Pan Am's Case for Subsidy

The long, stormy letdown of Pan American World Airways has been as visible as a thunderhead, and just as ominous. Pressed by soaring fuel costs and shrinking transatlantic passenger loads, Pan Am lost $18.4 million last year, despite a stringent cost-cutting program imposed by Chairman William T. Seawell: 8,000 of 40,000 employees have been fired. By July of this year, matters were even worse. Losses were running in the $30 million range, and Pan Am and TWA, a line with even greater first-half losses but lesser troubles overall, had appealed to the Civil Aeronautics Board for federal subsidies of around $265 million for 1974 alone. In August, a desperate Pan Am declared it needed an immediate $10.1 million-a-month subsidy just to keep going, and insisted that it be retroactive to April. The Department of Transportation, worried and bewildered by the plight of the nation's largest overseas carrier, began pressing earlier this month for merger between Pan Am and TWA, a marriage that neither line really wants.

Cut Competition. Last week, with still not a cent of federal money in hand, Pan Am laid out its case in a detailed, hard-hitting and far-reaching brief to the CAB. The carrier reiterated its need for a "temporary" subsidy, but went much further. What really is needed, said Pan Am, is a more sweeping, permanent solution. The airline proposed a major rethinking of U.S. overseas air policy, with the aim of eliminating head-on competition between itself and TWA, nipping potential new overseas competition from U.S. carriers before it even gets started, and securing the firm backing of the Government in the private carriers' losing battle against other nations' heavily subsidized, state-run airlines.

Specifically, Pan Am called for routes to more European "gateway" cities in the U.S. (Atlanta, Cleveland, Houston, Dallas/Fort Worth, Tampa) to help counterbalance TWA's strong domestic network. It also sought permission to trade off certain overseas runs with TWA, leaving London as the only major city served by both carriers, and urged the CAB to reject pending applications by National and six other airlines for overseas services. Pan Am called too for even higher transatlantic fares, already up 25% between New York and London this year alone and scheduled to go up 10% more in November. "Drastic action," concluded Pan Am, "is desperately needed."

On paper, at least, the airline sounded like the arrogant, politically potent Pan Am of yesteryear. Pan Am haughtily refers to its desired subsidy as a "national interest payment." But does it have a case for subsidy by any name? Should taxpayers in, say, Tulsa, Des Moines and Wichita (who do not see Pan Am aircraft at local airports) be called upon to keep Pan Am flying? Or should Pan Am simply be allowed to die, its profitable routes parceled out among other carriers and its unprofitable ones dropped?

Some Congressmen think so. In the Department of Transportation, the feeling is that even if the CAB authorizes a subsidy, Congress will not fund it because it is tired of being asked to bail out private companies in the manner of Perm Central, Lockheed and Grumman. Wisconsin's influential Democratic Senator William Proxmire, a longtime foe of subsidies to business, is adamant against any aid to Pan Am beyond possible increases in fares. He bristles at the thought of turning Pan Am into "the nation's largest welfare recipient."

But Pan Am backs up its plea with a convincing array of arguments. It assuredly is not crying wolf: the threat to survival is real. The line owes some $300 million to banks led by New York's First National City. The thrust of the airline's argument is that its problems are not of its own making. Fuel costs alone have more than tripled since last October, from 11-c- to 35-c- per gal. on the average and even higher in some places; fully 94% of Pan Am's fuel is bought out of reach of any U.S. price controls. Pan Am's transatlantic passenger volume, badly hurt by withering purchasing power in the face of worldwide inflation, is down 23% this year.

Through it all, Pan Am has been forced to fly lightly loaded, fuel-guzzling 707s and 747s to distant places mandated by its CAB certificates, while at the same time competing with some 30 state-owned foreign carriers in a vastly overserved transatlantic market. In 1972, for example, those 30 airlines competed for 8.4 million passengers while only three carriers competed for the 1.9 million passengers in the New York-Los Angeles-San Francisco market. The line has been forced, too, into paying exorbitant landing fees ($4,200 in Sydney for a 747, v. $178 in Los Angeles) that currently total around $50 million, up 15% from last year.

Unique Case. The Pan Am council of the Air Line Pilots Association, which is siding firmly with management and urging members to write Congressmen, sounds an ironic note: the U.S. Government actually pays Pan Am (and other U.S. lines) less than half what it pays foreign carriers to fly the mail, a loss to Pan Am of around $35 million annually. Pan Am pioneered many worldwide routes that later were taken from its exclusive domain as its political power waned during the Johnson and Nixon years. Nixon, for example, awarded the Miami-London run to National Airlines after Pan Am tested it at great expense during the 1950s and 1960s.

The clinching argument is that Pan Am, even in its present battered condition, brings in some $400 million a year to help right the U.S. balance of payments. Should the line go under, much--or most--of that money would go to subsidized foreign carriers. Subsidies to private companies are inherently unpalatable, but Pan Am is a truly unique case. It is a private airline with no important domestic operations, competing internationally against lines that are in effect arms of governments. As such, Pan Am deserves special treatment.

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