Death of an Airline

Everybody,​ especially if they’re afraid of flying, knows that the statistics say it’s the safest way to travel. Or one of them, anyway: as with everything else, it depends on how you measure it, though from any perspective it’s a lot closer to taking the bus than riding a motorbike or a space shuttle. But knowing that doesn’t seem to help with the anxiety. And the fear isn’t completely irrational, not least because in the very unlikely event of your plane dropping out of the sky, your chances of survival are very small.

I was in the French Alps when Germanwings Flight 9525 plummeted into the Estrop mountain range, and due to fly out of Geneva the next day. So I wasn’t close to the crash in any meaningful sense (it wasn’t as if I knew anyone on board), but for the briefest moment after hearing the news I felt, absurdly, as if I’d had a narrow escape. Then there was a tedious mix-up at Geneva over my ticket, and I began to wonder – though not really – if something was trying to tell me I should skip my flight, the prospect of a narrower escape hovering opaquely in the dull afternoon rain (the Walter Mittyish fantasy of someone whose life is free from any real peril). Superstition clings to coincidence.

Pan American World Airways collapsed on 4 December 1991. Thousands of people lost their jobs. A New Jersey travel agent told the New York Times the day after the airline went bust ‘that she did not avoid Pan Am outright in her bookings’ but ‘if there was another option’ she usually took it. ‘She said that many of her clients were reluctant to fly Pan Am’ because Flight 103 had blown up over Lockerbie on 21 December 1988, killing all 259 people on board and 11 people on the ground. The aversion to flying Pan Am wasn’t completely irrational either: there’s evidence that the airline was specifically targeted by the Lockerbie bombers – whoever they may have been, but that’s another story* – for its iconic status.

By the time it shut down, the airline was losing two million dollars a day. Since filing for Chapter 11 bankruptcy in January 1991 it had been frantically ditching assets like unwanted ballast in an attempt to level out, but too late. And yet three years earlier, in October 1988, Pan Am’s chairman had announced ‘a new quarterly record for revenue’ of $1.2 billion, with profits of $67.4 million. The first quarter of 1989 saw a loss of $151 million, with a 16 per cent drop in traffic on European flights compared to a year earlier. It’s hard not to think, like the New York Times journalist who rang the New Jersey travel agent for a quote, that Lockerbie finished off Pan Am.

It was almost certainly a contributory cause, and possibly even a necessary one, but probably not a sufficient one. Other airlines have continued trading after disasters with higher death tolls: 583 people died in March 1977 when a KLM pilot tried to take off in the fog from Tenerife without clearance from air traffic control and crashed his Boeing 747 into a taxiing Pan Am 747; in August 1985 a Japan Airlines 747 crashed into a mountain after mechanical failure, killing 520 passengers and crew (that all these planes were 747s doesn’t mean that jumbos are especially dangerous, only that they carry a lot of passengers). In 2014, Air France-KLM and Japan Airlines were, respectively, the fourth and 11th biggest airlines by revenue in the world. Lufthansa, which owns Germanwings, is top of the list. (Malaysia Airlines looks set to continue after its two fatal disasters last year, but that’s with a lot of help from the Malaysian government.) Then there’s the fact that Pan Am wasn’t the only US airline to fail in 1991; it had been preceded by Eastern (no accidents since 1985) and Midway Airlines (no accidents ever). And as it happens, despite the brief recovery in 1987-88, it had been struggling for some time.

Founded in 1927, Pan Am’s first flights were mail runs between Florida and Cuba. In the 1930s, ‘America’s airline to the world’ began flying passengers in seaplanes across both the Atlantic and Pacific and it soon had a near monopoly on many international routes. The Civil Aeronautics Board prevented it from flying within the US, however, because the other airlines argued, not unreasonably, that its international dominance would give it an unfair advantage domestically. But the scales gradually tipped the other way, as other airlines’ ability to fly within the US made their long-haul flights more attractive to passengers whose journeys didn’t start or end at an international hub.

So the 1978 Airline Deregulation Act should have been partly in Pan Am’s favour, since it gave it access to routes within the US. But it also increased competition on international flights and at this point Pan Am made one of its biggest mistakes. In its rush to acquire a domestic network, it bought National Airlines in January 1980 for a hefty $437 million, more than it could afford: its balance sheet had been shaky since it acquired a large fleet of new Boeing 747s just before the 1973 oil crisis. The first round of asset-dumping began in late 1980, as it sold off its share in the Falcon Jet Corporation, the Pan Am Building in New York City and the InterContinental Hotel chain. In 1985 it gave up flying across the Pacific, selling that division – a quarter of its business – to United.

Then came Lockerbie, followed by the First Gulf War, which again sent oil prices soaring (airlines have since become more skilled at fuel hedging, i.e. investing in ways that offset the extra costs when fuel prices go up). Pan Am’s response was to offload more assets. It had been flying between cities in West Germany and Berlin since 1950 (the logical conclusion of one of the company’s original interwar purposes, to counteract the rise of the Colombian-German Air Transport Society in Latin America); in 1990 it sold its German routes to Lufthansa. Most of its routes in and out of Heathrow went to United. After Pan Am went into administration at the beginning of 1991, Delta bought its remaining profitable assets, as well as a 45 per cent stake in the rump of the company, which looked for a while as if it might carry on flying between North and South America much as it had in the 1930s. But eventually Delta pulled the plug, and that was that.

A documentary released in 1992, Death of an American Dream (available on YouTube; the title gives a hint as to its point of view), blamed ‘financial difficulties caused by deregulation, mismanagement, terrorism and restrictive US government policies’ for the airline’s failure. Lockerbie is barely mentioned. Instead, a series of grizzled talking heads mutter darkly about backhanders from competitors reaching Capitol Hill – only Pan Am, they claim, had the probity not to stoop to such measures – and even suggest Delta had a special connection to Jimmy Carter because they both came from Georgia, though they stop short of accusing rival airlines or the Oval Office of placing the bomb on Flight 103.

In July 1992 a US federal court found Pan Am guilty of wilful misconduct for allowing an unaccompanied suitcase onto the plane. Compensation suits followed, though it was the insurance companies that had to pay out as the airline was defunct. Germanwings will probably have to pay out around €320 million to the families of the victims of Flight 9525. ‘We are in mourning,’ the airline’s website says, in discreet black letters on a sombre grey background, just above the boxes you fill in if you want to buy a ticket. You can get a return flight from Dusseldorf to Barcelona for €79.98.