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The Downfall of Pan American World Airways

The Downfall of Pan American World Airways

BY JOHN PULLEN 216d AGO 0 COMMENTS

Pan American World Airways was the face of the golden age of flying. With massive jets, a sterling reputation and a global presence, the airline was known for being on the cutting edge and delivering world-class service. Pan Am is arguably the most influential airline to ever grace the skies, with its impact still being seen in today’s airline operations.

 

Despite this, by the 1980s, Pan Am was struggling. The deregulation of the U.S. airline industry, which occurred in 1978, led to intense competition and a slew of unforeseen challenges. Therefore, in 1981, the directors of Pan Am determined it was time for a leadership change: They appointed Tom Plaskett, a former employee of American and Continental, as the new chief executive. Plaskett was determined to reverse the bad fortune of Pan Am. At first, by improving the physical appearance of the airline and its financial performance by installing yield management systems, he made progress. These efforts, combined with a strong economy and heavy demand for transatlantic flying allowed Pan Am to record a profit in the third quarter of 1988. It seemed as though Pan Am had a chance at survival.

 

File:Pan Am Boeing 747-100 Clipper Unity.jpg
Tom Plaskett's early efforts of turning Pan Am around seemed to help the carrier. Photo: Wikimedia Commons

 

However, in December of 1988, an incident that changed the trajectory of the airline occurred in Europe. Pan Am Flight 103, a Boeing 747 filled with 259 people traveling between London and New York, suffered a terrorist attack when a bomb exploded in the aircraft over Lockerbie, Scotland. 270 people perished, including 11 on the ground. Following this attack, Pan Am lost half of its transatlantic bookings in a matter of hours. In the time that followed, the carrier lost half a million dollars in sales as travelers felt a sense of danger flying with the airline across the ocean. This terrorist attack and the impact it had on sales crushed Pan Am’s hope for survival. The airline needed a buyer.

 

Plaskett was determined to get a buyer. However, doing this would take time and the airline needed cash immediately. Though the airline was desperately avoiding liquidation, Pan Am had one asset that, if sold, could bring in the much-needed cash: its routes to London. Given Heathrow Airport’s incredibly restrictive availability, United showed a lot of interest in purchasing these routes for $400 million dollars. It seemed as though Pan Am would finally catch a break and receive the resources needed to find a buyer.

 

File:Pan Am 707 (6060657324).jpg - Wikimedia Commons
Pan Am sold its London routes to earn needed cash. Photo: Wikimedia Commons

 

Unfortunately, officials in England threatened to end the deal. The conditions in the contracts under which Pan Am flew to London stated that it was only valid for Pan Am or a “corporate successor” of the carrier. The opposition to the slot swap argued that United was not actually a corporate successor, rather the carriers were just trading assets. Additionally, British Airways also came out against the deal. Given that it had enjoyed competing against a weak Pan Am for years, British Airways was not eager to see a stronger competitor begin flying the same routes as them. On top of this, British Airways enjoyed an extensive and profitable codesharing partnership with United, one that would certainly be eliminated if United got access to Heathrow.

 

Despite a heated debate, the slots were finally approved to transfer to United, giving Pan Am much-needed income. However, with a war in the Persian Gulf, fuel prices rose, depleting the airline’s cash reserves. In early January 1991, the airline entered bankruptcy. Plaskett’s new objective became not to save the company, but to find a seller who wanted all of Pan Am. This proved to be a difficult challenge, with other airlines only interested in bits and pieces of the former giant. At one point, United and Delta proposed a joint bid, where each airline took what they needed from the company. Delta, lacking a global presence, would receive some of Pan Am’s transatlantic flights while United would receive its Latin American routes. However, the deal was ended over a dispute over who would have gotten the London to Miami route.

 

Photo of N172DN - Delta Airlines Boeing 767-300ER at LAS
Delta attempted to reorganize Pan Am with its funding, a venture that ultimately failed. Photo: Christopher Arboleda

 

Despite this, Delta still seemed interested in acquiring all of Pan Am. On September 1, 1991, the deal was closed, with Delta planning to allow Pan Am to operate as its own company after reorganizing and funding it. Quickly, however, dealing with dispirited employees and unprofitable routes, Delta canceled its plans to bail out Pan Am due to poor performance. With no more income, Pan Am was grounded once and for all.  On December 4, 1991, the final Pan Am flight touched down in Miami, marking the end of not only an airline, but an era.

John Pullen
John is an aviation enthusiast passionate about the airline industry and the marketing and financial strategies that allow airlines to rise and fall. With a strong background in the history of the industry as well as extensive knowledge regarding current industry events, his insights allow him to publish meaningful and insightful articles about the airline industry.

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