Pan Am Selling Pacific Operations to United
H. JOSEF HEBERT
Apr. 22, 1985
WASHINGTON (AP) _ Financially strapped Pan American World Airways, which a half century ago pioneered commercial air travel across the Pacific, announced plans Monday to withdraw from the region and sell its Pacific operations to United Airlines.
United Chairman Richard Ferris, who for years has sought ways to expand his airline's international operations, told reporters United will pay $750 million in cash for 18 Pan Am jumbo jets and other facilities in the Pacific and absorb 2,700 Pan Am employees, including 410 pilots.
The deal must be approved by the federal government, and finally the president, because it involves international routes and possible antitrust questions. Pan Am Chairman C. Edward Acker said the actual transfer likely will not be completed until sometime next year.
The withdrawal of Pan Am from the Pacific, if approved by the government, will mark the end of an era in aviation history.
Pan Am pioneered commercial airline service between the United States and Asia in 1935 with the famous ''China Clipper'' and inaugurated flights from the United States to Japan, Singapore, New Zealand and Australia in the ensuing years.
At a joint news conference with Ferris, Acker acknowledged that the Pacific routes were filled with nostalgia for Pan Am, but added that ''sometimes in the interests of the shareholders ... you have to sacrifice sentiment and nostalgia.''
The sale will allow Pan Am, which has lost $762 million during the past five years, to ''reduce substantially'' its estimated $1 billion debt and consolidate its operations in other parts of the world, Acker said. He declined to say specifically how much of the money would be used to reduce the company's debts.
Ironically, the Pacific routes have been profitable for Pan Am, earning the airline $55 million last year and $77 million the year before. But Acker said if Pan Am were to remain competitive in the rapidly growing trans-Pacific market the airline would have to commit hundreds of millions of dollars to develop a West Cost ''hub'' - something he said it was not prepared to do.
Pan Am currently is concentrated on the East Coast.
Acker characterized the agreement, which was given final approval by the two air carriers at a 3 a.m. meeting Sunday, as beneficial for both airlines, a ''win-win situation'' that will leave Pan Am and United stronger.
''Pan Am will be a larger airline in 1986 by all popular measurements than it was in 1984'' because it will be able to concentrate on its other domestic and international operations, Acker said.
The agreement will enable United, the country's largest airline, to expand with new or additional service into Australia, China, Hong Kong, Japan, Korea, New Zealand, the Philippines, Singapore, Taiwan and Thailand.
United currently flies between Seattle and both Tokyo and Hong Kong, but is primarily a domestic carrier with only 3 percent of its operations outside the country.
Although flights have recently been reduced because of a strike, Pan Am normally has 33 flights a week between the United States and Japan with many of those flights continuing on to other Asian countries, including mainland China. It also has daily flights between Los Angeles and Australia and New Zealand. All these flights will be transferred to United under the agreement, although Pan Am will continue limited service between the West Coast and Honolulu.
Ferris said he anticipated no problem getting federal government approval for the agreement and discounted any potential antitrust questions, saying that United and Pan Am, combined, currently account for less than 20 percent of the trans-Pacific market.
A question that has not been fully resolved, however, is whether two airlines can buy or sell foreign route authority, which originally is granted them by the government.
''Can these two carriers transfer something that doesn't belong to them?'' asked one ranking Transportation Department official, asking not to be identified by name.
Ferris said United, which last year earned $280 million and has cash reserves of $400 million, plans to pay cash for Pan Am's Pacific division, although some borrowing will be involved. The airline has a $1.5 billion line of credit available on three days' notice.