Pan Am declares bankruptcy - 11 January 1991

It is a strange and not very pleasant feeling to be talking on the brink and because I'm doing this talk before the weekend, before we know what new ideas, proposals will follow on the debate in Congress, a whole historical era could lie between now and midnight of Tuesday 15 January.

War or no war, delay, negotiation, whatever, life goes on and throws up stories that, at any other time, would absorb or enchant or appal the country. Following on my comments about the new fashion of businesses in trouble of going bankrupt in order not to retire with a hangdog expression but to straighten up and fly right, to start on the road to prosperity, a real blockbuster fell on us this past week.

Of all great historic institutions, fenced off from disaster you might have thought, by its prestige and its history as a pioneer, surely Pan American Airways was sacrosanct. But, as one reporter's lead had it, Pan Am's long flight into bankruptcy court landed Tuesday. There must obviously be young listeners to whom Pan Am was, is just a big, well-known corporation in trouble but to middle-aged and old people, the collapse of Pan Am is about as unreal as the collapse of the Bank of England. That, I should say, is a figure of speech. I presume the bank is still there, if not quite the bastion of world finance it used to be.

A 28-year-old aviator founded Pan Am in 1927. Two years later, I can even remember this as a surprising and surprised item in the London papers, Pan Am started serving meals in flight, a novelty that stimulated cartoonists to facetious flights of fancy. It was not funny, it was thought to be wonderful, we should now say it was awesome, to hear that in 1935 Pan Am started the first commercial aerial service across the enormous Pacific and four years later, on the verge of the Second War it started the first transatlantic service. In 1947, two years after the war was over, the first round the world service and after that, for over 30 years, Pan Am, one assumes, reigned supreme as an international carrier.

The first public hint of trouble came, however, as long ago as 1981, when Pan Am sold its headquarters in Manhattan, started to negotiate wage cuts with the unions and lost $18 million. Next year it fired one in five of its of its employees and lost $480 million. It would be cruel to trace the steps of its decline and fall, the selling off of famous routes, the annual losses in the hundreds of millions. The other night, the chairman of the company appeared at a press conference and cited three main causes of the airline's fall. He did not cite one cause that has doomed many other lines, the de-regulation of the airlines nine years ago, which involved the abolition of fixed, standard fares, saw airlines sprout like rabbits, set competitive fare prices which, over the long run, no airline could profitably cope with. The Pan Am chairman mentioned the enormous increase in the cost of aviation fuel since the Iraqi invasion of Kuwait, secondly the recession and thirdly a body blow suffered only by Pan Am – in 1988 the terrorist bombing of Flight 103 over Lockerbie in Scotland, a curse that has haunted Pan Am and its intending passengers during the past two years.

However, judging from the response I mentioned a week or two ago, the response of big businesses that have just gone bankrupt, Pan Am fell into line. Its chairman announced no flights would be suspended, no change in the schedule. It doesn't mean, he said, we're going out of business, business as usual. It's a new ball game, starting today. What filing for bankruptcy under Chapter 11 of the US Bankruptcy Code does is to give the company breathing room to work out a plan to pay its debts free of the threat of creditors' law suits. Perhaps this procedure will suggest to you a new lease on life for your business. Get your banker to explain it to you.

I don't know how many other airlines have gone bust, it seems to me that after deregulation, airlines popped up all over the country, there must have been 30, certainly. They fought each other with ludicrously low prices, each hoping to swipe the other's patronage, but they existed, flourished, they thought on great bank loans and by the late '80s, when the loans were called, most of them couldn't go on. Today there are less than 10 national carriers and aviation economists will testify that fairly soon there are likely to be only four or five.

The Supreme Court was back in action, in session, busily listening to arguments on cases which, since they've come all the way up to the Supreme Court, are presumably vital to the liberty of the subject under the Constitution. That's what the Court is there for. Not to arbitrate between state and federal law, simply to say whether some law used to convict some person has improperly deprived him or her of their rights under the Constitution. Somewhere in that noble 200-year-old document will be found a sentence or a phrase, that will permit somebody not to pay his income taxes and another phrase that will uphold, as a sacred right, a sexy stripper's lascivious nude dance before the frequenters of a bar, the Kitty Kat Lounge in South Bend, Indiana. I kid you not. Those were the two main cases before the court this week.

