CHAPTER 15

THE BILLION-DOLLAR DEAL

MERELY A MILLIONAIRE

ONE day in 1968, as Howard Hughes rested abed in his Desert Inn penthouse reading the Las Vegas newspapers, he came across an article that irritated him. It was not the subject of the article that he found offensive, but rather, a single word. The article had described him as a “millionaire.” Hughes reached for a yellow legal tablet and began to jot a message to Bob Maheu:

At the present time when I am having a little trouble making both ends meet, I am sure there is a large army of people waiting in expectant, hushed silence for the first indication of a slide backward in my financial resources, no matter how small. There is only one thing worse than being broke, and that is to have everybody know that you are broke. In most cases, and at normal times, I am quite content to be referred to merely as an industrialist without a price tag. However, at present, in my highly critical situation with the TWA judgment hanging over me, I think it is a bad time for us to put out publicity referring to me as a mere millionaire. There are several hundred millionaires on the horizon now, and since I have been referred to as a Billionaire ever since we became established in Las Vegas, I am fearful that some enemy of mine will pick up this small deviation and make a story about it—you know, something like: “Well, well, has he finally gotten to the bottom of his bankroll, etc., etc.”¹

Noting that it was one of his own publicists who had issued the offending press release, Hughes asked Maheu,

Without letting anyone know that this displeased me, would you most carefully try to find out who of our people put this out? Then possibly you can work out a most carefully planned means of discontinuing the use of the millionaire reference without anybody at all knowing that any instruction whatsoever was issued…. This has been handled most skillfully in the past with the result that I have been always referred to as “billionaire” yet we were never accused of putting out this publicity. I was very pleased with the result with respect to this particular point, until Kerkorian was likewise billed as a billionaire. If you could find some way of obtaining the result which you formerly achieved, prior to Kerkorian’s ascendancy into the ranks and at the same time, without our being held responsible for the origin of the publicity, I would be very grateful indeed.²

The memorandum reflected two of Hughes’s personality quirks which often seemed at odds. Despite his mania for privacy, he was consumingly concerned with what the world thought of him—so much so that the most innocuous news report, such as a favorable recounting of Kirk Kerkorian’s career, would trigger a tantrum. More to the point, the message to Maheu demonstrated once again Hughes’s singular ability to focus on the trivial when confronted with a serious business dilemma. The dilemma in 1968 was that the Hughes fortune was in fact beginning to disappear.

The Hughes Tool Company, which for all practical purposes was Howard Hughes, had entered 1967 with $607.7 million in the bank, about 10 percent of it in cash, 90 percent in United States government securities.³ Throughout the year and into 1968, Hughes had been spending money at the rate of $367,579 a day. Some of the money was going for the acquisition of hotels, casinos, gold and silver mines, and other properties in Nevada. Some had been employed to shore up the Hughes Tool Company Aircraft Division. Other millions were simply being wasted. By December 31, 1968, Hughes would run through $268.7 million, leaving his cash and government securities bank balance at $339 million.⁴ All that money was coming out of what was in effect Hughes’s savings. Unless the spending stopped, sometime during the summer of 1971 Hughes would exhaust his savings.

Even so, in 1967 and 1968 Hughes was involved in more different business undertakings than at any other time in his life, a situation owing in some part to his failing mental health. If Hughes’s lifetime involvement in business and financial transactions were to be charted, the curve would peak in 1967 and 1968. If the same graph measured productivity—a return on his investment of time and money—the curve would reach its lowest point in those same two years. The Hughes empire had become a sort of Rube Goldberg machine run amok. It was as if Hughes sat atop it, feeding millions into this contraption that funneled the money along circuitous routes and spewed it out to executives who underwrote dozens of ill-starred business ventures.

In 1968, Hughes tried and failed to buy William Harrah’s hotels and casinos in Reno and at Lake Tahoe, and the Bonanza, the Stardust, and the Silver Nugget hotels and casinos in Las Vegas. He tried and failed to block construction of Kerkorian’s International Hotel and Casino. He lost a bid to buy Western Air Lines and National Airlines. He tried and failed to buy the Mary Carter Paint Company’s hotels and casino in the Bahamas, the American Broadcasting Companies, and the Las Vegas Review-Journal. He was unable to establish a radio-television-newspaper conglomerate in Nevada. He thought of buying several luxury liners and fitting them out as cruising casinos, but discarded the idea. He looked into the purchase of MCA Inc., the entertainment conglomerate, but did not go through with it. He explored the possibility of buying Four Star Productions, a producer and distributor of television shows and motion pictures, but the deal collapsed.

