Pan Am's Crash Landing

Why private companies fail while public disasters persist

(Source: Creative Commons)

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Bill Bonner, reckoning today from Poitou, France...

A cigarette that bears a lipstick’s traces
An airline ticket to romantic places

~ These Foolish Things by Erick Maschwitz and Jack Strachey

Here’s a little item on Bloomberg this morning:

Train to Nowhere Shows How Not to Build Public Transit

A light rail system in the capital shut down after less than two years in service.

In July 2018, Muhammadu Buhari, the president of Nigeria at the time, boarded a gleaming new train linking the capital city, Abuja, with its airport. At the ribbon-cutting ceremony, Buhari hailed the system as “evidence that we are a government that delivers on its promises.”

Five years on, that promise looks empty. Train cars are locked away at a depot. Cavernous stations fully equipped with escalators, ticket offices, cameras and scanners stand empty, overseen by bored security guards. The faux leather couches in the VIP area are covered in bird and bat droppings. “It’s an abandoned project,” says Rowland Ataguba, an adviser to the government on rail strategy. “Quite clearly there was no plan on how to run the operations before they built it.”

Nigeria receives billions each year in foreign aid. The money is dispersed and dispensed, in the usual way – to cronies, crooks, and connivers who are tight with the politicians. Some of them, no doubt, made some money on the railroad to nowhere.

A Million Dead

Governments make ‘mistakes’ from time to time. But in the big scheme of things, Nigeria’s useless train hardly rates a footnote. The biggest mistake of the century, so far, was made by US president George W. Bush. His ‘war on terror’ was a $5 trillion/1 million corpse error, with much of the money ending up with the rich men north of Richmond.  

Of course, mistakes are made in the private sector too. Lordstown Motors was said to be proof that start-up manufacturers could succeed in America’s heartland…Mike Pence said so when he visited the factory in 2020. Then, Hindenburg Research uncovered apparent fraud and fakery in the company’s reports. Lordstown Motors declared bankruptcy two months ago.

Nigeria, the US and Lordstown were all collective undertakings. All had receipts, expenses, managers, accountants, reports, and offices. All made mistakes. But only the latter is out of business. Nigeria is still a going concern. So is the US. Why the difference?  

We’ve seen that even successful businesses are always prone to institutional sloth and bureaucracy. But they are subject to competition. When they get too gummed up by internal politics and self-focus, too off-track or out-of-step with customers, competitors move ahead of them. New trends and innovations leave them behind. And they are soon history.

Bear Stearns, Kodak, Radio Shack, Circuit City, Blockbuster – all went broke. And what about Pan Am?

Pan American Airlines was begun in the 1920s. By the 1960s, it had a near monopoly on major international travel routes. Air travel was increasing rapidly. And Pan Am had the reputation, market share, capital, know-how to take advantage of it…in short, it was a clear winner.

Thrills and Spills

We can still remember what a thrill it was, when we bought our first airline ticket.  We had been on airplanes before, courtesy of the US Navy. But it wasn’t until 1969 that we took a commercial flight.  

At the time, Pan Am had a sparkling new building at JFK airport. It looked as though a flying saucer had landed on top of the terminal…a gleaming metal disk rested on tall columns. If we remember correctly, there was a large globe in the center. When you entered, you knew you were going somewhere.

Back in those days, even in New York, the ticket counters were manned by competent, polite people. There weren’t so many passengers…and no ‘security’ checks. We were not in so much of a rush to get in line or have our papers checked.  Instead, we were calmly invited to choose ‘window or aisle’…. ‘smoking or non-smoking.’ (We don’t recall any mealtime options…but we were in the economy section!) It was a civilized experience, in other words.

And then, what a delight…to have in our hands that “airline ticket to romantic places”…that would entitle us to fly across the ocean to another world…to the Old World, thanks to Pan Am.  

Pan Am dominated one of the fastest-growing industries in one of the world’s fastest-growing economies during its biggest growth spurt ever. Looking at it from the outside, the airline business looks simple enough. You know the cost of your equipment, fuel, and labor. The variable is ticket sales. 

Crash Landing

Donald Trump entered the airline business in 1989. For a while he competed with Pan Am for the ‘shuttle’ business between Washington and New York.

Pan Am had every advantage. It was a market leader, it scarcely needed to advertise. Still, it went out of business. How to explain it?  

The simple explanation is the most obvious one. Over the years Pan Am had become accustomed to the first-class section. And after the US government deregulated the airline business in 1978, it wasn’t lean and hungry enough to compete.  

Pan Am had a profit motive. Its investors wanted to make money. Its employees wanted their jobs. Its customers, presumably, appreciated its service.

And yet, it went down for a final crash landing in 1991. Trump’s airline made its last flight a year later.  

Tomorrow, we’ll look at why Nigeria and the US are still in the air.

Regards,

Bill Bonner