Skygods: The Fall of Pan Am

by Gandt, Robert

  Halaby reached a grim conclusion. To survive, Pan Am had to gain domestic routes. Clearly, they couldn’t be won in the political arena. Nor could they be bought. If Pan Am was to have domestic routes it would have to be through a merger with a domestic airline.

  It had been tried before. Proposed mergers of major airlines always aroused the regulatory watchdogs. In the sixties, Trippe and Charles Tillinghast of TWA had considered a union of their two international carriers. The CAB vetoed the marriage because, in the board’s judgment, it would have made the United States dependent on a single carrier over the major international routes. The specter of a monopoly in a transportation system—railroad, shipping company, or airline—had forever been anathema in Washington.

  But times were changing. The single carrier argument had become a joke. The Johnson and Nixon handouts in the transpacific route case and the CAB’s further generosity with the other overseas routes—the Caribbean, South America, the North Atlantic—had made international carriers out of almost every domestic airline—National, Eastern, Braniff, American, Continental, United—as well as a swarm of supplemental and charter airlines.

  In late 1969, Halaby met with American Airlines’ president, George Spater. A Pan Am-American merger made sense. American’s huge domestic network made a perfect complement to Pan Am’s overseas routes. But when word of the talks leaked out, American’s upper management—wary of invasion by a crowd of Pan Am outsiders— killed the idea.

  There were other attempts. Harding Lawrence of Braniff came up with a brash plan for taking over Pan Am—a minnow-swallows-the-whale deal. Halaby politely told Lawrence to take a hike. In 1970 there was talk about a merger with Eastern, and then United, and even Delta. None got past the discussion stage.

  In the summer of 1971, Halaby initiated new discussions with TWA’s chief, Charles Tillinghast. TWA was in the same kind of trouble as Pan Am. TWA had its own fleet of 747s, which were also flying around with hundreds of empty seats. And TWA had been injured nearly as badly as Pan Am by the infiltration of the domestics onto the international routes.

  The two airlines’ staffs looked at the numbers. By eliminating duplicate stations, airplanes, and facilities, they figured they could save as much as $200 million a year in operating costs. Moreover, with TWA’s thirty-nine domestic destinations, the merged airline would be a formidable competitor with any of its rivals, foreign or domestic. Their combined armada of 747s outclassed any airline fleet in the world .

  One hidden dividend of the merger was the hotels. TWA owned the prestigious Hilton International Hotel chain. Pan Am owned the Intercontinental chain. The joining of the two would result in the world’s most superb hotel conglomerate.

  Even Juan Trippe, watching from the wings, was ecstatic. For years the old Skygod had preached the need for a “community” airline—an amalgamated flag carrier composed principally of Pan Am and its most significant competitor, TWA. He had bargained with Howard Hughes, and later Tillinghast. Each time it had come to nothing. Now the old man was seeing his favorite dream about to come true.

  But they hadn’t reckoned on the Nixon White House.

  A merged Pan Am and TWA would be a big airline—big enough to again raise the old bugaboo about monopoly and unfair competition. Before proceeding with a merger of such a size, an antitrust clearance would he needed from the Justice Department, headed by Attorney General and Nixon confidant John Mitchell. And before the Justice Department acted, there would have to be a clear signal of support from the President.

  Halaby and Tillinghast went to Washington to make their case. They sat down with Peter Flanigan, the White House staff officer in charge of transportation and regulatory matters. Flanigan seemed supportive of the merger and said they would have an answer from the President in sixty days.

  Sixty days passed. Nothing happened.

  Sixty more. What was Nixon’s position on the merger?

  Nobody was saying, not Flanigan, not anyone at the White House. The autumn of 1971 came and went with no decision from Washington. Halaby knew something was going on. But what?

  He telephoned Flanigan at the White House.

  “I’m sorry,” said Flanigan, “but we just can’t give you an answer.”

  “You can at least say yes, no, or maybe.”

  “No, it’s not possible to give you that.”

  Halaby realized that he had his answer. The Nixon people were not going on record as opposing a Pan Am-TWA merger. That wasn’t their style. They would stonewall the idea until it died.

