After Zeckendorf and Rockefeller had made their offer, I realized that I owned an exceedingly valuable property, and I certainly wasn’t going to sell it, despite the fact that this would have pleased my managers, who didn’t like the Hughes method of doing business. They wanted a more conventional establishment. They didn’t realize it was the unconventionality of my approach that made Hughes Aircraft possible. I had given these men free rein, they had put together a highly productive team, and now they were going to smash it all up.
Things really came to a head when Noah Dietrich found that the inventory accounts were overcredited with several million dollars worth of parts and we were unintentionally defrauding the government by overcharging them. Profits were supposed to be limited to 11% of our cost, and if our cost figures were way out of line, then we were making more money than we were entitled to – it was a matter of only five million bucks.
Eventually we paid up, and the government got their money. And eventually I managed to piece together the true story – because, as it turned out, that $5 million repayment to the Air Force was only the first installment. That was a repayment on one contract only.
The full amount of the repayments eventually totalled $43 million, and Noah Dietrich called in a team of auditors from Haskins-Sells. They got to the heart of the trouble. A couple of the top people on the managerial end got bonuses based on the profits of the company, so that if Hughes Aircraft could make an additional $43 million they were in line for bonuses of close to two hundred thousand each.
I knew nothing. I was in Cuba at the time. It all split apart when Noah reached over the generals’ heads and fired the comptroller, Then George quit; he was the administrative head. Tex Thornton quit. Woolridge left, and Simon Ramo, and a whole flock of their top men with them, and it looked as though the company was coming apart at the seams.
The Secretary of the Air Force, Harold Talbott, asked for an appointment with me. I had to grant it, and we met in my bungalow at the Beverly Hills Hotel. Talbott had a bad temper and he gave me the rough side of his tongue. Of course each time he said something I didn’t like, I pretended I didn’t hear him. He threatened to put me out of business. The Air Force would cancel all our contracts, every goddamn one of them.
I kept saying,’ What? What? I can’t hear you,’ because I figured that after a while he’d cool down.
But he didn’t. The best I could get from him was ninety days to straighten out the mess. Talbott insisted that at the end of that time I’d either have to sell to Lockheed or I’d have to accept a new management appointed by the Air Force. I finally accepted the new manager. They put in William Jordan, who had been president of Curtis-Wright. They had to make sure these fire-control and other devices kept coming off the assembly line – we were in the Korean War. It was tapering off, but they knew they would have to find another war to take its place, and they were already casting their eyes on Vietnam. Without a war every now and then, those goons are out of business.
They had me so scared they were going to take the business away from me that Tom Slack, one of my lawyers, came to me one day with an idea. He said, ‘Howard, you want to make a safe haven for the aircraft company where the government can’t get its hands on it.’ It was his idea that we create the Howard Hughes Medical Institute and turn Hughes Aircraft over to it. I thought at the outset to start this up in Texas, in Houston, where that big medical complex existed already, and for a while that was under discussion. But it leaked to the papers, and everybody was talking about how Howard Hughes was going to give $125 million to the Texas Medical Complex. They were drooling at the mouth in Houston. But by that time I was fed up with Texas, and I felt that the last place I would put my money would be with those people who threw me out of the state.
I may be exaggerating. They didn’t throw me out of the state. But they didn’t want me back. They wanted the jobs I could provide. But they didn’t want me personally. I was too funny a duck to paddle around in Texas among those beautiful Texas swans. I was the ugly duckling, even though I laid the golden eggs. And so my lawyers and I organized the Hughes Medical Institute in Florida and put the Hughes Aircraft company under its wing.
This had one drawback, which didn’t turn up until later. Noah explained that if I needed money at some time in the future, I couldn’t use the aircraft company assets for collateral or put them up for sale, because it was now a public trust. But I didn’t think a situation like that would come along, and besides, I had plenty of money stashed away by then in Switzerland and similar places, for a rainy day. But from that point on I stayed out of the aircraft company’s affairs. All my ideas get funneled into the company through Toolco and various people. We’ve got an order backlog of close to a billion dollars and this year, as I understand it, we’ll sell another billion dollars worth of equipment. It’s the finest company of its kind in the United States. We just developed something called the Lasermatic. That’s a laser beam, controlled by a computer – it cuts cloth. Sold them to Genesco, and that’s going to revolutionize the garment industry.
What about the Medical Institute? The Patman report accused it of being a tax dodge.
Don’t parrot back that garbage to me. The Institute’s done some fine things. They’ve sent research scientists to Harvard, Yale, Johns Hopkins, everywhere, and I’ve never gotten any personal benefit out of it in the way of treatment. I’ve never even been there. Never laid eyes on the place. They never even gave me an aspirin.
Then as far as you’re concerned it’s not a tax dodge.
It’s every man’s privilege to avoid paying taxes. That’s the European attitude and that’s the one I subscribe to. I don’t want to discuss it anymore.
Early on, when you were talking about Zeckendorf, you mentioned that you had real estate in California. Does it amount to anything?
It amounts to quite a lot – in value, at least. And it also at that time amounted to a headache. In the middle fifties, Los Angeles wanted to build the Playa del Rey Marina, and they needed land. I had twelve hundred acres adjoining the site – the last big chunk of land in the Los Angeles metropolitan area. I had bought it many years before. I own hundreds of thousands of acres of land, in all parts of the United States, that I bought at various times. I don’t know where half of it is.
I’d bought this land in California for about $1,500 an acre. That’s cheap. And by 1955 it had gone up in value considerably, but I thought it was going to go up still further and I didn’t want to sell it.
I told Noah, ‘Don’t sell any of it to those marina people. I’m not interested.’
‘But suppose they offer a good price? How much would you consider selling for?’
‘Not for less than fifty thousand an acre,’ I said.
I hadn’t kept in close contact with land values. I only named that price because I didn’t want to sell the land. It was a ridiculous price. But they pulled a fast one on me. The city filed condemnation proceedings against me in order to force me to sell them the land they needed for the marina. It’s the same as if you have a house in the middle of a proposed highway route; they file condemnation proceedings and that’s it. You take what they give you, and you get out. I was in the same position.