Skygods: The Fall of Pan Am

by Gandt, Robert

  The engine troubles had already sparked an ugly fight between Boeing, Pratt & Whitney, and Pan Am. Who was going to take the hit for the delays caused by the misbehaving engines? Pan Am threatened to withhold payment on the first 747s and to parcel out the rest as “progress payments” until the problems were worked out. Boeing had already gone out on a limb with the 747 and could not afford such an arrangement. Boeing engineers blamed Pratt & Whitney. Pratt & Whitney blamed Boeing. The specter of millions of dollars of lost revenue and the subsequent lawsuits hung over the offices of all three corporations.

  The problem seemed to be that the engine case was subject to bending. The beer-barrel-shaped JT-9D engine weighed nearly ten thousand pounds and had a massive forty-six-blade fan section in front, eight feet in diameter. Nothing that size had been mounted to a commercial airplane before. More than 70 percent of the JT-9D’s power came from the fan section. Under high-power situations, the normally round engine casing took an unround shape, distorting all the clearances and making the engine unstable. “Ovalizing,” the Boeing engineers called it. It was a perplexing problem. Pratt & Whitney’s engineers went into an all-out emergency program to fix the engines.

  In the original deal between Trippe and Allen, Pan Am was supposed to have its 747s in service twelve months before its competitors, primarily TWA. Now that lead, for which Pan Am had already paid millions of dollars in deposits, was evaporating. Here were Pan Am’s new 747s fresh off the assembly line—without engines. They filled up the Boeing ramp, their naked engine pylons hanging empty. The engineless jets looked like tethered pterodactyls. The Pan Am pilots were calling them 747 gliders.

  Meanwhile, Pan Am was having even worse problems in Washington. Since the China Clipper days, Pan Am had enjoyed a virtual monopoly on its Pacific operations. All that was about to change. For more than a decade an overseas airline decision called the transpacific route case had been debated before the Civil Aeronautics Board, the five-member panel empowered to parcel out international route authority. Virtually every American domestic airline, cargo hauler, and nonscheduled carrier, as well as a host of regionals—twenty airlines in all—had applied for authority to fly Pan Am’s Pacific routes. The transpacific case was the longest and most complicated in the history of the CAB. By 1968 the mountain of briefs and hearings had swelled to over ten thousand volumes.

  Over the years, Pan Am had managed, mostly through heavy lobbying in Washington, to maintain a monopoly on the routes it had pioneered. Under the Truman, Eisenhower, and Kennedy administrations, a loose formula of limited competition on overseas routes was applied. Pan Am, it was understood, should have to contend with one other major competitor on any particular segment—TWA in the Atlantic, Northwest in the Pacific, Braniff in Latin America.

  Lyndon Johnson changed all that. Under LBJ, the route award process became purely political. All members of the CAB were political appointees. Three were from the majority party, the Democrats, and two from the Republicans. The chairman was appointed each year by the President. During the transpacific route case hearings in 1968, LBJ had inserted a fellow Texan, John Crooker, a friend of Texas-based American Airlines and Braniff Airlines, into the chairmanship.

  Nineteen sixty-eight was an election year. By that fall the transpacific case had metamorphosed into an ugly frenzy of political favor-buying and debt-paying. Each CAB appointee had political obligations to his own party and to his home state congressmen. Members of Congress, in turn, owed fealty to their home-based airlines, which were conspicuously heavy campaign contributors. The applicants deployed brigades of lawyers and lobbyists. Contributions flowed like honey from airline treasuries to candidates’ coffers.

  In the Pan Am Building there was a wringing of hands and a feeling of moral outrage. Campaign contributions? Buying what they had already earned? Neither Pan American the corporation nor its officers or directors were conspicuous contributors to political campaigns. Pan American was founded in an old-fashioned, Boy Scoutish sense of its own correctness, and that attitude was now personified in the chairman himself, Harold Gray.

