Delta Wins the Bidding to Buy Most of Pan Am : Airlines: Purchaser to get prized Northeast shuttle. Federal bankruptcy court approves $1.39-billion deal.

TIMES STAFF WRITER

The bidding war for most of Pan American World Airway's assets ended Monday, after Delta Air Lines sharply raised its offer to $1.39 billion, securing for Delta a greatly expanded share of airline routes between the United States and Europe and Pan Am's prized Northeast shuttle.

Federal bankruptcy Judge Cornelius Blackshear approved the deal in a hearing in New York, fter the Pan Am creditors' committee voted unanimously for Delta's enhanced offer early Monday.

TWA, United Airlines and American Airlines, which by Sunday night had raised their joint bid for Pan Am assets to $1.3 billion, withdrew their offer. TWA and United acknowledged defeat. American declined to comment.

Pan Am officials testified that without swift approval of the Delta offer, the airline probably would have been forced out of business next week, unable to meet its payroll. The Delta offer includes $80 million in interim financing to keep Pan Am going until the deal is completed in December.

Delta's purchase will give Pan Am's creditors $621 million in cash. Delta also will assume liabilities and make an investment that will allow Pan Am to survive in much smaller form and emerge from bankruptcy proceedings.

Once the dominant U.S. international carrier, Pan Am's operations mainly will be limited to its profitable Latin American routes served through its Miami hub. The agreement also guarantees jobs for 13,500 of Pan Am's 17,300 workers, with 6,600 to be hired by Delta and 6,900 to remain at the reorganized Pan Am. The airline has been in Chapter 11 bankruptcy proceedings since January.

The deal marks a further step in the reshuffling of the airline industry that has accelerated dramatically as the nation's recession and sharp decline in air travel during the Persian Gulf War drove many carriers into bankruptcy.

Atlanta-based Delta, once exclusively a domestic airline, has muscled its way to becoming one of this nation's leading international carriers. Airline analysts said Delta now has a secure niche as the nation's third-largest airline, behind American and United.

Under its agreement with Pan Am, Delta will get Pan Am's shuttle linking New York with Boston and Washington and all of Pan Am's routes to Europe except for two that originate in Miami. Delta will take over Pan Am's European hub in Frankfurt, Germany. Delta also will acquire up to 45 Pan Am planes and airport landing slots in various U.S. cities, including coveted slots at New York's John F. Kennedy International Airport and La Guardia Airport.

Delta will end up with a 45% stake in the reorganized Pan Am. Pan Am's creditors will hold the other 55%. The two airlines will merge their frequent-flier programs. Once the deal is completed, Delta will honor Pan Am's tickets and has agreed to cover much of Pan Am's liability to current ticket-holders.

The route transfers, however, still must be approved by the Transportation Department, which will allow objections to be filed until Aug. 23.

Delta spokesman Neil Munroe discounted claims by some airline experts that Delta is paying too much for the new routes. "We're confident that this is going to be a profitable opportunity," he said.

But the rating agency Standard & Poor's said it had placed several issues of Delta's debt under review for possible downgrading because of the acquisition. In trading on the New York Stock Exchange, Delta closed Monday at $72.125, down $1.

For weeks, TWA, American, United and Northwest Airlines had been vying with Delta for Pan Am's assets, forcing Delta to repeatedly increase its offer from its original proposal to buy some Pan Am assets for $205 million plus assumption of $60 million in debt. Pan Am Chairman and Chief Executive Thomas Plaskett had supported Delta's earlier lower offers. But Pan Am's creditors balked.

In recent days, TWA, American and United teamed up with a joint bid, with TWA Chairman Carl C. Icahn doing much of the negotiating with Pan Am and its creditors. On Sunday night Icahn dined with Pan Am creditors committee lawyer Leon Marcus, and proposed the group's final offer of $1.3 billion. That offer prompted Delta late Sunday night to boost its offer to $1.39 billion, from the $904 million it had offered on Friday.

In a statement, Icahn said: "While I am disappointed with the result, I believe that the creditors committee handled its responsibilities diligently and conducted a fair auction process. The best bid won."

Plaskett hailed Delta's new bid, noting that it will guarantee about 500 more jobs than earlier proposals and will provide financial aid to ensure Pan Am's post-bankruptcy survival. Earlier this month, Pan Am laid off 5,000 workers, nearly a quarter of the payroll.

"This represents the greatest value to the creditors and also to all of the constituencies that are associated with Pan Am," Plaskett said in court.

Northwest, which is interested in acquiring Pan Am's routes between Detroit and London and between Los Angeles and Mexico City, continued to object to the Delta plan.

Spectators in the jammed courtroom, including many Pan Am employees and retirees, burst into applause when the judge approved Delta's offer. Buzz Wilson, a Pan Am 747 captain who came as a representative of the airline's senior pilots, said: "We're supporting it. It's the only game in town."

In addition to the $621 million in cash that will go to Pan Am's unsecured creditors, the Delta package includes assumption of $669 million of Pan Am's liabilities and an investment of $100 million in Pan Am to provide working capital.

Delta will make Pan Am's overdue lease payments on aircraft and engines. The $669 million includes up to $100 million that Delta agreed to pay to cover potential losses by the reorganized Pan Am, although Pan Am itself must cover the first $140 million of losses.

The deal is to close in two phases, with Delta acquiring the shuttle in September for $113 million. The rest will close when Pan Am's bankruptcy reorganization plan is approved by the court, which is targeted for Dec. 1.

Although American and United lost out in efforts to acquire additional routes to Europe, Thomas Longman, an airline analyst with Bear Stearns & Co. said the two might still benefit indirectly. He noted that Pan Am was known as a major discounter of air fares to Europe, while Delta discounts little. Delta's acquisition of the routes therefore may lead to a stabilization of air fares, benefiting all transatlantic carriers.

Troubled TWA, which has announced that it too will go into bankruptcy proceedings under an agreement with its creditors, may benefit indirectly also. Longman said Delta's acquisition of Pan Am's European routes means that, if the other carriers want to buy additional transatlantic routes, they probably will have no choice but to buy them from Icahn.

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