Frustrated Pan Am Wants to Sell Airline : Move Necessary Because Some Unions Rejected Cuts, Chairman Says
Pan Am Corp. directors, frustrated and angry over their inability to obtain cost-cutting concessions from some of the company’s unions, Wednesday put troubled Pan American World Airways up for sale.
In a letter to the carrier’s 22,000 employees, Thomas G. Plaskett, who became the company’s chairman in a union-inspired change of management in January, said the board met Tuesday and approved a plan presented by management “to immediately offer for sale . . . any of the assets of the airline . . . including route segments and divisions, maintenance and terminal facilities, aircraft engines and other equipment.
“This may be shocking and frightening,” Plaskett told the workers in his seven-page letter, “but frankly, it should not be surprising. The agreement between the board of directors and the joint labor council has fallen through. Management has been changed, but only two of the four unions have fulfilled their part of the bargain.”
In January, the unions agreed to make wage, benefit and work-rule concessions if the company’s current top managers were ousted. C. Edward Acker, then chairman, was fired as were numerous others on his management team.
Five unions hold contracts with Pan American. The labor council to which Plaskett referred consists of four of them and, of the four, only the pilots and the flight engineers have agreed to accept pay cuts and other concessions. The Teamsters union and the flight attendants, also members of the council, have not reached agreement. Neither has the Transport Workers Union, which is not a member of the coalition.
If Pan Am had obtained all of the concessions to which the unions tentatively agreed, the company would have saved about $150 million a year for three years. But the pilots’ and the flight engineers’ concessions amounted to only $80 million.
Having failed to obtain the concessions it considers necessary, the board, according to Plaskett, authorized “the early termination of aircraft leases, assignment of new aircraft purchase agreements to (other) airlines or other prospective buyers, the closing of facilities and employee bases and related reductions in the work force necessary to achieve profitability. Such actions will be taken without regard to remaining fleet size, number of geographical coverage of markets, or number of employees.”
The action was taken, the airline said, after the completion of a study of what Pan Am is worth. Pamela Hanlon, an airline spokeswoman, would not say what the study showed but several analysts said Wednesday that Pan Am’s debts exceed its assets.
According to Hans Plickert, airline analyst with the New York investment firm of Merrill Lynch, Pierce, Fenner & Smith, the airline has $513 million more debt than assets. He added that 81 of its 125 planes are leased and that many of those it does own are more than 15 years old.
Plaskett said other assets of Pan Am Corp., the airline’s parent company, that are not on the auction block include its shuttle operation, which operates in the Northeast corridor among Boston, New York and Washington, and Pan Am World Services, which conducts ground services and maintenance for airlines and governments throughout the world.
The company, its unions and airline analysts all obviously considered Wednesday’s announcement more than an idle threat. “Yes, it is reversible,” acknowledged Jeffrey Kriendler, a Pan Am spokesman, but he warned that “it is not reversible for long.”
And the airline moved Wednesday to reduce some costs quickly. It said it will return two 747 jumbo jets to lessors at the end of the summer when the leases expire and will terminate another lease early at the same time.
It also said the San Francisco flight service base, where about 200 flight attendants are based, will be closed in October. Flight operations in the fourth quarter will be cut “far beyond the normal seasonal reduction following the summer peak.”
“I have no doubt in my mind that Pan Am must get the concessions it needs or the downsizing or selling off of assets will continue,” said Tom Lambert, president of the Pan Am Flight Engineers International Assn., one of the unions which did take pay and other cuts.
“I am taking the letter at face value; I presume that they’re serious,” Margaret Brennan, head of the Pan Am flight attendants union and head of the joint labor council, said in an interview with the Associated Press. The flight attendants still do not have an agreement with Pan Am.
William Genoese, who heads the Teamsters union at the airline, said his union had not had a contract since 1981 and was highly critical of Plaskett. “The Plaskett . . . plan is not working,” he said. “You need a bright person, one who is creative and practical. That is not Plaskett.”
According to Timothy Pettee, airline analyst with Bear, Stearns & Co., a New York brokerage, the airline, which had losses of $83 million in the first 1988 quarter and $265 million for all of last year, is not in an enviable position.
Partly because of the reduced value of the dollar relative to other currencies, smaller numbers of Americans will travel abroad this summer, he said, adding that foreign carriers will get the lion’s share of foreigners who visit the United States. At the same time, Pan Am does not have an extensive system of domestic routes feeding passengers into its overseas flights.
“I think the Pan Am board is looking to sell assets now while they can still get premium value. After the summer, they might have to sell in a distress situation,” Pettee said.
