 1996), and the remaining $7.6 million
 decrease was related to the 2.1% decrease in the average cost of fuel per
gallon from 67.90 cents in the first nine months of 1996 compared to    
66.49 cents in the first nine months of 1997.                           

. Passenger sales commission expense of $189.0 million for the first nine   
months of 1997 was $24.6 million (11.5%) less than the comparable period
in 1996 primarily due to a 7.5% decrease in passenger revenues and      
reduced sales development commissions.                                  

. Aircraft maintenance materials and repairs expense of $109.6 million for  
the first nine months of 1997 represented a decrease of $48.9 million   
 (30.9%) from $158.5 million for the same period of 1996. The decrease was
primarily the result of the introduction of new B-757 and MD-80/83      
aircraft into the fleet as replacements for B-747, L-1011 and B-727     
 aircraft, a reduction in contract maintenance work and a 4.3% decrease in
flying hours.                                                           

. Depreciation and amortization expense decreased $6.2 million in the first 
nine months of 1997 compared to the same period of 1996. Special charges
recorded in the fourth quarter of 1996, related to international route  
authorities and aircraft to be disposed of, reduced depreciation and    
amortization in the first nine months by approximately $10.8 million but
 was offset, in part, by the depreciation expense on the new aircraft that
the Company has acquired.                                               

. Operating lease rentals of $268.8 million for the first nine months of    
1997 were $46.7 million (21.0%) more than the rentals of $222.1 million 
for the first nine months of 1996. The increase was primarily due to an 
increase in the average number of leased aircraft from 140 during the   
 first nine months of 1996 to 154 during the first nine months of 1997 and
higher lease rates attributable primarily to the addition of new B-757  
and MD-80/83 aircraft to the fleet.                                     

. Passenger food and beverage expense of $61.4 million during the first     
nine months of 1997 represented a decrease of $22.7 million (27.0%) from
$84.1 million for the first nine months of 1996. The decrease was       
primarily due to a 30.0% reduction in the number of passengers boarded  
for international flights resulting from a 31.2% reduction in           
international scheduled ASMs and savings derived from changes and       
improved efficiencies in food and beverage service.                     

All other operating expenses of $508.1 million during the first nine months 
of 1997 decreased by $52.2 million (9.3%) from $560.3 million for the first     
nine months of 1996. Primarily as the result of management's decision to        
reduce international service, international departures decreased by 16.5%       
during the first nine months of 1997 as compared to the same period of 1996,    
which affected system-wide departures by 2.6% during the same period. This      
reduction had a direct impact on several operational expenses such as           
navigation charges ($8.6                                                        

57  

S-4/A
59th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 59th
million), landing fees ($4.4 million), advertising and publicity ($13.3         
million), reservation booking fees ($6.5 million) and traffic handling costs    
($4.9 million). Other areas of reduced expenses included accruals for waste     
management fees ($8.6 million) and provision for uncollectible accounts ($5.1   
million).                                                                       

Other charges (credits) were a net charge of $38.5 million for the first    
nine months of 1997 as compared to $52.1 million for the same period in 1996.   
Interest expense decreased $10.0 million in the first nine months of 1997 from  
the first nine months of 1996 as a result of the reduction of debt in 1996 and  
1997. Interest income decreased $8.3 million in the first nine months of 1997   
primarily as a result of lower levels of invested funds. Net gains from the     
disposition of assets were $15.2 million in the first nine months of 1997 as    
compared to net losses of $62 thousand in the same period of 1996. The net      
gains in the first nine months of 1997 included gains of $7.3 million related   
to the sale of three gates at Newark International Airport, $1.5 million        
related to the sale of spare flight equipment, and $3.2 million related to the  
sale of four aircraft engines and $2.8 million related to the sale of five      
surplus aircraft. Other charges and credits-net for the first nine months of    
1997 were a net credit of $22.9 million compared to a net credit of $26.2       
million in the first nine months of 1996. The $3.3 million decrease is          
primarily the result of decreases in vendor discounts ($1.4 million) and the    
favorable settlement of a lawsuit in 1996 ($2.5 million).                       

As a result of the above, the Company's operating loss of $29.8 million for 
the nine months ended September 30, 1997 decreased $63.7 million from           
operating income of $33.9 million for the first nine months of 1996. The        
Company had a net loss of $79.7 million for the first nine months of 1997       
compared to a net loss of $26.2 million for the first nine months of 1996.      

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO   
THE FOUR-MONTHS ENDED DECEMBER 31, 1995 AND EIGHT MONTHS ENDED AUGUST 31,     
1995                                                                          

Total operating revenues of $3,554.4 million for 1996 were $237.6 million or
7.2% more than the total operating revenues of $3,316.8 million for the year    
ended December 31, 1995. The increase was primarily reflected in TWA passenger  
revenues which were $241.6 million higher than in 1995. Additionally, revenues  
from contract maintenance work increased $15.7 million and revenue from         
freight and mail increased $9.9 million. Operating revenues for 1995 included   
$35.9 million in passenger revenues from TWE which discontinued operations in   
November 1995.                                                                  

Capacity and traffic increased in 1996 as compared to 1995. System-wide     
capacity, measured in ASMs, increased by 7.1% in 1996 as compared to 1995       
(representing increases in domestic and international ASMs of 7.1% and 7.0%,    
respectively). Passenger traffic volume, as measured by total RPMs in           
scheduled service, increased 8.9% in 1996 over 1995. Passenger load factor for  
1996 was 66.8% compared to 65.7% in 1995. TWA's yield per passenger mile        
decreased slightly from 11.39 cents in 1995 to 11.35 cents in 1996. Although    
the yield per passenger mile declined only slightly year over year, the yield   
during the second half of 1996 was 10.97 cents compared to 11.40 cents during   
the second half of 1995.                                                        

Operating expenses of $3,752.9 million in 1996 reflect an increase of $461.2
million (14.0%) over the total operating expenses of $3,291.7 million for the   
year ended December 31, 1995, representing a net change in the following        
expense groups:                                                                 

. Salaries, wages and benefits of $1,254.3 million for 1996 were $125.6     
million (11.1%) more than 1995, primarily due to an increase in the     
average number of employees, overtime costs required due to poor        
operating performance in 1996 and lower productively levels. The Company
 had an average of 24,254 employees in 1996 as compared to 22,927 in 1995.

. Earned stock compensation charges of $9.1 million for 1996 and $58.0      
million for 1995 represent primarily the non-cash compensation charge   
recorded to reflect the expense associated with the distribution of     
 shares of stock on behalf of employees as part of the '95 Reorganization.

. Aircraft fuel and oil expense of $582.2 million for 1996 was $126.6       
million (27.6%) over the total expense of $458.6 million for 1995. This 
increase is primarily due to an increase in the price of fuel           

58  

S-4/A
60th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 60th
(22.3%), an increase in gallons consumed (4.3%) and the expiration in   
 October 1995 of the airlines' exemption from paying a federal fuel tax of
 4.3 cents per gallon, which increased fuel expense by approximately $13.6
million.                                                                

. Passenger sales commission expense of $268.1 million for 1996 was $2.1    
million (0.8%) higher than the combined expense of $266.0 million in    
1995, and is primarily related to the $241.6 million increase in TWA    
passenger revenues offset by an increase in non-commissionable          
international tickets.                                                  

. Aircraft maintenance materials and repairs expense of $208.2 million in   
 1996 represented an increase of $60.5 million (41.0%) from $147.7 million
for 1995. The increase was primarily the result of higher levels of     
scheduled maintenance in 1996, including heavy maintenance, a 3.6%      
increase in flying hours and increased repair work performed by the     
Company for other air carriers and third parties.                       

. Depreciation and amortization expense of $161.8 million for 1996          
increased slightly from combined expenses of $161.6 million for 1995.   

. Operating lease rentals of $303.0 million for 1996 were $24.1 million     
(8.6%) more than the total rentals of $278.9 million for 1995. The      
 increase was primarily due to an increase in the average number of leased
aircraft from 119 in 1995 to 123 in 1996 and higher lease rates.        

. Passenger food and beverage expense of $110.1 million in 1996 represented 
an increase of $7.3 million (7.1%) from $102.8 million for the twelve   
months of 1995. The increase is primarily due to the 8% increase in the 
number of passengers boarded.                                           

During the fourth quarter of 1996, special charges of $85.9 million were    
recorded in connection with the Company's decision to modify its international  
route structure and related aircraft fleet plan. The charges included a write-  
down of the JFK-Athens route ($26.7 million), international employee severance  
liabilities ($5.5 million) related to the termination of service to Athens and  
Frankfurt, and a write-down of the L-1011 and 747 fleets ($32.2 million) and    
the related inventories ($21.5 million), reflecting planned retirement of such  
aircraft. These costs are based upon management's current estimates. Actual     
costs could materially differ from these current estimates. See Note 16 to the  
Consolidated Financial Statements for a further discussion of these special     
charges. Special charges of $1.7 million were recorded in the third quarter of  
1995 related to the shutdown of TWE.                                            

All other operating expenses of $767.2 million in 1996 represented an       
increase of $79.6 million (11.6%) from $687.6 million for the year ended        
December 31, 1995. An increase in flight cancellations during 1996 resulted in  
increased CRS fees related thereto ($19.4 million) and interrupted trip         
expenses ($3.7 million). In addition, expenses relating to maintenance          
services provided under a contract with the military increased approximately    
$21.6 million in 1996 compared to 1995. The Company also experienced a          
significant increase in professional/technical fees ($18.7 million) which was   
primarily due to the use of contract programmers for ongoing development of     
new systems and external consultants' fees for re-engineering.                  

Other charges (credits) were a net charge of $76.1 million for 1996 as      
compared to $42.7 million and $353.0 million in the four month and the eight    
month periods of 1995, respectively (included in the eight month period is a    
charge of $242.3 million for reorganization items in connection with the        
application of fresh start reporting pursuant to the '95 Reorganization).       
Interest expense decreased $42.3 million in 1996 over 1995 as a result of the   
reduction of debt arising from the '95 Reorganization and additional            
reductions of debt during 1996. Interest income increased by $3.5 million in    
1996 primarily as a result of higher levels of invested funds. Other charges    
and credits-net improved $35.8 million in 1996 compared to 1995, primarily due  
to a $19.8 million improvement in the Company's share of earnings of Worldspan  
and a $2.5 million credit to reflect a litigation settlement. Additionally,     
other charges and credits-net for 1995 included a $14.0 million charge for      
restructuring expenses.                                                         

As a result of the above, the operating loss of $198.5 million for 1996 was 
$223.6 million unfavorable to the combined operating income of $10.5 million    
and $14.6 million for the four month and the eight month periods of 1995,       
respectively. The net loss of $284.8 million for 1996 was $57.4 million         
greater than the combined loss of $227.4 for 1995. The 1996 net loss included   
$9.8 million in extraordinary losses related to the                             

59  

S-4/A
61st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 61st
early extinguishment of debt, while the 1995 net loss included $144.4 million   
in extraordinary gains related to the discharge of indebtedness pursuant to     
the '95 Reorganization and the cancellation of debt between TWE and an          
aircraft lessor.                                                                

RESULTS OF OPERATIONS FOR THE FOUR MONTHS ENDED DECEMBER 31, 1995 AND EIGHT     
MONTHS ENDED AUGUST 31, 1995 COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31,   
1994                                                                          

Total operating revenues of $1,098.5 million and $2,218.4 million for the   
four months ended December 31, 1995 and the eight months ended August 31,       
1995, respectively, were, on a combined basis, $90.9 million (2.7%) less than   
1994, primarily because of an $80.5 million decrease in other revenues. This    
decrease is primarily due to the sale of subsidiary companies in 1994 ($51.9    
million), a decrease of $13.0 million in TWA Nippon, Inc. ("Nippon") revenues,  
and a $12.3 million decrease in TWA Getaway Vacations revenue.                  

During 1995, passenger revenue remained virtually unchanged from 1994,      
despite the adverse publicity generated by the '95 Reorganization, and in the   
four months since emerging from bankruptcy, passenger revenue increased by      
$48.3 million, a 5.5% improvement over the same period of 1994. System          
capacity as measured by ASMs was trimmed by 3.2% on a system-wide basis in      
1995 versus 1994. International capacity decreased 13.7% due to the             
termination of flights to several international destinations, while domestic    
capacity increased slightly (1.1%). During 1995, system traffic volume, as      
measured by total RPMs, improved slightly (0.1%), the result of a decrease in   
international traffic by 5.1% and an increase in domestic traffic by 2.3%.      
TWA's yield per passenger mile for 1995 increased to 11.39 cents from 11.31     
cents in 1994 (reflecting a domestic increase to 12.80 cents from 12.66 cents   
and an international decrease to 7.78 cents from 8.10 cents).                   

Operating expenses of $1,088.0 million and $2,203.7 million for the four    
months ended December 31, 1995 and the eight months ended August 31, 1995,      
respectively, were, on a combined basis, $395.5 million (10.7%) less than the   
operating expenses of $3,687.2 million for 1994, representing a net change in   
the following expense groups:                                                   

. Salary, wages and benefits for the four months ended December 31, 1995    
and the eight months ended August 31, 1995 of $373.0 million and $755.7 
million, respectively, were, on a combined basis, $164.8 million (12.7%)
less than 1994. The reduction in employment costs reflect a full year of
savings realized from the '94 Labor Agreements entered into in August   
1994 as the average number of employees was reduced from approximately  
25,200 in 1994 to approximately 22,900 in 1995. The four months ended   
December 31, 1995 included the favorable impacts of changes in estimates
which reduced employee benefit costs by approximately $6.2 million.     
Additionally, 1994 employment costs included a non-recurring contractual
benefit accrual of approximately $36.3 million.                         

. During 1995, the Company distributed shares of stock to employees as part 
of its financial restructuring which, together with certain other non-  
cash compensation charges, resulted in an aggregate charge of $58.0     
million to operating expense.                                           

. Aircraft fuel and oil expense of $161.8 million for the four months ended 
December 31, 1995 and $296.8 million for the eight months ended August  
31, 1995, reflected a combined decrease of $18.9 million from 1994. The 
combined effect of decreased fuel usage (5.6%), offset by a slight      
 increase in the unit price (1.8%), resulted in a decrease of 4.0% in fuel
costs for 1995. The average unit price of fuel was 57.0 cents per gallon
in 1995 compared to 56.0 cents in 1994. Effective October 1, 1995, an   
exemption expired related to a federal fuel tax of 4.3 cents per gallon 
on commercial jet fuel purchased for use in domestic operations. This   
additional tax increased fuel costs by $7 million in the fourth quarter 
of 1995. See "Business--Aircraft Fuel."                                 

. Passenger sales commission expense of $80.0 million in the four months    
ended December 31, 1995 and $186.0 million in the eight months ended    
August 31, 1995, respectively, together represent a decrease of $22.0   
million (7.6%) from 1994. The decrease is primarily due to incentive    
commissions and a reduction in the commission rate on international     
tickets. The four months ended December 31, 1995                        

60  

S-4/A
62nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 62nd
included the favorable impacts of changes in estimated commissions which
reduced commission expense by approximately $6.7 million.               

. Aircraft maintenance and repairs expense of $52.0 million and $95.7       
million for the four-month and the eight-month periods of 1995,         
 respectively, together represent a slight increase of $2.3 million (1.6%)
over 1994.                                                              

. Depreciation and amortization decreased $21.6 million (11.8%) to the      
combined $55.2 million for the four months ended December 31, 1995 and  
 the $106.5 million for the eight months ended August 31, 1995 from $183.3
million in 1994. The decrease is generally due to the normal decline in 
depreciation as property reaches the end of its estimated economic life,
partially offset by an increase in the amortization of intangible assets
 arising from fresh start reporting on the '95 Effective Date and the sale
(and simultaneous leaseback) of five 727 and two 747 aircraft in March  
1995.                                                                   

. Operating lease rentals were $96.4 million for the last four months of    
1995 and $182.5 million for the first eight months of 1995, a combined  
increase of $17.6 million (6.7%) over 1994. The increase was principally
due to the sale and simultaneous leaseback of five 727s and two 747s in 
 March 1995 and the addition of three new MD-83 aircraft in late 1995. The
increase was also due to the reclassification of the JFK International  
Terminal lease from capital to operating ($3.8 million).                

. Passenger food and beverage expenses were $34.7 million and $68.1 million 
for the four months ended December 31, 1995 and the eight months ended  
August 31, 1995, respectively, a combined decrease of $18.0 million     
(14.9%) in 1995 compared to 1994. The decrease is primarily due to      
decreased international traffic and cost savings as a result of the     
closing of the JFK and Los Angeles dining units in the fourth quarter of
1994.                                                                   

. Special charges of $1.7 million were recorded in the third quarter of     
1995 related to the shut-down of TWE.                                   

All other operating expenses, excluding special charges, aggregated $232.7  
million for the four months ended December 31, 1995 and $454.9 million for the  
eight months ended August 31, 1995, a combined decrease of $90.9 million        
(11.7%) compared to 1994. The decrease is primarily the result of the           
operating subsidiaries sold in 1994 ($34.6 million) and decreases in the        
operating costs of TWE ($14.2 million) and other subsidiaries ($27.3 million).  

Other charges (credits) were a net charge of $42.7 million for the last four
months of 1995 and a net charge of $352.9 million for the first eight months    
of 1995 compared to a net charge of $153.4 million in 1994. This increase of    
$242.3 million was primarily due to a $242.2 million non-recurring charge       
related to the Company's restructuring. Additionally, interest expense          
declined by $26.2 million and investment income increased by $5.8 million and   
other charges increased by $4.3 million, reflecting the Company's               
proportionate share of increased losses experienced during 1995 over 1994 by    
Worldspan, a partnership among affiliates of the Company, Delta Air Lines,      
Northwest Airlines and ABACUS Distributions Systems Pte. Ltd., which owns and   
operates the WORLDSPAN computer reservation system. Worldspan's increased loss  
during 1995 as compared to 1994 was primarily due to restructuring charges      
recognized by Worldspan in the fourth quarter of 1995. See also Note 15 to the  
Consolidated Financial Statements.                                              

As a result of the above, the operating profit of $10.4 million for the four
months ended December 31, 1995 and $14.6 million for the eight months ended     
August 31, 1995 reflected, on a combined basis, a $304.5 million improvement    
from the operating loss of $279.5 million in 1994. The net loss of $30.1        
million for the last four months of 1995 and $197.3 million for the first       
eight months of 1995 was, on a combined basis, $208.4 million less than the     
net loss of $435.8 million in 1994.                                             

LIQUIDITY AND CAPITAL RESOURCES                                                 

The following is a discussion of the impact of significant factors affecting
TWA's liquidity position and capital resources. These comments should be read   
in conjunction with, and are qualified in their entirety by, the Consolidated   
Financial Statements and Notes thereto.                                         

61  

S-4/A
63rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 63rd
Liquidity                                                                     

The Company's consolidated cash and cash equivalents balance at September   
30, 1997 was $104.6 million, a $77.0 million decrease from the December 31,     
1996 balance of $181.6 million. This reduction in the Company's cash balances   
resulted primarily from the repayment of long-term debt and capital lease       
obligations and from TWA's net losses caused in part by, among other factors,   
difficulties experienced in the last two quarters of 1996 and the first         
quarter of 1997 in operating performance. Although the Company's operational    
performance substantially improved during the second and third quarters of      
1997, the residual effects of these difficulties continued throughout the       
first two quarters of 1997 and, to a lesser extent, during the third quarter    
of 1997. However, the Company has taken various initiatives, discussed below,   
designed to improve the Company's financial performance and the Company's       
financial performance for the third quarter of 1997 was better than its         
performance in the third quarter of 1996.                                       

In February 1997, in order to improve its liquidity, the Company entered    
into an agreement with and received approximately $26 million from certain St.  
Louis business enterprises, representing the advance payment for tickets for    
future travel by such enterprises. In March 1997, the Company raised            
approximately $47.2 million in net proceeds from the issuance of 50,000 Units.  
In December 1997, the Company raised net proceeds of $82.2 million from the     
sale of the 1997 Preferred Stock, net proceeds of $133.5 million from the sale  
of the Old Notes, a portion of the proceeds of which was used to refinance the  
12% Reset Notes, and net proceeds of $97.0 million from the sale of the         
Receivables Securitization Notes, a portion of the proceeds of which was used   
to repay the outstanding balance of the Icahn Loans (as defined below).         

The net decrease in cash and cash equivalents during the first nine months  
of 1997 was due, in part, to the fact that cash used in operating activities    
in the first nine months of 1997 was $21.0 million as compared to the first     
nine months of 1996 when $47.9 million was provided by operating activities.    
Pursuant to the eight-year Karabu Ticket Program Agreement between the Company  
and Karabu (the "Ticket Agreement"), net discounted sales from tickets sold     
under the agreement are excluded from cash provided by operating activities as  
the related amounts were applied as a $53.7 million reduction to the            
outstanding balance of financing provided to TWA by Karabu (the "Icahn Loans")  
and a $38.8 million reduction to the outstanding balance of certain promissory  
notes issued to the PBGC in connection with the '93 Reorganization (the "PBGC   
Notes"). Cash used by investing activities was $17.6 million in the first nine  
months of 1997 versus $108.9 million in the first nine months of 1996. A large  
part of this change was related to a reduction in new aircraft predelivery      
deposits of approximately $35 million during the first nine months of 1997 and  
an increase of $16.3 million in proceeds from asset sales. Gross proceeds from  
assets sold during the first nine months of 1997 included $10.0 million for     
three gates at Newark International Airport and $11.8 million for spare flight  
equipment, aircraft and engines. Financing activities used $38.5 million of     
cash in 1997, while such activities provided cash of $5.1 million in the first  
nine months of 1996, primarily related to net proceeds of $104.4 million        
(after the redemption of the Mandatorily Redeemable 12% Preferred Stock) from   
the sale of 3,869,000 shares of 8% Preferred Stock in March 1996. Net proceeds  
from the issuance of the Units were $47.2 million in March 1997.                

The net decrease in cash and cash equivalents during 1996 as compared to    
1995 was due, in large part, to the fact that cash used in operating            
activities in 1996 was $5.7 million as compared to 1995 when cash provided by   
operating activities was $216.9 million. The adverse change was primarily       
attributable to the decrease in 1996 operating income as compared with 1995.    
Additionally, pursuant to the Karabu Ticket Agreement net discounted sales      
from tickets sold under the agreement are excluded from cash provided by        
operating activities as the related amounts were applied as a $62.9 million     
reduction of the Icahn Loans and a $6.4 million reduction of the PBGC Notes.    
At December 31, 1995 approximately $2.0 million of such proceeds had been       
applied to the principal balance of the Icahn Loans, while no proceeds had      
been applied to the PBGC Notes. The increase of $79.5 million in trade          
accounts payable during 1996 was primarily due to the Company utilizing a safe  
harbor provision with regard to payment of U.S. transportation taxes of $60     
million for the period September through December 1996, a significant portion   
of which was paid in February 1997. Cash used in investing activities           
increased $84.1 million from $23.3 million in 1995 to $107.4 million in 1996.   
A large part of this increase was related to capital expenditures ($121.5       
million in 1996 versus $59.5 million in 1995) which had been somewhat           
restricted by fiscal                                                            

62  

S-4/A
64th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 64th
controls in place during most of 1995. Financing activities used $9.7 million   
of cash in 1996, compared with a net use of cash of $27.8 million in 1995.      
Proceeds from long-term debt and sale and leaseback transactions decreased      
from $22.1 million in 1995 to $16.6 million in 1996. Repayments of long-term    
debt and capital leases required $15.4 million more cash in 1996 than in 1995.  
In 1996, net proceeds from the sale of 8% Preferred Stock were $186.2 million   
while the early redemption of the Mandatorily Redeemable 12% Preferred Stock    
and cash dividends required $81.7 million and $14.5 million, respectively. In   
1995, the net proceeds from an equity rights offering generated $51.9 million.  

The Company's ability to improve its financial position and meet its        
financial obligations will depend upon a variety of factors, including:         
continued improvement in operating results, favorable domestic and              
international airfare pricing environments, absence of adverse general          
economic conditions, more effective operating cost controls and efficiencies,   
and the Company's ability to attract new capital and maintain adequate          
liquidity. In late 1996, the Company began implementing a series of new         
strategic initiatives designed to improve the Company's financial and           
operating results. See "The Company--Business Strategy."                        

The achievement of these improved operating results is subject to           
significant uncertainties, including the Company's ability to achieve higher    
revenue yields and load factors, the cost of aircraft fuel, the Company's       
ability to finance or lease suitable replacement aircraft at reasonable rates   
and the containment of operating costs. No assurance can be given that any of   
the initiatives already implemented or any new initiatives, if implemented,     
will be successful, or if successful, that such initiatives will produce        
sufficient results for the Company to be successful in generating the           
operating revenues and cash required for profitable operations or future        
viability. See "Risk Factors."                                                  

Pursuant to the '95 Reorganization, the Company issued 600,000 ticket       
vouchers, each with a face value of $50.00, which may be used for up to a 50%   
discount off the cost of a TWA airline ticket for transportation on TWA         
("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased    
approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8       
million. Payments in respect of these Ticket Vouchers were approximately        
$700,000 in 1995 and approximately $8.1 million in 1996. Concurrently, the      
Company undertook aircraft lease payment deferrals to increase liquidity and    
improve the Company's financial condition. Gross deferrals of lease and         
conditional sale indebtedness payments aggregated approximately $91.0 million   
with a weighted average repayment period of approximately two years. The        
aircraft lease payment deferrals contemplated by the '95 Reorganization         
generally anticipated six month deferrals with various payback periods,         
extending in some instances over the remaining life of the lease, and in other  
cases over a specified period. Cash repayments of lease deferrals, including    
interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8  
million in 1996 and are expected to approximate $9.0 million in 1997.           

On June 14, 1995, the Company signed an agreement (the "Extension and       
Consent Agreement") with Karabu to extend the term of the Icahn Loans from      
January 8, 1995 to January 8, 2001 and to obtain the consent of Karabu and the  
Icahn Entities to certain modifications to the PBGC Notes. Collateral for the   
Icahn Loans included a number of aircraft, engines and related equipment,       
along with substantially all of the Company's receivables. On December 30,      
1997, the Company repaid the outstanding balance of the Icahn Loans out of      
proceeds from the sale of the Receivables Securitization Notes.                 

On June 14, 1995, in consideration of, among other things, the extension of 
the Icahn Loans, TWA and Karabu entered into the Ticket Agreement which         
permitted Karabu to purchase two categories of discounted tickets: (1)          
"Domestic Consolidator Tickets," which are subject to a cap of $610 million,    
based on the full retail price of the tickets ($120 million in the first 15     
months and $70 million per year for seven consecutive years through the term    
of the Ticket Agreement), and (2) "System Tickets," which are not subject to    
any cap throughout the term of the Ticket Agreement.                            

Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are  
priced at levels intended to approximate current competitive discount fares     
available in the airline industry. The Ticket Agreement provides that no        
ticket may be included with an origin or destination of St. Louis, nor may any  
ticket include flights on                                                       

63  

S-4/A
65th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 65th
other carriers. Tickets purchased by Karabu pursuant to the Ticket Agreement    
are required to be at fares specified in the Ticket Agreement, net to TWA, and  
exclusive of tax. No commissions will be paid by TWA for tickets sold under     
the Ticket Agreement, and TWA believes that under the applicable provisions of  
the Ticket Agreement, Karabu may not market or sell System Tickets through      
travel agents or directly to the general public. Karabu, however, has been      
marketing System Tickets through travel agents and directly to the general      
public. TWA has demanded that Karabu cease doing so and Karabu has stated that  
it disagrees with the Company's interpretation concerning sales through travel  
agents or directly to the general public. In December 1995, the Company filed   
a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages    
and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered   
by threatening to file his own lawsuit and declare a default on the Icahn       
Loans, which financing was secured by receivables and certain flight equipment  
pledged under one or more security agreements (the "Karabu Security             
Agreements"). Mr. Icahn's position was based on a variety of claims related to  
his various interpretations of the Karabu Security Agreements as well as with   
respect to certain alleged violations of the Ticket Agreement by the Company.   
The parties negotiated a series of standstill agreements pursuant to which      
TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn           
endeavored to negotiate a settlement of their differences and respective        
claims. Those negotiations reached an impasse and the Company re-filed its      
suit on March 20, 1996 in the St. Louis County Circuit Court. In response to    
such lawsuit, Karabu and another Icahn-affiliated company asserted              
counterclaims alleging that the Company had breached its obligations under the  
Ticket Agreement by, among other things, seeking to restrict Karabu and Icahn-  
affiliated companies from selling System Tickets through travel agents or       
directly to the general public. If Karabu's interpretation as to sales of       
System Tickets through travel agents or directly to the general public was      
determined by a court or otherwise to be correct and the Company did not        
otherwise take appropriate action to mitigate the effect of such sales, the     
Company could suffer significant loss of revenue collected that could reduce    
overall passenger yields on a continuing basis during the term of the Ticket    
Agreement. The trial of this case was completed on January 7, 1998. A final     
judicial determination that the Ticket Agreement was violated by the Company    
could result in the imposition of damages.                                      

Also on March 20, 1996, Karabu and certain other companies controlled by Mr.
Icahn filed suit against the Company alleging violations by the Company of the  
Ticket Agreement and federal anti-trust laws. On March 24, 1997, the United     
States District Court for the Southern District of New York, on the Company's   
motion, dismissed the suit in its entirety and that decision has not been       
appealed. On August 11, 1997, Karabu and another entity controlled by Mr.       
Icahn filed another suit against six senior officers of the Company in New      
York state court alleging tortious interference with prospective economic       
advantage based on alleged violations of the Ticket Agreement. This suit is     
similar to the previous action filed by Karabu referred to in the first         
sentence of this paragraph. The defendants removed this case to the United      
States District Court for the Southern District of New York and have moved to   
dismiss the case on the grounds of lack of personal jurisdiction, res judicata  
and failure to state a claim. This action is pending.                           

For a more complete description of the various Icahn litigations, see       
"Business--Legal Proceedings--Icahn Litigation."                                

Domestic Consolidator Tickets sold under the Ticket Agreement are limited to
certain origin/destination city markets in which TWA has less than a 5% market  
share limit except for New York where there is a 10% limit. These restricted    
markets will be reviewed from time to time to determine any change in TWA's     
market share, and other markets may be designated as necessary.                 

The purchase price for the tickets purchased by Karabu had been required to 
either, at Karabu's option, be retained by Karabu and the amount so retained    
credited as prepayments against the outstanding balance of the Icahn Loans, or  
be paid over by Karabu to a settlement trust established in connection with     
the '93 Reorganization for TWA's account as prepayments on the PBGC Notes. At   
September 30, 1997, approximately $118.6 million of such proceeds had been      
applied to the principal balance of the Icahn Loans and $45.2 million had been  
applied to the PBGC Notes.                                                      

64  

S-4/A
66th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 66th
The Company elected to pay interest, due August 1, 1995 and February 1,     
1996, and half the interest due February 1, 1997, on the 12% Reset Notes, in    
shares of Common Stock. The amount of such interest aggregated approximately    
$10.4 million, $10.2 million and $3.7 million, respectively, and resulted in    
the issuance of approximately 1.9 million, 1.1 million and 0.6 million shares   
of Common Stock on the respective dates. The Company elected to pay dividends   
due February 1, 1996 on its 12% Preferred Stock for the period from November    
1, 1995 to and including January 31, 1996, in the amount of approximately $3.3  
million, in shares of Common Stock.                                             

Capital Resources                                                             

During the nine months ended September 30, 1997 the Company continued a     
series of privately negotiated exchanges with a significant holder of 12%       
Reset Notes which resulted in the return to the Company of $51.8 million in     
12% Reset Notes and approximately $1.4 million in accrued interest thereon in   
exchange for the issuance of approximately 7.7 million shares of Common Stock   
leaving an outstanding principal balance of approximately $72.5 million.        

TWA has no unused credit lines and must satisfy all of its working capital  
and capital expenditure requirements from cash provided by operating            
activities, from external borrowings, issuance of additional equity or from     
the sale of assets. Substantially all of TWA's strategic assets, including its  
owned aircraft, have been pledged to secure various issues of outstanding       
indebtedness of the Company. To the extent that the pledged assets are sold,    
the applicable financing agreements generally require the sale proceeds to be   
applied to repay the corresponding indebtedness. TWA has relatively few non-    
strategic assets which it could monetize, substantially all of such assets      
being subject to various liens and security interests which would restrict      
and/or limit the ability of TWA to realize any significant proceeds from the    
sale thereof. To the extent that the Company's access to capital is             
constrained, the Company may not be able to make certain capital expenditures   
or to continue to implement certain other aspects of its strategic plan, and    
the Company may therefore be unable to achieve the full benefits expected       
therefrom.                                                                      

Commitments                                                                   

In February 1996, TWA executed definitive agreements providing for the      
operating lease of 10 new 757 aircraft, all of which have been delivered.       
These aircraft have an initial lease term of 10 years. Although individual      
aircraft rentals escalate over the term of the leases, aggregate rental         
obligations are estimated to average approximately $59 million per annum over   
the lease terms. The Company also entered into an agreement in February 1996    
with Boeing for the purchase of ten 757-231 aircraft and related engines,       
spare parts and equipment for an aggregate purchase price of approximately      
$500 million. The agreement also provides for the purchase of up to ten         
additional aircraft. As of November 25, 1997, TWA had taken delivery of five    
of such aircraft and had five on firm order. Furthermore, to the extent TWA     
exercises its options for additional aircraft, the Company will have the right  
to an equal number of additional option aircraft. Four of the five aircraft     
already delivered were manufacturer financed and one was leased. TWA has        
obtained commitments for debt financing for approximately 80% of the total      
costs associated with the acquisition of four of the remaining five aircraft    
which have not been delivered and obtained commitments for 100% lease           
financing of the total costs of the remaining fifth and final of such           
aircraft. Such commitments are subject to, among other things, so-called        
material adverse change clauses which make the availability of such debt and    
lease financing dependent upon the financial condition of the Company.          

In 1997, TWA reached agreements for the acquisition, by lease, of two new   
Boeing 767-300ER aircraft to be delivered in March and April of 1998. The       
longer-range 300 series aircraft will be utilized on TWA's international        
routes.                                                                         

TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc     
relating to the purchase of ten A330-300 twin-engine wide body aircraft and     
related engines, spare parts and equipment for an aggregate purchase price of   
approximately $1.1 billion. The agreements, as amended, require the delivery    
of the aircraft in                                                              

65  

S-4/A
67th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 67th
2001 and 2002 and provide for the purchase of up to ten additional aircraft.    
TWA has not yet made arrangements for the permanent financing of the purchases  
subject to the agreements. In the event of cancellation, predelivery payments   
of approximately $18 million would be subject to forfeiture.                    

The Company has entered into an agreement to acquire from the manufacturer  
fifteen new MD-83s. The long-term leasing arrangement provides for delivery of  
the aircraft between the second quarter of 1997 and the first quarter of 1999.  
The Company has taken delivery of seven of the MD-83 aircraft and expects to    
take delivery of six additional planes during 1998 and two additional planes    
in 1999.                                                                        

TWA has elected to comply with the transition requirements of the Noise Act 
by adopting the Stage 2 aircraft phase-out/retrofit option, which requires      
that 50% of its base level (December 1990) Stage 2 fleet be phased-             
out/retrofitted by December 31, 1996, 75% by December 31, 1998 and 100% by      
December 31, 1999. To comply with the 1996 requirement, the Company has         
retrofitted, by means of engine hush-kits, 30 of its DC-9 aircraft. As of       
September 30, 1997, hush-kits have been installed on 71 DC-9's engines at an    
aggregate cost of approximately $55 million, most of which was financed by      
lessors with repayments being facilitated through increased rental rates or     
lease term extensions.                                                          

Certain Other Capital Requirements                                            

Expenditures for facilities and equipment, other than aircraft, generally   
are not committed prior to purchase and, therefore, no such significant         
commitments exist at the present time. TWA's ability to finance such            
expenditures will depend in part on TWA's financial condition at the time of    
the commitment.                                                                 

The Company utilizes software and related computer technologies essential to
its operations that use two digits rather than four to specify the year,        
resulting in a date recognition problem in the year 2000. The Company has       
hired an outside consulting firm to study what actions will be necessary to     
make its computer systems year 2000 compliant. The expense associated with      
these actions cannot presently be determined, but could be material to the      
Company's financial position and results of operations.                         

Availability of NOLs                                                          

The Company estimates that it had, for federal income tax purposes, net     
operating loss carryforwards ("NOLs") amounting to approximately $691 million   
at December 31, 1996. Such NOLs expire in 2008 through 2011 if not utilized     
before then to offset taxable income. Section 382 of the Internal Revenue Code  
of 1986, as amended (the "Code"), and regulations issued thereunder impose      
limitations on the ability of corporations to use NOLs, if the corporation      
experiences a more than 50% change in ownership during certain periods. In      
connection with the change of ownership caused by the '95 Reorganization, the   
Company elected to reduce its NOLs in accordance with Section 382 of the Code   
and regulations issued thereunder. An additional change in ownership            
thereafter could substantially restrict the Company's ability to utilize its    
tax net operating loss carryforwards. The Company believes that no ownership    
change has occurred subsequent to the '95 Reorganization. There can be no       
assurance that an ownership change will not occur in the future. In addition,   
the NOLs are subject to examination by the IRS, and, thus, are subject to       
adjustment or disallowance resulting from any such IRS examination. For the     
foregoing reasons, prospective purchasers of the Notes should not assume the    
unrestricted availability of the Company's currently existing NOLs, if any, in  
making their investment decisions. For financial reporting purposes, the tax    
benefits from substantially all of the tax net operating loss carryforwards     
will, to the extent realized in future periods, have no impact on the           
Company's operating results, but instead be applied to reduce reorganization    
value in excess of amounts allocable to identifiable assets.                    

66  

S-4/A
68th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 68th
BUSINESS  

TWA is the eighth largest U.S. air carrier (based on RPMs for the first nine
months of 1997), whose primary business is transporting passengers, cargo and   
mail. During the first nine months of 1997, the Company carried more than 17.6  
million passengers and flew approximately 19.2 billion RPMs. As of September    
30, 1997, TWA provided regularly scheduled jet service to 86 cities in the      
United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As    
of September 30, 1997, the Company operated a fleet of 186 jet powered          
aircraft.                                                                       

ROUTE STRUCTURE                                                                 

TWA's passenger airline business is the Company's chief source of revenue.  
TWA also carries cargo (mail and freight) on its North American and             
international systems. For the first nine months of 1997, the Company's North   
American operations accounted for 84% of its total revenues, while its          
transatlantic operations contributed 16% of total revenues.                     

TWA's North American operations have a hub-and-spoke structure, with a      
primarily domestic hub at St. Louis and a domestic-international hub at JFK.    
The North American system serves 37 states, the District of Columbia, Puerto    
Rico, Mexico, Canada, and the Caribbean. TWA also participates in the charter   
market, flying both domestic and international charter flights.                 

TWA's international operations consist of both nonstop and through-service  
from JFK and St. Louis to destinations in Europe and the Middle East. TWA's     
international operations are concentrated at JFK, from which it now serves 28   
cities with approximately 42 daily departures. International cities served      
include Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, and Tel Aviv     
from JFK; Paris from JFK and St. Louis; and London-Gatwick from St. Louis.      

OTHER ACTIVITIES                                                                

In addition to TWA's passenger and cargo services, the Company operates     
Getaway Vacations, a tour package offering leisure travel products and          
services. In addition, TWA earns revenue by providing contract maintenance      
services for a number of third parties. In 1996, the Company began reducing     
certain third-party airframe and engine contract maintenance service and,       
while the Company expects to maintain the reduced level of airframe third-      
party contract work through 1997, the Company has selectively expanded the      
amount of engine third-party contract maintenance work that it performs.        

FLIGHT EQUIPMENT                                                                

As of September 30, 1997, TWA operated a fleet of 186 aircraft, of which 37 
were owned by TWA and 149 were leased. All aircraft in use are maintained in    
airworthy condition in accordance with procedures approved by the FAA. The      
active operating aircraft owned by and leased to TWA as of September 30, 1997   
are listed below.                                                               

                                                                [Download Table]

                                                       AVERAGE AGE   SEATS IN   
                                                       OF AIRCRAFT STANDARD TWA 
TYPE                          OWNED(2) LEASED TOTAL(3)  (IN YEARS) CONFIGURATION
----                          -------  ------ -------  ----------- -------------
                                                                                
Douglas DC-9-10..............    --       7       7       30.7           77     
Douglas DC-9-30..............    --      36      36       27.8          100     
Douglas DC-9-40..............    --       3       3       22.9          100     
Douglas DC-9-50..............    --      12      12       20.7          107     
Douglas MD-80/83.............    --      59      59       10.0          144     
Boeing 727-200(1)............    27       8      35       22.9          146     
Boeing 747(1)................     2       4       6       27.0          434     
Boeing 757...................     3      11      14        0.5          180     
Boeing 767...................     5       9      14       13.1          192     
                                ---     ---     ---       ----                  
Total........................    37     149     186       17.6                  
                                ===     ===     ===       ====                  

--------                                                                        
(1) Excludes the following aircraft which are not in the active fleet: four     
  Boeing 727-100s, five Boeing 747-100s, two Boeing 747-200s and 13 L-1011s.

67  

S-4/A
69th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 69th
(2) Substantially all TWA's owned flight equipment is pledged to secure its     
indebtedness.                                                           
(3) For information concerning compliance of the above-referenced aircraft      
with the Noise Act, see "--Regulatory Matters--Noise Abatement."        

For a discussion of the Company's fleet restructuring plans, see "The       
Company--Business Strategy--Fleet Upgrade and Simplification."                  

REAL PROPERTY                                                                   

TWA utilizes or has rights to utilize airport and terminal facilities       
located in or near the cities it serves under lease agreements or other         
arrangements with the governmental authorities exercising control over such     
facilities.                                                                     

At St. Louis, TWA has preferential use rights to 57 gates and 40 ticket     
counter positions, and ramp, baggage and other supporting ground facility       
space. TWA's domestic-international hub at JFK operates out of two passenger    
terminal facilities (Terminals 5 and 6). TWA is the lessee at JFK of a total    
of 27 gates, 102 ticket counter positions, and ramp, baggage and other          
supporting ground facility space. TWA occupies both Terminal 5 and Terminal 6   
as a holdover tenant pursuant to expired agreements of lease with the Port      
Authority of New York and New Jersey (the "Port Authority"). Such holdover      
tenancies are with the consent of the Port Authority pursuant to a Term Sheet   
dated August 12, 1993 (the "Term Sheet"), which extended TWA's right to occupy  
Terminals 5 and 6, provided TWA paid the rent set forth in the Term Sheet,      
made certain specified financed improvements to Terminals 5 and 6, and was      
otherwise in compliance with the expired leases. TWA's tenancy is currently on  
a month-to-month basis and no lease has been signed. The Company has recently   
consolidated for the near term most of its JFK operations into Terminal 5,      
using only limited facilities in Terminal 6. TWA has currently subleased nine   
of the 13 gates in Terminal 6 to other carriers and anticipates that at least   
two more gates will be subleased by the end of the first quarter of 1998.       

TWA's overhaul base is located on approximately 250 acres of leased property
at the Kansas City International Airport, Kansas City, Missouri. The overhaul   
base is TWA's principal maintenance base where TWA performs major maintenance   
and repair services for its aircraft fleet. The overhaul base is owned by the   
City of Kansas City, Missouri and leased to TWA along with other facilities     
until May 31, 2000. TWA leases office space and other facilities in a number    
of locations in the U.S. and abroad. In December 1993, pursuant to a            
sale/leaseback with the City of St. Louis, TWA leased a two-story ground        
operations building near the St. Louis Airport and an adjacent 165,000 square   
foot, five-story flight training facility. The lease of these properties is     
covered under a month-to-month agreement subject to automatic renewal so long   
as TWA is not in default thereunder, such agreement having a term otherwise     
expiring December 31, 2005. Such term is subject to early termination in the    
event of certain events of default, including non-payment of rents, cessation   
of service, failure to maintain corporate headquarters within the City or       
County of St. Louis or failure to maintain a reservations office within the     
City of St. Louis. For a description of certain environmental corrective        
actions that TWA anticipates will be required at the overhaul base, see "--     
Legal Proceedings."                                                             

TWA's corporate headquarters are located at One City Centre, 515 N. Sixth   
Street, St. Louis, Missouri where TWA has subleased approximately 56,700        
square feet through February 28, 2000. TWA's St. Louis area reservation         
facility and customer relations department is located in approximately 48,000   
square feet in the City of St. Louis, Missouri. In June 1996, TWA opened a new  
reservation facility in Norfolk, Virginia, comprised of approximately 40,000    
square feet and having 455 work stations. The facility is leased for a twenty-  
five year term.                                                                 

TRAVEL AGENCIES                                                                 

Travel Agent Commissions                                                      

Consistent with most other airlines, tickets sold for travel on TWA are sold
by travel agents as well as directly by the Company. During the first nine      
months of 1997, approximately 81.9% of all tickets sold for travel on TWA were  
sold by travel agents. Until October 2, 1997, TWA paid the full traditional     
10% commission on                                                               

68  

S-4/A
70th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 70th
tickets for domestic transportation on TWA sold by independent travel agents    
without the cap of $50 and $25 per domestic round-trip and one-way tickets,     
respectively, which most other major airlines imposed in 1995 and paid an 11%   
commission on tickets for international transportation. On October 2, 1997,     
the Company reduced its commission on tickets for domestic and international    
transportation to 8% and 10%, respectively, without the cap imposed by most of  
the major airlines. Although the Company can not quantify the current or        
potential future impact of this decision, the Company believes the uncapped     
commission structure is a positive factor in the Company maintaining and        
improving its long-term relationships with such travel agents and encourages    
the booking of higher fare tickets. TWA pays 9% for tickets issued outside the  
U.S. Carriers (including TWA) may also pay additional commissions to travel     
agents as incentive for increased volume or other business directed to the      
carrier.                                                                        

Travel Agency Automation                                                      

Greater than 90% of all travel agencies in the U.S. obtain their airline    
travel information through access to Global Distribution Systems (also          
referred to as Computer Reservation Systems or "CRS"). Such systems are used    
by travel agents to make travel reservations including airline, hotel, train,   
car and other bookings and allow travel agents to issue airline tickets and     
boarding passes.                                                                

One such system is WORLDSPAN, which is owned by a partnership in which      
affiliates of TWA, Delta Air Lines, Northwest Airlines, and ABACUS              
Distribution Systems Pte. Ltd, have interests of 25%, 32%, 38% and 5%,          
respectively. Management believes that its participation in Worldspan has       
given it direct access to an efficient distribution system. Worldspan           
continues to expand its offering and coverage, further benefitting the          
Company. TWA will continue to increase the methods and efficiency of            
distributing its product through a variety of channels and systems, including   
increasing use of "E" ticketing (electronic ticketing) and direct booking       
through the Internet.                                                           

FREQUENT FLIGHT BONUS PROGRAM                                                   

TWA initiated its FFB Program in May 1981. Frequent flier programs like     
TWA's FFB Program have been adopted by most major air carriers and are          
considered the number one marketing tool for developing brand loyalty among     
travelers and accumulating demographic data pertaining to business fliers.      

TWA's FFB Program rewards certain of its members with mileage credits based 
on the fare paid as well as miles flown for travel on TWA and also offers       
mileage credits for members' purchases of goods and services offered by         
various travel and non-travel related businesses that participate in the FFB    
Program including other airlines. FFB Program members may also receive mileage  
credit pursuant to exchange agreements maintained by TWA with a variety of      
entities, including hotels, car rental firms, credit card issuers and long      
distance telephone service companies. For example, through the American         
Express Membership Miles program, FFB Program members may use amounts charged   
on the American Express card to earn additional frequent flier miles.           

TWA accounts for its FFB Program under the incremental cost method, whereby 
travel awards are valued at the incremental cost of carrying one additional     
passenger. Such costs are accrued when FFB Program participants accumulate      
sufficient miles to be entitled to claim award certificates. Incremental costs  
include unit costs for passenger food, beverages and supplies, fuel,            
reservations, communications, liability insurance and denied boarding           
compensation expenses expected to be incurred on a per passenger basis. No      
profit or overhead margin is included in the accrual for incremental costs. No  
liability is recorded for airline, hotel or car rental award certificates that  
are to be honored by other parties because there is no cost to TWA for these    
awards.                                                                         

At December 31, 1995, FFB participants had accumulated mileage credits for  
approximately 660,752 free awards, compared with accumulated mileage credits    
for approximately 751,689 awards at December 31, 1996. Because TWA expects      
that some award certificates will never be redeemed, the calculations of the    
accrued liability for incremental costs at December 1995 and 1996 were based    
on approximately 70.0% and 71.5%, respectively, of the accumulated credits.     
Mileage for FFB participants who have accumulated less than the                 

69  

S-4/A
71st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 71st
minimum number of mileage credits necessary to claim an award is excluded from  
the calculation of the accrual. The accrued liability at December 31, 1995 was  
approximately $19.0 million compared to approximately $20.4 million at          
December 31, 1996.                                                              

TWA's customers redeemed awards representing approximately 6.3%, 6.0% and   
4.5% of TWA's RPMs in 1994, 1995 and 1996, respectively.                        

AIRCRAFT FUEL                                                                   

TWA's worldwide aircraft fuel requirements are met by in excess of twenty   
different suppliers. The Company has contracts with some of these suppliers,    
the terms of which vary as to price, payment terms, quantities and duration.    
The Company also makes incremental purchases of fuel based on price and         
availability. To assure adequate supplies of jet fuel and to provide a measure  
of control over price, the Company trades fuel, ships fuel and maintains fuel   
storage facilities to support key locations. Petroleum product prices,          
including jet fuel, are primarily driven by crude oil costs. The market's       
alternate uses of crude oil to produce petroleum products other than jet fuel   
(e.g., heating oil and gasoline) as well as the adequacy of refining capacity   
and other supply constraints affect the price and availability of jet fuel.     
Changes in the price or availability of fuel could materially affect the        
financial results of the Company. See also "Risk Factors--Risk Factors Related  
to the Industry--Aircraft Fuel."                                                

During 1996, aircraft fuel prices increased significantly, however, such    
prices have declined moderately during the first nine months of 1997. The       
following table details TWA's fuel consumption and costs for the three years    
ended December 31, 1994, 1995 and 1996, the nine months ended September 30,     
1996 and 1997 and the three months ended September 30, 1996 and 1997:           

                                                                [Download Table]

                                                  NINE MONTHS    THREE MONTHS   
                         YEAR ENDED DECEMBER         ENDED           ENDED      
                                 31,             SEPTEMBER 30,   SEPTEMBER 30,  
                         ----------------------  --------------  -------------- 
                          1994    1995    1996    1996    1997    1996    1997  
                         ------  ------  ------  ------  ------  ------  ------ 
                                                                                
Gallons consumed (in                                                            
 millions)..............  852.2   804.2   838.9   637.5   555.7   233.1   196.2 
Total cost(1) (in mil-                                                          
 lions)................. $477.6  $458.6  $585.2  $432.8  $369.5  $162.4  $122.2 
Average cost per gallon.     56c     57c     70c     68c     66c     70c     62c
Percentage of operating                                                         
 expenses...............   13.0%   13.9%   15.6%   15.9%   14.5%   16.6%   14.5%

--------                                                                        
(1) Excludes into-plane fees.                                                   

COMPETITION                                                                     

Since the passage of the Airline Deregulation Act of 1978, the airline      
industry has been characterized by intense competition, consolidation of        
existing carriers, the formation of international alliances and the advent of   
numerous low-cost, low-fare new entrants. A number of airlines have filed for   
bankruptcy and/or ceased operations. In addition, several carriers have         
introduced or announced plans to introduce low-cost, short-haul service, which  
may result in increased competition to TWA. Airlines offer discount fares, a    
wide range of schedules, frequent flier mileage programs and ground and in-     
flight services as competitive tools to attract passengers and increase market  
share. Intense price competition has accelerated the efforts of airline         
managements to reduce costs and improve productivity in order to withstand      
greater levels of discounting. TWA's services are subject to varying degrees    
of competition, depending in part on whether such services are operated over    
domestic or international routes. Because of the relative ease with which U.S.  
carriers can enter new domestic markets, TWA's domestic services are subject    
to increases or decreases in competition from other air carriers. Changes in    
intensity of competition in the deregulated domestic environment cannot be      
predicted.                                                                      

The level of competition in international markets is normally governed by   
the terms of bilateral agreements between the U.S. and the foreign countries    
involved. Many of the bilateral agreements permit an unlimited number of        
carriers to operate between the U.S. and the foreign country. Competition in    
some international                                                              

70  

S-4/A
72nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 72nd
markets is limited to a specified number of carriers and flights on a given     
route by the terms of the air transport agreements between the U.S. and the     
foreign country. See "Management's Discussion and Analysis of Financial         
Condition and Results of Operations--General" and "--Regulatory Matters."       

The airline industry is subject to substantial price competition as U.S.    
airlines are free to determine domestic pricing policies without government     
regulation. While the DOT retains authority over international fares, which     
are also subject to the jurisdiction of the governments of the foreign          
countries being served, the Company generally has substantial discretion with   
respect to its international pricing policies.                                  

While DOT authority is required before any person may operate as an air     
carrier within or to and from the U.S., the Airline Deregulation Act of 1978    
and the International Air Transportation Competition Act of 1979 substantially  
decreased previous governmental restrictions in this area. In the case of       
domestic operations, any person who is found to be fit, willing and able may    
operate as an air carrier between any two points in the U.S. Thus, TWA is able  
to enter new routes or suspend existing routes within the U.S. without seeking  
regulatory approval. Similarly, other airlines are free to enter or leave       
TWA's domestic markets.                                                         

EMPLOYEES                                                                       

As of September 30, 1997, the Company had approximately 22,540 full-time    
employees (based upon full-time equivalents which include part-time             
employees). Of these, approximately 84.6% were represented by ALPA and the      
IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining  
representative of the Company's flight attendants.                              

During 1994, the Company entered into the '94 Labor Agreements with ALPA,   
IAM and IFFA amending then existing labor agreements with each such union to,   
among other things, (i) eliminate certain raises scheduled to take effect in    
1994 and 1995, thereby continuing certain wage and benefit concessions granted  
to the Company in the '92 Labor Agreements, (ii) modify existing work rules     
and benefit packages, and (iii) eliminate contractual "snapback" provisions     
contained therein which would have automatically restored wages to pre-         
concessionary levels for purposes of future contract negotiations. The terms    
of the IFFA contract remain in effect, although the flight attendants are now   
represented by the IAM. In addition, the Company implemented a number of        
similar savings initiatives with respect to domestic non-union and management   
employees, primarily through reducing headcount, altering benefit packages,     
and eliminating certain planned restorations of previous wage concessions.      

In exchange for the substantial cost savings realizable by the Company as a 
result of the foregoing, as described in more detail below, TWA (i) agreed to   
certain wage increases and productivity payments to its employees, (ii) issued  
certain equity securities of the Company to its employees, (iii) agreed to      
make certain future grants of equity securities and to permit such employees    
an opportunity to purchase certain additional securities at a discount, and     
(iv) effected certain amendments to the Company's Certificate of Incorporation  
and By-laws with respect to the election of certain directors and director      
voting requirements in the event of certain specified corporate actions.        

As part of the '94 Labor Agreements, TWA agreed with its unionized employees
to a series of semi-annual 1% wage increases commencing in May 1995 and         
continuing through August 31, 1997 (the last such wage increase equaled 3% in   
the case of employees represented by ALPA and IFFA, and the IAM received a 1%   
wage increase and a 2% contribution to its retirement plan on August 31,        
1997).                                                                          

On the '95 Effective Date, TWA issued to certain trusts established for the 
benefit of its unionized employees shares of Employee Preferred Stock; such     
stock being issued in three separate series designated the ALPA Preferred       
Stock, the IAM Preferred Stock and the IFFA Preferred Stock. Except for         
certain rights with respect to the election of directors, the Employee          
Preferred Stock has rights substantially identical to the Common Stock. See     
"Description of Capital Stock--Description of Employee Preferred Stock." TWA    
also issued an aggregate of 1,026,694 shares of Common Stock to a trust         
established for the benefit of certain of TWA's other employees. The value of   
shares issued to the Company's non-union employees was intended to              

71  

S-4/A
73rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 73rd
reflect the estimated value to the Company of the concessions granted by these  
employees. The equity securities issued on the '95 Effective Date resulted in   
the employees of the Company initially owning approximately 30% of the then     
outstanding Common Stock and Common Stock equivalents of the Company.           

In recognition of the fact that as a result of the '95 Reorganization, the  
percentage of the Company's stock owned by the Company's employees was          
substantially reduced, the Company adopted as of the '95 Effective Date the     
ESIP pursuant to which the Company would grant, commencing in 1997, to certain  
trusts established for the benefit of its union and non-union employees         
certain additional shares of Common Stock and Employee Preferred Stock. The     
first stock grant under the ESIP was to be made on July 15, 1997 in an amount   
sufficient to increase the employee ownership of the combined total number of   
then outstanding shares of Common Stock and Employee Preferred Stock by 2% if   
the closing price of the Common Stock exceeded a target price of $11.00 per     
share during the period from January 1, 1997 to July 15, 1997. Because such     
target price was not exceeded, the grant will instead be made on July 15 of     
the next year up to and including July 15, 2002, if any that the Common Stock   
exceeds such target price. In subsequent years through the end of the seven     
year term of the ESIP, the additional number of shares of Employee Preferred    
Stock subject to grant under this program would be equivalent to 1.5% in 1998,  
1.5% in 1999, 1.0% in 2000, 1.0% in 2001 and 1.0% in 2002 of the combined       
total number of shares of Common Stock and Employee Preferred Stock             
outstanding as of the applicable July 15 grant date, with the target prices     
increasing to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001    
and $17.72 in 2002. Each such grant is cumulative and, where the applicable     
target price is not met in the initial grant year, the applicable grant is      
carried forward and is subject to grant in future years up to and including     
July 15, 2002 in the manner described above if TWA issues additional shares of  
Common Stock with an aggregate value of more than $20 million to third parties  
for cash or a reduction in debt at a price equal to or greater than $11.00 per  
share, the last two scheduled grants under the ESIP are to be aggregated and    
these shares allocated equally to the remaining installments in the program.    
In addition, pursuant to the ESIP, employees have the right commencing after    
July 15, 1997, to purchase over the seven year term of the ESIP additional      
shares of Employee Preferred Stock in amounts up to an aggregate of 2% of the   
combined total number of outstanding Common Stock and Employee Preferred Stock  
at a discount of 20% from the then current market price. The employees' right   
to purchase additional shares of Employee Preferred Stock is accelerated and    
becomes immediately exercisable if there is a merger, sale or consolidation of  
TWA (where TWA is not the surviving entity) at a price equivalent to or in      
excess of $17.72 per share of Common Stock at a 20% discount from the merger,   
sale or consolidation price relating to such a transaction. Should all of the   
target prices be met or exceeded within the time periods specified and should   
the entire discount stock purchase option be exercised, the various employee    
stock trusts would receive a total of 10% of the outstanding stock, with the    
exact amount issued dependent upon the outstanding shares as of the date of     
each grant and option exercise.                                                 

The ESIP also provides that if additional shares are distributed following  
the '95 Effective Date in respect of the '95 Reorganization, employees will be  
entitled to receive an additional number of shares of Common Stock and          
Employee Preferred Stock such that the employees will retain the same level of  
ownership. Union representatives and the Company agreed that the number of      
shares of Employee Preferred Stock and Common Stock to be issued pursuant to    
the ESIP was 525,856. In addition, since additional ESIP shares were not        
issued to the employees in July 1997, an additional 405,750 shares of Employee  
Preferred Stock and Common Stock were issued to the ESIP and, to the extent     
that additional shares are granted to the ESIP, the Company will receive a      
credit towards the new grant for these previously issued shares, in that        
amount in the event additional shares are granted pursuant to the ESIP.         

In addition to certain amendments required to effect the recapitalization of
the Company, on the '95 Effective Date, TWA further amended its Certificate of  
Incorporation and By-laws to (i) permit certain employees represented by ALPA   
and the IAM to elect four of the Company's 15 directors (the "Employee          
Directors"), and (ii) provide that certain extraordinary corporate actions,     
including mergers, sales of all or substantially all of the Company's assets    
or certain routes or any filing seeking protection under the bankruptcy laws,   
may be blocked by a vote of six directors, including each of the Employee       
Directors. See "Certain Provisions of the Certificate of Incorporation, the     
By-laws and Delaware Law--Blocking Coalition."                                  

72  

S-4/A
74th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 74th
The '94 Labor Agreements were three year agreements and became amendable as 
of August 31, 1997. Negotiations on a new collective bargaining agreement with  
the IAM with regard to the flight attendants commenced in July 1997 and are     
currently ongoing and negotiations regarding the Company's ground employees     
represented by the IAM commenced in February 1997 and are also currently        
ongoing. Negotiations on a new collective bargaining agreement with ALPA        
commenced in June 1997 and are currently ongoing. Under the RLA workers whose   
contracts have become amendable are required to continue to work under the      
"status quo" (i.e., under the terms of employment in effect before the          
amendable date) until the RLA's procedures are exhausted. Under the RLA, the    
Company and its unions are obligated to continue to bargain until agreement is  
reached or until a mediator is appointed and concludes that negotiations are    
deadlocked and mediation efforts have failed. The mediator must then further    
attempt to induce the parties to agree to arbitrate the dispute. If either      
party refuses to arbitrate, then the mediator must notify the parties that his  
efforts have failed and, after a 30-day cooling-off period, a strike or other   
direct action may be taken by the parties. At the request of the IAM, a         
mediator was appointed on August 6, 1997 in connection with the negotiations    
on the collective bargaining agreement covering ground employees. The mediator  
has not yet met with the parties and has not reached a conclusion that          
negotiations are deadlocked. In the opinion of management, the Company's        
financial resources are not as great as those of most of its competitors, and,  
therefore, any substantial increase in its labor costs as a result of any new   
labor agreements or any cessation or disruption of operations due to any        
strike or work action could by particularly damaging to the Company. See "Risk  
Factors--Risk Factors Related to the Company--'94 Labor Agreements."            

REGULATORY MATTERS                                                              

Slot Restrictions                                                             

The Company's ability to increase its level of operations at certain        
domestic cities currently served is affected by the number of slots available   
for takeoffs and landings. At JFK, LaGuardia, Chicago O'Hare and Washington     
National, which have been designated "High Density Airports" by the FAA, there  
are restrictions on the number of aircraft that may land and take off during    
peak hours. In the future, these take-off and landing time slot restrictions    
and other restrictions on the use of various airports and their facilities may  
result in further curtailment of services by, and increased operating costs     
for, individual airlines, including TWA, particularly in light of the increase  
in the number of airlines operating at such airports. On April 1, 1986, the     
FAA implemented a final rule relating to allocated slots at the High Density    
Airports. This rule, as since amended, contains provisions requiring the        
relinquishment of slots for nonuse and permits carriers, under certain          
circumstances, to sell, lease or trade their slots to other carriers. TWA does  
not anticipate losing any slots as a result of these new rules; however the     
higher use rates required by these rules do increase the risk that TWA might    
lose slots in the future because of nonuse and decrease TWA's ability to        
adjust its flight schedules at the High Density Airports.                       

Most international points served by TWA also are slot-controlled.           

Control over International Routes                                             

TWA's international certificates are granted by the DOT for indefinite or   
fixed-term periods, depending on the route. TWA is authorized to provide        
transatlantic service from major cities in the U.S. to points in Europe, North  
Africa, the Middle East and Asia. Some of these authorized routes are not       
currently served by TWA. Many of the European markets served by TWA are         
"limited entry" markets in which, as a result of agreements between the United  
States and foreign governments, TWA has traditionally competed with a limited   
number of other carriers. During the past several years, however, the U.S.      
government has encouraged competition in international markets and entered      
into bilateral agreements with various foreign governments that provide for     
expanded exchanges of routes and traffic rights, reduction of governmental      
controls over fares and avoidance of limits on capacity and charter services.   
Competition in international markets has increased dramatically over the past   
several years as major U.S. carriers have initiated and/or continued to expand  
their international operations. Foreign flag carriers have continued to expand  
service and the DOT has indicated its support for further expansion of          
opportunities of foreign carriers to serve new points in the U.S. No assurance  
can be given that                                                               

73  

S-4/A
75th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 75th
TWA will continue to have the advantage of all the "limited entry" markets in   
which it currently operates or that additional carriers will not be permitted   
to operate in one or more of these markets or that TWA in general will not      
face substantial unexpected competition. Competition in the international       
market is further complicated by the fact that pricing levels on some           
transatlantic routes are influenced by subsidies that certain foreign carriers  
receive from their governments and by the presence of smaller, low-cost         
carriers.                                                                       

Certain portions of TWA's transatlantic route authority have been granted on
a fixed-term basis. On May 4, 1993, the bilateral air transport agreement       
between the U.S. and France lapsed. In the absence of a new a bilateral         
agreement, the U.S. and France are currently operating on a system of comity    
and reciprocity. Under this regime, carriers are permitted to maintain          
historical levels of service, but few or no new services are permitted.         
Cessation of service to any authorized markets from France may cause such       
underlying authority to terminate. Any reduction in U.S. carrier access to      
France could have an adverse impact on TWA's transatlantic operations.          

The operations of TWA's international system will require continued approval
by the U.S. government as well as permission or authorization from the          
governments of the respective countries served and compliance with the laws     
and regulations of those countries. These authorizations, permits and rights    
vary considerably in their terms, particularly as to the imposition of          
restrictive conditions on U.S. airlines.                                        

Other DOT/FAA Regulations                                                     

The DOT has the authority to regulate competitive practices, advertising and
other consumer protection matters such as on-time performance, smoking          
policies, denied boarding, baggage liability and CRSs provided to travel        
agents. With respect to foreign air transportation, the DOT may approve         
agreements between air carriers and grant antitrust immunity to those           
agreements. The DOT must also approve the transfer between U.S. carriers of     
international route certificates. The Department of Justice has the authority   
to approve mergers and interlocking relationships.                              

