Pan Am Deal With United Hits a Snag : Justice Dept. Wants 1 Tokyo Route Sold on Antitrust Grounds

The Justice Department contended Tuesday that United Airlines’ proposed purchase of Pan American World Airways’ international Pacific routes would substantially reduce competition on U.S.-Japan flights, recommending that the airlines sell one of their Tokyo routes.

In a brief filed with the Transportation Department, which is reviewing the acquisition, the Justice Department proposed that the airlines sell to the highest bidder either United’s existing Seattle-Tokyo route or Pan Am’s Los Angeles-Tokyo or San Francisco-Tokyo route.

Without such a sale, the planned transaction would violate federal antitrust laws and should be disapproved, the department said, noting that “Tokyo is the key gateway city to the Pacific.”

Needs Cash Badly

Pan Am agreed to sell its Pacific division to United in April for $750 million to raise badly needed cash for its remaining airline operations, which have lost millions of dollars in recent years. The proposal must be approved by the Transportation Department and President Reagan.

Oral arguments on the acquisition are scheduled for next Monday, and Transportation Secretary Elizabeth Hanford Dole is expected to make a final decision on the pact by Oct. 31.

In its brief, the Justice Department argued that because Pan Am and United are the third- and fourth-largest carriers in the “highly concentrated” U.S.-Japan market, the acquisition would significantly lessen competition and lead to increased fares.

Competitive Overlap

United’s Seattle-Tokyo route, which provides seven round-trip flights per week, “is the one that creates the competitive overlap,” and its sale “would serve to place that route under the control of the carrier that is most likely to offer the most efficient and competitive service,” the department said.

United responded in a statement Tuesday that it would have to determine whether to complete the purchase if a condition were imposed requiring the divestiture of the Seattle-Tokyo route.

“United believes the facts do not justify the recommendations of the Department of Justice for the sale of one of the Tokyo routes as a condition to approval of the transaction,” the company said.

United’s stock fell $3.375 per share to close at $49.125 in New York Stock Exchange trading Tuesday, while Pan Am’s stock fell 50 cents per share to close at $7.25.

United and Pan Am filed a joint statement with the Transportation Department on Monday saying that they believe that their agreement “is fully consistent with the U.S. government policy for a deregulated airline industry.”

Other carriers that currently serve Tokyo from the United States include Japan Air Lines and Northwest Orient, which together with Pan Am and United handle 90% of the total air traffic in that corridor.

This concentration of carriers is “especially troubling,” Deputy Assistant Atty. Gen. Charles F. Rule said in the brief, because entry by new carriers is severely restricted by a U.S.-Japanese bilateral aviation agreement and by the scarcity of available landing “slots” at Tokyo’s Narita Airport.

Moreover, Rule said, if the sale proceeds, United would abandon the maverick discount fares on its flights and seek to maximize profits by joining other carriers in an international cartel to fix fares.

Of the 7.2 million persons who flew between the United States and Pacific points last year, about 4 million--or 55%--traveled from, to or through Japan.