Hard Landing (17 page)

As a consequence, Kennedy began to
bow and scrape before Cannon. Kennedy invited Cannon’s staff members to work alongside Bakes and Breyer, and he notified Cannon in advance before making any public pronouncements about the CAB. Kennedy went out of his way to praise Cannon’s leadership in aviation issues—and conspicuously understated at each step the assault that he and his young staffers were planning.

Even if Cannon were neutralized, Bakes, for one, knew that the campaign against the CAB was doomed as long as the airline industry itself remained a monolith of opposition. The airlines had some of the most powerful Washington lobbyists on retainer. They had operations in all 50 states and in hundreds of congressional districts. And the airlines could count on the support of big labor in fighting anything that threatened high fares because high fares meant high wages.

Bakes and Breyer could only hope that the airline industry would crack.

In the late sixties and early seventies, a few soul-searching CAB staffers were regularly going to lunch to debate whether they were discharging vital federal duties or playing roles in a fantastic farce. Soon this small band was boring into the writings of the academic theorists who specialized in the narrow field of commercial regulation, writings heretofore widely ignored. There was a seminal 1951 book by economist Lucile Keyes, who attacked “
the inherent tendency of regulation to favor existing carriers” as opposed to newcomers.
There was a 1965 article in the
Yale Law Journal
by a young professor named Michael Levine, who stated that CAB policies “fostered
unnecessarily high fares, encouraged uneconomic practices, and limited the variety of services available to the public.” There were extensive writings by Cornell’s Alfred Kahn, who argued that the policies of the CAB “tended to
raise cost to the level of price,” a phenomenon that benefited neither the airlines nor the public.

Monte Lazarus, the highest-ranking careerist at the CAB, was among the staffers most deeply questioning the agency’s role. Lazarus finally decided he had had enough when he picked up the CAB legal brief in a case involving tariffs on cargo shipments of live animals and birds. “For purposes of this case,” he read, “a
rat is a bird.” In 1973 Lazarus walked out to take a position with United Airlines.

In his new job Lazarus’s duties included briefing top management of the airline on the latest public policy issues. It was precisely when the issue of regulatory reform had burst onto the Beltway in 1975 that Lazarus found himself with a newly appointed president to brief, Richard Ferris. Lazarus was surprised to learn that
Ferris had an open mind on the subject. Ferris, in fact, demanded to hear the arguments on both sides. Having come from the hotel industry barely five years earlier, Ferris was not steeped in the culture of protecting “the world’s finest air transportation system” from “ruinous competition.” What was the matter with competition? Ferris wanted to know. Competition certainly had not ruined the hotel business.

What benefits had United received from government protection? Ferris asked. True, the CAB had blocked troublesome, price-cutting newcomers from the industry, but the agency had also restricted United’s own ability to grow. Whenever United applied for a new route, the CAB either turned it down flat or, if finding the route worthwhile, awarded it to a smaller company instead.

In August 1976, four months after becoming chief executive,
Ferris presented the United directors with a long report saying that legislation reforming regulation at least in some limited way was inevitable. By making itself part of the debate—by taking a stand, one way or the other—United could influence the outcome to its benefit. The bottom line, Ferris said, was this: However the airlines fared as a group under regulatory reform, United would fare better
than others. United was the biggest airline, the proverbial 800-pound gorilla. It had more than 300 airplanes. It was sitting on a cash hoard approaching $1 billion. As in a game of marbles, whoever had the most planes and the biggest route system and the most money at the beginning of the game was bound to be the winner.

“United has little to fear from numerous small competitors,” Ferris assured the board in his presentation. “We should be able to compete effectively by advertising our size, dependability, and experience, and by matching or beating their promotional tactics.… In a free environment, we would be able to flex our marketing muscles a bit and should not fear the threat of being nibbled to death by little operators.” There was no need yet for formal action by the United board; Dick Ferris and Monte Lazarus would watch the situation further as it unfolded on Capitol Hill.

