Troubled Pan Am Lands in Bankuptcy Court
NEW YORK (AP) _ Pan Am Corp., which pioneered air travel after humble beginnings with a mail-run flight from Florida to Havana, sought refuge in bankruptcy court Tuesday. It cited the bombing of Flight 103, high fuel prices and the recession.
But Chairman Thomas G. Plaskett said the company received a fresh injection of outside financing and tentative federal approval for the sale of London routes to UAL Corp. that will set the stage for a ″new beginning.″
A proposed merger with rival Trans World Airlines is off, Plaskett said.
Pan Am becomes the second airline in two months to file for Chapter 11 protection partly due to higher fuel prices since Iraq invaded Kuwait in August.
Pan Am’s filing should ″end a long period of speculation and rumors,″ Plaskett said.
Within hours of the filing, Pan Am said the Transportation Department tentatively approved its sale of the routes to UAL, parent of United Airlines, for $290 million.
Pan Am also said it reached an agreement for $150 million in financing to keep operating pending the sale of the routes. One third of the financing will come from United and two-thirds from Bankers Trust New York Corp.
A hearing is scheduled Thursday in bankruptcy court, where Judge Cornelius Blackshear will consider approval of the Pan Am-UAL deal as well as the financing arrangement, Plaskett said.
Even if Pan Am gets the approval of the court and the federal government, British regulators still must approve the transfer of Pan Am’s gate slots at London’s Heathrow Airport. The British could insist that once the routes are transferred, the planes go to London’s Gatwick Airport, a less desirable location that United said it is not interested in.
Soon after Pan Am’s filing, Blackshear approved requests that will allow Pan Am to keep paying its employees and travel agents, while honoring its tickets, the airline said.
Pan Am hopes to reorganize around the deal with United, which also will involve coordination of flights as the carriers feed each other passengers; the further development of Frankfurt, Germany, as its European hub; and further development of its Latin American operation, with Miami as the hub.
Analysts doubt Pan Am, which calls itself the nation’s seventh largest airline, can ever restore its status as the unofficial flagship U.S. carrier. Some said the best it can hope for is to gain enough strength to become an attractive buy for a larger airline.
In recent weeks, Pan Am had been courted by TWA Chairman Carl C. Icahn, but Plaskett said he has discontinued talks with the New York financier.
″I have a better deal than anything he ever talked about,″ Plaskett told reporters.
The TWA deal never worked because Icahn had not offered Pan Am as much money to get through the winter, and his proposals contained too many restrictions, Plaskett said.
Icahn had not returned telephone calls from The Associated Press.
Pan Am hopes to raise more money by selling the Pan Am Shuttle, Plaskett said. The company is entertaining offers from two potential buyers, he said, declining to elaborate or identify the potential buyers. NWA Inc., parent of Northwest Airlines, has been reported to be among the interested parties.
Pan Am’s bankruptcy filing also sought protection for major subsidiaries, including the shuttle, and helped push the company’s stock below $1 for the first time, closing at 75 cents, from $1.12 1/2 Monday.
The bankruptcy petition listed assets for the parent company of $438 million and liabilities of $89 million as of Sept. 30. However, its main subsidiary, Pan Am World Airways, had $2.6 billion in liabilities and $1.6 billion of assets at the end of the third quarter. The unit’s liabilities included $412 million in secured debt, $381 million in unsecured debt and more than $1.6 billion of other claims.
Pan Am said the Pension Benefit Guaranty Corp., the government agency that insures certain corporate pension funds, was its largest unsecured creditor with $490 million in claims.
The filing includes an affidavit from Peter T. McHugh, Pan Am executive vice president and chief operating officer, who said revenue had been hurt since the bombing of Pan Am’s Flight 103 in Scotland in December 1988 and that it continued to fall off because of the current deteriorating economic conditions.
The company has refused to comment on how much cash it has been losing each day. But in its latest quarterly earnings report, Pan Am said it lost $29.1 million, or 19 cents a share, in the three months ended Sept. 30. The airline lost of $18 million, or 12 cents a share, in the period a year ago.
Industry analysts had viewed a Pan Am bankruptcy filing as inevitable. They said it represents an ongoing shake-up of the troubled air travel industry, though which the stronger carriers are growing at the expense of the weak.
Houston-based Continental Airlines sought bankruptcy protection on Dec. 3. Continental’s sister, Miami-based Eastern Airlines, has been in bankruptcy proceedings since March 1989.
″It says that we’ve had a speeding up of the consolidation process,″ said Raymond E. Neidl, an airline analyst with Dillon Read & Co. Inc. ″It’s probably happening quicker because of the high fuel prices and the sluggish economy.″
Pan Am was incorporated during the early days of commercial air travel in 1927. But it has been losing money for nearly two decades, as it suffered from the lack of a strong domestic route system.