Skygods: The Fall of Pan Am

by Gandt, Robert

  Why?

  Old-timers scratched their heads and wondered. How had Pan Am, the airline that used to be called America’s Chosen Instrument, become so politically disconnected?

  The explanation seemed to be that Pan Am, by its very arrogance, had poisoned the political water. Washington was awash with old Pan Am enemies—Democrats, Republicans, bureaucrats, lobbyists for competitors—who still nursed grudges about the Imperial Airline and its high-handed ways.

  But the Nixon White House had a more specific reason. The name Pan American had been conspicuously missing from the list of contributors to President Nixon’s reelection campaign. In the post-Watergate revelations, two other airlines, Braniff and American, would be charged with making illegal contributions to the campaign. As it turned out, each of the airlines had received generous new route authority—on Pan American routes—from the Nixon administration.

  Now Pan Am was requesting assistance from the White House. Months went by. The subsidy application lay moldering in a tray at the CAB like a letter from a deadbeat cousin. In August 1974, after Richard Nixon resigned and fled the White House, Pan Am submitted a second, more hopeful and urgent request.

  The Ford administration was no more inclined to help Pan Am than the Nixon bunch. Forget subsidy, was the message. Pan American would have to deal with its own troubles. It should not expect help from this government.

  Meaning, of course, the United States government. But what about some other government?

  The first winter snows had already capped the summit of Mount Demavend, towering above the city of Tehran, when Pan Am’s station manager there telexed a strange message back to New York. The officials of Iran Air have expressed an interest in helping Pan American.

  Iran Air? Iran Air was owned by the Iranian government, which was owned, for all practical purposes, by the Shah of Iran.

  Seawell would take help from wherever he could get it. He sent Willis Player off to Tehran to conduct talks. Player reported back that it was true. The Shah was serious. He had money to invest—lots of it—and for reasons not entirely clear to the agencies of either government, he had decided that it was in Iran’s—which was to say, his— good interest to invest in Pan American World Airways.

  For Pan Am, it seemed like a deal made in heaven. For the Shah, it was a deal no one could quite figure out. What did he intend to do with an airline like Pan American?

  The only answer seemed to be that the Shah was an aviation-minded monarch who had conjured an image of Iran as a major player in world air commerce. He had a vision of his country, until recently a land of goatherds and carpet weavers, assuming a leadership role in the technology of the space age. He was already investing heavily in Iran Air’s modern fleet of jetliners. He wanted access to Pan American’s global network, and he needed Pan Am’s sophisticated training and technological facilities for his mostly recently ordered aircraft.

  All of which caused an instant furor in Washington. The Ford administration and the CAB reacted in the most predictable way: Hey, hold on a minute. Don’t you realize that Iran is a foreign power, and that Pan American is vested with our national interest?

  And that brought a hoot from every office and conference room in the Pan Am system.

  Pan American, of course, was the United States’ largest international carrier. Pan Am’s armada of 747s was the largest contingent of jets in CRAF—the Civil Reserve Air Fleet of the U. S. Air Force—and was instantly available for military transport use. In every conflict since World War II, Pan Am had provided airplanes, crews, facilities.

  Pan Am vested with our national interest? No kidding? What do you think we were trying to tell you for the past year?

  And then even the bureaucrats heard their own words and recognized the contradiction. A few weeks ago they were denying Pan Am any relief because the airline was a private—not a government— enterprise. But now they had just declared that Pan Am was, in fact, vital to the government’s interest.

  So while Seawell and the airline’s creditors met with the Iranians, a Pan Am lobbying team descended on Washington to promote the deal. The Shah had made it clear he would not proceed until given a green light from the White House.

  The Ford administration took a straw poll of its agencies and found itself favorably disposed. Treasury Secretary William Simon went so far as to tell Congress that he was “very positive on encouraging all the investment by Iran in Pan Am within the constraints of national security.”

  National security—that was the only hitch. What about the CRAF commitment? What about ownership of the airline in time of conflict? Foreign ownership meant, to an extent, foreign control.