  Pan American flying boats had surveyed the first Pacific routes. Pan Am had constructed each of the island bases like stepping-stones to the Orient. In time of war, Pan Am had conveyed supplies to the Pacific beachheads. Pan Am had paid in blood for its experience. The charred shell of Ed Musick’s Samoan Clipper still lay on the ocean floor off Pago Pago.

  Now here were the Johnny-come-latelies—upstarts like Continental and American and United and Eastern—who actually thought they could just step in and begin flying those routes. It was unthinkable!

  Gray, the CEO and chief Boy Scout, was inclined to ignore the whole distasteful mess. But down the hall resided the chairman emeritus, who, though officially retired since May 1968, still came in to his office nearly every day and attended each meeting of the board of directors. Trippe had long been watching and worrying about the transpacific case. Now the old man came out of his sanctum to render counsel. It was time to twist some arms, he advised Gray.

  What Trippe had in mind, of course, was what used to work in such cases: serious lobbying. And he had somebody in mind.

  “Send Halaby,” Trippe said. After all, that’s what he had been hired for.

  Times had changed. What used to work back in the pre-jet days didn’t work anymore. The era when Juan Trippe could pick up a phone and influence a route decision was not only over, it had left a lasting resentment against Pan Am.

  The last time anyone could remember Washington actually doing something for Pan Am was in 1950. That was when Trippe applied for the right to buy out an American Airlines subsidiary called American Overseas Airlines, which was operating a North Atlantic service in competition with Pan Am. The CAB rejected Pan Am’s merger application, but in a surprise move the Democratic President, Harry Truman, reversed the CAB’s decision. Trippe was allowed to buy out his competitor. It was the last break Pan Am would ever receive from an occupant of the White House, Democrat or Republican.

  Most of Pan Am’s domestic competitors lived under an umbrella of protection from their own states’ congressmen. Florida’s senators argued hotly for the rights of Eastern and National airlines. Texas gave its wholehearted support to American. TWA enjoyed the backing of its senators from Missouri, and Northwest was boosted by Minnesota. California’s senators usually threw their support to Continental and to United, which had established a giant maintenance base in the state.

  Pan Am had no such advocacy. As a New York-based, international enterprise, the airline had no partisan representation in Congress. There were simply too many other corporations with New York offices for the state’s congressmen to openly promote Pan Am. Pan Am was a political orphan.

  Even the contractors joined the transpacific fray. The manufacturers of airplanes, engines, and components had much to gain, because the winners—the Pacific awardees—would immediately be expanding their fleets and upgrading their capacity. It meant new orders for 707s and DC-8s.

  Which was another irony. The very vehicles that now made it possible for the Pacific applicants to intrude into Pan Am skies—the long-range 707s and DC-8s—had been placed in service by Pan Am.

  Jeeb Halaby, now the president of Pan Am, dutifully went to Washington. He spent most of the summer of 1968 visiting congressmen and the White House. He took his place in the long queues of lobbyists waiting to make their pitch. When the CAB finally completed its deliberations and sent its recommendations to the President, the same army of lobbyists lined up at the White House.

  In the waning days of his presidency, Lyndon Johnson handed down his decision. It was classic LBJ: reward your friends, punish your enemies. The right to serve Hawaii was granted to Braniff, American, Northwest, Continental, and Western. Flying Tiger was awarded Pacific routes. Continental was given an extensive Pacific network. TWA received new Pacific authority and round-the-world rights.

  For Pan Am it was a stunning setback. For Jeeb Halaby it was a personal
blow, for it highlighted his true status—or lack of status—with Lyndon Johnson’s White House. For Juan Trippe the decision confirmed the long-festering Democratic contempt for Pan American that had begun back in the thirties with venomous old Joe Kennedy, passed on to his son, and had now swelled to its full nastiness under Lyndon Baines Johnson.

  But there was still hope. The incoming President, Richard M. Nixon—a Republican—announced that he intended to review Johnson’s decision. In the Pan Am Building there was subdued optimism. Surely Pan Am could expect better treatment from the Republicans.

  Nixon was true to his word. He did review Johnson’s route decision. And he changed it. In the style that epitomized Nixon’s own career: he passed out route awards to his friends and he meted out punishment to his enemies.

