Pan American World Airways, for more than five decades an unofficial symbol of the United States abroad, filed for Chapter 11 bankruptcy Tuesday, a victim of spiraling fuel prices, the deteriorating economy and the terrorist bombing of its Flight 103 over Scotland two years ago.
Pan Am became the second airline in five weeks to file for bankruptcy, following Continental Airlines into Chapter 11, which protects a company from its creditors while it attempts to reorganize into profitability. Observers have predicted for months that the carnage won’t end before a half-dozen financially fragile carriers have collapsed. Trans World Airlines is reeling; Eastern Airlines--already in Chapter 11--may be liquidated, and the government may be forced to open the door to greater foreign control of U.S. carriers.
Still, the nation’s premier transatlantic carrier, Pan Am was once as familiar an American brand name overseas as Coca-Cola or Kodak. The airline filed for bankruptcy protection in New York, along with its parent company, Pan Am Corp., and half a dozen other subsidiaries.
The companies’ combined assets total $2.1 billion, but their liabilities add up to $2.8 billion, Pan Am said in its court filings.
As with Continental’s filing last month, Chairman Thomas G. Plaskett said the traveling public would not be affected by Pan Am’s retreat into bankruptcy court.
“We are committed to operate our full schedule of flights, honor all tickets and maintain our relationship with travel agents, tour operators and our . . . other business partners throughout the world,” he said at a news conference.
“This should end a long period of speculation and rumors,” Plaskett added. “Pan Am’s financial future has been the subject of constant speculation for much of the past decade. And now it’s time for us to put that behind us.”
Plaskett said the Persian Gulf crisis had increased Pan Am’s fuel costs in the last five months by $150 million, depleting the company’s coffers. The economic decline cut into both business and pleasure travel, he said. And the December, 1988, crash of Pan Am Flight 103--blown out of the sky over Lockerbie, Scotland, by a terrorist bomb--took a “heavy toll on our cash flow.”
Crucial to the survival of Pan Am--the airline that led America into the jet age in the 1950s--is whether it can now complete the $290-million sale of its London routes to United Airlines.
Though the sale received tentative approval from the Department of Transportation on Tuesday--Plaskett began his otherwise downbeat news conference by announcing the “good news"--the deal now requires the approval of the bankruptcy court. U.S. Bankruptcy Judge Cornelius Blackshear will hold a hearing Thursday on the route sale.
While Plaskett predicted that the sale would go through, independent experts had their doubts.
Richard D’Aveni, a bankruptcy specialist at the Amos Tuck School of Business at Dartmouth College, said the court would scrutinize closely whether Pan Am was getting full value for the prized routes.
“They may have held a fire sale,” he explained. In the period leading up to a bankruptcy filing, “there is always an incentive to sell below true value and pay the money to shareholders as a dividend.”
Another stumbling block is British government approval of Pan Am’s plans to transfer its landing rights at London’s Heathrow Airport to United. Talks between the U.S. and British governments over the transfer have stalled.
United’s commitment to the deal, however, is reflected in its participation--to the tune of $50 million--in the interim loan that will keep Pan Am flying. Bankers Trust Co. is putting up another $100 million. In answer to a question, Plaskett declined to rule out an outright merger with United.
Airline industry analysts, though, said it is possible that Delta Air Lines, Northwest Airlines or another carrier may now try to outbid United for the coveted London routes--a development that might jeopardize the fragile arrangement keeping Pan Am afloat.
Delta and Northwest spokeswomen said the carriers were closely watching the Pan Am situation. Delta spokeswoman Frances Conner said the Atlanta-based airline was concerned that United’s acquisition of Pan Am’s London routes would hurt transatlantic competition.
A Northwest spokeswoman said the Eagan, Minn.-based airline “is always interested in looking at any growth opportunity for us.” She declined comment on previous reports that Northwest wants to buy Pan Am’s Boston-New York-Washington shuttle. Other possible buyers for the shuttle include its management, its pilots and Trans World Airlines.
Though most analysts thought it unlikely that a buyer for all of Pan Am would surface, TWA Chairman Carl C. Icahn did make two separate offers for the airline recently. It wasn’t clear Tuesday whether he would continue his pursuit of the airline or of the shuttle alone. A TWA spokeswoman said that Icahn would have no comment.
Plaskett said the latest offer from Icahn provided about half as much financing as the Bankers Trust-United arrangement. “It was a non-credible, non-viable offer,” the Pan Am chairman said.
A sale of the Northeast shuttle is part of Plaskett’s game plan for Pan Am’s survival, but a bidding war for it could delay a transaction and Pan Am’s banking of much-needed cash. Plaskett told analysts Tuesday that he expects to sell the shuttle before March for about $150 million. He told reporters there were two offers on the table.
However, Pan Am’s bankruptcy filing also may trigger an auction for its routes to Europe and South America. If buyers surface and the bankruptcy court approves their sale--and if sales of the shuttle and London routes are completed--Plaskett’s plan for Pan Am to emerge from bankruptcy as a smaller, but healthier, airline, could be torpedoed.
If all goes according to Plaskett’s plan, Pan Am would emerge from Chapter 11 within 60 days.