AIRLINES : Other Carriers May Back NWA Bid by Pan Am
Pan Am Corp. Chairman Thomas G. Plaskett said Thursday that several foreign carriers are interested in backing a Pan Am bid for NWA Inc., the parent of Northwest Airlines.
Plaskett said the carriers, which he described as “second tier in terms of size,” are considering an equity stake in the proposed merger between Pan Am and NWA. Plaskett would not identify the carriers, but well-connected industry sources named KLM Royal Dutch Airlines and Hong Kong-based Cathay Pacific Airways.
Plaskett was in Los Angeles Thursday to round up financing for an NWA bid as part of a 14-city trip that will take him to Tokyo this weekend and end in New York on Tuesday. NWA, the largest U.S. carrier in the North Pacific, has attracted at least two other suitors, Los Angeles billionaire Marvin Davis and Alfred A. Checchi, a Los Angeles financier.
Considering All Options
NWA has said it is considering all possible alternatives for its future, including a sale or a restructuring that could include a special payoff to shareholders. It has set a Tuesday deadline on offers to buy the company.
A marketing partnership with a foreign carrier--which could result from an equity investment--could help New York-based Pan Am by providing it with foreign passengers to feed into the domestic route system of its principal subsidiary, Pan American World Airways.
Last October, Texas Air reached a marketing agreement with Scandinavian Airlines System that gave SAS the right to buy 10% of Texas Air’s stock.
A spokesman for KLM could not be reached Thursday to comment on a possible deal with Pan Am. A spokesman for Cathay Pacific said he was not aware of any serious discussions.
Plaskett said Pan Am is prepared to submit a bid by Tuesday for NWA, which has its headquarters in Eagan, Minn. He said Pan Am’s bid would be all cash but declined to provide other details.
Financial sources said Plaskett told institutional investors at a lunch meeting at the Sheraton Grande that Pan Am is exploring a bid in the range of $100 to $120 a share. Pan Am is looking for $1.6 billion in temporary--or bridge--financing to help pay NWA until permanent financing can be arranged by its financial adviser, Prudential-Bache.
Besides the short-term financing, Pan Am is also attempting to arrange long-term financing, according to financial sources. Pan Am has already disclosed that it has lined up $400 million in equity investments from Prudential-Bache and the Airlie Group, a Ft. Worth, Tex., partnership that includes members of the wealthy Bass family.
Plaskett said an NWA acquisition by Pan Am would create “the only global U.S. flag carrier.” Pan Am would be a better buyer of NWA than a non-airline investor would be, he said, adding that the airline is “going to be leveraged no matter what happens. We can offer growth and synergy that a financial buyer can’t offer.”
The expense of a merger of Pan Am and NWA would probably result in losses for the first two to three years, Plaskett said. “But that is true no matter who buys them.”
In an interview, Plaskett said he does not anticipate seeking wage concessions from Northwest’s work force, which is higher paid than Pan Am’s, and said he believes that the two airlines could be merged without the acrimony that marked the 1986 merger between Northwest and Republic Airlines.
Most of Northwest’s management would probably be offered jobs at the merged airline, Plaskett said, since the operations of the two airlines do not overlap very much.
Plaskett, who flew first class on a Northwest flight to Los Angeles from Minneapolis-St. Paul to “check the service,” said he believes that Northwest employees prefer Pan Am to a non-airline buyer. “They know we are not going to sell off pieces of the airline to pay debt,” he said.
However, Plaskett said it is possible that Pan Am might sell “non-operational” assets, such as Northwest’s Tokyo real estate, to pay some of the debt it takes on to buy the airline. Plaskett said he intends to fly as a paying passenger on Northwest to Tokyo and, from there, back to New York, providing, he quipped, “a boost (to) their second-quarter earnings.” So far, Plaskett said, the service he has observed aboard Northwest planes has been “very nice.”