Hughes’s only accomplishments during these years were hollow. He did manage to buy Sports Network Inc., a New York company that telecast sporting events, but it was losing money and would continue to do so. He did open negotiations leading to the acquisition of the Landmark Hotel and Casino, but it would lose money every year for the rest of his life.⁵ He bought scores of gold and silver mines across Nevada, but they never yielded a return on his investment. He did begin negotiations in 1968 to acquire Air West, but that transaction resulted in civil lawsuits and, worse, his indictment by a federal grand jury.

His Castaways Hotel and Casino consistently lost money, as did the Frontier Hotel and Casino. His fixed base operations at McCarran Airport and Alamo Airlines were unprofitable. So was his Warm Springs Ranch.⁶ Of all his 1967 acquisitions in Las Vegas, only the Desert Inn and the Sands were in the black. And their lofty profits of earlier years had melted away. Indeed, the combined profits of the Desert Inn and the Sands for 1967 and 1968 totaled less than $5 million—a fraction of what the Sands alone had formerly earned in a single year.⁷

If Hughes took note of these dismal business facts or of his alarming cash flow, he made no effort to reverse the trend. Instead, he pursued one costly venture after another. The life he adopted in his darkened Desert Inn bedroom foreshadowed these outcomes.

The room itself hardly suggested the work space of one who ran a worldwide, billion-dollar empire. Tightly closed drapes shut out the desert sun during the day and the neon lights of the Strip at night. They were never opened. Spartan furnishings were dominated by a hospital bed, a reclining chair, and a television set. The room was never visited by a vacuum cleaner.

The wardrobe of one of America’s richest citizens was equally simple, consisting of two sport shirts, two pairs of slacks, and one pair of shoes. Hughes never put on any of these. There was one bathrobe, two pairs of pajamas, and one pair of sandals. These he wore occasionally. A television addict, Hughes stared at the screen for hours at a stretch, watching movies into the early-morning hours. He spent most of his time lying in bed, surrounded by piles of newspapers; a collection of old TV Guide magazines that he hoarded with a numismatic fervor; used Kleenex and paper towels, empty boxes, and medicine bottles—“He never liked to throw anything away,” an aide explained—and stacks of memoranda and reports from his corporate executives and lawyers.⁸

Hughes was forever losing important documents in the mountain of papers. On one occasion, Raymond Holliday beseeched Hughes to sign a note to renew one of his multimillion-dollar Houston bank loans that was due. Hughes procrastinated. Finally, one Thursday afternoon he picked up a yellow legal tablet and wrote a note to Holliday in Houston:

Dear Raymond,

I will positively have the signed note in your hands by Monday. Please convey my very deepest thanks to the bank and my most humble apologies.⁹

Hughes then began rooting through the chaos of papers strewn about his bed, looking for the bank note. After an unfruitful search, he picked up the legal pad and added a postscript to Holliday:

P.S.

Raymond—

Will you send me as quickly as convenient a new note, correctly made out, because I have “filed” the other one accidently [sic] some place among my stacks of papers, and it might take me all day to find it. My very most extreme thanks.¹⁰

For the most part, everything Hughes needed was in easy reach of his bed, including the metal box where he kept his tranquilizers and narcotics and the syringe he used to inject himself with the drugs. From time to time he would have one of the aides lay what they called a “foundation” of paper towels on the bed, thereby extending, at least to Hughes’s satisfaction, the life expectancy of the soiled sheets, which were changed, it seems, no more often than once a season. “He hated the inconvenience of changing the linen, so he would make his sheets last as long as he could,” an aide said.¹¹ The only time that Hughes left his bed was to rest, often naked, on his reclining chair, or to go to the bathroom, where he sometimes would sit so long that he fell asleep. Occasionally, “on the way to the bathroom, or on the way back,” a stark-naked Hughes would pause by the door to the adjoining room where the aides maintained their office and dictate instructions to be forwarded to one of his lieutenants.¹²

CORNERING A MARKET

This, then, was the Hughes who early in 1968 began laying the groundwork for the largest business deal of his life, one that he hoped would enable him to unload his debt-plagued Hughes Tool Company Aircraft Division and at the same time propel him back into dominance in the American airline industry. The customary Hughes secrecy was more intense than ever—so intense that the planned transaction never leaked out at the time, and the details have never before been made public.

Hughes’s plan required the cooperation of one company—the Lockheed Aircraft Corporation, with which he had enjoyed an amiable relationship for thirty years. His record 1938 around-the-world flight had been in a Lockheed 14 and he had contributed to the design of Lockheed’s Constellation. Friendship alone, however, would not be inducement enough for Lockheed to buy his money-losing helicopter company. To make the deal attractive, Hughes decided to throw in the Hughes Aircraft Company, which had received $419.5 million in prime military contracts in the preceding fiscal year. Although Hughes Aircraft Company stock was owned by the Howard Hughes Medical Institute, Hughes, as sole trustee of the institute, could sell the stock.