But as the next few weeks passed, it became obvious to some of the people around him that Dick Ferris was
growing enamored of the notion of deregulation. Unshackling the airlines would give United—and Dick Ferris—the opportunity to compete, not just with jingles and champagne flights but with fares and routes. Bob Crandall had bested Ferris in the computer wars, there was no doubt of that. But when the contest came to airplanes, Ferris was sure he would win.

Ferris ordered his staff to continue studying the situation in Washington. There was no point in taking a public stand yet.

As a crusader for regulatory reform,
Bakes felt the same kind of win-at-all-costs compulsion that motivated him following his expulsion from Brother Rice High School. We’re gonna win this one, he told himself. We’re gonna deregulate an industry. Bakes threw himself into a manic research effort. There were details and intricacies to nail down. Everything had to be perfect. No one was asking to abolish the CAB, other than a few academics in Cambridge and Ithaca.
Deregulation
—the word itself was just being born. It was a concept without a constituency. Nobody had ever written his congressman asking for it. This was policy making from whole cloth. Every small advantage had to be seized, every tiny argument mustered.

For instance, had the CAB
formally
declared a route moratorium, or had it simply discontinued approving route requests? Bakes had
to know; it would make a difference in how villainous the CAB could be portrayed at the hearings. Monte Lazarus would know, Bakes suddenly realized.

It was late at night when Bakes tracked Lazarus down at the Continental Plaza Hotel in Chicago. Lazarus picked up the phone just as the
hotel fire alarm began blaring.

“Monte, was there a formal route moratorium or not?” Bakes demanded. Bakes was the kind of person who talked loudly, in exclamation points, when he was charged up.

“Phil, I can’t talk now! I think I smell smoke!”

“If there’s a fire you might as well stay in your room!” Bakes snapped impatiently, demanding more details of the route moratorium.

When the Subcommittee on Administrative Practice and Procedure finally came to order in the Dirksen Senate Office Building on February 6, 1975, Senator Kennedy made himself the lead-off witness. “Regulation,” he began, “has gone astray.… Either because they have become captives of regulated industries or captains of outmoded administrative agencies, regulators all too often encourage or approve unreasonably high prices, inadequate service, and anticompetitive behavior. The cost of this regulation is always passed on to the consumer. And that cost is astronomical.”

For eight days, spread over the months of February and March 1975, a parade of witnesses came forth, carefully arranged by Breyer and Bakes to cast the regulators and the industry as evildoers. Proponents of deregulation generally got the chance to make their case first, putting the beneficiaries of the status quo on the defensive. Ralph Nader, an ardent deregulation advocate, was sworn in to lend his populist imprimatur to the cause. Ford administration
officials were carefully chosen to make sure they personally favored and fully understood deregulation, even if their agencies had taken no official position. Among the academic theorists, Alfred Kahn of Cornell was chosen to testify because of his rapier intellect. (“I have been asked to hold my testimony to ten minutes,” he began, “which means that I will have to talk terribly fast.”) Computer studies and other evidence were introduced establishing how lack of regulation had created low fares within Texas (thanks to Southwest Airlines) and California (thanks mainly to Pacific Southwest Airlines).

As the hearings continued, Bakes felt that something was missing. There was too much emphasis on routes and rates and such inaccessible concepts as price elasticity. “We’ve got to
find a scandal!” he said.

Watergate—perhaps it provided an opening. From their work on the staff of the special prosecutor, Bakes and Breyer probably knew more than anyone else on Capitol Hill about the airline angle in Watergate. American’s off-the-books contribution to the Nixon campaign had violated not only federal election laws, they knew, but possibly CAB regulations as well—in particular, a law requiring the airlines to notify the agency when they paid fees or gave gifts to anyone. If American had violated this regulation, then the CAB was obliged to investigate. Had it done so, or had the Republican-controlled agency swept the case under the rug?

With the subcommittee hearings still under way, the Kennedy staffers launched a muckraking expedition. Sure enough, they discovered, a few CAB officials had begun looking into the matter. But the internal investigation had been scuttled; the investigation files of the CAB staffers had even been taken away and locked in a safe. “
The only word that was flashing through my mind was
cover-up,”
a CAB lawyer named Stephen Alterman would later say. Bakes was ecstatic. Here at last was a handle on a scandal.

