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TWA And Pan Am, The Reason For Going Bankrupt?  
User currently offlineAerokid From Belgium, joined Jun 2000, 348 posts, RR: 0
Posted (14 years 11 months 2 weeks 4 days 11 hours ago) and read 8320 times:

Hi all,

Last week, I attended a workshop about Aviation Safety. One of the speakers adressed the impact on society of aircraft crashes. He said that insurance claims have, since 1998, passed the $1 billion milestone (more than 1,200 million in 2000) whereas the total cost for society would add up to more than 3 times that figure (for example, search & rescue, recovery and investigation costs are usually not claimed).

He also said that a lot of the costs are to be paid for by the airlines itself and that this was the prime reason for both Pan Am and TWA to have gone bankrupt because of the Lockerbie and flight 800 accidents respectively.

Is that true? Than what about Egypt Air (767 crash in october 1999) and Air France Concorde? In the case of TWA flight 800, can't they hold Boeing responsible for the accident, since it was a design faillure that lead to the crash?

Best regards,

17 replies: All unread, jump to last
User currently offlineR.I.P TWA From , joined Dec 1969, posts, RR:
Reply 1, posted (14 years 11 months 2 weeks 4 days 10 hours ago) and read 8259 times:

Subsidized airlines don't go bankrupt. Air France is a subsidized airline (not positive about Egypt Air). Therefore they do not have the same financial issues to deal with as non-subsidized carriers do, and can afford to run in the red year after year as Air France does. As long as the French Government has money, Air France has money.

User currently offlineBostonBeau From United States of America, joined Sep 2000, 487 posts, RR: 0
Reply 2, posted (14 years 11 months 2 weeks 4 days 8 hours ago) and read 8239 times:

Airlines have insurance just like everyone else, and I doubt Pan Am or TWA would have gone bankrupt by paying claims on either tragic accident. However, the bad publicity caused by the crashes at a time when both airlines were already financially hurting, certainly has to be considered.

The causes of Pan Am's bankruptcy are many: their lack of internal US routes for most of their history, combined with the granting of international routes to other airlines who did have domestic routes is usually cited as the most important contributing factor. And of course, the solution to the internal route problem (purchasing National) was a financial disaster.

Pan Am also suffered from an enormous debt incurred in purchasing the B747 fleet, just when a recession was starting which meant the capacity was not really needed.

Pan Am also suffered from some inept managers after Juan Trippe retired: for example, Pan Am kept selling off its profitable assets and divisions (Intercontinental Hotels, the Pacific Division, the Pan Am Building, the IGS) instead of getting rid of the money-losers.

Pan Am also tended to operate on a lot of marginal routes just "because they were there" or because they had pioneered the route (for example, they operated daily B707s from JFK to Rock Sound in the Bahamas, because several managers had homes there).

User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 3, posted (14 years 11 months 2 weeks 4 days 6 hours ago) and read 8221 times:

In the case of both TWA and PA they didn't realize that bigger isn't always better. Both airlines were flying out to destinations like the Wake Islands with gas guzzling 747-100s becuase it was there. I'ts jut higher liability and insurance costs. With PA the bad reputaion the earned after they cut corners on safty and security during the reign of Thomas Plaskett and Martin Shugue was the final strw breaking the camels back and them being found guilty in a New York Court for the gross neglegence in Security and Safety to those who were on PA 103. Their lying to the public about security prcedures after PA 103 to the public didn't help them either.

TWA went down not just because of Ichan but because of Hughs in the 405 and 50s and the bad management in between and their failed attempt to be recognized in the Pacific by flying out to HKG and To Japan but failed due to the fierce competition from PA and the airlines of those countires out in the Pacific. It's just money wasted when they could've focues on their euro/Middle Eastern and Carribean routes. The only thing that kept the airline running were it's extensive domestic routes that PA never had and the dedicated employees who kept taking paycuts just to save the airline. TWA was on a wing and a prayer.

