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Juan
Trippe and Pan Am, Part I
Brian
Trumbore
President/Editor, StocksandNews.com
One of the greatest transportation
stories of all time was Pan American World Airways.
Of course it also ended up being one of the great
debacles in business history, too. Over the next few
weeks we'll take a look at the airline and its founder
and long- time leader Juan Trippe. Needless to say,
there are lessons galore.
Historian
Robert Sobel calls Juan Trippe "one of the most astute,
clear-sighted, and venturesome businesspeople of the
20th century." Trippe, who never liked his name, though
it proved to be a benefit in his career, had English
roots, his family having migrated to America in 1663,
later moving from Maryland to New Jersey. It was on
June 27, 1899 that he was born there in the town of
Sea Bright.
Juan
was named after his mother's stepfather, a Cuban.
His father was an engineer and later a big player
on Wall Street, heading up the investment banking
firm of Trippe & Co.
Juan
graduated from Yale in 1921, having learned to fly
during World War I, though he didn't see combat overseas.
But when his father died suddenly, it was then the
family learned that Mr. Trippe didn't quite have the
fortune that they thought he had, leaving an estate
of just $30,000 and a company on the verge of bankruptcy.
Well,
this meant that Juan couldn't exactly lead a life
of leisure; he had to go to work. But after a brief
fling on Wall Street, Trippe decided to do something
with his first love, aviation.
Teaming
with John Hambleton, in 1922 they purchased some surplus
Navy seaplanes for $500 each and launched a charter
service between New York and Long Island resorts.
It wasn't that successful, but then Trippe began to
catch some breaks.
Presidents
Woodrow Wilson and Warren Harding were lukewarm as
to the future of aviation, but Calvin Coolidge felt
otherwise. Coolidge, who favored slashing taxes and
cutting spending, incidentally, saw that the airplane
had a commercial future. As Sobel adds:
"Coolidge
was intrigued by aviation, in part because it held
out the promise of defense on the cheap. He had received
reports that the large battleships that had performed
poorly during the war might not be as important as
the navy believed. 'If battleships become obsolete
we wouldn't want to spend a lot of money on them,'
he said at a September 1924 press conference. 'And
if aviation becomes more efficient perhaps it is reasonable
to spend more money on aviation.'"
Coolidge
backed the Kelly Air Mail Act of 1925 (named after
Congressman Clyde Kelly), which would provide subsidies
for an American carrier, with the Postal Service awarding
the contracts. The following year saw the Air Commerce
Act, which gave the Department of Commerce control
over air- transport.
With
the Air Commerce Act, Trippe joined fellow Yale classmates
Cornelius Whitney, Percy Rockefeller and William Vanderbilt
in organizing Eastern Air Transport, and in '26 they
won a contract to begin carrying mail between New
York and Boston.
But
Trippe had his sights set on far loftier goals. Following
World War I, Germany, France, Britain and the Netherlands
all organized airlines, helped along by huge government
subsidies. But these were all flying within the European
continent. Trippe conceived of a truly world airline,
while believing that each country could only afford
one large carrier. Trippe's idea was to cut deals
with governments and not worry about rivals, since
true competition on international routes would be
cost prohibitive.
Trippe's
first venture in this market was to obtain landing
rights in Havana, for mail service between there and
Key West, Florida. Meanwhile, Pan American Airways,
headed by World War I aces Eddie Rickenbacker and
Henry "Hap" Arnold was making waves of its own. But
Trippe's company, then called Aviation Corporation
of America, was able to merge with Pan Am, with Trippe
becoming president of the combined operation.
In
1927, Charles Lindbergh's flight to Paris had stirred
immense interest, but Trippe needed to convince passengers
that over water travel was safe. Initially, he offered
free flights to Havana, and one of his early paying
customers was none other than Al Capone, who reportedly
told the agent. "Better see that it's a safe plane.
If anything happens to us, it won't be so healthy
for you." [Robert Sobel]
In
1928 Trippe met Secretary of the Treasury Andrew Mellon
and soon after Pan Am was granted the mail concession
between the mainland and Puerto Rico.
Then
in 1929, Juan Trippe hooked up with W.R. Grace, who
was getting contracts all over South America, most
involving his ocean liners. The two formed Panagra,
an air venture that sought to dominate this region.
By
employing Grace's contacts, Panagra was soon flying
to Chile from New York. The trip took four days to
complete, but this was still much quicker than Grace's
cruise ships, which did the journey in two weeks.
Businessmen, however, were hard to convince - the
safety issue, you understand - so airmail remained
the major source of earnings.
Herbert
Hoover became President in 1929 and his new postmaster
general, Walter Brown, awarded domestic mail contracts
to American, Eastern, Trans World Airways, and United,
giving them an advantage they'd share for some 50
years.
As
for the international traffic, Pan Am had competition
for the Latin American business from New York, Rio,
and Buenos Aires Airlines (NYRBA), which had a more
modern fleet. But thanks to another Yale connection
in the State Department, Trippe not only won the contract
for mail service, he bought out NYRBA, which had been
losing a significant sum of money.
While
the 1930s witnessed the Great Depression, Pan Am's
business took off. Trippe was able to draw on international
businessmen, as well as wealthy tourists not impacted
by the Crash. In 1930, for example, Pan Am carried
40,000 passengers to South America, but by the end
of the decade the figure was 246,000. As always, however,
mail represented about half the airlines' revenue.
After
conferring with Lindbergh, Trippe set his eyes on
Europe. Lindy advocated a route from New York to Bermuda
to the Azores and on to Lisbon. Another potential
one was New York to Newfoundland to Ireland and then
London, but this wasn't possible in the winter. Securing
rights was also an issue, so Trippe looked to the
Pacific and a route to the Philippines.
Introducing
"Clipper" service, Pan Am sought to evoke the image
of the 19th century clipper ships. The pilots and
copilots were called captains and first officers,
while the airline employed Martin M-130s, which only
had a maximum speed of 180 mph.
The
pontoon planes carried just 41 passengers, only half
as many for Pacific routes because the rest of the
space was taken up by extra fuel tanks. One flight
was scheduled every two weeks and often they went
empty. In fact, during the first year of the Pacific
venture, only 106 passengers made the trip. But they
kept the schedule for, you guessed it, the mail revenue.
Franklin
Roosevelt became President in 1933 and FDR, a Harvard
grad, didn't particularly trust "Yalies." "Juan Trippe
is the most fascinating Yale gangster I ever met,"
he once said. At the same time, the President recognized
that the expanding airline industry needed a new agency
to look after matters, so he approved the Civil Aeronautic
Authority in 1938. Then World War II broke out. That's
where we'll pick up our story in Part II.
*Due
to my own travel, the next installment will be July
4.
Sources:
"When
Giants Stumble," Robert Sobel
"The New York Times Century of Business," Floyd Norris
and Christine Bockelmann
American Heritage / T.A. Heppenheimer
Brian
Trumbore
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