Noise Abatement                                                               

The Noise Act provides for a reduction in aircraft noise levels by          
commercial aircraft. Under the Noise Act, air carriers were permitted to elect  
to comply with the transitional requirements of the Noise Act at December 31,   
1994, either by (i) phasing out, or retrofitting with noise abatement           
equipment, certain older aircraft known as Stage 2, or (ii) phasing in quieter  
aircraft, known as Stage 3. Air carriers who elected to comply by phasing out   
or retrofitting Stage 2 aircraft were required to phase out or retrofit at      
least 25% of a specified 1990 base level of such aircraft by December 31, 1994  
and by at least 50% by December 31, 1996. TWA elected to comply with the final  
Noise Act requirements by adopting the Stage 2 aircraft phase out/retrofit      
option, and had reduced its specified base level of Stage 2 aircraft by 25% at  
December 31, 1994 and by 50% at December 31, 1996. The Company will be          
required to reduce its specified base level of Stage 2 aircraft by at least     
75% by December 31, 1998 and 100% by December 31, 1999 or alternatively, 75%    
and 100% of its total fleet will be required to meet Stage 3 requirements by    
December 31, 1998 and December 31, 1999, respectively. See "Risk Factors--Risk  
Factors Related to the Company--Age of Fleet; Noise."                           

As of September 30, 1996, approximately 66% of TWA's active fleet, met the  
Stage 3 standards. TWA's ability to comply with the federal requirements        
within the time specified, or with more restrictive local noise restrictions,   
by acquiring newer aircraft and by phasing out or retrofitting older aircraft   
that are not in compliance with the Stage 3 standards, will depend upon its     
ongoing financial condition, its ability to renegotiate existing leases for     
such aircraft and its ability to obtain financing to acquire the requisite      
number of Stage 3 aircraft or retrofit kits. TWA is considering "hush-kitting"  
additional DC9-30, DC9-40 and DC9-50 aircraft as well as other alternatives to  
assure compliance with Stage 3 noise requirements, and has already acquired a   
number of Stage 3 aircraft while phasing out several Stage 2 aircraft.          
However, there can be no assurance that TWA will be able to satisfy all         
applicable noise level requirements. See also "Risk Factors--Risk Factors       
Related to the Company--Liquidity; Substantial Indebtedness; Capital            
Expenditure Requirements."                                                      

74  

S-4/A
76th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 76th
Numerous airports have imposed restrictions such as curfews, airplane noise 
levels, mandatory flight paths and runway restrictions, which limit the         
ability of TWA and other carriers to increase services at such airports. Other  
jurisdictions are considering similar measures. While the Company has           
historically had the flexibility to schedule around these restrictions, there   
can be no assurance that the Company will continue to be able to work around    
these restrictions. At this time, TWA cannot predict what additional            
restrictions will be implemented or, if so, the timing or effect on TWA of any  
such implementation. The effect on TWA would depend on the extent to which      
TWA's aircraft then being used in the affected airports meet the Stage 3        
requirements as well as the timing of TWA's flights.                            

Labor                                                                         

The RLA governs the labor relations of employers and employees engaged in   
the airline industry. Comprehensive provisions are set forth in the RLA         
establishing the right of airline employees to organize and bargain             
collectively along craft or class lines and imposing a duty on air carriers     
and their employees to exert every reasonable effort to make and maintain       
collective bargaining agreements. See "--Employees." The RLA contains detailed  
procedures which must be exhausted before a lawful work stoppage can occur.     
Pursuant to the RLA, TWA has collective bargaining agreements with two          
domestic unions which together represent approximately 84.6% of the Company's   
employees. See "Risk Factors--Risk Factors Related to the Company--'94 Labor    
Agreements."                                                                    

Aging Aircraft Maintenance                                                    

The FAA issued several ADs in 1990 mandating changes to maintenance programs
for older aircraft to ensure that the oldest portion of the nation's fleet      
remains airworthy. The FAA required that these older aircraft undergo           
extensive structural modifications prior to the later of the accumulation of a  
designated number of flight cycles or 1994 deadlines established by the         
various ADs. Most of the Company's aircraft are currently affected by these     
aging aircraft ADs. The Company monitors its fleet of aircraft to ensure        
safety levels which meet or exceed those mandated by the FAA.                   

In 1995 and 1996, TWA spent approximately $2.6 million and $3.4 million,    
respectively, to comply with aging aircraft maintenance requirements and spent  
approximately $3.5 million during 1997 on such requirements. Based on           
information currently available to TWA and its current fleet plan, TWA          
estimates that costs associated with complying with these aging aircraft        
maintenance requirements will aggregate approximately $19.8 million for 1998    
through 2001. These cost estimates assume, among other things, that newer       
aircraft will replace certain of TWA's existing aircraft and as a result, the   
average age of TWA's fleet will be significantly reduced. There can be no       
assurance that TWA will be able to implement fully its fleet plan.              

Safety                                                                        

TWA is subject to FAA jurisdiction with respect to aircraft maintenance and 
operations, including equipment, dispatch, communications, training, flight     
personnel and other matters affecting air safety. The FAA has the authority to  
issue new or additional regulations. To ensure compliance with its              
regulations, the FAA requires the Company to obtain operating, airworthiness    
and other certificates which are subject to suspensions or revocation for       
cause. In addition, a combination of FAA and Occupational Safety and Health     
Administrative regulations on both federal and state levels apply to all of     
TWA's ground-based operations.                                                  

Passenger Facilities Charges                                                  

During 1990, Congress enacted legislation to permit airport authorities,    
with prior approval from the FAA, to impose passenger facility charges          
("PFCs") as a means of funding local airport projects. These charges, which     
are intended to be collected by the airlines from their passengers and          
remitted to the airports, are limited to $3.00 per enplanement and to no more   
than $12.00 per round trip. As a result of competitive pressure, the            

75  

S-4/A
77th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 77th
Company and other airlines have been limited in their abilities to pass on the  
cost of the PFCs to passengers through fare increases.                          

Environmental                                                                 

The Company is subject to regulation under major environmental laws         
administered by state and federal agencies, including the Clean Air Act, the    
Clean Water Act, the Comprehensive Environmental Response Compensation and      
Liability Act of 1980 and the Resource Conservation and Recovery Act. In some   
locations there are also county and sanitary sewer district agencies which      
regulate the Company. The Company believes that it is in substantial            
compliance with applicable environmental regulations. See, however, "--Legal    
Proceedings."                                                                   

Foreign Ownership of Shares                                                   

The Federal Aviation Act of 1958 generally prohibits non-U.S. citizens from 
owning more than 25% of the voting interest in U.S. air carriers, including     
the Company.                                                                    

INSURANCE                                                                       

The Company maintains commercial airline insurance with a major group of    
independent insurers that regularly participate in world aviation insurance     
markets. The Company's policies include coverage for losses resulting from the  
physical destruction of or damage to TWA's owned and leased aircraft, as well   
as losses arising from bodily injury, property damage and personal injury to    
third parties for which TWA becomes legally obligated to pay. The Company       
maintains aircraft third party and airline general third party liability        
insurance with a combined single limit of $1 billion per occurrence.            
Management believes that TWA's commercial airline insurance policies are        
generally consistent with those of other United States domiciled scheduled      
passenger air carriers operating similar aircraft over similar routes.          

LEGAL PROCEEDINGS                                                               

Icahn Litigation                                                              

On June 14, 1995, the Company signed the Extension and Consent Agreement    
with Karabu to extend the term of the Icahn Loans from January 8, 1995 to       
January 8, 2001 and to obtain the consent of Karabu and the Icahn Entities to   
certain modifications to the PBGC Notes. Collateral for the Icahn Loans         
included a number of aircraft, engines and related equipment, along with        
substantially all of the Company's receivables. On December 30, 1997, the       
Company repaid the outstanding balance of the Icahn Loans out of the proceeds   
from the sale of the Receivables Securitization Notes.                          

On June 14, 1995, in consideration of, among other things, the extension of 
the Icahn Loans, TWA and Karabu entered into the Ticket Agreement which         
permitted Karabu to purchase two categories of discounted tickets: (1)          
"Domestic Consolidator Tickets," which are subject to a cap of $610 million,    
based on the full retail price of the tickets ($120 million in the first 15     
months and $70 million per year for seven consecutive years through the term    
of the Ticket Agreement), and (2) "System Tickets," which are not subject to    
any cap throughout the term of the Ticket Agreement.                            

Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are  
priced at levels intended to approximate current competitive discount fares     
available in the airline industry. TWA believes that applicable provisions of   
the Ticket Agreement do not allow Karabu to market or sell System Tickets       
through travel agents                                                           

76  

S-4/A
78th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 78th
or directly to the general public. Karabu, however, has been marketing System   
Tickets through travel agents and directly to the general public. TWA has       
demanded that Karabu cease doing so, and Karabu has stated that it disagrees    
with the Company's interpretation concerning sales through travel agents or     
directly to the general public. In December 1995, the Company filed a lawsuit   
against Karabu, Mr. Icahn, and certain affiliated companies seeking damages     
and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered   
by threatening to file his own lawsuit and to declare a default on the Icahn    
Loans, which financing was secured by receivables and certain flight equipment  
pledged under the Karabu Security Agreements. Mr. Icahn's position was based    
upon a variety of claims related to his interpretations of the Karabu Security  
Agreements as well as with respect to certain alleged violations of the Ticket  
Agreement by the Company. The parties negotiated a series of standstill         
agreements pursuant to which TWA's original lawsuit was withdrawn, while the    
Company and Mr. Icahn endeavored to negotiate a settlement of their             
differences and respective claims. Those negotiations reached an impasse and    
the Company refiled its suit on March 20, 1996 in the St. Louis County Circuit  
Court (as described below).                                                     

On March 20, 1996, the Company filed a petition (the "TWA Petition")        
commencing a lawsuit against Mr. Icahn, Karabu and certain other entities       
affiliated with Icahn (collectively, the "Icahn Defendants"). The TWA           
Petition, which was filed in the Circuit Court for St. Louis County, Missouri,  
alleges that the Icahn Defendants are violating the Ticket Agreement and        
otherwise tortiously interfering with the Company's business expectancy and     
contractual relationships, by among other things, marketing and selling         
tickets purchased under the Ticket Agreement through travel agents or directly  
to the general public. The TWA Petition seeks a declaratory judgment finding    
that the Icahn Defendants have violated the Ticket Agreement, and also seeks    
liquidated, compensatory and punitive damages, in addition to the Company's     
costs and attorney's fees. In response to such lawsuit, Karabu and another      
Icahn-affiliated company asserted counterclaims alleging that the Company had   
breached its obligations under the Ticket Agreement by, among other things,     
seeking to restrict Karabu and Icahn-affiliated companies from selling System   
Tickets through travel agents or directly to the general public. The trial of   
this case was completed on January 7, 1998. A final judicial determination      
regarding this matter is pending.                                               

Also on March 20, 1996, TWA was named as a defendant in a complaint (the    
"Icahn Complaint") filed by Karabu and certain other affiliates of Mr. Icahn    
(the "Icahn Entities"). The Icahn Complaint alleged, among other things, that   
the Company had violated certain federal antitrust laws, breached the Ticket    
Agreement and interfered with certain existing and prospective commercial       
relations of the Icahn Entities. The Icahn Complaint was based upon an          
interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement    
permits sales of tickets through travel agents and directly to the general      
public. The Icahn Complaint sought injunctive relief and actual and punitive    
monetary damages, as well as the Icahn Entities' costs of litigation. On June   
13, 1996, following TWA's filing of a motion to dismiss the Icahn Complaint,    
the Icahn Entities amended the Icahn Complaint to delete the federal antitrust  
claim and to add new allegations and theories with respect to claimed           
violations of the federal antitrust laws and the Lanham Act (the "Amended       
Icahn Complaint"). On March 24, 1997, the United States District Court for the  
Southern District of New York, on the Company's motion, dismissed the suit in   
its entirety and that decision has not been appealed.                           

On August 11, 1997, Karabu and another entity controlled by Mr. Icahn filed 
another suit against six senior officers of the Company in New York state       
court alleging tortious interference with prospective economic advantage based  
on alleged violations of the Ticket Agreement. This suit is similar to the      
previous action with respect to which the Icahn Complaint related. The          
defendants removed this case to the United States District Court for the        
Southern District of New York and have moved to dismiss the case on the         
grounds of lack of personal jurisdiction, res judicata and failure to state a   
claim. This action is pending.                                                  

Although the Company intends to press its claims vigorously, it is possible 
that Karabu's interpretation of the Ticket Agreement regarding system discount  
ticket sales by the Icahn Defendants through travel agents or directly to the   
general public could be determined, either by a court or otherwise, to be       
correct. In such event,                                                         

77  

S-4/A
79th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 79th
unless the Company took appropriate action to mitigate the effect of such       
sales, the Company could suffer significant loss of revenue that could reduce   
overall passenger yields on a continuing basis during the term of the Ticket    
Agreement. In addition, a final judicial determination that the Ticket          
Agreement was violated by the Company could result in the imposition of         
damages.                                                                        

Other Actions                                                                 

On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en
route to Paris, France. There were no survivors among the 230 passengers and    
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully   
with all federal, state and local regulatory and investigatory agencies to      
ascertain the cause of the crash, which to date has not been determined. The    
National Transportation Safety Board held hearings relating to the crash in     
December 1997 and is continuing its investigation. While TWA is currently a     
defendant in a number of lawsuits relating to the crash, it is unable to        
predict the amount of claims which may ultimately be made against the Company   
or how those claims might be resolved. TWA maintains substantial insurance      
coverage, and at this time management has no reason to believe that such        
insurance coverage will not be sufficient to cover the claims arising from the  
crash. Therefore, TWA believes that the resolution of such claims will not      
have a material adverse effect on its financial condition or results of         
operations.                                                                     

On May 31, 1988, the U.S. Environmental Protection Agency ("EPA") filed an  
administrative complaint seeking civil penalties as well as other relief        
requiring TWA to take remedial procedures at TWA's maintenance base in Kansas   
City, Missouri, alleging violations resulting from TWA's past hazardous waste   
disposal and related environmental practices. Simultaneously, TWA became a      
party to a consent agreement and a consent order with the EPA pursuant to       
which TWA paid a civil penalty of $100,000 and agreed to implement a schedule   
of remedial and corrective actions and to perform environmental audits at       
TWA's major maintenance facilities. In September 1989, TWA and the EPA signed   
an administrative order of consent, which required TWA to conduct extensive     
investigations at or near the overhaul base and to recommend remedial action    
alternatives. TWA completed its investigations and on February 17, 1996,        
submitted a Corrective Measures Study ("CMS") to the Missouri Department of     
Natural Resources ("MDNR") and the EPA. On August 19, 1997 the MDNR and the     
EPA approved the CMS. Currently, drafts of the Statement of Basis and the Post  
Closure Permit are being reviewed by both agencies. Upon completion of that     
review, the documents will be submitted for public comment. Upon final          
approval of the CMS, an additional order will be issued and the required        
corrective actions implemented. TWA presently estimates the cost of the         
corrective action activities under the existing and anticipated orders to be    
approximately $7 million, a majority of which represents costs associated with  
long-term groundwater monitoring and maintenance of the remedial systems.       
Although the Company believes adequate reserves have been provided for all      
known environmental contingencies, it is possible that additional reserves      
might be required in the future which could have a material adverse effect on   
the results of operations or financial condition of the Company. However, the   
Company believes that the ultimate resolution of known environmental            
contingencies should not have a material adverse effect on the financial        
position or results of operations based on the Company's knowledge of similar   
environmental sites.                                                            

On October 22, 1991, judgment in the amount of $12,336,127 was entered      
against TWA in an action in the United States District Court for the Southern   
District of New York by Travellers International A.G. and its parent company,   
Windsor, Inc. (collectively, "Travellers"). The action commenced in 1987, as    
subsequently amended, sought damages from TWA in excess of $60 million as a     
result of TWA's alleged breach of its contract with Travellers for the          
planning and operation of Getaway Vacations. In order to obtain a stay of       
judgment pending appeal, TWA posted a cash undertaking of $13,693,101. In       
connection with the '93 Reorganization, TWA sought to have the matter           
ultimately determined by the Bankruptcy Court. Following prolonged litigation   
with respect to jurisdiction, the United States Supreme Court determined that   
the matter should be addressed by the bankruptcy court, and in February 1994,   
the bankruptcy court determined the matter in a manner favorable to TWA. Upon   
appeal, the District Court affirmed in part and reversed in part the            
bankruptcy court's decision. Both parties have appealed the matter to the       
United States Court of Appeals for the Third Circuit. The Company believes      
that in the event that the District Court's decision is affirmed, the ultimate  
result will not be materially different than the decision of the bankruptcy     
court.                                                                          

78  

S-4/A
80th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 80th
In February 1995, a number of actions were commenced in various federal     
district courts against TWA and six other major airlines, alleging that such    
companies conspired and agreed to fix, lower and maintain travel agent          
commissions on the sale of tickets for domestic air travel in violation of the  
United States and, in certain instances, state, antitrust laws. On May 9,       
1995, TWA announced settlement, subject to court approval, of the referenced    
actions and reinstated the traditional 10% commission on domestic air fares. A  
final order has not yet been entered; however, an interim order approving the   
settlement has been entered. The Company believes the settlement of this case   
will have a favorable effect on revenues.                                       

On November 9, 1995, ValuJet Air Lines, Inc., now known as AirTran Airlines,
Inc. ("ValuJet") instituted a lawsuit against TWA and Delta Air Lines           
("Delta") in the United States District Court for the Northern District of      
Georgia, alleging breach of contract and violations of certain antitrust laws   
with respect to the Company's lease of certain takeoff and landing slots at     
LaGuardia International Airport in New York. On November 17, 1995, the court    
denied ValuJet's motion to temporarily enjoin the lease transaction and the     
Company and Delta consummated the lease of the slots. On July 12, 1996, the     
Federal Court in Atlanta granted summary judgment in TWA's favor in the         
ValuJet litigation on all claims and counts raised in the ValuJet amended       
complaint. The order granting summary judgment to TWA was not a final order     
and was not directly appealable due to an outstanding claim against Delta.      
While ValuJet's counsel has stated that an appeal will be filed at a later      
date, the Company intends to defend itself vigorously in any future action.     

In addition, based on certain written grievances or complaints filed by     
ValuJet, the Company was informed that the United States Department of Justice  
("DOJ"), Antitrust Division, was investigating the circumstances of the slot    
lease of certain takeoff and landing slots to Delta at LaGuardia to determine   
whether an antitrust violation has occurred. During the course of its           
investigation, the DOJ was informed of the summary judgment described above.    
Since the date of the judgment, TWA is unaware of whether the DOJ has           
undertaken further investigative efforts, the status of the investigation or    
any future plans of the DOJ or other regulatory bodies with respect to the      
ValuJet allegations. While TWA believes the summary judgment should be          
persuasive to the various regulatory bodies petitioned by ValuJet, it will      
cooperate with any further investigations.                                      

The Company is also defending a number of other actions which have either   
arisen in the ordinary course of business or are insured or the cumulative      
effect of which management of the Company does not believe may reasonably be    
expected to be materially adverse.                                              

79  

S-4/A
81st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 81st
MANAGEMENT  

DIRECTORS AND EXECUTIVE OFFICERS                                                

The directors and executive officers of the Company are as follows:         

                                                                [Download Table]

NAME                   AGE                     POSITION                     
----                   ---                     --------                     
                                                                            
John W. Bachmann......  59 Director                                         
William F. Compton....  50 President and Chief Operating Officer            
Eugene P. Conese......  68 Director                                         
Gerald L. Gitner......  52 Chairman and Chief Executive Officer             
William M. Hoffman....  50 Director                                         
Edgar M. House........  65 Director                                         
Thomas H. Jacobsen....  58 Director                                         
Myron Kaplan..........  52 Director                                         
David M. Kennedy......  59 Director                                         
Merrill A. McPeak.....  62 Director                                         
Thomas F. Meagher.....  67 Director                                         
William O'Driscoll....  68 Director                                         
G. Joseph Reddington..  56 Director                                         
Blanche M. Touhill....  66 Director                                         
Stephen M. Tumblin....  36 Director                                         
Donald M. Casey.......  62 Executive Vice President, Marketing              
Kathleen A. Soled.....  40 Senior Vice President and General Counsel        
James F. Martin.......  47 Senior Vice President, Human Resources           
Michael J. Palumbo....  51 Senior Vice President and Chief Financial Officer

John W. Bachmann has been a director of TWA since April 1, 1996. Mr.        
Bachmann has been managing principal of Edward Jones since January 1980. Mr.    
Bachmann serves as Chairman of the St. Louis Regional Commerce and Growth       
Association/Civic Progress panel studying airport expansion and modernization   
in St. Louis. Mr. Bachmann served as a member of the U.S. Steering Committee    
for the Group of 30 and chaired its securities settlement implementation        
taskforce in 1989. He also served as Chairman of the Securities Industry        
Association from 1987 to 1989. Mr. Bachmann has served as a member of the       
Board of Governors of the Chicago Stock Exchange and as a member of the         
Regional Firms Advisory Board of the New York Stock Exchange. He is the         
Chairman of the St. Louis Symphony Society and a Trustee of Washington          
University and Wabash College. He is a member of the Board of Visitors of the   
Peter F. Drucker Center. Mr. Bachmann's term of office as a director expires    
with the Annual Meeting of Stockholders in 1998.                                

William F. Compton was appointed President and Chief Operating Officer of   
TWA on December 3, 1997. Mr. Compton had been named Executive Vice President,   
Operations on March 13, 1997, subject to Board approval which was given on      
March 27, 1997. He had been acting in such position since December 14, 1996.    
He was the ALPA-designated director of TWA from November 3, 1993 until March    
1997, at which time he resigned and was appointed a management-designated       
director. A pilot for TWA since September 13, 1968, Mr. Compton was an          
Executive Board Member and Master Chairman of the TWA Master Executive Council  
("MEC") of ALPA from September 1991 to September 11, 1995, Coordinator for the  
Company's Productivity Task Force until September 6, 1995 and a member of the   
TWA Labor Advisory Committee from August 1992 until September 1995. He was      
Chairman of the TWA MEC Negotiating Committee from March 1988 to September      
1991, a member of the ALPA National Collective Bargaining Committee from June   
1988 to June 1990, and a member of the TWA MEC Negotiating Committee from June  
1986 to March 1988. Mr. Compton's term of office as a director expires with     
the Annual Meeting of Stockholders in 1998. Mr. Compton serves as an officer    
of the Company at the pleasure of the Board of Directors.                       

80  

S-4/A
82nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 82nd
Eugene P. Conese has been a director of TWA since November 3, 1993. Mr.     
Conese has been Chairman of the Board and Chief Executive Officer of The        
Greenwich Company Limited ("GCL") since September 1997. He was Chairman and     
Chief Executive Officer of Greenwich Air Services, Inc. ("GAS") from October    
1987 until September 1997, and Chairman of the Board and President of World     
Air Lease, Inc. since July 1989. He was the founder of GCL and served as        
Chairman of the Board and Chief Executive Officer from August 1980 until        
December 30, 1995, when GCL was merged with and into GAS. He also served as     
Chief Executive Officer and director of Irvin Industries, Inc. ("II") from      
October 1975 to October 1979, and President and member of the Board of          
Directors of II from September 1970 to September 1975. He is a Trustee of Iona  
College. Mr. Conese's term of office as a director expires with the Annual      
Meeting of Stockholders in 1998.                                                

Gerald L. Gitner has been Chairman and Chief Executive Officer of TWA since 
February 12, 1997 and a director of TWA since November 3, 1993. He has been     
Chairman of Avalon Group, Ltd. since April 1992, and Co-Chairman of Global      
Aircraft Leasing Ltd. since 1990. Mr. Gitner was Vice Chairman of Tribeca       
Corporation from February 1990 to December 1991, Chairman of Tribeca            
Corporation from December 1991 to March 1992, and President and Chief           
Executive Officer, ATASCO USA Inc. from September 1986 to December 1989. Mr.    
Gitner was President of Texas Air Corp. from 1985 to 1986, Chairman and Chief   
Executive Officer of Pan Am World Services from 1983 to 1985 and Vice Chairman  
of Pan Am World Airways Inc. from 1983 to 1985. He was a founder of People      
Express Airlines, Inc. and served as its President from 1980 to 1982. Mr.       
Gitner is a director of ICTS International, N.V. and was a trustee of Boston    
University from 1984 to 1996. Mr. Gitner's term of office as a director         
expires with the Annual Meeting of Stockholders in 1998. Mr. Gitner serves as   
an officer of the Company at the pleasure of the Board of Directors.            

William M. Hoffman has been a director of TWA since January 23, 1996. He has
been a flight attendant for TWA since March 1970. Mr. Hoffman became Vice       
President of IFFA during 1990 and served through October 1995. He served as a   
member of the IFFA Executive Board from October 1980 through September 1995     
and became Secretary and Treasurer of IFFA in 1983 and served through 1990.     
Mr. Hoffman's term of office as a director expires with the Annual Meeting of   
Stockholders in 1998.                                                           

Edgar M. House has been a director of TWA since January 28, 1998. Mr. House 
became General Vice President of IAM in 1989 and served until he retired on     
July 1, 1997. Mr. House's term of office as a director expires with the Annual  
Meeting of Stockholders in 1999.                                                

Thomas H. Jacobsen has been a director of TWA since March 21, 1995. He has  
been President, Chief Executive Officer and Chairman of the Board of            
Mercantile Bancorporation Inc. since 1989. Mercantile Bank National             
Association, formerly known as Mercantile Bank of St. Louis National            
Association, and a subsidiary of Mercantile Bancorporation Inc., has provided   
in the past and from time to time hereafter may provide depository and/or       
other banking products to the Company and the Company's affiliates. Mr.         
Jacobsen has been a director of the Student Loan Marketing Association since    
November 1987 and a director of Union Electric Company since April 1990. Mr.    
Jacobsen was Vice Chairman and director of Barnett Banks, Inc. from 1984 to     
1989. Mr. Jacobsen's term of office as a director expires with the Annual       
Meeting of Stockholders in 1999.                                                

Myron Kaplan has been a director of TWA since November 3, 1993. He has been 
a partner in the law firm of Kleinberg, Kaplan, Wolff & Cohen, P.C. since       
1972. Mr. Kaplan's term of office as a director expires with the Annual         
Meeting of Stockholders in 1998.                                                

David M. Kennedy has been a director of TWA since October 23, 1996. Mr.     
Kennedy served as the Company's Acting Executive Vice President and Chief       
Operating Officer from December 14, 1996 to May 29, 1997 on an interim basis,   
and his services have been retained by the Company on a consulting basis. Mr.   
Kennedy was Chief Executive Officer of Aer Lingus from 1974 to 1988, and has    
held a variety of positions in the airline industry, including as director of   
CSA, Czechoslovak Airlines, from 1993 to 1994, member of the International      
Advisory Committee of Air France from 1991 to 1994, and as Aviation Consultant  
to the European Bank for Reconstruction and Development and the World Bank.     
Mr. Kennedy was a director of the Bank of                                       

81  

S-4/A
83rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 83rd
Ireland from 1984 to 1995, where he served as Deputy Governor from 1989-1991.   
Mr. Kennedy is currently chairman of the Bank of Ireland Pension Fund, and      
serves as a director of CRH plc, Jurys Hotel Group Plc. and as Chairman of      
Drury Communications Limited. Mr. Kennedy is a part-time lecturer at the        
Graduate School of Business of the University College Dublin. Mr. Kennedy is a  
citizen of Ireland. Mr. Kennedy's term of office as a director expires with     
the Annual Meeting of Stockholders in 1999.                                     

General Merrill A. McPeak (USAF, Ret.) has been a director of TWA since May 
29, 1997. He is President of McPeak and Associates, an aerospace consulting     
firm, and a director of ECC International Corp., Praegitzer Industries,         
Tektronix, Inc., and Thrustmaster, Inc. General McPeak was Chief of Staff,      
United States Air Force, 1990 to 1994, Commander-in-Chief, Pacific Air Forces,  
1988-1990 and Commander, 12th Air Force, 1987 to 1988. He serves on the         
national boards of the Air Force Association, the National Aeronautic           
Association and the International Aerobatic Club. General McPeak's term of      
office as a director expires with the Annual Meeting of Stockholders in 1998.   

Thomas F. Meagher has been a director of TWA since November 3, 1993 and was 
Chairman of the Board from November 14, 1995 to February 12, 1997 and           
currently serves as Lead Outside Director of the Board. Mr. Meagher has served  
as Chairman of the Board and Chief Executive Officer of Howell Tractor &        
Equipment Co. since 1980, and serves as a director of UNR Industries and        
Everen Securities. Mr. Meagher was Chairman of Continental Air Transport from   
1983 until July 1, 1995 and was Chief Executive Officer of Continental Air      
Transport from 1983 to 1993. He is a retired director of Lakeside Bank of       
Chicago and is a former Chairman of the Airport Ground Transportation           
Association. He is a Trustee of St. Mary's University and DePaul University.    
Mr. Meagher's term of office as a director expires with the Annual Meeting of   
Stockholders in 1999.                                                           

William O'Driscoll has been a director of TWA since November 3, 1993. Mr.   
O'Driscoll has been President and Directing General Chairman of IAM District    
Lodge 142 since August 1990. Mr. O'Driscoll's term of office as a director      
expires with the Annual Meeting of Stockholders in 1998.                        

G. Joseph Reddington has been a director of TWA since November 3, 1993. He  
has been President and Chief Executive Officer and director of Breuner Home     
Furnishings Corp. since February 1997. Mr. Reddington has been a director of    
Loblaw Companies Ltd. since August 1994. Mr. Reddington was a director of       
Sears Canada, Inc. from January 1985 to February 1994. Mr. Reddington was       
Chairman and Chief Executive Officer of the Signature Group from April 1994 to  
February 1997. President and Chief Executive Officer of Sears Canada from 1989  
to December 1993, and Chief Administrative Officer of Sears Merchandising       
Group from December 1988 to December 1989. Mr. Reddington's term of office as   
a director expires with the Annual Meeting of Stockholders in 1999.             

Blanche M. Touhill, has been a director of TWA since May 29, 1997. Since    
1991, she has been Chancellor of the University of Missouri-St. Louis, where    
she is Professor of History and Education. She was Interim Chancellor from      
1990 to 1991 and Vice Chancellor for Academic Affairs from 1987-1991. Ms.       
Touhill is a director of Boatmen's National Bank, Delta Dental, Christian       
Health Services, the Missouri Botanical Garden, the Urban League of             
Metropolitan St. Louis and the American Conference for Irish Studies. Ms.       
Touhill's term of office as a director expires with the Annual Meeting of       
Stockholders in 1998.                                                           

Stephen M. Tumblin has been a director of TWA since March 27, 1997. Mr.     
Tumblin is an associate with the law firm of LeBoeuf, Lamb, Greene & MacRae     
L.L.P. and has been with that firm since 1987. Mr. Tumblin's term of office as  
a director expires with the Annual Meeting of Stockholders in 1998.             

Donald M. Casey has been Executive Vice President, Marketing since May 29,  
1997. Mr. Casey was formerly a principal with Deskey Luxon Carra, a design      
consulting firm. In 1993, he formed Seabrook Consultants and was President,     
leaving the firm in 1995. From 1983 to 1993 Mr. Casey worked with Young and     
Rubicam in a number of executive positions. He previously worked for TWA from   
1968 until 1981, including serving as Senior Vice President, Marketing from     
1976 to 1981. Mr. Casey serves as an officer of the Company at the pleasure of  
the Board of Directors.                                                         

82  

S-4/A
84th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 84th
Richard P. Magurno has been Senior Vice President and General Counsel of TWA
since May 2, 1994. Mr. Magurno was a partner at Lord Day & Lord, Barrett Smith  
law firm, New York, New York from 1989 until May 1994. From 1970 to 1988, Mr.   
Magurno served in various legal capacities at Eastern Air Lines, Inc.,          
including Senior Vice President--Legal Affairs. Mr. Magurno serves as an        
officer of the Company at the pleasure of the Board of Directors.               

James F. Martin was elected Senior Vice President, Human Resources on       
October 29, 1997. Mr. Martin formerly was Vice President, Operations and        
Technology of Coors Brewing Company from 1996-1997, Vice President, Human       
Resources of Harcourt Brace & Company from 1992 to 1995 and Vice President,     
Human Resources of Macmillan/McGraw-Hill School Publishing Company from 1989    
to 1992. Mr. Martin serves as an officer of the Company at the pleasure of the  
Board of Directors.                                                             

Michael J. Palumbo has been Senior Vice President and Chief Financial       
Officer of TWA since December 20, 1996. Mr. Palumbo was formerly the Company's  
Vice President and Treasurer and has been employed by TWA since 1994. Before    
joining the Company, Mr. Palumbo was a partner in HPF Associates from 1988 to   
1994 and Senior Vice President and Transportation Group Head for E.F. Hutton    
from 1984 to 1988. Mr. Palumbo had previously served as Senior Vice President,  
Finance and Treasurer of Western Airlines from 1983 to 1984 and Assistant       
Treasurer of Pan American World Airways from 1977 to 1983. Mr. Palumbo serves   
as an officer of the Company at the pleasure of the Board of Directors.         

On September 22, 1997, the Company's Board of Directors authorized the      
adoption of severance agreements (each, a "Severance Agreement") with 10        
officers of the Company. Each Severance Agreement provides that, if at any      
time following a Change in Control of the Company (for purposes of this         
paragraph only, as defined therein), the employment of the applicable officer   
is terminated by the Company without Cause (as defined) or is terminated by     
the executive for Good Reason (as defined), the officer will be entitled to     
receive a severance payment equal to two times the officer's annual base        
salary and bonus, continuation of certain benefits such as life, disability     
and health insurance for a period of two years, a two year additional service   
credit under applicable Company retirement plans and lifetime travel pass       
privileges. Each Severance Agreement has an initial term of two years and is    
subject to automatic renewal on each one year anniversary of the date of the    
original Severance Agreement for a period of two years from such date unless    
the Company elects not to so extend the term. For purposes of the Severance     
Agreements, "Change in Control" is defined to include, with certain             
exceptions, any acquisition by any person of beneficial ownership of 20% or     
more of the Company's voting securities, approval by the Company's              
shareholders of certain mergers, consolidations or reorganizations or of a      
sale of all or substantially all of the Company's assets and any change in the  
Board which results, within any period of 18 months, in persons who, on the     
date of the Severance Agreements, were members of the Board (the "Incumbent     
Directors") (together with any new directors whose election or nomination for   
election was approved by a vote of at least a majority of the then Incumbent    
Directors or in the case of an individual elected by holders of a series of     
Employee Preferred Stock, if such individual is elected pursuant to the terms   
of the applicable Employee Preferred Stock) cease to constitute at least a      
majority of the Board. The Severance Agreements do not alter the preexisting    
rights, if any, of the officers upon a termination of employment by reason of   
death, disability or retirement, by the Company for Cause or by the officer     
other than for Good Reason.                                                     

83  

S-4/A
85th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 85th
PRINCIPAL HOLDERS OF CAPITAL STOCK  

The following table sets forth, as of December 31, 1997, certain information
concerning ownership of each class of voting securities of the Company by: (i)  
each person who is known by the Company to own beneficially more than 5% of     
the voting securities of the Company, (ii) each current director individually,  
(iii) the chief executive officer and the five other senior executive officers  
and (iv) all current directors and executive officers of the Company as a       
group. The determinations of "beneficial ownership" of voting securities are    
based upon Rule 13d-3 under the Exchange Act. Such rule provides that the       
securities will be deemed "beneficially owned" where a person has, either       
solely or in conjunction with others, the power to vote or to direct the        
voting of securities and/or the power to dispose, or to direct the disposition  
of, the securities or where a person has the right to acquire any such power    
within 60 days after the date such "beneficial ownership" is determined.        
Except as described below, each of the persons and groups listed below has      
sole voting and investment power with respect to the securities shown.          

PRINCIPAL HOLDERS OF COMMON STOCK(1)                                            

                                                                [Download Table]

                                                                   PERCENT OF  
                                                      AMOUNT OF   OUTSTANDING  
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF   BENEFICIAL     VOTING    
GROUP                                                OWNERSHIP(2) SECURITIES(2)
---------------------------------------------------  -----------  ------------ 
                                                                               
John W. Bachmann(3)(4)..............................      3,909         *      
William F. Compton(5)...............................        849         *      
Eugene P. Conese(3)(6)(7)(8)(9).....................     12,185         *      
Gerald L Gitner(3)(6)(10)...........................    657,776       1.1%     
William M. Hoffman(11)..............................        319         *      
Thomas H. Jacobsen(3)(6)(7)(9)......................     10,185         *      
Myron Kaplan(3)(4)(6)(9)(12)........................     10,731         *      
David M. Kennedy(3).................................      1,000         *      
Merrill A. McPeak(3)................................      1,514         *      
Thomas F. Meagher(3)(9)(13)(14).....................     12,164         *      
William O'Driscoll(15)..............................    192,975         *      
G. Joseph Reddington(3)(4)(6)(9)(13)................     11,231         *      
Blanche M. Touhill(3)...............................      1,000         *      
Stephen M. Tumblin(3)...............................      1,000         *      
Donald M. Casey(16).................................      2,500         *      
Richard P. Magurno (16)(17)(18).....................  1,247,117       2.2%     
Michael J. Palumbo(16)(17)(19)......................  1,009,512       1.7%     
James F. Martin(16).................................          0                
Total Shares owned by Current Directors and Current                            
 Executive Officers, as a group (18 individu-                                  
 als)(20)...........................................  3,175,967       5.5%     

--------                                                                        
* Less than 1%                                                                
(1) On March 19, 1997, Prince Al-Waleed Bin Talal Bin Abdulaziz Al-Saud of    
  Saudi Arabia informed the Company that he had purchased 2,088,000 shares
  of Common Stock, representing approximately 5% of the outstanding stock.
(2)Includes securities issuable pursuant to options exercisable within 60     
days.                                                                         
(3) Pursuant to the Company's 1995 Outside Directors' Stock Ownership and     
 Stock Option Plan (the "Outside Directors Plan"), each outside director
may elect to defer some or all of his or her annual retainer by       
 participating in a Deferred Retainer Program (as defined in the Outside
 Directors Plan). Participating directors are entitled to receive annual
credits to their deferred retainer accounts equaling the percentage of

84  

S-4/A
86th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 86th
his or her retainer to be received in shares of Common Stock times the    
 annual retainer amount payable to such outside director divided by (i) with
 respect to 1996, $4.1875, the subscription price of the Company's September
1995 equity rights offering (the "Subscription Price") and (ii) with      
respect to 1997, $6.875, the fair market value of the Common Stock on     
January 2, 1997. Upon the earlier to occur of December 31, 2000 and the   
 last date of a participating director's service on the Board, such director
is entitled to a payment equal to (i) the total number of shares of Common
Stock in the director's deferred retainer account, (ii) cash equaling the 
 number of shares of Common Stock contained in the deferred retainer account
times the Fair Market Value (as defined in the Outside Directors Plan) of 
the Common Stock on the date the retainer becomes payable or (iii) a      
combination of (i) and (ii).                                              
(4) Messrs. Bachmann, Kaplan and Reddington each elected to defer 50% of 1997 
retainer amounts payable to them in a deferred retainer account.      
Constitutes or includes 1,455 shares of Common Stock issuable to such 
 outside director pursuant to the Outside Directors Plan in the event of
his termination from service on the Board within 60 days assuming such
director elects to receive the entire balance of his deferred retainer
account in shares of Common Stock.                                    
(5) Excludes approximately 932 shares of Employee Preferred Stock             
attributable to Mr. Compton's beneficial interest in the TWA Air Line 
Pilots Supplemental Stock Plan. Excludes shares owned by his wife     
pursuant to her beneficial interest in the IAM Trans World Airlines   
Employees' Stock Ownership Plan for Flight Attendants (the "Flight    
  Attendant Trust") and other shares as to which she is the record holder.
Mr. Compton disclaims beneficial ownership of all shares held by his  
wife. Mr. Compton is the record holder of 849 shares of Common Stock. 
(6) Messrs. Conese, Gitner, Jacobsen, Kaplan, and Reddington each elected to  
defer all 1996 retainer amounts payable to them in a deferred retainer
   account. Constitutes or includes 4,776 shares of Common Stock issuable to
   such outside director pursuant to the Outside Directors Plan in the event
of his termination from service on the Board within 60 days, assuming 
such director elects to receive the entire balance of his deferred    
retainer account in shares of Common Stock.                           
(7) Messrs. Conese and Jacobsen each elected to defer all 1997 retainer       
amounts payable to them in a deferred retainer account. Constitutes or
 includes 2,909 shares of Common Stock issuable to such outside director
pursuant to the Outside Directors Plan in the event of his termination
 from service on the Board within 60 days, assuming such director elects
  to receive the entire balance of his deferred retainer account in shares
of Common Stock.                                                      
(8) Includes warrants to purchase 49 shares of Common Stock at a price of     
$14.40 per share.                                                     
(9) Includes 1,500 options granted pursuant to the Outside Directors Plan for 
Messrs. Conese, Jacobsen, Kaplan, Meagher and Reddington.             
(10) Includes 500,000 shares of Common Stock issuable upon the exercise of      
  vested options and 150,000 shares which will vest within 60 days hereof,
granted to Mr. Gitner pursuant to the KESIP.                          
(11) Includes approximately 16 shares of Common Stock held for Mr. Hoffman's    
 benefit as a TWA employee in the Flight Attendant Trust and warrants to
purchase 8 shares of Common Stock at a price of $14.40 per share. Mr. 
  Hoffman is also the beneficial owner of an undetermined amount of Common
Stock which has not yet been issued or allocated, which is to be      
distributed to Mr. Hoffman as a TWA employee as a result of IFFA      
 litigation against TWA settled in the course of the '93 Reorganization.
Mr. Hoffman is the record holder of 295 shares of Common Stock.       
(12) These shares are held by Mr. Kaplan for the benefit of the firm of         
  Kleinberg, Kaplan, Wolff & Cohen, P.C., of which Mr. Kaplan is a member.
(13) Pursuant to the Outside Directors Plan, such outside director was granted  
the right to purchase up to 3,000 shares of Common Stock at the       
 Subscription Price. Includes 3,000 shares of Common Stock issuable upon
exercise of this right.                                               
(14) Mr. Meagher elected to defer all 1996 retainer amounts payable to him in   
a deferred retainer account. Constitutes 7,164 shares of Common Stock 
issuable to Mr. Meagher pursuant to the Outside Directors Plan in the 
event of his termination from service on the Board within 60 days,    
   assuming Mr. Meagher elects to receive the entire balance of his deferred
retainer account in shares of Common Stock.                           

85  

S-4/A
87th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 87th
(15) 155,227 shares are held by Mr. O'Driscoll as a member of the IAM Plan      
Trust Committee of the IAM Trans World Airlines Employees' Stock      
   Ownership Plan (the "IAM Trust"), along with Mr. Gary Poos. 37,748 shares
are held by Mr. O'Driscoll as a member of the Trustee Committee of the
Flight Attendant Trust, along with Sherry Cooper and Rocky Miller. Mr.
 O'Driscoll disclaims beneficial ownership of the shares held by the IAM
Trust and the Flight Attendant Trust.                                 
(16) Does not include unvested options to purchase shares of Common Stock       
pursuant to the KESIP.                                                
(17) Approximately 1,958 and 1,119 shares attributable to the respective        
beneficial interests of Messrs. Magurno, and Palumbo are held by the  
  employee stock ownership trust established for the benefit of TWA's non-
  contract employees (the "Non-Contract Employees Trust"). Except for such
  shares, Messrs. Magurno and Palumbo disclaim beneficial ownership of the
shares held by the Non-Contract Employees Trust. Messrs. Magurno and  
  Palumbo serve as members of the committee having the power to direct the
vote of the shares of Common Stock held in the Non-Contract Employees 
Trust. Such trust holds 887,793 shares.                               
(18) Includes 357,366 shares of Common Stock issuable upon the exercise of      
vested options granted to Mr. Magurno pursuant to the KESIP.          
(19) Includes 120,600 shares of Common Stock issuable upon the exercise of      
vested options granted to Mr. Palumbo pursuant to the KESIP.          
(20) When combined with shares of Employee Preferred Stock beneficially held    
by current directors and current executive officers, as a group,      
represents a total of 9,647,902 shares of the Company's voting        
securities.                                                           

86  

S-4/A
88th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 88th
PRINCIPAL HOLDERS OF EMPLOYEE PREFERRED STOCK (AS OF OCTOBER 31, 1997)          

                                                                [Download Table]

                                                                      PERCENT OF   
NAME AND ADDRESS OF                  SERIES OF             AMOUNT OF  OUTSTANDING  
BENEFICIAL OWNER OR                   EMPLOYEE             BENEFICIAL  SHARES OF   
IDENTITY OF GROUP                 PREFERRED STOCK          OWNERSHIP    SERIES     
-------------------               ---------------          ---------- -----------  
                                                                                   
TWA Air Line Pilots                                                                
 Supplemental Stock                                                                
 Plan, Joseph A.                                                                   
 Chronic, Howard L.                                                                
 Coldwell, Jr. and Scott                                                           
 Schwartz as                                                                       
 trustees(1)............  ALPA Preferred Stock             1,366,151     72.10%(2) 
TWA Air Line Pilots 1995                                                           
 Employee Stock Owner-                                                             
 ship Plan, American                                                               
 Stock                                                                             
 Transfer & Trust Compa-                                                           
 ny, Trustee(3).........  ALPA Preferred Stock               528,375     27.90%(4) 
IAM Trust(5)............  IAM Preferred Stock              3,948,510       100%(6) 
Flight Attendant                                                                   
 Trust(7)...............  Flight Attendant Preferred Stock   971,309       100%(8) 
William O'Driscoll(9)...  IAM and Flight Attendant                                 
                          Preferred Stock                  4,919,819       100%(10)

--------                                                                        
(1) The address of the ALPA Trust is c/o Joseph A. Chronic, as co-trustee,    
TWA Air Line Pilots Supplemental Stock Plan, 3221 McKelvey Road, Suite
200, Bridgeton, Missouri 63044.                                       
(2) Constitutes 2.37% of the securities entitled to vote on all agenda        
   matters at meetings of stockholders other than the election of directors.
(3) The address of the TWA Air Line Pilots 1995 Employee Stock Ownership Plan 
is c/o American Stock Transfer & Trust Company, as trustee ("AST"), 40
Wall Street, 46th Floor, New York, New York 10005.                    
(4) Constitutes 0.92% of the securities entitled to vote on all agenda items  
at meetings of stockholders other than the election of directors.     
(5) The address of the IAM Trust is c/o Fleet National Bank, N.A., as         
trustee, One Federal Street, 31st Floor, Boston, Massachusetts 02211. 
(6) When combined with the 155,227 shares of Common Stock held by the IAM     
   Trust, constitutes 7.11% of the securities entitled to vote on all agenda
   matters at meetings of stockholders other than the election of directors.
(7) The address of the Flight Attendant Trust is c/o AST, at the address set  
forth in footnote 3.                                                  
(8) When combined with the 37,748 shares of Common Stock held by the Flight   
  Attendant Trust, constitutes 1.75% of the securities entitled to vote on
   all agenda matters at meetings of stockholders other than the election of
directors.                                                            
(9) The address of Mr. O'Driscoll is c/o Fleet National Bank, N.A., as        
trustee, One Federal Street, 31st Floor, Boston, Massachusetts 02211. 
(10) Includes all shares of IAM Preferred Stock held by the IAM Trust and all   
shares of the Flight Attendant Preferred Stock held by the Flight     
Attendant Trust. Mr. O'Driscoll disclaims beneficial ownership of the 
   shares of IAM Preferred Stock held by the IAM Trust and all shares of the
Flight Attendant Preferred Stock held by the Flight Attendant Trust.  

87  

S-4/A
89th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 89th
DESCRIPTION OF NOTES  

The Company issued the Old Notes and will issue the Exchange Notes under the
Indenture dated as of December 9, 1997 by and between the Company and First     
Security Bank, National Association, as trustee (the "Trustee"), a copy of      
which has been filed as an exhibit to the Registration Statement of which this  
Prospectus is a part. The Notes are entitled to the benefits of and are         
subject to those terms set forth in the Indenture and those made part of the    
Indenture by reference to the Trust Indenture Act of 1939, as amended (the      
"TIA"), as in effect on the date of the Indenture. Copies of the Indenture can  
be obtained from the Company upon request. The following description of         
material provisions of the Notes, the Indenture, the Registration Rights        
Agreement and the Collateral Documents (as defined) is intended as a summary    
only and is qualified by reference to those documents, including the            
definitions in those documents of certain terms. Whenever particular articles,  
sections or defined terms of the Notes, the Indenture, the Registration Rights  
Agreement or the Collateral Documents are referred to, it is intended that      
those articles, sections or defined terms are to be incorporated herein by      
reference. See "--Certain Definitions" for definitions of certain capitalized   
terms used herein.                                                              

GENERAL                                                                         

The Notes represent senior secured obligations of the Company and rank pari 
passu in right of payment with other senior obligations of the Company. None    
of the Company's outstanding indebtedness is senior to the Notes. As of         
September 30, 1997, after giving effect to the issuance of the Old Notes and    
the application of the proceeds therefrom, the aggregate principal amount of    
the Company's total outstanding indebtedness would have been approximately      
$1,032.7 million, all of which constitutes senior obligations. While unsecured  
indebtedness ranks pari passu with the Notes in right of payment, the holders   
of the Notes may, to the exclusion of unsecured creditors, seek recourse        
against the Collateral as security for the Notes unless and until the Notes     
are satisfied in full. See "--Collateral Security" and "--Certain Bankruptcy    
Limitations."                                                                   

The Notes are issued only in fully registered form, without coupons, in     
minimum denominations of $1,000 and integral multiples of $1,000. Holders will  
not be charged for any registration of transfer or exchange of the Notes, but   
the Company may require payment of a sum sufficient to cover any tax or other   
governmental charge payable in connection with any such transaction.            

PRINCIPAL, MATURITY AND INTEREST                                                

The Notes will be limited to $140.0 million of principal in the aggregate   
and will mature on December 15, 2004. The Notes will bear interest at the       
annual rate of 11 1/2% from the date of original issuance, or from the most     
recent interest payment date to which interest has been paid or provided for,   
payable semiannually in arrears on June 15 and December 15 of each year,        
commencing on June 15, 1998, to the person in whose name the Note is            
registered at the close of business on the preceding June 1 and December 1, as  
the case may be. Interest and Special Interest, if any, will be payable to the  
holders of record as they appear on the register of the Company kept by the     
registrar on such record dates. Interest will be computed on the basis of a     
360-day year of twelve 30-day months. The Notes will not be subject to any      
sinking fund. Principal of, premium, if any, interest on, and Special           
Interest, if any, with respect to the Notes will be payable, and the transfer   
of the Notes will be registrable, at the office or agency of the Company        
maintained for such purposes. In addition, payment of interest and Special      
Interest, if any, may, at the option of the Company, be made by check mailed    
to the address of the person entitled thereto as it appears in the register of  
the holders of Notes. The Trustee will initially act as paying agent and        
registrar for the Notes. The Company may change the paying agent and registrar  
in accordance with the Indenture.                                               

REDEMPTIONS                                                                     

Mandatory Redemption. Except as set forth under "--Repurchase of Notes Upon 
a Change in Control", "--Repurchase of Notes in Connection with Incurrence of   
Acquired Indebtedness" and "--Certain Covenants                                 

88  

S-4/A
90th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 90th
--Limitation on Sales of Assets and Subsidiary Stock," the Company will not be  
required to repurchase or make mandatory redemption or sinking fund payments    
with respect to the Notes.                                                      

Optional Redemption. Except as described below under "--Redemption upon     
Public Equity Offering" and "--Certain Covenants--Merger and Consolidation,"    
the Notes may not be redeemed prior to December 15, 2001. On or after December  
15, 2001, the Notes may be redeemed at any time in whole or in part (in any     
integral multiple of $1,000) by the Company at its sole option at redemption    
prices (expressed as a percentage of principal amount) as set forth below       
during the twelve month periods beginning December 15 of the years shown        
below, plus in each case an amount equal to accrued and unpaid interest and     
Special Interest, if any, with respect to the Notes to and including the        
redemption date.                                                                

                                                                [Download Table]

                                        REDEMPTION
YEAR                                      PRICE   
----                                    ----------
                                                  
2001...................................  105.750% 
2002...................................  102.875% 
2003 and thereafter....................  100.000% 

Notice of redemption shall be sent to each holder of Notes being redeemed at
the address shown on the books of the Company at least 30 but not more than 60  
days prior to the redemption date. If less than all of the Notes are to be      
redeemed, the Notes to be redeemed shall be selected by lot or pro rata or by   
any other equitable manner determined by the Trustee in its sole discretion.    
On or after the redemption date, interest will cease to accrue on the Notes or  
portions thereof called for redemption.                                         

Redemption upon Public Equity Offering. The Notes will be redeemable prior  
to December 15, 2001 only in the event that on or before December 15, 2000 the  
Company receives Net Cash Proceeds of one or more Public Equity Offerings in    
which case the Company may, at its option, use all or a portion of any such     
Net Cash Proceeds to redeem up to $49.0 million aggregate principal amount of   
the Notes, within 90 days of such Public Equity Offering, on not less than 30   
days, but not more than 60 days, notice to each holder of the Notes to be       
redeemed, at a redemption price (expressed as a percentage of principal         
amount) of 111 1/2% plus accrued and unpaid interest and Special Interest, if   
any, to the redemption date (subject to the right of holders of record on the   
relevant record date to receive interest and Special Interest, if any, due on   
the relevant interest payment date); provided, however, that at least $91.0     
million aggregate principal amount of the Notes must remain outstanding after   
each such redemption.                                                           

REPURCHASE OF NOTES UPON A CHANGE IN CONTROL                                    

The Company must commence, within 30 days of the occurrence of a Change in  
Control, and consummate an Offer to Purchase for all Notes then outstanding,    
at a purchase price equal to 101% of the principal amount thereof on the        
relevant Payment Date, plus accrued and unpaid interest and Special Interest,   
if any, to the Payment Date.                                                    

There can be no assurance that the Company will have sufficient funds       
available at the time of any Change in Control to make any debt payment         
(including repurchases of Notes) required by the foregoing covenant (as well    
as may be contained in other securities or agreements of the Company which      
might be outstanding at the time).                                              

Future indebtedness of the Company may contain prohibitions on the          
occurrence of certain events that would constitute a Change in Control or       
require such indebtedness to be purchased upon a Change in Control. Moreover,   
the exercise by the holders of their right to require the Company to            
repurchase the Notes could cause a default under such indebtedness, even if     
the Change in Control itself does not, due to the financial effect of such      
purchase on the Company. Finally, the Company's ability to pay cash to the      
holders of Notes following the occurrence of a Change in Control may be         
limited by the Company's then existing financial resources. The provisions      
under the Indenture relative to the Company's obligation to make an offer to    
repurchase the Notes as                                                         

89  

S-4/A
91st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 91st
a result of a Change in Control may be waived or modified with the written      
consent of the holders of a majority in principal amount of the Notes.          

One of the events which constitutes a Change in Control under the Indenture 
is the disposition of "all or substantially all" of the Company's assets. This  
term has not been interpreted under New York law (the law governing the         
Indenture) to represent a specific quantitative test. As a consequence, in the  
event the holders of the Notes elect to require the Company to repurchase the   
Notes and the Company elects to contest such election, there can be no          
assurance as to how a court interpreting New York law would interpret the       
phrase.                                                                         

The Company could, in the future, enter into certain significant            
transactions that would not constitute a Change in Control with respect to the  
Change in Control purchase feature of the Notes. The Change in Control          
purchase feature of the Notes may in certain circumstances make more difficult  
or discourage a takeover of the Company and, thus, the removal of incumbent     
management. The Change in Control purchase feature, however, is not the result  
of, to management's knowledge, any specific effort to obtain control of the     
Company by means of a merger, tender offer, solicitation or otherwise, nor is   
it part of a plan by management to adopt a series of anti-takeover provisions.  

The right to require the repurchase of Notes shall terminate after a        
discharge of the Company from its obligations under the Notes and the           
Indenture in accordance therewith. See "--Defeasance." Repurchase of the Notes  
may, under certain circumstances, constitute a default or event of default      
under senior indebtedness then outstanding and, in such instances, repurchase   
of the Notes would be prohibited unless and until such default has been cured   
or waived. The failure to repurchase the Notes in such instance would           
constitute an Event of Default. See "--Events of Default."                      

REPURCHASE OF NOTES IN CONNECTION WITH INCURRENCE OF ACQUIRED INDEBTEDNESS      

The Company shall not, and shall not permit any Restricted Subsidiary to    
incur any Acquisition Indebtedness in reliance, in whole or in part, on clause  
(8) of paragraph (b) of the "Limitation on Indebtedness" covenant described     
below under "--Certain Covenants" unless the Company shall have (i) made an     
Offer to Purchase all of the Notes at a purchase price equal to 100% of the     
principal amount thereof, plus the Applicable Premium (as defined) as of, and   
accrued and unpaid interest and Special Interest, if any, to, the Payment Date  
and (ii) such Payment Date shall have occurred and money sufficient to pay the  
purchase price of all Notes or portions thereof tendered for purchase pursuant  
to such Offer to Purchase shall have been deposited with the Trustee. Any such  
Offer to Purchase shall contain information concerning the business of the      
Company which the Company in good faith believes will enable the Holders of     
the Notes to make an informed decision with respect to such Offer to Purchase   
and will include (A) the most recent annual and quarterly financial statements  
and "Management's Discussion and Analysis of Financial Condition and Results    
of Operations" contained in the documents required to be filed with the         
Trustee pursuant to the Indenture (which requirements may be satisfied by       
delivery of such documents together with the Offer to Purchase), (B) a          
description of material developments, if any, in the Company's business         
subsequent to the date of the latest of such financial statements referred to   
in clause (A) (including a description of the events requiring the Company to   
make such Offer to Purchase), (C) if applicable, appropriate pro forma          
financial information concerning such Offer to Purchase and the events          
requiring the Company to make the Offer to Purchase and (D) any other           
information required by applicable law to be included therein.                  

REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS                                  

The Company has filed the Registration Statement of which this Prospectus is
a part, and will commence the Exchange Offer, pursuant to the Registration      
Rights Agreement.                                                               

In the event that applicable interpretations of the staff of the Commission 
do not permit the Company to effect the Registered Exchange Offer, or if for    
any other reason the Registered Exchange Offer is not consummated within 180    
days of the date of the Registration Rights Agreement, or if the Initial        
Purchasers so                                                                   

90  

S-4/A
92nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 92nd
request with respect to Old Notes not eligible to be exchanged for Exchange     
Notes in the Registered Exchange Offer, or if any holder of Old Notes is not    
eligible to participate in the Registered Exchange Offer or does not receive    
freely tradable Exchange Notes in the Registered Exchange Offer, the Company    
will, at its cost, (a) as promptly as practicable, file a shelf registration    
statement (the "Shelf Registration Statement") covering resales of the Old      
Notes or the Exchange Notes, as the case may be, (b) use its best efforts to    
cause the Shelf Registration Statement to be declared effective under the       
Securities Act and (c) keep the Shelf Registration Statement effective for a    
period of two years from the date of original issuance of the Old Notes or      
such shorter period that will terminate when Old Notes covered by the Shelf     
Registration Statement have been sold pursuant thereto or can be sold pursuant  
to Rule 144(k). The Company will, in the event a Shelf Registration Statement   
is filed, among other things, provide to each holder for whom such Shelf        
Registration Statement was filed copies of the prospectus which is a part of    
the Shelf Registration Statement, notify each such holder when the Shelf        
Registration Statement has become effective and take certain other actions as   
are required to permit unrestricted resales of the Old Notes or the Exchange    
Notes, as the case may be. A holder selling such Old Notes or Exchange Notes    
pursuant to the Shelf Registration Statement generally would be required to be  
named as a selling security holder in the related prospectus and to deliver a   
prospectus to purchasers, will be subject to certain of the civil liability     
provisions under the Securities Act in connection with such sales and will be   
bound by the provisions of the Registration Rights Agreement which are          
applicable to such holder (including certain indemnification obligations).      

If (i) on or prior to 60 days after the date of original issuance of the Old
Notes, neither the Registered Exchange Offer Registration Statement nor the     
Shelf Registration Statement has been filed with the Commission; (ii) on or     
prior to 150 days after the original issuance of the Old Notes, neither the     
Exchange Offer Registration Statement nor the Shelf Registration Statement is   
declared effective; (iii) on or prior to 180 days after the original issuance   
of the Old Notes, neither the Registered Exchange Offer is consummated nor the  
Shelf Registration Statement is declared effective; or (iv) after either the    
Exchange Offer Registration Statement or the Shelf Registration Statement is    
declared effective, such registration statement thereafter ceases to be         
effective or usable (subject to certain exceptions) in connection with resales  
of Old Notes or Exchange Notes in accordance with and during the periods        
specified in the Registration Rights Agreement (each such event referred to in  
clauses (i) through (iv), a "Registration Default," and each period during      
which a Registration Default has occurred and is continuing, a "Registration    
Default Period"), then special interest ("Special Interest") on the Old Notes   
and the Exchange Notes will accrue at a per annum rate of 0.50% for the first   
90 days of the Registration Default Period, at a per annum rate of 1.0% for     
the second 90 days of the Registration Default Period, at a per annum rate of   
1.50% for the third 90 days of the Registration Default Period and at a per     
annum rate of 2.00% thereafter for the remaining portion of the Registration    
Default Period. From and including the date on which all Registration Defaults  
have been cured, the accrual of Special Interest will cease. Special Interest   
is payable in addition to any other interest payable from time to time          
pursuant to the terms of the Old Notes and the Exchange Notes.                  

If the Company effects the Exchange Offer, it will be entitled (subject to  
applicable law) to consummate the Exchange Offer 30 days after the              
commencement thereof provided that it has accepted all Old Notes theretofore    
validly tendered in accordance with the terms of the Exchange Offer.            

The summary herein of certain provisions of the Registration Rights         
Agreement does not purport to be complete and is subject, and is qualified in   
its entirety by reference, to all of the provisions of the Registration Rights  
Agreement, a copy of which is available upon request to the Company.            

CERTAIN COVENANTS                                                               

Limitation on Indebtedness. (a) Neither the Company nor the Restricted      
Subsidiaries shall Incur, directly or indirectly, any Indebtedness; provided,   
however, that the Company may Incur Indebtedness so long as, on the date of     
such Incurrence and after giving effect thereto, the Consolidated Coverage      
Ratio exceeds (i) 2.00 to 1 for Indebtedness Incurred on or prior to December   
31, 1999, (ii) 2.25 to 1 for Indebtedness Incurred after December               

91  

S-4/A
93rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 93rd
31, 1999 and on or prior to December 31, 2001 and (iii) 2.50 to 1 for           
Indebtedness Incurred after December 31, 2001.                                  

