No one had a more sophisticated appreciation for the power of a computer network than Crandall. In his view unlimited code sharing would give British Airways the right to serve any U.S. city through the proxy of another airline. In fact it was better than that: British Airways could go anywhere in the United States without having purchased a single airplane, without having hired or trained a single employee, without having wangled the necessary slots. Crandall thought he had been played for a fool: the hundreds of airplanes he had bought in the last 10 years, the tens of thousands of people he had trained—what were they worth when British Airways could scoop up passengers all over the United States without spending a dime in capital?
“Do not do that deal!” Crandall told the transportation secretary. “Do not do it! It’s a dumb deal!” The issue of corporate succession was a red herring, Crandall said. Corporate successors? “Tell them that means us!” Crandall snapped. Crandall suggested an alternate bargaining strategy to Skinner. “If United and American don’t get certified to operate at Heathrow, then British Air isn’t allowed to land in the U.S.!”
Skinner held out. The British held out. Soon it was February 1991, and the bombs at last were raining on Iraq. At various points President George Bush, Vice President Dan Quayle, and Secretary of State James Baker weighed in separately in the Heathrow battle, to no avail. Plaskett announced that Pan Am, though still flying, would cut its workforce 15 percent. Soon it was March 1991, five months after Wolf and Plaskett had first come to terms on the Heathrow deal. Pan Am missed a $100 million debt payment to Bankers Trust, exposing it to further possible foreclosures. Still the British and U.S. negotiators talked, and finally, on March 11, 1991, there was a deal.
The United States had caved. United and American would be allowed to serve Heathrow, although with a ceiling on their capacity levels. In exchange the airlines of the United Kingdom would have unlimited code-sharing rights in the United States, enabling them essentially to list any of their flights under the name and flight number of a U.S. partner.
How great a concession was that, really, despite Bob Crandall’s protests? The cost of continuing to hold out had become too great. “Pan Am,” said Transportation Secretary Skinner, “literally would have gone out of business tomorrow.”
Within days of United’s first landing in Heathrow, Stephen Wolf told Plaskett to forget it. United would make no deals for the whole of Pan Am.
The search for someone to buy Pan Am whole quickly became like the old Jimmy Durante punchline: everybody’s trying to get in on the act. The unions, the creditors, various investment bankers acting officially and otherwise, and Plaskett himself were all bumping into one another in search of a way out. Through it all one company, hemming and hawing a bit—kind of shuffling, in fact—said that it might be interested in having a closer look. That company was Delta Air Lines.
That Delta was only now getting drawn into the great international takeover sweepstakes was perfectly in character. Delta was a follower—in fare moves, route applications, technology, takeovers, what have you. From the outside it appeared to have an unstinting company policy to let others innovate. Not that Delta was poorly managed—far from it. It controlled expenditures to the point of compulsiveness. (“We have zero paper-clip attrition,” an official once boasted.) There were no budgets because the chief executive reviewed every expenditure over $1,000. Borrowing money was against Delta’s corporate religion.
Its greatest strength was its people, in whom Delta bred a loyalty so powerful that it seemed almost creepy from the outside. Delta flight attendants were interviewed twice, then sent to the company psychologist, Dr. Sydney Janus, who explained that at Delta, “you don’t just join a company, you join an objective.” Like Southwest, Delta steeped its employees in corporate lore, dating to its origins as a crop-dusting service. Outside the headquarters building in Atlanta, a sky-high rendering of the triangular Delta logo looked down on the parking lot so that employees could not avoid the image as they marched toward the entrance. When employees reached the building, they entered by grasping a door handle in the shape of the corporate logo.
But Delta delivered for its employees. Delta people got jobs for life; the company had not laid off a soul in 34 years. There had been no BOHICA, no concessions, no b-scales. Delta paid its people exceptionally well, not only by the standards of the low-wage southern United States but by airline industry standards as well. On the initiative of the flight attendants, Delta’s employees had once organized the purchase of a Boeing 767—a $30 million airplane—from their own paychecks.
