AIRLINES: Transit from Terrible

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As they have for the past several years, officials of Pan American World Airways are looking forward to March 31 with all the anticipation of a prisoner facing execution. By that date a group of the nation's most powerful bankers must decide whether to renew the financially troubled air carrier's $300 million line of credit, without which Pan Am would be forced into a drastic reorganization. Pan Ann's top executives, as well as quite a few other airline experts, seem convinced that the nation's No. 1 overseas carrier will finally, after four years of disastrous losses, engineer a profit turn-around in 1973.

Yet the ride between now and two weeks past the Ides of March is still likely to be a bumpy one.

Last week Pan Am announced that its losses in 1972, through November, totaled $24 million. That was about $4,000,000 less than in the same period a year earlier,* but was nonetheless a dismal showing for a year in which most airlines made money. Wall Street analysts, who a year ago were predicting that Pan Am would break even in 1972, now estimate that the line will close its books later this month with as much as $30 million worth of red ink for all 1972. A Pan Am officer privately concedes that the final figures will look "terrible."

To make matters worse, the company is apparently having trouble raising new cash. It is in the process of floating $75 million worth of convertible debentures—in effect, loans from private investors that will be paid off in Pan Am stock after three years. Normally, such issues list a fixed price at which the bonds can eventually be exchanged for stock, leaving the investor to decide whether the market price of the stock is likely to rise enough in the interim to make buying the bonds now an interesting speculation. By contrast, Pan Am has written into its debentures an unusual promise that the bonds can be exchanged for stock in 1976 at a price substantially—probably 20%—below whatever the market price of Pan Am shares then happens to be. Presumably, the corporation's financial officers felt compelled to resort to this distress-sale clause because investors, who have seen the value of Pan Am shares drop 33% since September, could not be tempted into buying the debentures without some protection against further declines in the price of the stock for which the bonds will be exchanged. Last week the stock closed at 87/8.

New Era. Yet for all its money problems, Pan Am has lately taken some major strides to get itself in better shape. Since taking over as chairman last March, former Air Force General William T. Seawell has hacked away at employee deadwood, firing altogether 1,500 workers, including quite a few executives. He has also successfully cut back expenses. For example, Pan Am now operates its fleet of jumbo Boeing 747 aircraft for $1,692 per hour each, compared with $1,762 for rival TWA, which in the past has usually come out ahead on efficiency. Says a Pan Am official: "In the long course of being in transition, I guess we're finally transiting."