(b) Notwithstanding the foregoing paragraph (a), the Company and the        
Restricted Subsidiaries may Incur any or all of the following Indebtedness:     

(1) Indebtedness of the Company Incurred subsequent to the Issue Date;  
provided, however, that (A) after giving effect to any such Incurrence, the 
aggregate principal amount of such Indebtedness then outstanding does not   
exceed $400.0 million, (B) the Stated Maturity of any such Indebtedness is  
at least one year after the Stated Maturity of the Notes, (C) the Average   
Life of any such Indebtedness at the time that it is Incurred is not less   
than the Average Life of the Notes at such time and (D) except for Liens    
permitted by clause (p) of the definition of Permitted Liens, such          
Indebtedness is not secured by a Lien on any asset of the Company or its    
Restricted Subsidiaries;                                                    

(2) Aircraft Acquisition Debt;                                          

(3) Indebtedness of the Company owed to and held by a Restricted        
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by   
the Company or a Restricted Subsidiary; provided, however, that any         
subsequent issuance or transfer of any Capital Stock which results in any   
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any     
subsequent transfer of such Indebtedness (other than to the Company or      
another Restricted Subsidiary) shall be deemed in each case, to constitute  
the Incurrence of such Indebtedness by the Company;                         

(4) the Old Notes and the Exchange Notes;                               

(5) Indebtedness Incurred to finance the cost (including the cost of    
design, development, acquisition, construction, installation, improvement,  
transportation or integration) of plant, property and equipment used or to  
be used in the airline business or any other business that is substantially 
related, ancillary or complementary thereto (including any Capitalized      
Lease Obligation and the cost of the Capital Stock of a Person that becomes 
a Restricted Subsidiary to the extent of the fair market value of the       
plant, property and equipment of such Person at the time it becomes a       
Restricted Subsidiary) to be acquired by the Company or a Restricted        
Subsidiary after the Issue Date; provided that such Indebtedness is         
incurred within 270 days after such plant, property and equipment has been  
placed into service; provided further that (A) the principal amount of such 
Indebtedness does not exceed 80% of the cost of such plant, property or     
equipment financed thereby and (B) the aggregate principal amount of all    
Indebtedness Incurred pursuant to the provisions described under this       
clause (5) shall not exceed $70.0 million at any time outstanding; provided 
further that the limitations described in clauses (A) and (B) of the        
immediately preceding proviso shall not apply to Indebtedness Incurred to   
finance the cost of (i) airport facilities, reservations centers or         
maintenance facilities or (ii) information technology systems, including    
all related hardware and software;                                          

(6) Indebtedness outstanding on the Issue Date (other than Indebtedness 
described in clause (1), (2), (3), (4) or (5) of this covenant);            

(7) Indebtedness of the Company not to exceed, at any time outstanding, 
2.0 times the Net Cash Proceeds received by the Company after the Issue     
Date from the issuance and sale of its Capital Stock (other than            
Disqualified Stock) to a Person that is not a Subsidiary of the Company, to 
the extent such Net Cash Proceeds are not included in the calculation of    
amounts under clause (3)(B) of paragraph (a) of the "Limitation on          
Restricted Payments" covenant described below or used to make a Restricted  
Payment pursuant to clause (i) of paragraph (b) of such "Limitation on      
Restricted Payments" covenant; provided that such Indebtedness (A) is       
Incurred within 180 days following receipt of such Net Cash Proceeds and    
(B) does not have a Stated Maturity that is prior to the first anniversary  
of the Stated Maturity of the Notes and has an Average Life longer than the 
Notes at the time of Incurrence of such Indebtedness;                       

(8) Acquired Indebtedness; provided that prior to the Incurrence thereof
the Company shall have made an Offer to Purchase all of the Notes and       
deposited with the Trustee money sufficient to pay the purchase             

92  

S-4/A
94th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 94th
price of all Notes or portions thereof tendered for purchase pursuant to    
such Offer to Purchase, all as described above under "--Repurchase of Notes 
in Connection with Incurrence of Acquired Indebtedness";                    

 (9) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (1), (2), (3), (4), (5), (6), (7),   
(8) of this covenant or this clause (9);                                    

(10) Indebtedness (A) in respect of performance, surety, appeal or      
similar bonds provided in the ordinary course of business, and (B) arising  
from agreements providing for indemnification, adjustment of purchase price 
or similar obligations, or from Guarantees or letters of credit, surety     
bonds or performance bonds securing any obligations of the Company or any   
of the Restricted Subsidiaries pursuant to such agreements, in any case     
Incurred in connection with the disposition of any business, assets of the  
Company or any of the Restricted Subsidiaries, including all or any         
interest in any Restricted Subsidiary, and not exceeding the gross proceeds 
therefrom, other than Guarantees of Indebtedness Incurred by any Person     
acquiring all or any portion of such business, assets or Restricted         
Subsidiary or any of the Restricted Subsidiaries for the purpose of         
financing such acquisition;                                                 

(11) Hedging Obligations consisting of Interest Rate Agreements, Fuel   
Protection Agreements or Currency Agreements;                               

 (12) Indebtedness Incurred in satisfaction of payment obligations arising
out of collective bargaining agreements with labor unions representing      
employees of the Company or its Restricted Subsidiaries;                    

(13) Indebtedness arising from aircraft lessor financing of improvements
to or maintenance of aircraft, engines or related parts and equipment       
leased by the Company or its Restricted Subsidiaries;                       

(14) Indebtedness Incurred in satisfaction of "return condition"        
obligations of the Company or its Restricted Subsidiaries under aircraft    
leases in an aggregate principal amount not to exceed $25.0 million at any  
time outstanding;                                                           

(15) Indebtedness under working capital and/or Receivables financing    
facilities in an aggregate principal amount not to exceed $150.0 million at 
any time outstanding and Guarantees thereof by Restricted Subsidiaries not  
prohibited by the "Limitation of Guarantees by Restricted Subsidiary"       
covenant; provided that such Indebtedness is not secured by a Lien on any   
assets of the Company or its Restricted Subsidiaries other than Receivables 
and Capital Stock of special purpose Subsidiaries of the Company formed to  
effect a Receivables--based financing;                                      

 (16) Indebtedness issued in satisfaction of trade payables arising in the
ordinary course of business; provided that (A) the principal amount of such 
Indebtedness does not exceed the amount of such trade payables (including   
accrued interest or finance charges), (B) the Stated Maturity of such       
Indebtedness is no more than 180 days after the date of Incurrence thereof  
and (C) the aggregate principal amount of such Indebtedness does not exceed 
$50.0 million at any time outstanding; and                                  

(17) Indebtedness of the Company or any Restricted Subsidiary in an     
aggregate principal amount which, together with all other Indebtedness of   
the Company and the Restricted Subsidiaries outstanding on the date of such 
Incurrence (other than Indebtedness permitted by clauses (1) through (16)   
of this covenant or paragraph (a) of this covenant) does not exceed $100.0  
million.                                                                    

(c) Notwithstanding the foregoing, neither the Company nor any Restricted   
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph     
(b) if the proceeds thereof are used, directly or indirectly, to Refinance any  
Subordinated Obligations unless such Indebtedness shall be subordinated to the  
Notes, to at least the same extent as such Subordinated Obligations.            

(d) For purposes of determining compliance with the foregoing covenant, (i) 
in the event that an item of Indebtedness meets the criteria of more than one   
of the types of Indebtedness described above, the Company, in its sole          
discretion, will classify such item of Indebtedness and only be required to     
include the amount and type of such Indebtedness in one of the above clauses    
and (ii) an item of Indebtedness may be divided and classified in more than     
one of the types of Indebtedness described above.                               

93  

S-4/A
95th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 95th
Limitation on Restricted Payments. (a) The Company shall not, and shall not 
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted  
Payment if at the time the Company or such Restricted Subsidiary makes such     
Restricted Payment: (1) a Default shall have occurred and be continuing (or     
would result therefrom); (2) the Company is not able to Incur an additional     
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described       
under "--Limitation on Indebtedness"; or (3) the aggregate amount of such       
Restricted Payment and all other Restricted Payments since the Issue Date (the  
amount of any such Restricted Payment, if other than cash, as determined in     
good faith by the Company, whose determination shall be conclusive and          
evidenced by a resolution of the Board of Directors or a certificate of the     
chief financial or accounting officer of the Company delivered to the Trustee   
prior to the making of such Restricted Payment) would exceed the sum of:        

 (A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter          
immediately following the fiscal quarter during which the Notes are         
originally issued to the end of the most recent fiscal quarter for which    
financial statements are publicly available prior to the date of such       
Restricted Payment (or, in case such Consolidated Net Income shall be a     
deficit, minus 100% of such deficit);                                       

 (B) the aggregate net proceeds (including 50% of the fair market value of
property other than cash (as determined in good faith by the Company, whose 
determination shall be conclusive and evidenced by a resolution of the      
Board of Directors or a certificate of the chief financial or accounting    
officer of the Company delivered to the Trustee prior to the making of such 
Restricted Payment)) received by the Company or any Restricted Subsidiary   
from the issuance or sale, subsequent to the Issue Date, of its Capital     
Stock (other than Disqualified Stock) and Indebtedness of the Company or    
any Restricted Subsidiary that has been converted into or exchanged for     
Capital Stock (other than Disqualified Stock) subsequent to the Issue Date  
(other than an issuance or sale to a Restricted Subsidiary and other than   
an issuance or sale to an employee stock ownership plan or to a trust       
established by the Company or any of its Subsidiaries for the benefit of    
their employees); and                                                       

 (C) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or  
advances or other transfers of assets, in each case to the Company or any   
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion  
(proportionate to the Company's equity interest in such Subsidiary) of the  
fair market value of the net assets of an Unrestricted Subsidiary at the    
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;    
provided, however, that the foregoing sum shall not exceed, in the case of  
any Unrestricted Subsidiary, the amount of Investments previously made (and 
treated as a Restricted Payment) by the Company or any Restricted           
Subsidiary in such Unrestricted Subsidiary.                                 

(b) The provisions of the foregoing paragraph (a) shall not prohibit:       

(i) any Restricted Payment made by exchange for, or out of the net      
proceeds (including 50% of the fair market value of property other than     
cash (as determined in good faith by the Company, whose determination shall 
be conclusive and evidenced by a resolution of the Board of Directors or a  
certificate of the chief financial or accounting officer of the Company     
delivered to the Trustee prior to the making of such Restricted Payment))   
of the substantially concurrent sale of, Capital Stock of the Company       
(other than Disqualified Stock and other than Capital Stock issued or sold  
to a Subsidiary of the Company or an employee stock ownership plan or to a  
trust established by the Company or any of its Subsidiaries for the benefit 
of their employees); provided, however, that (A) such Restricted Payment    
shall be excluded in the calculation of the amount of Restricted Payments   
and (B) to the extent used to make such Restricted Payment, the net         
proceeds from such sale shall be excluded from the calculation of amounts   
under clause (3)(B) of paragraph (a) above;                                 

(ii) any purchase, repurchase, redemption, defeasance or other          
acquisition or retirement for value of Subordinated Obligations made by     
exchange for, or out of the proceeds of the substantially concurrent sale   
of, Indebtedness of the Company which is permitted to be Incurred pursuant  
to the covenant described under "--Limitation on Indebtedness"; provided,   
however, that such purchase, repurchase, redemption,                        

94  

S-4/A
96th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 96th
defeasance or other acquisition or retirement for value shall be excluded   
in the calculation of the amount of Restricted Payments;                    

 (iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this  
covenant; provided, however, that such dividend shall be included in the    
calculation of the amount of Restricted Payments;                           

(iv) the declaration or payment of dividends on or payment of liquidated
damages with respect to (A) any Preferred Stock outstanding on the Issue    
Date or (B) any Preferred Stock (other than Disqualified Stock) issued      
after the Issue Date that ranks on parity with or junior to Preferred Stock 
outstanding on the Issue Date; provided, however, that any dividend         
referred to in the foregoing clause (A) or, subject to the following        
proviso, clause (B), shall be included in the calculation of the amount of  
Restricted Payments and provided further, that the Company may elect to     
exclude from the calculation of amounts under clause 3(B) of paragraph (a)  
above any Net Cash Proceeds received by the Company from the issue or sale  
of Preferred Stock pursuant to the foregoing clause (B) (which election     
must be made by written notice to the Trustee within ten (10) Business Days 
of the receipt of such Net Cash Proceeds) and, if such election is made,    
any dividend, distribution, purchase, redemption, acquisition or retirement 
on or of the Preferred Stock for which such election is made shall not be a 
Restricted Payment;                                                         

(v) (A) the payment of cash in lieu of issuing fractional shares of     
Capital Stock of the Company in connection with the exercise of options or  
warrants, the conversion of convertible securities or the redemption of     
interests in employee stock ownership or benefits plans, (B) the purchase   
or redemption of Capital Stock by the Company from employee stock ownership 
or benefit plans subject to ERISA to the extent required by ERISA, (C)      
repurchases of Capital Stock which occur upon the exercise of stock options 
if such Capital Stock represents a portion of the exercise price of such    
options, (D) the purchase, redemption, acquisition, cancellation or other   
retirement for value of shares of Capital Stock of the Company or any       
Restricted Subsidiary, options on any such shares or related stock          
appreciation rights or similar securities held by officers or employees or  
former officers or employees (or their estates or beneficiaries under their 
estates), upon death, disability, retirement, termination of employment or  
pursuant to any agreement under which such shares of stock or related       
rights were issued; provided that the aggregate cash consideration paid     
pursuant to this clause (D) for such purchase, redemption, acquisition,     
cancellation or other retirement of such shares of Capital Stock or related 
rights after the Issue Date does not exceed an aggregate amount of $10.0    
million; provided further that the amount of any payment, purchase,         
redemption, repurchase, acquisition, cancellation or other retirement paid  
pursuant to this clause (D) shall be included in the amount of Restricted   
Payments;                                                                   

 (vi) any purchase or redemption of Capital Stock of the Company resulting
from the consolidation or merger with or into any Person or conveyance,     
transfer or lease of all or substantially all of the Company's or any       
Restricted Subsidiary's property to one or more Persons substantially as an 
entirety not prohibited by the terms of the "Merger and Consolidation"      
covenant (other than any consolidation, merger or other transactions        
involving only the Company and a Subsidiary of the Company or involving     
only Subsidiaries of the Company); provided that the amount of such         
purchase or redemption shall be excluded in the calculation of the amount   
of Restricted Payments; or                                                  

(vii) the exchange of Preferred Stock (other than Disqualified Capital  
Stock) for Indebtedness of the Company permitted to be incurred under the   
Limitation on Indebtedness Covenant; provided that the liquidation value of 
the Preferred Stock exchanged shall be included in the calculation of the   
amount of Restricted Payments but only to the extent of the Net Cash        
Proceeds of such Preferred Stock received after the Issue Date.             

Limitation on Restrictions on Distributions from Restricted                 
Subsidiaries. The Company shall not, and shall not permit any Restricted        
Subsidiary to create or otherwise cause or permit to exist or become effective  
any consensual encumbrance or restriction on the ability of any Restricted      
Subsidiary to (a) pay dividends or make any other distributions on its Capital  
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness         

95  

S-4/A
97th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 97th
owed to the Company, (b) make any loans or advances to the Company or (c)       
transfer any of its property or assets to the Company except:                   

(i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;                                          

(ii) any encumbrance or restriction with respect to a Restricted        
Subsidiary or its property or assets pursuant to an agreement relating to   
any Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary  
on or prior to the date on which such Restricted Subsidiary became a        
Restricted Subsidiary or was acquired by the Company (other than            
Indebtedness or Preferred Stock Incurred as consideration in, or to provide 
all or any portion of the funds or credit support utilized to consummate,   
the transaction or series of related transactions pursuant to which such    
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the 
Company) and outstanding on such date;                                      

 (iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness or Preferred Stock Incurred pursuant to an      
agreement referred to in clause (i) or (ii) of this covenant or this clause 
(iii) or contained in any amendment to an agreement referred to in clause   
(i) or (ii) of this covenant or this clause (iii); provided, however, that  
the encumbrances and restrictions with respect to such Restricted           
Subsidiary contained in any such refinancing agreement or amendment are in  
the aggregate no less favorable to the Noteholders than encumbrances and    
restrictions with respect to such Restricted Subsidiary contained in such   
predecessor agreements;                                                     

(iv) any restriction with respect to a Restricted Subsidiary imposed    
pursuant to an agreement entered into for the sale or disposition of all or 
substantially all the Capital Stock or assets of such Restricted Subsidiary 
pending the closing of such sale or disposition;                            

(v) any encumbrances and restrictions existing under or by reason of    
applicable law or regulation;                                               

(vi) any encumbrances and restrictions (A) that restrict in a customary 
manner the subletting, assignment or transfer of any property or asset that 
is a lease, license, conveyance or contract or similar property or asset,   
(B) existing by virtue of any transfer of, agreement to transfer, option or 
right with respect to, or Lien on, any property or assets of the Company or 
any Restricted Subsidiary not otherwise prohibited by the Indenture or the  
Collateral Documents or (C) arising or agreed to in the ordinary course of  
business not relating to any Indebtedness, and that do not (as determined   
by the Company and certified in a resolution of the Board of Directors or a 
certificate of the chief financial or chief accounting officer of the       
Company delivered to the Trustee prior to or promptly following such        
encumbrance or restriction becoming effective), individually or in the      
aggregate, (1) detract from the value of property or assets of the Company  
or any Restricted Subsidiary in any manner material to the Company or any   
Restricted Subsidiary or (2) materially adversely affect the Company's      
ability to make principal or interest (including Special Interest, if any)  
payments on the Notes;                                                      

(vii) any encumbrance or restriction contained in the terms of any      
Indebtedness or any agreement pursuant to which such Indebtedness was       
issued if (A) the encumbrance or restriction applies only in the event of a 
payment default or default with respect to a financial covenant contained   
in such Indebtedness or agreement, (B) the encumbrance or restriction is    
not materially more disadvantageous to the Holders of the Notes than is     
customary in comparable financings (as determined by the Company and        
certified in a resolution of the Board of Directors or a certificate of the 
chief financial or chief accounting officer of the Company delivered to the 
Trustee prior to or promptly following such encumbrance or restriction      
becoming effective) and (C) such encumbrance or restriction will not        
materially adversely affect the Company's ability to make principal or      
interest (including Special Interest, if any) payments on the Notes (as     
determined by the Company and certified in a resolution of the Board of     
Directors or a certificate of the chief financial or chief accounting       
officer of the Company delivered to the Trustee prior to or promptly        
following such encumbrance or restriction becoming effective); and          

(viii) any encumbrance or restriction resulting from any financing      
transaction involving the sale of Receivables or aircraft and/or related    
engines, spare parts and equipment to a special purpose Subsidiary of       

96  

S-4/A
98th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 98th
the Company formed to effect such financing and which applies only to such  
special purpose Subsidiary and its assets.                                  

Nothing contained in this "Limitation on Restrictions on Distributions from 
Restricted Subsidiaries" covenant shall prevent the Company or any Restricted   
Subsidiary from (1) creating, incurring, assuming or suffering to exist any     
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)          
restricting the sale or other disposition of property or assets of the Company  
or any of its Restricted Subsidiaries that secure Indebtedness of the Company   
or any of its Restricted Subsidiaries.                                          

Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,  
and shall not permit any Restricted Subsidiary to, directly or indirectly,      
consummate (x) any sale, lease, transfer or other disposition (or series of     
related sales, leases, transfers or other dispositions) of any Collateral       
Security, except as permitted under the Collateral Documents or (y) any Asset   
Disposition unless the Company or such Restricted Subsidiary receives           
consideration at the time of such Asset Disposition at least equal to the fair  
market value (including as to the value of all non-cash consideration), as      
determined in good faith by the Board of Directors or by the chief financial    
or accounting officer of the Company, of the shares and assets subject to such  
Asset Disposition and at least 80% of the consideration thereof received by     
the Company or such Restricted Subsidiary is in the form of cash or cash        
equivalents. If the Company or any Restricted Subsidiary engages in an Asset    
Disposition, the Company may use the Net Available Cash from such Asset         
Disposition, within one year after the later of such Asset Disposition and the  
receipt of such Net Available Cash (such later date, the "Trigger Date"), to    
(i) permanently repay or prepay any then outstanding Senior Indebtedness of     
the Company or any Restricted Subsidiary or (ii) invest in or acquire (or       
enter into a legally binding commitment to invest in or acquire) Additional     
Assets; provided that the transaction subject to any such commitment be         
consummated within 180 days after the date of such commitment. If any such      
legally binding commitment to invest in or acquire such Additional Assets is    
terminated, then the Company may, within 90 days of such termination or the     
Trigger Date, whichever is later, use such Net Available Cash as provided in    
clause (i) or (ii) (without giving effect to the parenthetical contained in     
such clause (ii)) above. The amount of such Net Cash Proceeds not so used as    
set forth above in this paragraph constitutes "Excess Proceeds."                

When the aggregate amount of Excess Proceeds exceeds $10.0 million, the     
Company will, within 30 days thereof, apply such aggregate Excess Proceeds (1)  
first, to make an Offer to Purchase outstanding Notes at 100% of their          
principal amount plus accrued and unpaid interest and Special Interest, if      
any, to the date of purchase and, to the extent required by the terms thereof,  
any other Indebtedness of the Company that is pari passu with the Notes at a    
price no greater than 100% of the principal amount thereof plus accrued         
interest to the date of purchase and (2) second, to the extent of any           
remaining Excess Proceeds following the completion of the Offer to Purchase,    
to any other use as determined by the Company which is not otherwise            
prohibited by the Indenture. Upon the completion of an Offer to Purchase        
pursuant to this paragraph, the amount of Excess Proceeds shall be reset to     
zero.                                                                           

For the purposes of this covenant, the following are deemed to be cash or   
cash equivalents: (x) the assumption of Indebtedness of the Company or any      
Restricted Subsidiary and the release of the Company or such Restricted         
Subsidiary from all liability on such Indebtedness in connection with such      
Asset Disposition and (y) securities received by the Company or any Restricted  
Subsidiary from the transferee that are promptly converted by the Company or    
such Restricted Subsidiary into cash.                                           

Limitation on Affiliate Transactions. (a) The Company shall not, and shall  
not permit any Restricted Subsidiary to, enter into or permit to exist any      
transaction (including the purchase, sale, lease or exchange of any property    
or employee compensation arrangements) with any Affiliate of the Company (an    
"Affiliate Transaction") unless the terms thereof (1) are no less favorable to  
the Company or such Restricted Subsidiary than those that could be obtained at  
the time of such transaction in arm's-length dealings with a Person who is not  
such an Affiliate and (2) if such Affiliate Transaction involves an amount in   
excess of $2.0 million (i) are set forth in writing and (ii) have been          
approved by a majority of the members of the Board of Directors having no       
personal stake in such Affiliate Transaction. If such Affiliate Transaction     
involves an amount in excess of $10.0                                           

97  

S-4/A
99th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 99th
million, a fairness opinion must be obtained from an internationally            
recognized investment banking firm, appraisal firm or auditing firm with        
respect to the financial terms of such Affiliate Transaction.                   

(b) The provisions of the foregoing paragraph (a) shall not prohibit or     
apply to (i) any Restricted Payment permitted to be paid pursuant to the        
covenant described under "--Limitation on Restricted Payments," (ii) loans or   
advances to employees in the ordinary course of business and in an amount that  
does not exceed $1.0 million in the aggregate outstanding at any one time,      
(iii) the payment of reasonable fees to directors of the Company and its        
Restricted Subsidiaries who are not employees of the Company or its Restricted  
Subsidiaries, (iv) any Affiliate Transaction between the Company and a          
Restricted Subsidiary or between Restricted Subsidiaries, (v) any issuance of   
securities, or other payments, awards or grants in cash, securities or          
otherwise pursuant to, or the funding of, employment arrangements, stock        
options and stock ownership plans approved by the Board of Directors, (vi) the  
grant of stock options or similar rights to employees and directors of the      
Company pursuant to plans approved by the Board of Directors and (vii) any      
Affiliate Transaction entered into pursuant to agreements with labor unions.    

Limitation on the Sale or Issuance of Capital Stock of Restricted           
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital    
Stock of a Restricted Subsidiary, and shall not permit any such Restricted      
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of    
any of its Capital Stock except (i) to the Company or a Wholly Owned            
Subsidiary, (ii) the issuance and sale of directors' qualifying shares, (iii)   
if, immediately after giving effect to any such issuance, sale or other         
disposition, such Restricted Subsidiary would no longer constitute a            
Restricted Subsidiary and any Investment in such Person remaining after giving  
effect thereto would have been permitted to be made under the covenant          
described under "--Limitation on Restricted Payments" if made on the date of    
such issuance, sale or other disposition, (iv) if such sale or other            
disposition is of all or any portion of the Capital Stock of a Restricted       
Subsidiary and the Net Available Cash received from such sale or other          
disposition are applied in accordance with the covenant "--Limitation on Sales  
of Assets and Subsidiary Stock" or (v) to the extent the ownership by a Person  
other than the Company or a Wholly Owned Subsidiary is required by applicable   
law and except that any Restricted Subsidiary may issue or permit to exist (x)  
Preferred Stock issued to and held by the Company or a Wholly Owned             
Subsidiary; provided, however, that upon either (A) the transfer or other       
disposition by the Company or such Wholly Owned Subsidiary of any Preferred     
Stock so permitted to a Person other than the Company or another Wholly Owned   
Subsidiary or (B) such Wholly Owned Subsidiary ceasing to be a Wholly Owned     
Subsidiary, the provisions of this clause (x) will no longer be applicable to   
such Preferred Stock and such Preferred Stock will be deemed to have been       
issued at the time of such transfer or other disposition or such cessation;     
and (y) Preferred Stock issued by a Person prior to the time such Person        
becomes a Restricted Subsidiary (including by way of a merger or consolidation  
with another Restricted Subsidiary), which Preferred Stock was not issued in    
anticipation of and was outstanding prior to such transaction; provided,        
however, that on the date of such acquisition and after giving effect thereto,  
the Company would have been able to Incur at least $1.00 of additional          
Indebtedness pursuant to clause (a) of the covenant described under "--         
Limitation on Indebtedness."                                                    

Limitation on Guarantees by Restricted Subsidiaries. The Company shall not  
permit any Restricted Subsidiary, directly or indirectly, to Guarantee any      
Indebtedness of the Company which is pari passu with or subordinate in right    
of payment to the Notes ("Guaranteed Indebtedness"), unless (i) such            
Restricted Subsidiary simultaneously executes and delivers a Subsidiary         
Guaranty of payment of the Notes by such Restricted Subsidiary and (ii) such    
Restricted Subsidiary waives and will not in any manner whatsoever claim or     
take the benefit or advantage of, any rights of reimbursement, indemnity or     
subrogation or any other rights against the Company or any other Restricted     
Subsidiary as a result of any payment by such Restricted Subsidiary under its   
Subsidiary Guaranty; provided that this paragraph shall not be applicable to    
(1) any Guarantee by any Restricted Subsidiary that existed at the time such    
Person became a Restricted Subsidiary and was not Incurred in connection with,  
or in contemplation of, such Person becoming a Restricted Subsidiary or (2)     
Guarantees of Indebtedness under working capital facilities of the Company in   
an aggregate principal amount not exceeding $50.0 million at any time           
outstanding or, if less, the amount by which $150.0 million exceeds the         
aggregate outstanding principal amount of Indebtedness of the Company under     
clause (15) of paragraph (b) of the                                             

98  

S-4/A
100th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 100th
"Limitation on Indebtedness" which is secured by a Lien. If the Guaranteed      
Indebtedness is (A) pari passu with the Notes, then the Guarantee of such       
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the       
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of    
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guaranty   
at least to the extent that the Guaranteed Indebtedness is subordinated to the  
Notes.                                                                          

Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted      
Subsidiary may provide by its terms that it shall be automatically and          
unconditionally released and discharged upon (i) any sale, exchange or          
transfer, to any Person not an Affiliate of the Company, of all of the          
Company's and each Restricted Subsidiary's Capital Stock in, or all or          
substantially all the assets of, such Restricted Subsidiary (which sale,        
exchange or transfer is not prohibited by the Indenture) or (ii) the release    
or discharge of the Guarantee which resulted in the creation of such            
Subsidiary Guaranty, except a discharge or release by, or as a result of,       
payment under such Guarantee.                                                   

Limitation on Liens. The Company shall not, and shall not permit any        
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any  
Lien of any nature whatsoever on (i) any of its properties other than the       
Collateral Security (including Capital Stock of a Restricted Subsidiary),       
whether owned at the Issue Date or thereafter acquired, other than Permitted    
Liens, without effectively providing that the Notes shall be secured equally    
and ratably with (or prior to) the obligations so secured for so long as such   
obligations are so secured or (ii) any Collateral Security other than, with     
respect to any Collateral, Permitted Collateral Liens.                          

Limitation on Sale/Leaseback Transactions. The Company shall not, and shall 
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback          
Transaction with respect to any property unless (i) the Company or such         
Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount  
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction  
pursuant to the covenant described under "--Limitation on Indebtedness" and     
(B) create a Lien on such property securing such Attributable Debt without      
equally and ratably securing the Notes pursuant to the covenant described       
under "--Limitation on Liens," or (ii) the Sale/Leaseback Transaction is        
treated as an Asset Disposition and the Company applies the proceeds of such    
transaction in compliance with the covenant described under "--Limitation on    
Sales of Assets and Subsidiary Stock."                                          

Merger and Consolidation. The Company shall not consolidate with or merge   
with or into, or convey, transfer or lease, in one transaction or a series of   
transactions, all or substantially all of its assets to, any Person, unless:    
(i) the resulting, surviving or transferee Person (the "Successor Company")     
shall be a Person organized and existing under the laws of the United States,   
any state thereof or the District of Columbia and the Successor Company (if     
not the Company) shall expressly assume, by an indenture supplemental thereto,  
executed and delivered to the Trustee, in form satisfactory to the Trustee,     
all the obligations of the Company under the Notes, the Indenture and the       
Collateral Documents; (ii) immediately after giving effect to such transaction  
(and treating any Indebtedness which becomes an obligation of the Successor     
Company or any Subsidiary of the Company as a result of such transaction as     
having been Incurred by such Successor Company or such Subsidiary at the time   
of such transaction), no Default shall have occurred and be continuing; (iii)   
immediately after giving effect to such transaction, the Successor Company      
would be able to Incur an additional $1.00 of Indebtedness pursuant to          
paragraph (a) of the covenant described under "--Limitation on Indebtedness;"   
(iv) immediately after giving effect to such transaction, the Successor         
Company shall have Consolidated Net Worth in an amount that is not less than    
the Consolidated Net Worth of the Company immediately prior to such             
transaction; and (v) the Company shall have delivered to the Trustee an         
Officers' Certificate and an Opinion of Counsel, each stating that (A) such     
consolidation, merger or transfer and such supplemental indenture (if any)      
comply with the Indenture, (B) the Indenture and the Notes will constitute      
valid and legally binding obligations of the Successor Company and (C) the      
Indenture and the Collateral Documents are enforceable against the Successor    
Company in accordance with their terms.                                         

The Successor Company shall be the successor to the Company and shall       
succeed to, and be substituted for, and be bound by and obligated to pay the    
obligations of, and may exercise every right and power of, the                  

99  

S-4/A
101st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 101st
Company under the Indenture, but the predecessor Company in the case of a       
conveyance, transfer or lease shall not be released from the obligation to pay  
the principal of, interest on, and Special Interest, if any, with respect to,   
the Notes.                                                                      

The Company shall have the right, without the consent of the Holders, to    
redeem the Notes in whole, but not in part, at a redemption price equal to      
100% of the unpaid principal amount of the outstanding Notes plus the           
Applicable Premium as of, and accrued and unpaid interest and Special Interest  
if any, to, the date of redemption in the event that the Company enters into a  
binding agreement to consummate any transaction which would be prohibited by    
this covenant. The redemption date must occur prior to or simultaneously with   
the consummation of such prohibited transaction. Notice of redemption will be   
mailed to each Noteholder at such Noteholder's address of record not less than  
30 days nor more than 60 days prior to the redemption date. On and after the    
redemption date, interest will cease to accrue on the Notes.                    

Maintenance of Properties and Insurance. The Company will, and will cause   
its Subsidiaries to, maintain or cause to be maintained in good repair,         
working order and condition all Collateral and properties used or useful in     
their businesses; provided, however, that, subject to the requirements of the   
Collateral Documents, neither the Company nor any such Subsidiary shall be      
prevented from discontinuing those operations or suspending the maintenance of  
that Collateral or those properties which, in the reasonable judgment of the    
Company, are no longer necessary or useful in the conduct of the Company's      
business or that of its Subsidiaries.                                           

For so long as any Collateral or property is deemed to be useful to the     
conduct of the business of the Company or its Subsidiaries, the Company will,   
or will cause such Subsidiaries to, maintain appropriate insurance, in          
accordance with industry practice, on such Collateral and properties and as     
required under the provisions of the Collateral Documents.                      

Application for Rating. The Company will, within 180 days after the Issue   
Date, apply to Moody's Investors Service, Inc. and Standard & Poor's Ratings    
Group, to obtain a rating for the Notes.                                        

SEC Reports. The Company shall file with the Trustee and provide, or cause  
the Trustee to provide, holders of Notes, within 30 days after it files with,   
or furnishes to, the SEC, copies of its annual report and of the information,   
documents and other reports (or copies of such portions of any of the           
foregoing as the SEC may by rules and regulations prescribe) which the Company  
is required to file with the SEC pursuant to Section 13 or 15(d) of the         
Exchange Act or is required to furnish to the SEC pursuant to the Indenture.    
Notwithstanding that the Company may not be required to remain subject to the   
reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise  
report on an annual and quarterly basis on forms provided for such annual and   
quarterly reporting pursuant to rules and regulations promulgated by the SEC,   
the Indenture requires the Company to continue to file with, or furnish to,     
the SEC (i) within 90 days after the end of each fiscal year (or such shorter   
period as the SEC may in the future prescribe), annual reports on Form 10-K     
(or any successor form) containing the information required to be contained     
therein (or required in such successor form), including annual financial        
statements audited by an internationally recognized independent public          
accountant with respect to such year and prepared in accordance with GAAP and   
all applicable exhibits, (ii) within 45 days after the end of each of the       
first three fiscal quarters of each fiscal year (or such shorter period as the  
SEC may in the future prescribe), reports on Form 10-Q (or any successor form)  
containing substantially the same information required to be contained therein  
prepared in accordance with GAAP and (iii) promptly from time to time after     
the occurrence of an event required to be therein reported, such other reports  
on Form 8-K (or any successor form) containing substantially the same           
information required to be contained therein.                                   

Concurrently with the reports delivered pursuant to the preceding paragraph,
the Company is required to furnish the Trustee an officer's certificate to the  
effect that such officer has conducted or supervised a review of the            
activities of the Company and of performance under the Indenture and that, to   
the knowledge of such officer, based on such review, the Company has fulfilled  
all of its obligations under the Indenture or, if there has been a default,     
specifying each default known to him, its nature and status.                    

100 

S-4/A
102nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 102nd
Listing of Exchange Notes on the AMEX. The Exchange Notes have been approved
for listing on the American Stock Exchange. The Company has agreed to maintain  
such listing for so long as any of the Exchange Notes is outstanding.           

EVENTS OF DEFAULT                                                               

The following shall constitute "Events of Default" with respect to the      
Notes: (i) failure to pay the principal of, premium, if any, on, or Offer to    
Purchase repurchase amount, if any, with respect to, any Note when such         
amounts become due and payable at maturity, upon acceleration, redemption or    
otherwise; (ii) failure to pay interest or Special Interest on the Notes when   
due, where such failure continues for a 30-day period; (iii) a default in the   
observance or performance of certain covenants or agreements of the Company in  
the Collateral Documents that continues for the relevant period specified       
therein, including, but not limited to, the requirements described under "--    
Collateral Security--Maintenance Test;" (iv) the failure by the Company to      
comply with its obligations under "--Certain Covenants--Merger and              
Consolidation" above; (v) the failure by the Company to comply for 30 days      
after notice with any of its obligations in the covenants described above       
under "Repurchase of Notes Upon a Change in Control" or "Repurchase of Notes    
in Connection with Incurrence of Acquired Indebtedness" (other than, in each    
case, a failure to purchase Notes) and "--Certain Covenants" under "--          
Limitation on Indebtedness," "--Limitation on Restricted Payments," "--         
Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--  
Limitation on Sales of Assets and Subsidiary Stock (other than a failure to     
purchase Notes)," "--Limitation on Affiliate Transactions," "--Limitation on    
the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--          
Limitation on Guarantees by Restricted Subsidiaries," "--Limitation on Liens,"  
"--Limitation on Sale/Leaseback Transactions," "--Maintenance of Properties     
and Insurance," "--Application for Rating," "--SEC Reports" or "--Listing of    
Notes on the AMEX;" (vi) any representation or warranty of the Company in the   
Indenture or any of the Collateral Documents shall prove to have been untrue    
in any material respect when made and such default continues for the period     
and after the notice specified below, or a default in any material respect in   
the observance or performance of any other covenant or agreement of the         
Company in the Notes, the Indenture or any of the Collateral Documents, in      
each case that continues for the period and after the notice specified below;   
(vii) an event of default shall have occurred and be continuing under any       
other evidence of Indebtedness of the Company or any Significant Subsidiary     
(as defined in SEC Regulation S-X) of the Company, whether such Indebtedness    
now exists or is created hereafter, which event of default results in the       
acceleration of such Indebtedness which, together with any such other           
Indebtedness so accelerated, aggregates more than $15.0 million (the "cross     
acceleration provision"); (viii) any final judgment or judgments for payment    
of money in excess of $15.0 million in the aggregate shall be rendered against  
the Company or any Restricted Subsidiary and shall remain unstayed,             
unsatisfied and undischarged for the period and after the notice specified      
below; and (ix) certain events of bankruptcy, insolvency or reorganization      
involving the Company or any Restricted Subsidiary. The Company is required to  
deliver to the Trustee within 120 days after the end of each fiscal year of     
the Company, an officer's certificate stating whether or not the signatories    
know of any default by the Company under the Indenture and the Notes and, if    
any default exists, describing such default.                                    

A default under clause (v), (vi) or (viii) above or, with respect to a      
Restricted Subsidiary that is not a Significant Subsidiary, clause (ix) above,  
is not an Event of Default until the Trustee or the holders of at least 25% in  
principal amount of the then outstanding Notes notify the Company of the        
default and the Company does not cure the default within 60 days with respect   
to clauses (vi) or (viii), or within 30 days with respect to clause (v) or,     
with respect to a Restricted Subsidiary that is not a Significant Subsidiary,   
clause (ix), after receipt of the notice. The notice must specify the default,  
demand that it be remedied and state that the notice is a "Notice of Default."  
If the holders of 25% or more in principal amount of the then outstanding       
Notes request the Trustee to give such notice on their behalf, the Trustee      
shall do so.                                                                    

In case an Event of Default (other than an Event of Default resulting from  
bankruptcy, insolvency or reorganization of the Company or a Restricted         
Subsidiary that is a Significant Subsidiary) shall have occurred and be         
continuing, the Trustee, by notice to the Company, or the holders of 25% or     
more of the principal amount of the Notes then outstanding, by notice to the    
Company and the Trustee, may declare the principal amount of the Notes, plus    
accrued and unpaid interest and Special Interest, if any, to be immediately     
due and payable. In                                                             

101 

S-4/A
103rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 103rd
case an Event of Default resulting from certain events of bankruptcy,           
insolvency or reorganization of the Company or a Restricted Subsidiary that is  
a Significant Subsidiary shall occur, such amounts shall be due and payable     
without any declaration or any act on the part of the Trustee or the holders    
of the Notes. Such declaration of acceleration may be rescinded and past        
defaults may be waived by the holders of a majority of the principal amount of  
the Notes then outstanding upon conditions provided in the Indenture, except a  
default in the payment of principal, or interest on, or Special Interest, if    
any, with respect to, any Note cannot be waived or amended without payment of   
the amount then due otherwise than for the acceleration. Except to enforce the  
right to receive payment when due of principal, premium, if any, interest, and  
Special Interest, if any, no holder of a Note may institute any proceeding      
with respect to the Indenture or the Notes or for any remedy thereunder unless  
such holder has previously given to the Trustee written notice of a continuing  
Event of Default and unless the holders of 25% or more of the principal amount  
of the Notes then outstanding have requested the Trustee to institute           
proceedings in respect of such Event of Default and have offered the Trustee    
reasonable indemnity against loss, liability and expense to be thereby          
incurred, the Trustee has failed so to act for 60 days after receipt of the     
same and during such 60-day period the holders of a majority of the principal   
amount of the Notes then outstanding have not given the Trustee a direction     
inconsistent with the request. Subject to certain restrictions, the holders of  
a majority in principal amount of the Notes then outstanding will have the      
right to direct the time, method and place of conducting any proceeding for     
any remedy available to the Trustee with respect to the Collateral Security or  
otherwise or exercising any trust or power conferred on the Trustee. The        
Trustee, however, may refuse to follow any direction that conflicts with law    
or the Indenture, that is unduly prejudicial to the rights of any holder of a   
Note or that would involve the Trustee in personal liability and the Trustee    
may take any other action deemed proper by the Trustee which is not             
inconsistent with such direction.                                               

MODIFICATIONS AND WAIVERS OF THE INDENTURE                                      

Supplemental indentures modifying or amending the Indenture may be made by  
the Company and the Trustee with the consent of the holders of not less than a  
majority in aggregate principal amount of the then outstanding Notes;           
provided, however, that no such modification or amendment may, without the      
consent of the holders of each Note affected thereby, (a) extend the fixed      
maturity of any Note, reduce the rate or extend the time of payment of          
interest on, or Special Interest, if any, with respect to, any Note, reduce     
the principal amount, or premium, if any, on, or Special Interest, if any, (in  
each case, whether on redemption or otherwise) with respect to, any Note,       
change the time at which any Note may be redeemed as described under "--        
Redemptions" above, impair the right of a holder to institute suit for payment  
thereof, or change the place of payment of the Notes, or the currency in which  
the Notes are payable or make any change in any Subsidiary Guaranty that would  
adversely affect any holders of the Notes or (b) reduce the percentage of       
Notes, the consent of the holders of which is required for any modification or  
waiver. Without the consent of any holders of the Notes, the Company and the    
Trustee may amend or supplement the Notes, the Indenture or any Collateral      
Document to (i) provide for uncertificated Notes in addition to or in place of  
certificated Notes, (ii) provide for the assumption of the Company's            
obligations to holders of the Notes in the case of a merger or consolidation    
or transfer of all or substantially all of the Company's assets, (iii) comply   
with the TIA, or (iv) cure any ambiguity, defect or inconsistency, or make any  
other change, in each case provided that such action does not materially        
adversely affect the interests of the holders of the Notes.                     

The holders of a majority in aggregate principal amount of outstanding Notes
may waive any past default under the Indenture, except a default in the         
payment of principal, premium, if any, interest or Special Interest, if any,    
or default with respect to certain covenants under the Indenture.               

The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if   
such consent approves the substance of the proposed amendment. After the        
amendment under the Indenture becomes effective, the Company is required to     
mail to holders of the Notes a notice briefly describing such amendment.        
However, the failure to give such notice to all holders of the Notes, or any    
defect therein, will not impair or affect the validity of the amendment.        

102 

S-4/A
104th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 104th
DEFEASANCE                                                                      

The Company at any time may terminate all its obligations under the Notes,  
the Indenture and the Collateral Documents ("legal defeasance"), except for     
certain obligations, including those respecting the defeasance trust and        
obligations to register the transfer or exchange of the Notes, to replace       
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and      
paying agent in respect of the Notes. The Company at any time may terminate     
its obligations under "Redemptions," "Repurchase of Notes Upon a Change in      
Control" and under the covenants described under "--Certain Covenants" (other   
than the covenant described under "--Merger and Consolidation"), the operation  
of the cross acceleration provision, the bankruptcy provisions with respect to  
Restricted Subsidiaries, the judgment default provision, described under "--    
Events of Default" above and the limitations contained in clauses (iii) and     
(iv) of the first paragraph under "--Certain Covenants--Merger and              
Consolidation" above ("covenant defeasance").                                   

The Company may exercise its legal defeasance option notwithstanding its    
prior exercise of its covenant defeasance option. If the Company exercises its  
legal defeasance option, payment of the Notes may not be accelerated because    
of an Event of Default with respect thereto. If the Company exercises its       
covenant defeasance option, payment of the Notes may not be accelerated         
because of an Event of Default specified in clause (iii), (v), (vi), (vii),     
(viii) or (ix) (with respect only to Restricted Subsidiaries), under "--Events  
of Default" above or because of the failure of the Company to comply with       
clause (iii) or (iv) of the first paragraph under "--Certain Covenants--Merger  
and Consolidation" above.                                                       

In order to exercise either defeasance option, the Company must irrevocably 
deposit in trust with the Trustee money or U.S. Government Obligations for the  
payment of principal and interest and Special Interest, if any, on the Notes    
to redemption or maturity, as the case may be, and must comply with certain     
other conditions, including delivery to the Trustee of (i) an Opinion of        
Counsel to the effect that (x) holders of the Notes will not recognize income,  
gain or loss for federal income tax purposes as a result of such deposit and    
defeasance and will be subject to federal income tax on the same amounts and    
in the same manner and at the same times as would have been the case if such    
deposit and defeasance had not occurred (and, in the case of legal defeasance   
only, such Opinion of Counsel must be based on a ruling of the Internal         
Revenue Service or other change in applicable federal income tax law) and (y)   
the trust funds will not be subject to the effect of any applicable             
bankruptcy, insolvency, reorganization or similar law affecting creditors       
rights generally under any United States federal or state law and that the      
Trustee has a perfected security interest in such trust funds for the ratable   
benefit of the Holders and (ii) an opinion of counsel in the Company's          
jurisdiction of incorporation to the effect that holders of the Notes will not  
recognize income, gain or loss for tax purposes in such jurisdiction as a       
result of such deposit and defeasance and will be subject to taxes in such      
jurisdiction on the same amounts and in the same manner and at the same time    
as would have been the case if such deposit and defeasance had not occurred.    

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS        

No past, present or future director, officer, employee, agent, manager,     
stockholder or other affiliate, as such, of the Company shall have any          
liability for any obligations of the Company under the Notes or the Indenture   
or for any claim based on, in respect of, or by reason of, such obligations or  
their creation. Each holder of the Notes by accepting a Note waives and         
releases all such liability.                                                    

TRANSFER AND EXCHANGE                                                           

A holder may transfer or exchange the Notes in accordance with the          
Indenture. The Company may require a holder to, among other things, furnish     
appropriate endorsements and transfer documents and pay any taxes and fees      
required by law or permitted by the Indenture.                                  

The registered holder of a Note may be treated as the owner of it for all   
purposes.                                                                       

DELIVERY AND FORM                                                               

The Notes are issued in registered form.                                    

103 

S-4/A
105th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 105th
CONCERNING THE TRUSTEE                                                          

The Indenture contains certain limitations on the rights of the Trustee,    
should it become a creditor of the Company, to obtain payment of claims in      
certain cases or to realize on certain property received in respect of any      
such claim as security or otherwise. Subject to the TIA, the Trustee will be    
permitted to engage in other transactions; however, if it acquires any          
conflicting interest, as described in the TIA, it must eliminate such conflict  
or resign. The Trustee shall have a lien prior to the Notes on all money or     
property held or collected by the Trustee or otherwise distributable to         
holders of Notes (except money, securities or property held in trust to pay     
principal and/or interest on particular Notes) to secure the Company's payment  
and indemnity obligations to the Trustee (as trustee under the Indenture, as    
collateral agent under the Security Agreement (defined below) and the Note      
Pledge Agreement (defined below) and as slot trustee under the Slot Trust       
described below).                                                               

GOVERNING LAW                                                                   

The Indenture provides that it and the Notes will be governed by the laws of
the State of New York without regard to principles of conflict of laws.         

COLLATERAL SECURITY                                                             

Pursuant to a Pledge and Security Agreement between the Company and the     
Collateral Agent (the "Security Agreement"), the Acquired Slot Trust Agreement  
between the Company and the Collateral Agent, as slot trustee (the "Slot Trust  
Agreement"), the Master Sub-License Agreement between the Company and the       
Collateral Agent, as slot trustee (the "Master Sub-License Agreement") and the  
Note Pledge Agreement (collectively, the "Collateral Documents"), as            
applicable, the indebtedness evidenced by the Notes will be secured by a lien   
on (i) the Pledged Spare Parts (as defined below), (ii) a beneficial ownership  
certificate (the "Beneficial Interest Certificate") evidencing the Company's    
beneficial interest in 30 FAA-designated take-off and landing slots at          
Washington National Airport ("DCA") in Washington D.C. and (iii) the Pledged    
Collateral, the Pledged Spare Parts, the Beneficial Interest Certificate and    
the other collateral under the Pledge Agreement are sometimes referred to       
herein collectively as the "Collateral" and, together with the Pledged          
Collateral, the "Collateral Security."                                          

Spare Parts                                                                   

The term "Pledged Spare Parts" refers to the pool of aircraft spare parts   
including expendables, "pipeline" spares and capital units at locations in the  
United States designated from time to time by the Company at which the Pledged  
Spare Parts are located; provided that such designated locations (i) shall      
(except as described below under "--Use of Collateral; Release and Termination  
of Lien") at all times include the four locations in the United States at       
which are located the Company's highest dollar value of spare parts that may    
be pledged under the Security Agreement, and (ii) shall at no time exclude      
locations at which are located inventories of spare parts of the Company which  
are materially disproportionally newer or more valuable (as shown in the        
Company's system for tracking and valuing spare parts (the "Inventory Control   
System")) than the Pledged Spare Parts, in light of the aircraft types on       
which spare parts may be used. As of the Issue Date, the Pledged Spare Parts    
will constitute substantially all of the aircraft spare parts of the Company.   

Pledged Spare Parts include:                                                

1. Expendables, which are those Pledged Spare Parts that are used (consumed)
in the routine operation of an airline and are generally items which are used   
only once and then discarded such as gaskets, light bulbs, raw metal stock,     
general hardware and fabric;                                                    

2. "Pipeline" spares, which is a term used by the Company to refer to non-  
capital, rotable airframe and engine components; and                            

104 

S-4/A
106th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 106th
3. Capital units, which are those Pledged Spare Parts that will, subject to 
maintenance, repair and overhaul, normally last the life of the aircraft, such  
as spare control surfaces, landing gears, avionics units and engine             
accessories.                                                                    

In the day-to-day operation of the airline, the composition of its Pledged  
Spare Parts inventory is continually changing: new parts (including parts for   
new types of aircraft placed into service) are purchased and placed into        
stock; expendable parts are taken from inventory and utilized; used rotable     
and repairable units are removed from aircraft and placed in a hold status      
awaiting eventual repair; other rotables are sent to outside vendors for        
overhaul and processing; at the conclusion of the overhaul/repair process,      
inventory is either re-installed on aircraft, returned to stock for reuse; and  
spare parts no longer used or usable in the airline's operations may be         
scrapped or sold.                                                               

Slots                                                                         

The FAA designates certain congested airports in the United States as high  
density traffic airports. At such airports, the FAA determines the maximum      
hourly number of instrument flight rule ("IFR") take-offs and landings which    
may be reserved for use by air carriers and other aircraft operators. The       
authority granted by the FAA to conduct one IFR take-off or landing in a        
specified period, at one of these airports is referred to in the industry as a  
"slot." While the FAA has sanctioned the right to buy and sell slots, it has    
also been specific in stating that a slot does not represent a property right,  
but merely an operational authority. As such, slots are subject to complete     
control by the FAA and may be withdrawn without compensation at any time to     
fulfill the FAA's operational needs, including, but not limited to, providing   
slots for international or essential air service operations or eliminating      
slots. Further, FAA regulations provide that except in certain circumstances,   
the FAA shall recall any slots not utilized by an airline 80% of the time over  
a two consecutive month period. The FAA has proposed that this utilization      
requirement be increased to up to 90% under certain circumstances and with      
respect to certain slots. A total of 30 slots which TWA currently holds at DCA  
have been placed in a "Slot Trust" governed by a Slot Trust Agreement (the      
"Slots"). The Company's interest in the Slot Trust is evidenced by the          
Beneficial Interest Certificate which has been pledged to the Trustee under     
the Security Agreement. While TWA currently has sufficient slots to conduct     
its business and has in the past utilized such slots sufficiently to retain     
the right to use such slots, there can be no assurance that such slots,         
including one or more Slots, will not be revoked in the future by the FAA for   
any reason, including, but not limited to, TWA's failure to use such slots to   
the extent required now or in the future, or that such slots will be adequate   
for TWA's operations in the future. In addition, the FAA could lower or         
eliminate the value of a slot, including one or more Slots, by withdrawing it   
from the holder as part of a reallocation of slots, by creating additional      
Slots, by discounting the requirements for slots at DCA or at the affected      
hour or by amending or revoking the regulations or practices with respect to    
the sale, lease or transfer of slots. Such actions could adversely affect the   
value of the Collateral. The Company retains a reversionary interest in the     
Slots. In addition, the Slot Trust has sub-licensed the right to operate the    
Slots to TWA for a period equal to the term of the Notes, subject to the terms  
of the Master Sub-License Agreement. The Master Sub-License Agreement, subject  
to certain restrictions, permits TWA to, among other things, further sub-       
license, directly or indirectly, to other air carriers the right to use Slots.  
These transactions, which have been confirmed by the FAA, permit TWA to         
continue to operate the Slots.                                                  

Upon the acceleration of TWA's obligations under the terms of the Notes, the
Master Sub-License Agreement automatically will terminate, whereupon TWA could  
no longer have the right to operate the Slots and, subject to certain           
limitations, all of TWA's rights (other than its reversionary interest) with    
respect to operating the Slots would terminate.                                 

Upon the occurrence of an Event of Default under the Indenture and during   
the continuance thereof, TWA agrees to deliver to the Collateral Agent all      
consideration to be received by TWA after such Event of Default (other than     
the right to use a Slot as to which a person other than TWA is the operator of  
record at the FAA) in connection with any third party license of the right to   
operate any of the Slots.                                                       

105 

S-4/A
107th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 107th
Pledged Securities                                                            

The Indenture provides that upon the closing of the Offering, the Company   
deposit and pledge to the Trustee for the benefit of the Trustee and the        
holders of the Notes, cash, and/or purchase and so pledge the Pledged           
Securities in such amount as will when combined be sufficient (upon receipt of  
scheduled interest and principal payments of such securities, if any), to       
provide for payment in full of the first three scheduled interest payments on   
the Notes when and as due. The Company used approximately $23.1 million of the  
net proceeds of the Offering to make such deposit and/or acquire the Pledged    
Securities. The Pledged Collateral has been pledged by the Company to the       
Trustee for the benefit of the Trustee and the holders of Notes pursuant to     
the Note Pledge Agreement and is held by the Trustee in the Interest Escrow     
Account. Pursuant to the Note Pledge Agreement, immediately prior to an         
interest payment date on the Notes, the Company may either deposit with the     
Trustee from funds otherwise available to the Company cash sufficient to pay    
the interest scheduled to be paid on such date or the Company may direct the    
Trustee to release from the Interest Escrow Account proceeds sufficient to pay  
interest then due. In the event that the Company exercises the former option,   
the Note Pledge Agreement provides that the Company may thereafter direct the   
Trustee to release to the Company Pledged Collateral from the Interest Escrow   
Account in like amount.                                                         

Interest earned on the Pledged Securities will be added to the Interest     
Escrow Account. In the event that the Pledged Collateral held in the Interest   
Escrow Account exceeds the amount sufficient to provide for payment in full of  
the first three scheduled interest payments due on the Notes (or, in the event  
an interest payment or payments have been made, an amount sufficient to         
provide for payment in full of any interest payment remaining, up to and        
including the third scheduled interest payment), the Trustee will be permitted  
to release to the Company at the Company's request any such excess amount. The  
Notes are secured by a first priority security interest in the Pledged          
Collateral and in the Interest Escrow Account and, accordingly, the Pledged     
Collateral and the Interest Escrow Account also secure repayment of the         
principal amount of the Notes to the extent of such security.                   

Prior to the purchase of the Pledged Securities for the Interest Escrow     
Account, and prior to the release to the Company of any excess amount from the  
Interest Escrow Account with respect to or based on Pledged Securities, the     
Company delivered to the Trustee a written certification of a nationally        
recognized firm of independent public accountants selected by the Company       
which states that the Pledged Securities in the Interest Escrow Account         
together with the cash, if any, are sufficient upon receipt of scheduled        
interest and principal payments of such securities to provide for payment in    
full of the first three scheduled interest payments on the Notes when and as    
due. Under the Note Pledge Agreement, assuming that the Company makes the       
first three scheduled interest payments on the Notes in a timely manner, all    
of the Pledged Collateral will have been released from the Interest Escrow      
Account.                                                                        

Use of Collateral; Release and Termination of Lien                            

The Indenture and the Collateral Documents provide, among other things, that
the Company may (i) use and deal with the Collateral in any manner consistent   
with the Company's ordinary course of business, (ii) unless an Event of         
Default has occurred and is continuing, cause certain Collateral to be leased   
or subleased in accordance with the applicable Collateral Documents and (iii)   
unless an Event of Default has occurred and is continuing, cause Collateral to  
be released from the lien of the Security Agreement and the applicable          
Collateral Documents upon providing specified substitute collateral of equal    
or greater appraised value at the time of substitution, cash or U.S.            
Government Obligations and/or acquired or canceled Notes.                       

Upon the payment in full of all amounts outstanding under the Notes and the 
Indenture, the liens created by Collateral Documents will terminate.            

In addition, such Collateral Documents permit the release of the relevant   
Collateral from the lien created thereby if certain collateral coverage ratios  
are satisfied. Generally, the Company may dispose of Pledged Spare Parts in     
the ordinary course of its business so long as the value of the remaining       
Pledged Spare Parts (including                                                  

106 

S-4/A
108th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 108th
the value of all Pledged Spare Parts acquired subsequent to the issuance of     
the Notes and not previously disposed of) as determined by reference to the     
Inventory Control System (as defined) (adjusting the value of 747 and L-1011    
Pledged Spare Parts by a 31% reduction to reflect their lower appraised values  
due to the Company's phasing out of these aircraft types) is not less than 85%  
of their initial value as so determined as of November 30, 1997 (the "Spare     
Parts Threshold"). The Company maintains a system of tracking and valuing its   
aircraft spare parts, including the Pledged Spare Parts (the "Inventory         
Control System") based, in general, on historical costs, adjusted to the        
extent that the actual unit price paid for newly purchased spare parts varies   
20% more or less, or is $500 more or less, than such historical cost. The       
Spare Parts Threshold can be reduced by providing specified substitute          
collateral of equal or greater appraised value at the time of substitution,     
cash and/or acquired or canceled Notes. The Pledged Spare Parts do not include  
spare parts the purchase price of which has been financed and which have been   
pledged to secure such purchase money financing. However, the Company will not  
be permitted to pledge new spare parts to secure purchase money financing       
unless the Spare Parts Threshold is satisfied. The Collateral Documents also    
provide that at such time as the aggregate outstanding principal amount of the  
Notes has been reduced to $100.0 million, the Company will be entitled to the   
release of all of the Slots, subject to the conditions that (i) after giving    
effect to such release, the ratio of the aggregate fair market value of the     
Pledged Spare Parts (and permitted substitutes) (based on an appraisal not      
more than 20 months old and a current Company officer's certificate) to the     
aggregate outstanding principal amount of the Notes (less cash collateral),     
would equal or exceed 2.0 to 1 and (ii) no Event of Default or Default of the   
type described in clauses (ii), (v), (vi), (viii) or (ix) under the heading     
"Description of Notes--Events of Default") shall have occurred and be           
continuing. The Collateral Documents also provide that at such time as the      
aggregate outstanding principal amount of the Notes has been reduced to $60.0   
million, the Company will be entitled to reduce the number of designated        
locations for Pledged Spare Parts to the one or two locations in the United     
States at which are located the Company's highest dollar value of Pledged       
Spare Parts. The reduction of designated locations referred to in the           
immediately preceding sentence will occur on the first date, on or after the    
satisfaction of the foregoing Note retirement threshold, when (i) after giving  
effect to such release, the ratio of the aggregate fair market value of the     
Pledged Spare Parts at such remaining designated location or locations (based   
on an appraisal not more than 20 months old and a current Company certificate)  
to the aggregate outstanding principal amount of the Notes (less cash           
collateral), would equal or exceed 2.5 to 1 and (ii) no Event of Default or     
Default of the type described in clauses (ii), (v), (vi), (viii) or (ix) under  
the heading "Description of Notes--Events of Default") shall have occurred and  
be continuing.                                                                  

The Company will provide monthly reports of the Inventory Control System    
value of the Pledged Spare Parts to the Collateral Agent. Such value will       
include an adjustment to reflect a 31% discounted value for existing Parts      
related to L-1011 and 747 aircraft, since the Company has retired its last L-   
1011 aircraft as of September 1997 and intends to discontinue flying 747        
aircraft in February 1998.                                                      

The Company can sell Pledged Spare Parts in the ordinary course of business 
for any form of consideration at any time if the Spare Parts Threshold is met   
after giving effect to such sale. The Company can sell Pledged Spare Parts for  
cash in the ordinary course of business at any time if the cash is deposited    
with the Collateral Agent as cash collateral or the Spare Parts Threshold is    
met after giving effect to such sale. The Company can sell Pledged Spare Parts  
for cash other than in the ordinary course of business (i.e. sales or series    
of related sales for $10 million or more) if the cash is deposited as cash      
collateral with the Collateral Agent. Such cash collateral will be released if  
the ratio of the fair market value of Pledged Spare Parts and Slots to the      
aggregate principal balance of outstanding Notes (less cash collateral) is      
equal to at least 1.93 to 1, after giving effect to such release, as evidenced  
by a current (within 30 days of release) appraisal (the "Appraised Value        
Ratio"). Such appraisal may be a "desk top" appraisal, not involving a          
physical inspection of the Pledged Spare Parts, if it is based on a full        
appraisal conducted by the same appraiser within the 20 months preceding such   
"desk top" appraisal.                                                           

Maintenance Test. If the Inventory Control System value of Pledged Spare    
Parts as shown on any monthly report is less than 60% of the Inventory Control  
System value as of November 30, 1997, the Company must, within 60 days,         
provide an officers' certificate setting forth the calculation of the           
Appraised Value Ratio as of the date of such certificate, based on an           
appraisal which will be attached to such certificate. Such appraisal may be a   
"desk                                                                           

107 

S-4/A
109th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 109th
top" appraisal, not involving a physical inspection of the Pledged Spare        
Parts, if it is based on a full appraisal conducted by the same appraiser       
within the 20 months preceding such "desk top" appraisal. The appraisal must    
show the fair market values of all assets required for calculation of the       
Appraised Value Ratio and setting forth the Appraised Value Ratio, in each      
case as of a date no earlier than the last day of the month to which such       
inventory report relates. If the Appraised Value Ratio is less than 1.2 to 1,   
the Company must, within 30 days, make an Offer to Purchase Notes at 101% or    
provide additional Pledged Spare Parts, Slots or cash collateral (or any        
combination of the foregoing) to cause the Appraised Value Ratio to be at or    
above 1.2 to 1. Cash collateral provided to cause the Appraised Value Ratio to  
be at or above 1.2 to 1 may be released only if, after giving effect to such    
release, the Appraised Value Ratio is at least 1.5 to 1 as evidenced by an      
appraisal.                                                                      

Under the terms of the Collateral Documents, the Trustee, acting upon       
instructions from holders of at least 66 2/3% in aggregate principal amount of  
Notes then outstanding will determine the circumstances under and the manner    
in which the Collateral Security may be disposed of, including, but not         
limited to, the determination of whether to release all or any portion of the   
Collateral Security from the liens created by the Collateral Documents other    
than in accordance with the terms thereof. The holders of at least a majority   
in aggregate principal amount of the Notes then outstanding may determine       
whether and under what circumstances to foreclose on the Collateral Security.   
Upon any foreclosure, cash or other property realized by the Trustee will be    
applied first to pay the expenses of such foreclosure and fees and other        
amounts then payable to the Trustee under the Collateral Documents and the      
Indenture, and thereafter for the equal and ratable benefit of the holders pro  
rata to the aggregate principal amounts of Notes held by such holders. In       
connection with any release of Collateral Security, the Trustee shall           
determine whether they have received all documentation required by Section 314  
of the TIA (to the extent applicable) to permit such release.                   

Appraisals                                                                    

Simat, Helliesen & Eichner, Inc. ("SH&E") prepared appraisals, dated        
December 3, 1997 and November 17, 1997 (the " Appraisals"), of the Pledged      
Spare Parts, as constituted at August 31, 1997, and the Slots, respectively     
(such Pledged Spare Parts and Slots, collectively the "Appraised Assets"),      
which indicated fair market values, as therein defined, for such Collateral of  
$234.6 million and $36.0 million, respectively. In determining fair market      
value, SH&E, among other things, estimated the current fair market value for    
the sale thereof by a willing buyer and a willing seller, neither being under   
any pressure to complete the transaction. SH&E relied substantially upon        
previous valuations of the Slots made by them in 1994 and 1995, and the         
Pledged Spare Parts made by them in 1995, and, in part, on prior research and   
analysis to the extent deemed relevant. Among other things, SH&E also reviewed  
other prior sale transactions over a period of years in order to derive         
comparables, made certain limited inspections and samplings where deemed        
appropriate, performed telephone surveys of relevant industry sources and       
consulted with TWA's management to the extent deemed necessary or appropriate.  
The appraisals by SH&E are matters of opinion only, reflect the assumptions     
and limitations stated therein and in any event may not reflect actual          
realizable values to be obtained in connection with any exercise of remedies.   
The value of the Appraised Assets in the event of liquidation will likely be    
less than fair market value and could be considerably below such value          
depending on market and economic conditions, the rapidity with which such       
assets are sought to be sold, the availability of buyers, the existence of      
liens and/or claims with respect to such Collateral and similar factors. A      
substantial portion of the Pledged Spare Parts component of the Collateral      
consists of spare parts for Lockheed L-1011 and Boeing 747 aircraft. The        
Company retired its last L-1011 aircraft in September 1997 and its last 747     
aircraft is scheduled to leave active service in February 1998, which factors   
have been taken into consideration in determining the fair market value of the  
spare parts relating to such aircraft in the appraisal. In addition, given      
that the Collateral Documents contain provisions permitting the use, release,   
substitution and sale of Collateral, the composition and amount of Collateral   
will continually change. Accordingly, there can be no assurances that the       
proceeds of any sale of Collateral pursuant to the Indenture and Collateral     
Documents following a default would be sufficient to satisfy all payments due   
on the Notes. If such proceeds were not sufficient to repay all such amounts    
due on the Notes, then holders (to the extent not repaid from the proceeds of   
the sale of Collateral) would have only an unsecured claim against the          
Company's remaining assets. In addition, the ability of holders to realize      
upon the Collateral                                                             

108 

S-4/A
110th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 110th
may be subject to certain federal bankruptcy law limitations and, due to the    
nature of the Collateral (particularly the Slots), significant restrictions     
imposed by governmental authorities including the DOT and FAA.                  

FILING AND PERFECTION REQUIREMENTS FOR COLLATERAL SECURITY                      

The security interest in the Collateral Security has been duly perfected    
generally in accordance with applicable federal, state and local laws. The      
transfer of Slots to the Slot Trust was confirmed by the FAA and has been       
noted by the FAA in its records.                                                

CERTAIN BANKRUPTCY LIMITATIONS                                                  

The right of the Trustee to repossess and dispose of the Collateral         
Security, or otherwise to exercise rights or remedies with respect to the       
Collateral, upon the occurrence of an Event of Default is likely to be          
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding  
were to be commenced by or against the Company prior to the date when, or       
possibly even after, the Trustee has effected any such action. Under            
bankruptcy law, secured creditors such as the Holders are prohibited from       
repossessing their security from a debtor in a bankruptcy case, or from         
disposing of security repossessed from such debtor, without bankruptcy court    
approval. Moreover, bankruptcy law permits the debtor to continue to retain     
and to use collateral even though the debtor is in default under the            
applicable debt instruments, provided generally that the secured creditor is    
given "adequate protection." The meaning of the term "adequate protection" may  
vary according to circumstances, but it is intended in general to protect the   
value (as determined by the Bankruptcy Court) of the secured creditor's         
interest in the collateral and may include cash payments or the granting of     
additional security, if and at such times as the court in its discretion        
determines, for any diminution in the value of the collateral as a result of    
the stay of repossession or disposition or any use of the collateral by the     
debtor during the pendency of the bankruptcy case. In view of the lack of a     
precise definition of the term "adequate protection" and the broad              
discretionary powers of a bankruptcy court, it is impossible to predict how     
long payments under the Notes could be delayed following commencement of a      
bankruptcy case, whether or when the Trustee could repossess or dispose of the  
Collateral Security or whether or to what extent Holders would be compensated   
for any delay in payment or loss or value of the Collateral Security through    
the requirement of "adequate protection." Furthermore, in the event that the    
bankruptcy court determines the value of the Collateral Security is not         
sufficient to repay all amounts due on the Notes, the Holders would hold        
"undersecured claims." Applicable federal bankruptcy laws do not permit the     
payment and/or accrual of interest, costs and attorney's fees for               
"undersecured claims" during the pendency of a debtor's bankruptcy case.        

