Pan Am Ceases Operations After 64 Years in Sky
Pan American World Airways, which pioneered commercial aviation and once dominated international air travel, shut down operations Wednesday and grounded its aircraft after failing to raise badly needed cash to keep flying.
The 64-year-old carrier becomes the third major U.S. airline--after Eastern and Midway--to fold this year amid a disastrous slump that has left the industry with billions in losses and thousands of laid off workers.
Pan Am’s abrupt shutdown left a gap in U.S.-flag service to Latin America and forced thousands of ticket-holders to scramble for seats on other carriers. Several airlines agreed to honor Pan Am tickets and other carriers, including United, applied to temporarily take over the Miami-based airline’s remaining routes.
“Today, we will see the end of an airline whose name will be forever forged in American history,” said Pan Am President Russell L. Ray Jr., who was named president only two months ago.
Ray announced the closure one day after the airline had been scheduled to emerge from nearly a year of operating under bankruptcy court protection. A much smaller Pan Am would have kept flying primarily to Latin America under the joint ownership of creditors and Delta Air Lines.
But the reorganization plan fell apart late Tuesday after Delta refused to put up more cash to keep Pan Am operating. Pan Am was losing an estimated $3 million a day, according to industry sources.
While Delta said it was protecting itself from further financial harm, Pan Am’s failure is certain to unsettle the already nervous flying public.
“That probably reinforces the paranoia that travelers have in terms of what airlines they chose to travel on,” said Mark E. Daugherty, an airline industry analyst at the brokerage Dean Witter. “It makes it difficult for the troubled carriers who are trying to struggle through.”
Industry analysts are increasingly concerned about the fate of such carriers as Continental and America West, both of which are operating under bankruptcy court protection, if the economy does not pick up soon.
“We’ve had a number of failures and there are a number of companies still on the hook,” said airline industry analyst Daniel A. Hersh at Kemper Securities. “Absent of a fairly robust recovery in the next three or four months, I look for further consolidation in the industry. Something will have to give.”
The failure of Pan Am is especially painful to its remaining 10,000 employees, some of whom volunteered to assist passengers Wednesday without pay. Longtime workers watched as the airline that inaugurated commercial jet travel slowly self-destructed over the 1980s, when it sold off its prized Pacific routes, and later sold most of its remaining European routes.
“It’s the end,” said Eva Foldvary, a Pan Am passenger service agent in Miami, who broke down and cried as she talked about the company she had worked for nearly three decades. “When I came back from my coffee break, I saw people going in the back with their cash drawers and their tickets, and they told me we were through. We’ve had so many beautiful years. It was terminated today. Now I’m going home.”
Stranded Pan Am passengers were, not surprisingly, also upset at the carrier’s demise.
“We didn’t know our flight had been canceled until we came to the airport,” said Gibby, a reggae musician who was on his way from Los Angeles to his home in Kingston, Jamaica. “We’ve been on tour for two months. This is weird because we should be on a plane heading home. But we’re stuck here.”
Pan Am died with its hopes pinned to a region where it first got its start: Latin America. Under founder Juan Trippe, Pan Am began flying mail between Key West, Fla., and Havana, Cuba, in 1927.
During the 1930s, Pan Am launched its famed Clipper service in blue and white planes that were the first to offer regularly scheduled passenger service across the Atlantic and Pacific. The airline hired aviator Charles Lindbergh to scout out some its early international routes.
Pan Am flew Franklin D. Roosevelt to Casablanca in 1943 and acted as the airline of choice for a long list of heads of state and celebrities. Last year the airline carried to United Nations headquarters in New York two kings, 22 presidents, 12 prime ministers, one premier, one vice president and 49 foreign ministers.
The airline introduced many novel concepts that have become industry standards, like first-class sections and in-flight movies. In the 1960s, Pan Am breathed life into Boeing Co.’s 747 program by ordering 25 of the jumbo jets in preparation.
The airline became such a well-known corporate symbol that when Stanley Kubrick’s movie “2001, A Space Odyssey,” was released in 1969, its hero flew to the moon in a spaceship operated by Pan Am.
But the airline, which emerged from World War II as the dominant international carrier, failed to adapt to the intense competition unleashed by the government deregulation of the industry in the late 1970s. In 1979, the company entered into a mismatched merger with National Airlines in an ill-fated effort to develop a domestic route network.
Pan Am management spent most of the 1980s selling off assets--from its landmark Manhattan headquarters--to its Atlantic and Pacific routes--to raise cash in an effort to keep the airline afloat.
Tragedy struck in December, 1988, when Pan Am Flight 103 was destroyed by a terrorist bomb over Lockerbie, Scotland, killing 270 people in the air and on the ground.
Last year, Pan Am sold most of its London routes to United in a $400-million deal and searched for a merger partner without success.
Then, in January, when the recession and the Gulf crisis decimated air travel, Pan Am filed for protection from creditors under Chapter 11 of the federal bankruptcy code.
Delta, which had purchased most of Pan Am’s international routes in October and would have owned 45% of the reorganized Pan Am, already had pumped more than $100 million into Pan Am before it balked at speeding up payments, the Atlanta-based carrier said.
Delta’s decision drew criticism Tuesday night from Department of Transportation Secretary Samuel K. Skinner. “I am disturbed that Delta has taken this action with virtually no notice and after weeks of negotiations during which the implication was clearly that the deal was on track,” he said.
Pan Am’s creditors--including the Pension Benefits Guarantee Corp.--also lashed out at Delta. The pension agency, which seized some of Pan Am’s pension plans earlier this year, and other creditors stand to recoup only a small part of their claims.
But Delta said it had no choice. They said it soon became evident--based on deteriorating passenger traffic and advanced ticket sales--that Pan Am would not be able to make it even as a much smaller carrier.
Many industry analysts said Delta had underestimated Pan Am’s potential problems. The impact of the recession, travelers’ concern about Pan Am’s financial health and a major Latin American expansion by American Airlines compounded the carrier’s woes, analysts said.
“Pan Am was losing money at a much faster rate than Delta had contemplated,” said John Pincavage, a partner in the Transportation Group, an airline industry investment firm. “Many people were uncertain about how much money Delta was going to be on the hook for with Pan Am.”
Several carriers, including Delta and Continental, heeded a request by Secretary Skinner to honor Pan Am tickets. In fact, USAir, in an unusual move, agreed to honor Pan Am frequent-flyer award tickets.
However, the nation’s two largest airlines turned down Skinner. United said it would only transport stranded Pan Am passengers home if United served the destination city. American, which serves six Latin America points with Pan Am, said it would not honor any Pan Am tickets.
Airline officials were also laying plans for the sale or auction of Pan Am’s routes, which may take place as quickly as this weekend. David Shipley, spokesman for USAir Group Inc., said the Washington-based airline was interested in Pan Am’s Caribbean routes.
Contributing to this story were staff writers Denise Gellene and George White in Los Angeles, Robert Rosenblatt in Washington and researcher Anna M. Virtue in Miami.
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