Maybe We Should Help Pan Am

...The 747, as it turned out, was also too big for Pan Am...

...Pan Am’s 1971 losses of $46 million were only slightly better than the 1970 disaster, and the 1972 losses of $28 million, although representing some progress, were not enough to save Halaby, who was fired...

...Recently, the CAB opened the North Atlantic to two new airlines, Northwest and Delta, and permitted international service to expand to 11 new cities...

...Pan Am thus occupies a unique and lonely position...

...The American SST ‘(like the Anglo-French Concorde), was neither larger nor more efficient than the previous generation of transports-it was merely faster...

...its anxious creditors, desperately juggling the books on its crushing burden of debt...

...As part of a carefully orchestrated campaign to build public support, Seawell induced Charles Lindbergh to make one of his final public appearances at the annual meeting of Pan Am stockholders in May 1974...

...It made sense for Pan Am to get out, since it had paid more than $50 million into the fund over the years while receiving back only $5 million...

...The method by which small airlines like Texas International (and Braniff) got the “international” added to their names illustrates the point...

...Perhaps only wclfare mothers and airline executives can really understand this kind of pain...

...Over the past three or four decades, U. S. airline pilots have gained the kind of prestige an acquisitive civilization like ours bestows only on big money-makers...

...But Pan Am was already so successful, and the future of international air trav‘el looked so bright owing to the development during the war of ocean-spanning, four-engine transports like the DC-4, that the CAB balked...

...If all things had remained equal, if the economy had not gone sour, if fuel prices had not soared, then Pan Am would not today be on its knees...

...But it was a victory for ALPA in any case...

...Indeed, of all the young men attempting to adapt the new aviation technology to commerce, seeking consciously to extend to the skies the ethos of pioneering bequeathed by an earlier generation of railroad magnates like Harriman and Hill, only Trippe survived the 1920s intact...

...He actually expected to get it, expressing confidence on a number of occasions by citing the government’s “major responsibility to help us...

...Past experience seemed to show that any new technology that brought economies of scale into air travel would earn automatic profits...

...But they should be able to count on, if not government help, the absence of government harm...

...citizens, it can earn foreign exchange credits...

...Hotchkiss had a lot of nervous company in Berlin, so about 150 pilots descended on Washington for some highly unorthodox lobbying...

...it has begged the Shih of Iran for help (he has refused...

...Long before congressional sentiment solidified against Pan Am and the Ford Administration formally ruled out either a subsidy or a Lockheed-type guaranteed loan, Seawell and his associates could sec the handwriting on the wall...

...Watt and his colleagues had just finished negotiating a contract that called for a fivepercent retroactive pay raise for 1973 and 1974, as well as a nine-percent increase effective January 1, 1975...

...In short, the IATA tries to keep air fares sufficiently high so that all thc international airlines make a profit...

...Enough liberals supported the Lockheed loan to pass it, but they muttered that jobs or no jobs, defense contractors had better clean up their act...

...Prior to World War I1 Pan Am enjoyed a virtual monopoly in overseas flying, and it tried to maintain that position after the war by having the CAB designate it America’s “chosen instrument” internationally-i.e., our national overseas airline...

...The IATA is an international cartel, devoted to the principle of controlled air fares through voluntary agreements ratified by the govcriimcn ts of the airlines concerned, and thereforc has a quasi-diplomatic status...

...Russell Baker asked, “How come it’s a subsidy when Pan American asks for $100 million to keep flying, but when people ask for considerably less to keep going, it is a federal handout...

...They had already begun to dip into cash reservcs, which worried the airline’s creditors, a 36-bank consortium headed by the First National City Bank of New York...

...Accordingly, through a series of laws, beginning with the Kelly Air Mail Act of 1925, continuing with the Civil Aeronautics Act of 1938, and culminating in the Federal Aviation Act of 1958, the airline industry managed to substitute the concept of “controlled competition under goveriimen t regulation” for laissez-faire...

...A high percentage of them are college graduates who could fit as easily into the executive suite as the cockpit...

...In addition, the pilots required Pan Am’s withdrawal from the Mutual Aid Pact, an employers’ strike fund to which airlines contribute in order to reimburse any shutdown by a strike...

...Pan Ani hasn’t made a profit in this decade...

