Hard Landing (70 page)

It was a battle destined for decision as much on influence as on economics. United won the support of Chicago Mayor Richard Daley and Illinois Governor James Thompson, leading Crandall to accuse the company of playing political games. American meanwhile was conducting a massive local advertising campaign—“American means business in Chicago”—on which it was rumored to be spending
some $6 million in the first half of 1990.

In the end United won, a decision that
Crandall took so bitterly that he personally fired the Washington representative who had been handling the lobbying. Of all the government decisions that ever went against American, Crandall would say, “the
worst screwing we got was Chicago-Tokyo.”

By 1990 Stephen Wolf and Bob Crandall were each separately convinced that they had very little time left to align their companies as “global megacarriers” for the next century. They feared that Europe, never particularly welcoming to the Americans, would slam shut by the end of 1992, when the European Community would be fully constituted. Crandall and no less Wolf were especially keen to stake a major claim in the vital gateway of London. American’s existing
flights mostly flew over London to the heartland of Europe, while United still had only the data-processing artifice of service to London through its code-sharing relationship with British Airways.

Domestic political uncertainty intensified the pressure to act quickly. President Bush had largely maintained the hands-off antitrust policy of the Reagan years, but as Crandall aide Bob Baker would explain, “
There was a sense that if we wanted to get some of this shit, we’d better get it while we could, we’d better not do this too many times or the government’s going to shut us down. The fact is we’re getting bigger and bigger and United is getting bigger and bigger and the smaller carriers are falling by the wayside, and the music would stop soon.”

As eagerly as the two rivals wanted to act, their opportunities were limited. Whether “diplomatic dithering” played a role or not, opening up new overseas routes was an agonizingly slow process. And there were precious few airlines left to be taken over—except, most notably, Pan Am, still out there with a For Sale sign hanging around its corporate neck.

Crandall and Wolf looked covetously at Pan Am, now in the hands of Tom Plaskett. The three of them, all once colleagues in the marketing operation at American Airlines, were now aligned in a triangle, each with an eye on the other two. The standoff would be readily resolved if only Wolf or Crandall would move to seize Pan Am. But there would be no frontal attacks, no bidding wars. For as eagerly as Plaskett wanted to sell and Wolf and Crandall wanted to buy, a vast chasm of strategy and expectation existed in the middle of that triangle. Would Pan Am, one of the greatest names in the history of commerce, survive as an affiliate of a rescuer? Or would it, like Eastern, be shredded, with its people, to pieces?

CHAPTER 18

LONDON CALLING

C
hicago has the world’s busiest airport, Dallas the biggest, Denver the newest. But in the world of international flight, none of them comes close to matching the importance of Heathrow Airport in London.

Much more than an airport, Heathrow is a crossroads that links the Middle East with North America, Africa with South America, Europe with Asia and every other continent. Heathrow is to the planet Earth what Chicago, Dallas, or Denver is to the United States. In terms of handling international passengers, no U.S. airport—not JFK, Dulles, or O’Hare—ranks even in the world’s Top 10. But the whole world changes planes at Heathrow.

Along with being vital, Heathrow is inaccessible.

Like the New York airports, Heathrow has long been governed by slots, every last one of them long ago spoken for. Europe is a
crazy quilt of air traffic control; a flight to Heathrow from Athens, say, may encroach on the sovereign airspace of Albania, Bosnia, Italy, Liechtenstein, Germany, France, Belgium, the United Kingdom, and possibly a few others, including NATO, depending on the route. European air traffic control is a tower of Babel involving
55 control centers, 18 varieties of computer hardware, nearly two dozen operating systems, and something like 70 programming languages. No
one, therefore, can be positive when an inbound flight from the continent might reach Heathrow. In determining how many takeoffs and landings can be permitted and at what times of day, Her Majesty’s Government and the slot planners must allow for any number of flights arriving at nowhere near the correct time. Landing capacity also has to take account of the unpredictable London fog.

