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The Clandestine Operation That May Have Saved Pan American : Airlines: Steps leading to its bankruptcy protection filing were taken in secrecy. Publicity might have doomed the effort--and the company.

February 03, 1991|ROBERT E. DALLOS | TIMES STAFF WRITER

NEW YORK — Tom McClain had spent an exhausting day on the slopes. His vacation at Austria's St. Anton ski resort marked the first time in many months that he had been able to get away with his wife and four children. McClain had just put his head on the pillow when the phone rang at 10 p.i.

"Be in New York tomorrow afternoon. We're going to discuss the Middle East crisis," the voice on the other end ordered.

It was Thursday, Jan. 3. Thus began a weekend that McClain, the Frankfurt, Germany-based vice president of Pan American World Airways' Atlantic division, would never forget. After a few hours of fitful sleep, the 53-year-old executive arrived in New York on Friday after a mad dash across the Atlantic via Innsbruck, Austria, and Frankfurt.

Panting into the airline's downtown New York offices at 3:30 p.m., he joined about 50 other high-ranking Pan Am executives for the top-secret meeting.

The crisis in the Middle East had been a perfect ruse for the beleaguered airline's hierarchy. Actually, Chairman Thomas G. Plaskett had summoned the managers to home base to tell them that Pan Am, which pioneered international air travel, was going to bankruptcy court early the following week.

Pan Am executives' worst fear that weekend was that the carrier would have to file for Chapter 7 liquidation instead of seeking protection under Chapter 11 of the U.S. Bankruptcy Code while reorganizing the company. The airline was frightfully short of cash, and among the tasks to be accomplished during the next few days was persuading United Airlines to advance cash on its pending purchase of Pan Am's London routes.

Unless it got an immediate $150 million, Pan Am, a 50-year-old American brand name once as familiar overseas as Coca-Cola, might be grounded on Monday morning. A decade of deregulation, which had seen competitors grab more and more of Pan Am's foreign market, had taken a toll. Lack of a domestic route system to feed into its overseas operations put Pan Am at even more of a disadvantage.

If the carrier was to navigate safely to bankruptcy court, absolute secrecy was required until it was ready to act.

The weekend activities resembled a CIA operation. Pan Am was given the code name \o7 Eagle. \f7 Interoffice communications were handwritten. All of the executives summoned to New York had been called on the telephone. No telexes or faxes were allowed.

A late Monday night meeting of the board was held in a secret location away from headquarters to avoid arousing curious outsiders who might spot them.

The weekend's garbage was retained for fear that scraps holding secrets might get into the wrong hands. Everyone connected with the operation--from the public relations counsel and advertising agency to secretaries--had to sign a confidentiality agreement. Uniformed guards stood at the entrance to the 46th-floor executive suite in the Pan Am building in downtown Manhattan. As in a military operation, command posts were set up New York, Frankfurt, London and Rio de Janeiro.

Investment bankers huddled. Lawyers rewrote the fine print. There were hush-hush phone calls between weary attorneys in New York and the top executives of United Airlines in Chicago. The super secrecy was essential to Pan Am's strategy for a Chapter 11 filing.

If word leaked out before it was ready, it was sure to be misconstrued, the airline reasoned. The public and the travel agents, Pan Am's lifeblood, might certainly misunderstand, probably jumping ship to other carriers.

It was to be business as usual. Schedules were to remain intact. No flights would be canceled. No employees would be ousted, and all future bills would be paid. As far as the public would notice, nothing would change.

Despite the hush-hush atmosphere, a large cast of characters had to be let in on the "secret." By Tuesday morning, when the papers were finally filed in bankruptcy court in New York, the group had grown to more than 200 people--making Pan Am's success at keeping the facts out of the public eye until the actual filing all the more remarkable.

"It was my view that we do not bring in a large group of people into this until the last possible moment," said Peter T. McHugh, the airline's executive vice president and chief operating officer. "Bringing people in sooner would have let the word get out."

Nevertheless, there were already whispers of Pan Am's possible demise, prompting American Express and MasterCard, for example, to hold funds owed to Pan Am to have a pool to repay cardholders if the carrier stopped flying.

Pan Am repeatedly denied it, but it had actually been preparing for a bankruptcy filing for at least six months, McHugh conceded in an interview. It was not a question of \o7 if, \f7 just \o7 when.\f7

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