One morning just after dawn Senator William Proxmire went pounding down damp and deserted K Street on his daily jog. In addition to being America’s champion of free enterprise, Proxmire was a fitness freak. He jogged nearly every morning at this time. He found it was the only time he could be truly alone.
But alone he was not. The senator became aware of a pounding of feet coming up behind him. Over his shoulder he could see this tall guy with woolly red hair, grinning like a baboon, taking long strides and quickly closing the distance.
“Good morning, senator,” said Rich Selph, jogger and Pan American first officer. “I’d like to talk to you about Pan Am.”
“Shit,” said the senator. “I’m running. I don’t want to talk.”
“There are some things I’d like you to know about Pan American.”
“Call my office.”
“I did,” said Selph. “I couldn’t get an appointment.”
Proxmire picked up the pace. Damn. The runner was staying right with him. Proxmire could see by the kid’s face he wasn’t going to fall behind. He was some kind of freaking zealot.
“Then call again,” said Proxmire.
“Will I be able to get in to see you? Just for a few minutes?”
“Maybe. Just let me run in peace.”
“It’s really quite important, senator.”
“All right, all right. You can say your piece. In the office, not out here.”
“Thank your senator. I’ll do that. Have a good run.”
Washington didn’t know what to make of these people.
Historically, when a private corporation wanted something from government, it deployed brigades of pinstriped lawyers and professional lobbyists. They rented hotel suites and hosted lavish receptions. Their standard tool of persuasion was almost always money, dispensed in the form of campaign contributions and favors and pledges for future support.
In the old days, the Skygodly Imperial Airline days, that had been Pan Am’s style. Now Pan Am—the corporation—stayed conspicuously out of sight. Chairman Seawell conveyed his support to the AWARE workers, then tactfully remained in his headquarters. AWARE, everyone realized, could only be effective as a grass-roots movement.
Never before had the capital seen employees of a corporation take up their company’s cause like this. Sure, Washington was used to unions lobbying for their pet bills and trade associations applying political pressure. But when had it seen the wage earners of a single business—one not very large airline—get so worked up over the treatment of their employer? There was something quaintly American about it—employees of an iconic U.S. company going to Washington to demand nothing more than a fair shot. It had a down-home, apple-pie appeal. Just take off the manacles, they were saying. That’s all. Give Pan Am the same shot you give its competitors.
It was hard not to agree. Newspaper editors took up the cause, quoting from the AWARE ad. Congress mumbled collectively about doing something to straighten out the problem. The Ford administration mumbled platitudes about keeping our flag carriers, meaning Pan Am and TWA, alive and healthy.
Even the senator of free enterprise, while not declaring his conversion to the Save Pan Am faith, had enough sense to shut up.
The autumn of 1974 passed, and Congress recessed and then assembled again in 1975. When it opened its doors, the AWARE crowd was still there. They were like tenacious bill collectors. You couldn’t get rid of them.
And in the meantime, something amazing was going on: Pan Am was surviving.
Actually, very little had changed. Congress passed a bill called the International Air Transportation Fair Competitive Practices Act, which helped Pan Am obtain needed loans. But Pan Am still didn’t have domestic routes. There were exactly the same number of U.S. domestic airlines assigned to Pan Am overseas routes. Foreign countries were still extorting outrageous landing and handling fees. Pan Am was paying $4,200 to land a 747 in Sydney versus Qantas’s fee of $178 to land in Los Angeles. The only real gesture from the administration was in the form of a directive that government officials travel overseas on United States flag carriers, whenever available. And some adjustments were made in postal rates for airmail.
But Pan Am’s fortunes began to improve anyway. It was as if by national consensus the country had decided that Pan Am would endure, at least for the moment. Business was picking up—at least in part because the country was pulling out of the recession of the early seventies. The Arab oil embargo and resultant fuel price shock of 1973 had been absorbed.