User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 4, posted (14 years 11 months 2 weeks 4 days 6 hours ago) and read 8214 times:

TWA was doing horrible since mid 1988 and it looks to me that Ichan was just least of TWA's worries because ichan didn't sell of the rights to LHR til 92 and TWA never made a profit since 1988. To Ichan it looks like that he tried to make it earn a profit but when that didn't happen there was only one thing left.

User currently offlineKwbl From United States of America, joined Jun 2001, 458 posts, RR: 0
Reply 5, posted (14 years 11 months 2 weeks 3 days 18 hours ago) and read 8177 times:

I agree with VirginA340 on Pan Am. The lockerbie crash was more or less the icing on the cake. The CAB probably had as much to do with the demise of Pan Am as any of the other issues. For example, Pan Am flew from PDX to SEA 3 times a day to connect with Pan Am flights to London, Honolulu and Fairbanks. For a long time, they were not allowed to sell PDX SEA tickets. By the time deregulation came, Pan Am was way behind, even after the National merger

User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 6, posted (14 years 11 months 2 weeks 3 days 17 hours ago) and read 8169 times:

KWBL; You're right on that; Even TWA was ahead of them because of domestic route Lokerbie was the final chapter as well as their lying. The CAB did two thirds of the damage. In the late 1970s PA tried to merge with TWA but the much hated burucratic CAB put a stop to that. But before the CAB's ruling PA made a deal with TW. If TWA pulled out of the Pacific and left it all open to PA (In which PA was trying to get stronger in.) then it turn PA would drastically cut service at TWA's euro hub at CDG and leave it all to them. This is how TWA even to this day is quite strong at CDG. While PA focused more on FRA than any other Euro destinantion including LHR. With LHR there was way too many restrictions for the two airlines so they had to seek alternative means PA chose FRA and TW choose CDG. They did quite well until the bad management fianlly took a toll on the two.

User currently offlineMilesrich From United States of America, joined Jul 2003, 2078 posts, RR: 6
Reply 7, posted (14 years 11 months 2 weeks 3 days 17 hours ago) and read 8166 times:

Pan Am started losing money in the late 60's. When the 747's came in 1970, there was too much over capacity. Then they needed domestic feed for the International Routes, and paid way too much for National Airlines. Just one bad decision after another, while other US and foreign airlines were cutting into their profitable Pacific and Trans Atlantic routes.

TWA is another story. TWA's international system was very profitable, and they had other profitable assets like Canteen Corporation and Hilton Intl Hotels.

The Domestic system was always the weak sister. While the trans con flights were profitable and very competitive vs UA and AA, the rest of the system was not. TW was always third at ORD in the Chicago-East Coast traffic race to BOS, NYC, DCA, PHL etc. STL and KC were not the hubs ORD was. When deregulation came, TW abandoned ORD for STL.

Additionally, they were late in ordering aircraft so they were too dependent on 707's when fuel was so high, that you couldnt make money if the airplane was full. By the time they bought Ozark, it was too late. The losses were mounting and the STL hub was never very profitable. Flight 800, like PA 103 was just more icing on the cake. TW had already filed two Chapter 11's prior to that night in 1996.

User currently offlineFTraveler From United States of America, joined May 2001, 72 posts, RR: 0
Reply 8, posted (14 years 11 months 2 weeks 3 days 15 hours ago) and read 8161 times:

I couldn't agree more with BostonBeau's assessment of the demise of Pan Am. Too bad. They were the true pioneers of international air travel.

User currently offlineAerokid From Belgium, joined Jun 2000, 348 posts, RR: 0
Reply 9, posted (14 years 11 months 2 weeks 3 days 12 hours ago) and read 8153 times:

What's that "CAB" thing?

BTW, what about today's Pan Am. Aren't they flying again with a few 727's? Who is in charge of the company now and how are they doing?

