When Pan American World Airways sells its Inter-Continental Hotel chain Sept. 30 for $500 million, the financially ailing airline's bankers will be among the immediate beneficiaries. f
Pan American announced early this morning that the big London conglomerate Grand Metropolitan Ltd. will but Inter-Continental, one of the few profit-making operations at Pan Am, whose chief asset is its money-losing airline.
As soon a Pan Am receives the cash from Grand Metropolitan, it will have to repay $88 million in outstanding debts -- most of it to Citibank and Morgan Guaranty Trust Co. -- and will lose a $200 million credit line that is to go into effect Oct. 1.
Industry sources said heavy producing from bankers forced Pan American to sell Inter-Continental. Although the company was reluctant to sell its major profit source -- the hotel chain earned a $23.8 million during the first half of the year while the airline lost $240 million -- the reduced lines of credit that Pan Am's bankers were willing to grant the company probably would not have been big enough to see the airline through its slow winter season.
Furthermore, because the loan commitments would expire Dec. 1, Pan Am could not be sure it would have any borrowing ability left after that.
"It needs this $500 million to give it enough time to see if Pan Am can turn the airlines around," an industry analyst said.
Many analysts and bankers think Pan Am will recover. Several of its major lenders have lost so much confidence in the company that they did not even participate in the recently negotiated $200 million credit. Banking sources said that both Chase Manhattan and Continental Illinois, two of the country's most important commercial lenders, will make no more loans to Pan Am.
Citibank, the country's biggest, was the lead institution in the group -- called a syndicate -- of banks that agreed to stiff terms for the $200 million credit line that now will not be activated because of the sale of the hotel chain.
Presumably, however, Pan Am will be able to tap an intermediate line of credit of $75 million that the banks granted as a bridge between Sept. 11, when the banks and Pan Am are to sign the loan documents, and Oct. 1, when the new credit line take effect. but as soon as the sale to Grand Metropolitan is completed, Pan Am will have to pay off whatever it borrowed from that $75 million commitment.
Pan yam must pay seven-eighths of a percentage point more than Citibank's base lending rate (commonly known as the prime rate) for any money it gets from the banks. At today's rates, the money will cost Pan Am 21.375 percent, or nearly $214,000 a year for each $1 million it borrows.
Pan American, whose routes wre nearly totally overseas, last year merged with National Airlines to give itself domestic routes that also could feed Pan Am's overseas flights. But the merger was fraught with problems. The companies did not mesh easily, either on a technical level or on a labor level. Last year, in order to come up with cash, Pan Am sold its headquarters building in midtown Manhattan for $300 million. It still lost $248 million last year.
The company has been trying to sell aircraft. With air travel down sharply in recent years, the company has more planes than it needs. But so do many other airlines, and Pan Am has been unable to sell aircraft to come up with needed cash. Therefore it was forced to sell its profitable hotel chain, which operates 83 hotels worldwide.
The company has a cost-cutting program it will put into effect starting next month, reducing service by about 10 percent. It will lay off employes and has asked its union employes to take a 10 percent wage cut. Leaders of most of Pan Am's five unions have said they will recommend to their members that they accept a wage cut. Pan Am also plans to consolidate operations.