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.
One of the most visible members of the subcommittee was Norman Mineta, a former mayor of San Jose, California, who in only two terms had
become one of the leading lights in the House—a member of the post-Watergate class swept into office on the promise of integrity and reform. Bakes, though by this time the general counsel of the CAB, used a return trip to Capitol Hill to lobby Mineta.
“I’d really like some help raising some money,” Mineta said, as Bakes would later recall it. “You think Senator Kennedy would come to the West Coast to do a fund-raiser for me?”
Bakes traipsed to the Senate side of the Capitol, where he called Kennedy from the floor.
“I think we have Mr. Mineta on board if you’d be willing to do a fund-raiser,” Bakes reported. He deliberately withheld the fact that the fund-raiser would be in California.
“Why don’t you tell him we’d be glad to help him out?” Kennedy cheerfully answered.
Before long Kennedy was on the phone. “Bakes! You never told me the fund-raiser was in San Jose!” But Kennedy lived up to his end of the bargain, as did Mineta.
Victory was so close that the proponents of deregulation were now willing to roll just about anybody’s log. Frontier Airlines, headed by Dick Ferris’s friend Al Feldman, felt it had a $433,000 tax reimbursement coming from the federal government and decided that the deregulation bill was as good a place as any to have the reimbursement written into law. Bakes considered the payment tantamount to a bribe, but Frontier’s backing of deregulation was essential, and what was a little bit of taxpayers’ money in the context of a massive shift in public policy?
Finally the aviation subcommittee approved the House deregulation bill. When the bill hit the House floor, a beaming Monte Lazarus watched from the gallery as the tote board rolled up the lopsided tally of 363 to 8. He caught the eye of Norm Mineta, who flashed the United lobbyist a thumbs-up salute.
A short time later Phil Bakes and Ted Kennedy pressed themselves into the West Wing elevator at the White House with a crew of Secret Service agents. There stood President Carter. He immediately struck Bakes as uncomfortable in the presence of Ted Kennedy, his avowed rival. Kennedy, who was nothing if not gracious when the situation demanded, immediately called attention to the significance of this day.
“Mr. President, I want you to meet Phil Bakes,” Kennedy said. “He and Mary Schuman are the people responsible for this.” Carter’s lips grew tighter as the group exited.
But by the time he signed the Airline Deregulation Act of 1978, Carter was beaming with pride. Flanking him were Kennedy and Cannon, Monte Lazarus from United, Alfred Kahn, and even the former CAB chief, John Robson. “For the first time in decades,” Carter said, “we have deregulated a major industry.”
A mile to the north, as Carter spoke, a line had already begun forming outside CAB headquarters. Once the bill was law, more than 2,000 dormant airline routes would be instantly up for grabs. The CAB intended to dole out the unused routes on a first-come, first-served basis. So a spectacle ensued in which corporate representatives lined up along the Connecticut Avenue entrance to the CAB like rock fans waiting to buy concert tickets. Three days before President Carter had even signed the bill they began showing up, with thermos bottles, walkie-talkies, sleeping bags, folding chairs. Over the next two days the line grew, to 30 long by the time the bill was actually signed. The neighborhood was far from Washington’s safest at night; one delegate was carrying a gun.
Curiously, however, one airline, Texas International, had no one holding a place in line. Frank Lorenzo, it appeared, had something else in mind.
CHAPTER 5
START-UPS AND UPSTARTS
When the deregulation bill was rushing toward adoption, the government of the United States committed an act that it had not performed in many years: it allowed Texas International Airlines to add service to a new destination. The lucky metropolis was Kansas City.
Frank Lorenzo and his associates marked the occasion with a circus parade to promote the arrival of peanuts fares to the city. A man dressed in a seven-foot Mister Peanut costume waved to the crowd from a little wagon pulled by a baby elephant rented for the occasion. In the midst of the festivities the baby elephant defecated, forcing Mister Peanut to dive out of the way.