It was only such a corporate environment that could produce an airline chief executive officer from the ranks of the personnel department. Ron Allen—like all his predecessors in the chairman’s suite, a born-and-bred Delta product—fit Delta’s trademark “Southern Gentleman” image to a T. Allen had an instinct for the superior customer service on which Delta so justly prided itself. On one of the company’s new 757s Allen once rescued a passenger locked in the lavatory by using a knife from the galley. Considering flight attendants an especially critical link, he sat through endless presentations on such vital subjects as meal cart optimization. Until a recent diet, Allen enjoyed taking breakfast on the edge of the airport at a blue-collar hangout called the Dwarf House.
Despite its reputation for following, Delta to its credit had been among the earliest domestic U.S. airlines (though far from the first) to begin spreading its wings overseas. But Delta had not exactly taken the globe by storm. A Delta marketing executive in the late 1980s wrote an internal report saying Delta remained a nonentity in its destinations in Europe. The company suffered from consumers’ “total lack of knowledge of who and what Delta is.”
By April 1991 Allen was no longer content merely to do things the ponderous “Delta way.” Only so many international routes existed in the world, and they were changing hands fast. Allen was late getting into the game, but he had to get in, so when the pilots of Pan Am were taking it upon themselves to find a buyer for their company, Ron Allen was all ears.
By this time anybody who had ever thought of flying over water was sizing up the remaining pieces of Pan Am. Plaskett found himself shuttling all over Manhattan meeting with bidders, investment bankers, creditors, union leaders. The depressing part was that everyone wanted to pull off a chunk, but no one wanted to take on Pan Am’s people. They wanted nothing from Pan Am but little slips of paper: certificates, many written in foreign languages, some half as old as the industry’s most experienced executives, entitling the bearer to land airplanes and drop off or pick up passengers in a particular city, and to collect a fare for doing so.
The frenzy reached its peak on a Tuesday in New York—July 23, 1991. Plaskett excused himself from a meeting with Carl Icahn of TWA in order to join Ron Allen of Delta, who was waiting for him on the 46th floor of the Pan Am Building. Stephen Wolf of United had also made the scene. An extraordinary development had occurred: Delta and United were discussing a joint bid—for all of Pan Am. It was Tom Plaskett’s dream come true, for him and all of Pan Am’s employees. A joint takeover by United and Delta would pluck Pan Am intact out of bankruptcy court, and Delta and United could make a clean division of the assets and the liabilities and the people.
As twilight reached Manhattan, Plaskett went to work playing matchmaker.
Steve Wolf was suddenly stricken with déjà vu. He was, he realized, sitting in his old office on the 46th floor of the Pan Am Building, the same office he had occupied as a senior vice president for Pan Am a decade earlier, under Ed Acker.
But the place had lost its magic. The carpet had grown threadbare, the furniture upholstery was shiny and worn. And now here was Wolf, tearing apart the carcass of the once proud bird with the man from Delta.
What Wolf wanted very badly in this feeding frenzy was Latin America. Even in the downward slide of the past two years, even through Lockerbie and the Gulf War and the tarnishing of the Pan Am name, the Latin American operation had rem
ained profitable, the only profitable division in fact in all of Pan Am. Wolf knew those routes could never be duplicated from scratch, and buying them was the only way to match Bob Crandall’s move into South America on the old Eastern routes.
The irony was excruciating. Ron Allen and the rest of the Delta team were now down the hall, caucusing in Juan Trippe’s old conference room—the very room in which Trippe, 25 years earlier almost to the day, had sold Pan Am’s routes along the western side of South America to Braniff, which had subsequently sold them to Eastern, which had sold them to American—which was why Wolf had to get the other half, the eastern half, of the system that Juan Trippe and Charles Lindbergh had pioneered through South America.
Dividing the major pieces of Pan Am between them had been easy for Wolf and Allen: while United took Latin America, Delta would get a number of miscellaneous remaining Pan Am routes over the Atlantic, plus the East Coast flights. You get this, I get that. But there was one route on which the two men simply could not agree: London-Miami. Wolf would need it to feed Europeans into his new Latin American operation in Miami. He would need it to develop Miami fully into an intercontinental gateway for United. He would need it because Bob Crandall had picked up Continental’s Miami-London route when he got Eastern’s Latin division from Frank Lorenzo.