Hughes believed that his old friends at Lockheed would receive the offer favorably. He had made a similar pitch back in the early 1950s to Robert and Courtlandt Gross, the brothers who had built Lockheed into one of the giants of aviation and defense. Although the Gross brothers had rejected the proposal then—it was a time when the Hughes Aircraft Company plant in Culver City was in turmoil as a result of Hughes’s mismanagement—Hughes learned much later that they regretted the decision. By 1968, Robert Gross was dead and Courtlandt Gross was no longer active in the company, but Hughes still had friends at Lockheed. He passed word that he would like to sell both the Hughes Aircraft Company and the aircraft division of the Hughes Tool Company. To his chagrin, Lockheed replied with a polite brushoff. Miffed, Hughes sent a special message to his longtime acquaintance Jack Real, a Lockheed vice-president, intended to stir some action:

I must get down to short strokes on an immediate sale of both the Hopper and the Hyland properties. If your people are not interested, I will have to talk to North American and Douglas. I have held this package exclusively available to you and have not talked to anyone else. I have reached the end of the line. Your people told me (both Courtlandt and Robert Gross) that their failure to purchase the entire package, when I offered it on a bargain basis to Bob at Las Vegas, was the biggest single mistake he had ever made. Now do you mean to tell me they are going to do the same thing over again?¹³

When Hughes’s threat to take his business elsewhere brought no serious response, he countered with a startling new proposal: Lockheed would buy the Hughes Aircraft Company and the aircraft division of the Hughes Tool Company. Hughes, in turn, would sign an order for 100 of Lockheed’s newest jets—the L-1011 TriStar—at a cost of more than $1 billion.

From any standpoint the proposal was mindless. Hughes did not own an airline. Even if he had owned one, no airline could economically use 100 widebody jets. Moreover, there was not the remotest possibility that he could raise $1 billion to pay for the planes. The scheme had a familiar ring. Twelve years earlier he had ordered sixty-three jets and engines for TWA at a cost of more than $400 million—the largest single commitment in airline history. The order included thirty 880 jets from Convair, a subsidiary of the General Dynamics Corporation, under an unusual financing plan that was especially favorable to Hughes. What happened next was a matter of record. Hughes could not raise the money to pay for the planes. Convair was ruined, and Hughes lost control of TWA.

Now Hughes was about to repeat his mistake on a scale nearly three times grander. Further, his jet-buying plan would surely have a disastrous effect on the outcome of his seven-year-old legal battle with TWA. Herbert Brownell, Jr., the former United States attorney-general, was about to complete nearly two years of hearings as special master to fix damages in the case. Within months Brownell would set the amount of money that TWA was entitled to collect from Hughes. Brownell’s predecessor as special master, J. Lee Rankin, had tentatively ruled in favor of Hughes on one crucial point in the complex litigation: that the Hughes Tool Company was not a manufacturer of airplanes. TWA had maintained that because Hughes had ordered the planes through his tool company, he was in the business of producing planes and therefore had violated the antitrust statutes under which the legal action was initiated. It was a critical part of TWA’s case, and Hughes seemed to have won the point. But if the Hughes Tool Company announced that it intended to buy 100 jets, and Hughes no longer had an airline, then the courts would no doubt accept TWA’s argument. In short, Hughes’s Lockheed jet order would result in a whopping judgment.

Nonetheless, Hughes pushed ahead. This time, Lockheed listened with interest. Lockheed had once been a major supplier of planes with its Constellation, but the commercial jet age had passed the company by, just as it had Hughes. In the late 1950s, the Boeing Company cornered about half the commercial market and the McDonnell Douglas Corporation picked up most of the rest. At first there was little concern at Lockheed. Lucrative military and aerospace contracts made the company America’s third-largest aircraft manufacturer and a respectable profitmaker. But by the mid-1960s, its growth had slowed. The company’s new management team concluded that if there was to be a resurgence in the years ahead, Lockheed had to regain a share of the commercial-airplane market.

Ordinarily, aircraft manufacturers have at least one airline signed up before they undertake to develop a new plane. Lockheed, though, in a desperate gamble, struck out on its own to make the L-1011 TriStar, a three-engine, 250-passenger, multipurpose luxury plane designed for use on short, medium, and long routes. In September of 1967, Lockheed announced that it would soon begin taking orders for the L-1011. While the airlines took a wait-and-see attitude, McDonnell Douglas rushed ahead with its own design of a similar plane, the DC-10. By January of 1968, the two companies were locked in a fierce sales battle. In February, McDonnell Douglas rang up the first sale. American Airlines agreed to buy twenty-five DC-10s and took an option for twenty-five more. In March, Eastern Airlines and a British holding company each agreed to buy from Lockheed fifty L-1011s, and TWA ordered forty-four. At the same time, Hughes spoke of buying 100 L-1011s—double the largest individual order pending. Lockheed was in no position to dismiss Hughes’s overtures out of hand. In the beginning, talks were carried on directly between Hughes and Lockheed executives by either telephone or letter. Then, early in April, Lockheed told Hughes that it wanted to bargain face to face with one of his representatives—specifically Raymond Cook.

