Pan American World Airways, Inc.

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Pan American World Airways, Inc.

Pan Am Building
New York, New York 10017
U.S.A.
(212) 880-1234

Wholly-owned subsidiary of Pan Am Corporation
Incorporated: March 14,1927
Employees: 27,700
Sales: $3.038 billion
Market value: $592 million
Stock Index: New York

Pan Am is one of America’s largest airline companies and has had an important role in aviation history. Until the 1950’s it was America’s most widely recognized airline; it was the closest thing the United States had to a national flag carrier. Pioneering regular flights to Europe, Asia and South America, the company took on an ambassadorial character. Recently, however, “the world’s most experienced airline” has been forced to reduce the scale of its operations. At the present time the company transports passengers, freight and mail to 32 destinations in the U.S. and its territories, in addition to 51 cities in Europe, the Carribean and South America.

The architect of Pan Am’s prominence, and ironically of its later decline, was a man named Juan Terry Trippe. Upon graduation from Yale in 1920 Trippe worked for a year in his father’s bank. However, soon thereafter he left the bank in order to pursue a career in the airline business. Without any warning his father suddenly died and with his inheritance he purchased nine Navy “Jennys” for his Long Island Airways. Unable to generate enough business the company failed.

Trippe and two wealthy friends from Yale then organized a second airline after the passage of the Kelly Air Mail Act. Their company, Colonial Air Transport, won the first airmail contract establishing a route between New York and Boston. They purchased two three-engine Fokker airplanes the following year which enabled them to transport passengers as well as mail. A dispute among stockholders that year resulted in the sale of the company to what later became known as American Airlines. Trippe and his partners were excluded from both the decision and their airline.

Shortly afterwards Trippe’s group purchased Aviation Corporation of the Americas with the intention of bidding on the Key West-Havana mail route. In 1928 the company merged with Pan American Airways and Atlantic, Gulf and Caribbean Airways. The new company retained the Pan American name and flew the Havana route which was the first scheduled international commercial destination.

Pan Am had difficulty reserving the eight seats on each flight because people were afraid of flying over the 90 miles of water. Pilots were known to enter Cuban bars and dare American tourists to fly back to Florida. In Miami the company tried a different advertising campaign: “Fly with us to Havana, and you can bathe in Bacardi rum four hours from now.” Pan Am lost one of its three Fokker airplanes in the ocean in 1928. In spite of this, however, air travel grew in popularity. The introduction of direction-finding radio, amphibious aircraft and other safety measures convinced the public to accept the advantages of air travel.

Trippe was now planning Pan Am’s expansion in the Caribbean. Due to a lack of airports in the region he supported the development of the water-landing Sikorsky S-38 “flying boat.” Pan Am purchased 25 of the five-ton airplanes, which could travel 100 miles an hour and had a range of 300 miles. In anticipation of the U.S. Postal Service opening several new routes Trippe had his flying boats make survey flights beyond Cuba over routes that, at his insistence, were to be selected for airmail contracts. He also dispatched advance men to secure landing rights, mail contracts and other concessions so that when the post office finally invited airmail bids Pan Am would be the preferred choice. In this way the company secured routes to Puerto Rico, Panama, and other points throughout the Caribbean.

In 1930 Postmaster General Walter Brown forced Pan Am’s biggest airmail contract competitor, the New York, Rio and Buenos Aires airlines, to merge with Pan Am. Trippe’s airline doubled its fleet and was awarded the extremely lucrative South American East Coast airmail contract. These routes served as a springboard for future business. Pan Am emerged as the world’s largest airline and the “chosen instrument” for flying the U.S. flag abroad.

By employing the flying boats Pan Am consolidated its coverage of the Caribbean and turned its attention to traversing the oceans. The airline used the newly developed China Clipper (a Martin M-130), with a range of 2500 miles, to transport passengers and mail from California to the Orient. Overcoming huge obstacles of diplomacy, financing and engineering, Pan Am established service to Europe in June of 1939 using the larger and faster “Dixie Clipper” aircraft.

Pan Am’s aeronautical pioneering was quite costly. Trippe was said to have been obsessed with the idea of “having a plane in every airport in the world.” This left little money for dividends and, as a result, the stockholders voted to replace him with his old friend and associate “Sonny” Whitney in March of 1939. Whitney, however, was an ineffective manager and unable to maintain control of the company. Less than a year later Trippe was asked to return.