  In this instance, the objections had little substance. After all, this was Iran they were talking about. Who could get worked up about Iran? Iran was our friend, wasn’t it? Iran was so closely allied to the United States it was practically a subsidiary. Iranians loved America, right?

  The only real opposition to a Pan Am-Iran deal came from behind the scenes, ostensibly from members of Congress, but in fact from their political fund contributors in the domestic airlines. The strong domestic carriers had been eyeing the decline of Pan Am, hoping to step in and pick up the lucrative overseas routes. Now, with a big infusion of money from the Shah, that happy likelihood was slipping away.

  The administration bestowed its blessing, and with that signal from the President, the CAB was sure to follow suit. The board had only to go through its usual bureaucratic deliberations before issuing its ritual approval.

  On the surface it looked like a gesture of support for Pan Am. What it really amounted to was a collective sigh of relief. What no one was willing to say, at least out loud, was that they were damn glad that someone—they weren’t fussy who—was getting the Pan Am problem off their desks. The CAB and the White House and the Department of Transportation had been unwilling to save Pan Am, but they didn’t want to be tagged with the blame when it went under. They didn’t really care what happened to Pan Am, as long as it didn’t happen on their watch. Now the Shah, bless him, was letting them off the hook.

  When the particulars of the deal were made public, an airline financial executive told the press, “This has got to be the most dazzling piece of financial wizardry ever used to rescue a sick company.”

  Indeed, it was dazzling. Probably the most dazzling aspect was the willingness of Pan Am’s creditors to write off millions of dollars in loans in order to salvage part of their investment. Iran would foot a $245 million loan that would be used to buy back Pan Am’s outstanding notes—at fifty-one cents on the dollar. The airline’s long-term creditors, mostly insurance companies, were grudgingly going along with the deal, knowing that the alternative could well be zero cents on the dollar.

  Another aspect of the deal was that Iran would buy for $55 million a majority ownership of another lucrative Pan American property, the Intercontinental Hotel chain.

  For all this, Iran would receive warrants to buy up to six million shares of Pan Am stock at about $2.50 a share, which gave the Shah what amounted to a call on 13 percent of Pan Am stock. A representative of the Shah would take a seat on the Pan Am board of directors.

  For the pilots of Pan Am, especially the old new hires who remembered the promises of the 1960s, the deal had another tantalizing aspect.

  The Shah was buying SSTs.

  It was disclosed that Iran had ordered a fleet of Concordes. As part of the package, Pan American would provide the operational expertise to fly them.

  SSTs? Would they be Pan Am SSTs? Would they be flown by Pan Am pilots? That was still too far away. But suddenly the future was wide open again. To the Pan Am pilots it was a fairy tale in which they had gone to sleep as urchins and waked up as the children of a rich king. It was magic. It seemed too good to be true.

  And it was.

  “We’re about a week away from signing the deal,” a Pan Am spokesman told the business press in May 1975.

  A couple of weeks later, they were sti
ll a week away.

  And so it went through the summer of 1975. A week away.

  The deal was still on, everyone said, but no one could say when. The Shah would make the final decision. By autumn, high-level Iranians were ducking questions about the deal. They would say only that it was “still being considered, but there is definitely less enthusiasm than there was six months ago.”

  One of the reasons for the waning enthusiasm was that Iran’s oil revenue was down 15 percent, forcing Iran to curtail some of its investments. But the Iranians had also taken a closer look at the problems facing Pan Am. “Fuel cost increases have made the airline business a very tricky one,” said a representative of the Shah, “and we are wondering where Pan Am will be five years from now.”

  The fact that the fuel cost increases were wholly the doing of Iran and its OPEC colleagues was an irony he chose not to mention.

  By the end of the summer it was obvious that the deal was not happening. What had gone wrong? Why had the Shah changed his mind? No one knew for sure. The palace of the Shah was a place of puzzles.

  The dream deal, had it come true, would have metamorphosed into a nightmare. Less than four years later, the Shah was overthrown. America’s bedrock ally in the Middle East became, overnight, a mortal enemy. Policymakers speculated grimly about a Pan American World Airways whose principal owner was the Ayatollah Khomeini.