...Surrounding himself with experts like Charles A. Lindbergh, Trippe bestrode commercial aviation like a giant for the next four decades, weathering every crisis from the “Lindbergh Boom” on the stock market following the 1927 flight to Paris* to the introduction of continent-spanning jets, Welcome to Hard Times But now Juan Trippe has gone into retirement...

...Pan Am’s pilots, for example, have agreed to an unprecedented 11-percent cut in pay...

...What they got was a guarantee against either mergers or any additional pilot furloughs-if either occurs, their pay goes back up...

...The lesson Pan Am seems to have learned from its hard times is that you can’t always depend on the government for protection...

...Pan A m ’ s management paralysis in the face of the mounting crisis worried the pilots-airline piloting jobs are very scarce, and they cannot readily transfer their cockpit skills to other endeavors-so they launched Operation Turnaround...

...Through its power to issue certificates permitting airlines to fly between certain cities, the Civil Aeronautics Board tried to create an integrated system of air transportation...

...Now as if all this were not enough, Pan Am also has been the victim of an intense new wave of competition from non-scheduled airlines...

...One misty October morning, however, he was joined by Flight Officer Richard W. Selph, also from the Berlin base...

...Although non-skeds have been around for many years (including a few non-1 ATA, regularly scheduled outfits like Icelandic Airlines), they had no significant effect on the major airlines until about the time the jumbo jets arrivcd, and there is a direct connection...

...Liberals, like Baker and Proxmire, have been right in pointing out the blindness of conservatives who would aid Lockheed and scorn the welfare case...

...After a world-wide postcard poll of Pan Am’s pilots, Watt got overwhelming approval to renegotiate the contract downward in order to ease the airline’s cash flow squeeze...

...Even in the losing year of 1973, Pan Am’s July profits had been $21 million...

...Proxmire is a physical fitness buff who runs the five miles from his Washington house to the Capitol every morning, braving muggers and traffic with equal gusto...

...It is a wrenching experience for an airline executive to submit to this kind of humiliationhaving his operations examined and his decisions analyzed, government probers nosing about “asking how often I brush my teeth every day” (as one harassed executive put it...

...We’re not looking for a handout,” they insisted...

...It raised its postal payments to the standard specified by the Universal Postal Union (Pan Am had been carrying mail for less...

...Only a few old curmudgeons resisted...

...By surrendering control over routes and fares, the airlines gained the explicit promise of government subsidy should the CAB’s market management result in financial loss...

...Whether acting as the State Department’s surrogate in remote cities, or flying American servicemen to holidays in Bangkok or Honolulu for a dollar plus costs, Pan Am became over the years closely identified with the American flag...

...If Pan Am survives its current agony, which is a composite of high fuel prices, the recession-related slump in international tourism, and excess capacity, it will owe a great deal to its employees...

...it was merely a larger version of the 707,” and its *Historically, every successful commercial transport has been faster, larger, and more efficient than its predecessors...

...Things slowed down a bit in 1967 and 1968, but the airline still earned a respectable $110 million over the two years...

...Pan Am inaugurated trans-Atlantic 747 service in January 1970, and it became Halaby’s task to keep the massive 350-seat plane filled with passengers...

...Senator William Proxmire blasted the request as a “clear distortion of the free enterprise system” that would, if the Ford Administration granted it, “signal every distressed company in the country that the federal government will take the risk out of business...

...Lobbying Is Not Enough One of them was William Proxmire, who had been outspokenly opposed to any assistance for Pan Am...

...The most recent union contract between United Airlines and its pilots, for example, makes it possible for a 747 captain to make $83,000 a year...

...Like the UN, the ICAO operates on the “one nation one vote” principle, and the bloc-voting habits of Arab and African states have seriously undermined its effectiveness...

...But Watt and his fellow senior pilots were far too tough and knowledgeable to take an 1 1-percent cut in pay voluntarily without getting something in return...

...Merger is a word that frightens airline pilots because it usually entails a vast reduction in the pilot force...

...It was a poignant moment for those who remembered Lindbergh as he once wasboyish, tousle-haired, the super-hero of aviation’s innocent youth...

...Uniformly young and attractive, the stewardesses and pilots of Pan Am went hunting in the halls of Congress, looking for men of power who would listen to the Pan Am story as told by Pan Am’s employees...