User currently offlineRyanair From United Kingdom, joined Jul 1999, 654 posts, RR: 0
Reply 10, posted (14 years 11 months 2 weeks 3 days 10 hours ago) and read 8151 times:

The basic problem at PA was they paid way way too much for National, leaving themselves with a huge debt that the company wasn't big enough to pay for.

They had to sell assets to make up the difference between revenues and the money needed to pay the debt.

The domestic side was a nightmare loss maker, which was Pa's own fault for the way it integrated National. Infact the International side WAS PROFITABLE! However that was kind of false, they needed the domestic feed to fill the 747's to make the profit, and of course as just said the domestic side lost loads.

PA was very slow to make use of the smaller Airbuses on the Atlantic (which could have cancelled out the need for the loss making domestic feed), that was not entirely their fault because of ETOPS issues, ETOPS of course being new then.

The difference Lockerbie made was simple. It meant they couldn't by NW, although they were plain outbid by richer people there and it's not clear if a lack of Lockerbie would have made a difference. What the main effect was, is Lockerbie weakened the company. Therefore the major airlines (like UA and DL) were able to extract the best bits alone, without Lockerbie it's probable Pan Am would have gone like TWA/AA, as a whole the good the bad and the ugly. Lockerbie meant the majors didn't have to pay that price and could just have the good.

That explains why the company continued to dwindle slice by slice after Lockerbie (when there was no hope of it surviving, unlike the PAcific in 1985), until eventually nothing was left to sell.

PA was in trouble in the 1970's but overcame that, hence were profitable enough to buy new Tristars and of course get such outragious finance to buy National in the first place.

TWA is much more difficult to explain and I know much less about it.

As was said, traditionally TWA was loss making domestically and profitable internationally.

However, you need also remember TWA was never a strong business, which is why it built up Trans World Corp with Century 21 and alike (ie to compensate for that weakness). Wall St saw a very nice conglomerate, that is what would have been a very nice conglomerate had it not a weak airline attached onto the end of it. Result - the airline was dumped, by it's self (TW Corp which it established) if you like!!

As the profits had been put into building TransWorld Corp there was under investment in the airline, so it was alone and under invested - hence Carl Ichan could buy it and the results are well documented.

As well as Ichan, TWA scaled down their international network as the domestics started international flights and of course as terrorism, the high dolar, recession and the Gulf War put off international travel, especially to Europe.

As far as I can see, TWA in Europe was structured to handle the double daily jumbos (bringing 800 odd people) they used to fly in the early 1980's and not the once daily 762's or 757's (bringing less than 200 odd people) they had in the 1990's.

In Europe there are strong labout laws in many countries which prevented them from restructuring and left them with outragious costs in their formerly profitable division and the same old losses domestically.

Add to that Ichan and you can see they didn't have much of a chance. Karabu drained them of revenue, it would have been different without that, but how different is a matter of debate.

Flight 800, it seem quite remarkable how little the effect of that was. Yes the jumbos went soon after as did the Tristars, but that was happening anyway.

I personally believe their fleet strategy was too aggressive, I know an analyst that told me the cost of putting MD80's onto former DC9 routes while waiting for the 717's to come on line was greater than the saving made by retiring the DC9's. Plus as I (smug smug) argued at the time, the rentals were too high and meant little saving against the old planes (which you can see by checking old TWA Reports if you can find them), and short term greater costs because of retooling, all at a time when they were running short of cash.

In my view both were a chain of events and not an event.

Hope my ramblings are of some use  Smile

User currently offlineBostonBeau From United States of America, joined Sep 2000, 487 posts, RR: 0
Reply 11, posted (14 years 11 months 2 weeks 3 days 8 hours ago) and read 8142 times:

Aerokid: CAB = US "Civil Aeronautics Board". Before deregulation in 1978, the CAB had to approve every route and every fare before an airline could fly them. The CAB routinely rejected Pan Am's filings for domestic authorities, while at the same time awarding international routes to other carriers. Also, before deregulation, the POTUS had to approve all international route certificates personally, and often the CAB would make one recommendation for a route, but the POTUS would award it instead to an airline he looked more favorably on. The current Pan Am is a small airline operating out of Portsmouth New Hampshire, with a few refurbished B727's. They are a division of Guilford Transportation, which also owns a good chunk of the railroads in New England.

