Pan Am clipper, Vol. 5, No. 8, August 1979

              CAB tentatively ok’s Pan Am merger bid
The high-stakes battle to take over National Airlines is racing to the wire with Pan Am clearly in front.
If things go as expected, the merger case will head for the White House soon for President Carter’s final decision.
The Civil Aeronautics Board tentatively approved bids by both Pan Am and Texas International Airlines to acquire National. The action came July 10 at an open meeting during which the CAB staff was instructed to have the order ready for a final, formal vote by the end of August.
Because international routes are involved, the President has the last word. Thus, the CAB final vote is in the nature of a recommendation.
The action by the board, however, leaves Pan Am with an apparent edge in the merger race. National shareholders have approved a bidding plan that would allow a merger with either Pan Am or Eastern, the third major airline in the running, subject to government approval of both proposals. But National opposes the Texas International attempt.
The Eastern acquisition bid is being handled separately by the Board. An administrative law judge, Richard Murphy, recommended in June that the Eastern application be turned down.
Eastern chances appear to be
somewhat reduced with another Board decision July 21 that turned down a proposed Continental-Western merger on grounds the marriage of two Los Angeles-based carriers would lessen competition, particularly in the West.
Bruce Cunningham, system director of airline planning, said the Eastern merger proposal would be even more anti competitive than Continental-Western because Eastern and National have a greater number of common city pairs and a higher degree of concentration.
Although the Board tentatively approved Pan Am’s proposal, it attached an important condition to the approval.
In effect, it said that Pan Am cannot count on flying National’s route between Miami and London. That condition drew sharp criticism from Pan Am and National, and Board member Richard CMelia as well.
O’Melia said he could not find that a Pan Am-National merger would result in lessening competition in either the Miami-London or Miami-Europe markets.
But he was overruled, 3-1, and CAB said the merged airline would be allowed to serve the Miami-London route only until a new U.S.-flag airline is picked. The merged airline, however, could be among the candidates for the route.
Following the Board’s action, Chairman Seawell issued the
August ’79
Volume 5 Number 8
following statement:
“The Civil Aeronautics Board’s recommendation to President Carter that Pan Am acquire National’s domestic routes is a significant step in implementing airline deregulation.”
“We are deeply disappointed by the recommendation regarding the Miami-London route, since we believe, as does the U.S. Department of Transportation, that our acquiring National’s Miami-London route conforms to applicable anti-trust criteria.”
National also was disappointed with the Board’s condition. It said it was “seriously concerned” about the provision and said it could jeopardize the integration of National’s operations with Pan Am’s as contemplated in the merger agreement.
In its tentative decision, the Board brushed aside two potential concerns—that it might start a wave of airline mergers, and that the consolidations would seriously reduce industry competition.
“It’s rather premature to anticipate a wave of mergers from this decision,” said CAB Chairman Marvin Cohen.
And the Board rejected a conten-
Meet the Terrific Ten—Pan Am flight attendants who are touring the country discussing the future of air travel. From the left, seated, are Christina Teiwes of Miami, Loretta Jones of Miami, Dale Strickland of Miami and Jitsuko Desaulniers of New York. Standing are Susan Smith of New York, Margret Warnes of Miami, Karen Burke of Miami, Julia Reiss of Miami, Jimmye Prescott of Coral Gabies, Fla., and Karen Deas of New York, (see page 3)
Seawell says Chinese tourism plan sound
Chairman William T. Seawell, in a recent speech in Dallas before the Southwest Legal Foundation’s Symposium on Private Investments Abroad, addressed himself to the United States partnership with the People’s Republic of China.
Commenting on ways in which the PRC can pay for the foreign technology and foreign capital it needs to import to achieve its ambitious modernization goals, Chairman Seawell said: “One good way to acquire foreign currency, as most of the world’s economists have long since recognized, is through the development of the tourist trade, and in recent years the PRC has set about doing so.
“The bulk of the foreign visitors to the PRC are Hong Kong Chinese, perhaps a quarter of a million in 1978,” he continued. “The next most numerous delegation was the Japanese, about 30,000. There were some 20,000 Americans, and
perhaps 20,000 tourists from the rest of the world.”
Chairman Seawell stated: “The Chinese are resolved to go about the development of tourism from the West in exactly the right way—and going about it in exactly the right way means that they will not invite more tourists than the touristic infrastructure can adequately support. As the infrastructure is expanded, the number of tourists will assuredly increase.
