30 Years On: Why Did Pan Am Declare Bankruptcy?

On January 8th, 1991, Pan American World Airways filed for bankruptcy protection. This followed the loss of more than $2 billion after ongoing financial troubles that continued to escalate. Ultimate, it led to the closure of one of the most iconic brands in US aviation history.

Pan Am 747
The sun began setting on Pan American’s story 30 years ago this weekend. Photo: Getty Images

Pioneering spirit

The airline brought a series of ‘firsts’ to the aviation industry. From the Boeing 707 and 747 to scheduled transatlantic service and Beatlemania, Pan Am pioneered numerous initiatives across the spectrum.

Pan Am brought the 747-100 into service on January 22nd, 1970, heralding a new era in aviation. For many passengers, their first time on an aircraft was experienced on a Pan Am 747 flight. The jumbo brought long-haul widebody travel to the world and made flying more affordable. In time, the iconic airline and the equally iconic jet would become synonymous with one another.

Boeing 747 Pan Am
The Queen of the Skies brought new opportunities to aviation. Photo: Getty Images

A bittersweet decade

Although the 1970s are remembered as a groundbreaking era for Pan Am, it would also be the beginning of the airline’s downfall. Pan Am would only fly the 747 for just over two decades, ceasing operations in the early 1990s.

President Jimmy Carter introduced the Airline Deregulation Act in 1978. This law gave the state less control over several critical aspects of the aviation industry. Prior to deregulation, the Civil Aeronautics Board (CAB) regulated domestic interstate routes. The deregulation act gave more freedom to operators and greater control of their services. Notably, the new conditions made it more feasible for startups to break through.

While the move would benefit emerging carriers such as Southwest Airlines, existing powerhouses found it hard to adapt to the new conditions. Airlines like Pan Am began to struggle to keep up with fresh competitors on the scene.

The series of oil crises of the 1970s also took their toll on the industry. The first crisis emerged in October 1973 after the members of the Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed an oil embargo, causing the price of jet fuel to skyrocket. Pan Am essentially became reliant on high‐priced foreign fuel.

The increase in fuel prices added some $200 million to the company’s cost sheet in the year after the embargo. The New York Times added that international travel also took a hit thanks to fare increases, necessary to offset the rising costs of operations.

Boeing 707 and 747 Pan Am
The effects of deregulation are still felt today. Photo: Getty Images

Amounting fees

Global conflicts persisted into the 1980s and fuel prices continued to rock operations, beginning a downward spiral for Pan Am. Poor management decisions such as overpaying for the acquisition of Miami’s National Airlines for domestic routes (which did little to feed existing hubs) did not help matters.

In a bid to mitigate the losses, Pan Am sold several prized assets during the 1980s. For instance, in 1986, the airline sold its Pacific Division to United Airlines, giving a key rival valuable commodities, including planes, gates, landing rights, and contracts.

The 1988 Lockerbie disaster marked the end of a tough decade for the operator. The bombing of Pan Am Flight 103 on December 21st, 1988, saw a total of 270 people lose their lives. The tragedy was a public relations disaster and led to a $300 million lawsuit. There was also a fine from the Federal Aviation Administration (FAA) following 19 security failings.

These challenges set Pan Am up for a difficult beginning to the 1990s. Despite a recent cash injection of $150 million from lenders, the company was losing considerable amounts of money, forcing it to file for bankruptcy in January 1991. According to the court filings, Pan Am shared that its combined assets added up to $2.1 billion. However, its liabilities totaled up to $2.8 billion.

Boeing 707 Interior
Pan Am exemplified the golden age of commercial aviation in the mid 20th century, but the carrier’s legacy wasn’t enough to keep it going. Photo: Getty Images

Hopes of a fresh start

Pan Am’s chairman, Thomas Plaskett, expressed that the filing was the start of a new ball game for his company and an opportunity to break away from its troubled past. The executive said that the move would allow the firm to reorganize in a “very competitive and increasingly concentrated industry.”

“The 63-year-old carrier has spent much of the last decade on the verge of financial catastrophe, difficulties that forced it to sell some of its most valuable assets, including the Intercontinental Hotel in New York, where today’s press conference was held; the airline’s Pacific division; its landmark Manhattan office building; and its London routes,” The Washington Post reported in January 1991.

“Its downfall began in the late 1970s and continued in the 1980s. The carrier failed on two fronts – it never proved successful at fending off increased competition on its international flights from powerful carriers like American, United and Delta, as well as some European airlines. At the same time, it failed to develop a strong domestic route system that would enable it to feed its international flights.”

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Meeting its fate

Delta Air Lines acquired Pan Am’s transatlantic routes and shuttle service prior to the carrier’s eventual collapse, fending off TWA, United Airlines, and American Airlines. The Atlanta-based operator notes that Pan Am was losing up to $3 million each day during the latter weeks of 1991.

There were several revival attempts. However, the airline was shut down once and for all on December 4th, 1991. Approximately 7,500 employees lost their jobs as a result of the closure.

PanAm Over Mt Ranier
The airline’s six-decade journey came to an end. Photo: Getty Images

Pan Am wasn’t the only major carrier to declare bankruptcy due to the challenging conditions of the time. Continental Airlines filed for bankruptcy reorganization just a month before its competitor. Braniff, Eastern, and Presidential also filed for Chapter 11 during the period prior to Pan Am’s declaration. Capitol Air and Pacific South West were two more casualties of the difficult environment.

Three decades have passed since the year Pan Am’s operations stopped. However, the legacy of the carrier continues to live on. It will be hard for another cultural icon to emerge and have an impact the same way that this legend did.

Today, the aviation industry is going through another significant transformation, somewhat akin to what Pan Am witnessed in the 1970s and 1980s. It took many years for the airline to finally fold after the playing field shifted beneath its feet.

The downfall of an institution such as Pan Am highlights that no airline is untouchable. Drawing parallels with the difficulties many airlines are facing now, it’s clear that it could be decades before we see the true impact of today’s global health crisis.

What are your thoughts about Pan American’s bankruptcy? What do you make of the overall decline of the airline? Let us know what you think of the carrier and its history in the comment section.