Cook was by now a veteran representative of his quirky, reclusive employer. A Phi Beta Kappa graduate of the University of Texas Law School, the fifty-four-year-old Cook had developed a reputation for the kind of practical business sense and financial responsibility that Hughes so often lacked. He even managed to gain the respect of the Wall Street bankers during the difficult TWA financing negotiations—a respect enhanced when Hughes fired him and replaced him with the flamboyant Greg Bautzer. Hughes later rehired Cook, but relations between the two men were never the same. Now Lockheed’s desire to deal with Cook posed a serious problem. So far, Hughes had told few people of his scheme. Bob Maheu was unaware of the Lockheed negotiations. So, too, were Pat Hyland, general manager of the Hughes Aircraft Company, and Rea Hopper, vice-president in charge of the aircraft division of the Hughes Tool Company. Not even the top tool company officers in Houston knew of it. To bring Cook in, Hughes not only had to gain the lawyer’s promise of secrecy, but also to sell him the Lockheed plan. And he knew that Cook would try to talk him out of it.

Cook was one of the few persons who often pointed out to Hughes the error of his business ways. It was a thankless task. Other high-level executives and lawyers surrounding the industrialist assured the permanency of their positions by never questioning his judgment. As a result, Cook had earned Hughes’s lasting enmity. Further, Hughes believed that Cook always treated him condescendingly. A recent report from Cook to the Desert Inn penthouse on some relatively unimportant subject had provoked a testy retort from Hughes:

Raymond! If you would treat me as something other than a cross-breed between an escaped lunatic and a child, you would be surprised how much better we would get along!… I think it is some kind of a game with you, Raymond. I think that when you see an opportunity to embarass [sic] me, you leap at the opportunity, without really knowing why—just because it is part of the contest. I wish you would think about it and give me your viewpoint. I think it is important for us to get along.¹⁴

Of course, what Hughes meant by it being “important for us to get along” was that Cook should stop telling him things he did not want to hear, and he knew full well what Cook would say about the jet transaction. Yet Lockheed had insisted on Cook’s presence in the negotiations. On April 3, Hughes dictated a four-page letter to Cook setting forth his plan:

Hughes Tool Company will sell to Lockheed for Lockheed’s stock or debentures, cash or notes, all of the assets involved in the Hughes Tool Company Aircraft Division and simultaneously either Howard Hughes Medical Institute will sell Hughes Aircraft Company or Hughes Aircraft Company will sell its assets to Lockheed, likewise for stock, etc., etc. The next part of the transaction is as follows: Hughes Tool Company will purchase from Lockheed on standard sales contract 100 of Lockheed’s new type 1011 aircraft.¹⁵

It took Hughes just ten lines to describe an acquisition that called for a cash outlay equal to ten times his investment in Las Vegas. The remaining eighty-five lines were devoted to arguments that might bring Cook around:

Regardless of how totally you may be opposed to our becoming involved in this transaction, I want you to realize that I have had a great deal more time to think about it. At first reaction I am sure you will feel this transaction is beyond our capabilities. I want to assure you, Raymond, that this is not the case. You will gradually appreciate, as you become more and more familiar with all the details, that staggering as this deal is, it is well within our capabilities to accomplish it. In any event, I must have this gentlemen’s agreement with you, Raymond, regardless of how convinced you may be that we should not and cannot enter into this transaction, I do not want a hint of this [feeling] to penetrate through to the Lockheed people—not a hint from you to any of the people you may find necessary to bring into this matter.¹⁶

Hughes made it clear that the jet order would be carried out, and that he intended to return to the airline business:

I want you to know that it is my firm decision that Hughes Tool Company will go back to the air carrier business. Naturally, I do not want this known to Hopper or any of his people yet. I am sure your reaction will be that even though I am determined to go back to the air carrier business, this order is far larger than we can safely undertake. However, Raymond, I repeat, I have had a great deal more time to consider the risks and the potential benefits to be derived from this transaction. I have made a firm, irrevocable decision that we will go ahead with this. So if you do not make an all out effort to accomplish this objective you will only serve to embarrass and humiliate me.¹⁷

An excerpt from one of Hughes’s handwritten memoranda taking Raymond Cook to task.

