As deregulation hearings got under way in 1975, a constituent from working-class East Boston asked Kennedy why he was holding hearings about airlines when “I’ve never been able to fly.” Kennedy retorted: “That’s why I’m holding hearings.”10
But the Kennedy staff was frustrated by the lack of press attention, which was essential to attract the support of other senators. Finally they scheduled a hearing for what they privately called “frozen dog day”—an exposé of how airlines transported dogs that often arrived frozen stiff after hours in the cargo hold. As the staff foresaw, the press attended the hearing, and, as Mary Schuman recalled, at the same time they “got an earful about airline reform.”11 Eight days of meticulously organized hearings developed tens of thousands of pages of information on the airline industry, with detailed questionnaires for potential witnesses. Predictably, all the airlines testified against any changes, as did the CAB.
But two dazzling star witnesses testified in favor of ending federal regulation. The first was Freddie Laker, the upstart British entrepreneur who pioneered a no-frills, low-cost airline that he dubbed Skytrain. He came up with one of the hearing’s best lines, accusing the U.S. government of “Pan-Amania” in trying to save globe-girdling Pan American Airways from competition at all costs. The staff discovered a startling industry-inspired memorandum proposing that U.S. air marshals board Laker’s London-bound flight in Tijuana, Mexico, and force it down just across the border to undermine the $135 fare—about one-third of the standard New York–London rate. From the congressional dais came an observation that Laker must be losing money on the route. He proclaimed: “No, I’m making a fortune. Why don’t you try it? I mean it’s obvious how you do it: You fill up the airplane.”12 Fortunately for the cause of deregulation, Laker appeared before his airline was forced into bankruptcy in 1982 by his own overexpansion and the predatory low-cost fares that his established competitors offered to undercut his popular Skytrain.
No such failure would taint the career of the other star witness, Fred Smith, the future CEO of FedEx. At Yale he had written his senior thesis on setting up a cargo airline; it was graded only a C by his skeptical professor. Smith certainly got the last word. His testimony pointed up the ludicrous regulatory schemes that resulted in what Breyer called “idiot fares,” as well as equally senseless regulations that forced the fledgling freight carrier to fly half a dozen small planes wing to wing from FedEx’s Memphis hub to its major destinations in order to escape CAB oversight that applied only to large aircraft. Smith struggled on as the Ford administration equivocated over airline reform and the CAB experimented with charter flights by the major airlines.13
After the hearings Breyer wrote a book-length report, and in May 1976 Kennedy proposed bipartisan legislation deregulating the airlines, just in time for Carter’s presidential campaign. The candidate came out foursquare in favor of competition in the air, even though it meant taking on one of the most important companies in his home state of Georgia, Delta Airlines. He first pledged that reform of all the regulatory agencies would be a major priority if he were elected, and later singled out the airlines by promising them greater freedom on fares, routes, and service while pledging to protect airline access to small communities and the seniority of airline employees—a tall order.14
Back in Washington, Kennedy took note of Carter’s proposals and remarked to Breyer that they were receiving a very good reception. As Breyer looked back, he said: “There was sort of serendipity: Just by chance a number of people were in the particularly right place at the right time.” And that included the president, “a reader in the White House,” Breyer said of Carter, who absorbed all the academic arguments favoring airline deregulation and turned them into policy.15
An essential element in the story was the president’s appointment of Kahn as chairman of the CAB. There were three openings on the five-member board, and Ham Jordan asked Mary Schuman for her recommendations. Enjoying one benefit of even a junior White House position—the most important people instantly return your calls—she canvassed the country and quickly learned that everyone’s ideal chairman was Kahn. This Cornell economics professor had written a number of articles on deregulation and was chairman of the New York State Public Service Commission regulating utilities. In that exposed position he had become a veteran of the political wars, and while a sensible deregulator, he preserved a sufficient amount of regulation to protect consumers. Mary reported that back to Ham’s office and was told by his secretary Eleanor Connor that Jordan wanted three names, from which he would pick the chairman. Undaunted, she boldly wrote the president’s senior adviser a memo proposing three possible candidates for chairman—“Alfred Kahn, Alfred E. Kahn, and Fred Kahn.” Realizing he had met his match in this determined young upstart, Jordan called her and said, “I picked the second guy,” to which Mary replied, “Hamilton, you’re brilliant. That is the guy I would have picked myself.” Through such exquisite personal duels is history made.16
But it was easier to persuade Ham to approve the nomination than to convince Kahn to accept it. He liked his job in New York, and if he had to go to Washington, he set two conditions—a presidential assurance that he would not have to enforce the existing airline regulations and that he would have a majority on the board committed to overturning them. Mary and I assured him that he would be administering a new deregulation law being pressed by the administration. Kahn, a man of great audacity and humor, would have preferred to chair the Federal Communications Commission (FCC), because he did not “regard it as my highest aspiration to make it easy for people to jet all over the world in a period of energy concern.” But he realized that airline deregulation would be the focus of action.
