Air Transport World

Pan Am-United deal presents stiff test for U.S. government. (Pacific division sale)

Pan Am/United deal presents stiff test for U.S. government

More than any other private deal since 1978, Pan American World Airways' proposed sale of its Pacific division to United Airlines will test what the U.S. government means by airline deregulation. Everyone will be watching the outcome of a policy examination that includes the U.S.' biggest domestic airline, its biggest international airline and bilaterals with several nations, including the one with Japan.

The two airlines announced the $900 million deal on April 22. They told Transportation Secretary Elizabeth Dole about it only shortly before a joint press conference in Washington. UAL Inc. Chairman Richard Ferris and Pan Am Chairman Edward Acker said they expect approval by the end of the year. Under that timetable, Department of Transportation would take no more than the six months permitted under procedural rules, and President Reagan no more than two months to act on DOT's recommendation.

Good for both sides

Ferris and Acker claim this deal is a "win-win' situation, i.e., good for both sides. The reasons are fairly obvious. Despite the fact that Pan Am earned a profit on its Pacific division the last two years ($59.3 million in 1984), the income isn't nearly enough to bolster quickly the carrier's financial position or cover its future needs.

Pan Am requires money, and a lot of it, if it is to remain a going concern. The company lost more than $750 million in the last four years, lost about $140 million the first quarter of this year and Acker says 1985 probably will be another losing year. These losses are despite the sale of significant assets such as aircraft, a hotel chain, the headquarters building and airport facilities. The $900 million dollar infusion--made up of $750 million cash and $150 million worth of future aircraft lease payments United will take over--will help reduce some of Pan Am's $1 billion debt, and give it a temporary cushion. What the cushion is used for--aircraft, operating costs or other purchases--depends on how much Pan Am has actually righted itself.

And, despite raised eyebrows over the price Ferris is paying, the benefits to United are equally obvious. Otherwise, Ferris' board would have stopped him three years ago when he first broached the Pacific division idea. …

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