...But they cheat outrageously, and every experienced traveler knows that by asking the right questions and haggling with the right people, he can buy a(ticket at much less than the “posted” rate, largely because the governments in question do not enforce the IATA fares...

...The first of these is the International Civil Aviation Organization (ICAO), a technical arm of the UN whose chief concern has been aircraft specifications, pilot qualifications, safety standards, and the like...

...But in recent years, the ICAO has begun to decay as a technical regulatory agency, largely because of politics...

...The theory was that by giving domestic airlines access to some of Pan Am’s highly profitable international routes, they would make a bundle of money and thus be able to expand their service on unprofitable domestic routes...

...Trippe, and later Halaby, could thus argue with some justification that the problem seemed to be one of too little capacity, rather than too much...

...Calling it “the most exciting decision” of his career, Trippe declared that the new superplane would serve the 1970s much as the Boeing 707 had served the 1960s’ as a “carrier for the great mass of people...

...Pan Am sold its secondhand 707s when Boeing began to deliver the 747s, and the principal purchasers of these used but still highly serviceable jets were, of course, the non-skeds, who got them dirt cheap...

...Halaby’s critics contend that Pan Am’s slide toward disaster was caused not so much by Trippe’s original decision to order the 747 as by Halaby’s failure to recognize the proper number of them to order...

...The airline sustained a moderate but not alarming loss in 1969, but in 1970, the first full year of 747 service, it lost a devastating $48 million...

...The bankers’ consortium, which was apparently moving toward a catastrophic dissolution in early 1975, with several nervous members trying to get out, recovered its confidence...

...Proxmire had to change his jogging route to &cape the persistent Selph the next morning...

...Hat in Hand - Most Americans do not realize that the law permits U. S. airlines to request direct subsidies if they fail to long before the project collapsed, largely because aviation history is littered with failed airliners that were merely faster than their competition...

...The airline got off the ground through government favors, and the general climate of federal largesse in which it grew led it to assume, overconfidently and incorrectly, that it could go on forever keeping its profits and letting the government foot its losses...

...Selph slipped Proxmire a cardboard baton and then both men endured some panting chit-chat for the remainder of the run, Inside the baton was the dust jacket of Proxmire’s book You Can Do It, on which Selph had written a number of justifications for aid to Pan Am...

...make a profit...

...Since these airlines are basically state-owned monopolies, with no clear way of calculating their actual operating expenses, they have tended to favor very high “posted” IATA fares...

...This CAB decision, if it finally goes through, is bound to injure Pan Am (which does not serve the new cities), as well as traditional gateway cities like New York, which desperately need the revenues generated by tourists staying over en route to Europe...

...But Watt and the other ALPA leaders realized that mere lobbying 60 would not be enough.’ The airline’s critical problem was cash flow-how to get through the long winter to the summer of 1975, when perhaps tourism would increase...

...Then fuel prices skyrocketed, the recession hit, and amidst predictions of a horrendous $85 million loss, Seawell turned to the government for help...

...Lindbergh is dead...

...Although Pan Am had assets of some $300 million in its various subsidiaries and physical equipment, dipping into cash reserves to pay current operating expenses would, if allowed to continue, eventually erode the airline’s debt/ equity ratio beyond what the bankers considered safe...

...On its face this reduction in wages may not George Hopkins teaches history at Western Illinois Universily and writes often about aviation sound like much, but with a pilot payroll of $100 million annually, it amounts to a hefty $10 million net gain in Pan Am’s critical cash flow squeeze-enough to sustain the airline’s operations for nearly a month during the next year...

...Despite the debacle of American capitalism after 1929 and the onset of Roosevelt’s New Deal, Trippe serenely maneuvered Pan American ahead, conquering Latin America, opening the first trans-Pacific seaplane service in 1935, and pioneering regular North Atlantic crossings by 1939...

...Opera tion Turnaround Before understanding why Pan Am’s pilots entered the scene with their own rescue operation, it is necessary to know something about the airline piloting profession and the Airline Pilots Association (ALPA), the AFLCIO affiliate that represents them...

...If it turns out that Pan Am can’t survive without government help, we should remember the lesson we have been taught by its flight crews: that the corporation consists of people...

...Our passengers and most everybody’s like to ride the 747,” he admitted...

...By carefully controlling route awards, the CAB hoped to apportion business between the airlines so they could remain under private management’s domain...