  And so it did. Halaby and Tillinghast told their merger staffs to put away their memoranda and charts and get back to work on something else. Each reported to his board of directors that the Pan Am-TWA merger was a dead issue.

  It was about this time that Jeeb Halaby had another idea. This one was even more controversial, at least in the Pan Am boardroom, than the merger scheme. And it met the same fate.

  Why doesn’t Pan Am leave New York?

  While he was the FAA chief, Halaby had overseen the development of Dulles Airport in Washington, D.C. It now struck him that the modern new Dulles complex was an eminently logical headquarters for Pan American. For one thing, it was in the Virginia countryside, close enough to the capital city, but free of the urban messiness. The idea had a stars-and-stripes aura—America’s premier flag carrier based in America’s capital—that could translate to political profit. Besides, there was plenty of hangar and office space. It would be easy to feed connecting flights.

  He should have known better. If Jeeb Halaby had been around long enough he would have realized the question would ignite a firestorm among the corporate elders. The response always went something like: Tbis is Pan American World Airways. The Imperial Airline belonged in the Empire State. New York was where it had always been. That’s where Pan Am would always be.

  And that would be the end of the discussion.

  But here was the chairman of the board, a Californian who abhorred the rude seaminess of New York anyway, asking the question. Why, Halaby wanted to know, did Pan Am insist on concentrating itself in such a hostile environment? New York was the toughest place in the country to run an airline. He pointed to the statistics—eight entrenched and venal labor unions, the highest airport facility rent in the nation, concessionaires and vendors reputedly controlled by the mob, a long tradition of cost overruns and waste.

  As they’d just learned, the political value of New York residency was zero. While American, Braniff, United, Continental—all Pan Am’s challengers—were backed by senators and congressmen from their home turf, Pan Am’s case was consistently ignored by the New York delegation.

  On the forty-sixth floor, there were glacial stares. The most glacial of them all came from the chairman emeritus, who still maintained his watchful presence in the back office.

  The subject was dropped. The Imperial Airline was not moving to the provinces.

  Along with his other problems, Halaby was having trouble with his middle managers. These were the old hands who had worked their way up from the seaplane ramps and the radio shacks and the typhoon-swept atolls of the Pacific. They called themselves the Faded Aristocracy. Now they ran things like the dispatch center, the scheduling department, the airport services offices. “We built this damn airline,” said one member of the Faded Aristocracy, a field services director. “The Pan Am culture was in our blood.”

  Now Halaby was bringing in waves of consultants and new executives, downgrading the old hands, and, in many instances, farming them out. An entire contingent came from Northeast Airlines, which had been acquired by Delta, including James Leet, one of the four occupants of Halaby’s “office of the president”; Dan Colussy, a marketing executive; and eventually F. C. “Bud” Wiser, who had emigrated from TWA.

  The Faded Aristocracy was furious. The newcomers were swarming through the halls, snooping, changing, invading every niche of the airline’s headquarters. “We called it the M.B.A. syndrome,” said George Denison, a sen
ior scheduling director. “They were whiz kids with business degrees who had never worked at an airline before but knew all about it.” The whiz kids arrived with trendy new ideas straight from Harvard Business School, and they wanted to try them out.

  “Seventeen of these types—M.B.A.’s and Ph.D.’s—came in to help us do our jobs,” remembered Archie Leonard, a director of traffic and sales. “Most of them were duly regurgitated, but they lasted long enough to screw up the operation for years.”

  One of the new ideas was psychologists. Shrinks! Someone thought it was a good idea for Pan Am’s executives to “get in touch with their feelings.” They needed to develop sensitivity. A psychologist was hired to sit in on top management meetings. He was supposed to offer advice about restructuring the airline. A platoon of shrinks fanned out through the executive offices to administer the new sensitivity training program.

  Halaby encouraged the program. He tape-recorded messages that employees could hear by dialing a certain number: “Fellow Pan Americans, this is Jeeb Halaby on the Pan Am line. Don’t look upon youth-fare passengers as problems. Look upon them as prospects and love them. We need them.”

