NEW YORK -- Cash-strapped Pan Am Corp. has filed for Chapter 11 bankruptcy protection after winning a bankruptcy loan commitment from Bankers Trust Co. for $150 million, including $50 million from United Airlines.
The struggling carrier, hard hit by rising fuel costs and the economic recession, said the debtor-in-possession financing, together with about $30 million cash on hand, will cover its cash needs until later this month. The bankruptcy petition was filed Tuesday.
By that time, Pan Am said it expects to receive final payment of $290 million for its previously announced sale of five U.S.-London routes to United.
As expected, the U.S. Department of Transportation issued a show cause order Tuesday granting tentative approval for the sale. The routes link London with New York, Washington, San Francisco, Los Angeles and Seattle.
The deal still faces several hurdles, however, including the approval of the British government. Pan Am Chairman Thomas Plaskett said Tuesday he expected the British to settle the issue in the next week or two.
Asked whether Pan Am would liquidate if the British government failed to approve the route transfer, Plaskett replied, 'I'm such an optimist that I am not going to answer that question.'
Pan Am's financing agreement with Bankers Trust and United also is subject to bankruptcy court approval. A hearing on the plan was scheduled Thursday.
A spokesman for Pan Am said the agreement contains no contingency for additional cash in the event the route sale is delayed.
Pan Am's bankruptcy petition was the fourth Chapter 11 filing by a U. S. airline in less than two years. In December, Continental Airlines of Houston filed for Chapter 11, citing higher fuel costs and a heavy debt burden.
In March 1989, Eastern Airlines of Miami filed for Chapter 11 and in September 1989 Braniff Inc. of Orlando, Fla., also sought protection.
Pan Am said its airline subsidiaries will maintain full flight schedules and customer services while it seeks to reorganize. Pan Am's principal unit, Pan American World Airways, serves 29 U.S. cities and 71 overseas destinations.
The company's regional airline, Pan Am Express, serves 24 cities in the United States and Bahamas and nine in Europe. The Pan Am Shuttle operates hourly service between New York, Boston and Washington.
'Pan Am's financial restructuring will have no impact on the flying public,' Plaskett said in a statement. 'We are committed to operate our full schedule of flights, honor all tickets, and maintain our relationships with travel agencies, tour operators, and our interline and other business partners.'
In its bankruptcy petition, Pan Am said it had $438 million in total assets and $89 million in total liabilities as of Sept. 30. Pan American World Airways listed $2.6 billion of liabilities and $1.6 billion of assets.
The unit also listed secured debt of $412 million, unsecured debt securities totaling $381 million and $1.6 billion of other liabilities excluding contingent or unliquidated claims.
Plaskett said Pan Am sought bankruptcy protection after failing to weather a series of setbacks, including the 1988 terrorist bombing of Flight 103 above Lockerbie, Scotland, soaring jet fuel prices and a deteriorating economy.
'We simply did not have the underlying financial strength to absorb the enormously adverse impact of these external events,' Plaskett said. 'The reorganization process will provide us with a welcome chance to break, in general, with a financially troubled past. It will allow us to reorganize to better position our company in a highly competitive, concentrated industry.'
Others were less optimistic, however.
Standard and Poor's Corp. lowered its ratings on $395 million senior and subordinated unsecured debt to 'D' from triple 'C.'
'Pan Am's longer term problems of inadequate revenue generation and an aging fleet indicate that reorganization as an independent entity will be very difficult,' the debt rating service said.
'The best hope for the company and its bondholders remains acquisition by another airline, most likely United or Trans World Airlines Inc. Liquidation would result in little or no recovery for unsecured creditors.'
Carl Icahn, chairman of TWA, offered to acquire Pan Am in December for $225 million in cash and up to $150 million in subordinated securities.
Plaskett said Pan Am would be willing to consider an offer, but would need an interim loan, not unlike the deal struck with Bankers Trust and United.
A spokesman for Icahn Tuesday said Pan Am never responded to Icahn's letter of Jan. 3 outlining the terms of his debtor-in-possession financing proposal. Plaskett said Tuesday the potential deal with TWA was dead.
'I have a better deal than anything (Icahn) ever talked about,' he said. Plaskett called the Icahn offer 'non-credible,' and said it represented only about half of the amount pledged by Bankers Trust and United.
Lenders who provide money under a debtor-in-possession financing arrangement are given precedence of other creditors in a bankruptcy proceeding.
Such loans also typically command a higher rate of interest. A spokesman for Pan Am declined to disclose the loan rate for the agreement, however.
A United official said the $50 million to be supplied by United is to be repaid, once the route sale is approved and the final payment of $290 million is made to Pan Am.