Hard Landing (18 page)

There were five bills for airline deregulation already pending in Congress, Schuman told the president. But Carter, the memo added, might be able to turn all the action in Congress to his own political advantage. “Existing Congressional support,” she wrote, “makes this issue one on which you may be able to score a relatively ‘quick hit.’ ”

A quick hit. Every new president could use one.

While Schuman and her colleagues were preparing Carter’s position paper, the airline industry was tying itself in knots attempting to forge a unified front against deregulation. For several months in early 1977 the airline industry enjoyed the best of two worlds, preserving its protection from upstart airlines while gaining some pricing freedom from the new CAB chairman, John Robson. But the
galloping success of Frank Lorenzo’s peanuts fares and Bob Crandall’s super savers had only
strengthened the call for complete deregulation. If the airlines had the freedom to lower prices selectively, it was only a matter of time, people realized, before the CAB would allow them to increase prices as well. And the surest way to control price increases was to unleash the full power of the free market—by allowing newcomers into the business.

This is where the airline industry drew the line. Although few of them had the nerve to say so publicly, the airline chieftains harbored a deep fear that new competitors would start out as nonunion rivals; what chance would an established old company with entrenched unions have against a competitor like that?

The major airlines conducted their Washington lobbying through a group called the Air Transport Association. The ATA operated on consensus, essentially giving any major airline veto power on any major issue. Vetoes, of course, were practically unheard-of. Higher fares, lower airport taxes, accelerated tax write-offs there was rarely a dispute among the airlines over the usual Washington fare. But as the ATA desperately tried to craft some meaningful opposition to the growing threat of deregulation,
United held back, coyly refusing to declare its position.

The situation became urgent as another round of Senate hearings approached, and this time the host would be not the upstart Kennedy but the all-powerful Cannon, who was reasserting his dominion over aviation matters as a way of telling Kennedy to
quit frolicking on his turf. Unless United stopped equivocating, the airlines’ trade group would be forced to go into the hearings fractured, with no position, abstaining from the most significant legislative debate in airline history.

United had studied every angle. Ferris and his aides recognized the risk that deregulation would provoke a tumultuous and uncertain phase, with would-be airlines cropping up everywhere and zany pricing taking hold, but this phase would last only
three to four years at most. Deregulation was a safe bet for United.

When United’s board of directors had assembled for their January 1977 meeting, Ferris called on Monte Lazarus to make the presentation. “
Properly written, new legislation can unlock regulatory
shackles, open the way for new market opportunities for United and others, all without destroying the system, and all in the public interest, as well as United’s.…”

Lazaraus declared, “We must report that the industry is sharply and, we think, hopelessly split.… We shall have to pursue our interests ourselves.” He did not mention that United itself was responsible for the fissure.

With Ferris watching for the board’s reaction, Lazarus concluded the presentation. “If you agree with these recommendations … we shall implement our action program immediately.” There was silence. Then in the back of the room a single director slowly and deliberately
began to applaud. Everyone turned to look. It was Justin Dart, the wealthy California industrialist, one of the best friends Gov. Ronald Reagan ever had.

At one of his earliest press conferences as president, Jimmy Carter announced that airlines represented the “
first question” his administration would take up in his mission to reform government. The move was counterintuitive—a Democrat proposing to dismantle regulation. But as when President Nixon went to Red China five years earlier, partisanship was in retreat. Airline deregulation was transcending party lines, which vastly increased its chance of adoption. On March 4, 1977, Carter sent a message to Capitol Hill. “
As a first step toward our shared goal of a more efficient, less burdensome federal government,” he began, “I urge the Congress to reduce Federal regulation of the domestic commercial airline industry.”

The president had just scored his quick hit.

Nine days later Ferris made his own announcement in a
speech at the Commonwealth Club of San Francisco, saying that United backed the “general philosophy” of deregulation. Deregulation, he later added, would become “
the greatest thing to happen to the airlines since the jet engine.”