CERTAIN DEFINITIONS                                                             

"Acquired Indebtedness" means Indebtedness of a Person existing at the time 
such Person became a Restricted Subsidiary and not Incurred in connection       
with, or in contemplation of, such Person becoming a Restricted Subsidiary.     

"Additional Assets" means (i) any property or assets utilized in the airline
business or any business that is substantially related, ancillary or            
complementary thereto (including an Investment in any Person engaged in any     
such business); (ii) the Capital Stock of a Person that becomes a Restricted    
Subsidiary as a result of the acquisition of such Capital Stock by the Company  
or another Restricted Subsidiary or (iii) Capital Stock constituting a          
minority interest in any Person that at such time is a Restricted Subsidiary.   

"Affiliate" of any specified Person means any other Person, directly or     
indirectly, controlling or controlled by or under direct or indirect common     
control with such specified Person. For the purposes of this definition,        
"control" when used with respect to any Person means the power to direct the    
management and policies of such Person, directly or indirectly, whether         
through the ownership of voting securities, by contract or otherwise; and the   
terms "controlling" and "controlled" have meanings correlative to the           
foregoing. For purposes of the provisions described under "--Certain            
Covenants--Limitation on Restricted Payments", "--Certain Covenants--           
Limitation on Affiliate Transactions", and "--Certain Covenants--Limitation on  
Sales of Assets and                                                             

109 

S-4/A
111th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 111th
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of     
Capital Stock representing 10% or more of the total voting power of the Voting  
Stock (on a fully diluted basis) of the Company or of rights or warrants to     
purchase such Capital Stock (whether or not currently exercisable) and any      
Person who would be an Affiliate of any such beneficial owner pursuant to the   
first sentence hereof.                                                          

"Aircraft Acquisition Debt" means Indebtedness Incurred by the Company or   
any of its Restricted Subsidiaries in connection with an acquisition of         
aircraft, related engines or spare engines, spare parts or other related        
equipment (including ground equipment) which Indebtedness either constitutes    
all or part of the purchase price thereof, or is Incurred prior to, at the      
time of or within one year after the acquisition thereof for the purpose of     
financing or refinancing part of the purchase price thereof, and which          
equipment was not owned by the Company or a Restricted Subsidiary of the        
Company prior to such purchase provided, however, that in either case the       
proportion (expressed as a percentage) of such Indebtedness to the purchase     
price or Appraised Value of such equipment at the time of such financing does   
not exceed 90% (except that the foregoing limitation shall not apply to         
aircraft under order or option on the Issue Date for which vendor financing     
(including by way of vendor guarantee) is initially obtained).                  

"Applicable Premium" means, with respect to a Note at any redemption or     
repurchase date, the greater of (i) 1.0% of the principal amount of such Note   
and (ii) the excess of (A) the present value on such redemption or repurchase   
date of the principal amount of such Note plus all required interest and        
Special Interest payments due on such Note through its Stated Maturity, such    
present value computed using a discount rate equal to the Treasury Rate plus    
50 basis points over (B) the principal amount of such Note.                     

"Appraised Value" means the fair market sale value as of a specified date of
the appraised assets that would be obtained in an arm's length transaction      
between an informed and willing seller under no compulsion to sell and an       
informed and willing buyer under no compulsion to buy, as determined by an      
Independent Appraiser.                                                          

"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or   
any Restricted Subsidiary, including any disposition by means of a merger,      
consolidation or similar transaction (each referred to for the purposes of      
this definition as a "disposition") in one transaction or a series of related   
transactions, of (i) any shares of Capital Stock of a Restricted Subsidiary     
(other than directors' qualifying shares or shares required by applicable law   
to be held by a Person other than the Company or a Restricted Subsidiary),      
(ii) all or substantially all the assets of any division or line of business    
of the Company or any Restricted Subsidiary or (iii) sales of aircraft,         
engines and related equipment (and leasehold interests therein) and any other   
assets of the Company or any Restricted Subsidiary outside of the ordinary      
course of business of the Company or such Restricted Subsidiary; provided that  
"Asset Disposition" shall not include (A) any sale, lease, transfer or other    
disposition by a Restricted Subsidiary to the Company or by the Company or a    
Restricted Subsidiary to a Restricted Subsidiary, (B) any sale, lease,          
transfer or other disposition that constitutes a Restricted Payment permitted   
by the covenant described under "--Certain Covenants--Limitation on Restricted  
Payments", (C) any sale, lease, transfer or other dispositions of               
(i) inventory, (ii) Receivables or (iii) other current assets in the ordinary   
course of business, (D) any sale, lease, transfer or other dispositions of      
assets for consideration at least equal to the fair market value of the assets  
sold or disposed of, to the extent that the consideration received would        
constitute Additional Assets, (E) any sale, lease, transfer or other            
disposition of the Company's direct or indirect interest in Worldspan, (F) any  
sale, lease, transfer or other disposition of aircraft and related engines,     
spare parts and equipment (including ground equipment) or leasehold interests   
therein which are obsolete or which have been grounded and held for resale or   
are of a type no longer used by the Company in the ordinary course of           
business, (G) any Sale/Leaseback Transaction permitted by clause (i) of the     
"Sale and Leaseback" covenant, (H) any sale, lease, transfer or other           
disposition of maintenance bases, hangars and engine shops or (I) any           
disposition of Collateral Security permitted by the Collateral Documents.       

"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at 
the time of determination, the present value (discounted at the interest rate   
borne by the Notes) of the total obligations of the lessee for rental           

110 

S-4/A
112th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 112th
payments during the remaining term of the lease included in such                
Sale/Leaseback Transaction (including any period for which such lease has been  
extended).                                                                      

"Average Life" means, as of the date of determination, with respect to any  
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum  
of the products of numbers of years from the date of determination to the       
dates of each successive scheduled principal payment of such Indebtedness or    
redemption or similar payment with respect to such Preferred Stock multiplied   
by the amount of such payment by (ii) the sum of all such payments.             

"Board of Directors" means the Board of Directors of the Company or any     
committee of such board duly authorized to act in respect of any particular     
matter.                                                                         

"Business Day" means each day which is not a Legal Holiday.                 

"Capital Lease Obligations" means an obligation that is required to be      
classified and accounted for as a capital lease for financial reporting         
purposes in accordance with GAAP, and the amount of Indebtedness represented    
by such obligation shall be the capitalized amount of such obligation           
determined in accordance with GAAP; and the Stated Maturity thereof shall be    
the date of the last payment of rent or any other amount due under such lease   
prior to the first date upon which such lease may be terminated by the lessee   
without payment of a penalty.                                                   

"Capital Stock" of any Person means any and all shares interests, rights to 
purchase, warrants, options, participations or other equivalents of or          
interests in (however designated) equity of such Person, including any          
Preferred Stock, but excluding any debt securities convertible into such        
equity.                                                                         

"Change in Control" means the occurrence of any of the following events: (i)
any person (including any entity or group deemed to be a "person" under         
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the     
direct or indirect beneficial owner (as determined in accordance with Rule      
13d-3 under the Exchange Act) of shares of the Company's Capital Stock          
representing greater than 50% of the total voting power of all shares of        
Capital Stock of the Company entitled to vote in the election of directors      
under ordinary circumstances or to elect a majority of the Board of Directors,  
(ii) the Company sells, transfers or otherwise disposes of all or               
substantially all of its assets, (iii) when, during any period of 12            
consecutive months after the Issue Date, individuals who at the beginning of    
any such 12-month period constituted the Board of Directors (together with any  
new directors whose election by such Board or whose nomination for election by  
the stockholders of the Company was approved by a vote of a majority of the     
directors still in office entitled to vote with respect to such nomination who  
were either directors at the beginning of such period or whose election or      
nomination for election was previously so approved, but excluding any of the    
individuals who at the beginning of such 12-month period constituted such       
Board but who ceased to be a member of the Board pursuant to the Company's      
mandatory retirement policy as in effect as of the Issue Date), cease for any   
reason to constitute a majority of the Board of Directors then in office or     
(iv) the date of the consummation of the merger or consolidation of the         
Company with another corporation where the stockholders of the Company,         
immediately prior to the merger or consolidation, would not beneficially own,   
immediately after the merger or consolidation, shares entitling such            
stockholders to 50% or more of all votes (without consideration of the rights   
of any class of stock to elect directors by a separate class vote) to which     
all stockholders of the corporation issuing cash or securities in the merger    
or consolidation would be entitled in the election of directors or where        
members of the Board of Directors, immediately prior to the merger or           
consolidation, would not, immediately after the merger or consolidation,        
constitute a majority of the board of directors of the corporation issuing      
cash or securities in the merger or consolidation.                              

"Code" means the Internal Revenue Code of 1986, as amended.                 

"Collateral Agent" means the Trustee.                                       

111 

S-4/A
113th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 113th
"Consolidated Coverage Ratio" as of any date of determination means the     
ratio of (i) the aggregate amount of EBITDA for the period of the most recent   
four consecutive fiscal quarters ending prior to the date of such               
determination for which financial statements have been made publicly available  
to (ii) Consolidated Fixed Charges for such four fiscal quarters; provided,     
however, that                                                                   

(1) if the Company or any Restricted Subsidiary has Incurred any        
Indebtedness since the beginning of such period that remains outstanding or 
if the transaction giving rise to the need to calculate the Consolidated    
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and        
Consolidated Fixed Charges for such period shall be calculated after giving 
effect on a pro forma basis to such Indebtedness as if such Indebtedness    
had been Incurred on the first day of such period and the discharge of any  
other Indebtedness repaid, repurchased, defeased or otherwise discharged    
with the proceeds of such new Indebtedness as if such discharge had         
occurred on the first day of such period,                                   

(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of    
such period or if any Indebtedness is to be repaid, repurchased, defeased   
or otherwise discharged (in each case other than Indebtedness Incurred      
under any revolving credit facility unless such Indebtedness has been       
permanently repaid and has not been replaced) on the date of the            
transaction giving rise to the need to calculate the Consolidated Coverage  
Ratio, EBITDA and Consolidated Fixed Charges for such period shall be       
calculated on a pro forma basis as if such discharge had occurred on the    
first day of such period,                                                   

(3) if since the beginning of such period the Company or any Restricted 
Subsidiary shall have made any Asset Disposition, the EBITDA for such       
period shall be reduced by an amount equal to the EBITDA (if positive)      
directly attributable to the assets which are the subject of such Asset     
Disposition for such period, or increased by an amount equal to the EBITDA  
(if negative), directly attributable thereto for such period and            
Consolidated Fixed Charges for such period shall be reduced by an amount    
equal to the Consolidated Fixed Charges directly attributable to any        
Indebtedness of the Company or any Restricted Subsidiary repaid,            
repurchased, defeased or otherwise discharged with respect to the Company   
and its continuing Restricted Subsidiaries in connection with such Asset    
Disposition for such period (or, if the Capital Stock of any Restricted     
Subsidiary is sold, the Consolidated Fixed Charges for such period directly 
attributable to the Indebtedness of such Restricted Subsidiary to the       
extent the Company and its continuing Restricted Subsidiaries are no longer 
liable for such Indebtedness after such disposition),                       

(4) if since the beginning of such period the Company or any Restricted 
Subsidiary (by merger or otherwise) shall have made an Investment in any    
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) 
or an acquisition of assets, including any acquisition of assets occurring  
in connection with a transaction requiring a calculation to be made         
hereunder, which constitutes all or substantially all of an operating unit  
of a business, EBITDA and Consolidated Fixed Charges for such period shall  
be calculated after giving pro forma effect thereto (including the          
Incurrence of any Indebtedness) as if such Investment or acquisition        
occurred on the first day of such period, and                               

(5) if since the beginning of such period any Person (that subsequently 
became a Restricted Subsidiary or was merged with or into the Company or    
any Restricted Subsidiary since the beginning of such period) shall have    
made any Asset Disposition, any Investment or acquisition of assets that    
would have required an adjustment pursuant to clause (3) or (4) above if    
made by the Company or a Restricted Subsidiary during such period, EBITDA   
and Consolidated Fixed Charges for such period shall be calculated after    
giving pro forma effect thereto as if such Asset Disposition, Investment or 
acquisition occurred on the first day of such period.                       

For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto     
and the amount of Consolidated Fixed Charges associated with any Indebtedness   
Incurred in connection therewith, the pro forma calculations shall be           
determined in good faith by a responsible financial or accounting officer of    
the Company. If any Indebtedness bears a floating rate of interest and is       
being given pro forma effect, the interest of such Indebtedness shall be        
calculated as if the rate in effect on the date of determination had been the   
applicable rate for the entire period (taking into account any                  

112 

S-4/A
114th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 114th
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate   
Agreement has a remaining term in excess of one year).                          

"Consolidated Fixed Charges" means, for any period, the sum of (i) the      
Consolidated Interest Expense for such period plus (ii) dividends declared      
during such period with respect to Preferred Stock that is Disqualified Stock.  

"Consolidated Interest Expense" means, for any period, the total interest   
expense of the Company and its consolidated Restricted Subsidiaries,            
determined on a consolidated basis in accordance with GAAP, plus, to the        
extent not included in such total interest expense, and to the extent incurred  
by the Company or its Restricted Subsidiaries, without duplication, (i)         
interest expense attributable to capital leases, (ii) amortization of debt      
discount and debt issuance cost, (other than in respect of the Notes) (iii)     
capitalized interest, (iv) non-cash interest expense, (v) commissions,          
discounts and other fees and charges owed with respect to letters of credit     
and bankers' acceptance financing, (vi) net costs associated with Hedging       
Obligations (including amortization of fees), (vii) interest incurred in        
connection with Investments in discontinued operations, (viii) interest         
accruing on any Indebtedness of any other Person to the extent such             
Indebtedness is Guaranteed by (or secured by the assets of) the Company or any  
Restricted Subsidiary and (ix) the cash contributions to any employee stock     
ownership plan or similar trust to the extent such contributions are used by    
such plan or trust to pay interest or fees to any Person (other than the        
Company) in connection with Indebtedness Incurred by such plan or trust.        

"Consolidated Net Income" means, for any period, the net income of the      
Company and its consolidated Subsidiaries; provided, however, that there shall  
not be included in such Consolidated Net Income:                                

(i) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that (A) subject to the exclusion    
contained in clause (iv) below, the Company's equity in the net income of   
any such Person for such period shall be included in such Consolidated Net  
Income up to the aggregate amount of cash actually distributed by such      
Person during such period to the Company or a Restricted Subsidiary as a    
dividend or other distribution (subject, in the case of a dividend or other 
distribution paid to a Restricted Subsidiary, to the limitations contained  
in clause (iii) below) and (B) the Company's equity in a net loss of any    
such Person for such period shall be included in determining such           
Consolidated Net Income;                                                    

(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to    
the date of such acquisition;                                               

(iii) any net income of any Restricted Subsidiary if such Restricted    
Subsidiary is subject to restrictions, directly or indirectly, on the       
payment of dividends or the making of distributions by such Restricted      
Subsidiary, directly or indirectly, to the Company, except that (A) subject 
to the exclusion contained in clause (iv) below, the Company's equity in    
the net income of any such Restricted Subsidiary for such period shall be   
included in such Consolidated Net Income up to the aggregate amount of cash 
actually distributed by such Restricted Subsidiary during such period to    
the Company or another Restricted Subsidiary as a dividend or other         
distribution (subject, in the case of a dividend or other distribution paid 
to another Restricted Subsidiary, to the limitation contained in this       
clause) and (B) the Company's equity in a net loss of any such Restricted   
Subsidiary for such period shall be included in determining such            
Consolidated Net Income;                                                    

(iv) any gain or loss realized upon the sale or other disposition of any
assets of the Company or its consolidated Subsidiaries (including pursuant  
to any sale-and-leaseback arrangement) which is not sold or otherwise       
disposed of in the ordinary course of business and any gain or loss         
realized upon the sale or other disposition of any Capital Stock of any     
Person;                                                                     

(v) extraordinary, unusual and non-recurring gains or losses; and       

 (vi) the cumulative effect of a change in accounting principles since the
Issue Date.                                                                 

113 

S-4/A
115th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 115th
Notwithstanding the foregoing, for the purposes of the covenant described   
under "Certain Covenants--Limitation on Restricted Payments" only, there shall  
be excluded from Consolidated Net Income any dividends, repayments of loans or  
advances or other transfers of assets from Unrestricted Subsidiaries to the     
Company or a Restricted Subsidiary to the extent such dividends, repayments or  
transfers increase the amount of Restricted Payments permitted under such       
covenants pursuant to clause (a)(3)(C) thereof.                                 

"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a         
consolidated basis in accordance with GAAP, as of the end of the most recent    
fiscal quarter of the Company for which financial statements have been made     
publicly available prior to the taking of any action for the purpose of which   
the determination is being made, as (i) the par or stated value of all          
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital   
surplus relating to such Capital Stock plus (iii) any retained earnings or      
earned surplus less (A) any accumulated deficit and (B) only to the extent      
otherwise included in the amount specified in clauses (i), (ii) or (iii) of     
this definition, any amounts attributable to Disqualified Stock.                

"Currency Agreement" means in respect of a Person any foreign exchange      
contract, currency swap agreement or other similar agreement to which such      
Person is a party or a beneficiary designed to protect such Person against      
fluctuations in currency values and not for the purpose of speculation.         

"Default" means any event which is, or after notice or passage of time or   
both would be, an Event of Default.                                             

"Disqualified Stock" means, with respect to any Person, any Capital Stock   
which by its terms (or by the terms of any security into which it is            
convertible or for which it is exchangeable) or upon the happening of any       
event (i) matures or is mandatorily redeemable pursuant to a sinking fund       
obligation or otherwise prior to the first anniversary of the Stated Maturity   
of the Notes, (ii) is convertible or exchangeable for Indebtedness with a       
Stated Maturity prior to the first anniversary of the Stated Maturity of the    
Notes or Disqualified Stock or (iii) is redeemable at the option of the holder  
thereof, in whole or in part, in each case on or prior to the first             
anniversary of the Stated Maturity of the Notes; provided, however, that any    
Capital Stock that would not constitute Disqualified Stock but for provisions   
thereof giving holders thereof the right to require such Person to repurchase   
or redeem such Capital Stock upon the occurrence of an "asset disposition" or   
"change of control" occurring prior to the first anniversary of the Stated      
Maturity of the Notes shall not constitute Disqualified Stock if the "asset     
disposition" or "change of control" provisions applicable to such Capital       
Stock are not more favorable to the holders of such Capital Stock than the      
provisions described under "--Certain Covenants --Limitation on Sales of        
Assets and Subsidiary Stock" and "Repurchase of Notes Upon Change in Control".  

"EBITDA" for any period means the sum of Consolidated Net Income, plus      
Consolidated Interest Expense plus the following to the extent deducted in      
calculating such Consolidated Net Income: (a) all income tax expense of the     
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense  
of the Company and its consolidated Restricted Subsidiaries, (c) amortization   
expense of the Company and its consolidated Restricted Subsidiaries (excluding  
amortization expense attributable to a prepaid cash item that was paid in a     
prior period) and (d) all other noncash charges of the Company and its          
consolidated Restricted Subsidiaries (excluding any such noncash charge to the  
extent that it represents an accrual of or reserve for cash expenditures in     
any future period), in each case for such period. Notwithstanding the           
foregoing, the provision for taxes based on the income or profits of, and the   
depreciation and amortization and noncash charges of, a Restricted Subsidiary   
shall be added to Consolidated Net Income to compute EBITDA only to the extent  
(and in the same proportion) that the net income of such Restricted Subsidiary  
was included in calculating Consolidated Net Income and only if a               
corresponding amount would be permitted at the date of determination to be      
dividended to the Company by such Restricted Subsidiary without prior approval  
(that has not been obtained), pursuant to the terms of its charter and all      
agreements, instruments, judgments, decrees, orders, statutes, rules and        
governmental regulations applicable to such Restricted Subsidiary or its        
stockholders.                                                                   

"Exchange Act" means the Securities Exchange Act of 1934, as amended.       

114 

S-4/A
116th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 116th
"Fuel Protection Agreements" means in respect to a Person any fuel          
protection agreement or other financial agreement or arrangement designed to    
protect such Person against fluctuations in market prices of aircraft fuels     
and not for the purpose of speculation.                                         

"GAAP" means generally accepted accounting principles in the United States  
of America as in effect as of the Issue Date, including those set forth in (i)  
the opinions and pronouncements of the Accounting Principles Board of the       
American Institute of Certified Public Accountants, (ii) statements and         
pronouncements of the Financial Accounting Standards Board, (iii) such other    
statements by such other entity as approved by a significant segment of the     
accounting profession and (iv) the rules and regulations of the SEC governing   
the inclusion of financial statements (including pro forma financial            
statements) in periodic reports required to be filed pursuant to Section 13 of  
the Exchange Act, including opinions and pronouncements in staff accounting     
bulletins and similar written statements from the accounting staff of the SEC.  

"Guarantee" means any obligation, contingent or otherwise, of any Person    
directly or indirectly guaranteeing any Indebtedness of any Person and any      
obligation, direct or indirect, contingent or otherwise, of such Person (i) to  
purchase or pay (or advance or supply funds for the purchase or payment of)     
such Indebtedness or other obligation of such Person (whether arising by        
virtue of partnership arrangements, or by agreements to keep-well, to purchase  
assets, goods, securities or services, to take-or-pay or to maintain financial  
statement condition or otherwise) or (ii) entered into for the purpose of       
assuring in any other manner the obligee of such Indebtedness of the payment    
thereof or to protect such obligee against loss in respect thereof (in whole    
or in part); provided, however, that the term "Guarantee" shall not include     
endorsements for collection or deposit in the ordinary course of business. The  
term "Guarantee" used as a verb has a corresponding meaning. The term           
"Guarantor" shall mean any Person Guaranteeing any obligation.                  

"Hedging Obligations" of any Person means the obligations of such Person    
pursuant to any Interest Rate Agreement, Fuel Protection Agreement or Currency  
Agreement.                                                                      

"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.                                                       

"Incur" means issue, assume, Guarantee, incur or otherwise become liable    
for; provided, however, that any Indebtedness or Capital Stock of a Person      
existing at the time such Person becomes a Subsidiary (whether by merger,       
consolidation, acquisition or otherwise) shall be deemed to be Incurred by      
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"      
when used as a noun shall have a correlative meaning. The accretion of          
principal of a non-interest bearing or other discount security shall be deemed  
the Incurrence of Indebtedness. Neither the accrual of interest, the accretion  
of original issue discount or fluctuations in exchange rates of currencies      
shall be considered an Incurrence of Indebtedness. Any change in GAAP that      
results in an obligation of such Person that exists at such time becoming       
Indebtedness shall not be considered an Incurrence of Indebtedness.             

"Indebtedness" means, with respect to any Person on any date of             
determination (without duplication):                                            

(i) the principal of and premium (if any) in respect of (A) indebtedness
of such Person for money borrowed and (B) indebtedness evidenced by notes,  
debentures, bonds or other similar instruments for the payment of which     
such Person is responsible or liable, including, in each case, any premium  
on such indebtedness to the extent such premium has become due and payable; 

(ii) all Capital Lease Obligations of such Person;                      

(iii) all obligations of such Person issued or assumed as the deferred  
purchase price of property, all conditional sale obligations of such Person 
and all obligations of such Person under any title retention agreement (but 
excluding trade accounts payable arising in the ordinary course of          
business);                                                                  

(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction  
(other than obligations with respect to letters of credit securing          
obligations (other than obligations described in clauses (i) through (iii)  
above) entered into in the                                                  

115 

S-4/A
117th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 117th
ordinary course of business of such Person to the extent such letters of    
credit are not drawn upon or, if and to the extent drawn upon, such drawing 
is reimbursed no later than the tenth Business Day following receipt by     
such Person of a demand for reimbursement following payment on the letter   
of credit);                                                                 

(v) the amount of all obligations of such Person with respect to the    
redemption, repayment or other repurchase of any Disqualified Stock or,     
with respect to any Subsidiary of such Person, the liquidation preference   
with respect to, any Preferred Stock (but excluding, in each case, any      
accrued dividends);                                                         

(vi) all obligations of the type referred to in clauses (i) through (v) 
above of other Persons and all dividends of other Persons for the payment   
of which, in either case, such Person is responsible or liable, directly or 
indirectly, as obligor, guarantor or otherwise, including by means of any   
Guarantee;                                                                  

 (vii) all obligations of the type referred to in clauses (i) through (vi)
above of other Persons secured by any Lien on any property or asset of such 
Person (whether or not such obligation is assumed by such Person), the      
amount of such obligation being deemed to be the lesser of the value of     
such property or assets or the amount of the obligation so secured; and     

(viii) to the extent not otherwise included in this definition, Hedging 
Obligations of such Person.                                                 

The "amount" or "principal amount" of Indebtedness at any time of           
determination as used herein represented by (a) any contingent Indebtedness,    
shall be the maximum principal amount thereof, (b) any Indebtedness issued at   
a price that is less than the principal amount at maturity thereof, shall be    
the amount of the liability in respect thereof determined in accordance with    
GAAP and (c) any Disqualified Stock, shall be the maximum fixed redemption or   
repurchase price in respect thereof.                                            

"Independent Appraiser" means a Person (i) engaged in a business which      
includes appraising aircraft and assets and rights related to the operation     
and maintenance of aircraft from time to time and (ii) who (a) is in fact       
independent of the parties to the transaction in question and their Affiliate;  
(b) does not have any direct financial interest or any material indirect        
financial interest in the Company or any of the Restricted Subsidiaries or any  
of their respective Affiliates and (c) is not connected with the Company, any   
of the Restricted Subsidiaries or any of such Affiliates as an officer,         
director, employee, promoter, underwriter, trustee, partner or person           
performing similar functions.                                                   

"Interest Escrow Account" means an account established with the Trustee     
pursuant to the terms of the Note Pledge Agreement for the deposit of the       
Pledged Securities purchased by the Company with a portion of the net proceeds  
from the Offering.                                                              

"Interest Rate Agreement" means in respect of a Person any interest rate    
swap agreement, interest rate cap agreement or other financial agreement or     
arrangement designed to protect such Person against fluctuations in interest    
rates and not for the purpose of speculation.                                   

"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are          
recorded as accounts receivable on the balance sheet of the lender) or other    
extensions of credit (including by way of Guarantee or similar arrangement) or  
capital contribution to (by means of transfer of cash or other property to      
others or any payment for property or other services for the account or use of  
others), or any purchase or acquisition of Capital Stock, Indebtedness or       
other similar instruments issued by such Person. For purposes of the            
definition of "Unrestricted Subsidiary", the definition of "Restricted          
Payment" and the covenant described under "--Certain Covenants--Limitation on   
Restricted Payments", (i) "Investment" shall include the portion                
(proportionate to the Company's equity interest in such Subsidiary) of the      
fair market value of the net assets of any Subsidiary of the Company at the     
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,   
however, that upon a redesignation of such Subsidiary as a Restricted           
Subsidiary, the Company shall be deemed to continue to have a permanent         
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)     
equal to (x) the Company's "Investment" in such Subsidiary at the time of such  
redesignation less (y) the portion (proportionate to the Company's equity       
interest in such Subsidiary) of the fair market value of the net assets of      
such Subsidiary at the time of such redesignation;                              

116 

S-4/A
118th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 118th
and (ii) any property transferred to or from an Unrestricted Subsidiary shall   
be valued at its fair market value at the time of such transfer, in each case   
as determined in good faith by the Board of Directors.                          

"Issue Date" means the date on which the Old Notes were originally issued.  

"Legal Holiday" means a Saturday, Sunday or any other day on which banks    
located in New York City are authorized or obligated by law to remain closed.   

"Lien" means any mortgage, pledge, security interest, encumbrance, lien or  
charge of any kind (including any conditional sale or other title retention     
agreement or lease in the nature thereof)                                       

"Net Available Cash" from an Asset Disposition means cash payments received 
therefrom (including any cash payments received by way of deferred payment of   
principal pursuant to a note or installment receivable or otherwise and         
proceeds from the sale or other disposition of any securities received as       
consideration, but only as and when received, but excluding any other           
consideration received in the form of assumption by the acquiring Person of     
indebtedness or other obligations relating to such properties or assets or      
received in any other noncash form), in each case net of (i) all legal, title   
and recording tax expenses, commissions and other fees and expenses incurred,   
and all Federal, state, provincial, foreign and local taxes required to be      
accrued as a liability under GAAP, as a consequence of such Asset Disposition,  
(ii) all payments made on any Indebtedness which is secured by any assets       
subject to such Asset Disposition, in accordance with the terms of any Lien     
upon or other security agreement of any kind with respect to such assets, or    
which must by its terms, or in order to obtain a necessary consent to such      
Asset Disposition, or by applicable law, be repaid out of the proceeds from     
such Asset Disposition, (iii) all distributions and other payments required to  
be made to minority interest holders in Subsidiaries or joint ventures as a     
result of such Asset Disposition and (iv) the deduction of appropriate amounts  
provided by the seller as a reserve, in accordance with GAAP, against any       
liabilities associated with the property or other assets disposed in such       
Asset Disposition and retained by the Company or any Restricted Subsidiary      
after such Asset Disposition.                                                   

"Net Cash Proceeds" means, with respect to any issuance or sale of Capital  
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,       
accountants' fees, underwriters' or placement agents' fees, discounts or        
commissions and brokerage, consultant and other fees actually incurred in       
connection with such issuance or sale and net of taxes paid or payable as a     
result thereof.                                                                 

"Note Pledge Agreement" means the Collateral Pledge and Security Agreement, 
dated as of the date of the Indenture, by and between the Trustee and the       
Company, providing for, among other things, the governing of the disbursement   
of funds from the Interest Escrow Account.                                      

"Offer to Purchase" means an offer to purchase all or a pro rata portion, as
the case may be, of the Notes by the Company from the Holders commenced by the  
mailing (by first class mail, postage prepaid) by the Company (or, if           
requested by the Company on at least five Business Days prior notice to the     
Trustee and at the Company's expense, by the Trustee) of a notice to each       
Holder (and, if mailed by the Company, to the Trustee) at such Holder's         
address appearing in the Note register, stating: (i) the covenant pursuant to   
which the offer is being made and that all Notes validly tendered will be       
accepted for payment on a pro rata basis; (ii) the purchase price and the date  
of purchase (which shall be a Business Day no earlier than 30 days nor later    
than 60 days from the date such notice is mailed) (the "Payment Date"); (iii)   
that any Note not tendered will continue to accrue interest pursuant to its     
terms; (iv) that, unless the Company defaults in the payment of the purchase    
price, any Note accepted for payment pursuant to the Offer to Purchase shall    
cease to accrue interest on and after the Payment Date; (v) that Holders        
electing to have a Note purchased pursuant to the Offer to Purchase will be     
required to surrender the Note, together with the form entitled "Option of the  
Holder to Elect Purchase" on the reverse side of the Note completed, to the     
Paying Agent at the address specified in the notice prior to the close of       
business on the Business Day immediately preceding the Payment Date (or, if     
such day is a Legal Holiday, on the next subsequent day which is not a Legal    
Holiday), and such Holder shall be entitled to receive from the Paying Agent a  
non-transferable receipt of deposit evidencing such deposit; (vi) that, unless  
the Company                                                                     

117 

S-4/A
119th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 119th
defaults in making the payment of the purchase price or shall otherwise, in     
its sole discretion, consent thereto, Holders will be entitled to withdraw      
their election only if the Trustee receives, not later than the close of        
business on the fifth Business Day immediately preceding the Payment Date, a    
telegram, facsimile transmission or letter setting forth the name of such       
Holder, the principal amount at maturity of Notes delivered for purchase and a  
statement that such Holder is withdrawing his election to have such Notes       
purchased; and (vii) that Holders whose Notes are being purchased only in part  
will be issued new Notes equal in principal amount to the unpurchased portion   
of the Notes surrendered: provided that each Note purchased and each new Note   
issued shall be in a principal amount at maturity of $1,000 or integral         
multiples thereof. The Company shall place such notice in a financial           
newspaper of general circulation in New York City. No failure of the Company    
to give the foregoing notice shall limit any Holder's right to exercise a       
repurchase right. On the Payment Date, the Company shall (i) accept for         
payment on a pro rata basis Notes or portions thereof tendered pursuant to an   
Offer to Purchase; (ii) deposit with the Trustee money sufficient to pay the    
purchase price of all Notes or portions thereof so accepted; and (iii)          
deliver, or cause to be delivered, to the Trustee all Notes or portions         
thereof so accepted together with an officers' certificate specifying the       
Notes or portions thereof accepted for payment by the Company. The Trustee      
shall promptly mail to the Holders of Notes so accepted payment in an amount    
equal to the purchase price, and the Trustee shall promptly authenticate, and   
the Company shall promptly execute and mail (or cause to be mailed) to such     
Holders a new Note equal in principal amount at maturity to any unpurchased     
portion of the Note surrendered; provided that each Note purchased and each     
new Note issued shall be in a principal amount at maturity of $1,000 or         
integral multiples thereof; provided further that if the Payment Date is        
between a regular record date and the next succeeding interest payment date,    
Notes to be repurchased must be accompanied by payment of an amount equal to    
the interest and Special Interest, if any, payable on such succeeding interest  
payment date on the principal amount to be repurchased, and the interest on     
the principal amount of the Note being repurchased, and Special Interest, if    
any, with respect thereto, will be paid on such next succeeding interest        
payment date to the registered holder of such Note on the immediately           
preceding record date. A Note repurchased on an interest payment date need not  
be accompanied by any such payment, and the interest on the principal amount    
of the Note being repurchased and Special Interest, if any, with respect        
thereto, will be paid on such interest payment date to the registered holder    
of such Note on the corresponding record date. The Company will publicly        
announce the results of an Offer to Purchase as soon as practicable after the   
Payment Date. The Trustee shall act as the Paying Agent for an Offer to         
Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and    
any other securities laws and regulations thereunder to the extent such laws    
and regulations are applicable, in the event that the Company is required to    
repurchase Notes pursuant to an Offer to Purchase. Both the notice of the       
Company and the notice of the Holder having been given as specified above, the  
Notes so to be repurchased shall, on the Payment Date become due and payable    
at the purchase price applicable thereto and from and after such date (unless   
the Company shall default in the payment of such purchase price) such Notes     
shall cease to bear interest. If any Note shall not be paid upon surrender      
thereof for repurchase, the principal shall, until paid, bear interest from     
the Payment Date at the rate borne by such Note. Any Note which is to be        
submitted for repurchase only in part shall be delivered pursuant to the above  
provisions with (if the Company or Trustee so requires) due endorsement by, or  
a written instrument of transfer in form satisfactory to the Company and the    
Trustee duly executed by, the Holder thereof or such Holder's attorney duly     
authorized in writing.                                                          

"Payment Date" with respect to any Offer to Purchase, has the meaning       
specified in the definition of Offer to Purchase.                               

"Permitted Investment" means an Investment by the Company or any Restricted 
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,   
upon the making of such Investment, become a Restricted Subsidiary; (ii)        
another Person if as a result of such Investment such other Person is merged    
or consolidated with or into, or transfers or conveys all or substantially all  
its assets to, the Company or a Restricted Subsidiary; (iii) Temporary Cash     
Investments; (iv) receivables owing to the Company or any Restricted            
Subsidiary if created or acquired in the ordinary course of business and        
payable or dischargeable in accordance with customary trade terms; provided,    
however, that such trade terms may include such concessionary trade terms as    
the Company or any such Restricted Subsidiary deems reasonable under the        
circumstances; (v) payroll, travel                                              

118 

S-4/A
120th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 120th
and similar advances to cover matters that are expected at the time of such     
advances ultimately to be treated as expenses for accounting purposes and that  
are made in the ordinary course of business; (vi) loans or advances to          
employees made in the ordinary course of business consistent with past          
practices of the Company or such Restricted Subsidiary in an aggregate amount   
outstanding at any time of not more than $1.0 million; (vii) any Investment     
arising as a result of any Hedging Obligations; (viii) stock, obligations or    
securities received in settlement of debts created in the ordinary course of    
business and owing to the Company or any Restricted Subsidiary or in            
satisfaction of judgments; (ix) any Investment to the extent such Investment    
represents the non-cash portion of the consideration received for an Asset      
Disposition as permitted pursuant to the covenant described under "--Certain    
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and (x)          
Investments in the normal course of business in any Persons the primary         
business of which is substantially related, ancillary or complementary to the   
airline business.                                                               

"Permitted Collateral Liens" means the Liens permitted under the terms of   
the Pledge Agreement.                                                           

"Permitted Liens" means, with respect to any Person,                        

(a) Liens existing or securing Indebtedness existing (or for which a    
written commitment has been made on or prior to the Issue Date) on the      
Issue Date;                                                                 

(b) Liens granted on or after the Issue Date in favor of the holders of 
the Old Notes or the Exchange Notes;                                        

(c) Liens with respect to the assets of a Restricted Subsidiary granted 
by such Restricted Subsidiary to the Company to secure Indebtedness owing   
to the Company by such Restricted Subsidiary;                               

 (d) Liens for employee wages and pledges or deposits by such Person under
worker's compensation laws, unemployment insurance laws or similar          
legislation, or good faith deposits in connection with bids, tenders,       
contracts (other than for the payment of Indebtedness) or leases to which   
such Person is a party, or deposits to secure public or statutory           
obligations of such Person or deposits of cash or United States government  
bonds to secure surety or appeal bonds to which such Person is a party, or  
deposits as security for contested taxes or import duties or for the        
payment of rent, in each case Incurred in the ordinary course of business;  

(e) Liens imposed by law, such as carriers', warehousemen's and         
mechanics' Liens, in each case for sums not yet due or being contested in   
good faith by appropriate proceedings or other Liens arising out of         
judgments or awards against such Person with respect to which such Person   
shall then be proceeding with an appeal or other proceedings for review;    

 (f) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith and by appropriate proceedings;  

 (g) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the        
ordinary course of business; provided, however, that such letters of credit 
do not constitute Indebtedness;                                             

(h) minor survey exceptions, minor encumbrances, easements or           
reservations of, or rights of others for, licenses, rights-of-way, sewers,  
electric lines, telegraph and telephone lines and other similar purposes,   
or zoning or other restrictions as to the use of real property or Liens     
incidental to the conduct of the business of such Person or to the          
ownership of its properties which were not Incurred in connection with      
Indebtedness and which do not in the aggregate materially adversely affect  
the value of said properties or materially impair their use in the          
operation of the business of such Person;                                   

(i) any Lien securing Aircraft Acquisition Debt, which Lien is Incurred 
when such Indebtedness is Incurred and which Lien does not extend to        
property other than aircraft, related engines or spare engines, spare parts 
or related equipment (including ground equipment) financed thereby;         

 (j) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,       
however, that such Liens are not created, incurred or                       

119 

S-4/A
121st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 121st
assumed in connection with, or in contemplation of, such other Person       
becoming such a Subsidiary; provided further, however, that such Lien may   
not extend to any other property owned by such Person or any of its         
Subsidiaries;                                                               

(k) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or    
consolidation with or into such Person or a Subsidiary of such Person;      
provided, however, that such Liens are not created, incurred or assumed in  
connection with, or in contemplation of, such acquisition; provided         
further, however, that the Liens may not extend to any other property owned 
by such Person or any of its Subsidiaries;                                  

(l) Liens securing Hedging Obligations permitted under the Indenture;   

(m) any Lien or pledge created or subsisting in the ordinary course of  
business over documents of title, insurance policies or sale contracts in   
relation to commercial goods to secure the purchase price thereof;          

(n) Liens to secure any Refinancing (or successive Refinancings) as a   
whole, or in part, of any Indebtedness secured by any Lien referred to in   
clauses (a), (i), (j), (k) and (r); provided, however, that (x) such new    
Lien shall be limited to all or part of the same property that secured the  
original Lien (plus improvements to or on such property) and (y) the        
Indebtedness secured by such Lien at such time is not increased to any      
amount greater than the sum of (A) the outstanding principal amount, or, if 
greater, committed amount of the Indebtedness described under clause (a),   
(i), (j), (k) and (r) at the time the original Lien became a Permitted Lien 
and (B) an amount necessary to pay any fees and expenses, including         
premiums, related to such Refinancing;                                      

(o) Liens with respect to Indebtedness permitted pursuant to clauses    
(b)(5), (b)(12) or (b)(16) of "--Certain Covenants--Limitation on           
Indebtedness" above;                                                        

(p) Liens securing any future interest payable with respect to any      
Indebtedness on cash and cash equivalents which constituted a portion of    
the net proceeds to the Company or a Restricted Subsidiary from the         
issuance of such Indebtedness;                                              

(q) Liens securing Indebtedness or other obligations of a Subsidiary of 
such Person owing to such Person or a wholly owned Subsidiary of such       
Person;                                                                     

(r) Liens on Receivables (or on the Capital Stock and assets of any     
special purpose Subsidiary formed solely for the purpose of effecting a     
Receivables based financing transaction) securing Indebtedness permitted    
under clause (b)(15) of the covenant described under "--Certain Covenants-- 
Limitation on Indebtedness" above; and                                      

(s) any judgment Lien, unless the judgment it secures shall not, within 
sixty (60) days after the entry thereof, have been discharged, vacated or   
reversed or the execution thereof stayed pending appeal, or shall not have  
been discharged, vacated or reversed within sixty (60) days after the       
expiration of any such stay.                                                

"Person" means any individual, corporation, partnership, limited liability  
issuer, joint venture, association, joint-stock issuer, trust, unincorporated   
organization, government or any agency or political subdivision thereof or any  
other entity.                                                                   

"Pledged Collateral" means the collateral covered by the Note Pledge        
Agreement.                                                                      

"Pledged Securities" means the U.S. Government Obligations purchased by the 
Company with a portion of the net proceeds from the sale of the Notes and       
deposited in the Interest Escrow Account in accordance with the terms of the    
Note Pledge Agreement.                                                          

"Preferred Stock" as applied to the Capital Stock of any Person means       
Capital Stock of any class or classes (however designated) which is preferred   
as to the payment of dividends or distributions, or as to the distribution      

120 

S-4/A
122nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 122nd
of assets upon any voluntary or involuntary liquidation or dissolution of such  
Person, over shares of Capital Stock of any other class of such Person.         

"principal" of a Note means the principal of the Note plus the premium, if  
any, payable on the Note which is due or overdue or is to become due at the     
relevant time.                                                                  

"Public Equity Offering" means an underwritten primary public offering of   
common stock of the Company pursuant to an effective registration statement     
under the Securities Act.                                                       

"Receivables" means accounts receivables, chattel paper, instruments,       
documents or general intangibles evidencing or relating to the right to         
payment of money and other similar assets, in each case, relating to such       
receivables, including any interest in merchandise or goods, the sale or lease  
of which gave rise to such receivables, related contractual rights,             
guarantees, insurance proceeds, collections, other related assets and proceeds  
of all of the foregoing.                                                        

"Refinance" means, in respect of any Indebtedness, to refinance, extend,    
renew, refund, repay, prepay, redeem, defease or retire, or to issue other      
Indebtedness in exchange for, such indebtedness. "Refinanced" or "Refinancing"  
shall have correlative meanings.                                                

"Refinancing Indebtedness" means Indebtedness that Refinances any           
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue  
Date or Incurred in compliance with the Indenture, including Indebtedness that  
Refinances Refinancing Indebtedness; provided, however, that (i) such           
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated       
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing            
Indebtedness has an Average Life at the time such Refinancing Indebtedness is   
Incurred that is equal to or greater than the Average Life of the Indebtedness  
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate       
principal amount (or if Incurred with original issue discount, an aggregate     
issue price) that is equal to or less than the aggregate principal amount (or   
if Incurred with original issue discount, the aggregate accreted value) then    
outstanding or committed (plus fees and expenses, including any premium and     
defeasance costs) under the Indebtedness being Refinanced; provided further,    
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a  
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of   
the Company or a Restricted Subsidiary that Refinances Indebtedness of an       
Unrestricted Subsidiary.                                                        

"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of   
its Capital Stock (including any payment in connection with any merger or       
consolidation involving such Person) or similar payment to the direct or        
indirect holders of its Capital Stock (other than dividends or distributions    
payable solely in its Capital Stock (other than Disqualified Stock) and         
dividends or distributions payable solely to the Company or a Restricted        
Subsidiary, and other than pro rata dividends or other distributions made by a  
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or   
owners of an equivalent interest in the case of a Subsidiary that is an entity  
other than a corporation)), (ii) the purchase, redemption or other acquisition  
or retirement for value of any Capital Stock of the Company held by any Person  
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of     
the Company (other than a Restricted Subsidiary and other than pro rata         
purchases, redemptions, acquisitions or retirements made by a Subsidiary that   
is not a Wholly-Owned Subsidiary), including the exercise of any option to      
exchange any Capital Stock (other than into Capital Stock of the Company that   
is not Disqualified Stock), (iii) the purchase, repurchase, redemption,         
defeasance or other acquisition or retirement for value, prior to scheduled     
maturity, scheduled repayment or scheduled sinking fund payment of any          
Subordinated Obligations (other than the purchase, repurchase or other          
acquisition of Subordinated Obligations purchased in anticipation of            
satisfying a sinking fund obligation, principal installment or final maturity,  
in each case due within one year of the date of acquisition) or (iv) the        
making of any Investment in any Person (other than a Permitted Investment).     
Any purchase or redemption of Capital Stock by an employee stock ownership or   
benefit plan shall not constitute a Restricted Payment except to the extent,    
if any, that such purchase or redemption is financed by the Company or its      
Restricted Subsidiaries.                                                        

121 

S-4/A
123rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 123rd
"Restricted Subsidiary" means any Subsidiary of the Company that is not an  
Unrestricted Subsidiary.                                                        

"Sale/Leaseback Transaction" means an arrangement relating to property now  
owned or hereafter acquired whereby the Company or a Restricted Subsidiary      
transfers such property to a Person and the Company or a Restricted Subsidiary  
leases it from such Person.                                                     

"SEC" means the Securities and Exchange Commission.                         

"Senior Indebtedness" of any Person means (i) Indebtedness of such Person,  
whether outstanding on the Issue Date or thereafter Incurred and (ii) accrued   
interest (including interest accruing on or after the filing of any petition    
in bankruptcy or for reorganization relating to the Company to the extent       
post-filing interest is allowed in such proceeding) in respect of (A)           
indebtedness for money borrowed and (B) indebtedness evidenced by notes,        
debentures, bonds or other similar instruments for the payment of which such    
Person is responsible or liable unless, in the case of (i) and (ii), in the     
instrument creating or evidencing the same or pursuant to which the same is     
outstanding, it is provided that such obligations are subordinate in right of   
payment to the Notes; provided, however, that Senior Indebtedness shall not     
include (1) any obligation of such Person to any Subsidiary of such Person,     
(2) any liability for Federal, state local or other taxes owed or owing by      
such Person, (3) any accounts payable or other liability to trade creditors     
arising in the ordinary course of business (including guarantees thereof or     
instruments evidencing such liabilities), (4) any Indebtedness of such Person   
(and any accrued interest in respect thereof) which is subordinate or junior    
in any respect to any other Indebtedness or other obligation of such Person or  
(5) that portion of any Indebtedness which at the time of Incurrence is         
Incurred in violation of the Indenture.                                         

"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of      
such security is due and payable, including pursuant to any mandatory           
redemption provision (but excluding any provision providing for the repurchase  
of such security at the option of the holder thereof upon the happening of any  
contingency unless such contingency has occurred).                              

"Subordinated Obligation" means any Indebtedness of the Company (whether    
outstanding on the Issue Date or thereafter Incurred) which is subordinate or   
junior in right of payment to the Notes pursuant to a written agreement to      
that effect.                                                                    

"Subsidiary" means, in respect of any Person, any corporation, association, 
partnership or other business entity of which more than 50% of the total        
voting power of shares of Capital Stock or other interests (including           
membership or partnership interests) entitled (without regard to the            
occurrence of any contingency) to vote in the election of directors, managers   
or trustees thereof is at the time owned or controlled, directly or             
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries   
of such Person or (iii) one or more Subsidiaries of such Person.                

"Subsidiary Guaranty" means the Guarantee by a Restricted Subsidiary of the 
Company's obligations with respect to the Notes. The form of such Guarantee is  
provided for in the Indenture. Each Subsidiary Guaranty will be limited in      
amount to an amount not to exceed the maximum amount that can be guaranteed by  
the applicable Restricted Subsidiary without rendering the Subsidiary           
Guaranty, as it relates to such Restricted Subsidiary, voidable under           
applicable law relating to fraudulent conveyance or fraudulent transfer or      
similar laws affecting the rights of creditors generally.                       

"Temporary Cash Investments" means any of the following: (i) any investment 
in U.S. Government Obligations; (ii) investments in time deposit accounts,      
certificates of deposit and money market deposits maturing within 180 days of   
the date of acquisition thereof issued by a bank or trust issuer which is       
organized under the laws of the United States of America, any state thereof or  
any foreign country recognized by the United States, and which bank or trust    
issuer has capital, surplus and undivided profits aggregating in excess of      
$50.0 million (or the foreign currency equivalent thereof) and has outstanding  
debt which is rated "A" (or such similar equivalent rating) or higher by at     
least one nationally recognized statistical rating organization (as defined in  

122 

S-4/A
124th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 124th
Rule 436 under the Securities Act) or any money market fund sponsored by a      
registered broker dealer or mutual fund distributor; (iii) repurchase           
obligations with a term of not more than 30 days for underlying securities of   
the types described in clause (i) above entered into with a bank meeting the    
qualifications described in clause (ii) above; (iv) investments in commercial   
paper, maturing not more than 90 days after the date of acquisition, issued by  
corporation (other than an Affiliate of the Company) organized and in           
existence under the laws of the United States of America or any foreign         
country recognized by the United States of America with a rating at the time    
as of which any investment therein is made of "P-1" (or higher) according to    
Moody's Investors Service, Inc., or "A-1" (or higher) according to Standard &   
Poor's Ratings Group; and (v) investments in securities with maturities of six  
months or less from the date of acquisition issued or fully guaranteed by any   
state, commonwealth or territory of the United States of America, or by any     
political subdivision or taxing authority thereof, and rated at least "A" by    
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.       

"Treasury Rate" means the yield to maturity at the time of computation of   
United States Treasury securities with a constant maturity (as compiled and     
published in the most recent Federal Reserve Statistical Release H.15 (519)     
which has become publicly available at least two business days prior to such    
redemption or repurchase date (or, if such Statistical Release is no longer     
published, any publicly available source or similar market data)) most nearly   
equal to the period from such redemption or repurchase date to the Stated       
Maturity of the Notes; provided, however, that if the period from such          
redemption or repurchase date to the Stated Maturity of the Notes is less than  
one year, the weekly average yield on actually traded United States Treasury    
securities adjusted to a constant maturity of one year shall be used.           

"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at   
the time of determination shall be designated an Unrestricted Subsidiary by     
the Board of Directors in the manner provided below and (ii) any Subsidiary of  
an Unrestricted Subsidiary. The Board of Directors may designate any            
Subsidiary of the Company (including any newly acquired or newly formed         
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of   
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien   
on any property of, the Company or any other Subsidiary of the Company that is  
not a Subsidiary of the Subsidiary to be so designated; provided, however,      
that either (A) the Subsidiary to be so designated has total assets of $1,000   
or less or (B) if such Subsidiary has assets greater than $1,000, such          
designation would be permitted under the covenant described under "--Certain    
Covenants--Limitation on Restricted Payments". The Board of Directors may       
designate any Unrestricted Subsidiary to a Restricted Subsidiary; provided,     
however, that immediately after giving effect to such designation (x) the       
Company could Incur $1.00 of additional Indebtedness under paragraph (a) of     
the covenant described under "--Certain Covenants--Limitation on Indebtedness"  
and (y) no Default shall have occurred and be continuing. Any such designation  
by the Board of Directors shall be made by the Company to the Trustee by        
promptly filing with the Trustee a copy of the resolution of the Board of       
Directors giving effect to such designation and an Officers' Certificate        
certifying that such designation complied with the foregoing provisions.        

"U.S. Government Obligations" means direct obligations (or certificates     
representing an ownership interest in such obligations) of the United States    
of America (including any agency or instrumentality thereof) for the payment    
of which the full faith and credit of the United States of America is pledged   
and which are not callable at the Company's option.                             

"Voting Stock" of a Person means all classes of Capital Stock or other      
interests (including partnership interests) of such Person then outstanding     
and normally entitled (without regard to the occurrence of any contingency) to  
vote in the election of directors, managers or trustees thereof.                

"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital     
Stock of which (other than directors' qualifying shares) is owned by the        
Company or one or more Wholly Owned Subsidiaries.                               

123 

S-4/A
125th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 125th
BOOK-ENTRY, DELIVERY AND FORM 

GENERAL                                                                         

Each of the Old Notes was issued in the form of one or more fully registered
Old Notes in global form ("Old Global Notes"). All Exchange Notes issued in     
the Exchange Offer for Old Notes represented by Old Global Notes will be        
represented by one or more Exchange Notes in global form (the "Global Exchange  
Note," and together with the Old Global Notes, the "Global Notes"), which will  
be deposited with, or on behalf of, the DTC and registered in the name of the   
DTC or its nominee.                                                             

Holders of Exchange Notes who elect to take physical delivery of their      
certificates instead of holding their interest through the Global Exchange      
Note (collectively referred to herein as the "Non-Global Holders") will be      
issued in registered form a certificated Exchange Note ("Certificated Exchange  
Note"). Upon the transfer of any Certificated Exchange Note initially issued    
to a Non-Global Holder, such Certificated Exchange Note will, unless the        
transferee requests otherwise or the Global Exchange Note has previously been   
exchanged in whole for Certificated Exchange Notes, be exchanged for an         
interest in the Global Exchange Note.                                           

GLOBAL NOTES                                                                    

Upon deposit of the Global Exchange Note, DTC will credit, on its book-entry
registration and transfer system interests in the Global Exchange Note to the   
accounts of institutions that have accounts with DTC (including Euroclear and   
Cedel) ("participants"). Ownership of beneficial interests in the Global        
Exchange Note will be limited to participants or persons that may hold          
interests through participants. Ownership of beneficial interests in the        
Global Exchange Note will be shown on, and the transfer of that ownership will  
be effected only through, records maintained by DTC (with respect to            
participants' interests) for the Global Exchange Note, or by participants or    
persons that hold interests through participants (with respect to beneficial    
interests of persons other than participants). The laws of some jurisdictions   
may require that certain purchasers of securities take physical delivery of     
such securities in definitive form. Such limits and laws may impair the         
ability to transfer or pledge beneficial interests in the Global Exchange       
Note.                                                                           

So long as DTC, or its nominee, is the registered holder of any Global      
Notes, DTC or such nominee, as the case may be, will be considered the sole     
legal owner and holder of such Notes represented by such Global Notes for all   
purposes under the Indenture and the Notes. Except as set forth below, owners   
of beneficial interests in Global Notes will not be entitled to have such       
Global Notes represented thereby registered in their names, will not receive    
or be entitled to receive physical delivery of certificates representing Notes  
in definitive, fully registered form bearing a legend containing the            
applicable restrictions on transfers ("Definitive Notes") in exchange therefor  
and will not be considered to be the owners or holders of such Global Notes     
represented thereby for any purpose under the Notes or the Indenture. The       
Company understands that under existing industry practice, in the event an      
owner of a beneficial interest in a Global Note desires to take any action      
that DTC, as the holder of such Global Note, is entitled to take, DTC would     
authorize the participants to take such action, and that the participants       
would authorize beneficial owners owning through such participants to take      
such action or would otherwise act upon the instructions of beneficial owners   
owning through them.                                                            

Any payment of principal, interest or Special Interest due on the Notes on  
any interest payment date or at maturity will be made available by the Company  
to the Trustee by such date. As soon as possible thereafter, the Trustee will   
make such payments to DTC or its nominee, as the case may be, as the            
registered owner of the Global Notes representing such Notes in accordance      
with existing arrangements between the Trustee and DTC.                         

The Company expects that DTC or its nominee, upon receipt of any payment of 
principal, interest or Special Interest in respect of the Global Notes, will    
credit immediately the accounts of the related participants with payments in    
amounts proportionate to their respective beneficial interests in the           
principal amount of such Global Note as shown on the records of DTC. The        
Company also expects that payments by participants to owners of beneficial      
interests in the Global Notes held through such participants will be governed   
by standing instructions and customary practices, as is now the case with       
securities held for the accounts of customers in bearer form or registered in   
"street name," and will be the responsibility of such participants.             

124 

S-4/A
126th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 126th
None of the Company, the Trustee, or any payment agent for the Global Notes 
will have any responsibility or liability for any aspect of the records         
relating to or payments made on account of beneficial ownership interests in    
any of the Global Notes or for maintaining, supervising or reviewing any        
records relating to such beneficial ownership interests or for other aspects    
of the relationship between DTC and its participants or the relationship        
between such participants and the owners of beneficial interests in the Global  
Securities owning through such participants.                                    

As long as the Notes are represented by a Global Note, DTC's nominee will be
the holder of the Notes and therefore will be the only entity that can          
exercise a right to repayment or repurchase of the Notes. See "Description of   
Notes--Repurchase of Notes Upon a Change in Control." Notice by participants,   
or by owners of beneficial interests in a Global Note held through such         
participants, of the exercise of the option to elect repayment of beneficial    
interests in Notes represented by a Global Note must be transmitted to DTC in   
accordance with its procedures on a form required by DTC and provided to        
participants. In order to ensure that DTC's nominee will timely exercise a      
right to repayment with respect to a particular Note, the beneficial owner of   
such Note must instruct the broker or other participant to exercise a right to  
repayment. Different firms have cut-off times for accepting instructions from   
their customers and, accordingly, each beneficial owner should consult the      
broker or other participant through which it holds an interest in a Note in     
order to ascertain the cut-off time by which such an instruction must be given  
in order for timely notice to be delivered to DTC. The Company will not be      
liable for any delay in delivery of notices of the exercise of the option to    
elect repayment.                                                                

Unless and until exchanged in whole or in part for Notes in definitive form 
in accordance with the terms of the Notes, the Global Notes may not be          
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of    
DTC to DTC or another nominee of DTC, or by DTC or any such nominee to a        
successor of DTC or a nominee of each successor.                                

Although DTC has agreed to the foregoing procedures in order to facilitate  
transfers of interests in the Global Notes among its participants, it is under  
no obligation to perform or continue to perform such procedures, and such       
procedures may be discontinued at any time. Neither the Trustee nor the         
Company will have any responsibility for the performance by DTC or its          
participants or indirect participants of their respective obligations under     
the rules and procedures governing their operations. The Company and the        
Trustee may conclusively rely on, and shall be protected in relying on,         
instructions from DTC for all purposes.                                         

DEFINITIVE NOTES                                                                

Upon transfer of Old Notes in definitive, fully registered form bearing a   
legend containing restrictions on transfers ("Definitive Old Notes") to a       
Qualified Institutional Buyer, such Definitive Notes will be transferred to     
the corresponding Old Global Note. Old Global Notes and the Global Exchange     
Note shall be exchangeable for corresponding Definitive Old Notes and           
Certificated Exchange Notes, respectively, registered in the name of persons    
other than DTC or its nominee if (A) DTC (i) notifies the Company that it is    
unwilling or unable to continue as DTC for any of the Global Notes or (ii) at   
any time ceases to be a clearing agency registered under the Exchange Act, (B)  
there shall have occurred and be continuing an Event of Default (as defined in  
the Indenture) with respect to the Notes or (C) the Company executes and        
delivers to the Trustee an order that the Global Notes shall be so              
exchangeable. Any Definitive Notes will be issued only in fully registered      
form and shall be issued without coupons in denominations of $1,000 and         
integral multiples thereof. Any Definitive Notes issued in exchange for a       
Global Note will be registered in such names and in such denominations as DTC   
shall request.                                                                  

THE CLEARING SYSTEM                                                             

DTC has advised the Company as follows: DTC is a limited-purpose trust      
company organized under the laws of the State of New York, a member of the      
Federal Reserve System, a "clearing corporation" within the meaning of the New  
York Uniform Commercial Code and a "clearing agency" registered pursuant to     
the provisions of Section 17A of the Exchange Act. DTC was created to hold      
securities of participants and to facilitate the clearance and settlement of    
securities transactions among its participants in such securities through       
electronic book-entry changes in accounts of participants, thereby eliminating  
the need for physical movement                                                  

125 

S-4/A
127th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 127th
of securities certificates. DTC's participants include securities brokers and   
dealers (which may include the Initial Purchasers), banks, trust companies,     
clearing corporations and certain other organizations. Access to DTC's book-    
entry system is also available to others such as banks, brokers, dealers and    
trust companies that clear through or maintain a custodial relationship with a  
participant, whether directly or indirectly.                                    

SETTLEMENT                                                                      

Investors holding their Notes through DTC will follow settlement practices  
applicable to United States corporate debt obligations. The Indenture requires  
that payments in respect of Notes (including principal, premium, interest and   
Special Interest) be made by wire transfer of same-day funds to the accounts    
specified by the holders thereof or, if no such account is specified, by        
mailing a check to each such holder's registered address.                       

126 

S-4/A
128th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 128th
DESCRIPTION OF CAPITAL STOCK  

Pursuant to TWA's Certificate of Incorporation, the Company has the         
authority to issue 287.5 million shares of capital stock, consisting of 150     
million shares of Common Stock, and 137.5 million additional shares of          
preferred stock. The Certificate of Incorporation authorizes the Board of       
Directors to establish one or more series of preferred stock and to establish   
such relative voting, dividend, redemption, liquidation, conversion and other   
powers, preferences, rights, qualifications, limitations and restrictions as    
the Board of Directors may determine without further approval of the            
stockholders of the Company. The issuance of preferred stock by the Board of    
Directors could, among other things, adversely affect the voting power of the   
holders of Common Stock and, under certain circumstances, make it more          
difficult for a person or group to gain control of the Company. See "Certain    
Provisions of the Certificate of Incorporation, the By-laws and Delaware Law."  

The issuance of any series of preferred stock, and the relative powers,     
preferences, rights, qualifications, limitations and restrictions of such       
series, if and when established, will depend upon, among other things, the      
future capital needs of the Company, the then existing market conditions and    
other factors that, in the judgment of the Board of Directors, might warrant    
the issuance of preferred stock. At the date of this Offering Memorandum,       
there are no plans, agreements or understandings relative to the issuance of    
any additional series of preferred stock other than the Series A Preferred      
Stock issuable pursuant to the Rights.                                          

DESCRIPTION OF COMMON STOCK                                                     

The holders of the Common Stock are entitled to one vote per share on all   
matters voted on by stockholders, including elections of directors, and,        
except for the voting rights of the holders of Employee Preferred Stock (who    
are entitled to elect a total of four directors to the Board) and, under        
certain circumstances, the 1997 Preferred Stock and 8% Preferred Stock, and as  
otherwise required by law or provided in any resolution adopted by the Board    
of Directors with respect to any series of the preferred stock, the holders of  
such shares exclusively possess all voting power. The Certificate of            
Incorporation does not provide for cumulative voting in the election of         
directors but the Board is classified, which means that the holders of a        
majority of the shares entitled to vote at a meeting at which a quorum is       
present can elect all of the directors of the class then to be elected (except  
that the holders of a majority of the shares of Employee Preferred Stock are    
exclusively entitled to elect four labor directors) and the holders of the      
remaining shares would not be able to elect any directors at that meeting.      
Subject to any preferential rights of the 8% Preferred Stock, the 1997          
Preferred Stock or any other outstanding series of Preferred Stock entitled to  
vote in the election of directors, the holders of Common Stock are entitled to  
such dividends as may be declared from time to time by the Board of Directors   
from funds available therefor, and upon liquidation are entitled to receive     
pro rata all assets of the Company available for distribution to such holders.  
The holders of Common Stock have no preemptive rights and no rights to convert  
their shares of Common Stock into any other security. It is not presently       
anticipated that dividends will be paid on the Common Stock in the foreseeable  
future. All outstanding shares of Common Stock are fully paid and               
nonassessable, and the shares of Common Stock issuable upon conversion of the   
1997 Preferred Stock and the 8% Preferred Stock and, if issued, upon            
conversion of the 9 1/4% Convertible Subordinated Debentures due 2007 (the      
"2007 Debentures") and the 8% Convertible Subordinated Debentures due 2006      
(the "2006 Debentures") will be, upon issuance, fully paid and nonassessable.   
As of November 12, 1997, 50,883,869 shares of Common Stock were issued and      
outstanding and were held by approximately 18,506 holders of record.            

