Pan Am's Concorde Retreat

SINCE the cloth-and-piano-wire beginnings of commercial air travel, the men who run the industry have put their faith--and their money--into the forward advances of technology. Nowhere has that faith been stronger than at Pan American World Airways, which was first in the air with multi-engine planes in 1927, four-engine flying boats in 1931, Boeing 707 jets in 1958 and jumbo jets in 1970. For years, British and French aircraft builders have been counting on Pan Am to lead other airlines in a competitive scramble for the newest advance, the supersonic Concorde, which cruises at 1,350 m.p.h. But like many other people, some airline men have begun to wonder whether technology has advanced too fast, become too expensive and reached diminishing returns. So instead of leading other airlines to supersonic flight, Pan Am last week inspired a retreat.

Nearly a decade after Founder Juan Trippe took options on seven of the stiletto-nosed Concordes, Pan Am gave word that it was canceling out. Minutes later, Trans World Airlines released a statement that management would recommend that the directors let TWA's six options expire. Next day in West Germany, a spokesman said that Lufthansa has no intention of picking up its three Concorde options unless the plane is drastically redesigned. It is likely that Continental Airlines will also let its three places in the Concorde production line lapse next month, as will American with its six reservations, leaving Eastern and Braniff as the only potential takers in the U.S. Said Sir George Edwards, chairman of British Aircraft Corp., which along with France's Aerospatiale is building the Concorde: "We should not describe this as a fatal blow, but it's a hell of a setback."

Together, the British and the French have spent some $ 1.8 billion developing the Concorde, all of it in public funds. While environmental groups were helping defeat the U.S. supersonic transport in 1971, the Concorde was thoroughly redesigned to minimize noise and air pollution. Still, last week's rejection was not a surprise. Since mid-January, British and French technicians led by Sir George had been lobbying mightily with Pan Am executives in New York. Pan Am has lost $150 million since 1968, but last year, in William Sea-well's first full year as president, losses were cut from $46 million to $29 million. Pan Am executives, understandably money-conscious, have serious doubts about the Concorde's profitability. They calculated that the plane gulps two to three times as much fuel per passenger as the 747 jumbo, and that fuel prices would soar as world energy supplies dwindled. Concorde operating costs would be so exorbitant that Pan Am might have to charge a premium of as much as 20% over first-class fares, which are now $888 for a round trip between New York and Paris in the high season. The trip would take four hours, v. seven in a Boeing 747, but Pan Am planners feared that the time savings might not be worth the extra money to anyone but a few flush playboys and expense-account executives.

Further. Seawell only last month renegotiated a $270 million credit arrangement with Pan Am's finicky bankers and did not want to ask for fresh financing to buy the Concorde. For each 108-to 128-passenger plane with spares. Sir George's negotiators have been quoting a price of $46 million, as opposed to $25 million for a 747, which carries 375 passengers. Pan Am executives believe that by 1975, when they would have taken delivery, Concorde's price will rise to as much as $60 million. The original target in 1963 was about $20 million, which climbed beyond the builders' wildest nightmares because of inflation and man's unfailing ability to underestimate the costs of advanced technology.

British Aircraft and Aerospatiale need at least 150 sales to break even. Last week's dropouts leave them with options of various degrees of firmness from twelve airlines for 38 Concordes. In addition, China and Iran have commitments--more definite than options, but not quite firm orders--to buy three and two planes respectively. Japan Air Lines, which has three options, will not need them now to compete supersonically against Pan Am and TWA across the Pacific; if no other airline introduces the plane on the polar route between Europe and Asia, JAL may cancel. Australia's Qantas has a long Sydney-Singapore-London route that is well-suited to supersonic flight; it has options for four Concordes, but Qantas executives are worried that the plane could not make the 3,939-mile first leg to Singapore fully loaded. Sir George's engineers insist that the plane has a range of 4,000 miles.

Pressure. Even if other lines cancel their options, Britain and France have so much pride and anguish tied up in the Concorde that production is expected to be continued, most likely at a slower rate and perhaps with fewer than the present 45,000 workers. Work may be consolidated at one location; now engines and airframes are made at both Bristol and Toulouse. The only firm orders for the Concorde are from Britain's BOAC, which has five, and Air France, which has four. Both are owned by their governments, which may well pressure them to take more planes. British and French government officials may even be angry enough to push a harder line against the U.S. at trade and tariff negotiations between American and European representatives, scheduled to begin this fall. To the Europeans, U.S. refusal to buy the Concorde will mean the loss of hundreds of millions of dollars in export trade.

If BOAC and Air France prove that the Concorde can be profitable, airlins that drop their options can always take later places in the production line. Another possibility is that lines can buy the Soviet TU-144, which closely resembles the Concorde and is scheduled to enter service between Moscow and Tokyo by 1975. The Soviets, eager for hard Western currency, have been offering astonishingly low prices and generous credit terms to potential buyers of their other planes like the YAK-40 tri-jet. Money that might have gone for Concordes may well go for more subsonic jumbo jets, including the McDonnell Douglas DC-10 and the Lockheed L-1011, as well as the Boeing 747. There is always the prospect of another SST; the Nixon Administration's new budget includes a total of $38 million for supersonic-flight research. Government space officials are already talking about building "the second generation" of supersonic transports, which would be designed to be cheaper, environmentally cleaner and more profitable than the present beleaguered breed.

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