One of the effects of the AWARE effort was not yet visible. Already germinating in Washington’s bureaucratic effluvium was an item of legislation that would transform the landscape of the airline business. It would be called the Airline Deregulation Act, and it would end the life of the inefficient Civil Aeronautics Board. For all practical purposes, deregulation meant that any airline could have domestic route authority. Even Pan Am.
For the new hires now entering their second decade with Pan Am, the AWARE crusade was a surprising revelation. When the dust settled and they looked around, they saw that they were alone.
Someone from the press in Washington had hung the label on the AWARE phenomenon—the Children’s Crusade—and it stuck. The name was appropriate, because when Pan Am had needed saving, it was the junior pilots who had stepped forward. It was their voices that had been heard in Congress, their rhetoric that had carried the day. Nowhere in sight had been their older, senior, more comfortable colleagues.
The Skygods had stayed home.
For the new hires, it was a coming of age. No more were they willing to politely yessir the Skygods, patiently waiting for the long apprenticeship to end. The future, for better or worse, belonged to them.
In October 1975, Chairman Seawell convened a secret meeting of Pan Am executives to draw up a contingency plan for taking the corporation into bankruptcy. The plan, as it turned out, did not have to be implemented. Seawell was able to persuade Pan Am’s creditors to extend enough credit, taking more 747s as collateral, to see the company through the coming winter slack season.
Pan Am’s principal American competitor, TWA, was suffering its own sizable losses on its overseas routes—and for the same reasons as Pan Am. Both airlines had taken delivery of a fleet of jumbo jets at the beginning of the decade, just as international traffic spiked downward. Both were reeling from the effects of the recession on business travel.
Having been rebuffed two years earlier in their merger request, the two airlines appealed once again—this time to the CAB. Instead of a Pan Am-TWA merger, the two carriers wanted approval of a drastic route-swapping arrangement by which they could eliminate much of the costly competition between them.
Since the Richard Nixon and Najeeb Halaby years, times had changed, at least a little. The AWARE movement had raised bureaucratic consciousness about the unfair treatment of Pan Am. Neither the Ford administration nor the CAB wanted to be tagged with the blame for Pan Am’s demise. After its usual deliberations, the CAB announced its approval of the route swaps.
Pan Am agreed to relinquish its United States-Paris service, leaving that to TWA, while TWA would give up its Frankfurt operation in favor of Pan Am. Pan Am would drop flights to Madrid, Barcelona, Nice, Casablanca, and Vienna and give up its routes to London via Los Angeles, Chicago, and Philadelphia. At the same time, TWA would drop most of its Pacific operation, including Guam, Hong Kong, Bangkok, and Honolulu.
Did all this mean that the CAB had developed a more kindly attitude toward Pan Am? Were times changing? Hardly. One historic barrier remained firmly in place: no domestic routes. Pan Am still could not fly in its own country.
The trimming of the airline, according to the press release, would deliver a saving of something between $17 million and $24 million the first year. It also meant a downsizing of the airline, fewer flights and a reduced number of crews.
For the pilots, it meant the F word again.
It was just like the two previous times in the past s
ix years. At bases around the system they stood in front of the bulletin boards, their jaw muscles working and their eyes skimming the numbered lists, looking for their names on the furlough list. A whole new wave, several hundred more airmen, were about to join their fellow pilots already out there on the street.
For those not being furloughed, the shrinking of the airline meant moving from their current cockpit seat to another, or from a senior, desirable base, like San Francisco, to the junior, least popular base, which was New York. Recently promoted captains would be demoted back to their old first officer’s seat. New first officers moved back to their familiar old sideways-facing flight engineer’s station.
Coping with a furlough was harder than it used to be. The new hires weren’t so new anymore. They were ten years into their airline careers. Most were pushing forty, and many were already beyond. Their prospects for another airline job—a real airline job—were close to nil. The solid airlines, American, United, Delta, were hiring kids— hotshot young pilots fresh out of the military—such as they had been a decade ago.
