Hard Landing (72 page)

The wolf was soon baying at Pan Am’s door. War in the Persian Gulf was imminent. There was too little money coming in, too much going out in fuel bills—payable in cash on delivery, in Pan Am’s case. The company was now losing something like $2 million a day. Pan Am’s personnel analysts observed a sudden, sharp increase in
medical claims, apparently as employees hurried up elective medical attention on the expectation that their benefits might soon vanish.

“
Who would ever have thought,” Plaskett told a group of Harvard Business School alumni some time later, “that those two little words, ‘corporate successor,’ could generate so much debate, haggling, horse trading, intrigue, stalling, posturing, and negotiating between two governments?”

It was time to think about the unthinkable. Plaskett flew back to Dallas, where his family was still living, for the first weekend of the new year. He spent the
weekend contemplating the weight of a momentous decision to put Pan Am into bankruptcy. He had to come to terms with the reality of it. Who would ever have thought? But there was $30 million in the till. The company was within days of having to shut down.

Plaskett was back in New York on Monday. “Let’s go,” he said.

Pan Am had been in bankruptcy two weeks when Britain agreed to reallocate the slots at Heathrow Airport, officially permitting new entrants. Within the United Kingdom the most conspicuous victor was Virgin Atlantic. John Major’s government awarded Virgin 28 slots a week—only a third of what it had requested, but 28 more than British Airways wanted it to get. The authorities quickly increased Virgin’s award to 40, enough to allow the upstart carrier to plan new routes to Tokyo, New York, and Los Angeles.

Richard Branson decided to celebrate the Heathrow conquest
with a “
raiding party.” He outfitted himself as a pirate, with a patch on one eye and a parrot on his shoulder. He approached the front entrance to Heathrow, where the huge scale-model replica of the British Airways Concorde was perched. With a crane, Branson lowered a carefully sewn sheet over the airplane, covering the British Airways markings with the logo and colors of Virgin Atlantic. In front of the entire display he planted a huge sign. It read simply: “This Is Virgin Territory.”

British Airways was not exactly sporting. Lord King, who sometimes referred to Branson as “
the boy,” publicly called the award of slots to Branson a “tragedy.” Sir Colin
approved a payment of £50,000 for an outside PR firm to work up a dossier on Branson. The consultant’s report cited speculation of “
drug dealing, homosexuals, and male prostitutes” at a Branson-owned nightclub named Heaven. The report would have been a meaningless piece of competitive intelligence if it had remained in-house, but a British Air
PR operative circulated the scurrilous information among Britain’s news media. Stories questioning the financial security of the Virgin group of businesses began to fly. Branson meanwhile learned that British Airways had been
poaching passengers by offering them inducements to break their plans to fly on Virgin.

A battle royal ensued in the British press and television media. Branson wrote a letter to the British Airways board complaining of “
dirty tricks” and “a smear campaign in the press.” Sir Colin answered with a marvelously
patronizing letter that concluded, “Would it not be better if you were to devote your undoubted energies to more constructive purposes?” Lord King, for his part, publicly accused Branson of manufacturing the allegations.

Branson, the kid who had once sued John Lennon, then decided to take Freddie Laker’s “sue the bastards” admonition to heart. He dragged British Airways to court, where the controversy would only continue to fester, proving, if nothing else, that the Yankees of the aviation world no longer had an exclusive license on bitterness in their business dealings.

The lifting of the barriers against new entrants at Heathrow
touched off rejoicing in the United States amid hopes that Pan Am and TWA would soon get the cash for their London operations. But the celebration was short-lived. Officials from the U.S. State Department arrived
in London a short time later expecting to conclude the diplomacy and were told that even if the slots matter had been decided, the issues of corporate successorship had not. To resolve this diplomatic standoff, the United States was still required to make a trade. Even as U.S. and British soldiers began fighting side by side in the Persian Gulf, diplomats from the two countries stared crossly at one another across the bargaining table.

The British price was soon clear.