RIGHTS PLAN                                                                     

The Board of Directors of the Company declared a dividend distribution of   
one right (a "Right") for each outstanding share of Common Stock and Employee   
Preferred Stock (collectively, the "Voting Stock") payable to holders of        
record as of the close of business on January 12, 1996 (the "Record Date")      
and, thereafter, all Common Stock issued by the Company has had an equivalent   
number of Rights attendant to it. Each Right entitles the holder to purchase,   
after the Distribution Date (as defined below), from the Company one one-       
hundredth of a share of Series A Preferred Stock of the Company at a price of   
$47.50 (the "Purchase Price"). The description and terms of the Rights are set  
forth in a Rights Agreement, dated as of December 19, 1995 between the Company  
and American Stock Transfer & Trust Company, as Rights Agent (the "Rights       
Agent") as supplemented. The Rights Plan is set forth in full in the Rights     
Agreement and the description thereof herein is qualified in its entirety by    
reference to such Rights Agreement.                                             

127 

S-4/A
129th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 129th
Until the earlier to occur of (a) the tenth day after public announcement   
that any person or group has become the beneficial owner of at least 15% of     
the Company's Voting Stock (other than pursuant to a "Permitted Offer," as      
defined below) and (b) the tenth business day after the date of the             
commencement of a tender or exchange offer (other than a Permitted Offer) by    
any person which would, if consummated, result in such person becoming the      
beneficial owner of at least 20% of the Voting Stock (the earlier of such       
dates being hereinafter called the "Distribution Date"), the Rights will be     
evidenced, with respect to any of the Voting Stock certificates outstanding as  
of the Record Date, by such Voting Stock certificates.                          

Each share of Voting Stock issued or delivered by the Company after the     
Record Date but prior to the earlier of the Distribution Date or the            
expiration of the Rights shall be accompanied by one Right.                     

The Rights Agreement provides that, until the Distribution Date, the Rights 
will be transferred with and only with the Voting Stock. Until the              
Distribution Date (or earlier redemption or expiration of the Rights), the      
surrender or transfer of any certificates for Voting Stock in respect of which  
Rights have been issued will also constitute the transfer of the Rights         
associated with the Voting Stock represented by such certificates. As soon as   
practicable after the Distribution Date, separate certificates evidencing the   
Rights (the "Right Certificates") will be mailed to holders of record of the    
Voting Stock as of the close of business on the Distribution Date and such      
separate Right Certificates alone will evidence the Rights.                     

No Right is exercisable at any time prior to the Distribution Date. The     
Rights will expire on January 12, 2006 (the "Final Expiration Date") unless     
earlier exchanged or redeemed by the Company as described below. Until a Right  
is exercised, the holder thereof, as such, will have no rights as a             
stockholder of the Company, including without limitation the right to vote or   
to receive dividends.                                                           

Upon exercise, each Right shall be converted into one one-hundredth of a    
share of the Series A Preferred Stock. Holders of shares of Series A Preferred  
Stock are entitled to receive, when, as and if declared by the Board of         
Directors out of funds legally available therefor, quarterly dividends in an    
amount per share equal to the greater of (a) $1.00 and (b) 100 times the        
aggregate per share amount of all cash dividends or other distributions (other  
than dividends payable solely in shares of Common Stock), declared on the       
Common Stock since the first dividend payment date with respect to the Series   
A Preferred Stock. Dividends payable on the Series A Preferred Stock are        
cumulative. In addition, in the event the Company enters into any               
consolidation, merger, combination or other transaction in which shares of      
Common Stock are exchanged for or changed into other stock or securities,       
shares of Series A Preferred Stock shall be similarly exchanged for or changed  
into 100 times the aggregate amount of stock, securities, cash or other         
consideration.                                                                  

Subject to the rights of holders of the 1997 Preferred Stock and the 8%     
Preferred Stock, holders of shares of Series A Preferred Stock are entitled to  
100 votes on all matters submitted to a vote of the stockholders of TWA,        
voting together as a single class, except as otherwise required by applicable   
law. In the event dividends payable on the Series A Preferred Stock shall be    
in arrears in an amount equal to six quarterly payments, all holders of the     
Series A Preferred Stock together with other holders of preferred stock         
entitled to vote, shall, voting together as a single class be entitled to       
elect one director to the Company's Board of Directors.                         

In the event that any person or group (an "Acquiring Person") becomes the   
beneficial owner of at least 15% of the Company's Voting Stock, then each       
Right (other than Rights beneficially owned by the Acquiring Person and         
certain affiliated persons) will entitle the holder to elect to receive,        
without payment of the Purchase Price, a number of shares of the Company's      
Common Stock having a market value equal to the Purchase Price. The term        
"Acquiring Person" does not include (i) the Company, any of its subsidiaries    
or any employee benefit plan of the Company, except for any such employee       
benefit plan acting in concert with a third party (other than another employee  
benefit plan of the Company) or (ii) any person or group which becomes the      
beneficial owner of at least 15% of the Voting Stock pursuant to a "Permitted   
Offer" (as defined below).                                                      

"Permitted Offer" means a tender or exchange offer by a Person for all      
outstanding shares of Voting Stock, which is made at a price and on such other  
terms determined by at least a majority of the Continuing Directors (as         
defined below) to be in the best interests of the Company and its               
stockholders.                                                                   

128 

S-4/A
130th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 130th
In the event that, after any person has become an Acquiring Person, (i) the 
Company is involved in a merger or other business combination in which the      
Company is not the surviving corporation or its Voting Stock is exchanged for   
other securities or assets or (ii) the Company and/or one or more of its        
subsidiaries sell or otherwise transfer assets or earning power aggregating     
more than 50% of the assets or earning power of the Company and its             
subsidiaries, taken as a whole, then each Right will entitle the holder to      
purchase, for the Purchase Price, a number of shares of common stock of the     
other party to such business combination or sale (or in certain circumstances,  
an affiliate) having a market value of two times the Purchase Price.            

At any time after any person has become an Acquiring Person (but before any 
person becomes the beneficial owner of at least 50% of the Voting Stock), a     
majority of the Company's Continuing Directors may exchange all or part of the  
Rights (other than the Rights beneficially owned by the Acquiring Person and    
certain affiliated persons) for shares of Common Stock at an exchange ratio of  
one share of Common Stock per Right.                                            

"Continuing Director" means (i) any member of the Board of Directors who was
a member of the Board prior to the time an Acquiring Person becomes such or     
(ii) any person subsequently elected to the Board if he is recommended or       
approved by a majority of the Continuing Directors or, in the case of a         
successor to a director elected by holders of a series of Employee Preferred    
Stock, if such person is elected pursuant to the applicable terms of such       
Employee Preferred Stock. Continuing Directors do not include an Acquiring      
Person, an affiliate or associate of an Acquiring Person or any representative  
or nominee of the foregoing.                                                    

The Company may redeem the Rights, in whole but not in part, at a price of  
$.01 per Right at any time prior to the close of business on the tenth day      
after public announcement that any person has become an Acquiring Person        
(subject to extension by a majority of the Continuing Directors).               

After the Distribution Date, the Rights Agreement may be amended in any     
respect that does not adversely affect the Rights holders (other than any       
Acquiring Person and certain affiliated persons). In addition, after any        
person has become an Acquiring Person, the Rights Agreement may be amended      
only with the approval of a majority of the Continuing Directors.               

DESCRIPTION OF EMPLOYEE PREFERRED STOCK                                         

Pursuant to the '95 Reorganization, the Company issued an aggregate of      
6,425,118 shares of Employee Preferred Stock to employee stock trusts for the   
benefit of certain domestic employees of the Company then represented by ALPA,  
IFFA and IAM pursuant to the terms of the '94 Labor Agreements (collectively,   
the "Employee Stock Trusts"). The Employee Preferred Stock was issued in three  
series designated ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred  
Stock. Except for an exclusive right to elect a certain number of directors to  
the Board of Directors and the liquidation preference described below under     
"--Liquidation Preference and Other Rights," the Employee Preferred Stock is    
the functional equivalent of Common Stock. The Employee Preferred Stock is      
junior to the 1997 Preferred Stock and the 8% Preferred Stock, as to the        
payment of dividends and the distribution of assets upon Liquidation.           

Dividends                                                                     

Subject to the issuance by the Company of preferred stock with senior rights
(including the 1997 Preferred Stock and the 8% Preferred Stock), the holders    
of the Employee Preferred Stock are entitled to receive, when, as and if        
declared by the Board of Directors out of funds legally available therefor,     
dividends payable in cash, stock or otherwise. No dividends may be paid on the  
Common Stock unless an equivalent dividend is paid on the Employee Preferred    
Stock, and no dividends may be paid on the Employee Preferred Stock unless an   
equivalent dividend is paid on the Common Stock. It is not presently            
anticipated that dividends will be paid on the Employee Preferred Stock in the  
foreseeable future.                                                             

129 

S-4/A
131st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 131st
Liquidation Preference and Other Rights                                       

Subject to the issuance by the Company of preferred stock with senior rights
(including the 1997 Preferred Stock and the 8% Preferred Stock), upon any       
liquidation of the Company, holders of the Employee Preferred Stock will be     
entitled to a liquidation preference equal to $.01 per share from TWA's net     
assets before any amounts are paid to, or on account of, the holders of Common  
Stock, and thereafter the remaining net assets of the Company will be           
distributed pro rata to the holders of the Employee Preferred Stock, the        
Common Stock and other equity securities of the Company which rank on a parity  
with such stock and with respect to such rights, all in accordance with their   
respective rights and interests. The Employee Preferred Stock does not have     
redemption rights.                                                              

Automatic Conversion                                                          

Each share of Employee Preferred Stock will automatically convert into one  
share of Common Stock upon the withdrawal of such share of Employee Preferred   
Stock from the Employee Stock Trust in which such share is held.                

Voting                                                                        

So long as any shares of ALPA Preferred Stock are outstanding, the holders  
of the ALPA Preferred Stock are entitled to one vote per share (i) on each      
matter submitted to a vote at a meeting of stockholders other than the          
election of directors and (ii) for the ALPA Director (defined below) to be      
elected at an annual meeting of stockholders. Such holders have the exclusive   
right to elect to the Board one director (the "ALPA Director"), which director  
shall be a Class II director.                                                   

So long as any shares of IFFA Preferred Stock are outstanding, the holders  
of the IFFA Preferred Stock are entitled to one vote per share (i) on each      
matter submitted to a vote at a meeting of stockholders other than the          
election of directors and (ii) for the IFFA Director (defined below) to be      
elected at an annual meeting of stockholders. Such holders have the exclusive   
right to elect to the Board one director (the "IFFA Director"), which director  
shall be a Class II director.                                                   

So long as any shares of IAM Preferred Stock are outstanding, the holders of
the IAM Preferred Stock are entitled to one vote per share (i) on each matter   
submitted to a vote at a meeting of stockholders other than the election of     
directors and (ii) for the IAM Directors (defined below) to be elected at an    
annual meeting of stockholders. Such holders have the exclusive right to elect  
to the Board two directors (the "IAM Directors"), one of which directors shall  
be a Class II director and one of which shall be a Class III director.          

Amendment                                                                     

The Certificate of Designations, Preferences and Rights relating to each    
series of Employee Preferred Stock may be amended only upon the unanimous       
approval of the holders of the outstanding shares of such series of Employee    
Preferred Stock.                                                                

DESCRIPTION OF THE 8% PREFERRED STOCK                                           

The 8% Preferred Stock ranks on a parity with the 1997 Preferred Stock and  
on a parity with all other Preferred Stock, the terms of which expressly        
provide that it ranks on a parity with the 8% Preferred Stock with respect to   
dividends and amounts payable upon Liquidation. The 8% Preferred Stock ranks    
senior to the Common Stock, the Series A Preferred Stock, if issued, and the    
Employee Preferred Stock with respect to payment of dividends and amounts       
payable upon Liquidation.                                                       

Dividends                                                                     

The holders of the 8% Preferred Stock are entitled to receive cumulative    
cash dividends at the rate of 8% per annum (equivalent to $4.00 per share per   
annum), when, as and if declared by the Board of Directors out of funds         
legally available therefor. Dividends and liquidated damages, if any, are       
payable quarterly in arrears on March 15, June 15, September 15 and December    
15 of each year (and, in the case of any accrued but unpaid dividends, at such  
additional times and for such interim periods, if any, as determined by the     
Board of Directors) to the holders of record on the record dates, which shall   
be not more than 30 days nor less than 10 days preceding the payment dates.     
Dividends on the 8% Preferred Stock commenced to accrue on March 18, 1996.      

130 

S-4/A
132nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 132nd
If dividends are not paid in full upon the 8% Preferred Stock and any other 
preferred stock ranking on a parity as to dividends with the 8% Preferred       
Stock, all dividends declared upon shares of 8% Preferred Stock and such other  
preferred stock ranking on a parity as to dividends with the 8% Preferred       
Stock will be declared pro rata so that in all cases the amount of dividends    
declared per share on the 8% Preferred Stock and such other preferred stock     
bear to each other the same ratio that accrued and unpaid dividends per share   
on the shares of the 8% Preferred Stock and such other preferred stock bear to  
each other. Except as set forth above, unless full cumulative dividends or the  
8% Preferred Stock have been paid and funds set aside, and all liquidated       
damages, if any, paid, dividends (other than dividends paid solely in Common    
Stock or other stock ranking junior as to dividends and liquidation             
preference) may not be paid or declared and set aside for payment and other     
distributions may not be made upon the Common Stock or on any other stock of    
the Company ranking junior to or on a parity with the 8% Preferred Stock as to  
dividends and liquidation preference. Under such circumstances, such stock may  
not be redeemed, purchased, or otherwise acquired for any consideration by the  
Company.                                                                        

Conversion Rights                                                             

Each share of 8% Preferred Stock may be converted at any time at the option 
of the holder, unless previously redeemed or exchanged, into fully paid,        
nonassessable shares of Common Stock at an initial conversion price of $20.269  
per share of Common Stock (equivalent to a conversion rate of approximately     
2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to  
adjustments in certain circumstances. The right to convert 8% Preferred Stock   
called for redemption will expire at the close of business on the fifth         
business day prior to the redemption date. Whenever the Company issues shares   
of Common Stock upon conversion of 8% Preferred Stock, the Company will,        
subject to certain conditions, issue, together with each share of Common        
Stock, one Right, entitling the holder to purchase one one-hundredth of a       
share of Series A Preferred Stock under certain circumstances.                  

No fractional shares of Common Stock will be issued upon conversion but, in 
lieu thereof, an appropriate amount will be paid in cash based on the closing   
price on the last trading day before the conversion date. The conversion price  
is subject to adjustment upon the occurrence of certain events.                 

Optional Redemption by the Company                                            

The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or   
after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in    
part, at the option of the Company, at a redemption price of $52.80 in 1999     
and at a redemption price decreasing by $0.40 increments each March 15          
thereafter until 2006, from which time the redemption price shall be and        
remain $50.00, in each case, plus accrued and unpaid dividends thereon to the   
date fixed for redemption.                                                      

Liquidation Rights                                                            

Upon any Liquidation of the Company, and after provision is made for any    
preferential amounts to which the holders of any senior preferred stock may be  
entitled, holders of 8% Preferred Stock will be entitled to receive from the    
Company's assets available for distribution to all stockholders $50.00 per      
share plus all accrued and unpaid dividends through the date of distribution    
or determination whether or not declared, and liquidated damages, if any,       
before any distribution is made on the Employee Preferred Stock or Common       
Stock, Series A Preferred Stock (if issued) or any other capital stock ranking  
junior to the 8% Preferred Stock and will be entitled to such amount on a       
parity with the 1997 Preferred Stock and every other series of the Company's    
preferred stock that ranks on a parity with the 8% Preferred Stock in respect   
of distributions of assets upon Liquidation. Neither a consolidation or merger  
of the Company with another corporation nor a sale or transfer of all or        
substantially all of the Company's assets for cash, securities or other         
property will be considered a liquidation, dissolution or winding up of the     
Company for these purposes.                                                     

131 

S-4/A
133rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 133rd
Voting Rights                                                                 

Except as indicated below or otherwise required by law, holders of 8%       
Preferred Stock have no voting rights. If at any time the equivalent of six     
quarterly dividends payable on the 8% Preferred Stock are accrued and unpaid,   
the holders of all outstanding shares of 8% Preferred Stock and any stock       
ranking on a parity as to dividends with the shares of 8% Preferred Stock and   
having similar voting rights then exercisable, voting separately as a class     
without regard to series, will be entitled to elect at the next annual or       
special meeting of the stockholders of the Company, two directors to serve      
until all dividends accumulated and unpaid have been paid or declared and       
funds set aside to provide for payment in full. In exercising any such vote,    
each outstanding share of 8% Preferred Stock will be entitled to one vote,      
excluding shares held by the Company or any entity controlled by the Company,   
which shares shall have no vote.                                                

Exchange Provisions                                                           

Provided that all accrued and unpaid dividends and liquidated damages, if   
any, then owing on the 8% Preferred Stock have been paid, the 8% Preferred      
Stock is exchangeable in whole, but not in part, at the Company's option for    
the Company's 2006 Debentures on any dividend payment date, beginning on March  
15, 1998, at the rate of $50.00 principal amount thereof for each share of 8%   
Preferred stock outstanding at the time of exchange. The 2006 Debentures are    
issuable in denominations of $1,000 and integral multiples thereof. The 2006    
Debentures, if issued, will be unsecured, subordinated obligations of the       
Company and will mature on March 15, 2006. The 2006 Debentures are convertible  
into fully paid non assessable shares of Common Stock and may be redeemed on    
and after March 15, 1999 at the option of the Company.                          

DESCRIPTION OF THE 1997 PREFERRED STOCK                                         

The 1997 Preferred Stock ranks on a parity with the 8% Preferred Stock and  
on a parity with all other Preferred Stock, the terms of which expressly        
provide that it ranks on a parity with the 1997 Preferred Stock with respect    
to dividends and amounts payable upon Liquidation. The 1997 Preferred Stock     
ranks senior to the Common Stock, the Series A Preferred Stock, if issued, and  
the Employee Preferred Stock with respect to payment of dividends and amounts   
payable upon Liquidation.                                                       

Dividends                                                                     

The holders of the 1997 Preferred Stock are entitled to receive cumulative  
cash dividends at the rate of 9 1/4% per annum (equivalent to $4.625 per share  
per annum), when, as and if declared by the Board of Directors out of funds     
legally available therefor. Dividends and liquidated damages, if any, are       
payable quarterly in arrears on March 15, June 15, September 15 and December    
15 of each year (and, in the case of any accrued but unpaid dividends, at such  
additional times and for such interim periods, if any, as determined by the     
Board of Directors) to the holders of record on the record dates, which shall   
be not more than 30 days nor less than 10 days preceding the payment dates.     
Dividends on the 1997 Preferred Stock commenced accruing on December 2, 1997.   

If dividends are not paid in full upon the 1997 Preferred Stock and any     
other preferred stock ranking on a parity as to dividends with the 1997         
Preferred Stock, all dividends declared upon shares of 1997 Preferred Stock     
and such other preferred stock ranking on a parity as to dividends with the     
1997 Preferred Stock will be declared pro rata so that in all cases the amount  
of dividends declared per share on the 1997 Preferred Stock and such other      
preferred stock bear to each other the same ratio that accrued and unpaid       
dividends per share on the shares of the 1997 Preferred Stock and such other    
preferred stock bear to each other. Except as set forth above, unless full      
cumulative dividends or the 1997 Preferred Stock have been paid and funds set   
aside, and all liquidated damages, if any, paid, dividends (other than          
dividends paid solely in Common Stock or other stock ranking junior as to       
dividends and liquidation preference) may not be paid or declared and set       
aside for payment and other distributions may not be made upon the Common       
Stock or on any other stock of the Company ranking junior to or on a parity     
with the 1997 Preferred Stock as to dividends and liquidation preference.       
Under such                                                                      

132 

S-4/A
134th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 134th
circumstances, such stock may not be redeemed, purchased, or otherwise          
acquired for any consideration by the Company.                                  

Conversion Rights                                                             

Each share of 1997 Preferred Stock may be converted at any time at the      
option of the holder, unless previously redeemed or exchanged, into fully       
paid, nonassessable shares of Common Stock at an initial conversion price of    
$7.90 per share of Common Stock (equivalent to a conversion rate of             
approximately 6.329 shares of Common Stock for each share of 1997 Preferred     
Stock), subject to adjustments in certain circumstances. The right to convert   
1997 Preferred Stock called for redemption will expire at the close of          
business on the second business day prior to the redemption date. Whenever the  
Company issues shares of Common Stock upon conversion of 1997 Preferred Stock,  
the Company will, subject to certain conditions, issue, together with each      
share of Common Stock, one Right, entitling the holder to purchase one one-     
hundredth of a share of Series A Preferred Stock under certain circumstances.   

No fractional shares of Common Stock will be issued upon conversion but, in 
lieu thereof, an appropriate amount will be paid in cash based on the closing   
price on the last trading day before the conversion date. The conversion price  
is subject to adjustment upon the occurrence of certain events.                 

Optional Redemption by the Company                                            

The 1997 Preferred Stock may not be redeemed prior to December 15, 2000. On 
or after December 15, 2000, the 1997 Preferred Stock may be redeemed, in whole  
or in part, at the option of the Company, at a redemption price of $53.24 in    
2000 and at a redemption price decreasing by approximately $0.46 each December  
15 thereafter until 2007, from which time the redemption price shall be and     
remain $50.00, in each case, plus accrued and unpaid dividends thereon to the   
date fixed for redemption.                                                      

Liquidation Rights                                                            

Upon any Liquidation of the Company, and after provision is made for any    
preferential amounts to which the holders of any senior preferred stock may be  
entitled, holders of 1997 Preferred Stock will be entitled to receive from the  
Company's assets available for distribution to all stockholders $50.00 per      
share plus all accrued and unpaid dividends through the date of distribution    
or determination whether or not declared, and liquidated damages, if any,       
before any distribution is made on the Employee Preferred Stock or Common       
Stock, Series A Preferred Stock (if issued) or any other capital stock ranking  
junior to the 1997 Preferred Stock and will be entitled to such amount on a     
parity with the 8% Preferred Stock and every other series of the Company's      
preferred stock that ranks on a parity with the 1997 Preferred Stock in         
respect of distributions of assets upon Liquidation. Neither a consolidation    
or merger of the Company with another corporation nor a sale or transfer of     
all or substantially all of the Company's assets for cash, securities or other  
property will be considered a liquidation, dissolution or winding up of the     
Company for these purposes.                                                     

Voting Rights                                                                 

Except as indicated below or otherwise required by law, holders of 1997     
Preferred Stock have no voting rights. If at any time the equivalent of six     
quarterly dividends payable on the 1997 Preferred Stock are accrued and         
unpaid, the holders of all outstanding shares of 1997 Preferred Stock and any   
stock ranking on a parity as to dividends with the shares of 1997 Preferred     
Stock and having similar voting rights then exercisable, voting separately as   
a class without regard to series, will be entitled to elect at the next annual  
or special meeting of the stockholders of the Company, two directors to serve   
until all dividends accumulated and unpaid have been paid or declared and       
funds set aside to provide for payment in full. In exercising any such vote,    
each outstanding share of 1997 Preferred Stock will be entitled to one vote,    
excluding shares held by the Company or any entity controlled by the Company,   
which shares shall have no vote.                                                

133 

S-4/A
135th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 135th
Exchange Provisions                                                           

Provided that all accrued and unpaid dividends and liquidated damages, if   
any, then owing on the 1997 Preferred Stock have been paid, the 1997 Preferred  
Stock is exchangeable in whole, but not in part, at the Company's option for    
the 2007 Debentures on any dividend payment date, beginning on December 15,     
1999, at the rate of $50.00 principal amount thereof for each share of 1997     
Preferred Stock outstanding at the time of exchange. The 2007 Debentures are    
issuable in denominations of $1,000 and integral multiples thereof. The 2007    
Debentures, if issued, will be unsecured, subordinated obligations of the       
Company and will mature on December 15, 2007. The 2007 Debentures are           
convertible into fully paid non assessable shares of Common Stock and may be    
redeemed on and after December 15, 2000 at the option of the Company.           

134 

S-4/A
136th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 136th
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, 
THE BY-LAWS AND DELAWARE LAW  

The Certificate of Incorporation and the By-laws contain certain provisions 
that could make more difficult the acquisition of the Company by means of a     
tender offer, a proxy contest or otherwise. These provisions are expected to    
discourage certain types of coercive takeover practices and inadequate          
takeover bids and to encourage persons seeking to acquire control of the        
Company first to negotiate with the Company. The Company believes that the      
benefits of increased protection of the Company's potential ability to          
negotiate with the proponent of an unfriendly or unsolicited proposal to        
acquire or restructure the Company outweigh the disadvantages of discouraging   
such proposals because, among other things, negotiation of such proposals       
could result in an improvement of their terms. In addition, pursuant to the     
'95 Reorganization and in connection with the adoption of the '94 Labor         
Agreements, the Company adopted certain amendments, both to the Certificate of  
Incorporation and the By-laws, relating to corporate governance matters. These  
amendments are designed to enhance the input of the Company's union employees   
or the directors nominated by them in the governance of the Company and to      
limit the ability to change the provisions of the Certificate of Incorporation  
in general and the By-laws in particular without broad support from the         
Company's voting stockholders. Such provisions will also make it more           
difficult to enact any change in the By-laws or to take any of the specified    
actions, if such changes or actions are opposed by a substantial constituency,  
including the Company's employees who are represented by organized labor. The   
description set forth below is intended as a summary only and is qualified in   
its entirety by reference to the Certificate of Incorporation and the By-laws.  

BOARD OF DIRECTORS                                                              

The Certificate of Incorporation and the By-laws provide that the number of 
directors constituting the entire Board of Directors will be fifteen. The By-   
laws also provide for the Board of Directors to be divided into three classes   
consisting of five directors each, with the term of each class expiring in a    
different year. Subject to any rights of holders of any class or series of the  
Company's preferred stock, a majority of the remaining directors then in        
office has the sole authority to fill any vacancies on the Board of Directors,  
provided, however, that any vacancies arising during the first or second term   
of a director will be filled by a nominee of the remaining directors who were   
nominated by the same Original Nominating Entity (as defined below) as the      
vacating director in accordance with the Certificate of Incorporation. See      
"Business--Employees" and "Description of Capital Stock--Description of         
Employee Preferred Stock." Any director elected to fill a vacancy will hold     
office for the remainder of the full term of the class of directors in which    
the vacancy occurred and until the director's successor is elected and          
qualified. The Certificate of Incorporation provides that directors may be      
removed only by the affirmative vote of at least a majority of the voting       
power of all the then outstanding shares of stock entitled to vote generally    
in the election of directors, voting together as a single class. The            
affirmative vote of at least 80% of the Voting Stock, voting together as a      
single class, is required to amend or repeal, or adopt any provision            
inconsistent with, the provision of the Certificate of Incorporation relating   
to the number, election and terms of directors.                                 

"Original Nominating Entity" means, as applicable, each of the management of
the Company, ALPA, IAM, and IFFA. Upon being certified to replace IFFA as the   
bargaining representative for the Company's flight attendants, the IAM became   
the nominating entity with respect to the director to be elected by holders of  
the IFFA Preferred Stock.                                                       

STOCKHOLDER ACTIONS AND SPECIAL MEETINGS                                        

The Certificate of Incorporation provides that stockholder action can be    
taken only at an annual or special meeting of stockholders, and prohibits,      
subject to the rights of holders of any class or series of the Company's        
preferred stock to the contrary, stockholder action by written consent in lieu  
of a meeting. The Certificate of Incorporation and By-laws provide that,        
subject to the rights of holders of any series of preferred stock, special      
meetings of stockholders can be called only by (i) the Chairman of the Board    
of Directors of the Company, (ii) the Corporate Secretary of the Company        
within ten calendar days after receipt of the written request of a majority     

135 

S-4/A
137th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 137th
of the total number of directors that the Corporation would have if there were  
no vacancies, and (iii) the Board of Directors after receipt by the Company of  
a written request executed by the holders of at least 35% of the outstanding    
Voting Stock of the Company, provided, however, that no separate special        
meeting will be required to be convened if the Board of Directors calls an      
annual or special meeting to be held no later than ninety (90) calendar days    
after receiving the request for a meeting and the purposes of such annual or    
special meeting of stockholders called by the Board of Directors include the    
purposes specified in the request. Business permitted to be conducted at a      
special meeting of stockholders is limited to the business (x) specified in     
the notice of meeting given by or at the direction of the chairman of the       
meeting or a majority of the entire Board of Directors or (y) otherwise         
properly brought before the meeting by the chairman of the meeting or at the    
direction of a majority of the entire Board of Directors. Moreover, the         
chairman of the annual or special meeting of the stockholders will determine    
whether any business sought to be brought before the meeting is properly        
brought.                                                                        

Pursuant to the Certificate of Incorporation, the By-laws establish an      
advance notice procedure with regard to the nomination, other than by or at     
the direction of the Board of Directors, of candidates for election as          
directors and with regard to business to be brought before an annual meeting    
of stockholders of the Company.                                                 

AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS                       

The Certificate of Incorporation contains provisions requiring the          
affirmative vote of the holders of at least 80% of the Voting Stock, voting     
together as a single class, to amend certain provisions of the Certificate of   
Incorporation, primarily those related to anti-takeover provisions. In          
addition, the Certificate of Incorporation requires the affirmative vote of at  
least three-fourths of its issued and outstanding Voting Stock, voting as a     
single class and not as separate classes, to amend the By-laws by stockholder   
action. "Voting Stock" means the outstanding shares of all classes and series   
of capital stock of the Company entitled to vote generally in the election of   
directors of the Company and does not include any class or series of preferred  
stock of the Company unless the certificate of designations, preferences and    
rights for such class or series specifically states that such class or series   
shall be deemed "Voting Stock" for purposes of the Certificate of               
Incorporation. Employee Preferred Stock has been deemed Voting Stock and the    
1997 Preferred Stock and the 8% Preferred Stock are not Voting Stock. See       
"Description of Capital Stock."                                                 

BLOCKING COALITION                                                              

Pursuant to the '94 Labor Agreements and in connection with the '95         
Reorganization, the Company amended the By-laws to provide that certain         
actions (as set forth in the next paragraph) may not be approved by the Board   
of Directors if votes are cast against such actions by directors sufficient to  
constitute a "Blocking Coalition." A Blocking Coalition is defined as the       
negative votes of (i) a total of the four directors elected by the holders of   
the Employee Preferred Stock plus (ii) the negative votes of any two of the     
Company's other directors.                                                      

Actions subject to disapproval by the Blocking Coalition include: (a) any   
sale, transfer or disposition, in a single or series of transactions, of at     
least 20% of the Company's assets, except for transactions in the ordinary      
course of business including aircraft transactions as part of a fleet           
management plan; (b) any merger of the Company into or with, or consolidation   
of the Company with any other entity; (c) any business combination within the   
meaning of Section 203 of the DGCL; (d) any dissolution or liquidation of the   
Company; (e) any filing of a petition for bankruptcy, reorganization or         
receivership under any state or federal bankruptcy, reorganization or           
insolvency law; (f) any repurchase, retirement or redemption of the Company's   
capital stock or other equity securities prior to their scheduled maturity or   
expiration, except for redemptions out of the proceeds of any substantially     
concurrent offering of comparable or junior securities and mandatory            
redemptions of any redeemable preferred stock of the Company; (g) any           
acquisition of assets, not related to the Company's current business as an air  
carrier, in a single transaction or a series of related transactions exceeding  
$50 million adjusted annually by the consumer price index; or (h) any sale of   
the Company's capital stock or securities convertible into capital stock of     
the Company to any person if (i) at the time of issuance or (ii) assuming       
conversion of all                                                               

136 

S-4/A
138th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 138th
outstanding securities of the Company convertible into capital stock, such      
person or entity would beneficially own at least 20% of the capital stock of    
the Company.                                                                    

SUPER MAJORITY VOTING PROVISIONS                                                

At all times before September 1, 2000, the Company must obtain the approval 
of at least two-thirds of the issued and outstanding Voting Stock of the        
Company, voting as a single class and not as separate classes, for the holders  
of such Voting Stock to approve certain actions, unless such matters have been  
approved by a vote of at least 80% of the Board of Directors then in office.    
Actions requiring such approval are the following: (i) any merger of the        
Company into or with, or consolidation of the Company with, any other entity;   
(ii) any business combination within the meaning of Section 203 of the DGCL;    
(iii) any dissolution or liquidation of the Company; or (iv) any repurchase,    
retirement or redemption of the Company's capital stock or other equity         
securities prior to their scheduled maturity or expiration, except for          
redemptions out of the proceeds of any substantially concurrent offering of     
comparable or junior securities, and mandatory redemptions of any redeemable    
preferred stock of the Company.                                                 

PREFERRED STOCK                                                                 

The Company believes that the ability of the Board of Directors to issue one
or more series of preferred stock of the Company provides TWA with increased    
flexibility in structuring possible future financings and in meeting other      
corporate needs that might arise. The authorized shares of preferred stock, as  
well as shares of Common Stock, will be available for issuance without further  
action by TWA's stockholders, unless such action is required by applicable law  
or the rules of any stock exchange on which TWA securities may be listed. If    
the approval of TWA's stockholders is not required for the issuance of shares   
of preferred stock or Common Stock, the Board of Directors does not intend to   
seek stockholder approval. Although the Board of Directors has no intention of  
doing so, it could issue a series of preferred stock that could, depending on   
the terms of such series, impede the completion of a merger, tender offer or    
other takeover attempt. The Board of Directors will make any determination to   
issue such shares based on its judgment as to the best interests of TWA and     
its stockholders. The Board of Directors, in so acting, could issue preferred   
stock having terms that could discourage an acquisition attempt or other        
transaction that some, or a majority, of the stockholders might believe to be   
in their best interests or in which stockholders might receive a premium for    
their stock over the then current market price of such stock.                   

RIGHTS TO PURCHASE STOCK                                                        

The Rights are intended to protect TWA's stockholders from certain non-     
negotiated takeover attempts which present the risk of a change of control on   
terms which may be less favorable to TWA's stockholders than would be           
available in a transaction negotiated with and approved by the Board of         
Directors of the Company. Although there can be no certainty as to the results  
of any particular negotiation, the Board of Directors believes that the         
interests of the stockholders are best served if any acquisition of TWA or a    
substantial percentage of the Common Stock results from arms-length             
negotiations and reflects the Board's or stockholders' careful consideration    
of the proposed terms of a transaction. In particular, the Rights are intended  
to help (a) reduce the risk of coercive, two-tiered, front-end loaded or        
partial offers which may not offer fair value to all stockholders, (b)          
mitigate against market accumulators who through open market or private         
purchases may achieve a position of substantial influence or control without    
paying to selling or remaining stockholders a fair control premium, and (c)     
deter market accumulators who are simply interested in putting a company "in    
play." See "Description of Capital Stock--Rights Plan."                         

ANTI-TAKEOVER STATUTE                                                           

Section 203 of the DGCL is applicable to corporate takeovers in Delaware.   
Subject to certain exceptions set forth therein, Section 203 of the DGCL        
provides that a corporation shall not engage in any business combination with   
any "interested stockholder" for a three-year period following the date that    
such stockholder becomes an                                                     

137 

S-4/A
139th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 139th
interested stockholder unless (a) prior to such date, the board of directors    
of the corporation approved either the business combination or the transaction  
which resulted in the stockholder becoming an interested stockholder, (b) upon  
consummation of the transaction which resulted in the stockholder becoming an   
interested stockholder, the interested stockholder owned at least 85% of the    
voting stock of the corporation outstanding at the time the transaction         
commenced (excluding certain shares) or (c) on or subsequent to such date, the  
business combination is approved by the board of directors of the corporation   
and by the affirmative vote of at least 66 2/3% of the outstanding voting       
stock which is not owned by the interested stockholder. Except as specified     
therein, an interested stockholder is defined to include any person that is     
the owner of 15% or more of the outstanding voting stock of the corporation,    
or is an affiliate or associate of the corporation and was the owner of 15% or  
more of the outstanding voting stock of the corporation, at any time within     
three years immediately prior to the relevant date, and the affiliates and      
associates of such person. Under certain circumstances, Section 203 of the      
DGCL makes it more difficult for an "interested stockholder" to effect various  
business combinations with a corporation for a three-year period, although the  
stockholders may, by adopting an amendment to the corporation's certificate of  
incorporation or by-laws, elect not to be governed by this section, effective   
twelve months after adoption. The Certificate of Incorporation and the By-laws  
do not exclude TWA from the restrictions imposed under Section 203 of the       
DGCL, but do provide that a business combination within the meaning of Section  
203 of the DGCL (i) may be approved without the approval of at least 66 2/3%    
of the Voting Stock if the business combination is approved by at least 80% of  
the directors then in office and (ii) may not be approved if votes are cast     
against the action by the Blocking Coalition. It is anticipated that the        
provisions of Section 203 of the DGCL and the provisions of the Certificate of  
Incorporation may encourage companies interested in acquiring TWA to negotiate  
in advance with the Board of Directors of TWA since the stockholder approval    
requirement would be avoided if 80% of the directors then in office approve     
either the business combination or the transaction which resulted in the        
stockholder becoming an interested stockholder.                                 

138 

S-4/A
140th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 140th
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS 

The following is a general discussion of material United States federal     
income tax considerations applicable to the initial holders of the Old Notes    
who purchased the Old Notes at their "issue price," that is, the first price    
at which a substantial amount of the Old Notes is sold for money to the public  
(not including bond houses, brokers or similar persons or organizations acting  
in the capacity of underwriters, placement agents or wholesalers). This         
summary is based upon provisions of the Internal Revenue Code of 1986, as       
amended (the "Code"), regulations, rulings and decisions currently in effect,   
all of which are subject to change (possibly with retroactive effect). The      
discussion does not purport to deal with all aspects of the United States       
federal taxation that may be relevant to particular investors in light of       
their particular circumstances (for example, to persons holding Notes as part   
of a conversion transaction or as part of a hedge or hedging transaction, or    
as a position in a straddle for tax purposes), nor does it discuss the United   
States federal income tax considerations applicable to certain types of         
investors subject to special treatment under the federal income tax laws (for   
example, insurance companies, tax-exempt organizations, financial institutions  
and persons who are not United States Holders or United States Alien Holders    
(each as defined below)). In addition, the discussion does not consider the     
effect of any foreign, state, local or other tax laws that may be applicable    
to a particular investor. The discussion assumes that investors hold the Notes  
as "capital assets" within the meaning of Section 1221 of the Code. The         
Company intends to treat the Notes as indebtedness and not as equity for        
United States federal income tax purposes, and the United States federal        
income tax considerations described below are based on that characterization.   

PROSPECTIVE INVESTORS CONSIDERING THE EXCHANGE OFFER SHOULD CONSULT THEIR   
TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES FEDERAL        
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES  
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.      

As used herein, the term "United States Holder" means an owner of a Note    
that is, for United States federal income tax purposes, (i) a citizen or        
resident of the United States, (ii) a corporation created or organized in or    
under the laws of the United States or of any political subdivision thereof,    
or (iii) an estate or trust the income of which is subject to United States     
federal income taxation regardless of its source. The term also includes        
certain former citizens and certain former long-term residents of the United    
States.                                                                         

As used herein, the term "United States Alien Holder" means an owner of a   
Note that is, for United States federal income tax purposes, (i) a nonresident  
alien individual, (ii) a foreign corporation, (iii) a nonresident alien         
fiduciary of a foreign estate or trust or (iv) a foreign partnership one or     
more of the members of which is, for United States federal income tax           
purposes, a nonresident alien individual, a foreign corporation or a            
nonresident alien fiduciary of a foreign estate or trust.                       

TAX CONSEQUENCES TO UNITED STATES HOLDERS                                       

Exchange Offer                                                                

The exchange of the Old Notes for Exchange Notes pursuant to the Exchange   
Offer will not result in any United States federal income tax consequences to   
the United States Holders. When a United States Holder exchanges an Old Note    
for an Exchange Note pursuant to the Exchange Offer, the Holder will have the   
same adjusted tax basis and holding period in the Exchange Note as in the Old   
Note immediately before the exchange.                                           

Interest on a Note                                                            

The Old Notes were not issued with original issue discount for United States
federal income tax purposes. Accordingly, interest on a Note will generally be  
taxable to a United States Holder as ordinary interest income at the time it    
accrues or is received in accordance with the United States Holder's method of  
accounting for United States federal income tax purposes.                       

Sale or Retirement of a Note                                                  

Upon the sale or retirement of a Note, a United States Holder will recognize
taxable gain or loss equal to the difference between the amount realized on     
the sale or retirement and such Holder's adjusted tax basis in the Note.        

139 

S-4/A
141st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 141st
Backup Withholding and Information Reporting                                  

Certain noncorporate United States Holders may be subject to backup         
withholding at a rate of 31% on payments of principal, premium and interest     
(including original issue discount, if any) on, and the proceeds of             
disposition of, a Note. Backup withholding will apply only if the United        
States Holder (i) fails to furnish its Taxpayer Identification Number ("TIN")   
which, for an individual, would be his Social Security number, (ii) furnishes   
an incorrect TIN, (iii) is notified by the Internal Revenue Service that it     
has failed to properly report payments of interest or dividends or (iv) under   
certain circumstances, fails to certify, under penalties of perjury, that it    
has furnished a correct TIN and has not been notified by the Internal Revenue   
Service that it is subject to backup withholding for failure to report          
interest and dividend payments. United States Holders should consult their tax  
advisors regarding their qualification for exemption from backup withholding    
and the procedure for obtaining such an exemption if applicable.                

The amount of any backup withholding from a payment to a United States      
Holder will be allowed as a credit against such Holder's United States federal  
income tax liability and may entitle such Holder to a refund, provided that     
the required information is furnished to the Internal Revenue Service.          

TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS                                 

Under present United States federal law, and subject to the discussion below
concerning backup withholding, payments of principal, interest and premium on   
the Notes by the Company or any paying agent to any United States Alien         
Holder, and gain realized on the sale, exchange or other disposition of such    
Note, will not be subject to United States federal income or withholding tax,   
provided that: (i) such Holder does not own, actually or constructively, 10     
percent or more of the total combined voting power of all classes of stock of   
the Company entitled to vote, is not a controlled foreign corporation related,  
directly or indirectly, to the Company through stock ownership, and is not a    
bank receiving interest described in Section 881(c)(3)(A) of the Code; (ii)     
the statement requirement set forth in Section 871(h) or Section 881(c) of the  
Code has been fulfilled with respect to the beneficial owner, as discussed      
below; (iii) such Holder is not an individual who is present in the United      
States for 183 days or more in the taxable year of disposition, or such         
individual does not have a "tax home" (as defined in Section 911(d)(3) of the   
Code) or an office or other fixed place of business in the United States; and   
(iv) such payments and gain are not effectively connected with the conduct by   
such Holder of a trade or business in the United States.                        

As noted above, the Company intends to treat the Notes as indebtedness for  
United States federal income tax purposes. No assurance can be given, however,  
that Company's treatment will not be challenged by the Internal Revenue         
Service. If the Notes were ultimately treated as equity rather than debt for    
United States federal income tax purposes, the portfolio interest exception     
would not apply and withholding tax at a flat rate of 30% (or a lower rate      
under an applicable income tax treaty) would be imposed on the interest         
payments on Notes to the extent of the Company's current or accumulated         
earnings and profits or on the entire amounts of the interest payments if the   
withholding agent does not know or cannot reasonably estimate the amount of     
such earnings and profits. Further, any such withholding could commence when    
the Internal Revenue Service first asserted that the Notes constituted equity;  
in such event, if the Internal Revenue Service did not ultimately prevail, the  
United States Alien Holders would be able to recover the tax withheld by        
filing a claim for refund with the Internal Revenue Service.                    

Certain Certification Requirements                                            

Sections 871(h) and 881(c) of the Code require that, in order to obtain the 
portfolio interest exemption from the withholding tax described in the          
paragraphs above, either the beneficial owner of the Note, or a securities      
clearing organization, bank or other financial institution that holds           
customers' securities in the ordinary course of its trade or business (a        
"Financial Institution") and that is holding the Note on behalf of such         
beneficial owner, file a statement with the withholding agent to the effect     
that the beneficial owner of the Note is not a United States Holder. Under      
current United States Treasury Regulations, such requirement will be fulfilled  
if the                                                                          

140 

S-4/A
142nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 142nd
beneficial owner of a Note certifies on Internal Revenue Service Form W-8,      
under penalties of perjury, that it is not a United States Holder and provides  
its name and address, and any Financial Institution holding the Note on behalf  
of the beneficial owner files a statement with the withholding agent to the     
effect that it has received such a statement from the Holder (and furnishes     
the withholding agent with a copy thereof). Under recently finalized United     
States Treasury Regulations, which are generally applicable to payments made    
after December 31, 1998, certain United States Alien Holders would also need    
to provide their United States taxpayer identification numbers on such forms    
in order to fulfill such requirement.                                           

If a United States Alien Holder of a Note is engaged in a trade or business 
in the United States, and if interest on the Note is effectively connected      
with the conduct of such trade or business, the United States Alien Holder,     
although exempt from the withholding tax discussed in the preceding             
paragraphs, will generally be subject to regular United States income tax on    
interest and on any gain realized on the sale, exchange or other disposition    
of a Note in the same manner as if it were a United States Holder. In lieu of   
the certificate described in the preceding paragraph, such a Holder will be     
required to provide to the withholding agent a properly executed Internal       
Revenue Service Form 4224 (or the successor W-8 Form), in order to claim an     
exemption from withholding tax. Under recently finalized United States          
Treasury Regulations, a United States Alien Holder may also need to provide a   
United States taxpayer identification number on such form in order to fulfill   
such requirement. In addition, if such United States Alien Holder is a foreign  
corporation, it may be subject to a branch profits tax equal to 30% (or such    
lower rate provided by an applicable treaty) of its effectively connected       
earnings and profits for the taxable year, subject to certain adjustments. For  
purposes of the branch profits tax, interest on and any gain recognized on the  
sale, exchange or other disposition of a Note will be included in the           
effectively connected earnings and profits of such United States Alien Holder   
if such interest or gain, as the case may be, is effectively connected with     
the conduct by the United States Alien Holder of a trade or business in the     
United States.                                                                  

Estate Taxes                                                                  

Under Section 2105(b) of the Code, a Note held by an individual who is not a
citizen or resident of the United States at the time of his death will not be   
subject to United States federal estate tax as a result of such individual's    
death, provided that the individual does not own, actually or constructively,   
10 percent or more of the total combined voting power of all classes of stock   
of the Company entitled to vote and, at the time of such individual's death,    
payments with respect to such Note would not have been effectively connected    
to the conduct by such individual of a trade or business in the United States.  

As noted above, the Company intends to treat the Notes as indebtedness for  
United States federal income tax purposes. No assurance can be given, however,  
that the Company's treatment will not be challenged by the Internal Revenue     
Service. If the Notes were ultimately treated as equity rather than debt for    
United States federal income tax purposes, a United States Alien Holder who is  
treated as the owner of, or has made certain lifetime transfers of, an          
interest in the Notes will be required to include the value thereof in his or   
her gross estate for United States federal estate tax purposes, and may be      
subject to United States federal estate tax unless an applicable estate tax     
treaty provides otherwise.                                                      

Backup Withholding and Information Reporting                                  

Under current Treasury Regulations, backup withholding (31%) will not apply 
to payments by the Company made on a Note if the certifications required by     
Sections 871(h) and 881(c) of the Code are received, provided in each case      
that the Company or such paying agent, as the case may be, does not have        
actual knowledge that the payee is a United States person.                      

Under current Treasury Regulations, payments on the sale, exchange or other 
disposition of a Note made to or through a foreign office of a broker           
generally will not be subject to backup withholding. However, if such broker    
is a United States person, a controlled foreign corporation for United States   
tax purposes, a foreign person 50 percent or more of whose gross income is      
effectively connected with a United States trade or business for a              

141 

S-4/A
143rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 143rd
specified three-year period or another United States related person described   
in Section 1.6049-5(c)(5) of the Treasury Regulations, information reporting    
will be required unless the broker has in its records documentary evidence      
that the beneficial owner is not a United States person and certain other       
conditions are met or the beneficial owner otherwise establishes an exemption.  
Under recently finalized Treasury Regulations, backup withholding may apply to  
any payment made after December 31, 1998 which such broker is required to       
report if such broker has actual knowledge that the payee is a United States    
person. Payments to or through the United States office of a broker will be     
subject to backup withholding and information reporting unless the Holder       
certifies, under penalties of perjury, that it is not a United States person    
or otherwise establishes an exemption.                                          

United States Alien Holders of Notes should consult their tax advisors      
regarding the application of information reporting and backup withholding in    
their particular situations, the availability of an exemption therefrom, and    
the procedure for obtaining such an exemption, if available. Any amounts        
withheld from a payment to a United States Alien Holder under the backup        
withholding rules will be allowed as a credit against such Holder's United      
States federal income tax liability and may entitle such Holder to a refund,    
provided that the required information is furnished to the Internal Revenue     
Service.                                                                        

PLAN OF DISTRIBUTION  

Each broker-dealer that receives Exchange Notes for its own account         
("Participating Broker-Dealer") pursuant to the Exchange Offer must             
acknowledge that it will deliver a prospectus in connection with any resale of  
such Exchange Notes. This Prospectus, as it may be amended or supplemented      
from time to time, may be used by a Participating Broker-Dealer in connection   
with resales of Exchange Notes received in exchange for Old Notes where such    
Old Notes were acquired as a result of market-making activities or other        
trading activities. The Company has agreed that, for a period of 180 days       
after the Expiration Date, it will make this Prospectus, as amended or          
supplemented, available to any Participating Broker-Dealer for use in           
connection with any such resale. In addition, until       , 1998 (90 days       
after the date of this Prospectus), all dealers effecting transactions in the   
Exchange Notes may be required to deliver a prospectus.                         

The Company will not receive any proceeds from any sale of Exchange Notes by
Participating Broker-Dealers. Exchange Notes received by Participating Broker-  
Dealers for their own account pursuant to the Exchange Offer may be sold from   
time to time in one or more transactions in the over-the-counter market, in     
negotiated transactions, through the writing of options on the Exchange Notes   
or a combination of such methods of resale, at market prices prevailing at the  
time of resale, at prices related to such prevailing market prices or           
negotiated prices. Any such resale may be made directly to purchasers or to or  
through brokers or dealers who may receive compensation in the form of          
commissions or concessions from any such Participating Broker-Dealer or the     
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that     
resells Exchange Notes that were received by it for its own account pursuant    
to the Exchange Offer and any broker or dealer that participates in a           
distribution of such Exchange Notes may be deemed to be an "underwriter"        
within the meaning of the Securities Act and any profit on any such resale of   
Exchange Notes and any commission or concessions received by any such persons   
may be deemed to be underwriting compensation under the Securities Act. The     
Letter of Transmittal states that, by acknowledging that it will deliver and    
by delivering a prospectus, a Participating Broker-Dealer will not be deemed    
to admit that it is an "underwriter" within the meaning of the Securities Act.  

For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to    
this Prospectus to any Participating Broker-Dealer that requests such           
documents in the Letter of Transmittal. The Company has agreed to pay all       
expenses incident to the Exchange Offer (including the reasonable expenses of   
one counsel for the holders of the Notes) other than commissions or             
concessions of any brokers or dealers and will indemnify the holders of the     
Notes (including any broker-dealers) against certain liabilities, including     
liabilities under the Securities Act.                                           

142 

S-4/A
144th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 144th
LEGAL MATTERS 

The validity of the Exchange Notes offered hereby will be passed upon for   
the Company by Davis Polk & Wardwell, New York, New York.                       

EXPERTS 

The consolidated financial statements of the Company as of December 31, 1995
and 1996 and for each of the periods in the three year period ended December    
31, 1996 included in this Prospectus, have been audited by KPMG Peat Marwick    
LLP, independent auditors, as set forth in their report appearing herein and    
are included in reliance upon the report of such firm given and upon their      
authority as experts in accounting and auditing. The report of KPMG Peat        
Marwick LLP contains an explanatory paragraph indicating that the Company's     
recurring losses from operations and its limited sources of additional          
liquidity raise substantial doubt about the Company's ability to continue as a  
going concern. In addition, their report refers to the application of fresh     
start reporting in connection with the '95 Reorganization.                      

143 

S-4/A
145th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 145th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                                        PAGE NO.
                                                                        --------
                                                                                
FINANCIAL STATEMENTS:                                                           
Independent Auditors' Report..........................................     F-2  
Statements of Consolidated Operations for the Year Ended December 31,           
 1996, the Four Months Ended December 31, 1995, the Eight Months Ended          
 August 31, 1995, and the Year Ended December 31, 1994................     F-3  
Consolidated Balance Sheets, December 31, 1996 and 1995...............     F-4  
Statements of Consolidated Cash Flows for the Year Ended December 31,           
 1996, the Four Months Ended December 31, 1995, the Eight Months Ended          
 August 31, 1995, and the Year Ended December 31, 1994................     F-6  
Consolidated Statements of Shareholders' Equity (Deficiency) for the            
 Year Ended December 31, 1996, the Four Months Ended December 31,               
 1995, the Eight Months Ended August 31, 1995, and the Year Ended               
 December 31, 1994....................................................     F-8  
Notes to Consolidated Financial Statements............................     F-9  
Unaudited Statements of Consolidated Operations for the Three Months            
 and Nine Months Ended September 30, 1997 and 1996 ...................    F-44  
Consolidated Balance Sheets, September 30, 1997 (unaudited) and                 
 December 31, 1996....................................................    F-45  
Unaudited Statements of Consolidated Cash Flows for the Nine Months             
 Ended September 30, 1997 and 1996....................................    F-47  
Notes to Unaudited Consolidated Financial Statements..................    F-49  

F-1 

S-4/A
146th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 146th
INDEPENDENT AUDITORS' REPORT  

The Board of Directors and Stockholders                                         
Trans World Airlines, Inc.                                                    

We have audited the accompanying consolidated balance sheets of Trans World 
Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and the       
related statements of consolidated operations, cash flows and shareholders'     
equity (deficiency) for the year ended December 31, 1996, the four months       
ended December 31, 1995, the eight months ended August 31, 1995 and the year    
ended December 31, 1994. These consolidated financial statements are the        
responsibility of the Company's management. Our responsibility is to express    
an opinion on these consolidated financial statements based on our audits.      

We conducted our audits in accordance with generally accepted auditing      
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the financial statements are free of  
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

In our opinion, the consolidated financial statements referred to above     
present fairly, in all material respects, the financial position of Trans       
World Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and     
the results of their operations and their cash flows for the year ended         
December 31, 1996, the four months ended December 31, 1995, the eight months    
ended August 31, 1995 and the year ended December 31, 1994, in conformity with  
generally accepted accounting principles.                                       

As discussed in Note 3 to the consolidated financial statements, the        
consolidated financial statements reflect the application of fresh start        
reporting as of September 1, 1995 and, therefore, are not comparable in all     
respects to the consolidated financial statements for periods prior to such     
date.                                                                           

The accompanying consolidated financial statements have been prepared       
assuming that Trans World Airlines, Inc. and subsidiaries will continue as a    
going concern. The Company's recurring losses from operations and its limited   
sources of additional liquidity raise substantial doubt about the entity's      
ability to continue as a going concern. Management's plans in regard to these   
matters are described in Note 1. The consolidated financial statements do not   
include any adjustments that might result from the outcome of this              
uncertainty.                                                                    

                         KPMG PEAT MARWICK LLP

Kansas City, Missouri                                                           
March 24, 1997                                                                  

F-2 

S-4/A
147th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 147th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED OPERATIONS 

FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 

                                                        [Enlarge/Download Table]

                                                                             REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                          ------------------------- -------------------------
                                                                              YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                             ENDED        ENDED        ENDED        ENDED    
                                                                          DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                              1996         1995         1995         1994    
                                                                          ------------ ------------ ------------ ------------
                                                                                                                             
Operating revenues:                                                                                                          
  Passenger..............................................................  $3,077,905   $  943,077   $1,929,166   $2,875,851 
  Freight and mail.......................................................     153,076       48,384       94,784      149,932 
  All other..............................................................     323,426      107,013      194,405      381,919 
                                                                           ----------   ----------   ----------   ---------- 
    Total................................................................   3,554,407    1,098,474    2,218,355    3,407,702 
                                                                           ----------   ----------   ----------   ---------- 
Operating expenses:                                                                                                          
  Salaries, wages and benefits...........................................   1,254,341      373,041      755,708    1,293,570 
  Earned stock compensation (Note 12)....................................       9,056        2,192       55,767          --  
  Aircraft fuel and oil..................................................     585,163      161,799      296,833      477,555 
  Passenger sales commissions............................................     268,131       80,045      185,981      288,000 
  Aircraft maintenance materials and repair..............................     208,183       51,998       95,657      145,321 
  Depreciation and amortization..........................................     161,822       55,168      106,474      183,283 
  Operating lease rentals................................................     302,990       96,393      182,548      261,365 
  Passenger food and beverages...........................................     110,092       34,676       68,137      120,804 
  Special charges (Note 16)..............................................      85,915          --         1,730      138,849 
  All other..............................................................     767,241      232,716      454,878      778,449 
                                                                           ----------   ----------   ----------   ---------- 
    Total................................................................   3,752,934    1,088,028    2,203,713    3,687,196 
                                                                           ----------   ----------   ----------   ---------- 
Operating income (loss)..................................................    (198,527)      10,446       14,642     (279,494)
                                                                           ----------   ----------   ----------   ---------- 
Other charges (credits):                                                                                                     
  Interest expense (contractual interest of $141,967 for the eight months                                                    
   ended August 31, 1995)................................................     126,822       45,917      123,247      195,352 
  Interest and investment income.........................................     (21,309)      (7,484)     (10,366)     (12,058)
  Disposition of assets, gains and losses--net (Note 15).................       1,135       (3,330)         206       (1,072)
  Reorganization items (Note 19).........................................         --           --       242,243          --  
  Other charges and credits--net (Note 17)...............................     (30,598)       7,611       (2,379)     (28,847)
                                                                           ----------   ----------   ----------   ---------- 
    Total................................................................      76,050       42,714      352,951      153,375 
                                                                           ----------   ----------   ----------   ---------- 
Loss before income taxes and extraordinary items.........................    (274,577)     (32,268)    (338,309)    (432,869)
Provision (credit) for income taxes (Note 5).............................         450        1,370          (96)         960 
                                                                           ----------   ----------   ----------   ---------- 
Loss before extraordinary items..........................................    (275,027)     (33,638)    (338,213)    (433,829)
Extraordinary items, net of income taxes (Note 14).......................      (9,788)       3,500      140,898       (2,005)
                                                                           ----------   ----------   ----------   ---------- 
Net loss.................................................................    (284,815)     (30,138)    (197,315)    (435,834)
Preferred stock dividend requirements....................................      36,649        4,751       11,554       15,000 
                                                                           ----------   ----------   ----------   ---------- 
Loss applicable to common shares.........................................  $ (321,464)  $  (34,889)  $ (208,869)  $ (450,834)
                                                                           ==========   ==========   ==========   ========== 
Per share amounts:                                                                                                           
  Loss before extraordinary item and special dividend requirements.......  $    (6.60)  $    (1.15)                          
  Extraordinary item and special dividend requirements...................        (.67)         .10                           
                                                                           ----------   ----------                           
  Net loss...............................................................  $    (7.27)  $    (1.05)                          
--------------------------------------------------                                                                           
                                                                           ==========   ==========                           

See notes to consolidated financial statements

F-3 

S-4/A
148th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 148th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS)

                                                                [Download Table]

                                                           REORGANIZED COMPANY 
                                                          ---------------------
                                                             1996       1995   
                                                          ---------- ----------
                                                                               
                         ASSETS                                                
Current assets:                                                                
  Cash and cash equivalents.............................. $  181,586 $  304,340
  Receivables, less allowance for doubtful accounts,                           
   $12,939 in 1996 and $13,517 in 1995 (Note 8)..........    239,496    226,451
  Spare parts, materials and supplies, less allowance for                      
   obsolescence, $11,563 in 1996 and $2,201 in 1995 (Note                      
   8)....................................................    111,239    143,374
  Prepaid expenses and other.............................     93,424     63,136
                                                          ---------- ----------
      Total..............................................    625,745    737,301
                                                          ---------- ----------
Property (Notes 8, 9 and 18):                                                  
  Property owned:                                                              
  Flight equipment.......................................    339,150    303,248
  Prepayments on flight equipment........................     39,072        -- 
  Land, buildings and improvements.......................     59,879     54,722
  Other property and equipment...........................     60,750     39,032
                                                          ---------- ----------
      Total owned property...............................    498,851    397,002
  Less accumulated depreciation..........................     71,810     18,769
                                                          ---------- ----------
      Property owned--net................................    427,041    378,233
                                                          ---------- ----------
  Property held under capital leases:                                          
    Flight equipment.....................................    172,812    172,812
    Land, buildings and improvements.....................     54,761     54,761
    Other property and equipment.........................      6,570      6,862
                                                          ---------- ----------
      Total property held under capital leases...........    234,143    234,435
    Less accumulated amortization........................     46,977     12,602
                                                          ---------- ----------
      Property held under capital leases--net............    187,166    221,833
                                                          ---------- ----------
      Total property--net................................    614,207    600,066
                                                          ---------- ----------
Investments and other assets:                                                  
  Investments in affiliated companies (Note 4)...........    108,173     98,156
  Investments, receivables and other (Note 9)............    149,028    156,693
  Routes, gates and slots-net............................    401,659    450,916
  Reorganization value in excess of amounts allocable to                       
   identifiable assets--net..............................    783,127    825,079
                                                          ---------- ----------
      Total..............................................  1,441,987  1,530,844
                                                          ---------- ----------
                                                          $2,681,939 $2,868,211
                                                          ========== ==========

See notes to consolidated financial statements

F-4 

S-4/A
149th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 149th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 

                                                                [Download Table]

                                                          REORGANIZED COMPANY   
                                                         ---------------------- 
                                                            1996        1995    
                                                         ----------  ---------- 
                                                                                
   LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)                            
Current liabilities:                                                            
  Current maturities of long-term debt (Note 8)........  $   92,447  $   67,566 
  Current obligations under capital leases (Note 9)....      42,501      42,835 
  Advance ticket sales.................................     241,516     209,936 
  Accounts payable, principally trade..................     216,675     137,140 
  Accounts payable to affiliated companies (Note 4)....       4,894       6,104 
  Accrued expenses:                                                             
    Employee compensation and vacations earned.........     116,846     101,637 
    Contributions to retirement and pension trusts                              
     (Note 6)..........................................      14,091      17,716 
    Interest on debt and capital leases................      39,420      44,710 
    Taxes..............................................      19,018      16,995 
    Other accrued expenses.............................     174,753     174,575 
                                                         ----------  ---------- 
      Total accrued expenses...........................     364,128     355,633 
                                                         ----------  ---------- 
      Total............................................     962,161     819,214 
                                                         ----------  ---------- 
Long-Term Liabilities and Deferred Credits:                                     
  Long-term debt, less current maturities (Note 8).....     608,485     764,031 
  Obligations under capital leases, less current                                
   obligations (Note 9)................................     220,790     259,630 
  Postretirement benefits other than pensions (Note 6).     471,171     461,346 
  Noncurrent pension liabilities (Note 6)..............      30,716      21,253 
  Other noncurrent liabilities and deferred credits....     150,511     178,452 
                                                         ----------  ---------- 
      Total............................................   1,481,673   1,684,712 
                                                         ----------  ---------- 
Mandatorily redeemable 12% preferred stock, (aggregate                          
 liquidation preference of $111,179 in 1995) (Note 10).         --       61,430 
                                                         ----------  ---------- 
Commitments and Contingent Liabilities (Notes 1, 2, 3,                          
 6, 7, 8, 9, 11, 12, 16, 18)...........................                         
Shareholders' equity:                                                           
  8% cumulative convertible exchangeable preferred                              
   stock, $50 liquidation preference; 3,869 shares                              
   issued and outstanding..............................          39         --  
  Employee preferred stock, $0.01 liquidation                                   
   preference; special voting rights; shares issued and                         
   outstanding; 1996-5,681; 1995-5,277.................          57          53 
  Common Stock, $0.01 par value; shares issued and                              
   outstanding; 1996-41,763; 1995-35,129...............         418         351 
  Additional paid-in capital...........................     552,544     332,589 
  Accumulated deficit..................................    (314,953)    (30,138)
                                                         ----------  ---------- 
      Total............................................     238,105     302,855 
                                                         ----------  ---------- 
                                                         $2,681,939  $2,868,211 
                                                         ==========  ========== 

See notes to consolidated financial statements

F-5 

S-4/A
150th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 150th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED CASH FLOWS 

FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                             REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                          ------------------------- -------------------------
                                                                              YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                             ENDED        ENDED        ENDED        ENDED    
                                                                          DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                              1996         1995         1995         1994    
                                                                          ------------ ------------ ------------ ------------
                                                                                                                             