He had never before been invited to the Oval Office or even met a president. But when he was ushered in, Carter, who had his back turned, swung around, and Kahn suddenly saw the president “with his charming smile, and I just loved his air, his kind of modest demeanor and his manifest sincerity.” Carter made his commitment to deregulation perfectly clear. Kahn concluded that he was informed and serious, and he took the job.17
* * *
It was my job to make the initial survey of Congress. When I walked into the Capitol for my first meeting with Ted Kennedy, I had to admit to myself that I was in awe of the last of the Kennedy brothers. President Kennedy’s speech in 1962 at the University of North Carolina helped inspired me to go into public service, and when he was assassinated I drove overnight to view his flag-draped coffin in the Capitol Rotunda. Ted Kennedy had the same chiseled face as my idol, his older brother Jack, only larger. In my notes I wrote: “Sen. Kennedy is dynamic, charismatic, very knowledgeable, and hardworking.”
I noticed odd contractions of speech, often with incomplete sentences, at this first of innumerable meetings during the following four years. Although he was a fluent, eloquent, and powerful public speaker, in small meetings he spoke almost haltingly, often not completing a sentence or clearly articulating a thought.18 But Kennedy did have several clear messages to convey to the president. Carter must be specific about exactly what regime he wanted to replace regulation; airline service to small communities must be subsidized, not just to maintain their links to the wider world but to garner the votes of their congressional representatives; once competition in the industry was established, it must be preserved against mergers and backroom deals among the airlines themselves; and finally that the people we appointed to the CAB must be “imbued with the philosophy” of deregulation. With Kahn’s appointment we could certainly assure him of his last demand. Thus began a close working relationship during which he became one of the most reliable Senate supporters of Carter’s legislative agenda, although he challenged Carter for the Democratic presidential nomination in 1980, partly out of a dynastic sense of entitlement.
Half a dozen Democratic committee chairmen would scrutinize any airline bill, and I met with all of them. It was clear that most would pick at the details, some might try it pull it apart, but t
hat all realized the creaky system was failing the public. They also spotted the dangers. Warren Magnuson, an old New Dealer from Washington State, who by this time shuffled along in an uncertain gait, correctly foresaw that competition would curtail if not kill air service to rural communities. Like Kennedy, he wanted federal subsidies to maintain it at low prices. Howard Cannon, a Nevada Democrat who chaired the Senate Commerce, Transportation, and Science Committee, seemed more concerned with holding his own turf and defending the airlines. Cannon had put in his own narrow reform bill to block Kennedy’s broader legislation and suggested that the president limit himself to a message outlining general principles.