...Halaby made crucial mistakes, it appears in retrospect, because he had just the qualities Trippe admired...

...Like most junior flight crew officers, Hotchkiss was concerned about his job-and for good reason...

...The consortium has recently stabilized itself, and feels confident enough about Pan Am’s future to permit the airline’s tangible worth to fluctuate below $200 million-nearly $100 million less than it previously considered safe...

...Instead, it opened up Pan Am’s previously protected international preserves to the competition of airlines like Northwest (which added “Orient” to its name), Transcontinental and Western Air (which saved a lot of money on paint jobs by salvaging its initials and becoming Trans World Airlines), and Braniff...

...Pan Am pilots have traditionally been paid even more, largely because ALPA insists that flying over water warrants “hazard pay...

...Whatever airline Pan Am might join, as many as one third of its pilots would probably be furloughed, and since airline pilots adhere to strict rules of seniority, this “economy” would fall hardest on those at the bottom of the seniority scale-like Jim Hotchkiss...

...But merely surviving seems to have brought back much of the old pride, self-confidence, even hauteur, that were once the hallmark of those wearing Pan Am’s corporate livery...

...In a few months he would be dead of cancer...

...He looked like a fullback for the Washington Redskins,” Proxmire said later...

...Significantly, Pan Am’s managers seem to be looking less to the government for handouts, and more to their own resources...

...In 1966 alone, Pan Am’s 140-seat 707s earned it nearly $72 million and brought it an astounding 24-percent increase in passengers over the previous year...

...Pan Am has petitioned the government for a monthly subsidy (and been rejected...

...Lindbergh, then 72 years old and visibly ill, expressed rambling fears about the future of western civilization in general and Pan Am in particular, his grim, emaciated features mirroring his sincerity...

...Just simple justice...

...Either may be undeserving...

...The CAB’s success or failure in creating a workable national air transportation network became a subject of vital concern once intercity rail service began to collapse after World War 11, leaving the airlines as the only practical way to travel...

...Knowledgeable observers predicted that the SST would be a costly fiasco profitability depended on a steady increase in passengers that never materialized...

...The Boeing 747 offered no real advance in technology...

...Every emerging third- w or 1 d airline immediately demands admission to the lucrative North Atlantic run where, by virtue of the fact that most of the travelers are U.S...

...The CAB, on the other hand, through a complicated web of agreements, does indeed enforce the IATA fares on U.S...

...Naturally the non-skeds promptly repainted the jets and sent them into competition with Pan Am, thus exacerbating all its problems...

...But the ICAO is less important than the International Air Transport Association (IATA), which occupies a position roughly analogous to that of tlic CAB with the startling exception that it is the creaturc not of governmcnt, but of thc airline operators thcmsclvcs...

...But the fact is that the airline business has not really been part of the free enterprise system since Calvin Coolidge’s day...

...Many foreign “flag” airlines (the “chosen instruments” of their countries) are remarkably inefficient creatures of national pride operating at huge deficits...

...And since the latest contract easily put senior captains over the $80,000-a-year mark, they could afford to act like good company men...

...Instead of the immediate transfusion of government funds that Seawell expected, he got a team of CAB crisis examiners...

...It began late in the summer of 1974, when Jim Hotchkiss, a young first officer based at Berlin’s Templehoff Airport, began circulating a petition among his fellow Pan Am workers that committed the signers to coming to Washington at their own expense to lobby individual congressmen in support of relief for Pan Am...

...The Senate Commerce Committee warned foreign governments that they would face retaliation unless landing fees were equalized...

...Trippe’s financial backers, including wealthy classmates like Cornelius Vanderbilt Whitney and pillars of the eastern establishment with names like Rockefeller and Harriman, found him a charming and persuasive practitioner of the political arts, and the doors their influence opened to him in Washington were seldom closed afterward...

...His first step was to assess all Pan Am pilots up to $300 apiece, building a $50,000 fund for use in the operation...

...Pan Am’s announcement in May 1974 that it wantcd $10 million a month, a portion of which would have been for “fair profit on investment,” raised howls of protest...

...Despite the staccato pace of modern jet travel, the “stew’s’’ image as sexkit ten-cum-healing-mother-angel survives...

...The problem with this approach is that it penalizes Pan Am, which is one of the few privately owned international airlines and has historically been the most technologically advanced...