A judgement in one case, that of John Cheek, a commercial airline pilot for the past 20 years. On the docket, the case is inscribed as Cheek versus United States of America. He has not filed any income tax returns for the past seven years. He belonged to a group of tax protesters and I suppose chose to represent their contention. Anyway he maintained that his income from American Airlines was not taxable within the meaning of the Internal Revenue Code and therefore the effort of the tax boys to collect it was an invasion of his constitutional rights. Can you believe it?

Well, he was eventually prosecuted for criminal negligence, to be exact, criminal tax violation. Now we all know, especially as 15 April draws near, we all know that tax avoidance is something entirely proper and legal, that your accountant helps you to perform, but tax evasion is criminal.

Well at the end of John Cheek's trial, the judge told the jurors it was unreasonable for him to believe that his salary was not taxable income and "an honest but unreasonable belief is not a defence". So he was convicted and could have gone to jail but of course, he appealed. An appeals court in Chicago upheld his conviction, so he took it to the Supreme Court. And what did the Supreme Court say? I think its decision will be even more surprising than the fact of its hearing the case at all. The court came out with the majority of six to two, one judge not present, overturning the pilot's conviction on the ground that a sincere belief about where income tax applies, however unreasonable, cannot be the basis for a criminal case. The majority said that criminal evasion of taxes takes place when a failure to file is wilful, whereas Mr Cheek sincerely believed he did not have a duty to file. Of course there could be another trial, a civil case, in which a jury and not the judge, would have to judge the degree of Mr Cheek's sincerity. By the way, he's recanted and he's paid all his taxes.

But this could lead to many other trials, as Justice Blackman warned in his minority opinion. He said, it was incomprehensible to me that 77 years after the government had set up a federal income tax system, any taxpayer of competent mentality can assert that the wage he receives for his labour is not income. The majority decision, he said, will encourage taxpayers to cling to frivolous views of the law in the hope of convincing the jury of their sincerity. I'm sure he's right. In every state there must be scores of lawyers licking their lips and drooling at the prospects of clients flocking in to declare their honest, their deeply sincere belief that the income tax laws don't apply to them.

Now where in the Constitution does it say that Miss Lulu Flame, a pseudonym, has a constitutional right to perform lascivious dances in the nude atop the bar of the Kitty Kat Lounge in South Bend, Indiana? Well right at the beginning of the Bill of Rights, in the First Amendment to the Constitution, it says plainly: Congress shall make no law respecting an establishment of religion or abridging the freedom of speech or of the press. Freedom of speech has been stretched in recent Supreme Court opinions to take in freedom of expression, both in visual art and in music. Most recently the court refused to uphold a city that wanted to condemn and punish as obscene, erotic photographs and one photo more notorious than others, which showed a crucifix sunk in a bowl of urine. A friend of mine pointed out at the time that if you set up a crucifix in a public square, you would be prosecuted for violating the prohibition in that same amendment, against a state religion but if you sink the crucifix in urine, you can exhibit it in public as art and all is well.

The court also, very recently, overturned a precious court's judgement that filthy lyrics in a rock group's songs were obscene, whether or not, the court said, they were permissible as a form of free speech. Well now the justices are hearing arguments that Miss Lulu Flame and her stripping colleagues are protected in their work by the First Amendment. The prosecutor from Indiana said the state has a right to enforce public decency. Justice Scalia reflected that the law would not be used against an opera that entails nudity and he wondered how you can invoke the good taste clause of the Constitution, which of course, doesn't exist. The court is expected to render judgement on this life and death matter by midsummer. In the meantime, the Kitty Kat Lounge must allow Lulu to go on expressing her version of the First Amendment.

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