As for his ability to finance such a huge acquisition, Hughes foresaw no difficulty. His plan, calling for payment of each plane as it came off the production line, was a carbon copy of his disastrous TWA arrangement. But Hughes had continued to believe that if the banks had supported him “TWA would have achieved the equipment breakthrough of the century with the respect of its competitors.”¹⁸ He had even convinced himself that the banks deliberately sabotaged his jet plan because “the consequences to United and American would have been literally devastating.” Now, Hughes reasoned, “I am betting the banks will not be so short sighted this time.”¹⁹

Although Hughes had insisted in his talks with Lockheed that his order for 100 L-1011s was firm and the number of planes not negotiable, to Cook he confided differently. “Lockheed has already made an all out effort to persuade me to reduce the number of aircraft to fifty.”^* Admitting that he might be willing to accept fewer planes for other concessions, Hughes cautioned Cook not to let Lockheed know this. “When Lockheed insisted upon you personally to be here for these negotiations, I knew instinctively that they felt they could persuade you to prevail upon me to reduce the number involved in this order. If we should decide later on that we want to reduce the number, we can obtain important concessions for this sacrifice. If events should so transpire, I know what concessions I want in exchange and you do not. That is why I implore you not to yield even the slightest iota toward reducing the commitment and not under any circumstances to give Lockheed the slightest hint that you are afraid of this transaction.”²⁰

With a last exhortation, Hughes sent Cook off on his important assignment: “So, Raymond, I pass the ball to you and I hope you will give this matter your full time and the most intense effort you have given anything in your life. It is the biggest and most important transaction we have ever undertaken.”²¹

Cook recognized at once that Hughes’s proposal was devoid of business logic and financially impossible. In the past, he might have responded with an itemized demurrer. This time, for whatever reason, he raised no strong objection. Perhaps weary of saving Hughes from himself, Cook thought it high time for the sixty-two-year-old industrialist to learn a hard lesson. In any case, he plunged into negotiations with Lockheed, following Hughes’s instructions to the letter, except for an occasional lapse, such as when he confided to Lockheed executives that he was not personally aware of any specific plan of Hughes’s to return to the airline business. If that was true, Hughes’s purpose in buying the L-1011s must be to resell them at a profit. It was a prospect that chilled Lockheed officials. Their interest in the negotiations cooled.

But Hughes never relied on a single individual when he was negotiating. He had continued to deal directly with Lockheed through his old associate at the company, Jack Real, and when he learned of Cook’s bargaining error, he immediately called it to his lawyer’s attention. “You will recall that I originally asked you to be most careful not to imply that we were buying these aircraft for a resale program and to take every opportunity to confirm that we have extensive air carrier plans,” Hughes reminded Cook. “Instead of following this request, you permitted Lockheed, as the result of meetings last week with you, to reach the conclusion that there was no such air carrier program. This is what caused Lockheed to lose interest in the deal.”²²

By telephone and by letter, Hughes repaired Cook’s damage, persuading Lockheed that he would indeed procure an airline that would fly the fleet of L-1011s. Whatever Hughes’s failings as a business executive, he was a consummate salesman—even by long distance. He was soon able to inform Cook that Lockheed’s top officers “have now accepted the fact that some way or other Hughes will be an air carrier, or will be directly or indirectly involved with a major carrier.”²³

By April 9, just five days after Cook had come into the negotiations, Hughes himself had worked out a tentative agreement through Jack Real that called for the purchase of seventy-five aircraft. Real then came under pressure from his superiors to conclude the transaction. He called the Desert Inn penthouse and dictated a message to Hughes. “Now that we’ve got this agreed to,” Real said, “please do everything in your power to expedite the formalization of this agreement. As I’ve told you in previous messages we must have some kind of formal agreement by the close of work April 10. My management is relying that I will be able to make this date. Please don’t disappoint me.”²⁴

Now they were playing Hughes’s game, and Hughes was not to be rushed. He sent a memorandum to Cook relating Real’s plea to sign an agreement by April 10, but cautioned that “this does not mean I want you to drop any stitches in your haste. No matter how trivial they may appear at this time, these things have a way of becoming important later on. So, please give this deal the most intense care and microscopic scrutiny that you can possibly give it, regardless of how long it takes. However, if you can formalize it by the night of the 10th, no matter if it runs into the morning of the 11th, and if you can do this without any slightest possibility of any slightest omission or undesirable commission, then please do so.”²⁵

Negotiations were in progress around the clock. At 4:45 A.M. on April 10, Hughes dispatched an updated directive to Cook: “Work on 1011, but do not make even the slightest concession. If we get bogged down, work on Hughes Aircraft Company.”²⁶

But Cook was pessimistic about Hughes’s suggestion to tie the Hughes Aircraft Company sale to Lockheed with the purchase of the jets. Lockheed officials had refused to consider the Hughes Aircraft proposal until the L-1011 contract was “firm, with the money paid.” And, because the aircraft company was owned by Hughes’s tax-exempt charitable foundation, linking its sale to the jet deal could have serious tax consequences. Cook pointed out that “we are playing with dynamite even to mention Hughes Aircraft Company while the 1011 deal is cooking.”²⁷

