Desperately Seeking Survival

By Barbara Rudolph

When Pan Am launched its Eastern-corridor shuttle service five months ago at New York City's La Guardia Airport, the renovated Marine Air Terminal was festooned with balloons and filled with champagne-sipping customers and curious onlookers. Lately, though, Pan Am's handsome art deco terminal has been far too quiet and not at all festive. Although the carrier poured $4 million into an aggressive advertising campaign aimed at challenging rival Eastern Airlines, which has dominated flights on the Washington-New York- Boston axis for 25 years, Pan Am has been struggling to get its shuttle service off the ground.

Only about 30% of passengers are choosing the upstart over old, reliable Eastern, now owned by Texas Air. Because the Pan Am shuttle fills less than 75% of the seats it needs to post a profit, it has lost $15 million since it started flying. The red ink may not flow indefinitely, though. Pan Am is considering putting the ailing shuttle up for sale. "It's not a bluff," says Chairman Edward Acker. In a letter to employees he wrote, "Our direction is clear. Make ((the shuttle)) profitable or get rid of it."

The shuttle is only one of Pan Am's troubles. This week the company is expected to report 1986 losses of about $450 million. That would mean that Pan Am has lost $1.2 billion in the past six years. Customers have been steadily deserting the airline; it now claims 6% of the U.S. airline market, down from 12% in 1980. Meanwhile it is embroiled in a bitter dispute with its labor unions.

Pan Am has been throwing weight overboard in a desperate effort to stay aloft. Between 1980 and 1984 it sold its Manhattan headquarters, its Intercontinental Hotels chain and its food-services division for a total of more than $900 million. In 1985 Pan Am gave up its Pacific routes to United for $750 million. Says one industry analyst: "It's sad to watch what is happening. The company is slowly going out of business."

) Management and labor are deeply divided over how to avoid this fate. Labor leaders oppose selling the shuttle, since they are convinced that it will eventually prove profitable. Says Margaret Brennan, head of the Joint Labor Council, a coalition of Pan Am's five labor unions: "The sale would harm all of us. We don't want this company sold off piecemeal."

Some gains could come from cutting labor costs, which remain about 20% higher than those of a nonunion carrier like Continental. Last month four of Pan Am's five unions proposed wage concessions and work-rule changes that could save the airline $600 million over three years. In exchange, the employees sought to boost their ownership of the company's stock from 7% of all outstanding shares to about 37%. Finally, they demanded a majority of seats on the firm's board of directors. Pan Am rejected the plan, calling it tantamount to a hostile takeover bid.

In response, labor leaders are looking for companies that might want to acquire Pan Am. Delta is a possible bidder. American Airlines, frequently mentioned as a potential suitor, last week said it was not interested in buying the airline.

If a takeover happens, it could be at a painfully low price. While Pan Am's stock is now worth some $700 million, analysts caution that the whole carrier might fetch only about $450 million on the auction block. That is reason enough for Pan Am to find every possible way to turn a profit on its own.

With reporting by Thomas McCarroll/New York