“Ron,” Wolf said to the Delta chairman, “you wouldn’t buy Latin America without the Europe feed. That’s got to be in my package.”
Remembering that these were markets they were trading for, and further realizing that the government frowned on corporations for subdividing markets, Wolf, at another point, turned to a United lawyer who was present.
“Is this legal?” he asked. (In fact, it was.)
Allen and Wolf were still hung up on Miami-London at 2:20 A.M., when Plaskett gave up on them.
“Screw it,” he said.
There would be no joint deal for Pan Am. Wolf and Allen, United and Delta, went their separate ways.
Psychological stress overwhelmed the Pan Am organization at every level. Absenteeism rose. A psychologist from Cornell found elevated levels of headaches, sleeplessness, and digestive disturbances, symptoms she attributed to “grief.” A flight instructor shot himself. “He loved that airline,” his daughter said. A memo from the head of flight operations urged pilots and others to remain on guard against the effects of career anxiety on safety.
Plaskett, for his part, was rapidly becoming persona non grata among the creditors of Pan Am. They began saying that he was hard to reach, that he was spending too much time at his home in Dallas, too much time playing racquetball or golf. Plaskett could not understand the criticism. “I have never refused to take a phone call,” he told The Wall Street Journal “I wear a pager. I carry a portable phone. As to my reputation for golf, I have played golf maybe twice this year.”
Leon Marcus, a lawyer representing some of Pan Am’s creditors, turned to Plaskett during one meeting and called him “evasive and incompetent.”
“Listen,” Plaskett snapped, “we think we’re doing the right thing. Anytime you want the keys, you can have them,” to which Marcus said he would gladly take them right then and there. Plaskett, furious, began to stalk from the room; another participant coaxed him back.
As unpopular as Plaskett had become, there was no disputing his talent for keeping Delta’s Ron Allen focused on what Pan Am had to offer. After failing to come to terms on a joint purchase with United, Allen was now more committed than ever to getting what he wanted from Pan Am and then some. Bidding principally against himself, Allen over the span of several days in late July and early August of 1991 raised his offer repeatedly, ultimately agreeing to buy nearly one half of the stock in a reorganized Pan Am. He agreed to take on many of Pan Am’s liabilities. Best of all, he said he would absorb a legion of Pan Am employees.
Finally it had happened. The Blue Meatball strategy had worked. Delta was bailing out Pan Am, what was left of it. Pan Am would continue to fly—as an independent company! Delta would control it, throw money into it, reorganize it, and nurture it. The bidding process had begun at only a few hundred million; by the time it was over, Delta had agreed to cough up well over a billion—$1,289,000,000, to be exact—for Pan Am’s remaining European routes, its East Coast service, and a controlling interest in the storied Latin American operation.
The ink was barely dry when Plaskett was pushed out the door by the creditors. Just like that, he was gone, left without a job in aviation for the first time since he had walked into American Airlines two decades earlier.
There was now one less player to take a chair the next time the music stopped.
Delta’s purchase of Pan Am’s East Coast routes closed on September 1, 1991. Delta took possession of Pan Am’s remaining routes over the Atlantic on November 1, 1991. Although none of those routes went to Heathrow, they were sufficient in number to make Delta, in conjunction with the transatlantic routes it already had, the biggest airline to Europe. It now flew to Brussels, Bucharest, Geneva, Helsinki, Moscow, Rome, Tel Aviv, and several other new destinations. But the routes were losing money, and the Pan Am employees acquired with them were cranky and dispirited.
And a month after that, on the same day that the remnants of Pan Am were scheduled to emerge from bankruptcy as an affiliate of Delta, Ron Allen said never mind.
