A Daring New Flying Machine

Before the drama of hijacked Flight 847 began to unfold last Friday, executives of Trans World Airlines were preoccupied by an equally riveting, corporate development: the birth of a huge new airline company. TWA, which has struggled for the past month to escape Corporate Raider Carl Icahn, agreed to be acquired by Texas Air Corp., which already owns Continental and New York Air. The merger will create the second largest U.S. airline, after United.

TWA's takeover was the latest sign of the turbulence that continues to roil the airline industry. The fare wars set loose by deregulation in 1978 have created an environment in which only the fittest seem able to stay healthy. The turmoil has produced deep financial woes for some carriers and rampant confusion for travelers, who can barely keep up with changing prices and the innumerable restrictions that apply. Among the latest other developments:

-- United pilots agreed to return to work last week after a bitter month-long walkout that cut the airline's schedule to just 14% of its normal 1,550 flights a day.

-- In April the perennially struggling Pan Am, weakened by years of losses and a strike by ground employees in March, sold its Pacific routes to United for $750 million.

-- An ailing Frontier Airlines decided in May to sell 25 jets, about half its fleet, in order to raise $265 million. -- Major carriers have been forced into a war of so-called Ultimate Super Saver fares, which slash prices on some routes as much as 70%.

To win TWA (1984 sales: $3.7 billion), Houston-based Texas Air offered about $925 million for the company, which includes $23 in cash and securities for each TWA common share. The investment firm Drexel Burnham Lambert will help Texas Air raise the money by underwriting "junk bonds," a popular takeover tool. Icahn, who stands to make a profit of about $50 million when he sells his TWA shares to Texas Air, will probably go along with the deal.

The merger will end the independence of an airline that began in 1928 as a rail-and-air service whose first route was plotted by Charles Lindbergh. Owned briefly by General Motors in the 1930s, TWA fell into the hands of Howard Hughes in 1939. The eccentric tycoon initially fostered rapid growth but later nearly wrecked the company with indecisiveness. Hughes sold his stock in 1966. During the 1970s, TWA ventured heavily into the hotel and food-service business, which turned out to be far more profitable than the airline. Stockholders spun off the carrier as a separate company in February 1984.

TWA began a comeback last year, earning $29.9 million, its first profit in four years. Icahn came along with his takeover offer last month. He eventually acquired 33% of TWA's stock and was offering $18 a share for the rest. Despite Icahn's denials, TWA feared that if he won control he would dismantle the company by selling off some routes, as well as landing rights and jets.