One Flag Abroad

The economically troubled U.S. aviation industry is more and more of the view that one can live more cheaply than two. The latest merger being talked about is global in its ambition: to merge Pan American World Airways and its only U.S. rival on the North Atlantic routes, Trans World Airlines. Inc.

Pan Am and TWA are still short of final agreement, but find an almost irresistible appeal in studies showing that a merger could save them up to $75 million a year in operating costs. For TWA, which ran up losses of $14.7 million last year, the partnership would offer new hope of coping with massive debts incurred in the switchover to jets. For Pan Am's President Juan Terry Trippe, the merger would mean restoration of Pan Am's position as the only U.S. carrier on Atlantic routes, and fulfillment of his old dream of establishing his airline as the U.S.'s "chosen instrument" abroad.

Out of Africa. In Trippe's view, only a single U.S. flag carrier can compete successfully on the North Atlantic routes, where both Pan Am and TWA have lately suffered heavy traffic losses to state-owned foreign airlines (BOAC, Air France, KLM, etc.). Pan Am also fears a threatened invasion of its traditional Latin American preserve by Russia's Aeroflot, which has been quietly negotiating its way across Africa toward Rio de Janeiro.

Since the inroads of the foreign air carriers adds $240 million a year to the U.S. balance of payments deficit, a single strong U.S. overseas airline may find more support in Washington now than it has in the past. But the sheer size of the proposed line--bigger even than the proposed combination of Eastern and American airlines--will send a shiver through CAB. Approval of the merger would also end a longstanding CAB policy of denying domestic routes to Pan Am.

The Hughes Problem. Even if the merger should win the consent of the White House--which by law has final say on U.S. airline operations abroad--there would remain what TWA President Charles Tillinghast glumly calls "the Hughes problem." Unpredictable Financier Howard Hughes, who apparently has his heart set on merging TWA with faltering Northeast Airlines, remains TWA's majority stockholder with 78.2% of its outstanding shares. Even though his TWA stock is currently being voted by trustees unsympathetic to his dreams, Hughes might find legal means of delaying indefinitely a merger with Pan Am.

According to scuttlebutt in the aviation industry, TWA and Pan Am have conceived a technique for finessing Hughes which seems a bit too clever. Heart of this maneuver would be to have the smaller TWA (net worth: $74 million) technically acquire Pan Am (net worth: $135 million). In fact. Juan Trippe would almost certainly dominate the merged line. The takeover by TWA of Pan Am would be a mere formality, but it would oblige TWA to issue such vast new blocks of stock to compensate Pan Am holders that Hughes's interest in the merged airline would be reduced to a manageable minority.

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