Most had families now, kids in school, mortgaged homes. What were they going to do? Their ancient degrees in engineering or forestry or music didn’t translate into a marketable skill. All they knew how to do was fly airplanes.
Predictably, there was anger. “I helped save this goddamn airline,” said a seething pilot in Berlin who had been a founder of the AWARE movement, “and this is how the bastards treat us.”
“That’s it,” said a pilot, glowering at the bulletin board. He had been furloughed in 1970, eventually recalled, and now was being furloughed again. “To hell with Pan Am. I’m going back in the Navy, and this time I’m going to stay.”
“It’s Seawell,” declared a furloughee-to-be in San Francisco. “That’s how he treated pilots in the Air Force. Now he’s doing the same thing to us.”
Said one discouraged flight engineer in New York, “My mother told me to be a dentist. I should have listened.”
Others just shrugged and walked away. They had given up ranting about events they could never control. What was the use? They had grown accustomed to bad news.
Mercifully, 1975 ended. And then in 1976 a most peculiar thing happened: Pan American made money.
To everyone’s astonishment, the airline was suddenly making a lot of money. By the end of the year, Pan American World Airways had racked up a net profit of nearly $100 million.
The financial community was flabbergasted. How had such an incredible thing happened?
The route swaps helped. Instead of both Pan Am and TWA flying half-empty 747s across the ocean, each airline was now carrying nearly full loads on their noncompeting routes.
But even more significant, people were traveling again. After a long period of stagnation, the overseas travel market was on the upswing. And the horrific fuel price escalations of the early seventies had stabilized—for the time being—and had now been factored into the cost of doing business.
Chairman Seawell was being touted as the airline wizard of the decade. In less than a year he had taken Pan Am on a journey from the abyss of bankruptcy to its all-time peak of profitability.
No one suspected that the journey might be a round trip.
Chapter Nineteen
Deep Pockets
QUESTION: How does an international airline acquire domestic routes ?
ANSWER NUMBER ONE: In the newly deregulated market, it purchases new equipment and builds its own route system.
ANSWER NUMBER TWO: It buys a domestic airline.
The phenomenon continued. In 1977, Pan Am earned $45 million. Even more phenomenally, it kept on making money. In the first nine months of 1978, the company reported a $123 million profit.
“Seawell is doing a helluva job,” declared an airline industry executive to the Wall Street Journal.
In his paneled office on the forty-sixth floor, General Seawell could afford to tilt back and treat himself to some back-patting. He was aware of the horde of people out there, employees former and current, who hated his guts. He knew that his enemies would like nothing so much as to see him blow it.
Well, he had shown them. The past two annual reports vindicated his drastic head-chopping and route-paring. When he had taken over, the company had been teetering on the brink of failure. Between 1969 and 1976, Pan Am had lost $364 million, enough to spur dark rumors that Seawell would be the guy who took Pan Am into extinction.
Seawell knew he could take credit for much of Pan Am’s recovery. But there was also overwhelming evidence that luck had played a role. After the setbacks of the early seventies—the price hikes of the oil cartel and the numbing recession—business was resurging. Travelers were taking to the skies in record numbers.
The truth was, it would have been difficult for an airline not to make money in 1978.
The other carriers were doing even better. Since the Johnson and Nixon administrations, the foreign route award process had become thoroughly politicized. With its new handouts, the Carter White House was reaching new heights of munificence: Delta from Atlanta to London; National from Miami to Paris, Amsterdam, and Frankfurt; Braniff from Dallas to London; Northwest from a number of U.S. cities to Copenhagen and Stockholm.
Even the foreign airlines were recipients of the Carter generosity. The administration was making deals with foreign governments, using Pan Am routes as bargaining chips. British Airways received new routes to San Francisco; KLM to Los Angeles; Laker Airways to New York and Los Angeles; Lufthansa to several new U.S. destinations, including Miami and Atlanta; British Caledonia to Houston.
