Can Pan American Survive

Can Pan American Survive?

The old advertising jingle proclaims that "Pan Am makes the going great," but recently things have been going anything but great for Pan American World Airways. Indeed the airline seems to have been hit by nearly every conceivable disaster, from a seemingly unstoppable flow of red ink to a string of air crashes. Financially, the biggest calamity has been the soaring price of jet fuel brought on by the Arab oil offensive. Prices rose so high during the last quarter of 1973 that what had been expected to be Pan Am's first profitable year since 1969 turned into another big loser. Prospects for 1974 are so grim that Pan Am and Trans World Airlines, the other major U.S. international airline, have taken the unusual step of appealing to the Civil Aeronautics Board for permission to pool some overseas services and to the Congress for subsidies that could total $360 million for the two airlines in 1974. If the Government assistance does not materialize, the question will become: Can Pan Am survive?

The airline's troubles do not originate in the corporate cockpit. Analysts credit Pan Am Chairman William T. Seawell, 56, with superbly piloting the airline through a difficult cost-cutting program initiated by his flamboyant predecessor, Najeeb Halaby, who was ousted in 1972. Under Seawell, Pan Am has trimmed several thousand employees from its work force, slashing it to the level of the mid-1960s, when the volume of passengers and freight was much lower. Among those who were forced to bail out were a flock of highly paid vice presidents. Says Analyst Mike Steinberg of Loeb, Rhoades & Co.: "For the first time you have a management structure that knows where they are going."

Under normal circumstances the ruthless paring would have flown Pan Am back into the black. Indeed, until the fourth quarter of 1973, the company was headed for a modest profit. But the promising climb turned into another tailspin when fuel prices began to rise, and Pan Am wound up 1973 with an $18.4 million loss. In the last three months of 1973, fuel leaped 8.8-c- per gal, to 23.3-c-, adding $31.4 million to Pan Am's bills. This year the company predicts that fuel will average more than 35-c- per gal., lifting the company's expenditures by $204 million. Without some help from the Government, Seawell predicts, Pan Am could lose another $85 million this year--its biggest loss ever. Last week Seawell had Pan Am lawyers hand-carry to officials of the Federal Energy Administration a request that they order four big U.S. oil companies to sell fuel to Pan Am at promised prices, rather than holding out for more money.

Equal Footing. Seawell contends that the only long-run way out of the bind is a combination of subsidies to cover increased fuel costs and a major restructuring of the U.S. international air system. Both are needed, he maintains, to put Pan Am and T.W.A. on an equal footing with foreign competitors, most of which are nationally owned and totally subsidized. Foreign competitors also benefit from discriminatory landing fees and route restrictions that deny U.S. airlines access to profitable routes.

Pan Am and T.W.A. have been granted permission by the CAB to begin "operation talks" that could produce a merger of some services. For example, Pan Am might take over the New York-Frankfurt route, while T.W.A. assumed exclusive service on the New York-Paris run. That would help solve both lines' problems of too many empty seats, but not before this fall. Both have fully committed their available transatlantic capacity through the summer months. Pan Am also hopes that the CAB will quickly approve its application to begin its first-ever totally domestic flights between Los Angeles and New York, which might bring in a badly needed $18 million a year in additional revenues.

The Nixon Administration has responded sympathetically to Pan Am's plight. "We are giving this a high priority," says Transportation Secretary Claude S. Brinegar. The CAB is expected to grant a 5% to 10% increase in transatlantic fares by summer's end, but whether Pan Am will get the $194 million in fuel subsidies it seeks is less certain. Brinegar believes that such payments "would come only as a last resort." In an election year Congress may be extremely reluctant to dole out tax dollars to the airlines.

Other uncertainties linger about the air crashes that have marred Pan Am's previously excellent safety record. During the past ten months, four Pan Am 707s have crashed, killing a total of 290 passengers and crew members. After a Pan Am jetliner rammed into a mountaintop in Bali, killing 107 last month, the Federal Aviation Administration ordered a worldwide probe of Pan Am operations; that study will be completed next month. Meanwhile, an in-house study by Pan Am has found no fault with the company's procedures or operations, but has identified the lack of functioning radar in many foreign control towers as a possible factor in the accidents. Last week Pan Am ordered for all 140 of its planes a new cockpit-warning system that will flash a red "terrain" light, emit an ambulance-like warbling siren noise, and sound a recorded voice shrieking "Pull up!" whenever a plane is flying dangerously low in approaching a mountain peak or a runway.

Unfortunately, there is no device that can tell Pan Am how to pull up from its financial predicament. If the Government aid that the airline is seeking does not materialize, Seawell believes that Pan Am will have no choice but to merge with a domestic airline. To the question "Can Pan Am survive?" then, the answer is: probably it can, but as a merged or subsidized carrier rather than in its present form.

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