On top of everything else, Heathrow is hemmed in by the suburban sprawl of London. There are two runways at Heathrow. In the interest of
diluting the noise over the surrounding communities, the authorities restrict one runway to departures and the other to arrivals, instead of allowing each to handle both.

Heathrow is a closed shop, and that fact alone has helped to solidify British Air’s position as the self-proclaimed “world’s favourite airline.” That Heathrow is British Airways territory is evident to anyone driving through the main entrance, where a giant scale model of the supersonic Concorde, painted in the colors of British Airways, is on display. As a result of takeovers, mergers, government grants, and the company’s influence with the British Airports Authority, British Airways controls about 38 percent of the slots at Heathrow, while the remaining airlines of the world each have trifling operations in comparison. British Airways also enjoys the finest indoor quarters in the airport; it received its own sprawling new terminal in the late 1980s. The new facility, Terminal Four, is trimmed in British Air’s colors, with dozens of huge screens identifying the check-in points for the world’s most exotic destinations. Check-in service is supreme:
a bank of video cameras monitors the queues by destination, with computers guaranteeing the most efficient deployment of check-in personnel.

The sinecure of British Airways at Heathrow was assured for perpetuity in 1977, when the government declared that no newcomer would be allowed to land there. Pan Am and TWA were grandfathered at Heathrow, but all latecomers—Braniff, Delta, People Express, and eventually American Airlines—were forced to land at the newer and much less convenient Gatwick Airport. Not that the British discriminated against foreign airlines alone: the Briton Freddie Laker’s SkyTrain service to Newark was in its time also banished to Gatwick. Gatwick was fine for shuttling low-fare tourists between the United States and the United Kingdom, but no full-fare business
traveler was eager to spend six hours on a flight to England only to endure an interminable cab ride, much less a bus trip, upon arrival. Airlines flying to Gatwick were also disadvantaged because they received only a small part of the traffic bound for the Continent or elsewhere: oil sheiks could not fly nonstop to Abu Dhabi through Gatwick; finance ministers could not reach Nairobi. Heathrow, not Gatwick, was the turnstile through which passed the richest and most important travelers in the world.

In a fateful step in 1980 the United States, at the behest of Sen. Edward Kennedy and House Speaker Thomas “Tip” O’Neill,
demanded some amendments to the treaty known as Bermuda II in order to allow Pan Am to fly from Boston to Heathrow. Britain agreed, though at a price: the United States had to agree that only two U.S. airlines could ever serve Heathrow at the same time, even if space became available for more. If not Pan Am or TWA, the amendment read, only their “corporate successors” could land at Heathrow—whatever that meant.

Los Conquistadores del Cielo—what a
bizarre organization it was. The top executives of commercial aviation, only a few dozen in number, competed to the point of annihilation 51 weeks a year and then spent the week after Labor Day together on a spread of more than 15,000 acres in Wyoming called the A Bar A Ranch. They would turn out in cowboy hats and boots—Stephen Wolf in an elegant knitted sweater, perhaps, and Bob Crandall in a leather vest and bolo tie. They would feast on prime rib, buffalo burgers, trout pâté, and bacon smoked on applewood. Their poker stakes regularly surpassed $10,000. Though city slickers all, they would throw themselves into fast-draw competitions, trapshooting, fly fishing, and horseback riding. The tradition of the games included a race on horseback in which the contestants stopped at the halfway point to pull on pink frocks; as the aviation men galloped to the finish line, their dresses waved in the wind.