Ryanair: you are very right about Pan Am compounding the National disaster after acquiring it. By then, deregulation was kicking in, and they basically disassembled the National route system they had paid so dearly for (e.g, National had a minihub at Houston which PA closed). But I am not sure about Pan Am's international routes being that profitable. Certainly the Pacific and South America were profitable, but at the end, Pan Am was loosing something like $500 million a year on Europe. Interestingly, when Delta took over the European routes, until they readjusted them, they also lost $500 million on them for a while.

User currently offlineAerokid From Belgium, joined Jun 2000, 348 posts, RR: 0
Reply 12, posted (14 years 11 months 2 weeks 3 days 6 hours ago) and read 8131 times:

Thanks all of you for sharing your views.

Now another question (sorry if it sounds stupid but I'm not really into the American civil aviation history): some of you called in the "deregulation" as one of the possible causes for going bankrupt. What exactly is that? How was the U.S. air traffic "regulated" in the past and by who?

Thanks again,

Best regards,

User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 13, posted (14 years 11 months 2 weeks 3 days 6 hours ago) and read 8127 times:

About PA 103 Rember that they did lie to the public in the NY media in form of ads stating that they'd tack an extra $5 fee on every one way international 1st class ticket. No one penny went to security but instead their coffers. PA lied about having FAA waivers to skip hand searches on unaccompanied bags that Marty Shugrue himself went to then FAA cheif Dan Salazar for. The bomb sniffing dogs PA had at JFK were shbow dogs bought cheap from a local kennel and could not even sniff for drugs let alone bombs. I bet you would feel different if you found out that A year before the bombing PA security cheif at FRA Dan Sonenson stated in a Telex "If a passenger's luggage is aboard the plane and he or she doesn't show then we go!!! Two years proir PA commisioned ex EL Al security head to reeview their security. He found that their security wasfull of holes; Their luggage holds were venerable to bombs and their security employees never saw a bomb eve real or fake In his last words "The fact that no major terrorist attack has happened to this date is merely providential. Both Plaskett and Shugrue knew this and filed it away and did nothing to prevent Lockerbie. So that and their lying as well as PA 103 families finished them off as well as Plasketts selling the more profitable routes like LHR to stay afloat.

User currently offlineRyanair From United Kingdom, joined Jul 1999, 654 posts, RR: 0
Reply 14, posted (14 years 11 months 2 weeks 3 days 3 hours ago) and read 8115 times:

BostonBeau: The profitability of PA's trans atlantic ops isn't well known, but I was told about it by an ex PA Exec. According to him the numbers were $300 million profit trans atlantic, $400 million loss domestic and break even Latin/Carribean, this for 1987/88 time before Lockerbie. After Lockerbie for about a year the trans atlantic flights were loss making, picked up in 1990 to previous levels, but upon the Gulf War in late 1990 loads were devistated. I've seem similar reports in books on the subject but I forget where.

VirginA340: It's interesting about the FAA did they didn't they wave PA's responsibility to hand search connecting baggage. I don't know, but I'd like to know when reviewing their Frankfurt Security Op twice between the change of policy and Lockerbie, why didn't the FAA do anything about it? It just seems appauling when their own security experts were against it (as has been documented in various books) PA still changed policy and the regulators just let them.

