Pan Am’s Dive Began After the Government Axed Its Near-Monopoly : Airlines: The carrier had operated without competition for decades. When the floodgates opened in 1978, it couldn’t cope.
Pan Am Corp.’s flight path to bankruptcy court was set more than a decade ago by swirling competitive forces that recently gained hurricane strength as the Mideast crisis pushed jet fuel prices upward.
Pan Am said the immediate cause of its bankruptcy filing was the sudden jump in fuel costs since Iraq’s Aug. 2 invasion of Kuwait. Fare increases have not covered those costs, the airline said.
And although Pan Am also said it continues to be haunted by the terrorist bombing of its Flight 103 over Lockerbie, Scotland, two years ago--a disaster that killed 270 and cost Pan Am more than $350 million--analysts said the pioneer airline’swoes really date back to the deregulation of the airline industry.
With the lifting of government controls in 1978, Pan Am lost its near-monopoly in the highly profitable transpacific and transatlantic markets. Lacking a domestic route system, it was ill-prepared to go head to head against such quicker and leaner airlines as United, American and Delta.
Along the way, Pan Am was hurt by poor strategic decisions as well as difficult labor relations--which boiled over into a crippling machinists union strike in 1985.
In the past several years, Pan Am has sold many of its most valuable possessions in a self-liquidation designed to keep it going. Among them: its Pacific route system, certain routes in Germany, and its landmark headquarters building in Manhattan.
On Tuesday, Pan Am received tentative permission from the Department of Transportation to sell its prized London routes to United Airlines for $290 million. If government approval had been swifter, however, Pan Am might have avoided bankruptcy, said airline analyst Raymond Neidl of Dillon, Read & Co.
The sales leave Pan Am a shell of its former self, with a Northeast shuttle--also up for sale--a Miami hub and Latin American routes.
“They are at the almost irreducible minimum,” said Frank Spencer, professor of transportation at Northwestern University in Evanston, Ill.
Neidl and other analysts said that even if Pan Am emerges from bankruptcy in 60 days, as it plans, its survival as an independent company is by no means assured. Even if it works out its debts in bankruptcy court, it can hope at best to put itself “on sound footing so (it) may be an eligible merger partner,” Neidl said.
Analysts gave Pan Am Chairman Thomas G. Plaskett high marks for his efforts to try to save the airline, but said the odds were stacked against him. Plaskett has long sought a merger partner for Pan Am--and even tried to buy Northwest Airlines two years ago--but few other airlines wanted to take on Pan Am’s enormous debt.
Pan Am was founded in 1927 by naval aviator Juan T. Trippe, who flew mail between Key West, Fla., and Havana. It expanded into the Caribbean, then spread its wings across the Pacific and Atlantic in the late 1930s.
Protected from competition by government regulation, Pan Am grew into a global airline with a bureaucracy to match. Analysts and industry executives said it was regarded as a stuffy, gray-flannel airline that was so tied to the government that it was only half-jokingly referred to as part of the State Department.
“They were the kings and queens of the industry,” said Spencer. “They thought no one could touch them.”
Then came deregulation.
Over the last decade, United, American and Delta not only continued to expand domestically, but chipped away at Pan Am’s transatlantic stronghold with flights to key European destinations, such as London, Frankfurt and Paris. Pan Am also faced heightened transatlantic competition from European airlines, many of which had financial support from their governments and control of their domestic markets.
Government regulation had prevented Pan Am from developing a domestic route system of any significance. In a free market, it was essential for Pan Am to have a domestic network into which it could feed its transatlantic and transpacific flights.
Trying to assemble a domestic system quickly, it bought National Airlines in 1980. PaineWebber airline analyst Edward Starkman said the move was a disaster.
“That gave them East-West routes in the Sunbelt and North-South routes along the East Coast--not the routes they needed,” said Starkman. “They should have invested their money in buying their own planes, developing their own routes and establishing their own hubs. The National merger was ill-conceived.”
Pan Am lost $18.9 million in 1980, even after selling its headquarters to Metropolitan Life Insurance Co. for $400 million. The losses continued to mount through the decade. It posted its only profit after deregulation in 1985, when the crippling machinist strike forced it to sell its Pacific routes to United Airlines for $750 million to raise cash.
Last year, Pan Am lost $336.6 million. On Tuesday, it fell under the wings of a federal judge.
MAIN STORY: A1
WHAT THE TRAVELING PUBLIC NEEDS TO KNOW In annoucing its Chapter 11 bankruptcy filing, Pan Am said: It will honor all tickets and fly its full schedule.
Its frequent flier program remains intact, and all miles earned will be honored.
Its agreements with other carriers remain in place, so other airlines should continue to accept Pan Am tickets, handle baggage connecting from Pan Am flights, etc.
Travel agent commissions earned before the filing will be paid as will those earned on ticket sales from today on.
Los Angeles Times
THE CREDITORS GET IN LINE The top 10 creditors listed in Pan Am’s Chapter 11 bankruptcy filing:
1 Pension Benefit Guaranty Corp.: $490 million
2 Midlantic National Bank*: 230 million
3 IBJ Schroder Bank & Trust Co.*: 164.5 million
4 Port Authority of New York and New Jersey: 27.5 million
5 Internal Revenue Service: 20.2 million
6 EuroControl: 12.5 million
7 MTU Maintenance GmbH: 12.1 million
8 Boeing Co.: 11.2 million
9 Japan Noise Abatement: 7.3 million
10 CaterAir: 5.4 million
* As trustee for debt instruments
