Pan American: Carrier in Crisis

Running a huge corporation is not pure, unmitigated joy.--Najeeb Halaby

FOR "Jeeb" Halaby, now finishing his second year as chief executive of Pan American World Airways, the going has been anything but great. Losses are climbing steadily: $26 million in 1969, $48 million in 1970 and $39.5 million in this year's first half alone. Pan Am's archcompetitor, TWA, has lately been overtaking "the world's most experienced airline" in monthly passenger miles on the North Atlantic run. Talks with TWA about a possible merger, which Halaby once saw as the best route out of rough weather, have come to a halt. Two weeks ago Secor Browne, chairman of the Civil Aeronautics Board, disclosed that he had sent a memo to White House Presidential Assistant Peter Flanigan, raising the possibility of a Government subsidy or a Lockheed-type guaranteed loan for the ailing carrier.

Diplomatic Service. Halaby's defenders point out that difficulties were developing long before he came aboard. The airline has never had any "feeder" routes within the continental U.S. to link up with its extensive international network. By contrast, TWA can move passengers in its own planes from Tulsa to Tel Aviv. Even such "domestic" carriers as American, Braniff and Eastern have international routes to the Caribbean, Canada or Latin America. Under Pan Am's founder, Juan Trippe, now honorary board chairman, the airline took on unprofitable routes in Latin America, Africa and Eastern Europe at least partly at the behest of the State Department. On its New York-to-Moscow run, for example, Pan Am has been losing money since service was initiated in 1968. Some of its prime routes have been invaded by tough competitors. American, Braniff, Continental, Western, Northwest, United and TWA have joined the battle for mainland-to-Hawaii traffic. American and Eastern are competing with Pan Am for the Caribbean, where last year the line had its worst operational loss: $29 million.

In some of its suffering, Pan Am only reflects the ills of the rest of the industry. The introduction of jumbo jets last year increased the number of available seats at a time when the general economic downturn was sharply reducing the supply of available passengers. On the crowded North Atlantic run, where Pan Am and 23 other scheduled airlines are fighting it out with the aggressive charter carriers, the company lost $7,000,000 last year. Meeting the bargain-basement transatlantic fares recently announced by Germany's Lufthansa, Halaby estimates, could cost as much as $30 million in losses next year. And Pan Am's payroll is rising by an average of 16% a year. As Halaby notes: "The airlines have had the highest wage inflation of any industry --43% in the last four years."

Faded Aristocracy. There are a few troubles that Halaby has been slow to tackle. After the first stirrings of the recession, TWA laid off 1,915 employees in 1970 and still lost $64 million; the line is expected to break even for 1971. Halaby, on the other hand, started chopping staff in earnest only this year, but most of the 3,700 cuts so far have involved reservation clerks, cabin attendants and other low-paid or seasonal workers. An accretion of superfluous middle-and upper-level managers left over from the Trippe era --"the faded aristocracy," as Pan Am Vice President Frank Doyle calls them --has not been noticeably thinned out. In many of its 109 overseas outposts, the line maintains larger staffs than do competitors. In Honolulu, for example, Pan Am has 1,200 employees and United has 1,000 to handle an equal number of flights.

The airline industry is abuzz with rumors of an imminent management shakeup at Pan Am, but not all insiders agree that Halaby will be among the victims. A former Federal Aviation Administration chief in the Kennedy-Johnson era, Jeeb Halaby is well respected by his peers. "He's a dynamic speaker," said one, "and there's a little of the old Camelot about him." But there are others who note that it may take more than style to rescue Pan Am.

The hardest decisions that Halaby faces involve cutting Pan Am's elephantine overhead costs. The line is paying interest rates as high as 11 1/4% to finance its 747s. Pan Am has a poor 54% passenger break-even load factor v. 48% for TWA. Salvation through the merger route is improbable, as Halaby now concedes. What healthy domestic line would want to team up with a troubled giant? The chance of Government help is also a long shot, mostly because of congressional opposition. The CAB could award Pan Am some domestic feeder routes, but most domestic runs are already overcrowded.

Geisha Girls. Halaby is in a race against time. As the economy gains speed, air travel is certain to pick up. Last week Pan Am officials announced a 1.5% rise over 1970 in passenger revenue miles for the month of September. This year depreciation write-offs on Pan Am's 747s and an $80 million sale-and-lease-back arrangement with the Port of New York Authority on a maintenance facility at New York's Kennedy Airport will probably hold losses down close to last year's level. Halaby has also pledged to improve marketing and service. "In the past we never sold," he admits. "We just waited for people to come in and buy tickets. We stressed safety and forgot service. Well, we're going to improve that. For example, we're trying like hell to get our stewardesses to be more like geisha girls and stop acting like they're doing you a favor to serve you."

Such efforts should pay off, but it may be years before the company climbs out of the red. That schedule may worry the consortium of 38 banks that has extended Pan Am $300 million in a revolving credit arrangement. More crucial for Halaby's career, it may not satisfy the company's board of directors, many of whom remember the high-flying days of the 1960s. "I know there's time enough for Pan Am," says Halaby. "I hope there is enough for me."

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