Though the new route was a success, Lorenzo knew he could not survive the deregulation age on cheesy publicity stunts alone. Deregulation, in his view, had left room for only two kinds of airlines: very small ones and very large ones. Texas International was neither. On the marketing strength of peanuts fares the company had grown significantly, yes- to four million passengers in 1978. Yet it had ascended by only two positions on the Top 20 chart, to number 16. Texas International could either be crushed by the behemoth likes of United and American, on the one hand, or nibbled to death by the nimble, low-cost Southwest on the other, becoming, as Lorenzo liked to put it, “the ham in somebody else’s sandwich.”
But how to respond? Everyone in the airline industry seemed to be heading in a different direction. Texas International was even divided against itself, as much as any two airlines might be. Indeed, when the bracing wave of competition washed over the airline industry, Texas International, strangely, became the fount of several radically different airline companies, each representing a different response to the same set of economic forces—each, in its own way, springing from the ambivalent relationship between Don Burr and Frank Lorenzo.
Burr all but worshiped him. Burr would accompany Lorenzo to lobbying sessions, industry functions, and private meetings with top executives, and he would marvel at Lorenzo’s earnest manner, his probing questions, his quick mind. Burr had never met a better thinker. He was also impressed with Lorenzo’s good looks and his accomplishments as a marathoner. Lorenzo even skied passably. Frank, for his part, though circumspect in describing his feelings, would later tell people that he considered Burr a true soul mate and that he was deeply impressed by Burr’s ability to pick himself up when the chips were down.
But just as in their first days together in the Blue Barn, Burr’s awe and admiration were accompanied by fear and resentment. While he was Frankie Smooth Talk to the outside world, Lorenzo, in Burr’s view, was Idi Amin to the people closest to him. Lorenzo picked away at people, trashing their work, identifying their weak spot and making it hurt, Burr thought, almost as if he were a Third World dictator in a torture chamber. Although he could raise his voice, Lorenzo did not particularly fit the screamer profile; he was too controlled. But the glare would intensify, the face would grow red, and the veins in his temples would begin to bulge, particularly as he assumed over the years the gauntness of a marathoner. When the officers of Texas International lined up for the Monday staff meeting, Lorenzo’s secretary would watch them march in as if they were going to Bataan. Who’s going to get it today? they would ask each other. One staffer walked into the office one day with a puncture wound in his hand and a streak of blood along his arm; he had stabbed himself with a pen during a three-hour plane trip with Frank.
Burr—Frank’s best man, best friend, and top aide—thought he got the worst treatment of all. Burr periodically scheduled management retreats at a conference center in the woods north of Houston, to which Burr and Lorenzo would drive together. On the way back Burr, while behind the wheel, had to listen to Lorenzo rail about how poorly Burr had put together the meeting.
Burr did everything possible to commandeer the day-to-day control of the airline from Lorenzo, a maneuver Lorenzo himself facilitated by moving his personal office out of the Blue Barn and into a new suite of executive offices in the steel-and-glass shimmer of downtown Houston. Burr, left back at Hobby Airport with the operating staff, was convinced that Lorenzo had no sense of how an airline actually operated, of how the pieces fit together. As Burr later put it, “I didn’t think Frank could run a lawn mower.” But nobody else had Lorenzo’s skill at schmoozing creditors, to the point of repeatedly postponing their claims. Lorenzo, to his credit, had also quickly grasped the potential of peanuts fares and had made them the cornerstone of the company’s marketing.
But however vital Lorenzo’s financial hijinks,
Burr thought the future of the airline would be decided on other issues. With deregulation becoming law, any airline could offer peanuts fares or the equivalent without bowing and scraping before the CAB. Texas International had to find a new way to distinguish itself. The solution, Burr decided, was to transform the culture of the company.
In his youth Burr had been wrapped up in a book called The Greatest Thing in the World, in which a 19th-century Scottish clergyman named Henry Drummond called on people to establish love at the foundation of every activity in their lives. Burr still adored the book and kept it within reach. The same principle, he decided, could apply in the workplace—by trusting people, eliminating time clocks, reducing supervision, and giving employees the freedom to do the best job possible. Working with Texas International’s chief of service, a man named Edwin Cathell, Jr., Burr spent months analyzing everything from Abraham H. Maslow’s theory of the hierarchy of needs to the personnel policies at Bank of America, a company known for progressive employee relations.
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