Pan Am and Delta Reportedly Look at Possible Merger

By ROBERT E. DALLOS

April 19, 1991 12 AM PT

TIMES STAFF WRITER

NEW YORK —

Pan American World Airways and Delta Air Lines are exploring the merger of the two carriers, an airline official said Thursday.

The talks, which took place at Pan Am’s New York headquarters earlier this week, were instigated by Pan Am pilots who are worried that the carrier won’t survive Chapter 11 bankruptcy proceedings, according to the official who declined to be identified. Citing huge losses, Pan Am filed for protection from creditors in January.

Both Pan Am and Delta representatives declined to confirm that talks were under way.

Sources said Delta officials asked to meet with Pan Am executives after a meeting with pilot union representatives and were able to examine Pan Am’s financial data to explore a possible acquisition.

A consolidation of Atlanta-based Delta, the nation’s third-largest carrier, and Pan Am, the sixth-largest, could produce the largest airline in the country. Delta now flies to 208 cities and Pan Am to 138.

Pan Am, saddled with about $1.1 billion in debt, has said for several years that it was in search of a merger partner and has held talks with several other carriers.

Separately, the Pan Am creditors committee recently urged Chicago-based United Airlines to acquire Pan Am and operate it as a separate entity. Sources said United is interested in acquiring Pan Am’s major remaining asset--its profitable Latin American routes. Acquiring the Latin American routes would enable United to compete in that area of the world with its archrival, American Airlines, which last year bought now-defunct Eastern Airlines’ routes in Latin America.

While United has indicated an interest in assets, it said recently that it is not interested in acquiring an entire airline.

Pan Am pilots have been actively pursuing their own plan, according to industry sources.

An official of the Master Executive Council of Air Line Pilots Assn. at Delta said Delta union members were in Atlanta last month and presented a slide show that showed Pan Am’s assets.

“They (the Pan Am pilots) are shopping the airline around. They realize the airline is in bad shape.” said Ray Nichols, a spokesman for the Delta pilots unit. “They showed us which of our routes would go well with their routes.”

Officials of the Pan Am pilots unit couldn’t be reached for comment.

Analysts had mixed reactions to a Delta-Pan Am consolidation. Most valuable to Delta, analysts said, would be the acquisition of Pan Am’s Latin American routes, its numerous New York-to-Europe routes and the Pan Am hub in Frankfurt, Germany. The routes would mesh perfectly with Delta’s extensive network in the United States, they said.

Also, said Ray Neidl, analyst with Dillon, Read & Co., Pan Am is authorized to fly many routes that are now dormant because of its precarious financial condition.

“The Latin American market has been a historically profitable market,” said Scott Hamilton, editor of the Commercial Aviation Report. “They are Pan Am’s only constantly money-making routes since Pan Am sold its Asian routes to United in 1985. But the real valuable properties for Delta are the foreign authorities (of Pan Am) that can only be bought and transferred. They cannot be begun from scratch.”

Since there is not much overlap among the carriers’ routes, analyst do not expect regulatory approval of a merger to be a difficulty.

Among the obstacles cited by analysts are Pan Am’s pension fund liability--estimated to be between $400 million and $800 million. Pan Am also has a unionized work force that would be very difficult to integrate with Delta’s mostly non-union employees, they said. While Pan Am has five unions, only Delta’s pilots are organized.

Additionally, many of Pan Am’s employees, including its pilots, have greater seniority than Delta workers, making consolidation of the work force very difficult, analysts said. A plus for Pan Am’s employees would be that Delta workers generally receive higher pay and they would get a raise in the merger, according to industry sources.

One analyst, who asked not to be identified, said Delta actually had little or no interest in merging with Pan Am. But, he said, should Pan Am be forced to liquidate, Delta would have good information on which assets are worth purchasing.

“If you want to buy assets, just look at the books a little early,” the analyst said.

Delta recently filed for a $500-million stock offering, and said it planned to use proceeds to buy additional foreign routes.

PAN AM CORP. AT A GLANCE Pan Am Corp. includes Pan American World Airways, Pan Am Express and Pan Am shuttle.

Financial data for nine months ended December, 1990

Revenue: $3 billion.

Net loss: $268.8 million.

Number of destinations: 100 cities worldwide served by Pan American World Airways; 33 served by Pan Am Express; 3 served by Pan Am shuttle.

Fleet: 154 (leased).

Employees: 22,000.

DELTA AIR LINES AT A GLANCE Financial data for six months ended December, 1990:

Revenue: $4.3 billion.

Net loss: $259,799.