I was still in Rancho Santa Fe when I called Frank McCulloch, Los Angeles bureau chief for Time, and the last reporter I ever let interview me. He was a good man, a fair man, and he could speak his mind to Henry Luce, the pope of Madison Avenue. I begged him to call off the wolves. I said, ‘Frank, I don’t deserve this. You people are doing an unfair thing.’
McCulloch went to Luce on my behalf. Luce turned him down. All my begging came to nothing. They went ahead and printed the article.
Aside from Luce, who was trying to cut my throat in public, there were plenty of men trying to cut it in private, and the foremost among them was the president of Boeing, William Allen. Mr. Allen had never forgiven me for holding off on my purchase of Boeing jets while I was dickering with Convair. When I was sitting out there at Palm Springs at the municipal dump with Jack Zevely, Bill Allen in Seattle wanted to know, ‘Why doesn’t Howard Hughes invite me to the municipal dump?’
My order for sixty-three jets was the largest in history, and thirty-three of those were supposed to be supplied by Boeing. That was a $186 million order, and I paid $39 million cash in advance in order to show good faith. And now they were dunning me for more money.
I staved them off a little bit because the Medical Institute owed Toolco $18 million, and after a little maneuvering we were able to use that to pay some of what we owed Boeing. But we were still short. In the meantime, the situation was that Toolco owned all the planes and was leasing them to TWA day by day. That was absurd. I owned both companies, Toolco and TWA, I had to take it from my left-hand pocket and put it in my right-hand pocket – but with all sorts of financial and governmental restrictions on it.
Considering that I needed money to get Boeing off my back, I’d just about make up my mind to go along with Fred Brandi of Dillon Read. He’d worked out a way to come up with $350 million where I’d still have a reasonable measure of control and wouldn’t have to give up any part of Toolco. The only hook in it, and this had been proposed by Haggerty of the Met, which made me figure he was the villain of the piece, was a little rider in the financing agreement. That rider said that if there were any major adverse developments in the airline itself, or in its management, then the banks and the insurance companies had the right to pull out of the deal.
And there was a hook in the hook, which turned out to be more pertinent. Once the financing was completed, if there were any adverse developments in TWA’s management after that date, they’d have to be rectified within ninety days or else my stock – which the syndicate was holding as collateral against the loan – would go into a trusteeship.
I considered stepping in and taking over the presidency of the airline. I thought that might be the solution. I tentatively suggested it to one of those insurance companies, I think to Equitable, and I was told if I did that they’d foreclose immediately – like I was a leper. Believe me, these lepers at Lambaréné got better treatment, more respect, than I did from these Eastern bankers. And they invoked the ‘adverse-development clause,’ which meant I had ninety days to pull a rabbit out of a hat.
What were your choices? What could they have done to you?
What they wanted to do was get me to turn my stock over to a trustee – namely them, or some guy who was fronting for them. The alternative was for me to find the money elsewhere so I could pay off my creditors. Or else I could declare TWA bankrupt.
While I was trying to figure all this out, suddenly, from out of left field, the Civil Aeronautics Board got after me. Not about TWA, but about Northeast Airlines.
What did you have to do with Northeast Airlines?
Somewhere alone the line I had picked up a significant share of a company called Atlas, a holding company, and kind of tucked it away into a part of RKO, and then it got transferred to Toolco. Atlas owned about 60% of Northeast Airlines.
The CAB got wind of this, and since they have to earn their salaries by poking into other people’s businesses, they started another investigation. I controlled TWA, and the idea is that you can’t run or control two major airlines. You can’t do that because you might run a more efficient business that way and make more money than your competitors. But the alleged reason is conspiracy in restraint of trade.
The CAB wanted a voting trust established over the stock, they wanted me to appear, they wanted me to stand up before the board and sing La Cucaracha for them, which I only do for select audiences and certainly not for the CAB.
It dragged on forever, and during that time I pumped a lot of money into Northeast through Toolco and some New York banks. We did concoct some interim trust agreement concerning my stock in Northeast, but that was just a formality. The trust was revocable any time Toolco wanted to revoke it. The truth is, I owned Northeast Airlines and told them what to do, as simple as that.
At one point I timidly suggested we merge Northeast with TWA – then I’d only own one airline. The CAB howled and said that if I didn’t divest, give up my Northeast stock, they’d cancel the Northeast route from New York to Florida. They don’t fool around – there are no Marquis of Queensbury rules; it’s ‘You try that merger plan, and we’ll take away your New York-Florida route to show you that we mean business. And that’s just for openers.’ It’s the American way of business, which is the same as saying the American way of life. Dog eat dog. Who’s the lion and who’s the donkey, let’s find out.
And who was the lion? Did they take that New York-Florida route away from Northeast?
They held that club over my head. I stalled, but it didn’t work with them. Finally they said, ‘Okay, Hughes, you lost the route.’
We went to court in Boston to the Federal Court of Appeals. I had friends there, meaning that they’re friends as long as you keep their bank accounts fat. Finally we went to Congress – we got the guy from Massachusetts to get the ball rolling and a new law was passed.
It was meant to get Northeast out from behind the eight ball. It said that any carrier that had been flying a route since a certain date, even though it didn’t have permanent authority to fly that route, under this law the route became permanent. That applied specifically and uniquely to Northeast Airlines and the Florida run and everybody goddamn well knew it, which made the CAB – in particular its chairman, a guy named Boyd, who hated my guts – go raving mad.
Still, that was just a sideshow. The main event was always TWA. Everybody was putting the screws to me. TWA still owed Irving Trust about $15 million, and Irving Trust wanted it. ‘Pay or die,’ they said. Worse, from my point of view, was that I personally had borrowed eleven million from Irving Trust, which was due around that time, and I’d pledged Toolco, lock, stock and barrel, as security for the loan. Of course I could have found $11 million without any difficulty, but that was only part of the over-all debt and it would have been like putting my finger in the dike when a tidal wave was coming our way.
We needed a total of $165 million. By that time I had about five business days to get it. The consortium of banks and insurance companies offered it, but they also slipped in a little proviso there – because, understand, if I borrowed $165 million to pull TWA out of the hole, theoretically all I had to do was pay back the money one day and I’d be out from under the thumbscrews. But they put in a proviso that if I wanted to pay back the money, I had to pay a 22% interest premium on it at the moment of payback. They call it a premium but any five-year-old would know that it’s a penalty at 22% interest. That harks back to the days of Shylock – it’s usury, but no one cared because it was Howard Hughes who had to pay it, and he deserves to have his wrist slapped, if not his throat cut.