These congressional turf wars can be distracting to all but the participants, but they can also move things forward, if only by fits and starts. Cannon’s Republican opposite, James Pearson of Kansas, wanted more new carriers but also correctly foresaw the danger of concentration among large airlines, monopolies by a few, and predatory pricing to drive out the new competitors. Representative Glenn Anderson, a pleasant California Democrat who chaired the House Transportation Committee, was a firm supporter of deregulation, but this legislator from east Los Angeles threw a curve ball by insisting that before any deregulation bill passed, Congress must first enact a law limiting aircraft noise.19
It became quickly apparent that we were not only facing congressional doubts and demands as well as the united opposition of the airline industry and its unions, but another problem closer to home: Our Transportation secretary, Brock Adams, had been a congressman from Washington State, where Boeing was supreme. He was dead set against ending the cozy relationship between the CAB and the powerful airplane manufacturer’s customers. Remarkably, when he was vetted for the Transportation job, he was not quizzed on his position on airline deregulation, although his opposition quickly became obvious. During the transition Simon Lazarus and Mary Schuman on my staff drafted an option memorandum for the president-elect on the issue, a standard procedure in reaching any complex policy decision. But they made the mistake of copying Secretary-designate Adams. It was promptly leaked to the Washington Post, almost certainly by Adams, and caused an uproar because it frankly warned Carter that in a free and deregulated market, several of the most important and most cosseted of our airlines might go bankrupt—as indeed some eventually did.20
Adams publicly preempted the new president by giving an interview to the Post denigrating deregulation and citing the standard list of horrible outcomes—consolidation, bankruptcies, and service disruption. When we showed it to Carter, he was enraged. He summoned Adams to the Oval Office for a dressing-down, opening the meeting by saying: “I see, Brock, that you are opposed to airline deregulation, which I support!”21 He demanded Adams’s support as head of the Transportation Department, an early and welcome signal not to mess with the new president. Adams nevertheless continued his opposition in the administration, and his doubts extended into the ranks of his department, where the experts dragged their feet in drafting the deregulation proposal. Tension rose between the White House and Adams, with Mary’s youth and vigorous advocacy for the president’s position getting under his skin; as he complained to me, she “ordered” him to submit his proposed answers to congressional questions on airline deregulation.22
All this gives a picture of the two Washington legs of the Iron Triangle (cabinet departments and congressional committees) that were trying to dismantle our deregulation effort. Initially our cause seemed hopeless. The third leg lobbied hard against deregulation—almost the entire airline industry, its two major unions, and for good measure, the AFL-CIO, for its lack of labor protections. It had attracted little press or public support. When I met with Adams and his staff, he gave deregulation only a 40 to 60 percent chance of congressional approval because there was no constituency for it.23
Kennedy phoned me a few days later to warn that his bill was in trouble. He urged Carter to phone Cannon, emphasized the importance the president attached to the bill, and offered to work with him. He only half jokingly said he wished we could put Mary Schuman in the Transportation Department because he was concerned Adams would support a more limited deregulation bill introduced by Republican senator James Pearson and Democrat Howard Cannon.24 The unions and the airlines worked only that much harder with Adams. They threw up roadblocks by raising a number of complex issues—the disposition of revenues from a ticket tax devoted to noise abatement, and questioning the validity of a General Accounting Office report reinforcing Kennedy’s argument that his deregulation bill would bring lower airline fares. My staff told me that labor and industry were working together hard against airline deregulation, and we would lose if there was a vote now.25
Meanwhile Kahn got busy making the most of his eighteen-month tenure as CAB chairman. Stretching his legal authority to a breaking point, he began by allowing a second airline to serve Philadelphia. Then he persuaded his fellow board members not to overturn the experiments begun under his Republican predecessor, John Robson, to introduce discount fares such as American’s Super Saver and Continental’s Peanuts fares.26 Under Kahn’s leadership the board began to make it easier for an airline to leave an unprofitable route for another where they could attract more passengers with lower fares. He also broke a logjam and overruled airline objections to approve some of the six hundred pending applications for new routes.