At four in the afternoon on April 10, Cook told Hughes that an agreement on the L-1011s was near and that he hoped to avoid a Lockheed demand that the contract contain a clause prohibiting resale of the jets. Two hours later, Cook advised, “I received Lockheed’s official assurance that our agreement is firm notwithstanding that the letter agreement will not be signed and the money delivered until tomorrow.”²⁸

A HUGHES LESSON

Cook had wrapped up the negotiations for the L-1011s that Hughes had sought so desperately. Hughes, who should have been pleased, was angry. While he wanted to close the deal, Hughes wanted to close it on his own time schedule. Cook had violated that whimsical time table by agreeing to deliver the required deposit. Hughes was ready to sign the order for the jets, but he was not prepared, mentally, to part with any cash.

“You must not have heard me in our last conversation,” he scolded Cook. “I said we would sign tomorrow and pay in not over two-three days thereafter. Just tell them it takes that long for us to handle that much money with due regard for interest, etc.”²⁹

But Cook had been working against another deadline. Lockheed had advised the nation’s airlines that the initial $14.8 million price tag on the L-1011 was about to be raised sharply. The company’s long association with Hughes notwithstanding, there was no way for Lockheed to allow Hughes to buy the planes at the original price while it was charging the airlines substantially more. To save Hughes millions of dollars, Cook had rushed the deal to completion before the price increase, arranging to deliver the deposit the following day, April 11. “Today before leaving Lockheed,” he told Hughes, “Holliday reviewed with Frain [F. L. Frain, Lockheed’s treasurer] the procedure for transferring the cash tomorrow, and I know of no easy excuse for Holliday to delay payment.”³⁰

As was so often the case, though, Hughes got his way. The agreement was signed, but no money changed hands. Now Hughes could disclose a few details to Bob Maheu, who for some weeks had been pressing to go forward with new Las Vegas business deals. Getting no decision had angered Maheu, and Hughes sought to use the Lockheed agreement both to explain his actions and to stroke Maheu’s ego. On one of his yellow legal tablets, Hughes wrote a euphoric message to the chief of his Nevada operations, placed it in a sealed envelope, and gave it to one of the aides to deliver. The message began:

Bob—

I know you think I am over cautious, but I will prove my confidence in you by disclosing a piece of information known only to seven men altogether—three in Hughes Tool Company and four at another company. It must be kept in deepest confidence. I am telling you because it may explain why I do not enter quite as quickly into some of the investments that we consider as you might expect. We can publicize this later, but for now it must be kept tightly secret.

I just tore off the rest of the last page, because I stated the exact amount and the number of aircraft involved and, upon hindsight, I decided those figures should not be floating around, even in a sealed envelope.

So, suficeth [sic] to say that the contract I just signed is an agreement with the Lockheed Aircraft Corp. for substantially more than one billion dollars, in purchase of a fleet of the very latest (far more than anything flying) design of jumbo-jet. There is nothing like this airplane in process of design or construction anywhere else in the world. Needless to say I intend to get back in the air-carrier business. And, hopefully, with headquarters and main offices in Nevada. This also is known to nobody, and I must ask your all-out pledge of secrecy….

Now this does not mean that I want to sacrifice any of the favorable or important opportunities that we have developed and that are awaiting action. I am ready now to move on all of these and make a decision without further delay. I am merely explaining the past delay. Please don’t tell me later we lost some deal because you thought I had no further interest in view of the air-carrier program. Actually, I am hopeful that the cash requirements will not be as great as I had anticipated. I just wanted an opportunity to evaluate carefully the cash requirements of this program.

Thank you for your patience. Incidently, it is my belief that this is the largest commercial transaction ever consumated—either for airplanes, automobiles, washing machines, or what the hell have you….³¹

Hughes’s euphoria was short-lived. At 5:15 P.M. on April 11—after the Lockheed commitment had been signed—Cook advised Hughes that the purchase of the jets could injure his “chances for successful termination of the TWA lawsuit.”³² Hughes exploded:

If you really had my best interest at heart and if this past trip to California has not been some gigantic chess game, wherein the real motive was to lead me into making some kind of mistake, in order that I would be personally chastised and cured from ever again daring to think that I could handle something as important as this Lockheed deal without you leading me by the hand from the very outset, if you really had my best interest at heart, please just tell me in a few words why you waited the entire week (during which we have been in communication every single day) to tell me this simple and vital and frightening bit of information.³³

Hughes had conveniently forgotten his strictures to Cook a week earlier, when he had admonished his lawyer not to question the transaction. It was typical of him to ignore advice, or insist he did not want any, and later complain bitterly about the lack of it. And, as was his custom, Hughes had not been candid with Cook. Cook’s statement to Lockheed officials had been true. He was not aware of any specific Hughes plan to return to the airline business. But there was one. Hughes had not told Cook that Keath Carver, a vice-president of the Bank of America, had been conducting preliminary talks on his behalf aimed at acquiring Western Air Lines.

