Vale PanAm 1927-91

PanAm’s death was long and painful. Technically insolvent for much of the last decade and in greater financial trouble than was admitted even as far back as the early 1970s, the airlineas lateas November last year looked as if it might be saved, albeit as a shadow of its former self.

The intended saviour was Delta Airlines, itself an operator whose origins date back to the 1920s. In the second half of 1991, Delta acquired most of PanAm’s international routes, its hubs in the USA and Germany and 45 of its aircraft for $US416m. The result was that PanAm’s prime routes including those between New York and Frankfurt, Paris, Rome, London and other European centres plus Miami/London and Detroit/London fell into Delta’s hands.

In addition, Delta got all of PanAm’s active and dormant fifth freedom rights to a large network of cities in Asia, Europe, Africa and the Middle East from Frankfurt. Other assets sold to Delta included the airline’s hubs at New York’s JFK Airport and Frankfurt and the PanAm Shuttle which served Boston and Washington from New York’s La Guardia Airport.

Forty-five aircraft were also included in the deal – 24 Boeing 727s and 21 Airbus A310s. Not included were PanAm’s heavy maintenance bases at JFK and Miami, its South American and Caribbean routes, 34 Boeing 747s, 13 Airbus A300s and some 60 Boeing 727s. The result would have been a much smaller PanAm, with only its Latin Division remaining pretty much intact.

Another obstacle appeared late in 1991. In order to satisfy PanAm’s Civil Reserve Air Fleet obligations and to prevent foreclosure by the USAF, Delta agreed to commit 42 aircraft to the CRAF and pay the USAF $US25m. The USAF was worried that it might lose its investment of several hundred million dollars in upgrading 19 of PanAm’s 747s to make them convertible from passenger to freight aircraft when used by the GRAF. Of those 19, one was lost in the Lockerbie tragedy of 1988 and 11 others had been repossessed following PanAm’s collapse. The remaining seven 747s were to join 35 of Delta’s aircraft in the GRAF. That appeared to settle the issue – ‘PanAm II’, as it was dubbed – looked to be a goer. But Delta needed to pour more money into the deal: $US140m to keep PanAm alive in the short term and another $US450m in the future. All this plus employee guarantees and other concessions proved to be simply too much and Delta pulled the plug on this cash life support system – PanAm was obviously in its death throes and no amount of money was going to save it. Without Delta’s help (or anyone else’s) PanAm would die in 1991. With it, expert observers estimated the date of death could perhaps be postponed until 1993.

“The airline that taught the world to fly” operated its final service on 4 December 1991.

The Delta withdrawal created much bad feeling but clearly there was no choice, and it should be noted it was PanAm’s management which made the final decision, in conjunction with Delta’s.

The chances of PanAm being resurrected appear at the moment to be slim, given the poor state of the US airline industry generally and that of some airlines which might be regarded as potential saviours are themselves far from healthy. Delta withdrew in order not to compromise its own future, Northwest is debt-laden and itself a possible target for takeover, Continental and AmericaWest are in Chapter 11 bankruptcy protection, TWA is likely to follow in 1992 and American and United have all made substantial acquisitions in the past year as well as recording poor results. There will be more US airline failures before things get better, although United has acquired PanAm’s modestly profitable Latin Division.

In the words of our colleagues at Flight International: “It would seem that the only consolidation route now left is for debt-laden carrier to merge with debt-laden carrier to create megadebt-laden megacarrier”!

PanAm spent all of the 1980s and early 1990s selling off assets in order to service its ever increasing debt to equity ratio (which grew to more than 90 to 1 by the mid 1980s) and consistent large operating losses. A small profit was recorded in 1984 but that was the only bright spot in the decade before the airline’s death. Losses of more than $US400m were recorded in four of those years including one of nearly $US700m in 1990.

Assets sold included the airline’s Park Avenue, New York, headquarters for $US400m; the Intercontinental Hotel chain for $US500m; the profitable Pacific Division to United for $US400m and of course the recent Delta dealings plus other sales.

Acquisitions in the same period included the ill starred purchase of National Airlines in 1979(in order to provide PanAm with a much needed domestic feeder) and that of regional operator Ransome Airlines in 1986, which became PanAm Express, the feeder to the New York hub.

