Pan American World Airways has been holding talks with Lufthansa German Airlines regarding the possible sale of all or part of Pan Am’s profitable West Berlin service.
Pan Am spokesman Jeffrey Kriendler declined to comment on a report in two West German publications, the prestigious Munich daily Suddeutsche Zeitung and a trade publication, concerning such talks. However, Lufthansa confirmed that such discussions were under way.
“There are talks between both airlines about the future of the Berlin traffic,” according to a statement released by Lufthansa, which is based in West Germany. “The interest of the city and its two existing airports must be placed in the foreground of all possible solutions.” There is one airport in East Berlin and another in West Berlin.
As part of an agreement among World War II’s four victorious Allied powers, German airlines have not been allowed to serve Berlin, which is an enclave in East Germany about 110 miles from the border of West Germany. Pan Am has flown between West Berlin and several German cities, including Munich, Frankfurt, Hamburg and Stuttgart, since the end of World War II. British Airways and Air France also serve West Berlin; Aeroflot, the Soviet airline, flies to East Berlin.
Money-losing Pan Am suffers from recurrent liquidity problems and has sold a number of valuable assets in recent years, including its hotel unit, its Pacific division and its building in New York.
Pan Am operates a shuttle-type service on about 75 daily Berlin flights, using 14 Boeing 727s and one Airbus 310.
“The rapidly changing political climate is making the prohibitions against the flying into Berlin by a German airline obsolete,” said one airline observer who asked not to be identified. “The political dynamics are changing.”
The eventual reunification of the two German states is now seen as likely by many observers, and some said the ban on Lufthansa from flying to Berlin is expected to be discarded soon.
Airline observers said that if Pan Am does not sell all its Berlin operation, it might transfer part of it to Lufthansa. A precedent for a partial sale exists, these observers noted. Air France has sold 49% of its operations into Berlin to Lufthansa and retains ownership of the remaining 51%. The operation has been renamed Germania and is, for all practical purposes, being operated by Lufthansa.
“The internal German service is a major profit center for Pan Am,” said Paul Turk, an analyst with Avmark Inc., a Virginia-based aviation consulting firm. “It is one of the few things on which Pan Am makes money.”
He said Pan Am revenue on the routes totaled about $250 million annually and profit was $30 million. The routes might be worth $300 million to $400 million, he said, adding that the real value of the operation lies in Pan Am’s landing slots and gates at Frankfurt’s heavily congested airport.
Han Plickert, an airline analyst with the Transportation Group, an affiliate of New York’s Paine Webber brokerage, said that once the ban on Lufthansa is lifted, the Pan Am operations would become worthless. Then, he said, Lufthansa could simply begin flying to Berlin without the need to buy routes from another airline.