Although a welcome diversion, the 1990 gathering was clouded by a new and tremendous stress: the imminence of war in the Persian Gulf. One month earlier Iraq’s lightning-quick invasion of Kuwait had thrown the global airline industry into a hard depression, devastating the airlines as no event had since the firing of the air traffic
controllers nine years earlier. The price of oil, after mercifully plunging from the heights of the early 1980s, once again spiked upward. The greatest military buildup since World War II—the allied operation known as Desert Shield—reactivated thousands of reserve pilots, pulling them from the cockpits of their commercial airliners. Civilian U.S. aircraft were also diverted to the Persian Gulf. American Airlines conducted so much flying for the U.S. government that the pilots’ union attempted to negotiate a
special set of work rules, provoking a bitter labor-management conflagration and accusations of a lack of patriotism. After its most sustained period of profitability since deregulation, the U.S. airline industry was bathed in red ink.

Unlike the controllers’ strike, the invasion of Kuwait and the military escalation that followed afflicted airlines outside the United States as well. The European airlines suffered disproportionately due to their proximity to the terrorist threat, and in this respect Pan Am might as well have been a European airline; whatever small recovery Pan Am had mounted after the bombing of Flight 103 was wiped out by the new hostilities in the Gulf. Chairman Tom
Plaskett considered putting Pan Am into bankruptcy, but that was thinking the unthinkable; instead he would press on in the search for a rescuer, and the Conquistadores meeting, he knew, would be an excellent place to look.

One evening after everyone had reached the A Bar A Ranch,
Plaskett approached Stephen Wolf. It was an ironic occasion for Plaskett. A decade earlier Plaskett had been two steps above Wolf in the marketing department at American Airlines. Plaskett would never forget the elaborately detailed presentation that Wolf made putting forward his case for a promotion and a raise. Plaskett had told Wolf he was
not yet ready for the promotion, and before long Wolf had quit American. (Plaskett and Wolf also shared the experience of having each served less than one year as the president of Continental under Frank Lorenzo.)

Plaskett told Wolf he was eager to hear an acquisition proposal from United, and was encouraged when Wolf agreed to give the matter some thought overnight. Wolf, of course, was as eager as ever to put United into Europe, but not at the cost of swallowing Pan Am and all its problems.

The next morning, as the breakfast dishes were being cleared, the
two men sat down over coffee in the rustic mess hall at the ranch. Wolf had scratched out a
cryptic proposal on a single sheet of paper, with the words “United” and “Pan Am” evident nowhere. The paper listed two Pan Am routes to London: one from Los Angeles, one from San Francisco, and the figure $75 million. Plaskett was crestfallen. Pan Am was dying by the day. What Wolf was proposing was a Band-Aid, a palliative, not a cure. Plaskett went back to New York to resume the task of fighting off Pan Am’s creditors.

Within days, however, Plaskett sensed an opportunity to make another approach. Wolf unveiled the largest airplane order in history—$22 billion—making United the U.S. launch customer for the new Boeing 777. Looking on from Pan Am, it was
evident to Plaskett that Wolf was trying to stage a series of blockbuster announcements to snap United back from the distraction of the employee takeover. Perhaps, Plaskett thought, a merger with Pan Am could become part of the new momentum.

This time Plaskett decided to resort to the tease. He would entice Wolf by offering to sell just a piece of Pan Am—the airline equivalent of an ankle, perhaps, or some cleavage. Then, once it had a few hundred million dollars of life-saving cash in hand, Pan Am would have the time to coax United into going all the way.

But what enticement to use? The Pacific was long since gone, to United, in fact. The Latin American routes were a possibility; United was under pressure to make a big move there now that American was operating the Eastern routes in the region. But Latin America alone would not provide Pan Am with the cash it needed to survive in the short term. That left London.

The delicacy of aviation relations between the United States and Britain had turned Pan Am’s routes to London into a seemingly priceless asset. The amendments to the Bermuda II treaty, after all, restricted Heathrow to Pan Am and TWA, or to their “corporate successors.” Pan Am, in other words, could not sell half or any fraction of its operation at Heathrow to anyone. Doing so would introduce a forbidden third U.S. carrier into Heathrow. Selling the operation in London was an all-or-nothing proposition.