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Deal to Merge Pan Am’s Airline With Braniff Faces Hurdles

December 10, 1987

NEW YORK (AP) _ Braniff Inc. has won the temporary blessing of Pan Am Corp. directors in its pursuit of a merger with the company’s airline business, but the plan still faces severe tests, officials and analysts said Thursday.

″It is a very interesting situation right now,″ said Pan Am spokesman Alan Loflin. ″This is no done deal.″

Pan American World Airways would be merged with Dallas-based Braniff under a tentative agreement announced by Pan Am late Wednesday. But the merger hinges on Braniff nailing down $200 million a year in labor concessions by Dec. 22.

Under the terms of the plan, disclosed after a lengthy Pan Am board meeting, Pan Am’s vast international air network would be merged with the relatively limited domestic system of Braniff.

Pan Am, although it would retain some smaller subsidiaries, would be reduced to a shell of its former self.

The company was forced into considering a merger when it couldn’t achieve needed concessions from its unions to shore up the airline unit’s ailing finances.

The deal would create a new, independent company, as yet unnamed, that would be owned 13 to 20 percent by Pan American World Airways employees, 25 to 32 percent by shareholders of what is now Braniff and 55 percent by shareholders of Pan Am Corp.

The merger with Braniff would represent a defeat for Pan Am’s vice chairman, Martin R. Shugrue Jr., who had reportedly favored keeping Pan Am intact. Chairman C. Edward Acker had pushed the Braniff deal.

The labor concessions remained the biggest hurdle for plan, officials and analysts said.

″We have our work cut out for us in the time frame,″ said Peter Connolly, a vice president of Braniff.

But Connolly said the company has ″reason to believe that we have some hope of getting this done.″

The unions earlier had agreed to $200 million in concessions in a letter to Braniff Chairman Jay Pritzker, but that agreement was called into question recently when Shugrue made a last-minute attempt to put a plan together to hold the company together.

The Shugrue plan had called for $180 million in annual concessions, but the board reportedly rejected that proposal and asked the vice chairman to come up with even more.

Observers said the unions have lost faith in the Pan Am management, despite Shugrue’s efforts, and may be more disposed to give the concessions to Braniff.

George Miranda, a spokesman for the Teamsters union, said the unions appeared willing to talk with Braniff. The Teamsters are one of five unions representing Pan Am employees.

″This deal is different ... It’s not the existing management,″ said Miranda.

Analysts who follow the companies remained skeptical of the merger, but they said the way had at least been cleared for Braniff to try to put a package of concessions together.

″I would say this basically breaks the logjam, where it was just stuck on dead center,″ said airline analyst Robert Joedicke of Shearson Lehman Brothers Inc.

He said bringing all five unions together would not be an easy task, however.

In addition to the Teamsters, Pan Am employees are represented by unions for flight attendants, pilots, flight engineers and transport workers.

″It’s an uphill struggle whether it’s done alone or with Braniff,″ said Anthony Hatch, an analyst with Argus Research.

Hatch said that even if Braniff is able to win the concessions, it faces problems merging the two airline systems. He said Pan Am has heavy debts and may be in need of big capital expenditures for new aircraft and a link to a computer reservation system.

While Braniff offers a domestic system that serves 19 cities around the United States from hubs in Dallas and Kansas City, it doesn’t appreciably expand or enhance the giant Pan Am network, Hatch said.

Pan Am flies to 48 countries around the world and 97 cities in the United States and abroad.

If the merger goes through, Pan Am would be reduced to its shuttle operation, which flies between points in the Northeast; Pan Am Express, a commuter airline; and World Services, which provides ground services to military and commercial installations.

In the first nine months of its fiscal year, Pan American World Airways lost $29.3 million on revenue of $2.20 billion, compared to a loss of $19.8 million on revenue of $2.73 billion for the company as a whole.

The board’s approval of the Braniff deal does not rule out other possibilities, including a reconciliation between Pan Am management and the unions. But analysts and union sources said that appeared unlikely.

An attempt to take over Pan Am Corp. in its entirety by Towers Financial Corp., a financial services firm, remains active, but analysts also downplayed its chances.

Towers has received some support from the Teamsters, but the company has announced no firm financing plans for its takeover.

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