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Wall Street History
https://www.gofundme.com/s3h2w8
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06/20/2003
Juan Trippe and Pan Am, Part I
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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