  At this the old hands were aghast. It was unbelievable! Sensitivity training at the airline of the Skygods? It was like teaching table manners to a tiger shark.

  In private moments in downtown bars, the Faded Aristocracy would get together and down a few martinis and reminisce about the boat days. They missed the time when their bosses were Skygods and not bleeding heart chaplains. They remembered when a Pan American flying boat alighted in a harbor and an entire city stopped what it was doing to come watch. That was when Pan Am—the Imperial Airline—omnipotently took what it wanted. If Pan American decided to fly across a stretch of ocean, it did it. Competition be damned. There was no competition.

  Each of the old boat hands, given enough to drink, would grudgingly admit that he missed the old man. Trippe never cared a hoot in hell about things like sensitivity. If the old man were still there, he would know how to get Pan Am flying again.

  In fact, the old man was still there, removed by some twenty-three floors from the action. Halaby had finally gotten Trippe to vacate his office on the forty-sixth floor and move downstairs. But Trippe’s presence, like that of a watchful angel, hovered over the executive floor. He was still a member of the executive committee and he attended every board meeting. Trippe was appalled at what was happening.

  “I made a mistake in hiring Halaby,” he was now telling his old confidants.

  Pan Am was losing money by the planeload. The recession of 1969-71 had dried up overseas travel just as the 747s—the Everyman airplanes—flooded the market with thousands of new, and empty, seats. Now the Everyman airplane was infuriating everyone. Pan Am was, in effect, providing the test beds for the troubled Pratt & Whitney JT-9 engine. And the engines were still stalling.

  It had become a daily occurrence. One of the big jets would start out on its overseas journey and —kabloom!—an engine would stall. The exhaust gas temperature would soar into the red. An orange sheet of flame would erupt like hellfire from the tailpipe, panicking passengers and loosening the bowels of astonished flight engineers.

  Flights were canceled. Entire planeloads of passengers would have to be accommodated in hotels. Disgusted travelers cursed Pan Am, swearing never to fly the airline again. The delays and cancellations caused by the engine problems added yet another $2.5 million to the $10 million monthly burden of owning the Everyman airplane.

  Jeeb Halaby was like a man swimming in a waterfall. In his four-year journey from Washington bureaucrat to Pan Am’s vice president, miscellaneous, to chairman of the board, he had never been trained in day-to-day management of a global corporation. His preoccupation with the transpacific case and the unsuccessful Pan Am-TWA merger further interfered with his on-the-job training.

  As Gray’s successor, he wore both hats—chairman of the board and president. He desperately needed executive help, a strong number two man who could attend to the daily chores of running the airline. Even though a search had been under way since 1970 for a president and chief operating officer, many had come to believe that Halaby didn’t really want to share power. Jeeb Halaby seemed determined to drown all by himself.

  By September 1971 the board of directors, concerned about Pan Am’s growing losses and the unfavorable reviews in publications like Business Week and Fortune, had become anxious about Halaby’s leadership. They instructed him to find a president, immediately, or they would take the matter into their own hands.

  A headhunter firm, Booz, Allen & Hamilton, and an outside consultant, Henry Golightly, scoured the corporate countryside for candidates. Many leading candidates, knowledgeable about the extent of Pan Am’s huge losses, politely declined to be considered.

  One name, William T. Seawell, kept popping up on the headhunter lists. Seawell had glitzy credentials: a former Air Force general, graduate of West Point and Harvard Law School, commandant of the Air Force Academy, and senior vice president for operations at American Airlines. He had been a World War II bomber pilot and had served twenty-two years in the Air Force. He was currently president of Rolls-Royce Aero, Inc., the North American subsidiary of the British power plant builder.

  Bill Seawell fit the Pan Am profile. Fifty-three years old, tall and silverhaired, he was a Skygod in looks and temperament. Seawell passed the committee’s scrutiny.

  On December 1, 1971, he went to work as Pan American’s fourth president.

  The general wasted no time. He set to work paring staffs, reducing management head count, applying his personal stamp to the office of president. He was assertive and managerial in style. Seawell wanted it made clear to everyone: he was in operational charge at Pan Am.