During the early 1940’s Pan Am, the only established American international airline at the time, played a major role in the war effort when it placed itself at the disposal of the U.S. government. In November of 1940 Pan Am signed a contract with the War Department providing for the construction of airbases and remote supply, radio and weather stations. In October of 1942 the airline established a war transport service from the United States across the South Atlantic to West Africa and from there to points in the Middle East. Pan Am was rewarded handsomely for having devoted up to three-quarters of its resources to the armed forces during the war years. When the war ended the company’s hegemony over international air routes was at its peak.

Trippe thought the interests of the United States would be served best by the creation of one official airline to compete with foreign carriers. On Capitol Hill he proposed that Pan Am be made a regulated monopoly, not unlike utility companies. Congress rejected his proposal and opened the door for the competition Pan Am had never previously experienced. With an eroding market share Pan Am looked to the future, hoping that the development of Boeing’s first jetliner, the 707, would help regain what it had recently lost. The delivery of the first 15 of these airplanes precipitated the jet age and forced Pan Am’s competitors to follow suit.

In the early 1950’s Pan Am acquired American Overseas Airlines. Trippe also diversified Pan Am’s operations and selected related businesses such as hotels, corporate jet aircraft, and National Aeronautics and Space Administration (NASA) support services, all of which were profitable (particularly a New York real estate deal involving the building and leasing of the Pan Am building which was dedicated in 1963).

In the late 1960’s Juan Trippe announced his plans to retire. The airline had suffered some recent setbacks, and Trippe’s failure to plan for his successor aggravated, if not precipitated, a series of new problems. When Najeeb Halaby, former head of the Federal Aviation Administration and Trippe’s hand-picked successor, assumed the founder’s post in 1969 he found himself presiding over an airline on the verge of bankruptcy. Halaby inherited an 81,430 mile route system which was the result of Trippe’s quest to have a plane in every airport in the world. The system could not be maintained without the award of a government subsidy or a compensatory monopoly, neither of which were likely to be granted. The company became so overextended that Halaby referred to it as “an airline without a country.” All of these problems added up to losses of $364 million from 1969 through 1976 with debt estimated in excess of one billion dollars.

In 1977 Pan Am, helped by tax-loss credits, made a profit for the first time since 1968. The man responsible for this was William Seawell, who was brought in to replace Halaby in 1972. Unable to obtain subsidy relief from either the Civil Aeronautics Board or the White House in 1974 and 1975, or possible funding from the Shah of Iran, Seawell instituted austerity measures in 1976 and renegotiated the company’s debt. Abandoning Trippe’s grand strategy, he reduced the system 25% by severing money losing services. He reduced personnel by approximately 30% and approved an offer by employees to accept a wage cut. By these measures complete financial ruin was averted.

Late in 1979 Pan Am received approval for the acquisition of National Airlines. Now in possession of a strong domestic network, Pan Am’s plans to build a profitable division were mitigated by the Airline Deregulation Act. Pan Am was confronted with strong competition from new domestic and foreign carriers. The company was once again on the brink of financial ruin. Only by selling a large portion of its assets, including the Pan Am building headquarters, was it able to avoid bankruptcy.

Edward Acker became chairman in September of 1981. A cautious but optimistic manager, he continued the divestiture of Pan Am’s resources. In 1985 the company sold its Asian routes to United Airlines for $715.5 million. The fast growing Pacific market was one of the few profitable areas Pan Am could rely on. However, the company had a liquidity problem and needed an infusion of cash immediately. In the aftermath of the deal there was speculation that United and Pan Am were coordinating their operations, with Pan Am serving the Atlantic routes and United serving the Pacific routes.

On September 14, 1984 Pan American Airways created a holding company called Pan Am Corporation. The parent company assumed ownership and control of the airline and the services division.

Pan Am’s present fleet of about one hundred jetliners consists of B-727s, 737s and 747s, as well as L-1011s, Airbus A-300s, and one DC-10. Its route system in the American East is perhaps Pan Am’s last area of competitive viability. Eastern Airlines, which operates a lucrative shuttle service between Boston, New York and Washington, D.C., sold several of its gates in those cities to Pan Am. The FAA ordered the sale to prevent Texas Air (Eastern’s parent company) from establishing a monopoly on the northeast corridor shuttle service. In October of 1986 Pan Am began its own shuttle service in competition with Eastern.

The new shuttle services will provide Pan Am with a reliable cash flow. However, it is only with good management and cooperation of the kind demonstrated in the agreement with United that Pan Am will have a chance to fully recover and re-establish its historic pre-eminence in the airline industry.