Having told Maheu about the Lockheed deal, it might now be time to advise Cook of negotiations for Western Air Lines. This he did in a brief message, adding that Western Air Lines would fit in “with our Nevada plans and would involve the addition of two Mexican airlines. I would plan to move its offices to Nevada and to have Carver full time to run the operation.”³⁴

Cook replied by warning Hughes that “even an attempt to acquire control of a trunk carrier would be adverse. It would suggest, both before the Civil Aeronautics Board and in the New York courts, that you are planning on using the carrier as a captive market in violation of the antitrust laws.”³⁵ In other words, it would suggest to them that Hughes planned to take advantage of Western Air Lines by forcing it to buy planes from Hughes Tool Company to the latter’s profit—exactly what he had tried to do with TWA.

For the next week, relations between Hughes and Cook went from bad to worse. For whatever reason, it had become increasingly apparent to Hughes that the L-1011 deal was not feasible, but rather than admit his mistake, he blamed Cook, directing a stream of biting memoranda toward his Houston lawyer. He took Cook to task again for not warning him about the deal’s effect on the TWA lawsuit, and he made a vague reference to having gotten out of the L-1011 contract, although he gave no details. “I had great trouble in extricating us,” he wrote, “and what I had to tell Lockheed is my business. So I would appreciate it very much indeed if you would stay off the 1011 subject with Lockheed and with everybody else, whomsoever.”³⁶

Over the years, Hughes seldom repeated the same story to any two of his executives or lawyers. He often had three or more operatives negotiating some phase of a particular deal, each ignorant of what the others were doing and working under conflicting instructions. Thus, Hughes would play one off against another while truth faded into the background.

So it was that one hour and twenty minutes after Hughes complained to Cook that he had “had great difficulty extricating” himself from the Lockheed contract, he assured Real that “I don’t want to lose the airplane deal, you must realize this.”³⁷ Still intent on acquiring an airline to go along with his fleet of L-1011s, Hughes shifted bargaining strategy, assigning Real and Keath Carver at the Bank of America to act as his front-line negotiators. In the meantime, he kept Cook standing by, withholding the details of his latest maneuvers. In fact, he directed his two new negotiators to keep their talks secret: “I urge you not to mention my air carrier hopes to Cook,” Hughes said to Real. “He has approved from a legal standpoint but is still trying to discourage me. I would hate to have him say anything in opposition while in the presence of any of your people.”³⁸ Hughes’s reference to Cook’s legal position was partly accurate. Cook had raised no “legal” obstacle to the acquisition of an airline, but he had pointed out that such a purchase could result in the loss of the TWA lawsuit.

Western Air Lines, the focus of Hughes’s takeover efforts, was controlled by Terrell C. Drinkwater, a sixty-year-old Denver-born lawyer who had assumed management of the airline in 1947—a time when it was selling surplus airplane tires to meet its payroll—and built it into a successful regional carrier serving cities from Calgary, Canada, to Acapulco, Mexico, and in more than a dozen western states, including Nevada. “My best hope is Western,” Hughes told Real. “Since it has so much service in and out of here [Las Vegas], it would fit into my plans just right.”³⁹ But Hughes did not want to foreclose other opportunities. When it was suggested that National Airlines also might be available, he asked both Real and Carver to pursue that carrier as well. “I am anxious to make one of these deals,” he said to Real, “because we can then go right ahead with a deal [on the L-1011s] with no resistance from my attorneys.”⁴⁰

To keep Cook occupied, Hughes tossed out another proposal for him to study: the possibility of merging the Hughes Tool Company Aircraft Division into the Hughes Aircraft Company and at the same time making a public offering of the aircraft company’s stock owned by the Howard Hughes Medical Institute. If Cook agreed that the plan had some merit, then Julius Sedlmayr, the Wall Street broker he consulted on occasion at Merrill Lynch, Pierce, Fenner & Smith, “could be induced to go to Culver City with no difficulty at all” to work out the financial arrangements.⁴¹ When Cook responded dourly, expressing the view that the aircraft division, a money loser for three decades, was next to worthless, Hughes bristled. “I don’t agree with you,” he chided Cook.⁴²

But Hughes could come up with proposals as fast as his lawyer could knock them down:

I have what I think is a really good idea and I don’t want you putting the chill on it just because it happens to be my concept. Here is my idea: Hughes Tool Company sells [the] Aircraft Division to Hughes Aircraft Company on the following terms: Hughes Aircraft Company pays no price for [the] Aircraft Division at this time (except possibly picking up the cost of some categories of material, tooling, work in progress, inventories, etc.). Hughes Aircraft Company agrees to absorb any and all losses incurred through the operation. Hughes Tool Company agrees to hold Hughes Aircraft Company harmless against any cumulative losses remaining after five years, and to make payments against such losses whenever the accounting department of Hughes Aircraft Company may estimate that, in fact, such losses appear to be inevitable and can make any kind of an estimate as to the amount thereof.

