A federal bankruptcy judge Thursday approved the sale of Pan American World Airways’ London routes to United Airlines, upstaging a last-minute entrance on the scene by Los Angeles financier Kirk Kerkorian.
After a seven-hour hearing that did not end until after 9 p.m. EST, Judge Cornelius Blackshear took less than a minute to make his decision. He said he made it in the interest of Pan Am’s short-term survival.
There was testimony during the packed bankruptcy court session that Pan Am had only enough cash to continue flying for one or two days, that credit card companies were holding back money owed the airline and that the traveling public was becoming nervous about the airline’s survival.
The transaction will give Pan Am an immediate $50-million cash infusion and an additional $100 million on Jan. 25. When it filed for bankruptcy protection, Pan Am said it had signed an interim loan agreement with Bankers Trust Co. for $150 million, a third of which will come from United, which has a vested interest in seeing that Pan Am does not go into liquidation.
The Department of Transportation has given tentative approval to the sale.
United’s full price for the London routes is $290 million. When the transaction closes, Pan Am will repay the $150 million it is borrowing. Besides the sale of the routes, the two airlines will also have a marketing agreement which includes, among other things, a meshing of their frequent-flier programs.
Pan Am, once a proud worldwide symbol of the United States, had fallen on hard times in the past decade. On Tuesday it filed for Chapter 11 bankruptcy, citing skyrocketing fuel prices, the poor economy and a terrorist bomb attack on Flight 103 two years ago.
“I approve this transaction because one of Pan Am’s assets is in its dealing with its credit card companies, travel agents and the traveling public,” Blackshear said.
During the hearing, a lawyer for the Air Line Pilots Assn., Richard Seltzer, said that four of the airline’s five unions had brought Kerkorian into the picture. A lawyer for Kerkorian, Benjamin Wagner, said that Kerkorian could come up with a $50-million bridge loan by this morning and that his Tracinda Corp. might be willing to buy all of the financially troubled carrier except its lucrative Northeast shuttle for an undisclosed amount.
Asked about Kerkorian’s possible offer, Peter McHugh, Pan Am executive vice president and chief executive, said in an interview during a recess that it came too late.
“Where was he in the last two years when everybody knew we were up for sale?” McHugh asked.
It is not the first time that Kerkorian has shown an interest in Pan Am. The financier has been involved in some kind of airline ownership on and off since the late 1940s, when he began flying gamblers from Los Angeles to Las Vegas in a B-26. He now owns MGM Grand Air, a small transcontinental carrier. Twice during the 1980s, Kerkorian made passes at Pan Am, one time with union backing.
Kerkorian was in the news recently when he purchased a 9.8% stake in Chrysler Corp. for $272 million. Shortly before that, he sold his MGM-UA Communications to Pathe Communications for $967 million.
Several strong voices were raised against the Pan Am-United transaction. Delta Air Lines, for example, filed a brief with the court in which it offered $50 million for Pan Am’s Los Angeles-London route and said it might buy some or all of the other routes that were going to United.
Delta said it would be willing to fly on the routes to Gatwick Airport outside London instead of the more convenient Heathrow Airport. It said its existing flights to London already flew to Gatwick.
The Delta offer would have removed a major stumbling block that still exists in the Pan Am-United deal. Under an agreement between the United States and Britain, only two American carriers--Trans World Airlines and Pan Am--may fly to Heathrow. If their routes are sold, the newcomers must fly to Gatwick. There are talks going on between the British and Americans to remove that clause but, thus far, there is no agreement.
Carl Icahn, the financier who owns TWA and who made an offer to buy Pan Am several weeks ago, said through his lawyer Thursday that he would also like to renew his bid. Mark Buckstein, general counsel of TWA said that Icahn would be able to come up with $25 million by today and that the TWA board might be asked for another $25 million if needed.
Perhaps the loudest voice against the Pan Am-United deal was that of the Pension Benefit Guaranty Corp., the federal agency that insures pension plans against failure. The $490 million it is owed makes it Pan Am’s largest creditor.
Its lawyer, Stephan J. Shimshak, argued that the the transaction between the two airlines should be held up at least until next week to allow other suitors to finalize their offers.
But Lawrence B. Friedman, a lawyer for Pan Am, pleaded that “there is no time for delay. If we wait for better terms Pan Am may not be able to survive.”
Joan Fabio, an assistant treasurer of Pan Am, said Pan Am “had $27 million last night.” She said American Express Co. was supposed to give the airline $5 million Thursday but did not out of fear that the carrier would collapse.
Visa and MasterCard, she said, were supposed to have come up with $1.5 million, “but we got $100,000.”