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Pan American Airways (IATA: PN, ICAO: N/A, and Callsign: N/A) was founded in 1996 after an investment group including Charles Cobb, the former Ambassador to Iceland, purchased the rights to the venerable Pan American brand after the original carrier declared bankruptcy. In September 1996, Pan Am II was started with an Airbus A300 named the Clipper Fair Wind. The goal was to provide low-cost, long-distance travel to major U.S. and Caribbean cities. The new airline was led by the last Vice Chairman and Chief Operations Officer of Pan Am, Martin Shugrue, who also helped in the creation of the WorldPass frequent flyer program and who served as President of American Airlines and later trustee of the Eastern Air Lines estate.

In September 1997, Pan Am Corporation, the airline operation's holding company, bought Carnival Air Lines. However, the rapid expansion and economic troubles of the two companies were too much for the new Pan Am—it only survived for two years before declaring bankruptcy. Before Pan Am and Carnival could fully merge, the holding company and its two independently operated airlines, Pan Am and Carnival, filed bankruptcy and ceased scheduled flight operations in February 1998. The operating certificate used for the first reincarnated Pan Am was abandoned in favor of the acquired Carnival's operating certificate. Pan Am, now operating with the Carnival certificate, quickly resumed limited charter operations while new owner Guilford Transportation Industries acquired certain assets of the bankrupt companies after court approval. The company emerged from bankruptcy in June 1998 forming a third incarnation of Pan Am.