NEW YORK, JAN. 8 -- Pan Am Corp., which pioneered U.S air travel to Asia, Europe and Latin America, sought federal bankruptcy court protection from its creditors today -- a victim of chronic cash shortages, high fuel costs and a failure to build an airline that could compete in today's deregulated environment.
Pan Am Chairman Thomas Plaskett said the carrier plans to continue its normal schedule of 400 daily flights while it attempts to reorganize its debts under Chapter 11 of the federal bankruptcy code.
The filing came hours after Pan Am received a fresh cash infusion of $150 million from lenders and only hours before it got tentative approval for the sale of its prized transatlantic routes to United Airlines. Both steps are critical to the survival of a carrier that has lost some $2 billion over the past decade.
The financing, to be provided by United along with Bankers Trust Co., is designed to allow Pan Am to keep up with day-to-day costs until a proposed sale of its London routes can be completed.
Pan Am's Plaskett described the bankruptcy filing as the start of "a new ball game" and "a welcome chance to break ... with a financially troubled past.
"It will allow us to reorganize to better position our company in a very competitive and increasingly concentrated industry," he said. It also appeared to knock out the prospect of a merger between Pan Am and rival Trans World Airlines, which TWA Chairman Carl Icahn had proposed.
With its filing, Pan Am -- the nation's seventh largest carrier -- follows several other airlines into bankruptcy court. Continental Airlines filed for bankruptcy reorganization last month, Eastern Air Lines has been in bankruptcy proceedings since March 1989 and two smaller airlines, Braniff and Presidential Airways, were forced to sell off their assets and liquidate after initially filing under Chapter 11.
The bankruptcy filings are part of a major shakeout in the airline industry that has prompted fears among some regulators and lawmakers that competition may be endangered. Recent events, including the spike in fuel costs that followed Iraq's invasion of Kuwait and the current recession, have accelerated the speed at which the shakeout is occuring.
For Pan Am, however, the problems began long before the industry's current shakeout. The 63-year-old carrier has spent much of the last decade on the verge of financial catastrophe, difficulties that forced it to sell some of its most valuable assets, including the Intercontinental Hotel in New York, where today's press conference was held; the airline's Pacific division; its landmark Manhattan office building; and its London routes.
In the early 1930s, Pan Am pioneered commercial crossings of the oceans with flying boats -- the fabled "China Clippers." And it opened thejet age in 1955, with a bold order for the first jetliners -- 25 Douglas DC-8s and 20 Boeing 707s.
But its downfall began in the late 1970s and continued in the 1980s. The carrier failed on two fronts -- it never proved successful at fending off increased competition on its international flights from powerful carriers like American, United and Delta, as well as some European airlines. At the same time, it failed to develop a strong domestic route system that would enable it to feed its international flights.
The deal with United marks its latest attempt to rebound from these losses. Pan Am has already received $110 million in cash from United, with another $290 million more due when the deal is complete.
The U.S. Department of Transportation moved the deal a major step forward today, announcing its approval of the transaction.
"The transatlantic market is large and served by numerous strong and well-financed carriers," the department said. "A primary and fundamental goal of our international aviation policy is to enable U.S. carriers to compete as vigorously as possible with foreign carriers in this market."
Despite the close timing of the two actions, sources in government and industry said they were not coordinated. Several sources said Transportation Secretary Samuel Skinner was caught by surprise by the speed of the Pan Am filing although he was aware that it was possible at some point.
Skinner had been the object of a major lobbying campaign on behalf of the sale by some of Washington's highest priced lobbyists, including Kenneth Duberstein, once chief of staff for President Ronald Reagan, and William Coleman, transportation secretary under President Gerald Ford and now a member of the Pan Am board.
But the deal still must meet the approval of British authorities, and that of the bankruptcy court.
U.S. Bankruptcy Judge Cornelius Blackshear declined Pan Am's request that he issue an order within 24 hours of its filing approving both the financing and the sale of Pan Am's transatlantic routes, scheduling both issues for hearing on Thursday.
But Blackshear approved several other orders in an attempt to ensure normal operations at Pan Am.
If Pan Am completes the route sale to United, it may have a chance of emerging from Chapter 11, several airline analysts said today.
"I think the chances are pretty good," said Paul Karos, an airline analyst with First Boston Corp. Although creditors and bondholders might "take a hit" in the reorganization, he said, they might fare even worse if the airline were liquidated, given the dismal state of the airline industry.
Plaskett said the company is also seeking a buyer for the relatively healthy Pan Am Shuttle, which is a separate subsidiary.
Pan Am reportedly has been negotiating with Pacificorp, a utility holding company, which is said to be interested in acquiring the shuttle and contracting with Northwest to operate it.
Although Plaskett said a merger with TWA was no longer in the cards, he did not rule out the possibility that Pan Am might combine with some other carrier. In fact, some industry analysts said the bankruptcy filing actually could increase the chance that Pan Am will be acquired, since it eliminates the need to pay shareholders and makes it cheaper to pay off Pan Am's debts. Today, Pan Am stock was down $0.37 1/2 to 0.75.
John J. Kerrigan, director of the Transport Workers Union Air Transport Division, said he believes that the bankruptcy filing will "lead to a cash-positive airline and then to a merger or acquisition."
Kerrigan said the bankruptcy filing was good news for Pan Am's approximately 30,000 workers, who have lived with uncertainty. Pan Am has 1,024 workers in the Washington metropolitan area.
The federal Pension Benefit Guaranty Corp., listed as Pan Am's largest creditor, said it will file a claim on behalf of the airline's 38,000 active and retired workers to protect their pensions. The company's three pension plans are underfunded by about $800 million, according to the agency.
Staff writer Don Phillips contributed to this report.