  The most significant change was to remove Continental’s windfall and grant American Airlines a plethora of South Pacific destinations. For Pan American, it made no difference. The Pacific fortress had been breached.

  Halaby left Washington in disgust. “The transpacific case was the lowest point in the long history of the regulatory process,” he said.

  The shadows beneath Harold Gray’s eyes were darkening. His face had become a reflection of the pain that infused his daily life. It was no longer a secret on the forty-sixth floor that the chairman suffered from cancer and was undergoing cobalt treatments. With a grim stoicism, Gray went about his business with needles stuck in his leg veins.

  Harold Gray’s declining health mirrored the Pan Am balance sheet. The first two quarters of 1969 netted a loss of $12.7 million. The loss was forecast to double before the end of the year. For the first time in thirty years the board of directors voted to omit the second-quarter dividend that Pan Am shareholders had learned to expect. Domestic airlines and start-up nonscheduled carriers were devouring Pan Am’s international market share.

  The prediction on which Juan Trippe rationalized his fleet of 747s—that traffic would increase by 17 percent a year—was not coming true. By l970 international air traffic was growing hardly at all, only l.5 percent. A recession gripped the United States economy and had spread to Europe. Tourists were staying home. Businesses were cutting back on travel. The great boom in air travel that had begun when Juan Trippe introduced jets had run its course.

  Gray wanted to close his eyes and get away from it all—the troubles, the pain, the frustration of trying to solve problems that didn’t fit on his slide rule. But Harold Gray was a man who had lived his life bound by duty. Before he left, he wanted to turn things around. “I want to get the company profitable again,” he told a vice president. “Then I’ll go back to my cellar and finish my inventions.”

  But how could he leave? He had the same old nagging doubts about Halaby. “Jeeb isn’t ready yet,” Gray was telling his closest associates. “I haven’t trained him enough.”

  Which was true. Halaby hadn’t learned very much about the airline, and it was mostly Gray’s doing. During Halaby’s apprenticeship as vice president, miscellaneous, he had been deliberately excluded from the operational affairs of the airline. Even as president, under Gray, he was an outsider. He was still snubbed by the old hands, who regarded him as a slick bureaucrat who had sneaked in the back door. Halaby’s major assignment was still in Washington, as a lobbyist.

  Duty-bound or not, Harold Gray could feel his life ebbing away. He was losing his fight against illness. In November 1969 the old Skygod—the first Master of Ocean Flying Boats—informed the board that he intended to retire. He was turning over all his duties to his successor, Najeeb Halaby.

  Chapter Fifteen

  Just Call Me Jeeb

  It was like trying to bail out a sinking ocean liner with a sand pail.

  —NAJEEB HALABY

  Jack Waddell, Boeing’s chief test pilot for the 747, didn’t know what to make of this guy. Here was the CEO of Boeing’s prime customer—and he wanted to fly the 747. Not ride in it, or inspect it, or be briefed about how it flew. He wanted to fly the damned thing. Himself. The only people who got to fly the 747 were test pilots.

  But this guy Halaby was a bit odd. He was a test pilot.

  Now that Jeeb Halaby was the chairman at Pan Am, he liked to fly himself and his entourage around the country in one of Pan Am’s two-engine Falcon business jets. But nobody at Boeing had ever seen the CEO of one of its customer airlines come out to Seattle to personally take the yoke of a new airliner.

  Off they went in the 747, Halaby in the left seat—the captain’s seat—Waddell in the right. Waddell talked him through the start procedure and fed him the numbers for the takeoff and climb. Halaby did the rest. The old Navy pilot hadn’t forgotten how to fly.

  First they tried punching through the turbulence that surrounded Mount Rainier, just to see how the big jet handled. Then they went to altitude. Halaby put the 747 through steep turns, pulling it so hard it buffeted. He tried flying with one engine pulled back, and then with two.

  They flew back to Moses Lake, and Halaby practiced landing and taking off. He tried it first with all engines running, then with one out. When he’d finished wringing the big jet out, they returned to Boeing Field.