PanAm enjoyed a unique relationship with the US government for many years. Even in its last years the airline was regarded as the USA’s unofficial flag carrier and this in many ways contributed toa complacency, even self satisfaction, which prevented it from adapting to the new and considerably more difficult times which came with the deregulation of US airlines.

PanAm’s status as a symbol of the USA meant it was also likely to attract unwanted attention. T he events of December 1988 when a terrorist bomb destroyed one of the airline’s 747s over Lockerbie, Scotland, illustrate this. Lockerbie was really the mortal blow for PanAm. Following it, and for some considerable time afterwards, passengers stayed away in droves at a time when the airline had shipped much of its capacity to an all out assault on the transatlantic market. From then on, the airline was being kept alive only by artificial means.

* * *

Pan American Airways was founded in 1927 by commercial aviation pioneer Juan Trippe and its first mail service was operated by a Fokker F. VII on 14 March of that year. Passenger services followed in January 1928 and at the time the airline was the sole US international flag carrier, flying between KeyWest, Florida, and Havana, Cuba. By the end of 1929 services had expanded to 23 countries in Latin America.

In 1931 PanAm began operating the first commercial four engined flying boat, the Sikorsky S-40, which it named American Clipper, thus beginning a tradition which would see all of the airline’s aircraft carry a ‘Clipper’ name.

Transpacific services began in 1935 followed by transatlantic flights four years later, using Martin 130s and Boeing 314s, respectively, the latter representing an early example of the several occasions on which the airline’s interest was responsible for the development and production of a new type. In the meantime, the 1930s saw PanAm’s grip on the Central and South American routes strengthen with the sometimes covert help of the US government. The formation of Pan American-Grace Airways (Panagra) for operation in the region further helped.

PanAm further expanded during World War II, particularly in the Pacific. The airline’s expertise in long range flying boat operations was invaluable, although the end of the war saw its exclusivity on some routes eroded as other airlines which had also done much international flying during the war joined in.

Postwar, expansion and innovation continued, still under the direction of Juan Trippe. The first round the world service was flown in June 1947 by a PanAm Lockheed Constellation, internal services in West Germany began and a wide variety of aircraft – Constellations, DC-6s, Stratocruisers – were introduced into service. In 1950 the airline became Pan American World Airways, a name more in keeping with its now truly global nature.

In the 1950s and 1960s PanAm’s international services expanded to most parts of the world and the airline became the first American operator to fly jet services with Boeing 707s from late 1958. Juan Trippe had ordered 20 of the new 707s from Boeing back in 1955, thus launching that most important programme. PanAm set the trend and other airlines were forced to follow. Continuing its recent policy of duplicating aircraft types for the same job, it also ordered DC-8s from Douglas.

By 1961 PanAm’s fleet reflected the coming of the jet age in commercial air travel while still retaining some ties with the past: 32 Boeing 707s, 19 Douglas DC-8s, 32 Douglas DC-7s, three Douglas DC-6s, eight passenger and 10 cargo Douglas DC-4s plus 21 Boeing Stratocruisers which by then were not part of the first line fleet.

The piston engined airliners gradually disappeared from PanAm’s fleet during the first half of the 1960s, but it was the latter part of that decade which witnessed the greatest revolution in commercial air travel, the Boeing 747, the aircraft which finally put international flying within the financial reach of very large numbers of people.

Boeing said it “bet the company” on the 400 plus passenger 747. As it turned out, so did PanAm, although it wasn’t realised at the time. The airline ordered 25 in 1966 and began services with what the popular press dubbed the “Jumbo Jet” in January 1970. Once again, the world’s other international carriers had no choice but to follow PanAm’s lead Although profitable in themselves, the capital required to pay for the 747s stretched PanAm, whose debt had been gradually building up during the 1960s. The airline recorded its first operating loss in 1969 and this was repeated the following year. The quadrupling of fuel prices in the oil crises of 1973 was another nail in the coffin, as was PanAm’s reluctance to dump unprofitable routes . . . it was as if the airline saw itself as The Chosen One of international air travel, and nothing was done to stop the rot.

The results of this finally manifested themselves in full in December 1991.