Billion-Dollar Week for Jetliners

Pan Am picks a U.S. model, while Eastern goes European

Time has not been kind to U.S. airlines. Poor financial health has robbed some of the biggest carriers of vitality in recent years, limiting their ability to replace aging, noisy, fuel-inefficient aircraft, some of them two decades old. But now passenger traffic is up, some lines are reporting profits or lower losses, and not much time is left to start replacing obsolescent airplanes--so the big carriers have begun moving on aircraft purchases that could total $80 billion by the end of the 1980s. Last week two lines signed deals for $1.3 billion, the first sizable jet buys since the airlines' fat years of the 1960s. Pan American World Airways ordered $500 million worth of wide-bodied L-1011-500 TriStars from California's Lockheed Corp. Eastern Airlines handed the Europeans an important victory over U.S. planemakers by closing a $778 million package deal to buy 19 A300-B4 minijumbos from Airbus Industrie, a French-German-Spanish consortium. That will be the biggest U.S. purchase of European aircraft ever.

The orders brought delight to beautiful downtown Burbank, Lockheed's headquarters, and to Airbus Industrie's offices in cities across Europe. At Lockheed, which almost went bankrupt a few years ago, partly because of long production delays and lagging sales of the TriStar, happy executives called the Pan Am order for a dozen planes, plus an option for 14 more in the mid-1980s, the "order of the century." Johnson's Bakery, near Lockheed's offices, whipped up a cake with an icing decoration of a high-flying TriStar. Nora Winant, secretary to Richard Taylor, Lockheed's chief negotiator in the sale, hung Pan Am travel posters and blue-and-white streamers in a paneled executive conference room, which became the site for a party.

In Europe, the response was more restrained, even though Airbus Industrie had pushed so hard for the sale to Eastern that it lent the airline four A300s to test on some of its U.S. runs. Sniffed Jochen Eichen of Deutsche Airbus G.M.B.H., the German wedge of the Airbus Industrie polyglot: "The sale to Eastern does not mean life or death for the Airbus. All it means is that the operation may become profitable more quickly."

In Great Britain, though, there was shop-floor cheering at the factories of Rolls-Royce, whose advanced RB.211 engines will power Pan Am's TriStars. To Rolls, Pan Am's initial order means $218.5 million in sales and an even richer psychological reward. Start-up costs for the RB.211 pushed the famous automaker into bankruptcy and its jet-engine operation into nationalization in 1971. Sir Kenneth Keith, 61, chairman of Rolls-Royce Ltd., believes that the future of the RB.211 program has been enhanced by the Pan Am deal. Said he: "It has been a cliffhanger. Six months ago, I would not have given even money on it. But now it's in the bag--absolutely."

The competition was indeed intense as the Europeans and U.S. companies wooed the big airlines. One morning in Miami, a group of Airbus salesmen arrived at Eastern Chairman Frank Borman's office just in time to meet a gaggle of Lockheed salesmen coming out. One Airbus salesman had to cross the Atlantic four times in one week. Ultimately, said Pan Am Chairman William T. Seawell, the "objective was to select the best economic fit for Pan Am's route systems and operations."

Ultimately, too, the prizes went to the planemakers who offered the most tempting financial terms. In part, Pan American will pay for its TriStars with loans backed by Britain's Export Credits Guarantee Department, an agency similar to the U.S. Export-Import Bank. That twist was made possible by Rolls-Royce's role as engine supplier. Pan Am will get loans from Citibank and other U.S. and European backers. Eastern's Borman put together a financing package consisting partly of $250 million in loans arranged by Airbus Industrie from European banks and guaranteed by several European government agencies. Airbus also will lend Eastern about $96 million.

Though the planes are expensive (about $40 million each for the TriStar, more than $25 million each for the Airbus), Eastern and Pan Am see them as tools for profit. The 240-passenger :A300, though slightly larger than what Eastern needs for most of its mediumrange, high-density routes, is regarded by Borman as a vehicle that will help wipe out the line's debt of nearly $1 billion. Main reason: fuel economy. In test runs, the A300 has cut fuel bills by as much as 30%. Pan Am, after extensive tests, figured that the L-1011 was 8% to 10% more economical on its long hauls than its nearest competitor, McDonnell Douglas' DC-10, and 14% cheaper to run than Boeing's 747.

Boeing, the world's leading supplier of airliners, and McDonnell Douglas were upstaged by last week's deals. It seems that both companies have not moved fast enough to capture the new markets: Boeing has announced new, more economical jets that will not be available until the 1980s. U.S. executives also grumble that "France Inc."--meaning the Airbus consortium--is unfairly using vast government subsidies to compete against the long-dominant American aircraft industry. But neither Boeing nor McDonnell Douglas seems worried. United, TWA and American have still to be heard from--and, with a large part of the U.S. air fleet to be replaced, there should be more than enough business for everyone.

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