Braniff International and Pan American World Airways, two airlines with financial troubles, unveiled an unusual "joint operating agreement" yesterday under which Pan Am would operate most of Braniff's routes in South America for the next four years.
Affected would be Braniff's very extensive operations between six cities in the United States and Argentina, Bolivia, Brazil, Chile, Colombia, Equador, Panama and Peru, and many routes within South America. Braniff intends to retain its operations to Venezuela. Pan Am currently flies to Argentina, Brazil, Chile, Panama, Uruguay and Venezuela. The two U.S. airlines currently compete directly on several routes that would be affected by the proposed arrangement.
Under the agreement, which is subject to the approval of the Civil Aeronautics Board and the affected foreign governments, cash-short Braniff will get at least $30 million from Pan Am--the first $7 million immediately--and rid itself of operations that have lost about $22.5 million over the last two years. Altogether, Braniff lost $160 million last year. Braniff could get all the routes back in four years under the agreement.
"This agreement will help Braniff to survive and regain our financial vitality . . . . while preserving our South American route network for future development," Howard D. Putnam, Braniff's chairman and president, told a press conference here yesterday. It would be done "without asking for a government bailout," he added.
He said the plan would allow Braniff to get rid of the eight obsolete narrow-body McDonnell-Douglas DC8-62s it is using on its Latin American routes and to trim from its rolls 2,300 Braniff employes whose jobs would be affected by the route cutback. Of the 2,300, about 800 are ground employes based in South America who would be picked up by Pan Am under the agreement. Braniff's work force, already down to 9,500 from a high of 15,000 a few years ago, will be shrunk by another 700 through 1982, Putnam said.
C. Edward Acker, Pan Am's chairman and chief executive officer, said the agreement "not only assures continued service by a U.S. carrier on Braniff's South American routes, but will provide Pan Am with substantial additional revenues."
He said that Pan Am already has a significant presence in South America and has available wide-body Lockheed L1011 aircraft that could compete effectively on the routes; the South American airlines generally are using wide-body aircraft already. Acker noted that the L1011 and the DC8 burn the same amount of fuel per hour, but that the L1011 holds 85 more passengers.
Acker also said that Pan Am would be able to implement the services with a minimum of expense. Although it would pick up Braniff's 800 ground employes, no additional Pan Am employes would be necessary because the airline expects significant productivity improvements from its employes as a result of current negotiations for work-rule concessions, he said.
Pan Am expects to make a profit this year on the affected routes, which would be taken over on April 25 if the agreement is approved, Acker said. Ironically, Acker worked at Braniff from 1965 to 1975, during which he negotiated with Juan Trippe, the late head of Pan Am, to obtain for Braniff some of the South American routes that became the backbone of Braniff's system--routes Pan Am would take, at least temporarily, under the agreement.