In November 1977 the CAB began deregulating air cargo. FedEx and UPS were encouraged to apply for unlimited all-cargo service, and charter freight carriers were permitted, as well as freight carriage by the scheduled airlines. Kahn also helped the president embark on a liberalized international policy now known as “Open Skies,” which encouraged foreign carriers to provide greater competition in the U.S. market in return for access by our airlines in theirs. This evolved into agreements allowing foreign and domestic airlines to fly directly between major cities, for example San Francisco to Paris or London to Chicago. Kahn cultivated Congress assiduously and boldly, reminding the conservative senator Barry Goldwater, a devoted pilot in the air force reserve, that he had always championed free markets.27
With his quiet charisma and disarming personality, Kahn himself became a spectacular public advocate, deploying candor and ironic wit, a rare combination in Washington. Taking on Delta Airlines at a press conference, he quipped on the airline’s slogan by declaring: “No, Delta is not ready when we are.” When Frank Borman, the former astronaut who headed Eastern Airlines, invited him to inspect its shiny new jets, the former professor of economics tartly responded: “I’m really sorry, Frank, but to me, they’re just marginal costs with wings.”28
MARY SCHUMAN TAKES FLIGHT
Another indispensable factor in reversing the tide was Mary Schuman. As a junior congressional aide, she had been assigned to work on reform of airline regulation precisely because everyone knew that under Senator Cannon it was going nowhere. The Nevada senator, she discovered, was heavily supported by the airlines; their lobbyists spoon-fed him questions during hearings. His modest bill only moved the goalposts slightly by putting the onus on the entrenched airlines to prove they would be hurt by competition rather than, as was then the case, demanding that airlines applying to serve established routes must show that competition would improve travel for the public. The Kennedy bill went much further, essentially dismantling four decades of regulation and permitting free entry of new airlines and market-based pricing under general CAB oversight.
Once Mary moved down to our end of Pennsylvania Avenue to join my Domestic Policy Staff, she took flight in our cause. She organized a broad, diverse, bipartisan deregulation troupe that included Nader’s Aviation Consumer Action Project, the Consumer Federation of America, the liberal political lobby Common Cause, the National Association of Manufacturers, the National Federation of Independent Businesses, and even retailers like Sears, Roebuck seeking air shipments to customers,29 which helped build credibility for airline deregulation.
Kennedy wanted to deregulate at one stroke. But Mary ha
d political smarts far beyond her years. While immediate deregulation might be a fine political coup for the senator, she argued, if things went wrong on the president’s watch and the airline industry suddenly collapsed before it could restructure, Carter and not Kennedy would be blamed. So we took the position that the airlines would get five years to phase in a new and more competitive system.
With equal shrewdness, she persuaded me and the president not to submit a detailed administration bill lest it anger the backers of the already-competing Cannon and Kennedy bills, but instead to release a presidential message outlining general principles guiding legislation, while she would try to midwife a compromise bill. (This was a painful lesson we learned from submitting our own detailed energy bills, which quickly became targets, blocking progress for two years.) Carter’s message in March 1977 was carefully worded to offend neither Cannon nor Kennedy and their supporters. It asked Congress to allow the airlines to set their own rates and chart their own routes, with only enough government bureaucracy to maintain service to small cities and prevent predatory below-cost fares.30
It took weeks of tough negotiations with Congress and within the administration itself, ranging across the experts on the economy, transportation, and the Justice Department’s antitrust lawyers. The talented and tough Kennedy legal staff, led by Boies, demanded to know the administration’s position on a number of issues. Mary refused, telling us: “If we start negotiating with this guy—no offense—but he’s a hundred times smarter than all of us put together. He’s going to eat our lunch.” She had another reason: If we laid all our cards on the table, some were bound to be unacceptable to Kennedy or Cannon or both. So she saw her role as probing to overcome the differences between them. But compromise came more easily because, as she put it candidly: “I fell in love with David Boies and that helped!”31
President Carter Page 45