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ФФФФФФФФФ>ФФФФФФФФФ>ФФФФФФФФФ>Chop Here>ФФФФФФФФФ>ФФФФФФФФФ>ФФФФФФФФФ>ФФФФФФФФФ Pan American World Airways, Inc ("Pan Am") is a New York corporation organized in 1927 which is engaged in commercial air transportation which it pioneered between the United States and most areas of the world. Pan Am Corporation ("the Corporation"), a Delaware corporation, is and since September 14, 1984 has been the parent of Pan Am, it's principal subsidiary. For the past few years Pan Am's financial condition has been very poor. The company reported a consolidated net loss for 1986 of $469.3 million. The 1988 net loss included a gain of $89.1 million resulting from the sale of Pan Am's Airbus A320 aircraft and delivery positions. This gain was partially offsetted by a reserve of $25.7 million related to the loss on sale of Pan Am's subsidiary, which is responsible for the marketing of excess inventory, and 18 million of year-end adjustments. Pan Am's passenger traffic was strong in 1988. An increase of 12.2 percent on capacity of 11.2 percent. This was due to the result of strengthening of various European currencies against the U.S. dollar, fare increases in the market, enhanced management systems and procedures, as well as programs to reduce the dependence on wholesale ticket distributions throughout the Atlantic, Latin America, Domestic, and systemwide. Eventhough revenue was strong in 1988, labor and other costs increased at a higher rate as a consequence of efforts to improve service and effectiveness of the operation. Labor costs were higher in 1988 due to the result of an increase in the number of employees during the year. Also the addition of increased fuel prices, commissions, purchased services, aircraft rentals, and a $24.0 million foreign exchange loss had a negative impact on the corporation. 1987 expenses were effected by increases in expenses for fuel, commissions, maintenance materials and other operating costs which exceeded expectations. Labor cost reductions were not achieved in 1987. Other losses which occurred was the settlement of an $18 million provision for the proposed settlement of an age discrimination suit, and as well as $42.0 million for increased allowances for inventory obsolescence, uncollected receivables and costs associated with the WorldPass frequent flyer program. COMPANY BACKGROUND Pan Am lead by it's founder Juan Trippe, virtually single- handedly opened up the world to commercial flight. Teeming with adventure, international intrigue, and financial manipulations, this sky-struck young man with immense ambition and vision took a seaplane carrying mail 90 miles from Key West to Havana and expanded the operation into the vast world-wide airline that at one time considered itself the "chosen instrument" of the State Department abroad. The airline was considered so official by Washington that Trippe had power to make deals with foreign governments abroad . In 1934 people thought it was virtually impossible to cross the Pacific by air, but Trippe saw a way to do it. Through the use of the famous Clipper Flying Boats, Trippe achieved the impossible, and started the worlds first trans-atlantic flights to europe, asia, and south america. Pan Am achieved great heights with the help of pilots like Charles Lindbergh, who opened many early routes, and hero pilot Eddie Musick, who pioneered routes across the Pacific, and not to mention Andre Priester, the engineering marvel behind the early flying boats. Currently Pam Am provides non-stop service from the states to 36 locations in europe, asia, and south america. The company strives to provide the best service to all it's destinations than all the other carriers in general. Presently the airline is trying to achieve a "Corporate Image" to attract more business people thus increasing passenger revenues. ASSESSMENT OF COMPANY'S PERFORMANCE AND FINANCIAL CONDITION Overall, the short term liquidity of Pan Am seems to have a stable trend but is very poor compared to the average industry's ratios. Through the past two years very little changes can be seen in the short-term liquidity ratios. The firm acid test ratio puts it in the lower quartile. As for capital structure and long-term solvency we can only say that the firm is experiencing heavy losses and is relying on long term loans and secured notes in order to finance themselves. A stockholder deficit and net losses gave all index ratios negative values. So again we can see that the capital structure and long-term solvency of the firm is quite poor. Return on investments where quite poor since no change occurred on the return of investment and return on equity due to the stockholder deficit. As for operating performance ratios, these figures where quite poor also due to heavy losses in operating expenses. Asset Utilizations ratios where in general good. The firm did have good sales/cash ratios for the past two years as well as good sales/receivables ratios.Market Measure ratios were not applicable for the past two years due to a stock deficit and no dividends givin out. As for balance sheet analysis, current assets have seemed to increase five percent during the past two years, especially in cash and receivables. But a minor decrease in total assets occurred most likely due to the depreciation and value of equipment and property. Current Liabilities showed a six percent increase due to increases in accounts payables, air traffic liabilities, and accured pensions. Long-term debt did decrease in 1988 but a 32 percent increase in deferred credits occurred which offsetted that by 25 percent. As for stockholder deficit, no dividends were issued. Paid-in capital increased two percent but the accumulated deficit increased by 11 percent thus adding 118,254 more dollars to the deficit making total stockholder deficit increase by 24.83 percent. No changes notable for total liabilities and stockholder deficit. Pan Am's operating revenues did increase about 15 percent within the past two years. This was primarily due to an increase in passenger sales of 16 percent. But as for operating expenses a 30 percent increase resulted due to a high increase in aircraft and ground rentals for 1988. Also a 45 percent increase depreciation and amortization occurred which put an impact on 1988 operating expenses. Eventhough sales where high, total operating cost increases substantially enough to provide a net loss of $84,183. This loss decreased 25 percent compared to the operating losses of $113,293 in 1987. Pan Am was able to recover some net losses in 1988 due to the sale of Airbus A320 positions and insurance proceeds over the book value of the aircrafts. This sale and other expense cutbacks decreased Pan Am's net losses in 1988 to 57 percent. Capital structure and long-term solvency is quite poor due to high debt's which incurred from high losses. Pan Am relies heavily on long-term borrowings from the Pan Am Corporation and other long-term proceeds as well as other short term investment activities. The only major change in 1988's capital structure was the proceeds from the sale of the Airbus A320 positions and Aircraft deposits returned. As for the company's financial position, Pan Am is still suffering from the effects of deregulation and from the losses of the 1980's, despite sales and new financing, thus putting it into a high financial risk position. RECOMMENDATIONS Pam Am's liquidity is quite poor, new management is needed to formulate plans and programs to address liquidity. New plans are also need to meet longer-term goals of profitability and capital. Better marketing techniques are needed to attract revenues and businesses. Perhaps through the use of marketing programs, service product enhancements and yield management. But then again Pan Am needs to expand it's network in order to add additional traffic to support it's routes and financial resources to support its operations, since previous financing has encumbered most of Pan Am's assets. The company needs to find a way to achieve bank credit facilities and stop drawing on its cash balances. Some type of establishment of bank credit is needed. Since passenger revenues make up most of Pan Am's sales, the company should try to introduce a business image in order to attract businessmen and businesswomen since most of these people travel around a yearly bases. This should increase sales throughout the seasons instead of certain seasons. Offer better services in business class. Even in coach class more services should be introduced. Some type of advertising is needed to catch the passengers eye. As a result, management is aware of the financial difficulties Pan Am is having, and is doing everything possible to make the airline profitable. The fate of Pan Am is questionable upon the future demands on the industry. Fluctuating fuel prices, aircraft rentals, terrorism, natural occurrences, and other events all have an impact on the airline itself, and the industry as a whole.