  Chapter Eighteen

  The Children’s Crusade

  Pan Am does a lot more than compete with other airlines. We compete with whole countries, sometimes even our own.

  —New York Times advertisement, September 23, 1974, placed by Pan Am employees

  The Pan Am mystique was slipping away. And damn, it was painful, like a smoldering ember in the gut, to see the domestic airlines—the bus drivers—swarming over what had been Pan Am country.

  Pan Am pilots would hear from their former military buddies at American and United and Delta:

  “Oh, yeah, we’re gonna start nonstop service next month to Tokyo and. . . ”

  “. . . adding Frankfurt and Paris to our new European route system. . .”

  “I’m flying the new DC-10s we just bought. . .”

  Meanwhile at Pan Am, the news was all bad. The business press had a standard way of writing about Pan Am:

  “A spokesman for the financially troubled Pan American said today. . .”

  “In an effort to secure new credit terms for financially troubled Pan Am, the airline’s lenders . . .”

  “The increase in fuel prices is expected to have a particularly severe impact on financially troubled Pan American, whose fortunes. . .”

  They never referred to Pan American anymore. It was always the financially troubled Pan American.

  It became a joke in the cockpits: by the end of the century, after all the weaklings in the business had succumbed to bankruptcy or hostile takeover, there would be only three airlines left in the United States: American, United, and the Financially Troubled Pan American.

  In the spring of 1974, an item appeared on the pilots’ bulletin board.

  Pan American director General Charles A. Lindbergh, 72, passed away at his home on Maui yesterday after a brief illness. General Lindbergh’s association with Pan American dated back to 1929, when he and Juan Trippe . . .

  Lindbergh. The Icon. He had seemed indestructible, exempted somehow from the calamities that visited everyday mortals. Now the world really was different. For the legion of Pan Am airmen, it was like losing their patron saint.

  In his later years as a director, Lindbergh had been a roving troubleshooter for Pan Am and spent hundreds of hours in the cabins of Pan Am clippers. He usually rode in coach class, traveling under an alias. His only baggage was the same old brown carry-on he kept for thirty years.

  As an anonymous passenger he observed the service, sampled the food, watched passenger reactions. He took copious handwritten notes and made reports back to headquarters. The only thing he couldn’t make a judgment about was the wine and liquor quality. Lindbergh didn’t drink. “You’ll have to ask someone else about that,” he said.

  It was typical of Lindbergh that no one outside his close circle even knew he was ill. Lindbergh was a man who never asked for sympathy. Nor did he want the maudlin attention of the public.

  He still came to meetings of the Pan American board of directors. He looked tired. The ice-blue eyes gazed at his fellow directors wearily, as though he were anxious to get the business over with so he could go home.

  In the spring of 1974, at the mandatory retirement age of seventy-two, Lindbergh did go home. For most of the board members, it was the last time they would see him.

  His malaise was diagnosed as cancer of the lymphatic system. It was terminal, he was told. He said he wanted to die in the house he and his wife, Anne Morrow Lindbergh, had built on Maui, overlooking the sea. In a United Airlines 747, on a specially rigged stretcher in the closed-off first-class compartment, Lindbergh made his last flight. He died on August 26, 1974. He was buried in a plain wood coffin.

  The death of Lindbergh seemed to match the rest of the news that year about Pan Am. To the Pan Am pilots it was a portent of doom. Pan Am was losing everything from the old glory days. Even its greatest hero.

  One day a column on the op-ed page of the International Herald Tribune began with “Who the hell needs Pan Am?”

  Captain Terry Beasley handed the newspaper to Jim Hotchkiss, his first officer. They were at ten thousand feet, inbound to Berlin in the southern air corridor.

  It was 1974. A month before, on August 15, the CAB had recommended that Pan Am’s and TWA’s international routes be realigned and that four more airlines be added to the list of competitors. A debate was under way in Congress and in the media about the efficacy of government intervention in corporate debacles like those of Lockheed and Penn Central—and perhaps Pan Am. It was rumored in the business press that Pan Am was near bankruptcy. Should Pan Am be saved? Senator Proxmire of Wisconsin, chief slayer of the SST, thought not. “Let the invisible hand of free enterprise do its work,” Proxmire told reporters. Which was to say, to hell with Pan Am.