  And at first that was okay with Halaby. He sat in on some of Seawell’s staff meetings and observed the changes from a discreet distance. He was enjoying the respite from the daily combat he had been undergoing.

  For a while it looked like the two-tiered executive scheme might work. Halaby envisioned an arrangement by which Seawell performed the day-to-day grunt work of directing the airline while he, the chairman, attended to loftier matters like global strategy and next-generation fleet acquisition and government affairs. Halaby could distance himself from the internecine warfare with the Faded Aristocracy. He could be the benevolent commanding officer, a revered father figure. Seawell, the executive officer, could fight with the grunts.

  But it didn’t work that way. Inevitably, there was friction. Halaby noticed some of the disgruntled old guard dropping into Seawell’s office. Halaby haters were becoming Seawell supporters.

  There was the matter of Willis Player, the vice president for public relations. Halaby hadn’t gotten along with Player. He suspected Player of conniving behind his back and of leaking some of the uncomplimentary stories to the press. Halaby had eased him out of the job.

  Now Seawell wanted him back. The two executives clashed.

  And then they argued about Frank Doyle, a Halaby appointee in charge of personnel industrial relations and one of the four previous occupants of the “office of the president.” Seawell didn’t like him. Halaby did. Seawell wanted Doyle out and someone of his own choosing in.

  Reports of the disputes trickled out to the press and to the worried board of directors. On top of the reports of disharmony at Pan Am, the 1971 annual report came out. Pan Am had lost another $45.5 million, capping a three-year hemorrhage of $120.3 million. Debt soared to well over $1 billion. The $270 million revolving credit that Trippe had negotiated in 1965 for the 747 purchase had to be renegotiated by March 31, 1972.

  The board of directors called for a special meeting on March 22.

  Jeeb Halaby tried to read the faces at the long table. On his left sat his chief operating officer, Bill Seawell. Seawell’s eyes were narrow slits. On Halaby’s right, like a living artifact, sat Juan Trippe. His hands were clasped expectantly on the table before him.

  A few faces were f
riendly. The inside directors were Halaby imports—Frank Doyle, Jim Leet, Bill Crilly, Frank Davis—Pan Am executives who could be expected to side with him on the board.

  But the faces of the outside directors were mostly grim. They were corporate bluebloods like Tom Watson, Cyrus Vance, General Alfred Gruenther, Frank Stanton, Stillman Rockefeller—old guardsmen from the Trippe era. They were Establishment elitists who regarded themselves as custodians not only of Pan American but of the nation’s fiduciary well-being.

  One of the faces across the table belonged to the Icon, Charles Lindbergh. Still handsome in his seventy-first year, the Lone Eagle returned Halaby’s gaze. Halaby wondered what Lindbergh was thinking. Was he sympathetic? Hostile? With Lindbergh you could never tell.

  Jeeb Halaby cleared his throat and said his piece. It was the most crucial sales pitch of his life. “Two more years,” Halaby asked. “Give me your confidence another two years to run Pan Am and complete the turnaround I sincerely believe we have started in motion.” Otherwise, if the board saw fit, he would step down.

  The directors glanced at each other. They weren’t buying it. Turnaround? They already had incontrovertible evidence of Pan Am’s losses during the thirty months of Halaby’s chairmanship. In their minds, too, were the recent specters of two other corporate debacles, Penn Central and Lockheed. They wanted no part of such a mess at Pan Am.

  In the hard, unsmiling faces Halaby saw his answer. They didn’t believe in his turnaround. All they knew was that the airline was going to hell in a handcart. Perhaps it was the economy, perhaps the 747 purchase for which Halaby hadn’t been responsible, perhaps the ruinous route decisions of the CAB. The directors didn’t care. They had already made up their minds about whom to blame.

  The board asked Halaby and the inside directors, including Seawell, to leave while they held an executive session. Two and a half hours passed. Then they sent Cyrus Vance, a Halaby board appointee and old friend from the Washington days. “Jeeb, the board has decided it would like to accept your resignation.