Cash Flows from Operating Activities:                                                                                        
Net loss.................................................................  $(284,815)    $(30,138)   $(197,315)   $(435,834) 
Adjustments to reconcile net loss to net cash provided (used) by                                                             
 operating activities:                                                                                                       
 Employee earned stock compensation......................................      9,056        2,192       55,767          --   
 Depreciation and amortization...........................................    161,822       55,168      106,474      183,283  
 Amortization of discount and expenses on debt...........................     14,744        3,063       12,472       18,571  
 Extraordinary loss (gain) on extinguishment of debt.....................      9,788       (3,500)    (140,898)         --   
 Interest paid in common stock...........................................     11,332       11,587          --           --   
 Equity in undistributed earnings of affiliates not consolidated.........    (10,017)      12,169       (2,339)       5,517  
 Revenue from Icahn ticket program.......................................    (71,534)      (4,356)         --           --   
 Net gains-losses on disposition of assets...............................      1,135       (3,330)         206       (1,072) 
 Non-cash special charges................................................     85,915          --           --       119,829  
 Reorganization items....................................................        --           --       242,243          --   
 Change in operating assets and liabilities:                                                                                 
 Decrease (increase) in:                                                                                                     
  Receivables............................................................      3,927       69,121      (62,094)      37,628  
  Inventories............................................................     (4,897)         510        5,866        1,259  
  Prepaid expenses and other current assets..............................    (28,288)      23,241       (8,894)       2,734  
  Other assets...........................................................        111       (3,088)      (1,586)     (10,079) 
 Increase (decrease) in:                                                                                                     
  Accounts payable and accrued expenses..................................     83,840      (41,989)     108,669       48,499  
  Advance ticket sales...................................................     19,698      (39,350)      81,598      (33,890) 
  Benefits, other noncurrent liabilities and deferred credits............     (7,505)      (6,387)     (28,160)      65,182  
                                                                           ---------     --------    ---------    ---------  
   Net cash provided (used)..............................................     (5,688)      44,913      172,009        1,627  
                                                                           ---------     --------    ---------    ---------  
Cash Flows from Investing Activities:                                                                                        
Proceeds from sales of property..........................................      3,234        7,069        2,221       76,240  
Capital expenditures.....................................................   (121,547)     (42,973)     (16,554)     (44,897) 
Net decrease (increase) in investments, receivables and other............     10,941          842       26,064       27,962  
                                                                           ---------     --------    ---------    ---------  
   Net cash provided (used)..............................................   (107,372)     (35,062)      11,731       59,305  
                                                                           ---------     --------    ---------    ---------  
Cash Flows from Financing Activities:                                                                                        
Proceeds from long-term debt issued......................................      2,750       22,100          --         6,213  
Proceeds from sale and leaseback of certain aircraft.....................     13,800          --           --           --   
Repayments on long-term debt and capital lease obligations...............   (117,203)     (39,654)     (62,158)    (116,331) 
Net proceeds from sale of preferred stock................................    186,163          --           --           --   
Net proceeds from exercise of equity rights, warrants and options........      1,034       51,930          --           --   
Redemption of 12% Preferred Stock........................................    (81,749)         --           --           --   
Cash dividends paid on preferred stock...................................    (14,489)         --           --           --   
                                                                           ---------     --------    ---------    ---------  
   Net cash provided (used)..............................................     (9,694)      34,376      (62,158)    (110,118) 
                                                                           ---------     --------    ---------    ---------  
Net increase (decrease) in cash and cash equivalents.....................   (122,754)      44,227      121,582      (49,186) 
Cash and cash equivalents at beginning of period.........................    304,340      260,113      138,531      187,717  
                                                                           ---------     --------    ---------    ---------  
Cash and cash equivalents at end of period...............................  $ 181,586     $304,340    $ 260,113    $ 138,531  
--------------------------------------------------                                                                           
                                                                           =========     ========    =========    =========  

See notes to consolidated financial statements

F-6 

S-4/A
151st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 151st
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED CASH FLOWS 

FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)

SUPPLEMENTAL CASH FLOW INFORMATION

                                                        [Enlarge/Download Table]

                                                                             REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                          ------------------------- -------------------------
                                                                              YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                             ENDED        ENDED        ENDED        ENDED    
                                                                          DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                              1996         1995         1995         1994    
                                                                          ------------ ------------ ------------ ------------
                                                                                                                             
Cash Paid During the Period for:                                                                                             
  Interest...............................................................   $102,311     $27,318      $55,878      $110,287  
                                                                            ========     =======      =======      ========  
  Income taxes...........................................................   $    159     $     7      $    39      $     24  
                                                                            ========     =======      =======      ========  
Information About Noncash Operating, Investing and Financing Activities:                                                     
  Promissory notes issued to finance aircraft acquisition................   $ 10,565     $   --       $   --       $    --   
                                                                            ========     =======      =======      ========  
  Promissory notes issued to finance aircraft predelivery payments.......   $ 19,862     $   --       $12,690      $  7,000  
                                                                            ========     =======      =======      ========  
  Property acquired and obligations recorded under new capital lease                                                         
   transactions..........................................................   $  4,266     $   --       $12,690      $  7,000  
                                                                            ========     =======      =======      ========  
  Partial interest on debt paid in kind, issued and valued at principal                                                      
   amount................................................................   $    --      $   574      $18,496      $    --   
                                                                            ========     =======      =======      ========  
  Common Stock issued in lieu of cash dividends on mandatorily redeemable                                                    
   12% preferred stock...................................................   $  3,255     $   --       $   --       $    --   
                                                                            ========     =======      =======      ========  
  Exchange of long-term debt for common stock:                                                                               
    Debt cancelled including accrued interest, net of unamortized                                                            
     discount............................................................   $ 41,021     $   --       $   --       $    --   
    Common stock issued, at fair value...................................     49,182         --           --            --   
                                                                            --------     -------      -------      --------  
    Extraordinary loss...................................................   $  8,161     $   --       $   --       $    --   
--------------------------------------------------                                                                           
                                                                            ========     =======      =======      ========  

ACCOUNTING POLICY                                                               

For purposes of the Statements of Consolidated Cash Flows, TWA considers all
highly liquid debt instruments purchased with a maturity of three months or     
less to be cash equivalents.                                                    

See notes to consolidated financial statements

F-7 

S-4/A
152nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 152nd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                ADDITIONAL                       
                             12%       8%     EMPLOYEE           PAID-IN                         
                          PREFERRED PREFERRED PREFERRED COMMON   CAPITAL    ACCUMULATED          
                            STOCK     STOCK     STOCK   STOCK  (DEFICIENCY)   DEFICIT    TOTAL   
                          --------- --------- --------- ------ ------------ ----------- -------- 
                                                                                                 
PREDECESSOR COMPANY:                                                                             
Balance, December 31,                                                                            
 1993...................    $125      $--       $--      $200    $105,925    $ (87,892) $ 18,358 
Net loss for 1994.......     --        --        --       --          --      (435,834) (435,834)
                            ----      ----      ----     ----    --------    ---------  -------- 
Balance, December 31,                                                                            
 1994...................     125       --        --       200     105,925     (523,726) (417,476)
Net loss for the eight                                                                           
 months ended August 31,                                                                         
 1995...................     --        --        --       --          --      (197,315) (197,315)
Eliminate Predecessor                                                                            
 equity accounts in                                                                              
 connection with fresh                                                                           
 start reporting........    (125)      --        --      (200)   (105,925)      35,817   (70,433)
Record additional excess                                                                         
 of reorganization value                                                                         
 over identifiable                                                                               
 assets.................     --        --        --       --          --       685,224   685,224 
Issuance of Common and                                                                           
 Employee Preferred                                                                              
 Stock pursuant to Plan      --        --         53      172     269,775          --    270,000 
 of Reorganization......    ----      ----      ----     ----    --------    ---------  -------- 
Balance, August 31,                                                                              
 1995...................     --        --         53      172     269,775          --    270,000 
                            ----      ----      ----     ----    --------    ---------  -------- 
REORGANIZED COMPANY:                                                                             
Equity rights exercised.     --        --        --       132      51,727          --     51,859 
Interest on 12% Notes                                                                            
 paid in Common Stock...     --        --        --        19      11,568          --     11,587 
Options and warrants                                                                             
 exercised..............     --        --        --        28          43          --         71 
Earned Stock                                                                                     
 Compensation...........     --        --        --       --        2,046          --      2,046 
Amortization of the                                                                              
 excess of redemption                                                                            
 value over carrying                                                                             
 value of Mandatorily                                                                            
 Redeemable 12%                                                                                  
 Preferred Stock........     --        --        --       --       (2,570)         --     (2,570)
Net loss for the four                                                                            
 months ended                --        --        --       --          --       (30,138)  (30,138)
 December 31, 1995......    ----      ----      ----     ----    --------    ---------  -------- 
Balance, December 31,                                                                            
 1995...................     --        --         53      351     332,589      (30,138)  302,855 
                            ----      ----      ----     ----    --------    ---------  -------- 
Warrants exercised......     --        --        --         4          68          --         72 
Options exercised.......     --        --        --         2       1,248          --      1,250 
Earned Stock                                                                                     
 Compensation...........     --        --        --       --        6,875          --      6,875 
Allocation of employee                                                                           
 preferred stock to ALPA                                                                         
 ESOP...................     --        --          6      --           (6)         --        --  
Conversion of employee                                                                           
 preferred stock to                                                                              
 Common Stock...........     --        --         (2)       2         --           --        --  
Net proceeds from                                                                                
 issuance of 8%                                                                                  
 preferred stock........     --         39       --       --      186,124          --    186,163 
Dividends on 8%                                                                                  
 preferred stock paid in                                                                         
 cash...................     --        --        --       --      (11,349)         --    (11,349)
Dividends on mandatorily                                                                         
 redeemable 12%                                                                                  
 preferred stock paid in                                                                         
 Common Stock...........     --        --        --         3          (3)         --        --  
Dividends on mandatorily                                                                         
 redeemable 12%                                                                                  
 preferred stock paid in                                                                         
 cash...................     --        --        --       --       (3,140)         --     (3,140)
Amortization of the                                                                              
 excess of redemption                                                                            
 value over carrying                                                                             
 value of mandatorily                                                                            
 redeemable 12%                                                                                  
 preferred stock........     --        --        --       --         (328)         --       (328)
Excess of cash paid for                                                                          
 early redemption of                                                                             
 mandatorily redeemable                                                                          
 12% preferred stock                                                                             
 over carrying value....     --        --        --       --      (19,992)         --    (19,992)
Common Stock issued in                                                                           
 exchange for 12% notes.     --        --        --        45      49,137          --     49,182 
Interest on 12% Notes                                                                            
 paid in Common Stock...     --        --        --        11      11,321          --     11,332 
Net loss for 1996.......     --        --        --       --          --      (284,815) (284,815)
                            ----      ----      ----     ----    --------    ---------  -------- 
Balance, December 31,                                                                            
 1996...................    $--       $ 39      $ 57     $418    $552,544    $(314,953) $238,105 
                            ====      ====      ====     ====    ========    =========  ======== 

See notes to consolidated financial statements

F-8 

S-4/A
153rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 153rd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

1. FINANCIAL CONDITION AND LIQUIDITY:                                           

Trans World Airlines, Inc. ("TWA" or the "Company") has undergone two       
reorganizations under Chapter 11 of the Bankruptcy Code since 1992, as further  
described in Note 3--Chapter 11 Reorganizations. In August 1995 the Company     
emerged from the most recent bankruptcy proceeding and thereafter, through the  
second quarter of 1996, the Company had experienced improvements in its         
operating performance as operating income had increased to $7.8 million in six  
months ended June 30, 1996, as compared to an operating loss of $21.9 million   
in the same period of 1995. However, beginning in the third quarter of 1996,    
the Company's operating performance substantially deteriorated as the           
Company's operating profit for the third quarter, typically the strongest       
period of the year, declined to $26.0 million in the three months ended         
September 30, 1996, as compared to a combined operating profit (excluding       
special charges and earned stock compensation charges aggregating $57.9         
million) of $103.7 million in the comparable period of the prior year. The      
results of the fourth quarter of 1996 evidenced a further acceleration of       
deterioration as the Company reported an operating loss (excluding special      
charges) of $146.5 million, as compared to operating income of $1.1 million in  
the same period of 1995. In the second half of 1996, the Company's revenues     
increased only 2.4%, while capacity operated, measured in ASMs, increased by    
6.9%, as compared to the second half of 1995. Operating costs, excluding        
earned stock compensation and special charges, increased 16.0% over this same   
period. The most significant increases were; salaries, wages and benefits       
($82.4 million), which reflected the increased number of employees and          
additional overtime costs; fuel ($69.4 million), reflecting significantly       
higher units costs and increased usage; and maintenance costs. Notwithstanding  
the actions taken and planned by management to improve the Company's future     
operating results as described below, management expects that its first         
quarter 1997 operating loss will significantly exceed that reported in the      
first quarter of 1996.                                                          

In light of the deterioration in the Company's operating results, management
has over the last several months refocused and accelerated certain aspects of   
its business strategy, including its fleet modernization and consolidation      
plan, route structure and facility improvements and efficiencies. Management    
believes that its recent operating results have been adversely affected by an   
aggressive increase in capacity, which when combined with unexpected            
maintenance delays and related costs, has negatively impacted schedule          
reliability resulting in excessive levels of flight cancellations and           
deterioration in its on-time performance. The Company believes that this has    
adversely affected its unit revenues (principally yields) and costs. In         
response to these issues, management has taken action to accelerate the phase   
out of all B-747 and L-1011 aircraft, reduce low yield domestic JFK feed        
service, curtail and/or eliminate historically unprofitable international       
routes and consolidate for the near term most operations at JFK to a single     
terminal. The above actions are designed to improve its operational             
performance and make its product more attractive to the business segment which  
offers higher yields. The Company has also curtailed the amount of contract     
maintenance services provided to third parties and redeployed those resources   
to TWA's aircraft. Furthermore, the Company has reviewed its route structure    
and fleet plan. The Company recently announced that it would discontinue        
service to Athens and Frankfurt and that it would undertake to accelerate the   
replacement of its L-1011 and B-747 aircraft with newer and smaller sized       
aircraft, specifically B-757, B-767 and MD-80 aircraft. Management believes     
such aircraft will better match the market demands in cities served and         
provide efficiencies relative to the costs of fuel, flight crews and            
maintenance. The Company plans to retire its remaining fleet of L-1011 and B-   
747 aircraft in 1997, although the implementation of this plan could be         
delayed if suitable replacement aircraft can not be obtained within this time   
frame. The Company has also determined to consolidate a substantial potion of   
its operations at JFK into a single terminal which should result in reductions  
in labor and other costs and improve the overall utilization of this facility.  
In connection with the above described plans, management has announced a        
comparable reduction in employee headcount. Management may undertake further    
actions to reduce costs which may result in additional reductions of the        
number of employees.                                                            

The Company's consolidated cash and cash equivalents balance at December 31,
1996 was $181.6 million (including approximately $28.3 million in cash and      
cash equivalents held in its international operations and by                    

F-9 

S-4/A
154th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 154th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

its subsidiaries which, based upon various foreign monetary regulations and     
other factors, might not be immediately available to the Company), a $122.7     
million decrease from the December 31, 1995 balance of $304.3 million. Due to   
seasonal factors, the Company's cash balances during the first quarter of each  
year are typically lower than in other periods. These seasonal factors, when    
combined with the large anticipated loss in the first quarter of 1997 which     
would significantly exceed the loss reported in the comparable quarter of       
1996, will reduce cash balances significantly below the cash balance at         
December 31, 1996. In February 1997, in order to improve its liquidity, the     
Company entered into an agreement with and received approximately $26 million   
from certain St. Louis business enterprises, representing the advance payment   
for tickets for future travel by such enterprises. The Company is currently     
pursuing other projects intended to increase its cash balances.                 

The Company's collective bargaining agreements with all of its union-       
represented employee groups, which represent approximately 82% of the           
Company's work force, become amendable after August 31, 1997. While the         
Company cannot predict the precise wage rates that will be in effect at such    
time (since such rates will be determined by subsequent events), the wage       
rates then in effect will likely increase. However, management believes that    
it is essential that the Company's labor costs remain favorable in comparison   
to its largest competitors. The Company will seek to continue to improve        
employee productivity as an offset to any wage increases and will continue to   
explore other ways to control and/or reduce operating expenses. There can be    
no assurance that the Company will be successful in obtaining such              
productivity improvements or unit cost reductions. In the opinion of            
management, the Company's financial resources are not as great as those of      
most of its competitors and, therefore, any substantial increase in its labor   
cost as a result of any new labor agreements or any cessation or disruption of  
operation due to any strike or work action could be particularly damaging to    
the Company.                                                                    

As a result of application of fresh start reporting in August of 1995,      
substantial values were assigned to routes, gates and slots ($458.4 million)    
and reorganization value in excess of amounts allocable to identifiable assets  
($839.1 million). The Company has evaluated its future cash flows and,          
notwithstanding its substantial operating losses in recent periods, expects     
that the carrying value of the intangibles at December 31, 1996 will be         
recovered. However, the achievement of such improved future operating results   
and cash flows are subject to considerable uncertainties. In future periods     
these intangibles will be evaluated for recoverability based upon estimated     
future cash flows. If expectations are not substantially achieved, charges to   
future operations for impairment of those assets may be required and such       
changes could be material.                                                      

The accompanying consolidated financial statements have been prepared on a  
going concern basis which assumes continuity of operations and realization of   
assets and liquidation of liabilities in the ordinary course of business. The   
Company remains highly leveraged and substantially all of TWA's assets are and  
will likely remain subject to various liens and security interest, and many of  
its loan agreements contain mandatory prepayment provisions in the event that   
the assets are sold. Accordingly, management expects that TWA will not be able  
to rely, in any significant degree, on the proceeds from sales of assets to     
fund operations and that TWA may have limited sources of additional liquidity   
other than cash generated by operations. The Company's ability to improve its   
financial position and meet its financial obligations will depend upon a        
variety of factors including; significantly improved operating results,         
favorable domestic and international airfare pricing environments, absence of   
adverse general economic conditions, more effective operating cost controls     
and efficiencies, and the Company's ability to attract new capital and          
maintain adequate liquidity. No assurance can be given that the Company will    
be successful in generating the operating results or attracting new capital     
required for future viability.                                                  

As a result of the redemption of the 12% Mandatorily Redeemable Preferred   
Stock, certain of TWA's leasehold interests in domestic airport gates were      
released as collateral and are now unencumbered. As a result of the exchange    
of common stock for 12% Senior Secured Notes as described in Note 8, liens on   
the stock of                                                                    

F-10  

S-4/A
155th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 155th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

wholly owned subsidiary which owns TWA's interest in a hangar at Los Angeles    
International Airport and a floating lien on certain of TWA's domestic airport  
ground equipment were released as collateral and are also now unencumbered. In  
addition, based on the current level of outstanding 12% Senior Secured Notes,   
TWA expects that certain slots at New York's LaGuardia and JFK airports and     
Chicago's O'Hare airport will be released as security for the 12% Senior        
Secured Notes.                                                                  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

Accounting policies and methods of their application that significantly     
affect the determination of financial position, cash flows, and results of      
operations are as follows:                                                      

(a) Description of Business: TWA is one of the major airlines in the United 
States serving many of the principal domestic and transatlantic destinations.   
TWA's principal domestic routes include service to and from its St. Louis and   
New York-JFK hubs and between other cities in the U.S., both nonstop and        
through St. Louis. TWA's domestic routes also provide connections with its      
international service to and from U.S. cities and certain major cities in       
Europe and the Middle East (see Note 21).                                       

The airline industry is highly competitive and the factors affecting        
competition are subject to rapid change. Many of the Company's competitors are  
larger and have significantly greater financial resources. In addition,         
several carriers have introduced or have announced plans to introduce low-      
cost, short-haul service, which may result in increased competition to the      
Company. Internationally, TWA competes in several "limited entry" markets in    
which, as a result of governmental regulations and agreements with foreign      
governments, TWA has traditionally competed with a limited number of carriers.  
No assurance can be given that TWA will continue to have the advantage of all   
of the "limited entry" markets in which it currently operates or that it will   
not face substantial additional competition.                                    

Historically, the airline industry has experienced substantial volatility in
profitability as a result of, among other factors, general economic             
conditions, competitive pricing initiatives, the overall level of capacity      
operated in the industry and fuel prices. TWA continues to be highly leveraged  
and has and will continue to have significant debt service obligations. TWA     
presently has no unused credit lines and substantially all of TWA's strategic   
assets have been pledged to secure indebtedness of the Company.                 

(b) Fresh Start Reporting: Financial accounting during a Chapter 11         
proceeding is prescribed in "Statement of Position 90-7 of the American         
Institute of Certified Public Accountants", titled "Financial Reporting by      
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which TWA   
adopted effective June 30, 1995. The emergence from the 1995 Chapter 11         
proceeding (the "95 Reorganization") on August 23, 1995 (the "95 Effective      
Date"), resulted in the creation of new reporting entities without any          
accumulated deficit and with the Company's assets and liabilities restated to   
their estimated fair values (also see Note 19-Fresh Start Reporting). Because   
of the application of fresh start reporting, the financial statements for       
periods after reorganization are not comparable in all respects to the          
financial statements for periods prior to the 95 Reorganization.                

For periods during the Chapter 11 proceedings, prepetition liabilities which
were unsecured or estimated to be undersecured were classified as "Liabilities  
Subject to Compromise in the Chapter 11 Reorganization Proceedings." The        
accrual of interest on such liabilities was discontinued for the period from    
June 30, 1995 to the 95 Effective Date.                                         

(c) Consolidation: The consolidated financial statements include the        
accounts of TWA and its subsidiaries. All significant inter-company             
transactions have been eliminated. The results of Worldspan, L.P.               
("Worldspan"), a 25% owned affiliate are recorded under the equity method and   
are included in the Statements of Consolidated Operations in Other Charges      
(Credits). Certain amounts previously reported have been reclassified to        
conform with revised classifications.                                           

F-11  

S-4/A
156th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 156th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

(d) Property and Depreciation: Property and equipment owned are depreciated 
to residual values over their estimated useful service lives on the straight-   
line method. Property held under capital leases is amortized on the straight-   
line method over its estimated useful life, limited generally by the lease      
period. Estimated remaining useful service lives and residual values are        
reviewed periodically for reasonableness and any necessary change is effected   
at the beginning of the accounting period in which the revision is adopted. In  
connection with the application of fresh start reporting, no significant        
changes in the estimated useful lives of assets have been made.                 

Estimated useful service lives in effect for the purpose of computing the   
provision for depreciation, were:                                               

Flight equipment (aircraft and engines, including related               
spares)--16 to 25 years, varying by aircraft fleet type                 
Buildings--20 to 50 years                                               
Other equipment--3 to 20 years                                          
Leasehold improvements--Estimated useful life limited by the lease      
period                                                                  

Maintenance and repairs, including periodic aircraft overhauls, are expensed
in the year incurred; major renewals and betterments of equipment and           
facilities are capitalized and depreciated over the remaining life of the       
asset.                                                                          

(e) Intangible Assets: Route authorities are amortized on a straight line   
basis over 30 years (1), gates over the term of the related leases and slots    
over 20 years. Routes, gates and slots consist of the following amounts at      
December 31 (in thousands):                                                     

                                                                [Download Table]

                                                              1996     1995  
                                                            -------- --------
                                                                             
Routes..................................................... $248,100 $276,000
Gates......................................................   86,649   86,649
Slots......................................................   95,800   95,800
                                                            -------- --------
                                                             430,549  458,449
Accumulated Amortization...................................   28,890    7,533
                                                            -------- --------
                                                            $401,659 $450,916
                                                            ======== ========

--------                                                                        
(1) Prior to January 1, 1995, the Company utilized an estimated useful life     
for route authorities of 40 years (also see Note 16--Special Charges and
Other Nonrecurring Items).                                              

The reorganization value in excess of amounts allocable to identifiable     
assets is being amortized over a twenty year period on the straight-line        
method. Accumulated amortization at December 31, 1996 and 1995 was $55,937,000  
and $13,984,000, respectively.                                                  

When facts and circumstances suggest that intangible and other long-term    
assets may be impaired, the Company evaluates their recoverability based upon   
estimated undiscounted future cash flows over the remaining estimated useful    
lives. The amount of impairment, if any, is measured based on projected         
discounted future operating cash flows.                                         

(f) Foreign Exchange: Foreign currency and amounts receivable and payable in
foreign currencies are translated into U.S. dollars at current exchange rates   
on the date of the financial statements. Revenue and expense transactions are   
translated at average rates of exchange in a manner that produces               
approximately the same dollar amounts that would have resulted had the          
underlying transactions been translated into dollars on the dates they          
occurred. Exchange gains and losses are included in net income for the period   
in which the exchange rate changes.                                             

F-12  

S-4/A
157th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 157th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

(g) Inventories: Inventories, valued at standard cost, which approximates   
actual average unit cost, consist primarily of expendable spare parts used for  
the maintenance and repair of flight equipment, plus aircraft fuel and other    
operating supplies. A provision for obsolescence of spare parts is accrued at   
annual rates which will provide an allowance such that the unused inventory,    
at the retirement date of the related aircraft fleet, is reflected at the       
lower of cost or estimated net realizable value.                                

(h) Passenger Revenue Recognition: Passenger ticket sales are recognized as 
revenue when the transportation service is rendered. At the time of sale a      
current liability for advance ticket sales is established and subsequently is   
eliminated either through carriage of the passenger by TWA, through billing     
from another carrier that renders the service, or by refund to the passenger.   

Under TWA's "Frequent Flight Bonus Program" ("FFB"), frequent travelers may 
accumulate certain defined unit mileage credits which entitle them to a choice  
of various awards, including certain free air transportation on TWA at a        
future date. When the free travel award level is achieved by a frequent         
traveler, a liability is accrued and TWA's operating expense is charged for     
the estimated incremental cost which will be incurred by TWA upon the future    
redemption of the free travel awarded.                                          

Pursuant to the 1995 Restructuring, TWA issued 600,000 ticket vouchers, each
having a face value of $50, which may be used for a discount of up to 50% off   
the cost of a ticket for transportation on TWA. Concurrently, TWA entered into  
an agreement, as amended, to purchase for cash from a third party any ticket    
vouchers acquired by the stand-by purchaser. The ticket vouchers were           
initially recorded as a liability at their estimated fair value, approximately  
$26.2 million. The liability will be relieved in future periods as vouchers     
are redeemed for cash or will be reflected as revenue when the transportation   
is provided for tickets purchased with vouchers. Approximately 180,000 and      
396,000 vouchers were outstanding at December 31, 1996 and 1995, respectively.  

(i) Interest Capitalized: Interest cost associated with funds expended for  
the acquisition of qualifying assets is capitalized. Interest capitalized was   
$5,463,000 in 1996 and $2,133,000 in 1994. There was no interest capitalized    
during 1995.                                                                    

(j) Income Taxes: TWA accounts for income taxes based on Statement of       
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income         
Taxes". This statement requires the use of the liability method to record the   
deferred income tax consequences of differences between the financial           
reporting and income tax bases of assets and liabilities.                       

(k) Postretirement Benefits Other Than Pensions: TWA accounts for           
postretirement benefits other than pensions based on SFAS No. 106 which         
requires that the expected cost of providing such benefits be accrued over the  
years that the employee renders service, in a manner similar to the accounting  
for pension benefits.                                                           

(l) Deferred Credit-Aircraft Operating Leases: The present value of the     
excess of contractual rents due under aircraft operating leases over the fair   
rentals for such aircraft were recorded as deferred credits as part of the      
application of fresh start reporting. The deferred credit will be increased     
through the accrual of interest expense and reduced through a reduction in      
operating lease rentals over the terms of the respective aircraft leases. At    
December 31, 1996 and 1995, the unamortized balance of the deferred credits     
were $31,408,000 and $41,727,000 respectively.                                  

(m) Environmental Contingencies: TWA is subject to numerous environmental   
laws and regulations and is subject to liabilities and compliance costs         
arising from its past and current handling, processing, recycling, storing and  
disposing of hazardous substances and hazardous wastes. It is TWA's policy to   
accrue environmental remediation costs when it is probable that a liability     
has been incurred and an amount can be reasonably estimated. As potential       
environmental liabilities are identified and assessments and remediation        
proceed, these                                                                  

F-13  

S-4/A
158th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 158th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

accruals are reviewed periodically and adjusted, if necessary, as additional    
information becomes available. The accruals for these liabilities can           
significantly change due to factors such as the availability of additional      
information on the nature or extent of the contamination, methods and costs of  
required remediation and other actions by governmental agencies. Costs of       
future expenditures for environmental remediation obligations are not           
discounted to their present value.                                              

(n) Mandatorily Redeemable 12% Preferred Stock: The Mandatorily Redeemable  
12% Preferred Stock issued in connection with the 1995 Reorganization was       
initially recorded at its estimated fair value. Until its redemption in April   
1996, the carrying amount was being increased by amortization of the            
difference between the redemption value and the carrying amount, using the      
interest method. Such amounts were recorded as additional preferred stock       
dividend requirements. A special dividend requirement of approximately $20.0    
million was recorded in 1996 to reflect the excess of the early redemption      
price over the carrying value of the Mandatorily Redeemable 12% Preferred       
Stock.                                                                          

(o) Earnings (Loss) Per Share: In computing the loss applicable to common   
shares for 1996 and the four months ended December 31, 1995, the net loss has   
been increased by dividend requirements on the Mandatorily Redeemable 12%       
Preferred Stock (including amortization of the difference between the carrying  
amount and the redemption value and the special dividend requirement related    
to the early redemption in 1996) and on the 8% Cumulative Convertible           
Exchangeable Preferred Stock from the date of issuance in March 1996. In        
computing the related net loss per share, the loss applicable to common shares  
has been divided by the aggregate average number of outstanding shares of       
Common Stock (38.5 million in 1996 and 28.0 million in 1995) and Employee       
Preferred Stock (5.7 million in 1996 and 5.3 million in 1995) which, with the   
exception of certain special voting rights, is the functional equivalent of     
Common Stock. No effect has been given to stock options, warrants or potential  
issuances of additional Employee Preferred Stock as the impact would have been  
anti-dilutive. Earnings per share of the predecessor company are not presented  
as the amounts are not meaningful.                                              

(p) Concentration of Credit Risk: TWA does not believe it is subject to any 
significant concentration of credit risk. At December 31, 1996 most of the      
Company's receivables related to tickets sold to individual passengers through  
the use of major credit cards (37%) or to tickets sold by other airlines (16%)  
and used by passengers on TWA. These receivables are short-term, generally      
being settled shortly after sale or in the month following usage. Bad debt      
losses, which have been minimal in the past, have been considered in            
establishing allowances for doubtful accounts.                                  

(q) Use of Estimates: Management of the Company has made a number of        
estimates and assumptions relating to the reporting of assets and liabilities   
and the disclosure of contingent assets and liabilities to prepare these        
financial statements in conformity with generally accepted accounting           
principles. Actual results could differ from those estimates.                   

(r) Stock-Based Compensation: TWA applies APB Opinion No. 25 and related    
interpretations in accounting for its plans. This opinion allows for stock-     
based employee compensation to be recognized based on the intrinsic value.      

(s) Presentation: Certain prior period amounts have been reclassified to    
conform with current year presentation.                                         

3. CHAPTER 11 REORGANIZATIONS:                                                  

On January 31, 1992, TWA commenced a reorganization case (the "93           
Reorganization") by filing a voluntary petition for relief under Chapter 11,    
Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the    
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").    
TWA's subsidiary                                                                

F-14  

S-4/A
159th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 159th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

companies did not file for Chapter 11 protection. On August 12, 1993 the        
Bankruptcy Court entered an order confirming the "93 Reorganization, which was  
jointly proposed by TWA and the "Official Unsecured Creditors' Committee. The   
"93 Reorganization became effective on November 3, 1993 (the "93 Effective      
Date").                                                                         

Pursuant to the "93 Reorganization Plan, on the "93 Effective Date: (i) all 
prepetition interests in TWA (including TWA's previously existing preferred     
stock, preference stock and common stock) were cancelled without any            
consideration being distributed on account of those interests; (ii) nine        
million shares of newly authorized TWA common stock, representing 45% of TWA's  
then authorized common stock, were issued to trusts established for the         
benefit of TWA's domestic unionized and domestic non-unionized and management   
employees (the "Employee Stock Trusts") in exchange for certain wage, benefit   
and claim concessions granted pursuant to certain agreements entered into by    
TWA with its domestic unionized and domestic non-unionized and management       
employees (the "92 Labor Agreements"); (iii) 11 million shares of newly         
authorized common stock, representing 55% of TWA's authorized common stock,     
were issued to a voting trust established on the "93 Effective Date for the     
benefit of certain creditors of TWA in partial satisfaction and discharge of    
their claims, which trust issued 11 million Voting Trust Certificates ("VTCs")  
evidencing the rights of the VTC holders in the Voting Trust; (iv) 12.5         
million shares of newly authorized preferred stock were issued for the benefit  
of certain creditors of TWA in partial satisfaction and discharge of their      
claims; (v) new five year notes (the "10% Senior Secured Notes"), new seven     
year notes (the "8% Senior Secured Notes"), new eight year, 8% secured notes    
(the "IAM Back Pay Notes"), new equipment trust certificate notes (the "11%     
ETC Notes") and Aircraft Financing Secured Notes with varying interest rates    
and maturity dates (the "Aircraft Financing Notes"), the aggregate principal    
amount of which was approximately $730.6 million, were issued to certain        
creditors of TWA in full satisfaction and discharge of their claims; (vi) all   
claims except for certain claims to be reinstated under the "93 Reorganization  
Plan were discharged; (vii) certain contingent and/or unliquidated claims were  
settled and (viii) executory contracts and unexpired leases to which TWA was a  
party were assumed or rejected, in each case on the terms and subject to the    
conditions set forth in the "93 Reorganization.                                 

Notwithstanding the reductions in levels of debt and obligations achieved   
through the "93 Reorganization, TWA's operating results and cash flows did not  
meet the projected levels upon which the "93 Reorganization Plan was            
formulated, and in 1994 it was determined that a recapitalization of the        
Company was needed.                                                             

In the second quarter of 1995, the Company solicited and received sufficient
acceptances to effect the proposed "prepackaged" plan of bankruptcy.            
Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan    
of reorganization, which with certain modifications was confirmed by the        
United States Bankruptcy Court for the Eastern District of Missouri (the        
"Bankruptcy Court") on August 4, 1995. On August 23, 1995, approximately eight  
weeks after filing the prepackaged Chapter 11 plan, the "95 Reorganization      
became effective and the Company emerged from the protection of this second     
Chapter 11 proceeding. In connection with the "95 Reorganization, the Company   
(i) exchanged certain of its then outstanding debt securities for a             
combination of newly issued Mandatorily Redeemable 12% Preferred Stock, Common  
Stock, warrants to purchase Common Stock and debt securities, (ii) converted    
the then outstanding preferred stock of the Company to shares of Common Stock,  
warrants and equity rights, (iii) obtained certain short-term lease payment     
and conditional sale indebtedness deferrals amounting to approximately $91      
million and other modifications to certain aircraft leases and (iv) obtained    
an extension of the Company's approximately $190 million principal amount of    
indebtedness to certain entities controlled by Mr. Carl C. Icahn (the "Icahn    
Loans"). The Company also (i) effected a reverse stock split of its then        
outstanding common stock for Common Stock, (ii) completed an equity rights      
offering, (iii) distributed certain warrants to its then current equity         
holders and (iv) implemented certain amendments to the Company's Certificate    
of Incorporation.                                                               

In connection with and as a precondition to the "95 Reorganization, in      
August and September of 1994, the Company entered into new three-year labor     
agreements (the "94 Labor Agreements"), amending existing                       

F-15  

S-4/A
160th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 160th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

collective bargaining agreements with the three labor unions representing       
approximately 84% of the Company's employees, the IAM, ALPA and IFFA. The '94   
Labor Agreements provided for waiver of certain contractually agreed wage       
concessions, modifications to work rules and the deletion of certain            
provisions of the then existing labor agreements, including eliminating so      
called snapbacks, i.e., the automatic restoration of the wage reductions        
granted in such agreements upon their expiration. During 1994 and 1995, the     
Company also implemented a number of similar saving initiatives with respect    
to domestic non-union and management employees, primarily through reducing      
head count, altering benefit packages, and eliminating certain planned          
restorations of wage reductions.                                                

On June 14, 1995, as one of the transactions contemplated by the extension  
of the Icahn Loans, TWA and an entity affiliated with Mr. Icahn, Karabu         
Corporation ("Karabu"), entered into an agreement for the sale of tickets (the  
"Ticket Agreement"). There are two categories of tickets under the Karabu       
Ticket Program: (1) "Domestic Consolidator Tickets" which are subject to a cap  
of $610 million, based on the full retail price of the tickets ($120 million    
in the first fifteen months and $70 million per year for seven consecutive      
years through the term of the Ticket Agreement) and (2) "System Tickets" and    
"Matching Tickets" which are not subject to any cap throughout the term of the  
Ticket Agreement. The Ticket Agreement provides for the sale of tickets to      
Karabu at prices significantly lower than the full retail price.                

Domestic Consolidator Tickets sold under the Ticket Agreement are limited to
certain origin/destination city markets in which TWA has less than a 5% market  
share, except for the New York market, which has a 10% market share limit.      
These restricted markets will be reviewed from time to time to determine any    
change in TWA's market share, and other markets may be designated as            
necessary.                                                                      

Ticket sales under the Ticket Program, which commenced in September 1995,   
were $139.7 million in 1996 and $16.0 million in 1995 at full published fares.  
The aggregate net sales, after applicable discounts under the Ticket            
Agreement, were $76.9 million in 1996 and $8.8 million in 1995. Of these        
amounts, $71.5 million and $4.4 million is included as passenger revenues for   
1996 and the four months ended December 31, 1995, respectively, as the related  
transportation had been provided. Substantially all ticket sales under the      
Ticket Program to date have been "System Tickets".                              

The purchase price for the tickets purchased by Karabu are required to      
either, at Karabu's option and with certain restrictions, be retained by        
Karabu and the amount so retained shall be credited as prepayments against the  
outstanding balance of the Icahn Loans, or be paid over to the settlement       
trust established in connection with the '93 Reorganization for TWA's account   
as prepayments on the PBGC Notes. At December 31, 1996, approximately $64.9     
million of such proceeds had been applied to the principal balance of the       
Icahn Loans, and $6.4 million had been applied to the PBGC Notes, which         
resulted in a $1.6 million extraordinary charge related to the early            
extinguishment of PBGC Notes (See Note 14).                                     

Tickets sold to Karabu pursuant to the Ticket Agreement are priced at levels
intended to approximate current competitive discount fares available in the     
airline industry. The Ticket Agreement provides that no ticket may be included  
with an origin or destination of St. Louis, nor may any ticket include flights  
on other carriers. Tickets sold pursuant to the Ticket Agreement are required   
to be at fares specified in the Agreement, net to TWA, and be exclusive of      
tax. No commissions will be paid by TWA for tickets sold under the Ticket       
Agreement, and in general TWA believes that under the applicable provisions of  
the Ticket Agreement System Tickets may not be marketed or sold to the general  
public either directly or through travel agents. Karabu, however, has been      
marketing System Tickets to the general public. TWA has demanded that Karabu    
cease doing so and Karabu has stated that it disagrees with the Company's       
interpretation concerning sales through travel agents. In December 1995, the    
Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies      
seeking damages and to enjoin further violations. Mr. Icahn countered           
threatening to attempt to declare a default on the Icahn Loans on a             

F-16  

S-4/A
161st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 161st
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

variety of claims related to his various interpretations of the security        
documents related to such loans as well as with respect to alleged violations   
of the Ticket Agreement by the Company. The parties then negotiated a series    
of standstill agreements pursuant to which the lawsuit was temporarily          
withdrawn while the parties endeavor to negotiate a settlement of their         
differences and respective claims. If Karabu's interpretation as to sales of    
discount tickets to the general public through travel agents was determined by  
a court or otherwise to be correct and the Company did not otherwise take       
appropriate action to mitigate the effect of such sales, the Company could      
suffer significant loss of revenue so as to reduce overall passenger yields on  
a continuing basis during the eight year term of the Ticket Agreement. In       
addition, any default by the Company under the ticket agreement or directly on  
the Icahn loans which resulted in an acceleration of the Icahn Loans could      
result in a cross-default to the Company's other indebtedness and leases and    
otherwise have a material adverse effect on the Company.                        

4. INVESTMENTS:                                                                 

TWA, through a wholly-owned subsidiary, has a 25% partnership interest in   
Worldspan, a joint venture among TWA, Delta Airlines, Inc., Northwest           
Airlines, Inc. and ABACUS Distribution Systems PTE Ltd. Worldspan owns,         
markets and operates a global computer airline passenger reservation system on  
behalf of subscriber travel agents and contracting airlines who pay booking     
fees to Worldspan for such reservation service. TWA accounts for its            
investment in the partnership on the equity basis. TWA's share of the combined  
net earnings (loss) of the partnership was approximately $11,919,000 for the    
year ended December 31, 1996, $(11,535,000) for the four months ended December  
31, 1995, $3,607,000 for the eight months ended August 31, 1995 and             
$(3,616,000) for the year ended December 31, 1994, which is included in Other   
Charges (Credits) in TWA's Statements of Consolidated Operations. The excess    
of TWA's carrying value for its investment in Worldspan over its share of the   
underlying net assets of Worldspan is being amortized over a period of 20       
years. At December 31, 1996 and 1995, the unamortized balance of this excess    
amounted to approximately $32.0 million and $33.9 million, respectively.        

The partnership provides passenger reservations services, communication     
facilities and other computer services which are purchased by TWA on a          
recurring basis. The aggregate cost of the services purchased from the          
partnership, which is included in all other operating expenses in TWA's         
Statements of Consolidated Operations, is approximately as follows (in          
thousands):                                                                     

                                                                [Download Table]
                                                                            
Year Ended December 31, 1996........................................ $54,611
Four Months Ended December 31, 1995................................. $16,566
Eight Months Ended August 31, 1995.................................. $29,604
Year Ended December 31, 1994........................................ $43,638

Summary financial data for Worldspan is as follows:                         

                                                                [Download Table]

                                                             DECEMBER 31,   
                                                           -----------------
                                                             1996     1995  
                                                           -------- --------
                                                                            
Current assets............................................ $172,368 $ 84,854
Non-current assets........................................  384,653  410,901
                                                           -------- --------
  Total assets............................................ $557,021 $495,755
                                                           ======== ========
Current liabilities....................................... $126,774 $101,219
Non-current liabilities...................................  125,255  137,220
Partners' equity..........................................  304,992  257,316
                                                           -------- --------
  Total liabilities and equity............................ $557,021 $495,755
                                                           ======== ========

F-17  

S-4/A
162nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 162nd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

                                                                [Download Table]

                                                              YEAR ENDED     
                                                             DECEMBER 31,    
                                                           ----------------- 
                                                             1996     1995   
                                                           -------- -------- 
                                                                             
Revenues.................................................. $548,419 $498,138 
Costs and expenses........................................  500,743  529,852 
                                                           -------- -------- 
  Net income (loss)....................................... $ 47,676 $(31,714)
                                                           ======== ======== 

5. INCOME TAXES:                                                                

Income tax liabilities at December 31, 1996 and 1995, included in other     
noncurrent liabilities, consist of the following (in millions):                 

                                                                [Download Table]

                                                                 1996  1995 
                                                                 ----- -----
                                                                            
Current taxes................................................... $ --  $ -- 
Deferred taxes:                                                             
  Federal.......................................................  10.7  10.7
  Other income and franchise taxes..............................    .3    .3
                                                                 ----- -----
Total income tax liability...................................... $11.0 $11.0
                                                                 ===== =====

Significant components of the Company's deferred tax liabilities and assets 
as of December 31, 1996 and 1995 are as follows (in millions):                  

                                                                [Download Table]

                                                                1996   1995 
                                                               ------ ------
                                                                            
Deferred tax assets:                                                        
Postretirement benefits, other than pensions.................. $198.5 $194.6
Pension obligations...........................................   82.3   83.4
Employee compensation and other benefits......................   36.5   60.2
Capital leases, net...........................................   54.3   56.6
Net operating loss carryforwards..............................  247.1  207.8
Other, net....................................................   84.0   86.7
                                                               ------ ------
  Total deferred tax assets...................................  702.7  689.3
                                                               ====== ======
                                                                [Download Table]
                                                                            
Deferred tax liabilities:                                                   
Property and spare parts, net............................. $ (34.6) $ (24.7)
Routes, gates, and slots, net.............................  (158.7)  (178.1)
Investment in affiliate...................................   (42.7)   (38.8)
                                                           -------  ------- 
  Total deferred tax liabilities.......................... $(236.0) $(241.6)
                                                           =======  ======= 
Net deferred tax asset before valuation allowance.........   466.7    447.7 
Deferred tax asset valuation allowance....................  (477.7)  (458.7)
                                                           -------  ------- 
  Net deferred tax asset (liability)...................... $ (11.0) $ (11.0)
                                                           =======  ======= 

The valuation allowance arises primarily from the amortization of           
intangibles, representing taxable temporary differences, the reversal of which  
extends beyond the period in which deductible temporary differences are         
expected to reverse. The net deferred tax liability, after giving effect to     
the valuation allowance, arises primarily in years after 2020.                  

F-18  

S-4/A
163rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 163rd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

A summary of the provision (credit) for income taxes is as follows (amounts 
in thousands):                                                                  

                                                        [Enlarge/Download Table]

                                                                           REORGANIZED COMPANY      PREDECESSOR COMPANY   
                                                                        ------------------------- ------------------------
                                                                            YEAR     FOUR MONTHS  EIGHT MONTHS    YEAR    
                                                                           ENDED        ENDED        ENDED        ENDED   
                                                                        DECEMBER 31, DECEMBER 31,  AUGUST 1,   DECEMBER 1,
                                                                            1996         1995         1995        1994    
                                                                        ------------ ------------ ------------ -----------
                                                                                                                          
Current, primarily foreign.............................................     $450        $1,370        $(96)       $960    
Deferred...............................................................      --            --          --          --     
                                                                            ----        ------        ----        ----    
  Total provision (benefit) for income taxes, net......................     $450        $1,370        $(96)       $960    
                                                                            ====        ======        ====        ====    

Income tax expense for the periods presented below differs from the amounts 
which would result from applying the federal statutory tax rate to pretax       
income, as follows:                                                             

                                                        [Enlarge/Download Table]

                                                                           REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                        ------------------------- -------------------------
                                                                            YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                           ENDED        ENDED        ENDED        ENDED    
                                                                        DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                            1996         1995         1995         1994    
                                                                        ------------ ------------ ------------ ------------
                                                                                                                           
Income tax benefit at United States statutory rates...................    $(93,652)    $(11,294)   $(118,408)   $(151,504) 
Amortization of reorganization value in excess of amounts allocable to                                                     
 identifiable assets..................................................      14,683        4,894        1,976        2,870  
Meals and entertainment disallowance..................................       4,257        1,419        2,838        4,663  
Foreign taxes.........................................................         450        1,370          (96)         960  
Net operating loss not benefitted and other items.....................      74,712        4,981      113,594      143,971  
                                                                          --------     --------    ---------    ---------  
Income tax expense (benefit)..........................................    $    450     $  1,370    $     (96)   $     960  
                                                                          ========     ========    =========    =========  

A provision for income tax on the extraordinary gain from the extinguishment
of debt in the eight months ended August 31, 1995 was not required as such      
income is excluded from taxation under the Internal Revenue Code of 1986, as    
amended.                                                                        

In May 1993, TWA and the Internal Revenue Service reached an agreement (the 
"IRS Settlement") to settle both: (i) the IRS' proof of claim in the '93        
Reorganization in the amount of approximately $1.4 billion covering             
prepetition employment and income taxes of TWA, and (ii) the audit of TWA's     
federal income tax returns through 1992. Pursuant to the IRS Settlement, TWA    
paid $6 million to the IRS through the application of funds owed to TWA by      
certain governmental agencies and issued a note in the amount of $19 million    
payable in quarterly installments over a six year period (also see Note 8--     
Debt). As a result of the IRS Settlement, TWA increased its tax basis in        
certain of its assets and will be allowed no benefit of any federal net         
operating loss or credit carryforward from 1992 or any prior year. Federal      
income tax losses incurred by TWA subsequent to 1992 may not be carried back    
to pre-1993 years.                                                              

The Company estimates that it has tax net operating loss carryforwards      
amounting to approximately $625 million at December 31, 1996 expiring in 2008   
through 2011 if not utilized before then to offset taxable income. Section 382  
of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations  
issued thereunder, imposed limitations on the ability of corporations to use    
NOLs if the corporation experiences a more than 50% change in ownership during  
certain periods. In connection with the change of ownership caused by the       

F-19  

S-4/A
164th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 164th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

Reorganization, the Company elected to reduce its NOLs in accordance with       
Section 382 of the Code and regulations issued thereunder. If another           
ownership change were to occur prior to September 1997, the annual limitations  
on the Company's utilization of its then existing NOLs would be reduced to      
zero. Changes in ownership in periods thereafter could substantially restrict   
the Company's ability to utilize its tax net operating loss carryforwards. In   
addition, the tax net operating loss carryforwards are subject to examination   
by the IRS and thus are subject to adjustment or disallowance resulting from    
any such IRS examination. For financial reporting purposes, the tax benefits    
from substantially all of the tax net operating loss carryforwards will, to     
the extent realized in future periods, have no impact on the Company's          
operating results, but instead be applied to reduce reorganization value in     
excessive amounts allocable to identifiable assets.                             

6. EMPLOYEE BENEFIT PLANS:                                                      

Substantially all of TWA's employees are covered by noncontributory defined 
benefit retirement plans that were frozen on January 1, 1993. While many of     
TWA's employees continue participation in these plans, they have not accrued    
any additional benefits since the date the plans were frozen. Employees hired   
after the freeze are not entitled to participate in these defined benefit       
retirement plans. TWA's policy has been to fund the defined benefit plans in    
amounts necessary for compliance with the funding standards established by the  
Employee Retirement Income Security Act of 1974, as amended ("ERISA").          

The retirement plans for Pilots, Flight Attendants and Dispatchers provide  
benefits determined from career average earnings, with Pilots having minimum    
benefits after ten years of service. Employees (other than Passenger Service    
Employees) represented by the IAM earn retirement plan benefits of stated       
amounts for each year of service. The Retirement Plan for U.S. Noncontract      
Employees (including Passenger Service Employees) provides pension benefits     
that are based on the employee's compensation during the last five years prior  
to retirement, with compensation subsequent to 1988 frozen at the 1988 pay      
level. Foreign plans provide benefits that meet or exceed local requirements.   

Normal retirement is age 60 for Pilots and Flight Attendants, and age 65 for
nonflight personnel. The age at which employees can receive supplemental        
benefits for early retirement varies by labor group, but ranges from age 45 to  
age 64.                                                                         

As noted above, in January 1993, TWA's defined benefit plans covering       
domestic employees (the "Pension Plans") were frozen and Pichin Corporation, a  
Delaware corporation formed by the Icahn Entities, assumed sponsorship of the   
Pension Plans and is now responsible for management and control of the Pension  
Plans. Pursuant to an agreement (the "Comprehensive Settlement Agreement")      
among the Company, the Icahn Entities, the Pension Benefit Guarantee            
Corporation (the "PBGC") and unions representing TWA employees, TWA retains     
only specified obligations and liabilities in respect of the Pension Plans,     
which include (i) payment obligations under the PBGC Notes, and (ii) the        
obligation to continue to act as the benefits administrator responsible for,    
among other things, determining and administering the payment of Pension Plan   
benefits (also see Note 8--Debt).                                               

Pichin Corporation is obligated to make the required minimum funding        
payments to each of the Pension Plans, subject to reduction for any payments    
made under the PBGC Notes. The PBGC may not terminate the Pension Plans,        
except under section 4042(a)(2) of ERISA or at the request of Pichin            
Corporation, so long as the Icahn Entities and Pichin Corporation have          
complied with all terms of the Comprehensive Settlement Agreement relating to   
the PBGC. Upon the occurrence of certain significant events (as defined)        
including, but not limited to, a sale of substantially all of TWA's assets, a   
merger involving TWA or a liquidation under Chapter 7 under the Bankruptcy      
Code, and at the request of Pichin Corporation, the Pension Plans will be       
terminated. After such a termination, the liability of Pichin Corporation and   
all members of its controlled group will be limited to an                       

F-20  

S-4/A
165th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 165th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

obligation to make annual payments of $30 million to the PBGC for a period of   
eight years. Mr. Icahn has advised TWA that Pichin Corporation is entitled to   
terminate the Pension Plans in a non-standard termination at any time after     
January 1, 1995.                                                                

In connection with the Comprehensive Settlement Agreement, Mr. Icahn and    
each of the Icahn Entities surrendered all of the equity and debt securities    
of TWA and its affiliates owned beneficially or of record by them. Pursuant to  
the Comprehensive Settlement Agreement, each of the parties to the agreement    
mutually released the various claims of the other parties to the agreement.     

The net periodic pension expense recorded for TWA's foreign defined benefit 
retirement plans is presented below.                                            

                                                                [Download Table]

                             REORGANIZED COMPANY       PREDECESSOR COMPANY   
                          ------------------------- -------------------------
                              YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                             ENDED        ENDED        ENDED        ENDED    
                          DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                              1996         1995         1995         1994    
                          ------------ ------------ ------------ ------------
                                                                             
Service cost............     $ 577        $ 274        $  493       $1,190   
Interest cost...........       992          583         1,040        3,053   
Actual return on assets.      (505)        (100)         (200)        (864)  
Net amortization and                                                         
 deferral...............      (355)         --            --           --    
Net pension expense.....       709          757         1,333        3,379   

Actuarial assumptions used for determining pension costs were:              

                                                                [Download Table]

                            REORGANIZED COMPANY       PREDECESSOR COMPANY   
                         ------------------------- -------------------------
                             YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                            ENDED        ENDED        ENDED        ENDED    
                         DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                             1996         1995         1995         1994    
                         ------------ ------------ ------------ ------------
                                                                            
Discount rate for                                                           
 interest cost..........     7.50%        7.00%        8.50%        8.50%   
Rate of increase in                                                         
 future compensation                                                        
 levels.................     5.50         5.50         5.50         7.50    
Expected long-term rate                                                     
 of return on plan                                                          
 assets.................     9.00        11.00        11.00        11.00    

F-21  

S-4/A
166th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 166th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The funded status (with benefit obligations determined using the current    
estimated discount rate of 7.5% and 7.0% at December 31, 1996 and 1995          
respectively) and amounts recognized in the Consolidated Balance Sheets at      
December 31, 1996 and 1995, for defined benefit plans covering foreign          
employees, are as follows (amounts in thousands):                               

                                                                [Download Table]

                                             DECEMBER 31,                     
                          ----------------------------------------------------
                                   1996                      1995             
                          ----------------------- ----------------------------
                              PLANS IN WHICH            PLANS IN WHICH        
                          ----------------------- ----------------------------
                                      ACCUMULATED                             
                            ASSETS     BENEFITS                               
                            EXCEED      EXCEED                     ACCUMULATED
                          ACCUMULATED ACCUMULATED     ASSETS        BENEFITS  
                           BENEFITS     ASSETS    EXCEED BENEFITS    ASSETS   
                          ----------- ----------- ---------------  -----------
                                                                              
Actuarial present value                                                       
 of benefit obligations:                                                      
  Vested benefit                                                              
   obligation...........    $44,200     $ 7,153      $ 23,986        $13,958  
  Nonvested benefit                                                           
   obligation...........        --        1,198            14          2,338  
                            -------     -------      --------        -------  
  Accumulated benefit                                                         
   obligation...........     44,200       8,351        24,000         16,296  
  Projected benefit                                                           
   obligation more than                                                       
   accumulated benefit                                                        
   obligation...........      3,983       5,882         1,327          8,273  
                            -------     -------      --------        -------  
  Projected benefit                                                           
   obligation...........     48,183      14,233        25,327         24,569  
Plan assets at fair                                                           
 value (a)..............     50,703         --         47,814            --   
                            -------     -------      --------        -------  
  Projected benefit                                                           
   obligation more                                                            
   (less) than plan                                                           
   assets at fair value.     (2,520)     14,233       (22,487)        24,569  
Unrecognized net gain                                                         
 (loss).................      7,307      11,696           --             949  
                            -------     -------      --------        -------  
Pension liability                                                             
 (asset) before                                                               
 adjustment.............      4,787      25,929       (22,487)        25,518  
Adjustment to reduce                                                          
 pension assets to                                                            
 estimated recoverable                                                        
 amount.................        --          --         18,222 (b)        --   
                            -------     -------      --------        -------  
  Pension liability                                                           
   (asset) recognized in                                                      
   Consolidated Balance                                                       
   Sheets...............    $ 4,787     $25,929      $ (4,265)       $25,518  
                            =======     =======      ========        =======  

--------                                                                        
(a) Plan assets are invested in cash equivalents, international stocks, fixed   
income securities and real estate.                                      
(b) The adjustment at December 31, 1995 represented the amount by which the     
  net pension asset exceeded the amount estimated to be recoverable pursuant
to a planned termination of a pension plan covering certain foreign     
employees. United Kingdom law requires the reduction of retirement plan 
assets when such assets exceed 105% of plan liabilities. In 1996, assets
  in TWA's United Kingdom Pension Plan exceeded liabilities by approximately
$20 million. This surplus was eliminated by terminating the existing UK 
Pension Plan and establishing a new pension plan for UK employees. The  
  surplus assets were split between TWA and the participants of the UK Plan,
  with plan participants receiving their share in enhanced pension benefits,
  and TWA receiving, in December 1996, a reversion from the original plan of
$9.7 million.                                                           

TWA has several defined contribution plans covering most of its employees.  
Total pension expense for these plans was $58.0 million, $14.1 million, $26.8   
million, $46.0 million, for the year ended December 31, 1996, the four months   
ended December 31, 1995, the eight months ended August 31, 1995 and the year    
ended December 31, 1994, respectively. Such defined contribution plans          
include: (a) trust plans established pursuant to collective bargaining          
agreements with certain employee groups providing for defined Company           
contributions generally determined as a percentage, ranging from 2% to 11%, of  
pay; and (b) retirement savings plan for Noncontract Employees to which the     
Company contributes amounts equal to 25% of voluntary employee after-tax        

F-22  

S-4/A
167th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 167th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

contributions up to a maximum of 10% of the employee's pay. Pursuant to the 92  
Labor Agreements, Company contributions were suspended for certain defined      
contribution plans for the period September 1, 1992 through August 31, 1995.    
Such suspension has been extended through August 31, 1997. In connection with   
the Comprehensive Settlement Agreement, TWA agreed to make contributions to     
defined contribution plans aggregating 2% of eligible wages for 1993 through    
1995, and 3.3% thereafter. The Company made the 1994 contribution payment on    
June 20, 1995. Commencing on July 1, 1995, TWA is required to make such         
contributions on a monthly basis.                                               

In addition to providing retirement benefits, TWA provides certain health   
care and life insurance benefits for retired employees, their spouses and       
qualified dependents. Substantially all employees may become eligible for       
these benefits if they reach specific retirement age criteria while still       
actively employed by TWA. SFAS No. 106 requires that the expected cost of       
providing postretirement benefits other than pensions be accrued over the       
years that the employee renders service, in a manner similar to the accounting  
for pension benefits.                                                           

The following table sets forth a reconciliation of the accrued              
postretirement benefit cost as of December 31, 1996 and 1995 (in millions):     

                                                                [Download Table]

                                                  DECEMBER 31, DECEMBER 31,
                                                      1996         1995    
                                                  ------------ ------------
                                                                           
Accumulated postretirement benefit obligation:                             
  Actives fully eligible.........................     $163         $165    
  Other actives..................................      144          150    
  Retirees.......................................      225          208    
                                                      ----         ----    
    Total APBO...................................      532          523    
Unrecognized cumulative loss.....................      (29)         (30)   
                                                      ----         ----    
Accrued postretirement benefit cost..............     $503         $493    
                                                      ====         ====    

The components of net periodic postretirement benefit cost are as follows   
(in millions):                                                                  

                                                        [Enlarge/Download Table]

                                                                          REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                       ------------------------- -------------------------
                                                                           YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                          ENDED        ENDED        ENDED        ENDED    
                                                                       DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                           1996         1995         1995         1994    
                                                                       ------------ ------------ ------------ ------------
                                                                                                                          
Service cost..........................................................    $10.0        $ 3.0        $ 5.4        $ 9.5    
Interest cost.........................................................     35.4         11.0         25.5         34.5    
                                                                          -----        -----        -----        -----    
Total.................................................................    $45.4        $14.0        $30.9        $44.0    
                                                                          =====        =====        =====        =====    

The discount rate used to determine the APBO was 7.5% at December 31, 1996  
and 7.0% at December 31, 1995. The discount rate used to determine net          
periodic postretirement benefit costs was 7.0% for the year ended December 31,  
1996, 7.0% for the four months ended December 31, 1995, 8.5% for the eight      
months ended August 31, 1995 and 7.0% for the year ended December 31, 1994.     
The assumed health care cost trend rate used in measuring the APBO was 8.0% in  
1997 declining by 1% per year to an ultimate rate of 5%. If the assumed health  
care cost trend rate was increased by 1 percentage point, the APBO at December  
31, 1996 would be increased by approximately 10% and 1996 periodic              
postretirement benefit cost would increase approximately 10%.                   

F-23  

S-4/A
168th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 168th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

7. CONTINGENCIES:                                                               

On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en
route to Paris, France. There were no survivors among the 230 passengers and    
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully   
with all federal, state and local regulatory and investigatory agencies to      
ascertain the cause of the crash, but to date a cause has not been determined.  
While TWA is currently the defendant in a number of lawsuits, TWA is unable to  
predict the amount of claims relating to the crash which may ultimately be      
made against the Company and how those claims might be resolved. TWA maintains  
substantial insurance coverage and, at this time, management has no reason to   
believe that such insurance coverage will not be sufficient to cover the        
claims arising from the crash. Therefore, TWA believes that the resolution of   
such claims will not have a material adverse effect on its financial condition  
or results of operations. The Company is unable to identify or predict the      
extent of any adverse effect on its revenues, yields, or results of operations  
which has resulted or may result from the public perception of the crash.       

During 1992, TWA and several other major airlines agreed to settle certain  
class action antitrust litigation. Pursuant to the settlement agreement, which  
was approved by the United States District Court for the Northern District of   
Georgia in 1994, TWA paid $1 million and, together with five other carriers,    
issued approximately $400 million in face amount of certificates for discounts  
of approximately 10% on future domestic air travel on any of the six carriers.  
TWA will reflect the certificates that are redeemed for travel on TWA as a      
reduction in revenue as the transportation is provided. While TWA presently     
does not have any reason to expect that the face amount of the discount         
coupons that will be redeemed for travel on TWA in the future will not          
reasonably approximate the face amount of discount coupons that TWA             
contributed to the settlement, it is reasonably possible that the actual face   
amount of discount coupons redeemed by TWA could be substantially different,    
considering the interchangeability of the discount coupons and that the face    
amount of the discount coupons contributed by all of the participating          
carriers and distributed to claimants aggregated approximately $400 million.    
Therefore, while the settlement agreement could have the effect of reducing     
TWA's future revenues and cash flows from levels that might otherwise be        
realized, because of the uncertainties as to the face amount of the discount    
coupons that will ultimately be redeemed by TWA and uncertainties as to the     
impact that the distribution of discount coupons will have on traffic levels,   
TWA is unable to reasonably estimate any such effects.                          

On October 22, 1991, a judgment in the amount of $12,336,127 was entered    
against TWA in an action in the New York District Court by Travellers           
International A.G. and its parent company, Windsor, Inc. (collectively,         
"Travellers"). On November 4, 1991, TWA posted a cash undertaking of            
$13,693,101, which was charged to expense, for a stay of execution of the       
judgment pending the appeal. On March 10, 1992, the Company commenced an        
adversary proceeding against Travellers in the Bankruptcy Court seeking to      
avoid the cash undertaking on the grounds that it constitutes a preferential    
transfer or, in the alternative, to find that the cash undertaking constitutes  
property of the estate. In March 1993, Travellers filed a petition for a writ   
of certiorari in the United States Supreme Court seeking to require TWA to      
litigate its claims against Travellers in the New York District Court and not   
the Bankruptcy Court. The petition was denied by the United States Supreme      
Court in April 1993. A trial of the adversary proceeding took place in          
Bankruptcy Court in February 1994 and in December of 1994, the Bankruptcy       
Court reached a decision in this proceeding which is favorable to the Company.  
Upon appeal, the District Court affirmed in part and reversed in part the       
bankruptcy courts decision. Both parties have appealed the matter to the Third  
Circuit Court of Appeals. The Company believes that in the event the District   
Court's decision is affirmed, the ultimate result will not be materially        
different than the decision of the bankruptcy court. Pursuant to the Icahn      
Financing Facilities, amounts received pursuant to these proceedings must be    
used to repay, in part, TWA's obligations thereunder.                           

TWA is subject to numerous environmental laws and regulations administered  
by various state and federal agencies. Although the Company believes adequate   
reserves have been provided for all known environmental                         

F-24  

S-4/A
169th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 169th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

contingencies, it is possible that additional reserves might be required in     
the future which could have a material effect on the results of operations or   
financial condition of the Company. However, the Company believes that the      
ultimate resolution of known environmental contingencies should not have a      
material adverse effect on the financial position or results of operations      
based on the Company's knowledge of similar environmental sites.                

Since May 1991, TWA's employees in Israel have claimed that the Company     
should be required to collateralize its contingent payment of termination       
indemnities. This matter deals only with collateralization of a contingent      
payment obligation. The employees have asserted that the amount necessary to    
collateralize the contingent payment of termination indemnities could be as     
much as $25 million. The Company denies any obligation to collateralize and     
asserts that any obligation to collateralize any termination indemnity is not   
a current obligation.                                                           

In February 1995, a number of actions were commenced in various federal     
district courts against TWA and six other major airlines alleging that the      
companies conspired and agreed to fix, lower and maintain travel agent          
commissions on the sale of tickets for domestic air travel in violation of the  
United States antitrust laws. Generally the complaints in these actions seek    
treble damages and injunctive relief on behalf of a nationwide class of travel  
agents. Certain of these actions also claim violations of various state laws.   
On May 9, 1995 TWA announced settlement, subject to court approval, of the      
referenced actions and reinstated the traditional 10 percent commission on      
domestic air fares. A final court order has not yet been entered; however,      
there has been entered an interim order approving the settlement.               