Though he was immediately the goat of the industry, Ferris was the hero of Capitol Hill. Phil Bakes of Kennedy’s staff and Monte Lazarus of United immediately went to work
scheduling their bosses together, knowing that despite some powerful differences in political ideology the two young, handsome, up-and-coming leaders would hit it off, which they did. Ferris also scheduled a fund-raiser for Sen.
Charles Percy from United’s home state of Illinois; Percy, for his part, would take position papers from United and have them
inserted whole into the
Congressional Record
. Ferris also recognized that United looked a little conspicuous backing deregulation all by itself, so he
turned to Al Feldman, who was running Frontier Airlines in Denver, with whom he had become close friends. As the 14th largest airline in the country, Frontier was big enough to count as a national player but small enough to present some political balance when paired with United. Frontier was locked in a vicious battle for market share in Denver, and Feldman was eager to expand. Southwest Airlines, confined to the four corners of Texas by federal regulation, also joined the deregulation bandwagon.

The president was on board, and the industry had been divided. Labor still had the power to block, or severely dilute, any deregulation bill, but Bakes and the other crusaders found a way to
buy off the unions: by assuring that any deregulation bill would outlaw “mutual aid,” the program in which the airlines subsidized each other whenever one of them was forced to take a strike. Receiving that promise, the unions stepped out of the way. They might as well have sold Manhattan for $24.

The last obstacle to adoption of a bill was the formidable Senator Cannon, whose hearings were scheduled to begin within a week of Ferris’s speech. The leadoff witness would be John Robson, the chairman of the CAB, who had already approved peanuts fares and super savers but whose agency had taken no formal position on its own survival.

“Once it is fully established, bureaucracy is among those social structures which are the
hardest to destroy,” the German sociologist Max Weber wrote. “The individual bureaucrat cannot squirm out of the apparatus in which he is harnessed.”

Max Weber never met John Robson, however. In his two years as chairman, Robson had taken delight in shaking up the old order at the CAB. He had never gotten over his astonishment at the airline industry’s eagerness to have the CAB to have
him
, John Robson make decisions for it. Now, with an invitation to testify before Senator Cannon’s aviation subcommittee, Robson knew that the
only sensible course was to cast the agency’s lot with deregulation.

Robson recognized that he would be like a police chief standing before the city council to argue for the abolition of the city ordinances. If he went before the CAB stating only John Robson’s radical position, his testimony would be meaningless. Robson had to get the other commissioners behind him. He and his assistant, Howard Cohen,
furiously lobbied them for a consensus. Where the commissioners refused to come on board, Robson and Cohen lobbied their staffers, and then they got other staffers to lobby the staffers. Robson exhausted everyone inside the big blue building on Connecticut, so much so that in the end none of the other commissioners, it appeared, wanted to take on the onerous task of
writing a dissent. Robson would go before Cannon to speak for a unanimous regulatory body, arguing, stunningly, to gut his own agency.

Cannon was
visibly startled when Robson had concluded his testimony. Once Kennedy’s rival on matters of aviation, Cannon immediately took a new tack, ordering his staff to begin working with Bakes of Kennedy’s office. The writing of the Kennedy-Cannon deregulation bill was under way.

Senator Cannon did give the industry an opportunity to present its case. A few days after Robson’s testimony, Albert Casey of American Airlines flew to Washington to present an elaborately documented argument against deregulation, complete with a pile of charts and graphs. Casey told Cannon’s aviation subcommittee,

Some supporters of deregulation seem mesmerized by computer models, created by academics without airline management experience, that tell them what they want to hear. Others are interested in a “quick hit,” a phrase that I believe does no one any credit.

Deregulating the airline business is a dangerous step. I say that because once the step is taken, there will be little opportunity to turn back. If deregulation doesn’t work, you will see the finest air transportation system in the world begin to disintegrate before your eyes.