British Airways had profited handsomely in its brief experience with code sharing. With unlimited code-sharing rights, Marshall could essentially turn the entire route system of a U.S. carrier into a feeder system for British Airways. Extending this blanket authority to British Airways would assure Marshall of the opportunity to replace the United code-sharing relationship that had been so fruitful with an even grander arrangement. And Marshall was in a position to make demands. Pan Am, already bankrupt, was inches from complete shutdown. Unless the British agreed to designate United as Pan Am’s corporate successor, Pan Am would be inalterably dead.

When Bob Crandall found out that Sam Skinner of the Transportation Department was entertaining the British demand, he went wild. Crandall wanted to settle the succession issue as much as anyone on the U.S. side; his purchase of the TWA routes required the same British approval. Crandall in fact had people already
stationed in London, going to work every day without knowing whether any planes would ever show up. But to Crandall no deal was worth capitulating to Sir Colin on code sharing.

No one had a more sophisticated appreciation for the power of a computer network than Crandall. In his view unlimited code sharing would give British Airways the right to serve any U.S. city through the proxy of another airline. In fact it was better than that: British Airways could go anywhere in the United States without having purchased a single airplane, without having hired or trained a single employee, without having wangled the necessary slots. Crandall thought he had been
played for a fool: the hundreds of airplanes he had bought in the last 10 years, the tens of thousands of people he had trained—what were they worth when British Airways could scoop up passengers all over the United States without spending a dime in capital?

“Do not do that deal!” Crandall told the transportation secretary.
“Do not do it! It’s a
dumb deal!” The issue of corporate succession was a red herring, Crandall said. Corporate successors? “Tell them
that means us!” Crandall snapped. Crandall suggested an alternate bargaining strategy to Skinner. “If United and American don’t get certified to operate at Heathrow, then British Air isn’t allowed to land in the U.S.!”

Skinner held out. The British held out. Soon it was February 1991, and the bombs at last were raining on Iraq. At various points President
George Bush, Vice President Dan Quayle, and Secretary of State James Baker weighed in separately in the Heathrow battle, to no avail. Plaskett announced that Pan Am, though still flying, would cut its workforce 15 percent. Soon it was March 1991, five months after Wolf and Plaskett had first come to terms on the Heathrow deal. Pan Am
missed a $100 million debt payment to Bankers Trust, exposing it to further possible foreclosures. Still the British and U.S. negotiators talked, and finally, on March 11, 1991, there was a deal.

The United States had caved. United and American would be allowed to serve Heathrow, although with a ceiling on their capacity levels. In exchange the airlines of the United Kingdom would have unlimited code-sharing rights in the United States, enabling them essentially to list any of their flights under the name and flight number of a U.S. partner.

How great a concession was that, really, despite Bob Crandall’s protests? The cost of continuing to hold out had become too great. “Pan Am,” said Transportation Secretary Skinner, “literally would have gone out of business tomorrow.”

Within days of United’s first landing in Heathrow, Stephen Wolf told Plaskett to
forget it. United would make no deals for the whole of Pan Am.

The search for someone to buy Pan Am whole quickly became like the old Jimmy Durante punchline: everybody’s trying to get in on the act. The unions, the creditors, various investment bankers acting officially and otherwise, and Plaskett himself were all bumping into one another in search of a way out. Through it all one company, hemming and hawing a bit—kind of shuffling, in fact—said that it might be interested in having a closer look. That company was Delta Air Lines.

That Delta was only now getting drawn into the great international takeover sweepstakes was perfectly in character. Delta was a follower—in fare moves, route applications, technology, takeovers, what have you. From the outside it appeared to have an unstinting company policy to let others innovate. Not that Delta was poorly managed—far from it. It controlled expenditures to the point of compulsiveness. (“We have
zero paper-clip attrition,” an official once boasted.) There were no budgets because the chief executive reviewed every expenditure over $1,000. Borrowing money was against Delta’s corporate religion.