On November 9, 1995, ValuJet Air Lines, Inc. ("ValuJet") instituted a       
lawsuit against TWA and Delta Air Lines ("Delta") in the United States          
District Court for the Northern District of Georgia, alleging breach of         
contract and violations of certain antitrust laws with respect to the           
Company's lease of certain takeoff and landing slots at LaGuardia               
International Airport in New York. On November 17, 1995, the court denied       
ValuJet's motion to temporarily enjoin the lease transaction and the Company    
and Delta consummated the lease of the slots. ValuJet subsequently amended its  
original complaint. On July 12, 1996, the Federal Court in Atlanta granted      
summary judgment in TWA's favor in the ValuJet litigation on all claims and     
counts raised in the ValuJet amended complaint. The order granting summary      
judgment to TWA was not a final order and was not directly appealable due to    
an outstanding claim against Delta. While ValuJet's counsel has stated that an  
appeal will be filed at a later date, the Company intends to vigorously defend  
itself in any future action and believes all of the allegations that have been  
made to date are without merit.                                                 

In addition, based on certain written grievances or complaints filed by     
ValuJet, the Company was informed that the United States Department of Justice  
("DOJ"), Antitrust Division, was investigating the circumstances of the slot    
lease transaction to determine whether an antitrust violation has occurred.     
During the course of its investigation, the DOT was informed of the summary     
judgment described above. Since the date of the judgment, TWA is unaware of     
whether the DOJ has undertaken further investigative efforts, the status of     
the investigation or any future plans of the DOJ or other regulatory bodies     
with respect to the ValuJet lawsuit. While TWA is hopeful the summary judgment  
will be persuasive to the various regulatory bodies petitioned by ValueJet, it  
will cooperate with any further investigations and strongly believes that the   
slot lease transaction was not in violation of antitrust laws.                  

On September 6, 1995 TWA announced that the operations of its wholly owned  
subsidiary, Trans World Express, Inc. ("TWE"), would be discontinued on         
November 6, 1995. TWA has entered into an agreement with an unaffiliated        
entity, Trans States Airlines, Inc., to provide feeder service into TWA's JFK   
hub, which commenced on November 7, 1995. TWA does not currently expect that    
the liquidation of TWE will have a material adverse impact on the financial     
position or results of operations of TWA.                                       

Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees
represented by the IAM a cash "bonus' for the amount by which overtime          
incurred by the IAM from September of 1992 through August                       

F-25  

S-4/A
170th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 170th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

1995 was reduced below specified thresholds. This amount was to be offset by    
the amount by which medical savings during the period for the same employees    
did not meet certain specified levels of savings. The obligation is payable in  
three equal annual installments beginning in 1998. The Company has estimated    
the net overtime bonus owed to the IAM to be approximately $26.3 million and    
has reflected this amount as a noncurrent liability in the accompanying         
balance sheets. Such amount reflects a reduction of approximately $10.0         
million pursuant to the final calculation of the liability and an agreement to  
reduce proportionately the obligation based upon the size of the reduction of   
indebtedness achieved by the "95 Reorganization. The IAM, while not providing   
a calculation of its own, has disputed the method by which management has       
computed the net overtime bonus and has indicated that they believe the amount  
due to the IAM is much greater than the amount which has been estimated by      
management.                                                                     

In connection with certain wage increases afforded to non-contract          
employees, employees represented by the IFFA have asserted and won an           
arbitration ruling that, if sustained, would require that the Company provide   
additional compensation to IFFA represented employees. The Company estimates    
that at December 31, 1996 such additional compensation would aggregate          
approximately $6 million. The Company denies any such obligation and intends    
to pursue an appeal of the arbitration ruling. As such, no liability has been   
recorded by the Company at December 31, 1996.                                   

In connection with the "95 Reorganization, the Company entered into a letter
agreement with employees represented by the ALPA whereby if the Company's       
flight schedule, as measured by block hours, does not exceed certain            
thresholds a defined cash payment would be made to the ALPA. The defined        
thresholds were exceeded during the measurement periods through December 31,    
1996 and no amount was therefore owed to the ALPA as of that date. The          
Company, however, anticipates that a liability will be incurred during 1997 as  
a result of the Company's planned reductions in capacity. The amount of the     
liability, if any, will be dependent on the amount by which the targeted block  
hours flown during the year exceed the actual block hours flown. Based upon     
current plans, the Company estimates its obligation under this agreement will   
not exceed $12.0 million in 1997.                                               

The Company is also defending a number of other actions which have arisen in
the ordinary course of business, and are insured or the likely outcome of       
which the management of the Company does not believe may be reasonably be       
expected to be materially adverse to the Company's financial condition or       
results of operations.                                                          

F-26  

S-4/A
171st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 171st
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

8. DEBT:                                                                        

Substantially all of TWA's assets are subject to liens and security         
interests relating to long-term debt and other agreements.                      

Long-term debt (net of unamortized discounts) outstanding at each balance   
sheet date was:                                                                 

                                                                [Download Table]

                                                          DECEMBER 31,      
                                                     -----------------------
                                                        1996        1995    
                                                     ----------- -----------
                                                     (AMOUNTS IN THOUSANDS) 
                                                                            
12% Senior Secured Reset Notes due 1998 (a)......... $   111,799 $   145,184
12% Contingent Payment Rights due 1996 (b)..........         --       11,265
8% IAM Backpay Notes (c)............................      12,090      11,037
PBGC Notes (d)......................................     198,672     201,164
Icahn Financing Facilities (e)......................     125,102     187,977
Equipment Trust Certificates (f)....................       8,963      17,929
Various Secured Notes, 4.0% to 12.4, due 1997-2001                          
 (g)................................................      75,478     103,847
Installment Purchase Agreements, 10.0% to 10.53%,                           
 due 1997-2003 (h)..................................     109,034     111,033
Predelivery Financing Agreement (i).................      19,862         -- 
IRS Deferral Note (j)...............................       8,708      10,937
WORLDSPAN Note (k)..................................      31,224      31,224
                                                     ----------- -----------
Total long-term debt................................     700,932     831,597
Less current maturities.............................      92,447      67,566
                                                     ----------- -----------
Long-term debt, less current maturities............. $   608,485 $   764,031
                                                     =========== ===========

--------                                                                        
(a) The 12% Senior Secured Reset Notes due 1998 pay interest semi-annually,     
 payable either in cash or, as to the first four interest payments, at the
Company's option, in whole or in part, in Common Stock, beginning August
1, 1995, subject to certain conditions. The Company elected to pay      
interest due and payable for the first two periods and one-half of the  
  interest due and payable February 1, 1997 (fourth period) in common stock.
  The outstanding notes have a stated principal amount of $124.8 million and
$170.0 million at December 31, 1996 and 1995, respectively, and are     
reflected net of the unamortized discount of $13.0 million and $24.8    
million at December 31, 1996 and 1995. The notes are secured by a first 
lien on certain slots, equipment and spare parts.                       

During 1996, the Company consummated a series of privately negotiated     
exchanges with a significant holder of the 12% Senior Secured Reset Notes 
which resulted in the return to the Company of approximately $45.3 million
principal amount of 12% Senior Secured Reset Notes and $1.5 million in    
accrued interest thereon in exchange for the issuance of approximately 4.5
million shares of Company Common Stock (See Note 14).                     
(b) The Contingent Payment Rights, arising under the terms of the "95           
Reorganization, were paid in 1996.                                      
(c) The 8% IAM Backpay Notes have a stated principal amount of $22.0 million    
and $22.9 million at December 31, 1996 and 1995, respectively. The notes
are reflected net of the unamortized discount of $9.9 million and $11.9 
million at December 31, 1996 and 1995, respectively, which reflects an  
effective interest rate of approximately 24.4% at December 31, 1996. The
  notes mature in 2001 and pay interest semi-annually. The notes are secured
by a subordinate lien on TWA's interest in Worldspan and a lien on      
  approximately $2.2 million in proceeds from the sale of Midcoast Aviation.
During December 1996, ownership of the notes was transferred from the   
  Indenture Trustee to current and former IAM union members who participated
in the 1992 labor agreement.                                            
(d) The PBGC Notes have a stated unpaid principal balance of $232.9 million     
 and $244.3 million at December 31, 1996 and 1995, respectively. The notes
are reflected net of unamortized discounts of $34.3 million and         

F-27  

S-4/A
172nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 172nd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

$43.2 million at December 31, 1996 and 1995, respectively, to reflect an  
effective interest rate of approximately 13.0%. Interest on the PBGC Notes
is payable semi-annually at an average stated rate of 8.19% per annum.    
Principal payments are due in semi-annual installments beginning in 1999  
 through 2003, however, due to certain note provisions mandatory prepayments
are required. Additional prepayments could arise from the election of     
Karabu to apply the purchase price for tickets purchased under the Ticket 
 Agreement to a reduction of the PBGC Notes (see Note 3). The Notes are non-
recourse notes secured by first liens on TWA's international routes and   
TWA's leasehold interest in the Kansas City maintenance facility and      
certain fixtures and equipment.                                           
(e) The Icahn Financing Facilities include a $75 million Asset Based Facility   
and a $125 million Receivables Facility, which had principal balances of
$46.9 million and $78.2 million, respectively, at December 31, 1996. The
  loans are due in January 2001 and interest is payable monthly at a rate of
prime plus 1.75% per annum. Collateral for the Icahn Loans include a    
number of aircraft, engines, and related equipment, along with          
substantially all of the Company's receivables. The notes evidencing the
 Icahn Loans are security for certain obligations of the Icahn Entities to
 the PBGC. Prepayments of the Icahn Loans could arise from the election of
 Karabu to apply the purchase price for tickets purchased under the Ticket
Agreement to a reduction of the Icahn Loans (see Note 3).               
(f) The Equipment Trust Certificates pay interest semi-annually at a rate of    
 11% per annum and are subject to mandatory redemptions beginning in April
 1994 and continuing until September 1997. The certificates are secured by
certain aircraft, engines and other equipment.                          
(g) Various Secured Notes represent borrowings to finance the purchase or       
lease of certain flight equipment and other property.                   
(h) Installment Purchase Agreements represent borrowings to finance the         
purchase of four Boeing 767-231 and one Boeing 747-238 aircraft. The    
borrowings mature in monthly installments through 2003, and require     
interest at rates ranging from 10.0% to 10.53% per annum.               
(i) The Predelivery Financing Agreements represent borrowings from the engine   
manufacturer to finance prepayments on the purchase of five Boeing 757  
  aircraft. The borrowings mature upon delivery of the aircraft beginning in
February 1997 and continuing through October 1997. Interest is payable  
quarterly at a rate of LIBOR plus 3.5%.                                 
(j) The IRS Deferral Note represents unpaid amounts due under the terms of a    
settlement reached in 1993 for taxes and interest owed to the IRS. The  
 note requires payment of interest quarterly at a rate of 7% per annum and
matures in 1999.                                                        
(k) The Worldspan Note represents amounts owed to Worldspan, a 25% owned        
 affiliate of TWA, for prior services and advances. The note pays interest
 at maturity at a rate of prime plus 1% per annum and matures in 1999. The
note is secured by a pledge of TWA's partnership interest in Worldspan. 

At December 31, 1996, aggregate principal payments due for long-term debt   
for the succeeding five years were as follows:                                  

                                                                [Download Table]

                                                               (AMOUNTS IN
YEAR                                                           THOUSANDS) 
----                                                           -----------
                                                                          
1997..........................................................  $ 92,447  
1998..........................................................   181,915  
1999..........................................................    95,990  
2000..........................................................    73,347  
2001..........................................................   201,558  

TWA discontinued, effective June 30, 1995, the accrual of interest on       
prepetition debt that was unsecured or estimated to be undersecured through     
the "95 Effective Date. Contractual interest expense for the eight months       
ended August 31, 1995 was approximately $18.7 million in excess of reported     
interest expense.                                                               

F-28  

S-4/A
173rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 173rd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

9. LEASES AND RELATED GUARANTEES:                                               

Eighteen of the aircraft in the Company's fleet at December 31, 1996 were   
leased under capital leases. The remaining lease periods for these aircraft     
range from one to ten years. The Company has options and/or rights of first     
refusal to purchase or re-lease most of such aircraft at market terms upon      
termination of the lease. The Company has guaranteed repayment of certain of    
the debt issued by the owner/lessor to finance some of the aircraft under       
capital lease to the Company; however, the scheduled rental payments will       
exceed the principal and interest payments required of the owner/lessor.        
Aggregate annual rentals in 1997 will be approximately $42.3 million for the    
18 aircraft held under capital leases.                                          

One hundred twenty nine of the aircraft in TWA's fleet at December 31, 1996 
were leased under operating leases. Other than seven leases on a month-to-      
month basis, the remaining lease periods range from three months to 15 years.   
Upon expiration of the current leases, TWA has the option to re-lease most of   
such aircraft for specific terms and/or rentals with some of the renewal        
options being subject to fair market rental rates.                              

Buildings and facilities leased under capital and operating leases are      
primarily for airport terminals and air transportation support facilities.      
Leases of equipment, other than flight equipment, include some of the           
equipment at airports and maintenance facilities, flight simulators, computers  
and other properties.                                                           

Pursuant to an agreement between the City of St. Louis and TWA in November  
1993 (the "Asset Purchase Agreement"), the City of St. Louis waived a $5.3      
million pre-petition claim and provided TWA with two installments of $24.7      
million and $40 million pursuant to sale/leaseback transactions involving       
certain of TWA's assets located at Lambert-St. Louis Airport and other          
property and assets located in St. Louis including gates, terminal support      
facilities at the airport, hangar/St. Louis Ground Operations Center complex,   
Flight Training Center and equipment and tenant improvements at these various   
St. Louis facilities.                                                           

Under the Asset Purchase Agreement, TWA leased back the properties involved 
under a month-to-month agreement subject to automatic renewal so long as TWA    
is not in default thereunder, such agreement having a term otherwise expiring   
December 31, 2005. Such term is subject to early termination in the event of    
certain events of default, including non-payment of rents, cessation of         
service, or failure to relocate and maintain its corporate headquarters within  
the City or County of St. Louis, or relocate and maintain a reservations        
office within the City of St. Louis. Under the Asset Purchase Agreement, TWA    
has the right to use 57 gates and terminal support facilities at Lambert-St.    
Louis Airport. The City has certain rights of redesignation of TWA's gates in   
the event TWA's flight activity at St. Louis is reduced below a threshold       
level of 190 daily flight departures during any given monthly period. The       
related leases are classified as capital leases for financial reporting         
purposes.                                                                       

The Company's acquisition of 11 new aircraft during 1982 and 1983, one      
Lockheed L-1011 and ten Boeing 767s, created certain tax benefits that were     
not of immediate value in the Company's federal income tax returns and,         
therefore, such tax benefits were sold to outside parties under so-called       
"Safe Harbor Leases" as permitted by IRS regulations. Pursuant to the sales     
agreements, the Company is required to indemnify the several purchasers if the  
tax benefits cannot be used because of circumstances within the control of the  
Company. As of December 31, 1996, the Company's contingent indemnification      
obligations in connection with the tax benefit transfers were collateralized    
by bank letters of credit aggregating $11,510,000 for which the Company has     
posted $11,510,000 in cash collateral to secure its reimbursement obligations   
and the bank letters of credit. In addition, the Company has pledged            
$7,413,000 in cash collateral to secure its obligation with respect to four of  
the tax benefit transfers and has pledged flight equipment having a net book    
value of $23,359,000 to secure its obligation with respect to two of the tax    
benefit transfers.                                                              

F-29  

S-4/A
174th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 174th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

At December 31, 1996 future minimum lease payments for capital leases and   
future minimum lease payments, net of sublease rentals of immaterial amounts,   
for long-term leases, were as follows:                                          

                                                                [Download Table]

                                                     MINIMUM LEASE PAYMENTS 
                                                     -----------------------
                                                      CAPITAL    OPERATING  
YEAR                                                   LEASES      LEASES   
----                                                 ---------- ------------
                                                      (AMOUNT IN THOUSANDS) 
                                                                            
1997................................................ $   64,601 $    302,811
1998................................................     56,416      304,226
1999................................................     52,664      303,802
2000................................................     49,249      284,538
2001................................................     45,008      265,714
Subsequent..........................................     87,173    1,704,364
                                                     ---------- ------------
  Total.............................................    355,111 $  3,165,455
                                                                ============
Less imputed interest...............................     91,820             
                                                     ----------             
Present value of capital leases.....................    263,291             
Less current portion................................     42,501             
                                                     ----------             
Obligations under capital leases, less current                              
 portion............................................ $  220,790             
                                                     ==========             

Included in the Minimum Lease Payments for Operating Leases are increased   
rental rates related to lessor financing of engine hush-kits for 21 aircraft    
plus estimates of increased rentals for nine additional aircraft yet to be      
financed. The estimated amounts assume an eight year extension of the           
respective aircraft leases from date of hush-kit installation. Also included    
in the Minimum Lease Payments for Operating Leases are rentals related to an    
agreement entered into in 1996 providing for the lease of ten Boeing 757        
aircraft, with delivery of the first aircraft in July 1996 and the final        
aircraft in July 1997, as well as estimated rentals related to an agreement     
entered into in 1996 for the lease of fifteen new and three used McDonnell      
Douglas MD-83 aircraft, with delivery of the aircraft between February 1997     
and April 1999.                                                                 

10. MANDATORILY REDEEMABLE 12% PREFERRED STOCK:                                 

Pursuant to the '95 Reorganization the Company issued 1,089,991 shares of   
the 1,510,000 authorized shares of Mandatorily Redeemable 12% Preferred Stock   
to the holders of the 8% Senior Secured Notes. The Mandatorily Redeemable 12%   
Preferred Stock had an aggregate redemption value of approximately $109.0       
million, was cumulative, and had an initial liquidation preference of $100 per  
share. Commencing November 1995, dividends accrued at the rate of 12% of the    
liquidation preference per share per annum, payable quarterly in arrears on     
the first day of each February, May, August and November. Subject to certain    
limitations, the dividends could be paid in Common Stock at the option of the   
Company, and the Company elected to pay the February 1, 1996 dividend in        
Common Stock and subsequently issued 317,145 shares. For purposes of            
determining the number of shares of Common Stock to distribute, such Common     
Stock was valued at 90% of the fair market value, based upon trading prices     
for the twenty days prior to the record date for the dividend payment.          

On March 22, 1996, the Company announced a call for redemption on April 26, 
1996 (the "Redemption Date") of all of its issued and outstanding 12%           
Preferred Stock at a redemption price per share equal to $75.00, plus accrued   
dividends to and including the Redemption Date of $2.8667 per share. On April   
26, 1996, the Company paid an aggregate of $84.9 million in redemption of the   
12% Preferred Stock and payment of accrued dividends.                           

F-30  

S-4/A
175th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 175th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

11. CAPITAL STOCK:                                                              

The Company has the authority to issue 287.5 million shares of capital      
stock, consisting of 150 million shares of Common Stock and 137.5 million       
additional shares of preferred stock. On the "95 Effective Date of the "95      
Reorganization, TWA issued approximately 17.2 million shares of Common Stock,   
6.4 million shares of Employee Preferred Stock (including approximately 1.7     
million shares which are attributable to ALPA represented employees, see Note   
12), Equity Rights for the purchase of approximately 13.2 million shares of     
Common Stock, warrants for the purchase of approximately 1.7 million shares of  
Common Stock exercisable over a seven year period at $14.40 per share (the      
"Seven Year Warrants"), warrants for the purchase of up to 1.15 million shares  
of Common Stock (for nominal consideration), and $109.0 million aggregate       
liquidation value of Mandatorily Redeemable 12% Preferred Stock (the "12%       
Preferred Stock"). In addition, each of the 12.5 million shares of the then     
existing preferred stock were converted into, and holders received, 0.1024      
shares of Common Stock, 0.0512 Equity Rights and 0.1180 Seven Year Warrants.    
Holders of then existing common stock, other than shares held by trusts for     
employees, received 0.0213 shares of Common Stock, 0.0107 Equity Rights and     
0.0246 Seven Year Warrants.                                                     

In October 1995, TWA received approximately $55.3 million in gross proceeds 
from the exercise of 13,206,247 Equity Rights and issued 13,206,247 shares of   
Common Stock. The Company paid a fee of approximately $3.4 million in           
September to certain standby purchasers of shares covered by the Equity         
Rights.                                                                         

TWA subsequently issued 2.07 million additional shares of Common Stock to   
previous holders of TWA's 10% Senior Secured Notes based upon the trading       
prices of securities distributed pursuant to the "95 Reorganization.            

The Employee Preferred Stock is the functional equivalent of Common Stock   
except for an exclusive right to elect a certain number of directors to the     
Board of Directors and its liquidation preference of $0.01 per share. Employee  
Preferred Stock does not have redemption rights. Each share will automatically  
convert into one share of Common Stock upon the withdrawal of such share from   
the employee stock trust in which such share is held.                           

There were 1,742,922 and 1,746,874 Seven Year Warrants outstanding at       
December 31, 1996 and 1995, respectively. All warrants to purchase shares of    
Common stock for nominal consideration had been exercised at December 31,       
1996.                                                                           

In March 1996, the Company completed an offering, pursuant to Rule 144A of  
the Securities Act of 1933 (the "Act"), of 3,869,000 shares of its 8%           
Preferred Stock, with a liquidation preference of $50 per share. Each share of  
the 8% Preferred Stock may be converted at any time, at the option of the       
holder, unless previously redeemed or exchanged, into shares of Common Stock    
at a conversion price of $20.269 per share (equivalent to a conversion rate of  
approximately 2.467 shares of Common Stock for each share of 8% Preferred       
Stock), subject to adjustment.                                                  

The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or   
after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in    
part, at the option of the Company, at specified redemption prices. The 8%      
Preferred Stock may be exchanged, in whole but not in part, at the option of    
the Company, for the Company's 8% Convertible Subordinated Debentures Due 2006  
(the "Debentures") on any dividend payment date beginning March 15, 1998 at     
the rate of $50 principal amount of Debentures for each share of 8% Preferred   
Stock outstanding at the time of exchange; provided that all accrued and        
unpaid dividends, whether or not earned or declared, on the 8% Preferred Stock  
to the date of exchange have been paid or set aside for payment and certain     
other conditions are met. Pursuant to the registration rights agreement         
between the Company and the initial purchases of the 8% Preferred Stock, the    
Company was obligated to register resales of the 8% Preferred Stock, the        
Debentures, and the underlying shares of Common Stock issuable upon conversion  
thereof. In                                                                     

F-31  

S-4/A
176th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 176th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

addition, the Company must use its best efforts to keep the shelf registration  
effective until March 22, 1999. If the shelf registration does not remain       
effective until such date, the Company may be required to pay liquidated        
damages in amounts of up to $0.0125 per week per share of 8% Preferred Stock.   

In December 1995, the Company adopted a Shareholders Rights Plan. Each      
holder of Common Stock or Employee Preferred Stock received a dividend of one   
right for each share, entitling the holder to buy one one-hundredth of a share  
of a new series of preferred stock at a purchase price of $47.50. The rights    
may become exercisable only under certain conditions whereby certain persons    
(as defined) become the owner of or commence a tender offer for certain         
specified percentages of TWA's voting stock and may be redeemed by TWA at       
$0.01 per right prior to such time. In the event the rights become              
exercisable, holders would be entitled to receive, without payment of a         
purchase price, additional shares of Common Stock or be entitled to purchase    
Common Stock having a market value of twice the purchase price.                 

12. EARNED STOCK COMPENSATION:                                                  

Pursuant to the "94 Labor Agreements and "95 Reorganization, on the "95     
Effective Date, approximately 4.7 million shares of Employee Preferred Stock    
and 1.0 million shares of Common Stock were distributed and allocated to        
employees through employee stock ownership plans for the benefit of union       
(other than the ALPA represented employees) and noncontract employees,          
respectively. The distribution of these shares resulted in a charge to          
operations in the eight months ended August 31, 1995 of $43.2 million, based    
upon the market price of TWA's Common Stock at the time.                        

Additionally, a "Rabbi Trust" was established to receive the distribution of
approximately 1.7 million shares of Employee Preferred Stock attributable to    
ALPA represented employees. The Rabbi Trust will distribute to an employee      
benefit plan (the "ESOP") one-third of the shares annually beginning August     
1995, subject to certain conditions. Accordingly, operating results for 1996,   
the four months ended December 31, 1995 and the eight months ended August 31,   
1995 include charges of approximately $6.9 million, $2.0 million and $5.1       
million, respectively, representing the value of shares allocated and shares    
earned, but unallocated, for such periods, based upon the market price of       
TWA's Common Stock. The charge to earnings for shares to be allocated to ALPA   
represented employees in the future will be based upon the value of the shares  
at that time. Accordingly, material changes in this non-cash charge may occur   
in periods prior to the allocation of the shares and such changes may be        
unrelated to the Company's operating performance during such periods.           

Operating results for the eight months ended August 31, 1995 include a non- 
cash charge of approximately $8.0 million, representing the excess of the fair  
market value of the shares distributed to employees over the purchase price     
paid for shares which were sold to employees pursuant to the Equity Rights      
offering.                                                                       

Also pursuant to the "94 Labor Agreements and the "95 Reorganization, the   
Company has adopted a seven year employee stock incentive program (the "ESIP")  
pursuant to which TWA will grant its union and non-union employees additional   
shares of Employee Preferred Stock and Common Stock (the "Incentive Shares"),   
respectively, and such employees will be entitled to purchase additional        
shares of such stock under certain circumstances through an employee stock      
purchase arrangement. The ESIP has been designed to enable TWA's employees to   
increase their level of ownership from 30% to 40% of the combined total number  
of outstanding Common Stock and Employee Preferred Stock over the seven year    
period.                                                                         

The first stock grant under the ESIP is to be made on July 15, 1997 in an   
amount that would increase the level of employee ownership by 2% of the         
combined total number of then outstanding shares of Common Stock and Employee   
Preferred if the closing price of the Common Stock exceeds a target price of    
$11.00 per share following January 1, 1997 or would be made on any date         
thereafter if the price of the Common Stock exceeds such target price. In       
subsequent years through the end of the seven year term of the ESIP, the        
increase in the                                                                 

F-32  

S-4/A
177th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 177th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

number of shares of Employee Preferred Stock to be granted under this program   
would be equivalent to 1.5% in 1998, 1.5% in 1999, 1.0% in 2000, 1.0% in 2001   
and 1.0% in 2002 of the combined total number of shares of Common Stock and     
Employee Preferred Stock, and the target prices would increase to $12.10 in     
1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and $17.72 in 2002. If     
TWA issues additional shares of Common Stock with an aggregate value of more    
then $20 million to third parties for cash or a reduction in debt at a price    
equal to or greater then $11.00 per share, the last two scheduled installments  
of the ESIP would be aggregated and these shares allocated equally to the       
remaining installments in the program. In addition, pursuant to the ESIP,       
employees would have the right after July 15, 1997, to purchase over the seven  
year term of the ESIP additional shares of Employee Preferred Stock in amounts  
up to an aggregate of 2% of the combined total number of outstanding Common     
Stock and Employee Preferred Stock at a discount of 20% from the market price.  
The employees' right to purchase additional shares of Employee Preferred Stock  
would be accelerated and become immediately exercisable if there is a merger,   
sale or consolidation of TWA (where TWA is not the surviving entity) at a       
merger, sale or consolidation price equivalent to or in excess of $17.72 per    
share of Common Stock at a 20% discount from the merger, sale or consolidation  
price relating to such a transaction.                                           

The percentage of employee ownership could decline below 30% in the event   
the Company issues additional Common Stock to third parties for cash or         
property or in lieu of cash payments on the 12% Senior Secured Reset Notes. To  
the extent that as a result of the sale for cash of additional capital stock,   
the percentage of employee ownership of the combined total number of shares of  
Common Stock and Employee Preferred Stock declines below a level equal to the   
Adjusted Maximum Percentage (as defined below) minus eight percentage points    
plus the percentage equivalent to any Incentive Shares already issued, one-     
quarter of the difference between the new percentage of employee ownership and  
the level just determined (but in no event greater than 1% in each year) times  
the combined total number of shares of Common Stock and Employee Preferred      
Stock outstanding would be added to the amount of Employee Preferred Stock to   
union employees and Common Stock to non-union employees to be issued under the  
ESIP in each of the years 1999 through 2002 assuming the target prices are met  
in each of such years.                                                          

In the event of a merger, sale or consolidation of TWA where TWA is not the 
surviving entity, TWA would issue to employees at or prior to the consummation  
of such a transaction: (i) a number of shares of Employee Preferred Stock and   
Common Stock to which the employees would have otherwise been entitled under    
the ESIP during its seven year term assuming the trading price of the Common    
Stock during such term was the merger, sale or consolidation price, provided,   
that if the merger, sale or consolidation price falls between two target        
prices, the number of shares to be issued will be based on an interpolation     
between the target prices, (ii) if the employee ownership percentage is less    
than 35% of the combined total number of outstanding shares of Common Stock     
and Employee Preferred Stock, a number of shares of Employee Preferred Stock    
and Common Stock equal to the difference between the number of shares already   
distributed under the ESIP and a number of shares equivalent to 2.0%, 3.5% or   
5.0%, respectively, of the then combined total number of outstanding Common     
Stock and Employee Preferred Stock depending on the merger, sale or             
consolidation price, but in no event shall shares issued pursuant to this       
paragraph increase the employee ownership percentage above 35%, or (iii) if,    
following the issuance by the Company of additional shares of Common Stock to   
third parties for cash or property equal to 1% of the number of shares of       
Common Stock outstanding immediately following the Restructuring and the        
employee ownership percentage is below the lesser of 35% and the Adjusted       
Maximum Percentage, TWA shall at the option of each employee effect an          
immediate cash contribution to the employee's respective pension plan or make   
an immediate cash payment to each employee equal to an amount determined as     
the number of shares necessary to increase the employee ownership percentage    
to the lesser of 35% and the Adjusted Maximum Percentage of the merger, sale    
or consolidation price. The Adjusted Maximum Percentage is defined to mean a    
level of the percentage of employee ownership following a reduction below 38%   
but to no lower than 30% in a manner proportionate to the aggregate proceeds,   
if any, received from the issuance of additional Common Stock to third parties  
for cash or property up to $200 million.                                        

F-33  

S-4/A
178th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 178th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The ESIP also provides that if additional shares are distributed following  
the "95 Effective Date in respect of the "95 Reorganization, employees will be  
entitled to receive an additional number of shares of Common Stock and          
Employee Preferred Stock such that the employees will retain the same level of  
ownership. Pursuant to the "95 Reorganization, TWA issued 2,069,898 shares of   
common stock as conditional consideration to the 12% Senior Secured Notes.      
Union representatives and the Company have tentatively agreed that the number   
of "Fill-Up Shares" to be issued pursuant to the ESIP is approximately          
932,000. Under the agreement, approximately 526,000 shares will be distributed  
immediately (the "Initial Fill-Up Shares") and the remaining shares (the        
"Credit Shares") will be issued in July of 1997 if the 1997 target price is     
not met. If the 1997 ESIP target price is not met, the Credit Shares            
distributed may be used as a credit against future grants under the ESIP. TWA   
will record a charge in 1997 for the fair value of the Initial Fill-Up Shares   
as of the date those shares are distributed. The issuance of the Fill-Up        
Shares is subject to approval by the Company's Board of Directors. The number   
of shares of Employee Preferred Stock outstanding at December 31, 1996 does     
not reflect any such additional shares. Shares granted or purchased at a        
discount under the ESIP will generally result in a charge equal to the fair     
value of shares granted and the discount for shares purchased a the time when   
such shares are earned. If the ESIP's target prices for the Common Stock are    
realized, the minimum aggregate charge for the years 1997 to 2002, based on     
the number of Common Stock and Employee Preferred Stock outstanding at          
December 31, 1996 (including Initial Fill-Up Shares) and excluding the impact   
of any merger, sale or consolidation of TWA, would be approximately $58         
million. The charge for any year, however, could be substantially higher if     
the market prices of the Common Stock exceed the respective yearly target       
prices.                                                                         

13. STOCK OPTION PLANS:                                                         

The Company's 1994 Key Employee Incentive Stock Plan (the "KESIP"), as      
amended, provides for the award of incentive and nonqualified stock options     
for up to 14% of the Common Stock and Employee Preferred Stock outstanding as   
of the start of each fiscal year (approximately 3.4 million shares at January   
1, 1997). Options granted under the KESIP have a five year life after the       
final vesting period and vest at the rate of 34% upon the first anniversary of  
the award date, 33% upon the second and 33% upon the third anniversary of the   
award date. Unvested shares are subject to forfeiture under certain             
circumstances.                                                                  

A summary of the Company's outstanding stock options as of December 31, 1996
and 1995, and changes during the years ended on those dates is presented        
below:                                                                          

                                                                [Download Table]

                                    1996                       1995           
                          -------------------------- -------------------------
                                         WEIGHTED                  WEIGHTED   
                                         AVERAGE                   AVERAGE    
                            SHARES    EXERCISE PRICE   SHARES   EXERCISE PRICE
                          ----------  -------------- ---------- --------------
                                                                              
Outstanding at beginning                                                      
 of year................   2,228,000      $ 4.68      1,398,576     $4.64     
Granted.................     453,000       11.65        829,424      4.74     
Exercised...............    (191,316)       4.64            --        --      
Forfeited...............    (463,300)       7.43            --        --      
                          ----------                 ----------               
Outstanding at end of                                                         
 year...................   2,026,384        5.61      2,228,000      4.68     
                          ==========                 ==========               
Options exercisable at                                                        
 year-end...............   1,307,530                    475,516               
Weighted average fair                                                         
 value of options                                                             
 granted during the                                                           
 year...................  $     6.79                 $     3.03               

The per share weighted average fair value of options granted during 1996 and
1995 were estimated using the Black Scholes option pricing model assuming       
risk-free interest rates of 6.6% and 6.0% in 1996 and 1995, respectively, an    
expected volatility factor of 85% and an expected life of three years.          

F-34  

S-4/A
179th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 179th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The following table summarizes information about fixed stock options at     
December 31, 1996:                                                              

                                                        [Enlarge/Download Table]

                                     OPTIONS OUTSTANDING                OPTIONS EXERCISABLE    
                         ------------------------------------------- --------------------------
         RANGE             NUMBER    WEIGHTED-AVERAGE   WEIGHTED-      NUMBER      WEIGHTED-   
           OF            OUTSTANDING    REMAINING        AVERAGE     EXERCISABLE    AVERAGE    
    EXERCISE PRICES      AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
    ---------------      ----------- ---------------- -------------- ----------- --------------
                                                                                               
$ 4.64 to  6.78.........  1,757,184     3.0 years         $ 4.64      1,255,850      $ 4.64    
  7.06 to  8.12.........     20,000     3.8 years           7.95          6,800        7.95    
 10.62 to 15.81.........    238,100     7.4 years          11.97         39,780       10.64    
 16.25 to 18.37.........     11,100     4.3 years          17.85          5,100       18.37    
                          ---------                                   ---------                
$ 4.64 to 18.37.........  2,026,384                                   1,307,530                
                          =========                                   =========                

As permitted under Statement of Financial Accounting Standards No. 123      
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company applies     
APB Opinion No. 25 and related Interpretations in accounting for its plans.     
However, pro forma disclosures as if the Company adopted the fair value based   
method of measurement for stock-based compensation plans under SFAS 123 in      
1996 and 1995 are presented below.                                              

Had compensation cost for the Company's grants for stock-based compensation 
plans been determined using the fair value method under SFAS No. 123, the       
Company's net loss pro forma, and net loss per common share for 1996 and 1995   
would approximate the amounts below (in millions except per share data):        

                                                                [Download Table]

                                       YEAR ENDED          FOUR MONTHS ENDED  
                                    DECEMBER 31, 1996      DECEMBER 31, 1995  
                                  ---------------------  ---------------------
                                  AS REPORTED PRO FORMA  AS REPORTED PRO FORMA
                                  ----------- ---------  ----------- ---------
                                                                              
Net loss.........................  (284,815)  (285,716)    (30,138)   (30,350)
Net loss per common share........     (7.27)     (7.30)      (1.05)     (1.06)

The pro forma amounts do not give any effect to options granted prior to    
January 1, 1995.                                                                

Operating results include charges of $2.2 million, $0.02 million and $0.02  
million for the year ended December 31, 1996, the eight months ended August     
31, 1995 and the four months ended December 31, 1995, respectively, to reflect  
the excess of the market price of TWA's common stock on the date of grant over  
the exercise price, over the vesting period. The 1996 charge includes $1.8      
million in respect to the accelerated vesting of certain awards in connection   
with the severance of certain officers.                                         

14. EXTRAORDINARY ITEMS:                                                        

In 1996, the Company consummated a series of privately negotiated exchanges 
with a significant holder of the 12% Senior Secured Reset Notes which resulted  
in the return to the Company of approximately $45.3 million in 12% Senior       
Secured Reset Notes and approximately $1.5 million in accrued interest thereon  
in exchange for the issuance of approximately 4.5 million shares of Company     
Common Stock. As a result of the exchange of the 12% Senior Secured Notes, the  
Company recorded an extraordinary non-cash charge of $8.2 million representing  
the difference between the fair value of the common stock issued (based upon    
the trading price of the Company's common stock on the dates of exchanges) and  
the carrying value of the Senior Secured Reset Notes retired.                   

During 1996, the Company recorded an extraordinary charge of approximately  
$1.6 million due to the early extinguishment of a portion of the PBGC Notes as  
a result of Karabu applying approximately $6.4 million in ticket proceeds as    
prepayments on the PBGC Notes.                                                  

F-35  

S-4/A
180th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 180th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The extraordinary gain recorded in the four months ended December 31, 1995  
was due to the cancellation of debt as a result of a settlement between Trans   
World Express, Inc. ("TWE"), a subsidiary, and an aircraft lessor. The          
extraordinary gain recorded in the eight months ended August 31, 1995 was for   
the discharge of indebtedness pursuant to the Company's "95 Reorganization.     

The extraordinary charge recorded in 1994 was for a prepayment premium of   
approximately $2.0 million related to the sale and lease back of four           
McDonnell Douglas MD-80 aircraft.                                               

15. DISPOSITION OF ASSETS:                                                      

Disposition of assets resulted in net losses of approximately $1,135,000 and
$206,000 during 1996 and for the eight months ended August 31, 1995,            
respectively, and net gains of $3,330,000 and $1,072,000 for the four months    
ended December 31, 1995 and during 1994, respectively.                          

In 1996, TWA recorded a gain of approximately $8.0 million in connection    
with the hull insurance settlement for the aircraft destroyed in the Flight     
800 incident. The gain was offset by a loss of $8.3 million on the sale of      
expendable aircraft parts and losses on other miscellaneous dispositions.       

In November 1995, TWA entered into an agreement to sublease certain of TWA's
leased commissary facilities in Los Angeles. As part of this agreement, TWA     
sold its commissary furnishings and equipment, resulting in a gain of $2.0      
million.                                                                        

The 1994 net gain included a gain of approximately $1.3 million on the      
divestiture of three subsidiaries, Midcoast Aviation, Inc., Travel Marketing    
Services, Inc. and World Marketing Services, Inc.                               

16. SPECIAL CHARGES AND OTHER NONRECURRING ITEMS:                               

The 1996 operating loss includes an aggregate of approximately $85.9 million
in special charges and nonrecurring items, primarily as follows: (i)            
approximately $26.7 million to reflect the write-off of the carrying value of   
TWA's New York-Athens route authority over which TWA has elected to             
discontinue service, (ii) approximately $53.7 million to reflect the reduction  
in carrying value of TWA's owned L-1011 and B-747 aircraft and related spare    
parts which are expected to be retired from service over the next year and      
(iii) approximately $5.5 million for employee severance liabilities related to  
the termination of service to Athens and Frankfurt. The write-down of owned     
aircraft and related spare parts was based upon managements estimates of the    
net proceeds to be received upon the disposition of these assets.               
Additionally, the Company has obligations under operating leases for B-747      
aircraft aggregating approximately $50 million over the next seven years.       
Management currently estimates that it will be able to recover substantially    
all of these costs pursuant to subleases of these aircraft and, accordingly,    
no provision has been made for any such costs at this time. Management's        
estimates relative to the costs of the retirement of the L-1011 and B-747       
fleets and related spare parts are based upon current market conditions,        
preliminary discussions with interested parties and other factors. The actual   
costs could differ materially from the current estimates.                       

The operating income for the eight months ended August 31, 1995, includes a 
special charge of $1.7 million for shut-down related expenses of TWE.           

The 1994 operating loss includes an aggregate of $175.1 million in costs    
associated with special charges and nonrecurring items as further described     
below.                                                                          

In the fourth quarter of 1994, TWA recorded a charge of $36.3 million to    
salaries, wages and benefits to reflect the estimated portion of the            
obligation earned to date for payments due to employees represented by the IAM  
for overtime savings in excess of certain targeted levels established in the    
"92 Labor Agreement (see Note 7).                                               

F-36  

S-4/A
181st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 181st
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

During 1994, TWA undertook several strategic operational initiatives to     
improve its competitiveness and reduce its cost structure. Special charges      
recorded in 1994 include the following principal components: (i) approximately  
$61 million to reflect the write-off of the carrying value of certain           
international route authorities which were no longer expected to be utilized    
in connection with the restructuring of such operations, (ii) approximately     
$34 million to reflect the write-off of pre-delivery payments and related       
capitalized interest for certain aircraft on order (also see Note 18--Aircraft  
Commitments), (iii) approximately $24 million to reflect the reduction in the   
carrying value of certain owned aircraft and spare parts which, under the       
Company's fleet plan, were expected to be retired and sold and (iv)             
approximately $15 million for furlough pay and severance costs related to       
reduction in the number of employees.                                           

17. OTHER CHARGES AND CREDITS:                                                  

                                                        [Enlarge/Download Table]

                                                                           REORGANIZED COMPANY       PREDECESSOR COMPANY   
                                                                        ------------------------- -------------------------
                                                                            YEAR     FOUR MONTHS  EIGHT MONTHS     YEAR    
                                                                           ENDED        ENDED        ENDED        ENDED    
                                                                        DECEMBER 31, DECEMBER 31,  AUGUST 31,  DECEMBER 31,
                                                                            1996         1995         1995         1994    
                                                                        ------------ ------------ ------------ ------------
                                                                                      (AMOUNTS IN THOUSANDS)               
                                                                                                                           
Expenses associated with the restructuring of debt and flight                                                              
 equipment leases.....................................................    $    --      $ 3,000      $11,000      $ 11,100  
Provisions for losses resulting from claims and litigation judgments                                                       
 against TWA..........................................................         235          26          351           200  
Foreign currency transaction (gains) losses net.......................        (642)      1,156          384        (1,941) 
Finance charge income earned on receivables carried by TWA............      (8,030)     (2,662)      (6,198)       (9,557) 
Credits related to settlement of various contract disputes, litigation                                                     
 and other matters....................................................      (2,500)        --           --            --   
Equity in (earnings)/losses of TWA's investment in Worldspan..........     (11,919)     11,535       (3,607)        3,616  
Miscellaneous other nonoperating charges (credits)--net (a)...........      (7,742)     (5,444)      (4,309)      (32,265) 
                                                                          --------     -------      -------      --------  
Total Other Charges and Credits.......................................    $(30,598)    $ 7,611      $(2,379)     $(28,847) 
                                                                          ========     =======      =======      ========  

--------                                                                        
(a) The amount for 1994 includes certain nonrecurring income amounts            
aggregating approximately $21.1 million relating to the reduction of    
certain liabilities established on the "93 Effective Date (also see Note
20--Supplemental Financial Information (Unaudited)).                    

18. AIRCRAFT COMMITMENTS:                                                       

TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc     
relating to the purchase of ten A330-300 twin-engine wide body aircraft and     
related engines, spare parts and equipment for an aggregate purchase price of   
approximately $1.1 billion. The agreements, as amended, require the delivery    
of the aircraft in 1999 and 2000 and provide for the purchase of up to ten      
additional aircraft. TWA has not yet made arrangements for the permanent        
financing of the purchases subject to the agreements. In the event of           
cancellation, predelivery payments of approximately $18 million would be        
subject to forfeiture.                                                          

During 1996 TWA entered into a purchase agreement with the Boeing Company   
relating to the purchase of ten Boeing Model 757-231 aircraft and related       
engines, spare parts and equipment for an aggregate purchase                    

F-37  

S-4/A
182nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 182nd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

price of approximately $500 million. The agreement requires the delivery of     
the aircraft in 1997, 1998 and 1999, and provides for the purchase of up to     
ten additional aircraft. Furthermore, to the extent TWA exercises its options   
for additional aircraft, the Company will have the right to an equal number of  
additional option aircraft. TWA has obtained commitments for debt financing     
for approximately 80% of the total costs associated with the acquisition of     
eight of the original ten aircraft and obtained commitments for 100% of the     
total costs of the remaining two original aircraft. Such commitments are        
subject to the lender's and lessor's ongoing evaluation of the financial        
condition of TWA.                                                               

Required future expenditures under the purchase agreements described above, 
including an estimate of price escalation as defined in the subject agreements  
and exclusive of secured financing, are as follows (amounts in millions):       

                                                                [Download Table]

                                                             AVSA  BOEING
                                                             ----- ------
                                                                         
1997........................................................  49.1 248.5 
1998........................................................  49.8  97.0 
1999........................................................ 515.4 143.0 
2000........................................................ 532.5   --  

19. FRESH START REPORTING:                                                      

Pursuant to SOP 90-7, TWA adopted fresh start reporting which has resulted  
in the creation of a new reporting entity and the Company's assets and          
liabilities being adjusted to reflect fair values on the "95 Effective Date.    
For accounting purposes, the "95 Effective Date was deemed to be September 1,   
1995. In the fresh start reporting, an aggregate value of $270 million was      
assigned to TWA's Common Stock and Employee Preferred Stock. These values were  
established by management with the assistance of its financial advisors. These  
valuations considered TWA's expected future performance, relevant industry and  
economic conditions, and analyses and comparisons with comparable companies.    

The reorganization value of TWA has been allocated to the Reorganized       
Company's assets and liabilities in a manner similar to the purchase method of  
accounting for a business combination. Management obtained valuations from      
independent third parties which, along with other market and related            
information and analyses, were utilized in assigning fair values to assets and  
liabilities. A summary of the impact of the "95 Reorganization and the related  
fresh start adjustments is presented below. The fresh start adjustments         
resulted in, among other things, the allocation of substantial amounts to       
reorganization value in excess of amounts allocable to identifiable assets,     
the amortization of which, while not requiring the use of cash, will            
significantly affect future operating results.                                  

F-38  

S-4/A
183rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 183rd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

A summary of the impact of the "95 Reorganization Plan and the related fresh
start adjustments is presented below (amounts in thousands).                    

                                                        [Enlarge/Download Table]

                                                  SEPTEMBER 1, 1995                          
                          -------------------------------------------------------------------
                          PREDECESSOR      DEBT      FRESH START       OTHER      REORGANIZED
                            COMPANY    DISCHARGE(A) ADJUSTMENTS(B) ADJUSTMENTS(C)   COMPANY  
                          -----------  ------------ -------------- -------------- -----------
                                                                                             
Current Assets:                                                                              
 Cash and cash equiva-                                                                       
  lents.................  $  239,796    $     --      $     --        $    --     $  239,796 
 Receivables............     297,022       (1,449)          --             --        295,573 
 Spare parts, materials                                                                      
  and supplies..........     146,191          --            --             --        146,191 
 Prepaid expenses and                                                                        
  other.................      60,947          --            --             --         60,947 
                          ----------    ---------     ---------       --------    ---------- 
 Total Current Assets...     743,956       (1,449)          --             --        742,507 
                          ----------    ---------     ---------       --------    ---------- 
Property and Equipment..     631,087          --        (24,239)           --        606,848 
                          ----------    ---------     ---------       --------    ---------- 
Other Assets:                                                                                
 Investment in affili-                                                                       
  ated companies........     110,325          --            --             --        110,325 
 Other investments and                                                                       
  receivables...........     163,715          --            --             --        163,715 
 Routes, gates and                                                                           
  slots.................     737,171          --       (278,722)           --        458,449 
 Reorganization value in                                                                     
  excess of amounts                                                                          
  allocable to                                                                               
  identifiable assets...     153,840          --            --         685,224       839,064 
 Other assets...........      28,531          --         (9,392)           --         19,139 
                          ----------    ---------     ---------       --------    ---------- 
 Total Other............   1,193,582          --       (288,114)       685,224     1,590,692 
                          ----------    ---------     ---------       --------    ---------- 
Total...................  $2,568,625    $  (1,449)    $(312,353)      $685,224    $2,940,047 
                          ==========    =========     =========       ========    ========== 
Current Liabilities:                                                                         
 Current maturities of                                                                       
  long-term debt........  $  472,510    $(404,665)    $     --        $    --     $   67,845 
 Current obligations un-                                                                     
  der capital leases....      42,643          --           (647)           --         41,996 
 Advance ticket sales...     253,642          --            --             --        253,642 
 Accounts payable and                                                                        
  other accrued ex-                                                                          
  penses................     518,030       24,466         3,739            --        546,235 
                          ----------    ---------     ---------       --------    ---------- 
 Total..................   1,286,825     (380,199)        3,092            --        909,718 
                          ----------    ---------     ---------       --------    ---------- 
Liabilities Subject To                                                                       
 Chapter 11                                                                                  
Reorganization Proceed-                                                                      
 ings...................     748,855     (748,855)          --             --            --  
Noncurrent Liabilities                                                                       
 and Deferred Credits:                                                                       
 Long-term debt, less                                                                        
  current maturities....         --       765,435           --             --        765,435 
 Obligations under                                                                           
  capital leases, less                                                                       
  current obligations...     317,196          --        (42,440)           --        274,756 
 Other noncurrent lia-                                                                       
  bilities and deferred                                                                      
  credits...............     673,428       18,612       (30,762)           --        661,278 
                          ----------    ---------     ---------       --------    ---------- 
 Total..................     990,624      784,047       (73,202)           --      1,701,469 
                          ----------    ---------     ---------       --------    ---------- 
Redeemable Preferred                                                                         
 Stock..................         --        58,860           --             --         58,860 
Shareholders' Equity                                                                         
 (Deficiency):                                                                               
 Old Preferred Stock....         125          --            --            (125)          --  
 Old Common Stock.......         200          --            --            (200)          --  
 Employee Preferred                                                                          
  Stock.................         --           --            --              53            53 
 New Common Stock.......         --           --            --             172           172 
 Additional paid-in cap-                                                                     
  ital..................     161,692      143,800           --         (35,717)      269,775 
 Accumulated Deficit....    (619,696)     140,898      (242,243)       721,041           --  
                          ----------    ---------     ---------       --------    ---------- 
 Total..................    (457,679)     284,698      (242,243)       685,224       270,000 
                          ----------    ---------     ---------       --------    ---------- 
 Total..................  $2,568,625    $  (1,449)    $(312,353)      $685,224    $2,940,047 
                          ==========    =========     =========       ========    ========== 

--------                                                                        
(a) To record the discharge of indebtedness pursuant to the "95 Reorganization  
and reclassification of debt between current and non-current based upon 
its revised terms. Debt securities, Mandatorily Redeemable 12% Preferred
Stock, Ticket Vouchers and Contingent Payment Rights issued pursuant to 
 the "95 Reorganization have been recorded at their estimated fair values.
The excess of indebtedness eliminated over the fair value of securities 
issued in settlement of those claims, approximately $140.9 million, is  
reflected as an extraordinary item in the eight months ended August 31, 
1995.                                                                   

F-39  

S-4/A
184th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 184th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

(b) To record adjustments to reflect assets and liabilities at fair values.     
The adjustments to record the fair values of assets and liabilities     
  resulted in a nonrecurring charge to reorganization items of approximately
$228.8 million in the eight months ended August 31, 1995. Charges to    
reorganization items were recorded for various fees and expenses related
to the consummation of the "95 Plan aggregating approximately $13.4     
 million. Significant elements of the adjustments to record the fair value
of assets and liabilities are summarized below:                         
-- Adjustments to reflect the fair value of owned property and equipment    
under capital leases.                                                 
-- Adjustments to reflect the fair value of TWA's international route       
   authorities, take-off and landing time slots and airport gate leaseholds.
-- Adjustments to record the present value of the liabilities for           
postretirement medical and life insurance benefits and certain foreign
pension plans to reflect the current postretirement benefit obligation
and projected benefit obligation, respectively, utilizing current     
discount rates.                                                       
-- An adjustment to reduce deferred income taxes to reflect the impact of   
the preceding adjustments.                                            
(c) To record adjustments to reflect the elimination of the remaining deficit   
in shareholders' equity after the adjustments arising from (a) and (b)  
above and to reflect the associated reorganization value in excess of   
amounts allocable to identifiable assets.                               

F-40  

S-4/A
185th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 185th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

20. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED):                             

 Selected consolidated financial data (unaudited) for each quarter within 1996
and 1995 are as follows:                                                        

                                                                [Download Table]

                                   FIRST     SECOND     THIRD         FOURTH   
                                  QUARTER   QUARTER    QUARTER        QUARTER  
                                 ---------  --------  ----------     --------- 
                                         (AMOUNTS IN THOUSANDS)                
                                                                               
REORGANIZED COMPANY                                                            
YEAR ENDED DECEMBER 31, 1996                                                   
Operating revenues.............. $ 782,433  $965,808  $1,002,867     $ 803,299 
                                 =========  ========  ==========     ========= 
Special charges (note 16)....... $     --   $    --   $      --      $  85,915 
                                 =========  ========  ==========     ========= 
Operating income (loss)......... $ (54,191) $ 62,028  $   26,019     $(232,383)
                                 =========  ========  ==========     ========= 
Disposition of assets, gains                                                   
 (losses)--net.................. $    (214) $    239  $      (87)    $  (1,073)
                                 =========  ========  ==========     ========= 
Income (loss) before                                                           
 extraordinary item............. $ (37,107) $ 25,262  $   (6,905)    $(256,277)
                                 =========  ========  ==========     ========= 
Extraordinary items............. $     --   $    --   $   (7,420)    $  (2,368)
                                 =========  ========  ==========     ========= 
Net income (loss)............... $ (37,107) $ 25,262  $  (14,325)    $(258,645)
                                 =========  ========  ==========     ========= 
Per share amounts:                                                             
 Earnings (loss) before                                                        
  extraordinary items and                                                      
  special dividend requirements. $    (.98) $    .46  $     (.24)    $   (5.51)
                                 =========  ========  ==========     ========= 
 Extraordinary items and special                                               
  dividend requirements......... $    (.48) $    --   $     (.16)    $    (.05)
                                 =========  ========  ==========     ========= 
 Net income (loss).............. $   (1.46) $    .46  $     (.40)    $   (5.56)
                                 =========  ========  ==========     ========= 
REORGANIZED COMPANY                                                            
FOUR MONTHS ENDED DECEMBER 31,                                                 
 1995                                                                          
Operating revenues.............. $     --   $    --   $  293,890 (a) $ 804,584 
                                 =========  ========  ==========     ========= 
Operating income................ $     --   $    --   $    9,308 (a) $   1,138 
                                 =========  ========  ==========     ========= 
Disposition of assets, gains                                                   
 (losses)--net.................. $     --   $    --   $      (50)(a) $   3,380 
                                 =========  ========  ==========     ========= 
Loss before extraordinary item.. $     --   $    --   $   (2,347)(a) $ (31,291)
                                 =========  ========  ==========     ========= 
Extraordinary items............. $     --   $    --   $      --  (a) $   3,500 
                                 =========  ========  ==========     ========= 
Net loss........................ $     --   $    --   $   (2,347)(a) $ (27,791)
                                 =========  ========  ==========     ========= 
Per share amounts:                                                             
 Loss before extraordinary                                                     
  items......................... $     --   $    --   $     (.16)(a) $    (.93)
                                 =========  ========  ==========     ========= 
 Extraordinary items............ $     --   $    --   $      --  (a) $     .09 
                                 =========  ========  ==========     ========= 
 Net loss....................... $     --   $    --   $     (.16)(a) $    (.84)
                                 =========  ========  ==========     ========= 
PREDECESSOR COMPANY                                                            
EIGHT MONTHS ENDED AUGUST 31,                                                  
 1995                                                                          
Operating revenues.............. $ 692,320  $860,506  $  665,529 (b) $     --  
                                 =========  ========  ==========     ========= 
Special charges (note 16)....... $     --   $    --   $    1,730 (b) $     --  
                                 =========  ========  ==========     ========= 
Operating income (loss)......... $ (76,261) $ 54,382  $   36,521 (b) $     --  
                                 =========  ========  ==========     ========= 
Reorganization items............ $     --   $    --   $  242,243 (b) $     --  
                                 =========  ========  ==========     ========= 
Disposition of assets, gains                                                   
 (losses)--net.................. $    (271) $    (67) $      132 (b) $     --  
                                 =========  ========  ==========     ========= 
Income (loss) before                                                           
 extraordinary item............. $(122,795) $  5,168  $ (220,586)(b) $     --  
                                 =========  ========  ==========     ========= 
Extraordinary items............. $     --   $    --   $  140,898 (b) $     --  
                                 =========  ========  ==========     ========= 
Net income (loss)............... $(122,795) $  5,168  $  (79,688)(b) $     --  
                                 =========  ========  ==========     ========= 

--------                                                                        
(a) One month ended September 30, 1995                                          
(b) Two months ended August 31, 1995                                            

F-41

S-4/A
186th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 186th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The results for each period include all adjustments which are, in the       
opinion of management, necessary for a fair statement of the results for the    
interim periods.                                                                

The consolidated financial results on an interim basis are not necessarily  
indicative of future financial results on either an interim or annual basis.    
TWA's air transportation business is highly seasonal with the second and third  
quarters of the calendar year historically producing substantially better       
operating results than the first and fourth quarters.                           

The results for the fourth quarter of 1996 includes an adjustment to reduce 
aircraft fuel and oil costs by approximately $8.8 million, as a result of       
federal fuel excise taxes paid which are expected to be refunded to the         
Company.                                                                        

The results for the fourth quarter of 1995 include several adjustments to   
operating expenses to reflect changes in estimates, including a reduction in    
passenger sales commissions of approximately $6.7 million and a reduction in    
employee benefits and workers compensation costs of $6.2 million.               

21. FOREIGN OPERATIONS:                                                         

TWA conducts operations in various foreign countries, principally in Europe 
and the Middle East. Operating revenues from foreign operations were            
approximately $719.2 million in the year ended December 31, 1996, $228.7        
million in the four months ended December 31, 1995, $474.4 million in the       
eight months ended August 31, 1995 and $794.1 million in the year ended         
December 31, 1994.                                                              

22. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:                     

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments"       
requires disclosures with regards to fair values of all financial instruments,  
whether recognized or not recognized in the balance sheet, subject to certain   
exceptions. Solely for purposes of complying with this accounting standard,     
the Company has estimated the fair value of certain of its financial            
instruments, as further described below. Because no market exists for a         
significant portion of TWA's financial instruments, fair value estimates        
provided below are based on judgments regarding current economic conditions,    
risk characteristics of various financial instruments, and other factors.       
These estimates are subjective in nature and involve uncertainties and matters  
of significant judgment and therefore cannot be determined with precision.      
Changes in assumptions could significantly affect the estimates. The            
discussion of financial instruments below conforms with the presentation in     
the Consolidated Balance Sheet and relates to the amounts at December 31, 1996  
and 1995.                                                                       

 (a) Cash, cash equivalents and receivables: The carrying amounts of these
assets is estimated to approximate fair value due to the generally short    
maturities of these instruments.                                            

(b) Other investments and receivables: The carrying amount of these     
assets are estimated to approximate fair value due to the generally short   
maturities of the underlying instruments which are, however, classified as  
long-term assets because TWA's ability to access these amounts is generally 
restricted by contractual provisions.                                       

(c) Accounts payable and other accrued liabilities: The carrying amount 
of these liabilities are estimated to approximate fair value due to the     
generally short maturities of these instruments.                            

(d) Debt: At December 31, 1996 and December 31, 1995, approximately     
$111.8 million and $145.2 million, respectively, of the carrying value of   
TWA's debt was traded publicly. The aggregate market value                  

F-42  

S-4/A
187th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 187th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

of such debt was approximately $126.0 million and $160.4 million on those   
dates, respectively. The Company believes the fair value of the remaining   
debt which had an aggregate carrying value of approximately $589.1 million  
and $686.4 million at December 31, 1996 and 1995, respectively, was         
approximately $466.4 million and $644.5 million on those dates.             

