Strike at T.W.A.

At Trans World Airlines' big Kansas City overhaul center and its other bases around the U.S. last week, 7,000 members of the International Association of Machinists marched out on strike. No planes would be serviced, none overhauled. The nation's fourth biggest line had no choice but to shut down. T.W.A.'s 196 daily flights, carrying 12,000 passengers across the U.S. and to 23 foreign cities, flew on to their destinations. Then the big Super Connies and twin-engined Martins were grounded, and the line locked up shop.

The fight was over the I.A.M.'s demand for a new contract containing a fat pay boost. T.W.A. mechanics originally demanded a 49-c--per-hour pay hike on a one-year contract, plus changes in T.W.A.'s seniority and supervisory rules. A month ago T.W.A. countered with an offer of 40-c- per hour over a three-year period, later boosted it to 41-c- per hour, the level at which the I.A.M. recently settled with Northwest Airlines. But it was not enough for the mechanics. Snapped T.W.A. President Charles Thomas: "The company withdraws the offers it has made, and any future negotiations will start at present wage levels."

Losses & Jets. Any settlement may take some time, since T.W.A., owned 78.2% by California's fabulous Howard Hughes, is in the worst financial shape of any major U.S. airline. On last year's balance sheet, the accountants listed a net loss of $1,600,000, despite a 9.7% jump in revenues to a record $263.7 million. For the first nine months this year, the loss is $1,800,000, although other major lines are well in the black. More important, T.W.A. has borrowed so heavily from banks and insurance companies that it has rigid restrictions on all its spending.

Even without a strike, T.W.A. would have a rough time meeting its bills. Hughes is in the midst of a $500 million re-equipment program for T.W.A., has paid for 20 new piston-engined Super Constellations recently delivered, but still owes something like $320 million for 30 Convair 880's and 33 Boeing 707 jets on order. The strike makes it just that much tougher. T.W.A.'s fixed charges alone amount to $300,000 each day for interest payments on loans, police and maintenance payrolls, office and hangar rental, guarantees to airports, etc. With no revenue coming in, the strike will cost $9,000,000 a month.-

No Help from Home. What makes the situation precarious is that in times past, Owner Hughes could be counted on to pick up the tab for losses. But Hughes is having troubles in other parts of his empire. Hughes Tool Co., which is financing T.W.A.'s new jets, is in no position to absorb more heavy losses. For years the company did a $120 million annual business in oilfield equipment--and turned a 50 profit before tax on every dollar. Now profits are down sharply. A decline in oil drilling, rising competition at home and imports of oil from abroad will cut its business to between $70 and $80 million this year, with profits of about $20 million after taxes. Nor can the second highly successful wing of Hughes' empire, Hughes Aircraft Co., help much. Though it does some $500 million worth of business annually making electronic fire-control and missile systems, its profits, like those of most defense contractors, rarely top 3% of the gross.

As with Hughes Tool, the business of Hughes Aircraft is not the near monopoly it once was. Last year the company ranked eighth among defense suppliers with $867 million in contract awards. But more and more competitors are growing up, building production facilities to compete for military business. In any event, the income from the company is not Hughes's to spend. Four years ago he went through a complicated maneuver whereby Hughes Aircraft bankrolls his cherished Hughes Medical Institute in Miami. Though Hughes still owns Hughes Aircraft, the Medical Institute gets a share of the profits for its operations. More maneuvering might allow Hughes to get his hands on this income, but even then, he could not use it to finance T.W.A. In order to get a tax-free ruling from the Justice Department for the medical institute, he had to agree that the profits from the aircraft company would either go for medical research or be plowed back into the aircraft company itself.

What to Do? The net effect is that T.W.A.'s losses form an increasingly serious drain on Hughes's once bottomless purse. What will he do? The West Coast has been buzzing for months that he might sell all or part of his empire. The 78.2% T.W.A. stock interest, plus Hughes

Tool and Hughes Aircraft, could bring anywhere from $350 to $500 million. Against that figure Hughes must count debts and commitments of $427 million: some $87 million in accumulated debts at T.W.A., another $320 million in jet-airliner commitments, plus about $20 million in personal debts from his movie deals.

A more likely alternative is that Hughes will try to dig up enough cash to hold out until the new jets are flying and become assets instead of liabilities. One solution would be to go to the public, sell stock in Hughes Aircraft to meet operating expenses and float long-term bonds in Hughes Tool Co. to meet his jet payments when deliveries start next year.

Airman Hughes only a few years ago estimated his worth at $800 million, considered himself the richest man on earth. But no longer. He is still a very rich man, and on the record, a very resourceful one, and he has worked out of tight spots before. But his fortune has shrunk so drastically that even by his own admission, he is in the tightest spot of his career.

-More trouble last week: a pair of test-case judgments against T.W.A. and United Air Lines, awarding $320,000 in damages to the survivors of three people killed in the mid-air collision between a T.W.A. Connie and a United DC-7 over Grand Canyon in June 1956. At least 30 other cases, running into millions, are pending.

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