User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 15, posted (14 years 11 months 2 weeks 2 days 22 hours ago) and read 8105 times:

Ryan Air; After the waivers existance were confirmed my father and other family members chewed out Shugrue because at first he denied the waivers but then he claimed it was a verbal agreement which is complete bull because they must be requested for in writing. Salazar got what the media would call a sideways promotion. He was neither commended nor punished but rather quietly moved out of his position. Don't know what happened to him since but if I got lockd in a room with him he wouldn't have a chance. Luckly for Shugure he died in late 1999 instead of a grieving family member having his way with him. Plaskett was an executive of Legend Airlines but that venture went under. I told my friends in Texas to tell their friends to avoid that airline soley because of Plaskett. If Plaskett removes himself then fine I'll fly them but no way in hell is my cash or any of my friend's cash is going to this creep. The familiys tried to get manslaughter charges against him but that didn't work. In my opion he should be wearing prison strips for atleast 20 years instead of an Armani suit. But back to the FAA. That dinosuar bearocracy fouled up not only on PA 103 in which they had know about the Helsinki warning but they fouled up on the Valujet crash. In the words of ex NTSB chairman Jim Hall while tesifying infront of congress "We not only have a valujet problem but an FAA problem" They are not known as the Tombstone agency for nothing. Remeber when Eastern Airlines were being investigated by the IRS?

I think it was tax fraud and As the IRS was investigating the found out that EAL was cutting corners on security. While this was going on the FAA was objecting to the investigation. But the FAA was taken off the case and was I think handled not just by the IRS but the Justice Department. There were situations such as if a repair was either not done or partially done the supervisor would sign it off as done. Remeber that Marty Shugure was a trustee for that airline and he settled with the IRS and he had to pay an undisclosed amount in back taxes. EAL during the final years of the Lorenzo era was shaddy as well as when Martin Shugrue (The yes man) steps into the picture. Don't count on the FAA because they bend backwards so many times for the airlines it's not even funny. The only thing that crash survivors and victims' families (like my self and my fam) has found out that the only thing that motivates the FAA in this country is blood.

User currently offlineN202PA From United States of America, joined Jun 2000, 1577 posts, RR: 3
Reply 16, posted (14 years 11 months 2 weeks 2 days 17 hours ago) and read 8085 times:

On the subject of the FAA, I currently read Mary Schiavo's 1997 book and all of the incidents VA340 mentioned were in there, including info. on their bungling of the ValuJet situation and their interference with the Eastern Airlines investigation. Truly appalling.

I wouldn't take everything Schiavo said as golden, as she made several misstatements about crashes (which she should know about, given that she worked for the NTSB) and other issues, but her central tenet stands true today: The FAA has been and currently cares only for its image and promoting the interests of the airlines themselves. At the end of the day, they don't give a damn about your safety.

User currently offlineBostonBeau From United States of America, joined Sep 2000, 487 posts, RR: 0
Reply 17, posted (14 years 11 months 2 weeks 2 days 9 hours ago) and read 8065 times:

Aerokid: Before 1978, the US Airline industry was very heavily regulated. Airlines could fly only the routes authorized by the CAB, and could not add or remove flights on their own. The airlines were grandfathered to the routes they had operated when the CAB came into existence, but they could not add routes without a lengthy application and hearing process (that would literaly go on for years sometimes), and in the case of international routes, approval of the President. This tended to favor the airlines which had large route systems at the beginning, and prevented new airlines from starting up or small airlines from expanding very easily. The airlines also could not adjust to shifts in market or population centers very easily (for example, when the "sun belt" began to boom, they were very underserved by the airlines). The CAB also determined the fares that airlines could charge, and there were only two on each route usually: F and Y. Airlines that had route systems involving smaller cities were often subsidized to maintain the service as a public convenience/necessity.

In 1978, the deregulation took place. At first, airlines were allowed to apply for numerous "dormant routes" that were authorized but not being flown by any airline: Braniff International applied for hundreds of these in it's great attempt to expand. After a period, airlines were allowed to add or drop routes with only the need to notify the Department of Transportation (no lengthy hearing was required anymore), which enabled airlines to completely restructure their route systems: for example, American went from being a northeast-concentrated carrier to the mega carrier it is now, since it was able to drop its short commuter flights in the northeast and open its DFW and ORD hubs. Airlines were also allowed to charge whatever fares they felt appropriate on a route, which has led to the current wierd situation where fare bares no relation to distance sometimes.

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