  “We’re going to get screwed again,” Beasley said.

  “Yup,” said Hotchkiss. He was a new hire, 1964 vintage. His bright hopes for Pan Am, like those of his classmates, were headed down the drain. “What are we going to do about it?”

  They flew to Berlin, and then back to West Germany, and then back to Berlin. And the whole time they talked. The problem seemed to be the public perception that Pan Am’s problems were all its own doing.

  Okay, decided Beasley and Hotchkiss, a good place to start would be with that particular item of misinformation. They would take Pan Am’s case to the public.

  They stuck a request on the bulletin board for donations to buy an ad in a major newspaper. Every pilot who passed through the crew room contributed. Within twenty-four hours they had $10,000.

  On September 23, 1974, a full-page advertisement in the New York Times began with the headline:

  AN OPEN LETTER TO THE AMERICAN PEOPLE FROM THE EMPLOYEES OF THE WORLD’S MOST EXPERIENCED AIRLINE

  The ad took aim at the U.S. government, raising some old questions:

  ASK OUR OWN GOVERNMENT WHY THE POSTAL DEPARTMENT PAYS THE FOREIGN AIRLINES AS MUCH AS FIVE TIMES WHAT IT PAYS PAN AM FOR HAULING THE SAME U.S. MAIL. NOT RECEIVING THE SAME PAY FOR THE SAME WORK COSTS PAN AM FORTY MILLION DOLLARS A YEAR.

  ASK OUR OWN GOVERNMENT WHY THE U.S. EXPORT-IMPORT BANK LOANS MONEY TO “UNDERDEVELOPED” COUNTRIES LIKE FRANCE, JAPAN, AND SAUDI ARABIA AT SIX PERCENT INTEREST WHILE PAN AM PAYS TWELVE PERCENT.

  ASK OUR OWN GOVERNMENT WHY IT IS OPPOSED TO LETTING PAN AM FLY PASSENGERS WITHIN OUR COUNTRY. . . IT JUST DOESN’T MAKE SENSE. THE DOMESTIC AIRLINES NOW HAVE RIGHTS TO THE INTERNATIONAL ROUTES THAT WE PIONEERED, AND THE FOREIGN AIRLINES NOW SERVE MORE CITIES IN THE UNITED STATES THAN WE DO.

  The ad concluded with a bold-printed summation:

  IF PAN AM WERE AL
LOWED DOMESTIC ROUTES WITHIN THE UNITED STATES . . . OR TO BORROW FROM THE EXPORT-IMPORT BANK. . . OR TO PAY REASONABLE LANDING FEES OVERSEAS. . . OR TO RECEIVE EQUAL POSTAL RATES FROM OUR OWN GOVERNMENT, WE WOULDN’T NEED ANY SUBSIDY AT ALL!

  IN FACT WE WOULDN’T NEED TO HAVE TAKEN UP A COLLECTION TO RUN THIS AD.

  —The Employees of Pan Am

  Beasley and Hotchkiss dreamed up the acronym AWARE. It meant Airmen Worried About Remaining Employed. But the scope of their project quickly swelled beyond the pilot roster. As soon as the New York Times advertisement came out, the rest of the Pan Am employee group wanted to come on board.

  They all felt the same way. They might be irate with General Seawell. He had slashed the employee force from 42,000 to 27,000. They might be incensed at each other—machinists mad at passenger service agents, flight attendants peeved at pilots—but this was something they could agree on. This was family business.

  Thus began the Children’s Crusade. The loosely-knit new organization—AWARE—sprang into action with Jim Hotchkiss taking the lead. They dispatched teams to Washington where every congressman and senator received an arm-twisting visit from a Pan Am pilot. Thousands of letters flowed into congressional mailboxes. Giant rallies were held on the steps of the Capitol. T-shirts, bumper stickers, more newspaper ads were created.