This, of course, is all just very rough. The term perhaps should be six years. The obvious purpose is to take advantage of Hughes Aircraft Company’s normal carry-over privilege and to make an all out effort to recoup any losses in an efficiently run operation, devoid of the handicap of being the unwanted small brother in the Culver City plant, and benefitted by any economies of the merger. Then, any losses remaining would be paid by Hughes Tool Company and the Aircraft Division would be a part of Hughes Aircraft Company, where it belongs.⁴³

As usual, Hughes insisted on absolute secrecy. He especially did not want Cook to inform other partners at Andrews, Kurth, Campbell & Jones. “This is in the most all-out secrecy,” he declared. “I don’t want one single soul in your office to know one blessed thing about it. You will just have to give me your own personal opinion, based upon your present knowledge—no help from anybody.”⁴⁴

Here was yet another indication that the Howard Hughes Medical Institute—so often portrayed as a symbol of Hughes’s philanthropy—was simply a sophisticated tax gimmick. Hughes proposed, in essence, to take the millions of dollars the aircraft division was losing each year and offset those losses, for tax purposes, against the profits of the Hughes Aircraft Company. His stipulation that the Hughes Tool Company would pay the Hughes Aircraft Company for any losses the aircraft division incurred after five years was a sham. The contract for manufacturing light observation helicopters would run out in less than three years. The aircraft division then could be dismantled and there would be no further losses. In one of those financial sleight-of-hand schemes at which Hughes excelled, he was promising to underwrite any future deficits when it could be guaranteed there would be no deficits. In the interim, he would profit handsomely. The losses of the aircraft division, which he now was absorbing personally, would be picked up, in effect, by his tax-exempt charity. The medical institute, of course, would never miss the money, because it got almost nothing from the Hughes Aircraft Company. And the institute was still paying interest to Hughes on the debt it incurred when he created it.

From its founding in 1953 through 1967, the medical institute had collected $2 million in contributions or dividends from the Hughes Aircraft Company, whose operating profits through those years ran a hundred times that amount. During the same period, the medical institute—sanctioned as a charitable organization by the Internal Revenue Service—had given $22.9 million to Hughes in the form of interest and lease payments. This was made possible by the ingenious lease and sublease arrangement that Hughes had devised, in which his Hughes Tool Company, owner of the land and buildings at the Hughes Aircraft Company plant site in Culver City, had leased the plant to the medical institute, which in turn subleased the property—for more money, thus generating income—to the aircraft company, which in turn tacked the lease payments onto its government contracts as a cost of doing business.

Cook ignored Hughes’s warning against “putting the chill” on his latest concept and did just that. Undaunted, Hughes countered with yet another variation, urging Cook to push ahead with talks on the sale of both the aircraft division and the aircraft company to Lockheed. At one point, Cook was to attend a dinner party with Carl Kotchian, the president of Lockheed. Learning of this, Hughes lectured his lawyer on conduct. “I prefer you not discuss business at all,” Hughes directed. “If he insists just tell him you hope he will accelerate the progress of his men in negotiating the Hughes Aircraft Company, Hughes Tool Company Aircraft Division transaction as much as he can conveniently.”⁴⁵ Hughes instructed Cook to “Give my very best regards to Kotchian. I want him to know you have spoken to me today and that the decision not to try to engage him in business discussion was my decision, in consideration of Mr. Kotchian’s having an enjoyable evening, instead of being plagued with business talk. I don’t want him to think your failure to mention our business affairs was an accident.”⁴⁶

For a while it seemed that Hughes might pull it off—that he would be able to unload his helicopter company and also get back in the airline business. He told Real at one point that Carver was “confident we are near an offer from Drinkwater” for Western Air Lines. But as the weeks went by, first the bid for Western and then for National collapsed.^* So, too, did his plan to buy 100 L-1011s, and to sell to Lockheed the Hughes Aircraft Company and the Hughes Tool Company Aircraft Division. Hughes had not accomplished any of his objectives.

Howard Hughes, however, never learned the ordinary and obvious lessons of life. From his fruitless negotiations he concluded not that his scheme to buy 100 L-1011s was ill-conceived, or that buying an airline while the TWA lawsuit was pending was bad timing, or that his proposal to sell the assets of his tax-exempt charity was an invitation to a federal investigation. Rather, he concluded that the next time he wanted to buy an airline—and there would be a next time—negotiations would best be entrusted to someone other than Raymond A. Cook.