...Without Pan Am, they would be unemployed, standing in line for weekly checks like any recessionstruck Detroit auto worker...

...In 1969, after a brief interval under Harold Gray, one of Pan Am’s pioneer pilots turned executive, Najeeb Halaby assumed control of the airlineand it hasn’t made a profit since...

...In his minority dissent to the order ex p an ding North Atlantic service, CAB Chairman John E. Robson declared that it would exacerbate the financial shakiness of both Pan Am and TWA...

...Maybe We Should Help Pan Am by George Hopkins Pan American World Airways, once among the most prestigious of U. S. corporations, its blue chip status symbolized perfectly by the elegant blue disc of the world painted on its Boeings, is today a virtual welfare case...

...Lost Youth and Crisis Examiners It was against this catastrophic background that Pan Am’s Seawell asked for a government subsidy...

...Despite the bite this competition took out of Pan Am’s profits, it remained the world’s most successful airline throughout most of the years since 1945, although as recently as the late 1950s it received occasional subsidy help from the CAB...

...Like a migrant farm worker following the harvest, Pan Am limps from summer to summer, praying for new tourists while fending of...

...Meanwhile Pan Am’s position improved slightly...

...and it has accepted charity from its own employees in the form of remitted wage increases (despite the humiliating welshing on company contractu a1 obligations that such charity implies...

...These “nonskeds,” or charters, fly only after they gct a plane load of passengers, and 58 therefore they can charge prices that would ruin a regularly scheduled airline...

...While the jumbos are no faster than the 707, they are much more efficient on the “seat-mile’’ (cost of flying one seat one mile) basis that airlines use to compute expenses...

...The Boeing 747 and the other jumbos, however, should have been superior on at least two of the three factors, which has usually been sufficient for success...

...Seawell had furloughed hundreds of pilots as part of his 1973 retrenchment, and he was talking merger with a number of airlines...

...The determination of Selph, Hotchkiss, and the other junior pilots impressed their senior colleagues,*who controlled ALPA’s Master Executive Council at Pan Am, Mike Watt, a veteran of 33 years whose cockpit experience extends from Sikorsky seaplanes to modern jets, was then head of the Pan Am ALPA group, and he decided the union had to get formally involved in Operation Turnaround...

...Because government favor can be fickle, such coinmercial relationships are seldom comfortable-the power to sustain is also the power to destroy...

...Ar c h- con se rva t iv es 1 i ke John Tower and Barry Goldwater led the fight to rescue Lockheed through a bailout that was, in essence, exactly the kind of WPA “leaf-raking” project they used to denounce when it served the unemployed working stiff...

...Meanwhile the government bestirred itself to aid Pan Am in a number of ways short of outright subsidy...

...After the first great rush of enthusiasm for commercial aviation foundered on the inadequate technology of the 1920s, canny operators like Trippe realized that only through the hidden subsidy of airmail payments would there be any profit in flying...

...But despite a reputation as nononsense collective bargainers, airline pilots have also, historically, been more in tune with management attitudes than most unionized workers...

...But Pan Am has generally fared well since its maiden flight on October 19, 1927, which ferried 30,000 letters from Key West to Havana in a singleengine Fairchild seaplane...

...As a *Which saw supposedly hard-headed businessmen and investors respond to the visionary lure of commercial aviation and the magic of Lindbergh’s flight by investing some $550 million in aviation ventures, most of them shaky to begin with and virtually all of them wiped out after 1929 hard-driving administrator of the Federal Aviation Agency Iialaby became, during the Kennedy Administration, the most outspoken advocate of technical innovation in aviation and a vociferous supporter of an American supersonic transport to compete with the Anglo-French Concorde...

...It has no domestic routes that lie within the CAB’s route-gran ting and fare-se tting authority...

...Pan Am had learned the truth of the old adage that when you get far enough into a bank, you have a partner...

...In keeping with his long-standing policy of technical leadership, Trippe had committed Pan Am to being the first airline to purchase the 747...

...It is in thc best position to offer high-quality service at the lowest price...

...When everybody has just about given up on you but you keep coming back to answer the bell again and again, it has to have a positive effect...

...This form of indirect CAB subsidy works to the airlines’ advantage inside the U.S., but internationally it has worked to Pan Am’s disadvantage...

