In their heydays they were America's flag carriers in foreign skies. Pan Am pioneered Pacific flights in 1935, spanning the sea in Clipper ships that pampered their customers like airborne grand hotels. And TWA, under flying mogul Howard Hughes, became a premiere transatlantic carrier after World War II. But now the once glorious airlines will be lucky to survive. After a decade-long downward glide, they have finally come to grief in the recession, buffeted by such forces as high fuel prices and foreign competition. TWA and Pan Am serve as painful lessons that even the strongest business empires will decline and fall unless they constantly adapt to changes in the world around them.
For TWA and Pan Am, one last hope is to consolidate, possibly with each other. But that proposal broke down last week in squabbling over terms. Pan Am had tentatively accepted a $375 million buyout offer from TWA chairman Carl Icahn, but then balked when Icahn demanded that the cash-starved carrier file for bankruptcy before he would give it a $100 million loan. An erstwhile raider, Icahn seemed spoiling for a fight to oust Pan Am chairman Thomas Plaskett. Said Icahn: "He just doesn't want to give up Pan Am. He's done a terrible job running the airline." Retorted a Pan Am spokesman: "Mr. Icahn has not made a credible offer."
How did two carriers manage to soar so high, only to plunge so deep into distress? Failure was foreign to Juan Trippe, the adventuresome World War I flyer who built Pan Am's aerial empire. Equipped with a global vision and deft lobbying skills in Washington, Trippe won airmail contracts that ultimately enabled Pan Am to link points from Buenos Aires to Bombay. Trippe had help from Charles Lindbergh, who in 1929 surveyed a 2,000-mile Cuba-Panama route that put down at airfields hacked out of jungle and malarial swamp.
Yet the airline was eventually undone by Trippe's single-minded pursuit of international business. After World War II, intense competition sprouted along Pan Am's once exclusive foreign routes. Many overseas rivals were subsidized $ by their governments. Without domestic routes to funnel passengers to its foreign flights, Pan Am saw its profits begin to plunge. In a gamble to win back customers, Trippe ordered 25 Boeing 747s for $600 million in 1966. But after they arrived, the 1973 Arab oil embargo pushed up fuel prices and a severe recession set in. "That was the start of a down-slide, and Pan Am never recovered," said Will Player, a retired Pan Am executive.
Pan Am has lost over $2 billion in the past decade and has managed to survive only by selling off prized assets, notably the Pacific routes that United Airlines took for $750 million in 1986. In what would be another major dismemberment, Pan Am is reportedly considering the sale of its lucrative East Coast shuttle to Northwest Airlines.
Like Pan Am, TWA first soared to prominence by carrying mail. Formed in the 1930 merger of Transcontinental Air Transport and Western Air, it became America's first coast-to-coast airline. TWA expanded rapidly under Hughes, who acquired the airline in 1939. But Hughes was an erratic businessman who delayed decisions and forced a string of TWA presidents to resign. He dithered so long over a major aircraft decision that his airline became the last large carrier to enter the jet age. Bankers finally forced Hughes to step down in 1960.
TWA also encountered stiff competition overseas. By the time of the 1973 oil embargo and recession, TWA was leaking red ink so freely that the Transportation Department urged the carrier to merge with Pan Am. Instead, TWA went on a spending spree, taking over such diverse firms as the Hardee's restaurant chain and Century 21 realty, which it placed under a holding company. When the diversification failed, the holding company spun off TWA to shareowners in 1984.