As Casey spoke, Phil Bakes, sitting with the Cannon staffers at the front of the hearing chamber, noticed a member of the American delegation, a mean-looking fellow with pointed teeth and slicked-back hair who was turning the pages of Casey’s flip chart. At a distance the man struck Bakes as the kind of hoodlum he had always
been instructed to stay away from growing up on the South Side of Chicago. A bodyguard, perhaps, Bakes thought.

When the day’s testimony was concluded and the hearing room began to clear, Bakes noticed the mean-looking guy stalking toward him with a scowl, as if he were getting ready to throw a punch. The man stopped in front of him, scowling.

“You
fucking academic eggheads! You’re going to wreck this industry!” The man turned and left.

Who was that? Bakes asked.

It was Bob Crandall, someone said, the head of marketing at American.

While working on the Kennedy-Cannon bill, Bakes and his allies had to move into action on another front as well. Because a Democrat had moved into the White House, John Robson, a Ford appointee, was preparing to leave the CAB. The crusade for deregulation needed a successor at the CAB who was committed to the cause, not only to nurture the pending legislation but in the meantime to push the existing law to its limits, to continue the process of “administrative deregulation.” Somebody had to make sure that peanuts fares and super savers and the like received approval while Congress parried.

In contemplating candidates for the CAB job, Bakes realized how important the media were becoming to the deregulation campaign.
The New York Times
had given the issue momentum by covering the Kennedy hearings on the front page. Columnists and editorial writers from
The Wall Street Journal
to
The Washington Post
were flogging the issue. The new CAB chairman had to be someone who drew good press, besides being smart and thick-skinned.

Bingo. Alfred Kahn.

During the Kennedy hearings two years earlier Kahn had performed brilliantly and humorously, getting much of the best ink. He was an academic, unfamiliar with the political rigors of Washington, but outsiders were in vogue at the moment, and Kahn had some political experience as chairman of the New York State Public Service Commission. Bakes and Mary Schuman of the White House staff maneuvered to ensure Kahn’s appointment.

Once he had moved into the CAB, Kahn for his part needed an insider
among his allies, someone who knew not only the law and the legislation but the politics. Thus did Phil Bakes, having engineered Kahn’s appointment as CAB chairman, become the general counsel of Kahn’s CAB.

There was no stopping the CAB now. An order was issued granting airlines the authority to cut fares 50 percent without government approval—a “
free-fire zone,” it was called. Before long the zone’s boundary was raised to 70 percent.

As the Kennedy-Cannon deregulation bill cascaded through the committees of the Senate, Dick Ferris and Frank Lorenzo one day found themselves thrown together in the small quarters of a private airplane, which the owner of Beechcraft, the plane manufacturer, had dispatched as a courtesy to them both. The two were heading for a meeting of Los Conquistadores del Cielo.

Ferris, the head of the nation’s largest airline, was intrigued by Lorenzo, who headed the smallest of the national airlines. Lorenzo struck Ferris as thoughtful and well-spoken on the subject of deregulation. Lorenzo exhibited no ill will toward Ferris for having torpedoed the united industry front against deregulation. Lorenzo seemed to grasp the inevitability of it, Ferris thought, and he expressed strong preference for the market economy.

Still, Lorenzo told Ferris, the small airlines would get squeezed in a deregulated world. In order to survive, Lorenzo said, little Texas International would have to “
get big quick.”

On April 12, 1978, Lorenzo made a trip to Wall Street with a public offering that raised $27 million. He was building his war chest.

The
death of the senior senator from Arkansas, John McClellan, created a sudden shift in a number of Senate chairmanships, causing a void at the top of the Commerce Committee, of which the aviation subcommittee was a part. Into the position went Howard Cannon, making him chairman of both the subcommittee and its parent full committee—the two principal units of the Senate that would handle the deregulation bill.

The legislation reached the floor of the Senate on April 19, 1978. It passed by a vote of 83 to 9.

But to the dismay of the White House and the delight of nearly
everyone in the airline industry, deregulation soon ran aground in the House of Representatives. The House Aviation Subcommittee actually torpedoed the bill, leaving the matter deadlocked for six weeks.