Pan Iran

Once proud Pan American World Airways has been steadily losing money since 1969, the victim of overstaffing, overcompetition and overbuying of costly jumbo jets. But nothing has threatened the airline's survival more than the quintupling of oil prices. Pan Am's fuel bill last year soared by $194 million and was the prime factor behind its $81.8 million deficit, the alltime highest for a U.S. airline. There is a certain irony, therefore, in the fact that desperately needed succor will come from a major instigator of high oil prices. Last week the White House endorsed a deal by which the government of Iran will prop up Pan Am with some $300 million.

The investment will be the largest ever made in a U.S. company by an OPEC country. If the Civil Aeronautics Board approves--which it is expected to do within two months--Iran will pay about $55 million for a half interest in Pan Am's profitable chain of 66 Inter-Continental hotels and will provide Pan Am with about $245 million in direct loans. In addition, Iran will appoint one member to Pan Am's 17-member board and will get an option to buy 13% of the airline's outstanding stock.

Only the stock purchase is likely to be controversial: although federal law permits foreign investors to own up to 25% of a U.S. airline, the CAB must determine whether ownership of 10% or more is in the public interest. Pan Am's current management will have to prove to the CAB that it will still make the decisions, even if Iran becomes by far the largest single stockholder. "It was very clear from the beginning that Iran did not want control of Pan Am," says George Ball, the senior managing director of Lehman Brothers and former U.S. Under Secretary of State, who represented the airline during the negotiations. "They don't have the desire or the expertise to run it."

Massive Aid. Shah Mohammed Reza Pahlavi, Iran's 55-year-old ruler, has a clear idea of the role that Pan Am will play in his country's development. Since 1964, Pan Am has been providing training and technical assistance to the Iranian national carrier, Iran Air. Now, with the use of Pan Am's terminals and expertise in maintenance and promotion, the Shah intends to turn Iran Air into a major international airline, carrying tourists and businessmen from all over the world to Tehran, where $5 billion in new construction and renovation is under way. The first steps of the expansion have already been taken. Iran

Air's chief, Lieut. General Ali Khademi, recently ordered three Boeing 747 jumbos and plans to acquire three Concorde supersonics for the airline. Iran Air's first regular New York-to-Tehran service will begin May 15.

Pan Am stands to benefit from an arrangement that may enable it to use Iran Air's supersonic planes on its round-the-world routes and will give it a chance to squeeze more performance out of its underutilized computer by taking over Iran Air's reservations business. The massive aid from Iran is sure to please Pan Am's major creditors, a group of insurance companies to which it owes about $389 million.

Even so, Federal Reserve Board Chairman Arthur Burns has criticized the deal. He believes that for a Middle Eastern country to rescue the U.S. flagship line is a grave blow to America's political prestige. Last week Burns told New York Times Columnist Leonard Silk that the U.S. Government should have persuaded six or so oil companies to put up $50 million each to bail out the airline. Pan Am Chairman William Seawell failed in earlier attempts to get help from the U.S. Government; his plea last September for a $10.1 million monthly subsidy fell on deaf ears.

Seawell is continuing his cost-cutting restructuring of Pan Am. The recently approved route swap with TWA, which eliminates costly head-to-head competition on international runs, is now being put into effect. Seawell is also discussing the possibility of a merger with Eastern Airlines, American Airlines or TWA (which is having its own problems: 1974 losses totaled $23.6 million). At week's end Pan Am asked the CAB for authority to suspend much of its service in the Caribbean, where in the mid-1930s its globe-girdling expansion first took wing.

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