...A bigger airplane with more seats was a vital necessity if Pan Am were to maintain its leadership and accommodate the boom in overseas tourism that experts predicted for the 1970s...

...But the 747’s cost-efficiency depends on large passenger loads...

...The ultimate crisis seemed at hand by early fall...

...For its part, management pursued the Shah’s oil money with considerable flair until the negotiations collapsed in mid-1975...

...Both should be required to do their best to help themselves, But, finally, we should think a long time before we decline the last chance to throb out a life preserver to either...

...But the liberals have been wrong in automatically aiding the welfare case and automatically denying help to the corporation...

...Upon examination, the Pan Am pilots’ decision to renegotiate their salaries downward is not so surprising...

...The Old Hauteur So despite the general gloom that has permeated knowledgeable speculation about Pan Am’s future for so long, the airline has continued to muddle along, limping through each winter traffic valley, earning just enough during the short summer tourist season to stave off bankruptcy...

...Spreading the Wealth Despite the uproar over Pan Am’s subsidy request, it has been national policy for over a generation to subsidize air operations over commercially weak routes...

...Quantas, the Australian national airline, pays only $178 to land at Los Angeles International, but the Aussies charge Pan Am $4200 for each landing at Sydney...

...Although it is still dependent on regulatory favors from the CAB, its executives aren’t counting on direct cash subsidies any more...

...It has been a bitter and friistrating time for them...

...Pan Am was no defense contractor, but it had the misfortune to come along, hat in hand, asking for a traditional subsidy that was, in fact, virtually promised it by law, at just the time when the bitter taste in liberal mouths was strongest...

...the bankers had to either keep extending credit or force the line into bankruptcy...

...Indeed, in 1973, Texas I n t er n a t i o n a 1 Air1 in e s re c eived $560,000 from the government to subsidize flights to remote cities like Harlingen, McAllen, and Brownsville...

...The economic slump destroyed far in advance the faint hope of a summer traffic upturn, long before Seawell and his associates were able to confirm that in July (traditionally the most profitable month for Pan Am), the airline had earned a piddling $1.8 million...

...For example, the ICAO recently granted “observer” status to Yassir Arafat’s PLO-a great irony in view of the PLO’s penchant for skyjacking...

...Even more important, the unionized pilots’ attempt to rescue their employer may indicate a significant change in today’s climate of automatic distrust of corporations, How did Pan Am get in such a jam...

...Alas for Halaby and Pan Am, the proper interpretation of this lesson of history turned out to be very tricky...

...Owing to the ruthless costcutting of William T. Seawell, a hardnosed former Air Force General who replaced Halaby, Pan Am’s losses shrank to only $12 million in 1973, and a profit seemed possible for 1974...

...Meanwhile Pan Am, which had ordered plenty, roared into the mid-1960s on an unprecedented wave of prosperity...

...The pilots’ daring maneuver seems to have spurred both management and government on to renewed effort...

...But evcn worse, it soon became apparent that Pan Am would get no help from Uncle Sam...

...This combination of government, management, and labor initiatives seems to have had a favorable impact on Pan Am’s creditors...

...With a near-depression brewing, the government’s reluctance to bail out Pan Am was understandable, but it came as a shock to the airline’s managers...

...There is nothing-wrong with the airplane, as Robert Oppenlader, senior vice-president of Delta Airlines (a highly respected marketer) said recently when announcing that Delta was getting rid of its 747s...

...In other words, Pan Am must compete with other U. S. airlines internationally, but it is forbidden to compete with them inside the comfortably regulated U. S. Pan Am survived the dangers inherent in this exposed position for a long time, largely because of two international organizations that duplicate, albeit imperfectly, the regulatory functions of the CAB...

...But it was not the ill-fated SST that caused Halaby’s trouble so much as his collateral enthusiasm for the first of the wide-bodied jumbo jets...

...Airlines that had been slow to order enough new 707s found themselves waiting years for manufacturers to complete their backlogs...

...It just so happens that it’s too big...

...airlines by specifying those fares as its own...

...In addition, the junior pilots brought with them dozens of stewardesses...

...Almost from the time in 1927 when an ambitious, well-connected young Princetonian named Juan D. Trippe created the airline in order to take advantage of a new law perniitting subsidized airmail service to Latin America, Pan Am has been something of a government agency...