United Airlines was pressuring for a new air agreement with Japan, exchanging rights for Japan Air Lines to land in more American ports of call so that United could compete directly with Pan Am on the Tokyo route.
Even though Pan Am was making money—at the moment—its future was growing more perilous. Pan Am’s share of the overseas market had dwindled from 20 percent in the 1950s to only 7.5 percent in 1978. Pan Am wasn’t even the front-runner across the Atlantic anymore after the Seawell cutbacks. TWA now claimed that distinction.
All this, of course, was well known both in and out of Washington. During the 1940s and 1950s, Trippe had lobbied hard in Washington to preserve Pan Am’s “protected” status. The airline’s legacy of arrogance, despite the brief respite of the AWARE campaign, still lingered in Washington like a bad hangover. “They were autocratic twenty-five years ago,” observed the Wall Street Journal, “and they’re still autocratic today.” One businessman, persuaded by a Pan Am director to visit congressmen on the airline’s behalf, got a violent reaction. “They threw me out of their office,” he reported.
Pan Am’s most entrenched adversary in Washington was, arguably, the five-member Civil Aeronautics Board, created during the Roosevelt administration. The CAB’s mission was to regulate air commerce—set fares, approve routes, and control competition— supposedly in the public interest. Over the years the CAB consistently thwarted Juan Trippe’s efforts to make Pan American the “Chosen Instrument.” CAB board members, being political appointees, reflected the economic philosophy of the current administration. Always citing the need to stimulate “competition” and “free enterprise,” the board continued to dilute Pan Am’s market share by parceling out routes to Pan Am’s competitors.
President Jimmy Carter’s choice to head the Civil Aeronautics Board was a bespectacled, feisty, sixty-year-old economics professor from Cornell named Alfred E. Kahn. Kahn was familiar with Pan Am’s history, and he didn’t like the Trippe legacy any more than his predecessors had. “Pan Am can go to hell,” he snapped to the press one day after he’d heard enough about Pan Am’s problems.
Later, when he’d had time to cool down, Kahn thought about what he’d said. Actually, he told a reporter, for Pan Am “that would be an interesting new route.”
In the fall of 1978, the rules changed. The long-simmering Airline Deregulation Act was finally signed into law. What it meant, in effect,
was that anyone could fly anywhere, at least within the United States. Deregulation was a trendy idea whose time had come during the inflation-ravaged 1970s. The traveling public— and its elected congressmen—were fed up with runaway airline fares and the inability of the bureaucratic CAB to regulate anything. Laissezfaire economics was being touted as the cure-all for the country’s ills. According to the laissez-faire crowd, the airlines would have a wide open marketplace, which would promote new airlines, cut fares, reduce inflation, and serve the public splendidly.
Alfred Kahn, CAB chairman and free market disciple, was the spiritual leader of the deregulation movement, and the responsibility for making it happen had fallen to him. In the process he was also putting himself and his fellow board members out of a job, since one key aspect of the act, in addition to removing regulation, was to remove the regulator. The new law mandated a dissolution of the Civil Aeronautics Board.
And that, at least to Pan American World Airways, was the best news of all.
After half a century of trying, Pan Am could finally have domestic routes. But how? Where to begin?
Chairman Seawell had a purse full of money, thanks to Pan Am’s recent profitability. Already the airline had placed orders for new airplanes, but not more of the gargantuan 747s to haul amphitheaters full of passengers from continent to continent. Pan Am was buying the smaller, three-engine, long-range Lockheed 1011, with an eye on the lesser-traveled routes, destinations like Madrid and Nice and Hamburg that didn’t produce enough passengers to fill up a 747 but would provide a profitable load on the Lockheed.
Seawell faced a critical decision. Should he invest Pan Am’s hard-earned capital in the wild free-for-all that was developing in the deregulated domestic market? It would take millions, possibly a billion, to put such a domestic airline system in place. And years.
Skygods: The Fall of Pan Am Page 19
