Pan Am Corp. is among those interested in the possibility of buying Continental Airlines from Texas Air Corp., a source close to Pan Am said Monday.
Texas Air Chairman Frank Lorenzo said at the company's annual meeting last week that all or part of Houston-based Continental was on the block. Then it was reported over the weekend that Scandinavian Airline System and an unidentified partner are preparing a bid for Continental.
In a later interview, Lorenzo said the fallout from the bankruptcy of Eastern Airlines, another Texas Air subsidiary, had hurt Continental's business.
Half of SAS is owned jointly by the governments of Denmark, Norway and Sweden, with private investors holding the other half. SAS owns just under 10% of Continental and has a marketing arrangement with it.
Pan Am, parent of Pan American World Airways, has vast overseas operations, especially in the transatlantic market, and is known to be hoping to merge with an American carrier that has a domestic route system capable of feeding passengers to Pan Am's overseas flights. Airline observers maintain that Pan Am, which has been losing money, cannot survive without such an arrangement.
These observers say Continental seems to fit the bill. This summer, Pan Am lost out in the bidding war for NWA Inc., parent of Northwest Airlines, and recently was reported to be interested in bidding for UAL Inc., which owns United Airlines.
"Pan Am could be considered a potential buyer, a possible suitor, for Continental," the source said. "Pan Am has proved that it can pull the financing together to swing the deal," the source said. Pan Am was understood to have arranged at least $3 billion worth of financing to support its bid for NWA.
At Pan Am headquarters in New York, spokesman Jeffrey Kriendler declined to discuss any role that Pan Am might have in a purchase of Continental.
However, it was also learned that Drexel Burnham Lambert, Continental's investment banker, had approached Pan Am about three weeks ago to see if would have any interest in buying Continental.
Leases Most Planes
For the Northwest purchase, Pan Am had lined up financing with Prudential Bache, the Airlie Group investment partnership, the Lazard Freres investment firm and a consortium of five major banks.
Airline analysts contend, however, that even though Pan Am might have obtained enough financing for an acquisition of NWA or UAL, it would be much more difficult to do so for an attempt to buy Continental. The analysts reason that Continental owns a far smaller proportion of its airliners and other assets than the other two carriers do, so Pan Am would need considerably more cash to finance the acquisition.
According to Avmark Inc., an aviation marketing and management service in Arlington, Va., the most recent figures show that Continental owns only about 33% of its 339 planes and leases the remainder. Northwest, on the other hand owns all but 12% of its 306 planes. United owns all but 14% of its 425 planes.
"When so many planes are leased, the assets against which you can borrow are much smaller," said Paul Turk, an Avmark official.
The analysts also maintain that Texas Air's asking price for Continental will be too high for Pan Am. "Lorenzo does not sell things cheaply," said one analyst who insisted on anonymity.