Its greatest strength was its people, in whom Delta bred a loyalty so powerful that it seemed almost creepy from the outside. Delta flight attendants were interviewed twice, then sent to the company psychologist, Dr. Sydney Janus, who explained that at Delta, “you don’t just join a company, you
join an objective.” Like Southwest, Delta steeped its employees in corporate lore, dating to its origins as a crop-dusting service. Outside the headquarters building in Atlanta, a sky-high rendering of the triangular Delta logo looked down on the parking lot so that employees could not avoid the image as they marched toward the entrance. When employees reached the building, they entered by grasping a door handle in the shape of the corporate logo.

But Delta delivered for its employees. Delta people got jobs for life; the company had not laid off a soul in 34 years. There had been no BOHICA, no concessions, no b-scales. Delta paid its people exceptionally well, not only by the standards of the low-wage southern United States but by airline industry standards as well. On the initiative of the flight attendants, Delta’s employees had once organized the purchase of a Boeing 767—a $30 million airplane—from their own paychecks.

It was only such a corporate environment that could produce an airline chief executive officer from the ranks of the personnel department. Ron Allen—like all his predecessors in the chairman’s suite, a born-and-bred Delta product—fit Delta’s trademark “Southern Gentleman” image to a
T
. Allen had an instinct for the superior customer service on which Delta so justly prided itself. On one of the company’s new 757s Allen once rescued a passenger locked in the lavatory by using a knife from the galley. Considering flight attendants
an especially critical link, he sat through endless presentations on such vital subjects as meal cart optimization. Until a recent diet, Allen enjoyed taking breakfast on the edge of the airport at a blue-collar hangout called the Dwarf House.

Despite its reputation for following, Delta to its credit had been among the earliest domestic U.S. airlines (though far from the first) to begin spreading its wings overseas. But Delta had not exactly taken the globe by storm. A Delta marketing executive in the late 1980s wrote an internal report saying Delta remained a nonentity in its destinations in Europe. The company suffered from consumers’ “total
lack of knowledge of who and what Delta is.”

By April 1991 Allen was no longer content merely to do things the ponderous “Delta way.” Only so many international routes existed in the world, and they were changing hands fast. Allen was late getting into the game, but he had to get in, so when the pilots of Pan Am were taking it upon themselves to find a buyer for their company, Ron Allen was all ears.

By this time anybody who had ever thought of flying over water was sizing up the remaining pieces of Pan Am. Plaskett found himself shuttling all over Manhattan meeting with bidders, investment bankers, creditors, union leaders. The depressing part was that everyone wanted to pull off a chunk, but no one wanted to take on Pan Am’s people. They wanted nothing from Pan Am but little slips of paper: certificates, many written in foreign languages, some half as old as the industry’s most experienced executives, entitling the bearer to land airplanes and drop off or pick up passengers in a particular city, and to collect a fare for doing so.

The frenzy reached its peak on a Tuesday in New York—July 23, 1991. Plaskett excused himself from a meeting with Carl Icahn of TWA in order to join Ron Allen of Delta, who was waiting for him on the 46th floor of the Pan Am Building. Stephen Wolf of United had also made the scene. An extraordinary development had occurred: Delta and United were discussing a joint bid—for all of Pan Am. It was Tom Plaskett’s dream come true, for him and all of Pan Am’s employees. A joint takeover by United and Delta would pluck Pan Am intact out of bankruptcy court, and Delta and United could make a clean division of the assets and the liabilities
and the people
.

As twilight reached Manhattan, Plaskett went to work playing matchmaker.

Steve Wolf was suddenly stricken with déjà vu. He was, he realized, sitting in his old office on the 46th floor of the Pan Am Building, the same office he had occupied as a senior vice president for Pan Am a decade earlier, under Ed Acker.

But the place had lost its magic. The carpet had grown threadbare, the furniture upholstery was shiny and worn. And now here was Wolf, tearing apart the carcass of the once proud bird with the man from Delta.

What Wolf wanted very badly in this feeding frenzy was Latin America. Even in the downward slide of the past two years, even through Lockerbie and the Gulf War and the tarnishing of the Pan Am name, the Latin American operation had remained profitable, the only profitable division in fact in all of Pan Am. Wolf knew those routes could never be duplicated from scratch, and buying them was the only way to match Bob Crandall’s move into South America on the old Eastern routes.