Years of losses land Pan Am in bankruptcy

January 09, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- Pan Am Corp., once the U.S. government's "chosen instrument" to establish international transport and a global symbol of expanding U.S. prosperity, filed for bankruptcy yesterday after decades of losses and tumult.

"There should be little surprise in our taking this action today," said Chief Executive Officer Thomas Plaskett at a crowded news conference held, ironically, at the Intercontinental Hotel, which was sold by Pan Am during the early 1980s to finance an earlier cash crisis after having been sold in the 1970s by another transportation company, the Penn Central Railroad, during its own bankruptcy.

"Years of heavy operating losses made it it even more difficult to compete in an ever-demanding and always-changing deregulated industry," Mr. Plaskett said. "This process will provide us with a welcome chance to break, in general, with a financially troubled past."

The company's fragile status was undermined this winter by higher fuel costs, the weakening U.S. economy, and the residual effects of the terrorist attack on Pan Am Flight 103 in 1988 over Lockerbie, Scotland, Mr. Plaskett said. "We simply did not have the underlying financial strength to absorb the enormously adverse impact of these external events," he said.

The Chapter 11 filing comes only a month after Continental Airlines joined its sister airline, Eastern, in declaring bankruptcy. All but the strongest carriers have reported steep losses.

Pan Am intends to continue operating, and Mr. Plaskett said that "for the customer, there will be no impact." Reservations and frequent-flier plans will be honored, and none of its 30,000 employees will be laid off.

"Above all else, our decision . . . to restructure our financial obligations doesn't mean that we are going out of business," Mr. Plaskett said. "Quite to the contrary: It means that this company will have the opportunity for a new beginning."

As part of the restructuring, Pan Am will receive an emergency $150 million loan from United and Bankers Trust Corp., to be paid off with the proceeds of the $290 million sale to United

Airlines of Pan Am's valuable landing rights at London's Heathrow Airport. That transaction received approval from the Transportation Department yesterday, Pan Am said, though approval by the British government remains questionable.

Pan Am will receive an additional $110 million from United for other rights, as well as comprehensive marketing arrangements that will provide $160 million a year in extra revenue, Pan Am told Wall Street analysts.

Offers by TWA's Carl C. Icahn to acquire Pan Am were inadequate, and discussions have ended, Mr. Plaskett said.

"This probably merges the more important parts of Pan Am into United," said Remy Fisher, an analyst at Kemper Finances Services. The move will benefit both airlines, he said, but especially United, which will gain a commanding market share for overseas travel.

Pan Am will retain a strong Latin American operation from a large Miami hub, as well as a Frankfurt, Germany, hub with flights to other European destinations, Africa and India, and overseas routes between Europe and the United States.

Two offers have been made for Pan Am's Northeast shuttle, and a deal providing still more cash is expected to be concluded in the spring, Mr. Plaskett said.

That would all but conclude asset sales, a critical component of Pan Am's struggle to survive.

Since the 1970s, Pan Am has weathered billions of dollars in losses by divesting such holdings as its prominent New York headquarters buildings, the Intercontinental Hotel Chain, Asian routes, its operations in Germany and most of its planes through sale-leasebacks.

As of its bankruptcy filing yesterday, the company listed $2.6 billion in liabilities and $1.6 billion in assets. Most of the debt, Mr. Plaskett said, was in the form of asset-backed loans that could not be restructured outside of bankruptcy court.

From aviation pioneer to Chapter 11

March 14, 1927 -- Pan American Airways Inc. incorporated in New York.

May 20, 1939 -- Trans-Atlantic service begins from Port Washington, N.Y., to Lisbon, Portugal.

June 26, 1947 -- Round the world service inaugurated.

July 28, 1980 -- Company sells its landmark Manhattan skyscraper for $400 million.

April 22, 1985 -- United Airlines, the nation's biggest airline, agrees to purchase Pan Am's entire Pacific division for $750 million.

Dec. 21, 1988 -- Terrorists blow up a Pan Am Jumbo jet over Lockerbie, Scotland, killing 270 people.

May 18, 1990 -- Company puts Pan Am Shuttle up for sale.

Oct. 23, 1990 -- Pan Am agrees to sell most of its London routes to United, other assets for $400 million.

Jan. 8, 1991 -- Pan Am Corp. files for Chapter 11 bankruptcy protection.

SOURCE: REUTERS

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