Time

CVIII

The term “watered stock” goes all the way back to the Wild West. Just before market day, ranchers would bloat their cattle with water and salt to increase their weight (and hence their selling price) to the slaughterhouses. 

The term was adopted by Wall Street to refer to stock whose value has been artificially inflated by the issuance of shares far in excess of a company’s asset value, usually in exchange for capital. Now the practice is illegal. Before the Great Depression it was a standard stock ploy. 

From its initial public offering, Pan Am stock was one of the most active stocks on the New York Curb Exchange. Juan Trippe’s wealthy friends had dumped a fair amount of capital into the coffers, and Trippe was a one-man promotional tour, assuring all and sundry that Pan Am would dominate the airline market. This was a wild claim for an airline that was down to two smallish aircraft and one air route. 

Nobody but the flakiest of dreamers, Trippe among them, held a solid belief that Pan Am could accomplish what it set out to do, but, then again, anything seemed remotely possible in 1928. Trippe even made the cover of Time magazine as one of the young Turks of the new era of aviation.

Most aviation investors were doomed to lose. All aviation stocks were high after Lindbergh’s historic flight. People invested tremendous sums in paper airlines, most of which are long forgotten today. 

Pan Am’s stock was higher than the highest competitor’s stock, based mostly upon its as-yet unearned reputation --- Pan Am had to be good, investors agreed, else why would Lindbergh be its Chief Pilot?  And it was no secret that Pan Am’s Board of Directors was a veritable “Who’s Who” of American business and finance. 

There were rumors that Juan Trippe was related to any number of Latin American leaders, and that he could control the South American air routes at a word. It wasn’t at all true, but Pan Am went out of its way to establish that kind of hegemony anyway. The Street had also been led to believe that Pan American had an “in” with the Post Office and was assured of the most profitable airmail routes. It was not quite a certainty in the earliest days, but Juan Trippe made it the truth. 

As the stock showed promise the sharks began to circle.  Large-scale investment professionals were certain that the airline would topple. They bought up stock, assuming that they were acquiring the leverage necessary to control the overinflated company after its eventual and inevitable fall. Most of the Street didn’t believe that the oddly quiet Juan Trippe had the smarts to run an airline, much less to create the Pan Am he saw inside his head. 

Although Pan Am was loaded down with watered stock in 1928, and although it was running deeply in the red, ordering airplanes, building facilities, and buying out competitors, Trippe seemed to know instinctively just how far he could push the envelope without undoing Pan Am.  

Juan Trippe had an uncanny ability to drive a hard bargain with desperate negotiators. Virtually all the airlines Trippe absorbed, including NYRBA, were painfully poor and ripe for the picking when Trippe bought them, often paying off by further watering Pan Am's stock. It was white collar street fighting at its worst, but Juan Trippe was a past master at knowing when to land a knockout punch.

At its peak in mid-1929, Pan American Airways’ parent corporation, the Aviation Corporation of America, was trading at a wildly inflated 89½ per share.

Although the stock dipped during the Great Depression, it did not collapse. The airmail contracts --- American and Latin American --- that Trippe had finagled brought in plenty of revenue. And the client base that Pan American attracted --- almost exclusively well-heeled individuals for whom the Great Depression was little more than an annoyance --- could afford to pay to fly.

Air travel during the Great Depression was almost utterly restricted to the wealthy and to businessmen and bankers. Flying was more expensive than traveling by train or even ship (depending on what “Class” one sailed). People rarely flew “just” to fly; they flew because it was the fastest way to get somewhere. Eighty Five percent of passengers in 1930 owned or worked for major businesses and were high-income individuals in their own right. 

Unlike train or steamship passengers who bought tickets at the rail station or port, almost all early airline passengers were remarkable for making reservations by telephone. All airlines --- including Pan Am --- offered ticket “packages” of so many tickets (destination variable) for so much money, or established early, primitive frequent flyer programs. The idea of  “regular” passengers caught on in 1932, when Eleanor Roosevelt, soon to be First Lady of the United States, began flying sometimes daily as her husband’s national and international goodwill ambassador.