“The foreign exchange generated by the tourist flow will not only ensure that the development of the infrastructure will be self-financing, but will also provide a surplus to be used for other investments.”
But, Chairman Seawell warned: “Tourism by itself will not finance the industrial modernization sought by the PRC.” Nor, he said, will loans from other nations since, obviously, they have to be repaid.
“One of the ways in which the
PRC prefers to do business today is to arrange for a foreign firm not only to construct an industrial facility but also to take all the production from that facility over an agreed-upon period of time,” he said. This is the way to pay for the facility and also allows the PRC to use its vast labor pool.
Chairman Seawell continued: “As the PRC develops the physical aspects of the new technological goals, the American businessman should be keenly aware of China’s great need for trained managers to adminster the capital resources. A significant opportunity exists for America’s industries to meet that need by providing full-ranging technical assistance programs and services. The American business that wishes to export capital equipment to the PRC should include in the proposal a complete training and service plan.” □
tion by an adminstrative law judge that the Pan Am and Texas International takeover plans would substantially reduce competition. The Board members observed that Pan
Am is not a major domestic aviation factor, and there is no solid evidence that without the merger, Pan Am would significantly expand domestically. □
Pan Am agrees to buy TXI’s National stock
Pan Am has concluded an agreement to purchase part of Texas International’s stock holdings in National Airlines, bringing Pan Am’s ownership from 51.4 percent up to 60.6 percent and purchase of the balance to bring the ownership percentage up to 75.9 percent of outstanding National Airlines stock.
All purchases would be retained in a voting trust, pending final regulatory approval of the Pan Am-National merger.
Chairman Seawell commented, “1 consider the agreement advantageous for both air carriers.”
The agreement lets Pan Am purchase 790,700 shares of TXI’s 2,100,000 National shares at $50 per share. At present TXI holds 24.5 percent of National’s outstanding shares.
Purchase of the remaining 1,309,300 shares at $50 per share may be made at any time from Nov. 15, 1979 (or if earlier, immediately prior to the Pan Am-National merger) through Mar. 1, 1980. Subject to certain conditions, Pan Am is also obligated to purchase these shares during this period following final approval of the Pan Am-National merger by the Civil Aeronautics Board, and Presidential approval, on terms satisfactory to Pan Am. The company paid TXI $3,000,000 in consideration of Pan Am’s rights to acquire the remaining shares on these terms.
Both Pan Am’s and TXI’s proposals to acquire National were informally approved earlier by the CAB, subject to approval by President Carter, and the restrictions on their purchasing in excess of 25 percent of the outstanding National stock were removed by the CAB. □
$37.1 million profit in April-June quarter
Pan American World Airways reported that second quarter net income, hammered by soaring fuel costs, dipped to $37.1 million but results for the first six months climbed 27.6 percent to $28.2 million.
Net income for last year’s second quarter was $46.2 million, and $22.1 million for the first full half of the year in 1978.
Operating revenues for the second quarter increased 9.8 percent to $607.6 million and operating expenses climbed 13.6 percent to
$571.6 million.
Second quarter comparisons are affected by the fact that Northwest Airlines was grounded by a strike in May and June of last year. Another factor was the grounding of the DC10, flown by a number of Pan Am’s competitors, in parts of June and July.
The company said that while passenger yield—the amount of revenue received per revenue passenger mile flown—and fuel consumption were approximately
the same in the second quarter corn-
continued on page 7
NewFC “Amenity”program
Phase two of Pan Am’s fantastic First Class Service will be ready and in action by the middle of this month. It’s called the 747SP Amenity Program and it has all kinds of “goodies” that passengers can use in flight or take home.
The new First Class product; the Sleeperette seat and Banquette table-for-two dining — was introduced some months ago.
It included:
—A comfortable, wide seat with an extended legrest to allow a stretch out.
—A 4-foot long Banquette table for two, set with fresh flowers, silverware, crystal and fine china.
—gourmet food served restaurant-style by flight attendants.
“It’s the only way to go if you’re
going First Class,” said Walt Rauscher, Vice President-Passenger Services. “Our new service has been a huge success. First Class is a strong market to us and we have to give passengers what they want. They expect quality and in-flight service commensurate with what they’re paying. We’re way ahead of the competition and we’ve seen our loads pick up tremendously since beginning this service.”
Rauscher discussed the second phase, The 747SP amenity kit. A new item is the service plate as part of the banquette setting. The passenger doesn’t actually eat from this plate — it serves as decor.
Just before the food service gets underway, a flight attendant gives continued on page 7