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Money Gremlins. Thanks to the financial acumen of Smith and Hogan, American does not have to worry about one big jet-age problem: how to pay for the new jets. American financed its jet purchases three years ago on the best terms in the industry, with $135 million long-term loans from Metropolitan Life Insurance and Prudential Insurance, saved $80 million in capital outlay by leasing its jet engines instead of buying them, the first in the industry to do so. While Pan American and United have also worked out their jet financing problems, most other U.S. airlines just do not have the money to pay for the new jets. With earnings down and expenses up, they will be hard pressed to find sympathetic lenders, may have to cancel or cut back their orders.
Once airlines could have footed part of the bill through the sale of old equipment, but even here the picture is dark. Most airlines that could pay for the big, expensive Super Constellations and DC-7s that the airlines want to sell are ordering jets themselves. But C.R., getting a jump on the industry again, has found a home for some of his prop planes. Last week General Aircraft and Leasing Co., which deals in new and used aircraft, announced that it will buy 25 DC-7s from American.
Easy to Sell? How will the airlines fill the extra seats made available by the greater speed and capacity of the new planes? In the next three years, the number of seats will nearly double. Furthermore, the annual traffic increase of 15%, which alone would not fill all the seats, did not take place this year. American and the industry hope to get more people to fly more often, attract the 70% of adult Americans who have never flown. Despite the growth of the industry, the market has hardly been scratched: some 250,000 travelers account for 40% of all U.S. flying. Says C.R.: "I think jet transportation will be the easiest thing to sell that we ever sold."
To sell their extra seats, the airlines must find a way to overcome public wariness of the new jets, with their great speeds and unfamiliar features. A recent travel-market survey by the University of Michigan showed that half the people polled would not like to ride in jets, although 62% had never flown at all. Ignorance went hand in hand with coolness to the jets: more than three-quarters who disliked them either had no idea when jets would be flying in the U.S. or guessed wildly wrong. Of those who had flown before, 72% wanted to ride in a jet.
Even United Air Lines President Patterson admits: "There are quite a few people who are not going to run out and jump in a jet right away. They are going to wait and see." Nonetheless, American Airlines is already booked solid for its first two months of transcontinental jet flights, and Pan American's bookings are running double last year's.