The rest of the deal, he announced, was off. Delta would have nothing further to do with Pan Am. There would be no more money for Pan Am, no purchase of equity, no saving of the 7,500 jobs remaining in the company. Pan Am’s passenger traffic in November, Delta said, was breathtakingly below forecast. There was no way Delta could be expected to go through with the deal after that kind of performance.
The following day, December 4, 1991, a Wednesday, the Clipper Juan Trippe taxied through a gauntlet of water cannons and departed JFK for the last Pan Am flight from New York. Later the last Pan Am arrival reached Miami, where it made a low pass over the runway—a farewell to the world—before circling back to land. Pan Am employees waited at the gate, standing at attention.
Pan Am at last was dead.
The following evening back in Dallas, Tom Plaskett appeared before the Harvard Business School Club of Dallas. His remarks were full of blame casting and contrition.
While some may preach “survival of the fittest” and “that’s just business,” in my view what happened to Pan Am is a tragedy, to be shared by many who brought it about—its board of directors, its management, its unions, our government, and fate. Our experiences in recent months did not swoop down on us suddenly, nor were they something unique to Pan Am. Indeed, the result was the culmination of a long process and series of events that began in 1978. That’s when the drama really began. That’s when the old script was thrown out the window and all of us in the airline industry were pushed out on stage together and told by our government to improvise.
Now, more than a decade later … believe me, the show is far from over.…
Whether you blame it on deregulation and excessive competition, recession, poor management, recalcitrant unions, or just plain bad luck, the reality is that the U.S. airline industry is in terrible trouble.
In my view the state of our airline industry is a national embarrassment.
The judge in the bankruptcy case scheduled an emergency auction of Pan Am’s assets a few days after Pan Am’s final flight. Feverishly lawyers for all the principal airlines in the country milled around the courtroom in hopes of grabbing an asset here, an asset there, something to help fill in the route maps of their clients. Jeffrey Kriendler, a 45-year-old Pan Am executive who had experienced a stroke amid all the stress of the preceding months, turned out to observe the melancholy spectacle. “It was like a piece of flesh up there,” he later said.
Because the scene was such a zoo, Stephen Wolf could not let himself attend. He was too conspicuous; he was sure people would recognize him. He remained instead at the Union League Club; his aides had to race to the courthouse pay phones to fill him i
n on what was occurring and obtain his instructions.
Before the night was out, the Latin American division of what was once Pan American World Airways wound up in the very large, very elegant hands of Stephen Wolf. The price was only $135 million, much less than United had offered Plaskett weeks earlier for the identical assets. Like Bob Crandall, Wolf was, at last, everywhere.
Each of them committed to victory, Wolf and Crandall had played to a tie. There was one round left.
CHAPTER 19
HARD LANDING
The ranks of the dearly departed were swollen by the early 1990s. Tom Plaskett was an entrepreneur in Dallas, devoting much of his attention to commercializing a breakthrough in car battery technology. In a sense he had returned to the automotive industry, which he had left to join American Airlines in 1974.
Frank Borman, also a car lover, was living in Las Cruces, New Mexico, helping to run the family automobile dealership. Charlie Bryan, laid off by the International Association of Machinists in the wake of Eastern’s failure, grew a beard and worked occasionally as a golf course groundskeeper in Miami.
Marty Shugrue, still the court-appointed trustee in Miami, was studying a plan to put Eastern back in the air. Gerald Gitner, once his fellow vice chairman at Pan Am, was an investment banker raising capital for small and medium-sized businesses, including a helicopter manufacturer in Russia. Their boss at Pan Am, Ed Acker, went back into the business directly, purchasing a small commuter operation on the East Coast and turning it into a major feeder operation for United Airlines at Dulles Airport. Acker strolled into his office in the late morning in a cardigan sweater, led by a pair of pug dogs on a leash.
Dick Ferris was also a successful entrepreneur. He went into business with golfer Arnold Palmer and sports agent Mark McCormack, purchasing a Learjet and taking over a private airport in suburban Chicago. Ferris regularly commuted to the golf course from his home in suburban Chicago in a Porsche 9285-4, taking his corners fast.
Hard Landing Page 54