  Climbing down the access ladder, Halaby wore his old test pilot grin. He’d had a grand time, he said. The 747 was a hell of a good airplane.

  It was clear that Jeeb Halaby was a different kind of CEO. One thing different was that no one was afraid of him. And that was turning out to be a serious problem.

  Trippe, the Imperial Skygod, had been an efficient despot. He commanded both fear and loyalty. Gray had been even more coldly efficient than Trippe. With the two old tyrants, you knew what to expect in the way of inspired leadership. Do your job and you will share in the glory. Screw up and your head will become disunited from your body.

  After the forty-two-year reign of the Imperial Skygods, the softer vision of Halaby’s Camelot seemed, at first, a refreshing change. Instead of rule by fear, with your head gracing a platter when you erred, the new regime was talking love. You were supposed to love your associates. You loved your customers. By inference, it meant you were even supposed to love the bureaucrats, bastards that they were, who were systematically dismantling your route structure.

  Jeeb Halaby liked being liked. Even though he accepted the outward trappings of the Skygod cult—the pomp and glitz of running the Imperial Airline—he didn’t display much of the Skygodly inner steel. Jeeb smiled a lot. He held heart-to-heart meetings with flight attendants and mechanics and passenger service agents. He traveled in economy class in order to hear passengers’ complaints.

  And that was why so many of his subordinates began to hate him. It simply wasn’t the way things were supposed to be. In the offices of middle and upper management, fear gave way to anarchy. Gone was the mailed fist, and gone with it the raw fear that had unified them and lent purpose to their labors. The serfs were swarming into the courtyard.

  They squabbled among themselves. Departments fought with departments. Divisions fought with divisions. Vice presidents sniped at vice presidents. There was disunity in the house of Pan Am, and the rumors began leaking out to the business press.

  Halaby was instituting changes at a dizzying pace, mostly on the recommendations of outside consultants. Over thirty senior executives departed Pan Am in the first two years after Halaby took the chairmanship. Halaby replaced most of them with outsiders. Most had no airline experience.

  One of the trendy ideas Halaby embraced was an “office of the president.” Instead of a single president acting as a chief operating officer, four separate vice presidents were supposed to act in unison, sharing power as Halaby’s executive operating unit. His four “co-presidents” were James Leet, vice president for marketing; Frank Doyle, in charge of personnel and administration; Richard Knight, who was vice president for finance; and Frank Davis, whom Halaby hired away from Kaiser to run operations, engineering, and maintenance.

  It didn’t work. The “office of the president” amounted to manage
ment by committee. The four rivals butted heads like mountain goats.

  As he watched Pan Am’s losses mount, a hard reality was becoming clear to Jeeb Halaby. Without domestic routes of its own, Pan Am was being eaten alive by its competitors. Pan American had no domestic routes because it was treated as an international carrier—the “chosen instrument.” In exchange for that grand status—and exclusivity on its overseas routes—Pan Am was denied access to the American domestic market.

  But the formula—the exclusivity of Pan Am’s overseas market— was as extinct as the flying boat. It had been thrown to the winds by the CAB and the White House. The door to the international market was swung open to the domestic airlines—but it was a one-way door.

  Pan Am was still denied a domestic feed to its overseas routes. There was still no nonstop service from the East Coast to Hawaii. No route between New York and Miami. Not even a hearing would be granted on Pan Am’s application for coast-to-coast service.

  It was the same old political problem. Every application for domestic authority by Pan Am was trounced by the powerful lobbies and political patrons of the domestic carriers. Wasn’t Pan Am supposed to be purely an international airline? And wouldn’t it be unfair to allow an international airline like Pan Am to also feed at the domestic trough?

  But what about the so-called domestic airlines flying international routes? Wasn’t that discriminatory, giving them Pan Am’s routes but not letting Pan Am fly on theirs?

  Well, perhaps. But if it was, no one in the government was feeling any distress over it. Washington took the view that international air commerce was a separate arena, sort of a shared national treasure. It was in everybody’s best interest to have competition. The more players, the better.