Clipping Pan Am's Wings

With losses deepening, fuel costs climbing and credit lines drying up, Pan American World Airways sent out a Mayday call of distress to the U.S. Government, pleading for emergency subsidies of $10.1 million a month. Last week Transportation Secretary Claude S. Brinegar said that "President Ford has concluded that it is not now fair to the nation's taxpayers to ask them to support our U.S. international flag carriers with direct cash subsidy payments." With that, the fate of the nation's senior overseas airline fell into the hands of the banks and insurance companies, to which it owes almost $700 million.

The Administration did agree to some measures by which Pan Am and its creditors can now feel encouraged. Most important, the Government will use its considerable power to discourage foreign and U.S. airlines from flying the same international routes at the same time, and both the State Department and the Civil Aeronautics Board will investigate whether foreign lines are flying more flights to and from the U.S. than is permitted in international agreements. Ford will also consider raising the international airmail fees paid to U.S. carriers. (Currently, foreign carriers demand and get as much as five times what U.S. airlines collect for carrying U.S. overseas mail.) Further, the Commerce Department will promote a "Fly U.S. Flag Airlines" campaign.

Better Risk. Pan Am Chairman William T. Seawell, who is still hoping for Government help, said that he was "heartened" by the measures. While the benefits from the plan would be longrange at best for cash-strapped Pan Am, the package might do just enough to keep the line from going broke in the coming months. Reason: a consortium of 36 banks, led by New York's First National City, is sitting on $205 million in credit that the bankers are ready to release to the company if it looks worthy. They have said that they would advance no credit if Pan Am's assets drop beneath $300 million, and with the company dipping into cash reserves to meet operating costs, it is almost certain to fall beneath that line soon. But the Administration steps make Pan Am look like a better risk.

Moreover, despite Ford's rejection, the CAB said last week that it is still studying whether the company should get a permanent subsidy. If Pan Am now takes painful cost-cutting steps, particularly by eliminating some lightly traveled routes to Latin America, Africa and Asia, its creditors may be disposed to reduce the $300 million asset limit below which credit would halt. According to Brinegar, the Administration will ask the creditors to be lenient with Pan Am.

Even short-term credit and the long-term policy shift, however, may not be enough to save Pan Am. World air fares have gone up 13% to 19% since January, and will probably rise another 10% to 15% before the year is out. The higher the fares, the fewer the passengers; Pan Am's transatlantic passenger volume is down 23% this year. Meanwhile, more than just fuel costs have been spiraling. Delta Airlines recently agreed to boost the average annual salaries of its pilots to $48,000 by mid-1976, v. $42,000 now; the top of the union scale provides a clearly inflationary $100,000 a year in wages and benefits for Delta's 747 pilots. Those raises have caused consternation among executives of other airlines, which expect similar demands from their pilots. In such an atmosphere, only the strongest airlines may survive.

Old Proposal. Said a White House aide last week: "There is too much at stake, not only for the airline but also for this country's national interest, to let Pan Am go down the tubes." To save it, some Washington officials have revived a longstanding proposal for Pan Am to merge with Trans World Airlines. But neither company is enthusiastic, and there is some question whether two heavily indebted lines could combine. In any case, the eventual prospect is for a radically altered Pan Am, either through merger or considerable reduction of its far-flung routes--or both.

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