End to a Family Feud

For more than two decades, Pan American World Airways and W. R. Grace & Co. have brawled through the courts and before the Civil Aeronautics Board over the upbringing of their jointly owned offspring. Pan American-Grace Airways. Reason: Pan Am's stubborn determination to prevent Panagra, which is based in the Canal Zone, from acquiring a direct air route into the U.S.

Last week the acrimonious family quarrel came to an end. In Manhattan's Federal District Court, Pan Am was found guilty of violating the antitrust laws by its restraint of Panagra. Recommending that Pan Am divest itself of its 50% holdings in Panagra. Federal Judge Thomas F. Murphy said: "It is beyond dispute that Pan American blocked Panagra's independent entry into the U.S.-South American market in order that it may continue to share in substantially all traffic carried by Panagra."

The bitter feud between Pan Am and Grace began as a marriage of convenience in 1929. To avoid potentially harmful competition, Juan Trippe's struggling young airline and the giant shipping company organized Panagra as part of a plan to carve up Latin America into regional spheres, of commerce. Panagra's flights were confined to the west coast of South America, where the Grace shipping interests were strongly entrenched; the rest of the continent was dealt to Pan Am. Traffic from the U.S. to western South America was fed to Panagra by Pan Am carriers from Pan Am's Miami terminal. With Pan Am and Grace each holding 50% control of Panagra and half of its directorships, any possible double dealings could be prevented.

End of Honeymoon. The honeymoon lasted for nine years as Pan Am and Panagra flourished. But in 1938, the Grace interests tried to extend Panagra's routes to the U.S. The Pan Am-controlled directors on Panagra's board blocked the move on the ground that Panagra was part of the Pan Am system and that extension would make it a competitive carrier. Determined to keep Panagra a dead-end airline, Pan Am two years later ordered its directors to boycott Panagra board meetings at which extension was scheduled to be discussed.

Only a brief interlude of truce interrupted the battling. In 1946, CAB certified Braniff International Airways to fly into South America. Faced with the threat of this new competitor, Pan Am and Panagra joined forces to squeeze Braniff out. Pan Am refused to let Braniff use its airport facilities or communications systems; Panagra warned its personnel not to fraternize with Braniff employees, even bribed a junior official for copies of Braniff's passenger manifests.

The New Merger? When Braniff's competition proved to be small, the truce ended. Grace once again tried to break Pan Am's strangle hold on Panagra's operations. Charging Pan Am "with every conceivable obstructionist tactic," Grace in 1951 petitioned CAB for a Miami tie-up between Panagra and National Airlines. In a bristling counterattack, Pan Am accused Grace of seeking the tie-up only because of its holdings of 174,000 shares of National stock.

Wearied by the constant warfare between the combatants, the Government filed an antitrust suit in 1954 against all three for conspiring to monopolize air traffic between the U.S. and South America. Real purpose of the Government's action was to separate Panagra from Pan Am to facilitate a merger with Braniff. In his 70-page opinion, Judge Murphy dismissed the charges against Grace and Panagra, thus cleared the runway for a possible Braniff-Panagra merger.

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