The subcommittee immediately called on William Gingery, the head of the CAB’s enforcement division, to appear as a witness. Gingery had nothing to hide; on the contrary, he was among the CAB staffers who had been trying to get to the bottom of the industry’s Watergate role. But Gingery was humiliated at having been duped by his bosses and frightened at having to appear publicly. He wrote a long, rambling letter to Bakes and other Kennedy staffers, expressing dread at earning “the
dishonor of the fool.” A short time later, a few days before he was scheduled to testify, William Gingery shot himself dead.

Though Breyer and Bakes had succeeded in drawing the Beltway’s attention to regulatory reform, there seemed little hope that the airline industry would crack. “
Total deregulation would allow anyone to fly any route,”
The New York Times
pointed out after the Kennedy hearings had concluded, “a situation that is unlikely ever to occur.”

Taking no chances, the airlines were soon dispatching troops of lobbyists to stomp on the embers of deregulation. One after another they called on Bakes, who, following the end of Breyer’s sabbatical, found himself leading the subcommittee crusade on his own. Every airline executive who walked into Bakes’s office spouted
the same rhetoric about preserving the world’s finest air transportation system, often to the word, as if they were cribbing from the same briefing book.

A few of the airlines distinguished themselves for originality, however. Eastern Air Lines dispatched
47 flight attendants to Washington for a lobbying excursion. They all descended on blue-eyed Phil
Bakes, who felt like a rooster, relentlessly flirting while holding forth on the virtues of deregulation.

Bakes was also taken with Frank Lorenzo, the chief executive of Texas International. Lorenzo, for one thing, was natty in a way people seldom saw on Capitol Hill—New York fashionable, almost
too
well dressed. More substantively, Lorenzo was one of the few executives who called on Bakes without an aide in tow, the only one who stayed longer than 20 minutes, and the only one who did not sloganeer about the world’s finest air transport system. Though adversarial, it was a notably professional and stimulating encounter.

Bakes also had a memorable
rendezvous with Al Casey, the man brought in to rescue American in the wake of George Spater’s Watergate-hastened demise. Bakes knew that Casey was a glad-handing, backslapping Bostonian whose élan could fill a room, so he resolved in advance to overpower Casey with the force of his logic and the passion of his arguments and above all with his cool demeanor.

As Casey and his aides entered the office, Bakes made a point of putting his feet on his desk to appear relaxed and unimpressed. He listened calmly as Casey argued against deregulation and dropped names at every chance—“I was talking with Eunice and Sarge the other day …”—and before Bakes knew it Casey and his entourage had waved and departed, without ever letting Bakes put forward a case of his own. Casey had gotten the better of him.

“Son of a bitch!” Bakes shouted, kicking his heel and shattering the sheet of glass on his desk.

• • •

When a president-elect prepares to assume the White House, the first real clues about his policies, as opposed to his campaign promises, are revealed in the appointments to his transition committees. A transition committee on regulatory policy might ordinarily draw little notice, but two weeks after Jimmy Carter defeated Gerald Ford in November 1976, the airline industry could not ignore the appointment of a 26-year-old lawyer named Mary Schuman to Carter’s transition team for transportation matters. She came from the office of Nevada’s Senator Cannon.

Even after Carter had denied Kennedy the Democratic nomination, the rivalry of the two men had persisted. Nevertheless, Bakes of the Kennedy staff and Schuman of the White House staff maintained a personal alliance in behalf of deregulation. As the White House and subcommittee staffers began working more closely together, Schuman would even begin dating
one of Bakes’s colleagues on the Kennedy staff, a Yale lawyer named David Boies, who was preparing to push the deregulation campaign to the trucking industry. Before long, Boies and Schuman would be married.

Within a month of her appointment, Schuman and a few associates wrote a paper for Carter on airline deregulation. Airlines, the paper said, were “
naturally competitive.” Regulation was “inappropriate.” The policies of the CAB had brought about “inflated fares” and “half-empty planes.” Airlines were “heading the way of the railroads,” the memo said. Ted Kennedy, looming as a potential Carter rival in the next presidential election, was out in front on the issue.