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Braniff to Merge With Pan Am If Unions OK Cuts : Deal Rests on $800 Million in Concessions Over 4 Years

December 10, 1987|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — Braniff Inc. will merge with Pan American World Airways, which has flown Americans overseas for 60 years, if it can win enough concessions from Pan Am's labor unions by Dec. 22.

In a joint announcement Wednesday night with Pan American Corp., the airline's owner, Dallas-based Braniff said it intends to buy the airline if can obtain more than $200 million a year in contract concessions over the next four years. Pan Am's current management had been unable to reach agreement with the unions on savings of that magnitude.

An agreement to sell the airline would conclude years of financial woes for both the airline and its parent company. The airline's cash has dried up amid stiff competition from both foreign and domestic carriers, the problems of an old and inefficient fleet, complaints of poor service, and relatively high labor costs. Over the years, the parent company has been forced to sell its hotel chain, its landmark Manhattan skyscraper and the airline's Pacific routes.

Yet Pan Am remains one of the world's largest carriers, and its name is among the best known among travelers around the globe. As a result, it seems likely that the Pan Am name will survive in a merger with Braniff.

Apparent Victory for Pan Am Chief

The tentative merger agreement--which came after weeks of meetings between Pan Am officials and representatives of Braniff chairman Jay A. Pritzker--appears to be a victory for C. Edward Acker, Pan Am's chairman and chief executive officer, who favored spinning off the airline into an independent company. Vice Chairman Martin R. Shugrue had resisted the spinoff, hoping to keep the airline from being sold to another owner by reaching his own agreement with the unions on contract concessions. Union representatives could not be reached for comment.

A combination with Braniff, which requires approval by shareholders of both companies and the U.S. Department of Transportation, also would put to rest months of speculation over the future of Pan Am. Most recently, the airline has been the target of overtures by Beverly Hills financier Kirk Kerkorian and a New York firm known as Towers Financial Corp. Kerkorian's bid was spurned by the Pan Am board; Towers Financial, which owns debt collection agencies and insurance companies, has continued to express interest in the airline but observers have been skeptical that the bid would amount to anything.

If Braniff reaches agreement with the unions on concessions--and the union membership ratifies them by Jan. 19--a new, independent company would be created. It would be owned 13% to 20% by Pan American World Airways employees, 25% to 32% by former Braniff shareholders and 55% by shareholders of Pan Am Corp.

Pan Am would also get a $50-million loan from Braniff, either directly to the airline or through the parent corporation. The loan would be made at the time of the spinoff and would be repaid out of cash available to the combined entity after the merger.

The merger agreement, spelled out in a letter of intent, specifies that at the time of the spinoff there would be certain "mutually satisfactory" changes to the board of directors and management of Pan Am--apparently meaning that directors of the parent corporation and Vice Chairman Shugrue are likely to resign from the airline's board.

Pan Am has agreed also not to seek any acquisition offers from others during the terms of the agreement.

The agreement also provides for the possibility that the merger might not take place even after a spinoff of the airline and the implementation of required labor savings. In that instance, Braniff could get either a "breakup fee" or be allowed 16.5% of the airline for $50 million.

Pan Am's parent corporation would be left with an airline shuttle operation, which flies between cities in the Northeast; Pan Am Express, a commuter airline, and World Services, which provides ground services to military and commercial installations.

For Pan Am World Airways, a merger with Braniff would be the end of an era. Pan Am was the brainchild of Juan Terry Trippe, a World War I aviator turned broker who in 1923 left Wall Street to go into the infant aviation business. He guided Pan Am for more than 40 years and built it into the world's premier international carrier.

As well known as Kodak or Coca-Cola, Pan Am became an unofficial symbol of the United States throughout the world and it established links between citizens of the remotest spots in the world.

But Pan Am's fortunes turned sour throughout the 1970s and early 1980s. First suffering from excess capacity, it was then stunned by the world oil price shock of 1973 and later stumbled during airline deregulation and its 1980 merger with National Airlines. Pan Am was never able to fully recover in the face of aggressive competition from new and more nimble carriers.

Resurrection for Braniff

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