(e) Mandatorily Redeemable 12% Preferred Stock: At December 31, 1995 the
carrying value of TWA's Mandatorily Redeemable 12% Preferred Stock was      
$61.4 million. The aggregate market value of such stock was approximately   
$74.1 million on that date.                                                 

F-43  

S-4/A
188th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 188th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED OPERATIONS 

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 
(UNAUDITED) 

                                                                [Download Table]

                                   THREE MONTHS ENDED      NINE MONTHS ENDED    
                                      SEPTEMBER 30,          SEPTEMBER 30,      
                                   --------------------  ---------------------- 
                                     1997       1996        1997        1996    
                                   --------  ----------  ----------  ---------- 
                                                                                
Operating revenues:                                                             
  Passenger......................  $799,203  $  874,275  $2,211,253  $2,391,207 
  Freight and mail...............    32,106      38,548      94,913     111,495 
  All other......................    77,072      90,044     208,963     248,406 
                                   --------  ----------  ----------  ---------- 
    Total........................   908,381   1,002,867   2,515,129   2,751,108 
                                   --------  ----------  ----------  ---------- 
Operating expenses:                                                             
  Salaries, wages and benefits...   304,344     317,527     922,160     923,288 
  Earned stock compensation......     1,106        (735)      4,179       4,306 
  Aircraft fuel and oil..........   122,234     162,382     369,509     432,849 
  Passenger sales commissions....    65,960      75,960     188,954     213,548 
  Aircraft maintenance materials                                                
   and repairs...................    27,507      53,529     109,636     158,485 
  Depreciation and amortization..    36,623      39,518     112,154     118,347 
  Operating lease rentals........    94,439      77,270     268,849     222,083 
  Passenger food and beverages...    21,552      31,218      61,411      84,052 
  All other......................   170,859     220,179     508,074     560,294 
                                   --------  ----------  ----------  ---------- 
    Total........................   844,624     976,848   2,544,926   2,717,252 
                                   --------  ----------  ----------  ---------- 
Operating income (loss)..........    63,757      26,019     (29,797)     33,856 
                                   --------  ----------  ----------  ---------- 
Other charges (credits):                                                        
  Interest expense...............    27,404      30,864      85,518      95,483 
  Interest and investment income.    (2,944)     (5,421)     (8,962)    (17,247)
  Disposition of assets, gains                                                  
   and losses--net...............    (2,828)         87     (15,208)         62 
  Other charges and credits--net.    (5,057)     (9,481)    (22,873)    (26,185)
                                   --------  ----------  ----------  ---------- 
    Total........................    16,575      16,049      38,475      52,113 
                                   --------  ----------  ----------  ---------- 
Income (loss) before income taxes                                               
 and extraordinary items.........    47,182       9,970     (68,272)    (18,257)
Provision (credit) for income                                                   
 taxes...........................    33,906      16,875         479         493 
                                   --------  ----------  ----------  ---------- 
Income (loss) before                                                            
 extraordinary items.............    13,276      (6,905)    (68,751)    (18,750)
Extraordinary items, net of                                                     
 income taxes....................    (6,985)     (7,420)    (10,922)     (7,420)
                                   --------  ----------  ----------  ---------- 
Net income (loss)................     6,291     (14,325)    (79,673)    (26,170)
Preferred stock dividend                                                        
 requirements....................     3,869       3,869      11,607      32,681 
                                   --------  ----------  ----------  ---------- 
Income (loss) applicable to                                                     
 common shares...................  $  2,422  $  (18,194) $  (91,280) $  (58,851)
                                   ========  ==========  ==========  ========== 
Per share amounts:                                                              
  Earnings (loss) before                                                        
   extraordinary item and special                                               
   dividend requirement..........  $    .17  $     (.24) $    (1.54) $     (.73)
  Extraordinary item and special                                                
   dividend requirement..........      (.13)       (.16)       (.21)       (.63)
                                   --------  ----------  ----------  ---------- 
  Net income (loss)..............  $    .04  $     (.40) $    (1.75) $    (1.36)
                                   ========  ==========  ==========  ========== 

See notes to consolidated financial statements

F-44

S-4/A
189th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 189th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)

ASSETS

                                                                [Download Table]

                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1997          1996    
                                                     ------------- ------------
                                                      (UNAUDITED)              
                                                                               
Current assets:                                                                
  Cash and cash equivalents.........................  $  104,565    $  181,586 
  Receivables, less allowance for doubtful accounts,                           
   $10,275 in 1997 and $12,939 in 1996..............     251,347       239,496 
  Spare parts, materials and supplies, less                                    
   allowance for obsolescence, $12,212 in 1997 and                             
   $11,563 in 1996..................................     101,774       111,239 
  Prepaid expenses and other........................     135,606        93,424 
                                                      ----------    ---------- 
    Total...........................................     593,292       625,745 
                                                      ----------    ---------- 
Property:                                                                      
  Property owned:                                                              
    Flight equipment................................     488,409       339,150 
    Prepayments on flight equipment.................      14,037        39,072 
    Land, buildings and improvements................      61,034        59,879 
    Other property and equipment....................      63,957        60,750 
                                                      ----------    ---------- 
      Total owned property..........................     627,437       498,851 
    Less accumulated depreciation...................     102,137        71,810 
                                                      ----------    ---------- 
      Property owned--net...........................     525,300       427,041 
                                                      ----------    ---------- 
  Property held under capital leases:                                          
    Flight equipment................................     168,403       172,812 
    Land, buildings and improvements................      49,443        54,761 
    Other property and equipment....................       7,185         6,570 
                                                      ----------    ---------- 
      Total property held under capital leases......     225,031       234,143 
    Less accumulated amortization...................      71,833        46,977 
                                                      ----------    ---------- 
      Property held under capital leases--net.......     153,198       187,166 
                                                      ----------    ---------- 
      Total property--net...........................     678,498       614,207 
                                                      ----------    ---------- 
Investments and other assets:                                                  
  Investments in affiliated companies...............     118,290       108,173 
  Investments, receivables and other................     151,839       149,028 
  Routes, gates and slots--net......................     383,033       401,659 
  Reorganization value in excess of amounts                                    
   allocable                                                                   
   to identifiable assets--net......................     751,661       783,127 
                                                      ----------    ---------- 
      Total.........................................   1,404,823     1,441,987 
                                                      ----------    ---------- 
Total...............................................  $2,676,613    $2,681,939 
                                                      ==========    ========== 

See notes to consolidated financial statements

F-45

S-4/A
190th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 190th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) 

                                                                [Download Table]

                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1997          1996    
                                                     ------------- ------------
                                                      (UNAUDITED)              
                                                                               
Current liabilities:                                                           
  Current maturities of long-term debt .............  $   66,184    $   92,447 
  Current obligations under capital leases..........      38,423        42,501 
  Advance ticket sales..............................     272,148       241,516 
  Accounts payable, principally trade...............     268,795       216,675 
  Accounts payable to affiliated companies..........       5,996         4,894 
  Accrued expenses:                                                            
    Employee compensation and vacations earned......     115,392       116,846 
    Contributions to retirement and pension trusts..      11,779        14,091 
    Interest on debt and capital leases.............      31,173        39,420 
    Taxes...........................................      17,665        19,018 
    Other accrued expenses..........................     191,595       174,753 
                                                      ----------    ---------- 
      Total accrued expenses........................     367,604       364,128 
                                                      ----------    ---------- 
      Total.........................................   1,019,150       962,161 
                                                      ----------    ---------- 
Long-term liabilities and deferred credits:                                    
  Long-term debt, less current maturities...........     593,825       608,485 
  Obligations under capital leases, less current                               
   obligations......................................     189,622       220,790 
  Postretirement benefits other than pensions.......     475,374       471,171 
  Noncurrent pension liabilities....................      31,452        30,716 
  Other noncurrent liabilities and deferred credits.     147,359       150,511 
                                                      ----------    ---------- 
      Total.........................................   1,437,632     1,481,673 
                                                      ----------    ---------- 
Shareholders' equity                                                           
  8% cumulative convertible exchangeable preferred                             
   stock, $50 liquidation preference; 3,869 shares                             
   issued and outstanding...........................          39            39 
  Employee preferred stock, $0.01 liquidation                                  
   preference; special voting rights; shares issued                            
   and outstanding: 1997-6,943; 1996-5,681..........          69            57 
  Common stock, $0.01 par value, shares issued and                             
   outstanding: 1997-50,666; 1996-41,763 ...........         507           418 
  Additional paid-in capital........................     613,842       552,544 
  Accumulated deficit...............................    (394,626)     (314,953)
                                                      ----------    ---------- 
      Total.........................................     219,831       238,105 
                                                      ----------    ---------- 
Total...............................................  $2,676,613    $2,681,939 
                                                      ==========    ========== 

See notes to consolidated financial statements

F-46

S-4/A
191st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 191st
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED CASH FLOWS 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 
(AMOUNTS IN THOUSANDS)
(UNAUDITED) 

                                                                [Download Table]

                                                           NINE MONTHS ENDED  
                                                             SEPTEMBER 30,    
                                                           ------------------ 
                                                             1997      1996   
                                                           --------  -------- 
                                                                              
Cash flows from operating activities:                                         
Net loss.................................................. $(79,673) $(26,170)
Adjustments to reconcile net loss to net cash used by                         
 operating activities:                                                        
 Employee earned stock compensation.......................    4,179     4,306 
 Depreciation and amortization............................  112,154   118,347 
 Amortization of discount and expense on debt.............   10,905     8,096 
 Extraordinary loss on extinguishment of debt.............   10,922     7,420 
 Interest paid in common stock............................    4,125    11,332 
 Equity in undistributed earnings of affiliates not                           
  consolidated............................................  (10,424)   (9,733)
 Revenue from Icahn ticket program........................  (90,878)  (52,169)
 Net (gains)-losses on disposition of assets..............  (15,208)       62 
 Change in operating assets and liabilities:                                  
 Decrease (increase) in:                                                      
  Receivables.............................................  (12,618)  (73,224)
  Inventories.............................................    8,479    (3,326)
  Prepaid expenses and other current assets...............  (34,569)  (48,826)
  Other assets............................................   (9,723)    5,831 
 Increase (decrease) in:                                                      
  Accounts payable and accrued expenses...................   58,897    83,430 
  Advance ticket sales....................................   20,247    83,962 
  Other noncurrent liabilities and deferred credits.......    2,228   (61,412)
                                                           --------  -------- 
   Net cash provided (used)...............................  (20,957)   47,926 
                                                           --------  -------- 
Cash flows from investing activities:                                         
 Proceeds from sales of property..........................   22,186     5,916 
 Capital expenditures, including aircraft pre-delivery                        
  deposits................................................  (58,161) (109,885)
 Return of pre-delivery deposits related to leased                            
  aircraft................................................   10,740       --  
 Net decrease (increase) in investments, receivables and                      
  other...................................................    7,632    (4,924)
                                                           --------  -------- 
   Net cash used..........................................  (17,603) (108,893)
                                                           --------  -------- 
Cash flows from financing activities:                                         
 Net proceeds from long-term debt and warrants issued.....   47,175     2,750 
 Proceeds from sale and leaseback of certain aircraft.....   12,000       --  
 Repayments on long-term debt and capital lease                               
  obligations.............................................  (92,867)  (91,696)
 Refund due to retirement of 1967 bonds...................    5,318       --  
 Net proceeds from sale of preferred stock................      --    186,163 
 Redemption of 12% Preferred Stock........................      --    (81,749)
 Cash dividends paid on preferred stock...................  (11,607)  (10,620)
 Net proceeds from exercise of equity rights, warrants and                    
  options.................................................    1,520       301 
                                                           --------  -------- 
   Net cash provided (used)...............................  (38,461)    5,149 
                                                           --------  -------- 
Net decrease in cash and cash equivalents.................  (77,021)  (55,818)
Cash and cash equivalents at beginning of period..........  181,586   304,340 
                                                           --------  -------- 
Cash and cash equivalents at end of period................ $104,565  $248,522 
                                                           ========  ======== 

See notes to consolidated financial statements

F-47

S-4/A
192nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 192nd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

STATEMENTS OF CONSOLIDATED CASH FLOWS 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 
(AMOUNTS IN THOUSANDS)
(UNAUDITED) 

SUPPLEMENTAL CASH FLOW INFORMATION

                                                                [Download Table]

                                                              NINE MONTHS ENDED 
                                                                SEPTEMBER 30,   
                                                              ------------------
                                                                1997      1996  
                                                              --------- --------
                                                                                
Cash paid during the period for:                                                
  Interest..................................................  $  74,247 $ 86,465
                                                              ========= ========
  Income taxes..............................................  $      80 $    127
                                                              ========= ========
Information about noncash operating, investing and financing                    
 activities:                                                                    
  Promissory notes issued to finance aircraft acquisitions..  $ 112,121 $ 10,565
                                                              ========= ========
  Promissory note issued to finance aircraft predelivery                        
   payments.................................................  $   4,654 $ 12,202
                                                              ========= ========
  Common Stock issued in lieu of cash dividends.............  $     --  $  3,255
                                                              ========= ========
  Property acquired and obligations recorded under new                          
   capital transactions.....................................  $     619 $  2,333
                                                              ========= ========
Exchange of long-term debt for common stock:                                    
  Debt cancelled including accrued interest, net of                             
   unamortized discount.....................................  $  48,835 $ 38,229
                                                              ========= ========
  Common Stock issued, at fair value........................  $  56,028 $ 45,649
                                                              ========= ========
  Extraordinary loss........................................  $   7,193 $  7,420
                                                              ========= ========

ACCOUNTING POLICY                                                               

For purposes of the Statements of Consolidated Cash Flows, TWA considers all
highly liquid debt instruments purchased with a maturity of three months or     
less to be cash equivalents.                                                    

See notes to consolidated financial statements

F-48

S-4/A
193rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 193rd
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
SEPTEMBER 30, 1997  
(UNAUDITED) 

1. BASIS OF PRESENTATION                                                        

The consolidated financial statements include the accounts of Trans World   
Airlines, Inc. ("TWA" or the "Company") and its subsidiaries. The results of    
Worldspan, L.P. ("Worldspan"), a 25% owned affiliate, are recorded under the    
equity method and are included in the Statements of Consolidated Operations in  
Other Charges (Credits).                                                        

The unaudited consolidated financial statements included herein have been   
prepared by the Company pursuant to the rules and regulations of the            
Securities and Exchange Commission but do not include all information and       
footnotes required by generally accepted accounting principles pursuant to      
such rules and regulations. The consolidated financial statements include all   
adjustments, which are of a normal recurring nature and are necessary, in the   
opinion of management, for a fair presentation of the results for these         
interim periods. These consolidated financial statements and related notes      
should be read in conjunction with the Consolidated Financial Statements. The   
consolidated balance sheet at December 31, 1996 has been derived from the       
audited consolidated financial statements at that date. Certain amounts         
previously reported have been reclassified to conform with the current          
presentation.                                                                   

The airline industry generally, and TWA specifically, has historically      
experienced seasonal changes between quarterly periods, with the second and     
third quarters usually out-performing the first and fourth. Accordingly, the    
results for the three months and nine months ended September 30, 1997, should   
not be read as indicators of future results for the full year.                  

2. INCOME TAXES                                                                 

Income tax expense is recorded each quarter based on the estimated annual   
effective rate. The tax provision recorded in the third quarter reflects the    
reversal of previously recorded tax benefits as management currently expects a  
taxable loss at year-end and the realization of the benefits of any tax loss    
in future periods is presently subject to substantial uncertainty.              

3. EXTRAORDINARY ITEMS                                                          

In the nine months ended September 30, 1996 the Company consummated a series
of privately negotiated exchanges with a significant holder of 12% Senior       
Secured Reset Notes which resulted in the return to the Company of $42.0        
million in 12% Senior Secured Reset Notes and approximately $1.4 million in     
accrued interest thereon in exchange for the issuance of approximately 4.0      
million shares of Company Common Stock. As a result of the exchange of the 12%  
Senior Secured Reset Notes, the Company incurred an extraordinary non-cash      
charge of $7.4 million in the third quarter of 1996 representing the            
difference between the fair value of the common stock issued (based upon the    
trading price of the Company's common stock on the dates of the exchanges net   
of purchaser's discount) and the carrying value of the 12% Senior Secured       
Reset Notes retired.                                                            

During the nine months ended September 30, 1997 the Company continued the   
series of privately negotiated exchanges with a significant holder of 12%       
Senior Secured Reset Notes which resulted in the return to the Company of       
$51.8 million in 12% Senior Secured Reset Notes and approximately $1.4 million  
in accrued interest thereon in exchange for the issuance of approximately 7.7   
million shares of Company Common Stock. All 12% Senior Secured Reset Notes      
returned will be canceled leaving an outstanding principal balance of such      
notes of approximately $72.5 million. As a result of the exchange of the 12%    
Senior Secured Reset Notes, the Company incurred an extraordinary non-cash      
charge of $7.2 million in the first nine months of 1997.                        

F-49  

S-4/A
194th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 194th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

An additional extraordinary non-cash charge of $3.7 million was recorded    
during the third quarter of 1997 relating to a $38.8 million extinguishment of  
PBGC Notes under an agreement entered into by the Company with Karabu           
Corporation, an entity affiliated with Carl C. Icahn ("Karabu"), in connection  
with the '95 Reorganization.                                                    

4. LOSS PER SHARE                                                               

In computing the income (loss) applicable to common shares for the three    
months and nine months ended September 30, 1997, the net income (loss) has      
been decreased (increased) by dividend requirements on the 8% Cumulative        
Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"). In         
computing the related net income (loss) per share, the income (loss)            
applicable to common shares has been divided by the average aggregate number    
of outstanding shares of Common Stock (49.3 million and 45.8 million for the    
three months and nine months ended September 30, 1997, respectively) and        
Employee Preferred Stock (6.8 million and 6.2 million for the three months and  
nine months ended September 30, 1997, respectively) which, with the exception   
of certain special voting rights, is the functional equivalent of Common        
Stock. When dilutive, effect has been given to stock options, warrants or       
potential issuances of additional Common Stock or Employee Preferred Stock.     

The loss applicable to common shares for the three months and nine months   
ended September 30, 1996 was similarly computed with the net loss being         
increased by dividend requirements on the Mandatorily Redeemable 12% Preferred  
Stock (the "12% Preferred Stock") (including amortization of the difference     
between the fair value of the 12% Preferred Stock on the date of issuance and   
the redemption value plus, with respect to the March 22, 1996 call for the      
redemption, a special dividend requirement of approximately $20.0 million to    
reflect the excess of the early redemption price over the carrying value of     
the 12% Preferred Stock) and on the 8% Preferred Stock issued in March 1996.    
In computing the related net loss per share, the loss applicable to common      
shares was divided by the average aggregate number of outstanding shares of     
Common Stock (39.3 million and 37.5 million for the three months and nine       
months ended September 30, 1996, respectively) and Employee Preferred Stock     
(5.7 million and 5.6 million for the three months and nine months ended         
September 30, 1996, respectively). When dilutive, effect has been given to      
stock options, warrants or potential issuances of additional Common Stock or    
Employee Preferred Stock.                                                       

5. SENIOR SECURED NOTES AND REDEEMABLE WARRANTS                                 

In March 1997, the Company offered 50,000 Units ("Units"), with each Unit   
consisting of (i) one 12% Senior Secured Note due 2002 (a "Note"), in the       
principal amount of $1,000, and (ii) one Redeemable Warrant (a "Warrant") to    
purchase 126.26 shares of Common Stock at an exercise price of approximately    
$7.92 per share (the "Offering"). The Notes are secured by a lien on certain    
assets of the Company, including 1) the Company's beneficial interest in its    
FAA designated take-off and landing slots at three high-density, capacity-      
controlled airports, 2) currently owned and hereafter acquired defined ground   
equipment of the Company used at certain domestic airports and 3) all of the    
issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding    
the leasehold interest in hangar at Los Angeles International Airport and (b)   
three wholly-owned subsidiaries of TWA holding leasehold interests in gates     
and related support space at certain domestic airports served by the Company.   
The Company realized approximately $47.2 million (net of discounts and          
commissions and estimated expenses) in proceeds from the Offering. The Company  
used approximately $0.5 million of the proceeds from the Offering to release    
certain of the collateral to be used to secure the Notes from a prior existing  
lien and the remainder of the proceeds for general corporate purposes.          

F-50  

S-4/A
195th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 195th
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

The Offering was made pursuant to Rule 144A of the Securities Act of 1933,  
as amended (the "Securities Act"), and, accordingly, the Units, Notes and       
Warrants and underlying shares of Common Stock issuable upon exercise of the    
Warrants were not registered under the Federal and state securities laws. The   
Company filed registration statements with respect to (i) an offer to exchange  
registered Notes for any and all outstanding Notes, and (ii) the Warrants and   
underlying shares of Common Stock, and to thereby register the Notes and the    
Warrants under the Securities Act. These registration statements became         
effective on July 29, 1997.                                                     

6. PREFERRED STOCK                                                              

In March 1996, the Company completed an offering of 3,869,000 shares of its 
8% Preferred Stock, with a liquidation preference of $50 per share. Each share  
of the 8% Preferred Stock may be converted at any time, at the option of the    
holder, unless previously redeemed or exchanged, into shares of Common Stock    
at a conversion price of $20.269 per share (equivalent to a conversion rate of  
approximately 2.467 shares of Common Stock for each share of 8% Preferred       
Stock), subject to adjustment.                                                  

The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or   
after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in    
part, at the option of the Company, at specified redemption prices.             

The 8% Preferred Stock may be exchanged at the option of the Company, in    
whole but not in part, for the Company's 8% Convertible Subordinated            
Debentures Due 2006 (the "Debentures") on any dividend payment date beginning   
March 15, 1998 at the rate of $50 principal amount of Debentures for each       
share of 8% Preferred Stock outstanding at the time of exchange; provided that  
all accrued and unpaid dividends on the 8% Preferred Stock to the date of       
exchange, whether or not earned or declared, have been paid or set aside for    
payment and certain other conditions are met.                                   

On March 22, 1996, the Company announced a call for redemption on April 26, 
1996 (the "Redemption Date") of all of its issued and outstanding 12%           
Preferred Stock. Such shares were redeemed at a redemption price per share      
equal to $75.00, plus accrued dividends to and including the Redemption Date,   
of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of       
$84.9 million in redemption of the 12% Preferred Stock.                         

7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128                          

In February 1997, the Financial Accounting Standards Board issued Statement 
No. 128, "Earnings Per Share" which revises the calculation and presentation    
provisions of Accounting Principles Board Opinion 15 and related                
interpretations. While statement No. 128 is effective for the Company's fiscal  
year ending December 31, 1997, retroactive application will be required. The    
Company believes that the adoption of Statement No. 128 will not have a         
significant effect on its reported earnings per share.                          

8. CONTINGENCIES                                                                

For a description of various contingencies and other legal actions against  
TWA, see "Managements' Discussion and Analysis of Financial Condition and       
Results of Operations" and "--Business Legal Proceedings."                      

F-51  

S-4/A
196th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 196th
------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY        
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS   
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,    
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN      
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER  
OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO    
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN       
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON      
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON   
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE          
DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY   
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION      
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO   
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN      
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.         

--------------- 

TABLE OF CONTENTS 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
AVAILABLE INFORMATION.....................................................   4 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................   4 
FORWARD-LOOKING STATEMENTS................................................   5 
PROSPECTUS SUMMARY........................................................   6 
RISK FACTORS..............................................................  17 
USE OF PROCEEDS...........................................................  29 
THE EXCHANGE OFFER........................................................  29 
THE COMPANY...............................................................  38 
CAPITALIZATION............................................................  46 
SELECTED CONSOLIDATED FINANCIAL DATA......................................  47 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                        
 FINANCIAL CONDITION AND RESULTS OF                                            
 OPERATIONS...............................................................  50 
BUSINESS..................................................................  67 
MANAGEMENT................................................................  80 
PRINCIPAL HOLDERS OF CAPITAL STOCK........................................  84 
DESCRIPTION OF NOTES......................................................  88 
BOOK-ENTRY, DELIVERY AND FORM............................................. 124 
DESCRIPTION OF CAPITAL STOCK.............................................. 127 
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BY-LAWS AND        
 DELAWARE LAW............................................................. 135 
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 139 
PLAN OF DISTRIBUTION ..................................................... 142 
LEGAL MATTERS ............................................................ 143 
EXPERTS................................................................... 143 
INDEX TO FINANCIAL STATEMENTS............................................. F-1 

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

TRANS WORLD AIRLINES, INC.  

OFFER TO EXCHANGE 11 1/2% SENIOR SECURED NOTES DUE 2004, WHICH HAVE BEEN  
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF 
ITS OUTSTANDING 11 1/2% SENIOR SECURED NOTES DUE 2004 

------------------  

PROSPECTUS  

------------------  

FEBRUARY 6, 1998      

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

S-4/A
197th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 197th
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS 

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS                              

Under the Delaware General Corporation Law (the "DGCL"), directors,         
officers, employees and other individuals may be indemnified against expenses   
(including attorneys' fees), judgments, fines and amounts paid in settlement    
in connection with specified actions, suits or proceedings, whether civil,      
criminal, administrative or investigative (other than a derivative action) if   
they acted in good faith and in a manner they reasonably believed to be in or   
not opposed to the best interests of TWA and, with respect to any criminal      
action or proceeding, had no reasonable cause to believe their conduct was      
unlawful. A similar standard of care is applicable in the case of a derivative  
action, except that indemnification only extends to expenses (including         
attorneys' fees) incurred in connection with the defense or settlement of such  
an action, and the DGCL requires court approval before there can be any         
indemnification of expenses where the person seeking indemnification has been   
found liable to TWA.                                                            

The eleventh article of TWA's Third Amended and Restated Certificate of     
Incorporation ("Article Eleventh") provides that the Company shall indemnify    
any person who was or is a party or is threatened to be made a party to, or     
testifies in, any threatened, pending or completed action, suit or proceeding,  
whether civil, criminal, administrative or investigative in nature, by reason   
of the fact that such person is or was a director, officer, employee or agent   
of the Company, or is or was serving at the request of the Company as a         
director, officer, employee or agent of another corporation, partnership,       
joint venture, employee benefit plan, trust or other enterprise, against        
expenses (including attorneys' fees), judgments, fines and amounts paid in      
settlement actually and reasonably incurred by such person in connection with   
such action, suit or proceeding to the full extent permitted by law, and the    
Company may adopt By-Laws or enter into agreements with any such person for     
the purpose of providing for such indemnification.                              

To the extent that a director or officer of the Company has been successful 
on the merits or otherwise (including without limitation settlement by nolo     
contendere) in defense of any action, suit or proceeding referred to in the     
immediately preceding paragraph, or in defense of any claim, issue or matter    
therein, such person shall be indemnified against expenses (including           
attorneys' fees) actually and reasonably incurred by such person in connection  
therewith.                                                                      

Expenses incurred by an officer, director, employee or agent in defending or
testifying in a civil, criminal, administrative or investigative action, suit   
or proceeding may be paid by the Company in advance of the final disposition    
of such action, suit or proceeding upon receipt of an undertaking by or on      
behalf of such director or officer to repay such amount if it shall ultimately  
be determined that such director or officer is not entitled to be indemnified   
by the Company against such expenses as authorized by Article Eleventh and the  
Company may adopt By-Laws or enter into agreements with such persons for the    
purpose of providing for such advances.                                         

The indemnification permitted by Article Eleventh shall not be deemed       
exclusive of any other rights to which any person may be entitled under any     
agreement, vote of stockholders or disinterested directors or otherwise, both   
as to action in such person's official capacity and as to action in another     
capacity while holding an office, and shall continue as to a person who has     
ceased to be a director, officer, employee or agent and shall inure to the      
benefit of the heirs, executors and administrators of such person.              

The Company shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the          
Company, or is or was serving at the request of the Company as a director,      
officer, employee or agent of another corporation, partnership, joint venture,  
employee benefit plan trust or other enterprise, against any liability          
asserted against such person and incurred by such person in any such capacity,  
or arising out of such person's status as such, whether or not the Company      
would have the power to indemnify such person against such liability under the  
provisions of Article Eleventh or otherwise.                                    

If the DGCL is amended to further expand the indemnification permitted to   
directors, officers, employees or agents of the Company, then the Company       
shall indemnify such persons to the fullest extent permitted by the DGCL, as    
so amended.                                                                     

II-1  

S-4/A
198th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 198th
The obligations of the Company to indemnify any person serving as one of its
directors, officers or employees as of or following the Company's '93           
Reorganization, by reason of such person's past or future service in such a     
capacity, or as a director, officer or employee of another corporation,         
partnership or other legal entity, to the extent provided in Article Eleventh   
or in similar constituent documents or by statutory law or written agreement    
of or with the Company, shall be deemed and treated as executory contracts      
assumed by the Company pursuant to the Company's '93 Reorganization.            
Accordingly, such indemnification obligations survive and were unaffected by    
the entry of the order confirming the Company's '93 Reorganization. The         
obligations of the Company to indemnify any person who, as of the '93           
Reorganization, was no longer serving as one of its directors, officers or      
employees, which indemnity obligation arose by reason of such person's prior    
service in any such capacity, or as a director, officer or employee of another  
corporation, partnership or other legal entity, to the extent provided in the   
certificate of incorporation, by-laws or other constituent documents or by      
statutory law or written agreement of or with TWA were terminated and           
discharged pursuant to Section 502(e) of the United States Bankruptcy Code or   
otherwise, as of the date the '93 Reorganization was confirmed. Nothing         
contained in the Second Amended and Restated Certificate of Incorporation of    
the Company shall be deemed to reinstate any obligation of the Corporation to   
indemnify any person or entity, which was otherwise released under or in        
connection with the Comprehensive Settlement Agreement entered into pursuant    
to the '93 Reorganization.                                                      

ITEM 21. EXHIBITS                                                               

(a) Exhibits                                                                    

                                                        [Enlarge/Download Table]
                                                                                            
*2.1    --Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant's  
         Registration Statement on Form S-4, Registration Number 33-84944, as amended)      
*2.2    --Modifications to Joint Plan of Reorganization, dated July 14, 1995 and            
         Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995    
         (Exhibit 2.5 to 6/95 10-Q)                                                         
*2.3    --Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of  
         Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to   
         6/95 10-Q)                                                                         
*2.4    --Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 
         2.7 to 12/31/95 Form 10-K)                                                         
*3(i)   --Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit
         3(i) to the Registrant's Registration Statement on Form S-4, Registration Number   
         333-26645)                                                                         
*3(ii)  --Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996
         (Exhibit 3(ii) to 6/96 10-Q)                                                       
*4.1    --Voting Trust Agreement, dated November 3, 1993, between TWA and LaSalle National  
         Trust, N.A. as trustee (Exhibit 4.3 to 9/93 10-Q)                                  
*4.2    --IAM Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated
         August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee   
         (Exhibit to 9/93 10-Q)                                                             
*4.3    --IFFA Trans World Employees' Stock Ownership Plan and related Trust Agreement,     
         dated August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA   
         Trustee (Exhibit 4.5 to 9/93 10-Q)                                                 
*4.4    --Trans World Airlines, Inc. Employee Stock Ownership Plan, dated August 31, 1993,  
         First Amendment thereto, dated October 31, 1993, and related Trust Agreement, dated
         August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q)       
*4.5    --ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee (Exhibit
         4.7 to 9/93 10-Q)                                                                  
*4.6    --Stockholders Agreement, dated November 3, 1993, among TWA, LaSalle National Trust,
         N.A., as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other  
         Employee Trustee (each as defined therein), as amended by the Addendum to          
         Stockholders dated November 3, 1993 (Exhibit 4.8 to 9/93 10-Q)                     

II-2  

S-4/A
199th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 199th
                                                                [Download Table]
                                                                              
 *4.7   --Registration Rights Agreement, dated November 3, 1993, between TWA  
         and the Initial Significant Holders (Exhibit 4.9 to 9/93 10-Q)       
 *4.8   --Indenture between TWA and Harris Trust and Savings Bank, dated      
         November 3, 1993 relating to TWA's 8% Senior Secured Notes Due 2000  
         (Exhibit 4.11 to 9/93 10-Q)                                          
 *4.9   --Indenture between TWA and American National Bank and Trust Company  
         of Chicago, N.A., dated November 3, 1993 relating to TWA's 8% Secured
         Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q)                           
 *4.10  --The TWA Air Line Pilots 1995 Employee Stock Ownership Plan,         
         effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q)          
 *4.11  --TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 
         1994 (Exhibit 4.13 to 9/95 10-Q)                                     
 *4.12  --TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 
         23, 1995 (Exhibit 4.14 to 9/95 10-Q)                                 
 *4.13  --TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement,    
         effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q)                
 *4.14  --Form of Indenture relating to TWA's 8% Convertible Subordinated     
         Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration       
         Statement on Form S-3, No. 333-04977)                                
 *4.15  --Indenture dated as of March 31, 1997 between TWA and First Security 
         Bank, National Association relating to TWA's 12% Senior Secured Notes
         due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form
         S-4, No. 333-26645)                                                  
  4.16  --Form of 12% Senior Secured Note due 2002 (contained in Indenture    
         filed as Exhibit 4.15)                                               
 *4.17  --Registration Rights Agreement dated as of March 31, 1997 between the
         Company and the Initial Purchaser relating to the 12% Senior Secured 
         Notes due 2002 and the warrants to purchase 126.26 shares of TWA     
         Common Stock (Exhibit 4.17 to Registrant's Registration Statement on 
         Form S-4, No. 333-26645)                                             
 *4.18  --Warrant Agreement dated as of March 31, 1997 between the Company and
         American Stock Transfer & Trust Company, as Warrant Agent, relating  
         to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit   
         4.18 to Registrant's Registration Statement on Form S-4, No. 333-    
         26645)                                                               
  4.19  --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated 
         Debentures due 2007(1)                                               
  4.20  --Registration Rights Agreement dated as of December 2, 1997 between  
         the Company and the Initial Purchases(1)                             
**4.21  --Indenture dated as of December 9, 1997 by and between TWA and First 
         Security Bank, National Association, as Trustee, relating to TWA's 11
         1/2% Senior Secured Notes due 2004                                   
  4.22  --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture
         filed as Exhibit 4.21)                                               
**4.23  --Registration Rights Agreement dated as of December 9, 1997 among the
         Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as 
         initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes   
         due 2004                                                             
**4.24  --Sale and Service Agreement dated as of December 30, 1997 between TWA
         and Constellation Finance LLC, as purchaser, relating to TWA's       
         receivables                                                          
**5     --Opinion of Davis Polk & Wardell, Counsel of the Registrant,         
         regarding the validity of the securities being registered            
*10.1.1 --Asset Purchase Agreement, dated as of November 4, 1993, between TWA 
         and St. Louis (Exhibit 10.2 to 9/93 10-Q)                            
*10.1.2 --Equipment Operating Lease Agreement, dated November 4, 1993, between
         TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q)                        

II-3

S-4/A
200th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 200th
                                                        [Enlarge/Download Table]
                                                                                              
*10.1.3   --Cargo Use Amendment, dated November 4, 1993 between TWA and St. Louis (Exhibit F  
           to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q)                       
*10.1.4   --Use Amendment 1993, dated November 4, 1993, between TWA and St. Louis (Exhibit E  
           to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q)                       
*10.2.1   --Amendment Number One to the Note Purchase and Security Agreement, dated October   
           26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q)                  
*10.2.2   --Amendment Number One to the Equipment Purchase Contract, dated October 26, 1993,  
           between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q)                            
*10.3     --Amendment Number Two to the AVSA Agreement dated June 1, 1989 between TWA and     
           AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-Q)                            
*10.4.1   --First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993,   
           among TWA, the Vendors, and ITOCHU with respect to aircraft N605TW (Exhibit 10.5 to
           9/93 10-Q)                                                                         
*10.4.2   --First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993,   
           among TWA, the Vendors, and ITOCHU with respect to aircraft N603TW (Exhibit 10.5 to
           9/93 10-Q)                                                                         
*10.4.3   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 1 (Exhibit    
           10.5 to 9/93 10-Q)                                                                 
*10.4.4   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 2 (Exhibit    
           10.5 to 9/93 10-Q)                                                                 
*10.5.1   --Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement No. 
           1, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to        
           aircraft N601TW (Exhibit 10.6 to 9/93 10-Q)                                        
*10.5.2   --Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement,    
           dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft  
           N603TW (Exhibit 10.6 to 9/93 10-Q)                                                 
*10.5.3   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 1 (Exhibit 10.6 to
           9/93 10-Q)                                                                         
*10.5.4   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 2 (Exhibit 10.6 to
           9/93 10-Q)                                                                         
*10.6.1   --Purchase Agreement, dated October 5, 1993, between TWA and Pacific AirCorp 747,   
           Inc. with respect to aircraft N93107 and N93108 (Exhibit 10.7 to 9/93 10-Q)        
*10.6.2   --Lease Agreement 107, dated October 5, 1993, between Pacific AirCorp 747, Inc. and 
           TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q)                    
*10.6.3   --Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and 
           TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q)                    
*10.7     --'92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K)                      
*10.8     --Comprehensive Settlement Agreement, dated January 5, 1993 (Exhibit 10(iv)(1) to   
           '92 10-K)                                                                          
*10.8.1   --Omnibus Amendment and Supplement to Agreements between TWA and Karabu Corp. dated 
           as of March 28, 1994 (Exhibit 10. 9.1 to Registrant's Registration Statement on    
           Form S-4, No, 33-84944)                                                            
*10.9     --Letter Agreement, dated April 15, 1994, between TWA and Richard P. Magurno        
           relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q)                         
*10.10    --Form of Indemnification Agreement between TWA and individual members of the TWA   
           Board of Directors relating to indemnification of director (Exhibit 10.16 to 6/94  
           10-Q)                                                                              
*10.11.1  --Purchase Agreement, dated as of December 15, 1993 between TWA and Pacific AirCorp 
           DC9, Inc. with respect to aircraft N927L and N928L (Exhibit 10.20.1 to Registrant's
           Registration Statement on Form S-4, No. 33-84944)                                  

II-4

S-4/A
201st Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 201st
                                                        [Enlarge/Download Table]
                                                                                              
*10.11.2  --Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9,  
           Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's       
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.11.3  --Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9,  
           Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's       
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.1  --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated     
           March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's    
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.2  --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated    
           March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's    
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.3  --Lease Agreement, dated as of March 31, 1994 between Mitsui & Co. (U.S.A.), Inc.   
           and TWA with respect to aircraft N950U and N953U (Exhibit 10.21.3 to Registrant's  
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.4  --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
           dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to           
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.12.5  --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
           dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to           
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.12.6  --Lease Agreement, dated as of March 31, 1994 between McDonnell Douglas Finance     
           Corporation and TWA with respect to aircraft N951U and N952U (Exhibit 10.21.6 to   
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.13.1  --Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas      
           Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW)      
           (Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) 
*10.13.2  --Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor,
           and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW    
           (formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form  
           S-4, No. 33-84944)                                                                 
*10.13.3  --Chattel Mortgage, dated as of March 31, 1994 by TWA as Mortgagor, in favor of     
           McDonnell Douglas Finance Corporation, as Mortgagee, with respect to aircraft      
           N306TW (formerly N534AW) (Exhibit 10.22.3 to Registrant's Registration Statement on
           Form S-4, No. 33-84944)                                                            
*10.14    --Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World   
           Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.15    --Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air  
           (Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944)   
*10.16    --Air Service Agreement dated October 1, 1994, between TWA and Trans States         
           Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4,  
           No. 33-84944)                                                                      
*10.17    --Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated
           July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.18    --Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen &      
           Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.19.1  --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and      
           Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement  
           on Form S-4, No. 33-84944)                                                         

II-5

S-4/A
202nd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 202nd
                                                        [Enlarge/Download Table]
                                                                                              
*10.19.2  --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and      
           Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration 
           Statement on Form S-4, No. 33-84944)                                               
*10.20.1  --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31,    
           1994 (Exhibit 10.29.3 to 9/94 10-Q)                                                
*10.20.2  --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2,    
           1994 (Exhibit 10.29.4 to 9/94 10-Q)                                                
*10.21.1  --Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots
           Association, International (Exhibit 10.31.1 to Registrant's Registration Statement 
           on Form S-4, No. 33-84944)                                                         
*10.21.2  --Form of Agreement dated as of September 1, 1994, between TWA and the International
           Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's   
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.21.3  --Form of Agreement dated as of September 1, 1994, between TWA and the Independent  
           Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration      
           Statement on Form S-4, No. 33-84944)                                               
*10.21.4  --Form of Agreement dated as of September 1, 1994, between TWA and the Transport    
           Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q)                            
*10.22.1  --Trust Agreement dated as of August 24, 1994 between and among TWA, the            
           International Association of Machinists and Aerospace Workers, the Independent     
           Federation of Flight Attendants, the Air Line Pilots Association, International,   
           United States Trust Company of New York (Exhibit 10.32.1 to Registrant's           
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.22.2  --Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA,   
           TWA Stock Holding Company, Inc. and United States Trust Company of New York        
           (Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) 
*10.23.1  --Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration   
           Statement on Form S-4, No. 33-84944)                                               
*10.23.2  --Form of Option Agreements for options issued pursuant to the 1994 Key Employee    
           Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on    
           Form S-4, No. 33-84944)                                                            
*10.24    --Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin     
           Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit
           10.37 to 9/95 10-Q)                                                                
*10.24.1  --Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14, 
           1995 (Exhibit 10.37.1 to 12/95 10-K)                                               
*10.25    --Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares of Common    
           Stock, dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q)                          
*10.26    --Stand-By Purchase Agreement dated as of August 8, 1995 between Trans World        
           Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a Delaware limited          
           partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands
           Company (Exhibit 10.39 to 9/95 10-Q)                                               
*10.27    --Voucher Purchase Agreement dated as of October 18, 1995 between TWA and M.D. Sass 
           Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass          
           Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.40 to
           9/95 10-Q)                                                                         
*10.28    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott
           Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q)       
*10.29    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and        
           Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to
           9/95 10-Q)                                                                         

II-6

S-4/A
203rd Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 203rd
                                                                [Download Table]
                                                                              
 *10.30   --Equity Rights Put Agreement dated as of September 15, 1995 between
           TWA and United Equities (Commodities) Company, a New York general  
           partnership (Exhibit 10.43 to 9/95 10-Q)                           
 *10.31   --Equity Rights Put Agreement dated as of September 15, 1995 between
           TWA and Grace Brothers, Ltd., an Illinois limited partnership      
           (Exhibit 10.44 to 9/95 10-Q)                                       
 *10.32   --Equity Rights Put Agreement dated as of September 15, 1995 between
           TWA and First Capital Alliance, L.P., an Illinois limited          
           partnership (Exhibit 10.45 to 9/95 10-Q)                           
 *10.33   --Equity Rights Put Agreement dated as of September 15, 1995 between
           TWA and Romulus Holdings Corp. a Delaware Corporation (Exhibit     
           10.46 to 9/95 10-Q)                                                
 *10.34   --Purchase Agreement, dated February 9, 1996 between The Boeing     
           Company and TWA relating to Boeing Model 757-231 Aircraft (Purchase
           Agreement Number 1910) (Exhibit 10.48 to 12/31/95 Form 10-K/A)     
 *10.35   --Employee Stock Incentive Program dated as of August 23, 1995 by   
           TWA (Exhibit 10.49 to 12/31/95 Form 10-K)                          
 *10.36   --Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership
           and Stock Option Plan (Exhibit 10.51 to Registrant's Registration  
           Statement on Form S-3, No. 333-04977)                              
 *10.37   --Letter Agreement dated July 30, 1996 between Trans World Airlines,
           Inc. and Robert A. Peiser (Exhibit 10.52 to Registrant's           
           Registration Statement on Form S-3, No. 333-04977)                 
 *10.38   --Letter Agreement dated July 26, 1996 between Trans World Airlines,
           Inc. and Mark J. Coleman (Exhibit 10.53 to Registrant's            
           Registration Statement on Form S-3, No. 333-04977)                 
 *10.39   --Agreement dated as of September 3, 1996 between the Company and   
           Roden A. Brandt (Exhibit 10.6 to 9/96 Form 10-Q)                   
 *10.40   --Letter Agreement dated January 6, 1997 between the Company and    
           Edward Soule (Exhibit 10.33 to 12/31/96 Form 10-K)                 
 *10.41   --Agreement dated as of October 1, 1996 between the Company and     
           Michael J. Palumbo (Exhibit 10.34 to 12/31/96 Form 10-K)           
 *10.42   --Agreement dated as of November 11, 1996 between the Company and   
           Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 Form 10-K)          
 *10.43   --Consulting Agreement between the Company and David M. Kennedy     
           dated as of June 6, 1997 (Exhibit 10.1 to 6/97 Form 10-Q)          
 *10.44   --Separation Agreement dated July 25, 1997 between the Company and  
           Charles J. Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q)             
 *10.45   --Agreement between the Company and Gerald L. Gitner dated as of    
           February 12, 1997 (Exhibit 10.1 to 9/97 Form 10-Q)                 
**10.46.1 --Pledge and Security Agreement dated as of December 9, 1997 from   
           the Company to First Security Bank, National Association, as       
           Collateral Agent, in connection with the 11 1/2% Senior Secured    
           Notes due 2004                                                     
**10.46.2 --Acquired Slot Trust Agreement Declaration of Trust dated as of    
           December 9, 1997 between the Company and First Security Bank,      
           National Association, as Slot Trustee, in connection with the 11   
           1/2% Senior Secured Notes due 2004                                 
**10.46.3 --Master Sub-License Agreement dated as of December 9, 1997 between 
           the Company and First Security Bank, National Association, in      
           connection with the 11 1/2% Senior Secured Notes due 2004          
**10.46.4 --Collateral Pledge and Security Agreement dated as of December 9,  
           1997 between the Company and First Security Bank, National         
           Association, as Trustee, in connection with the 11 1/2% Senior     
           Secured Notes due 2004                                             
 *11      --Statement of Computation of Per Share Earnings (included in       
           12/31/96 Form 10-K)                                                

II-7

S-4/A
204th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 204th
                                                                [Download Table]
                                                                              
**12   --Statement of Computation of Ratio of Earnings to Fixed Charges       
 *13.1 --1996 Annual Report to Stockholders (Exhibit 13 to 12/31/96 10-K)     
 *13.2 --The Company's Quarterly Reports for the quarters ended March 31,     
        1997, June 30, 1997 and September 30, 1997                            
**23.1 --Consent of KPMG Peat Marwick LLP                                     
  23.2 --Consent of Davis Polk & Wardwell, counsel of the Registrant (included
        in Exhibit 5)                                                         
**24   --Powers of Attorney                                                   
**25   --Statement of Eligibility of First Security Bank, National Association
 *27   --Financial Data Schedule (included in Company's 12/31/96 Form 10-K)   
**99.1 --Form of Letter of Transmittal                                        
**99.2 --Form of Notice of Guaranteed Delivery                                
**99.3 --Form of Instruction to Registered Holder and/or Book-Entry Transfer  
        Facility Participant from Owner of Old Notes                          
**99.4 --Form of Letter to Clients of Depository Trust Company Participants   
**99.5 --Form of Letter to Registered Holders and Depository Trust Company    
        Participants                                                          

--------                                                                        
* Incorporated by reference                                                   

** Previously filed with the SEC                                                

(1) Incorporation herein by reference to exhibit of the same number in the      
Registrant's Registration Statement on Form S-3, Registration Number 333-   
44689.                                                                      

(b) Schedules                                                               

All supplementary schedules relating to the Registration Statement are      
omitted because they are not required or because the required information,      
where material, is contained in the Financial Statements.                       

ITEM 22. UNDERTAKINGS                                                           

(a) The undersigned registrant hereby undertakes:                           

 (1) To file, during any period is which offers or sales are being made, a
post-effective amendment to this registration statement:                    

(i) To include any prospectus required by section 10(a)(3) of the   
Securities Act of 1933;                                                 

(ii) To reflect in the prospectus any facts or events arising after 
the effective date of the registration statement (or the most recent    
post-effective amendment thereof) which, individually or in the         
aggregate, represent a fundamental change in the information set forth  
in the registration statement. Notwithstanding the foregoing, any       
increase or decrease in volume of securities offered (if the total      
dollar value of securities offered would not exceed that which was      
registered) and any deviation from the low or high end of the estimated 
maximum offering range may be reflected in the form of prospectus filed 
with the Commission pursuant to Rule 424(b) if, in the aggregate, the   
changes in volume and price represent no more than a 20% change in the  
maximum aggregate offering price set forth in the "Calculation of       
Registration Fee" table in the effective registration statement.        

 (iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or  
any material change to such information in the registration statement:  

provided, however, that paragraphs (a)(1)(i) and (a)(2)(ii) above do not apply  
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the     
information required to be included in a post-effective amendment by those      
paragraphs is contained in periodic reports filed with or furnished to the      
Commission by the Company pursuant to section 13 or section 15(d) of the        
Exchange Act that are incorporated by reference in the registration statement.  

II-8  

S-4/A
205th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 205th
(2) That, for the purpose of determining any liability under the        
Securities Act of 1933, each such post-effective amendment shall be deemed  
to be a new registration statement relating to the securities offered       
therein, and the offering of such securities at that time shall be deemed   
to be the initial bona fide offering thereof.                               

(3) To remove from registration by means of a post-effective amendment  
any of the securities being registered which remain unsold at the           
termination of the offering.                                                

(b) The undersigned registrant hereby undertakes that, for purposes of      
determining any liability under the Securities Act of 1933, each filing of the  
registrant's annual report pursuant to section 13(a) or section 15(d) of the    
Securities Exchange Act of 1934 (and, where applicable, each filing of an       
employee benefit plan's annual report pursuant to section 15(d) of the          
Securities Exchange Act of 1934) that is incorporated by reference in the       
registration statement shall be deemed to be a new registration statement       
relating to the securities offered therein, and the offering of such            
securities at that time shall be deemed to be the initial bona fide offering    
thereof.                                                                        

(c) Insofar as indemnification for liabilities arising under the Securities 
Act of 1933 may be permitted to directors, officers and controlling persons of  
the registrant pursuant to the foregoing provisions, or otherwise, the          
registrant has been advised that in the opinion of the Securities and Exchange  
Commission, such indemnification is against public policy as expressed in the   
Act and is, therefore, unenforceable. In the event that a claim for             
indemnification against such liabilities (other than the payment by the         
registrant of expenses incurred or paid by a director, officer or controlling   
person of the registrant in the successful defense of any action, suit or       
preceeding) is asserted by such director, officer or controlling person in      
connection with the securities being registered, the registrant will, unless    
in the opinion of its counsel the matter has been settled by controlling        
precedent, submit to a court of appropriate jurisdiction the question of        
whether such indemnification by it is against public policy as expressed in     
the Act and will be governed by the final adjudication of such issue.           

(d) The undersigned registrant hereby undertakes to file an application for 
the purpose of determining the eligibility of the Trustee to act under          
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance  
with the rules and regulations prescribed by the Commission under Section       
305(b)(2) of the Act.                                                           

(e) The undersigned registrant hereby undertakes to respond to requests for 
information that is incorporated by reference into the prospectus pursuant to   
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of   
such request, and to send the incorporated documents by first class mail or     
other equally prompt means. This includes information contained in documents    
filed subsequent to the effective date of the registration statement through    
the date of responding to the request.                                          

(f) The undersigned registrant hereby undertakes to supply by means of a    
post-effective amendment all information concerning a transaction, and the      
company being acquired involved therein, that was not the subject of and        
included in the registration statement when it became effective.                

II-9  

S-4/A
206th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 206th
SIGNATURES  

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT  
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4  
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN     
THE CITY OF ST. LOUIS, STATE OF MISSOURI, ON FEBRUARY 4, 1998.                  

                              TRANS WORLD AIRLINES, INC.

February 4, 1998                                                                

                                          /s/ Michael J. Palumbo
      By
                                           -----------------------------------
                                       MICHAEL J. PALUMBO, SENIOR VICE
                                     PRESIDENT AND CHIEF FINANCIAL
               OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS            
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN  
THE CAPACITIES AND ON THE DATES INDICATED.                                      

      SIGNATURES                        TITLE                 DATE

/s/ Gerald L. Gitner           Director, Chairman               
-------------------------------------  of the Board and          February 4,    
GERALD L. GITNER             Chief Executive            1998
                Officer (Principal
                Executive Officer)

/s/ Michael J. Palumbo          Senior Vice                       
-------------------------------------  President and Chief       February 4,    
MICHAEL J. PALUMBO            Financial Officer          1998 
                  (Principal Financial
         Officer and
                  Principal Accounting
      Officer)

*                    Director               
-------------------------------------                            February 4,    
JOHN W. BACHMANN                                        1998

*                    Director               
-------------------------------------                            February 4,    
WILLIAM F. COMPTON                                       1998 

*                    Director               
-------------------------------------                            February 4,    
EUGENE P. CONESE                                        1998

*                    Director               
-------------------------------------                            February 4,    
WILLIAM M. HOFFMAN                                       1998 

                                   Director                  February 4,
-------------------------------------                             1998          

EDGAR M. HOUSE                                                

*                    Director               
-------------------------------------                            February 4,    
THOMAS H. JACOBSEN                                       1998 

*                    Director               
-------------------------------------                            February 4,    
  MYRON KAPLAN                                          1998

S-4/A
207th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 207th
    SIGNATURES                      TITLE                 DATE

*                    Director                 
------------------------------------                           February 4,      
DAVID M. KENNEDY                                      1998  

    Director
         *                                               February 4,
------------------------------------                            1998            
MERRILL A. MCPEAK                                             

*                    Director                 
------------------------------------                           February 4,      
THOMAS F. MEAGHER                                      1998   

*                    Director                 
------------------------------------                           February 4,      
WILLIAM O'DRISCOLL                                     1998   

*                    Director                 
------------------------------------                           February 4,      
G. JOSEPH REDDINGTON                                    1998    

*                    Director                 
------------------------------------                           February 4,      
BLANCHE M. TOUHILL                                     1998   

*                    Director                 
------------------------------------                           February 4,      
STEPHEN M. TUMBLIN                                     1998   

*By: /s/ Kathleen A. Soled                                     February 4,      
------------------------------------                            1998            

KATHLEEN A. SOLED                                                 
AS ATTORNEY-IN-FACT                                             

S-4/A
208th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 208th
EXHIBIT INDEX 

                                                        [Enlarge/Download Table]
                                                                                            
*2.1    --Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant's  
         Registration Statement on Form S-4, Registration Number 33-84944, as amended)      
*2.2    --Modifications to Joint Plan of Reorganization, dated July 14, 1995 and            
         Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995    
         (Exhibit 2.5 to 6/95 10-Q)                                                         
*2.3    --Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of  
         Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to   
         6/95 10-Q)                                                                         
*2.4    --Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 
         2.7 to 12/31/95 Form 10-K)                                                         
*3(i)   --Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit
         3(i) to the Registrant's Registration Statement on Form S-4, Registration Number   
         333-26645)                                                                         
*3(ii)  --Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996
         (Exhibit 3(ii) to 6/96 10-Q)                                                       
*4.1    --Voting Trust Agreement, dated November 3, 1993, between TWA and LaSalle National  
         Trust, N.A. as trustee (Exhibit 4.3 to 9/93 10-Q)                                  
*4.2    --IAM Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated
         August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee   
         (Exhibit to 9/93 10-Q)                                                             
*4.3    --IFFA Trans World Employees' Stock Ownership Plan and related Trust Agreement,     
         dated August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA   
         Trustee (Exhibit 4.5 to 9/93 10-Q)                                                 
*4.4    --Trans World Airlines, Inc. Employee Stock Ownership Plan, dated August 31, 1993,  
         First Amendment thereto, dated October 31, 1993, and related Trust Agreement, dated
         August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q)       
*4.5    --ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee (Exhibit
         4.7 to 9/93 10-Q)                                                                  
*4.6    --Stockholders Agreement, dated November 3, 1993, among TWA, LaSalle National Trust,
         N.A., as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other  
         Employee Trustee (each as defined therein), as amended by the Addendum to          
         Stockholders dated November 3, 1993 (Exhibit 4.8 to 9/93 10-Q)                     

*4.7    --Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial
         Significant Holders (Exhibit 4.9 to 9/93 10-Q)                                     
*4.8    --Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993   
         relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q)     
*4.9    --Indenture between TWA and American National Bank and Trust Company of Chicago,    
         N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit  
         4.12 to 9/93 10-Q)                                                                 
*4.10   --The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of       
         January 1, 1995 (Exhibit 4.12 to 9/95 10-Q)                                        
*4.11   --TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994 (Exhibit 
         4.13 to 9/95 10-Q)                                                                 
*4.12   --TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995      
         (Exhibit 4.14 to 9/95 10-Q)                                                        
*4.13   --TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 
         23, 1995 (Exhibit 4.15 to 9/95 10-Q)                                               
*4.14   --Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due    
         2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, No. 333-    
         04977)                                                                             

S-4/A
209th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 209th
                                                                [Download Table]
                                                                              
 *4.15  --Indenture dated as of March 31, 1997 between TWA and First Security 
         Bank, National Association relating to TWA's 12% Senior Secured Notes
         due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form
         S-4, No. 333-26645)                                                  
  4.16  --Form of 12% Senior Secured Note due 2002 (contained in Indenture    
         filed as Exhibit 4.15)                                               
 *4.17  --Registration Rights Agreement dated as of March 31, 1997 between the
         Company and the Initial Purchaser relating to the 12% Senior Secured 
         Notes due 2002 and the warrants to purchase 126.26 shares of TWA     
         Common Stock (Exhibit 4.17 to Registrant's Registration Statement on 
         Form S-4, No. 333-26645)                                             
 *4.18  --Warrant Agreement dated as of March 31, 1997 between the Company and
         American Stock Transfer & Trust Company, as Warrant Agent, relating  
         to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit   
         4.18 to Registrant's Registration Statement on Form S-4, No. 333-    
         26645)                                                               
  4.19  --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated 
         Debentures due 2007(1)                                               
  4.20  --Registration Rights Agreement dated as of December 2, 1997 between  
         the Company and the Initial Purchases(1)                             
**4.21  --Indenture dated as of December 9, 1997 by and between TWA and First 
         Security Bank, National Association, as Trustee, relating to TWA's 11
         1/2% Senior Secured Notes due 2004                                   
  4.22  --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture
         filed as Exhibit 4.21)                                               
**4.23  --Registration Rights Agreement dated as of December 9, 1997 among the
         Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as 
         initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes   
         due 2004                                                             
**4.24  --Sale and Service Agreement dated as of December 30, 1997 between TWA
         and Constellation Finance LLC, as purchaser, relating to TWA's       
         receivables                                                          
**5     --Opinion of Davis Polk & Wardell, Counsel of the Registrant,         
         regarding the validity of the securities being registered            
*10.1.1 --Asset Purchase Agreement, dated as of November 4, 1993, between TWA 
         and St. Louis (Exhibit 10.2 to 9/93 10-Q)                            
*10.1.2 --Equipment Operating Lease Agreement, dated November 4, 1993, between
         TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q)                        
*10.1.3 --Cargo Use Amendment, dated November 4, 1993 between TWA and St.     
         Louis (Exhibit F to the Asset Purchase Agreement) (Exhibit 10.2 to   
         9/93 10-Q)                                                           
*10.1.4 --Use Amendment 1993, dated November 4, 1993, between TWA and St.     
         Louis (Exhibit E to the Asset Purchase Agreement) (Exhibit 10.2 to   
         9/93 10-Q)                                                           
*10.2.1 --Amendment Number One to the Note Purchase and Security Agreement,   
         dated October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 
         9/93 10-Q)                                                           
*10.2.2 --Amendment Number One to the Equipment Purchase Contract, dated      
         October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93  
         10-Q)                                                                
*10.3   --Amendment Number Two to the AVSA Agreement dated June 1, 1989       
         between TWA and AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-
         Q)                                                                   
*10.4.1 --First Amendment to Aircraft Installment Sale Agreement, dated       
         November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to 
         aircraft N605TW (Exhibit 10.5 to 9/93 10-Q)                          
*10.4.2 --First Amendment to Aircraft Installment Sale Agreement, dated       
         November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to 
         aircraft N603TW (Exhibit 10.5 to 9/93 10-Q)                          

S-4/A
210th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 210th
                                                        [Enlarge/Download Table]
                                                                                              
*10.4.3   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 1 (Exhibit    
           10.5 to 9/93 10-Q)                                                                 
*10.4.4   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 2 (Exhibit    
           10.5 to 9/93 10-Q)                                                                 
*10.5.1   --Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement No. 
           1, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to        
           aircraft N601TW (Exhibit 10.6 to 9/93 10-Q)                                        
*10.5.2   --Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement,    
           dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft  
           N603TW (Exhibit 10.6 to 9/93 10-Q)                                                 
*10.5.3   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 1 (Exhibit 10.6 to
           9/93 10-Q)                                                                         
*10.5.4   --First Amendment to Security Agreement and Chattel Mortgage, dated November 1,     
           1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 2 (Exhibit 10.6 to
           9/93 10-Q)                                                                         
*10.6.1   --Purchase Agreement, dated October 5, 1993, between TWA and Pacific AirCorp 747,   
           Inc. with respect to aircraft N93107 and N93108 (Exhibit 10.7 to 9/93 10-Q)        
*10.6.2   --Lease Agreement 107, dated October 5, 1993, between Pacific AirCorp 747, Inc. and 
           TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q)                    
*10.6.3   --Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and 
           TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q)                    
*10.7     --'92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K)                      
*10.8     --Comprehensive Settlement Agreement, dated January 5, 1993 (Exhibit 10(iv)(1) to   
           '92 10-K)                                                                          
*10.8.1   --Omnibus Amendment and Supplement to Agreements between TWA and Karabu Corp. dated 
           as of March 28, 1994 (Exhibit 10. 9.1 to Registrant's Registration Statement on    
           Form S-4, No, 33-84944)                                                            
*10.9     --Letter Agreement, dated April 15, 1994, between TWA and Richard P. Magurno        
           relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q)                         
*10.10    --Form of Indemnification Agreement between TWA and individual members of the TWA   
           Board of Directors relating to indemnification of director (Exhibit 10.16 to 6/94  
           10-Q)                                                                              
*10.11.1  --Purchase Agreement, dated as of December 15, 1993 between TWA and Pacific AirCorp 
           DC9, Inc. with respect to aircraft N927L and N928L (Exhibit 10.20.1 to Registrant's
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.11.2  --Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9,  
           Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's       
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.11.3  --Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9,  
           Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's       
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.1  --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated     
           March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's    
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.2  --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated    
           March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's    
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.12.3  --Lease Agreement, dated as of March 31, 1994 between Mitsui & Co. (U.S.A.), Inc.   
           and TWA with respect to aircraft N950U and N953U (Exhibit 10.21.3 to Registrant's  
           Registration Statement on Form S-4, No. 33-84944)                                  

S-4/A
211th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 211th
                                                        [Enlarge/Download Table]
                                                                                              
*10.12.4  --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
           dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to           
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.12.5  --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
           dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to           
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.12.6  --Lease Agreement, dated as of March 31, 1994 between McDonnell Douglas Finance     
           Corporation and TWA with respect to aircraft N951U and N952U (Exhibit 10.21.6 to   
           Registrant's Registration Statement on Form S-4, No. 33-84944)                     
*10.13.1  --Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas      
           Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW)      
           (Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) 
*10.13.2  --Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor,
           and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW    
           (formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form  
           S-4, No. 33-84944)                                                                 
*10.13.3  --Chattel Mortgage, dated as of March 31, 1994 by TWA as Mortgagor, in favor of     
           McDonnell Douglas Finance Corporation, as Mortgagee, with respect to aircraft      
           N306TW (formerly N534AW) (Exhibit 10.22.3 to Registrant's Registration Statement on
           Form S-4, No. 33-84944)                                                            
*10.14    --Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World   
           Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.15    --Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air  
           (Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944)   
*10.16    --Air Service Agreement dated October 1, 1994, between TWA and Trans States         
           Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4,  
           No. 33-84944)                                                                      
*10.17    --Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated
           July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.18    --Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen &      
           Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4,   
           No. 33-84944)                                                                      
*10.19.1  --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and      
           Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement  
           on Form S-4, No. 33-84944)                                                         
*10.19.2  --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and      
           Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration 
           Statement on Form S-4, No. 33-84944)                                               
*10.20.1  --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31,    
           1994 (Exhibit 10.29.3 to 9/94 10-Q)                                                
*10.20.2  --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2,    
           1994 (Exhibit 10.29.4 to 9/94 10-Q)                                                
*10.21.1  --Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots
           Association, International (Exhibit 10.31.1 to Registrant's Registration Statement 
           on Form S-4, No. 33-84944)                                                         
*10.21.2  --Form of Agreement dated as of September 1, 1994, between TWA and the International
           Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's   
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.21.3  --Form of Agreement dated as of September 1, 1994, between TWA and the Independent  
           Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration      
           Statement on Form S-4, No. 33-84944)                                               

S-4/A
212th Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 212th
                                                        [Enlarge/Download Table]
                                                                                              
*10.21.4  --Form of Agreement dated as of September 1, 1994, between TWA and the Transport    
           Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q)                            
*10.22.1  --Trust Agreement dated as of August 24, 1994 between and among TWA, the            
           International Association of Machinists and Aerospace Workers, the Independent     
           Federation of Flight Attendants, the Air Line Pilots Association, International,   
           United States Trust Company of New York (Exhibit 10.32.1 to Registrant's           
           Registration Statement on Form S-4, No. 33-84944)                                  
*10.22.2  --Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA,   
           TWA Stock Holding Company, Inc. and United States Trust Company of New York        
           (Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) 
*10.23.1  --Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration   
           Statement on Form S-4, No. 33-84944)                                               
*10.23.2  --Form of Option Agreements for options issued pursuant to the 1994 Key Employee    
           Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on    
           Form S-4, No. 33-84944)                                                            
*10.24    --Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin     
           Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit
           10.37 to 9/95 10-Q)                                                                
*10.24.1  --Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14, 
           1995 (Exhibit 10.37.1 to 12/95 10-K)                                               
*10.25    --Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares of Common    
           Stock, dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q)                          
*10.26    --Stand-By Purchase Agreement dated as of August 8, 1995 between Trans World        
           Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a Delaware limited          
           partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands
           Company (Exhibit 10.39 to 9/95 10-Q)                                               
*10.27    --Voucher Purchase Agreement dated as of October 18, 1995 between TWA and M.D. Sass 
           Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass          
           Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.40 to
           9/95 10-Q)                                                                         
*10.28    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott
           Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q)       
*10.29    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and        
           Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to
           9/95 10-Q)                                                                         
*10.30    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and United 
           Equities (Commodities) Company, a New York general partnership (Exhibit 10.43 to   
           9/95 10-Q)                                                                         
*10.31    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Grace  
           Brothers, Ltd., an Illinois limited partnership (Exhibit 10.44 to 9/95 10-Q)       
*10.32    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and First  
           Capital Alliance, L.P., an Illinois limited partnership (Exhibit 10.45 to 9/95 10- 
           Q)                                                                                 
*10.33    --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Romulus
           Holdings Corp. a Delaware Corporation (Exhibit 10.46 to 9/95 10-Q)                 
*10.34    --Purchase Agreement, dated February 9, 1996 between The Boeing Company and TWA     
           relating to Boeing Model 757-231 Aircraft (Purchase Agreement Number 1910) (Exhibit
           10.48 to 12/31/95 Form 10-K/A)                                                     
*10.35    --Employee Stock Incentive Program dated as of August 23, 1995 by TWA (Exhibit 10.49
           to 12/31/95 Form 10-K)                                                             
*10.36    --Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership and Stock      
           Option Plan (Exhibit 10.51 to Registrant's Registration Statement on Form S-3, No. 
           333-04977)                                                                         
*10.37    --Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert
           A. Peiser (Exhibit 10.52 to Registrant's Registration Statement on Form S-3, No.   
           333-04977)                                                                         

S-4/A
Last Page of 213
TOC
1st
Previous
Next
↓Bottom
Just 213th
                                                                [Download Table]
                                                                              
 *10.38   --Letter Agreement dated July 26, 1996 between Trans World Airlines,
           Inc. and Mark J. Coleman (Exhibit 10.53 to Registrant's            
           Registration Statement on Form S-3, No. 333-04977)                 
 *10.39   --Agreement dated as of September 3, 1996 between the Company and   
           Roden A. Brandt (Exhibit 10.6 to 9/96 Form 10-Q)                   
 *10.40   --Letter Agreement dated January 6, 1997 between the Company and    
           Edward Soule (Exhibit 10.33 to 12/31/96 Form 10-K)                 
 *10.41   --Agreement dated as of October 1, 1996 between the Company and     
           Michael J. Palumbo (Exhibit 10.34 to 12/31/96 Form 10-K)           
 *10.42   --Agreement dated as of November 11, 1996 between the Company and   
           Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 Form 10-K)          
 *10.43   --Consulting Agreement between the Company and David M. Kennedy     
           dated as of June 6, 1997 (Exhibit 10.1 to 6/97 Form 10-Q)          
 *10.44   --Separation Agreement dated July 25, 1997 between the Company and  
           Charles J. Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q)             
 *10.45   --Agreement between the Company and Gerald L. Gitner dated as of    
           February 12, 1997 (Exhibit 10.1 to 9/97 Form 10-Q)                 
**10.46.1 --Pledge and Security Agreement dated as of December 9, 1997 from   
           the Company to First Security Bank, National Association, as       
           Collateral Agent, in connection with the 11 1/2% Senior Secured    
           Notes due 2004                                                     
**10.46.2 --Acquired Slot Trust Agreement Declaration of Trust dated as of    
           December 9, 1997 between the Company and First Security Bank,      
           National Association, as Slot Trustee, in connection with the 11   
           1/2% Senior Secured Notes due 2004                                 
**10.46.3 --Master Sub-License Agreement dated as of December 9, 1997 between 
           the Company and First Security Bank, National Association, in      
           connection with the 11 1/2% Senior Secured Notes due 2004          
**10.46.4 --Collateral Pledge and Security Agreement dated as of December 9,  
           1997 between the Company and First Security Bank, National         
           Association, as Trustee, in connection with the 11 1/2% Senior     
           Secured Notes due 2004                                             
 *11      --Statement of Computation of Per Share Earnings (included in       
           12/31/96 Form 10-K)                                                
**12      --Statement of Computation of Ratio of Earnings to Fixed Charges    
 *13.1    --1996 Annual Report to Stockholders (Exhibit 13 to 12/31/96 10-K)  
 *13.2    --The Company's Quarterly Reports for the quarters ended March 31,  
           1997, June 30, 1997 and September 30, 1997                         
**23.1    --Consent of KPMG Peat Marwick LLP                                  
  23.2    --Consent of Davis Polk & Wardwell, counsel of the Registrant       
           (included in Exhibit 5)                                            
**24      --Powers of Attorney                                                
**25      --Statement of Eligibility of First Security Bank, National         
           Association                                                        
 *27      --Financial Data Schedule (included in Company's 12/31/96 Form 10-K)
**99.1    --Form of Letter of Transmittal                                     
**99.2    --Form of Notice of Guaranteed Delivery                             
**99.3    --Form of Instruction to Registered Holder and/or Book-Entry        
           Transfer Facility Participant from Owner of Old Notes              
**99.4    --Form of Letter to Clients of Depository Trust Company Participants
**99.5    --Form of Letter to Registered Holders and Depository Trust Company 
           Participants                                                       

--------                                                                        
*  Incorporated by reference                                                  

**  Previously filed with the SEC                                               

(1) Incorporation herein by reference to exhibit of the same number in the      
Registrant's Registration Statement on Form S-3, Registration Number 333-   
44689.