Howard Hughes (27 page)

Once I was in control, TWA began to improve. We captured more of the passenger and freight traffic, expanded our routes, pioneered in research, and we made money. Well, when that happens, what happens to your stock? It goes up. By the time it got to fifteen dollars a share, if I wanted to convert my loan then, I wouldn’t have gotten more than six or seven hundred thousand shares of stock. I suddenly found myself caught in a bind. The better the airline did and the more money we made, the more intelligence I applied to improving it, the less my loan was worth in terms of stock and a percentage of ownership. Every time I got them a new route, I was cutting my own throat – not financially, but managerially, which to me amounted to the same thing. My mistake was that I didn’t cover immediately when the stock was at nine dollars.

I want to tell the truth about things even if they put me in a bad light, because truth and not self-glorification is my goal. There I was, in a bind. The stock was moving up on the New York Stock Exchange. I hadn’t looked at the financial pages since 1929, but now every day I grabbed the paper – TWA plus an eighth, TWA plus a half, TWA up a quarter, and every eighth of a point meant that I was losing potential control of my airline. I got gloomier and gloomier about the whole thing, and nobody could understand why.

I conferred with one of my top financial wizards about it and we came up with a time-honored solution – I suppose you can say, reminiscent of Jay Gould and J.P. Morgan. Jesse Livermore would have been proud of it. Jesse Livermore was the king of the Wall Street pirates – they would hire Jesse to drive the price of a stock down so they could buy it cheap, then Jesse would turn around and manipulate the price of the stock up and they would sell it dear.

That’s precisely what was under consideration in 1948. We thought we might open some brokerage accounts in the East, in New York,
Washington and Philadelphia – in other names, of course – and then begin to sell the stock short. That is, sell what we had at below the market price and sell other shares short, the purpose being to drive the price down so that I could convert my ten million at a reasonable price.

The price of the stock had gone to twenty-three by then. I finally realized that if we followed this procedure and got the stock down a few points, for every point we got that stock down, I would have had to sell shares, and suddenly I realized I would be robbing Peter to pay Paul. And I was Peter and I was Paul. So I got together with my financial wizard who put me in this predicament, and we came up with another plan, based on some precedents that had recently been set by some other company that offered a new issue, a secondary issue of stock, and had given the rights to certain stockholders to buy that stock at a few dollars under the market price. What I wanted then was to convert my loan at fifteen dollars a share.

I talked to Maury Bent about it. Maury said he thought it might work, except that my conversion rights would be so enormous that the stock issue might have a hard time finding an underwriter, and he tried to press me into converting right then and there.

We were eighteen and a quarter at that time. It had dropped that far. Of course I had an ace up my sleeve – actually, a full house. And that was that those guys on the board, the board of directors of TWA, were Toolco people on my payroll. We’d done just about all the cute maneuvering we could. That had served its purpose, but in the end it came down to simple old-fashioned muscle.

A few telephone calls were placed. Maury went to the board of directors and the proposition was put before them. A little lobbying took place and, lo and behold, it came time to vote and they said, ‘Howard Hughes is our benefactor! Without Howard Hughes we’d have no airline! We’re going to give this man the right to convert his $10 million, that saved our necks, at ten dollars a share.’

You mean you managed to get it for what you could have got it originally?

No, I could have gotten it originally for nine and a half. I had to pay
ten. But I’m not complaining. And I didn’t waste any time, I converted and I got over a million shares, because of course there was interest on the loan. I got an extra 40,000 shares in interest. Since I sold that stock eventually – which is another story – at over $80 a share, those million shares had cost me ten million and I made a profit of seventy-three million. That’s not what I call chopped chicken liver.

In many ways 1948 was a critical year. Apart from that Jack Frye business, Hughes Aircraft got into serious difficulties. Several of my employees, high-ranking people, were indicted on fraud counts by the United States government. One of them was Glen Odekirk, who was assistant then to the president of Toolco, about as high as I could get him up there, and he made a damned fool of himself in this operation.

At the end of the war there were a lot of surplus airplanes around, and Hughes Aircraft wasn’t doing much of anything at the time except working on the Hercules. Other than that they were buying scrap planes and converting them into luxury craft for executives. Then someone at the Aircraft Division got the bright idea of using veterans’ priorities to buy these planes cheap and make himself a nice pile on the side. Veterans could buy surplus C-47s for next to nothing, the idea being to get them started in small businesses. Government paternalism, which almost always backfires because of the nature of the beast – corrupt.

This doesn’t reflect credit on me, and it reflects even less credit as the story goes on. But I promised to show you Howard Hughes, warts and all.

This all started in Honolulu, where we’d picked up six planes for $100,000 through two veterans, and paid them $2,000 each for their trouble. The six C-47s were worth at least half a million dollars. The story leaked, and our men were indicted.

I got on the pipe to Noah and said, ‘This won’t do.’ I arranged to meet him somewhere north of San Diego.

Did you have an office down there?

My office, then as now, is in my hat. I was only in Romaine Street
twice in my life – once to check the wiring system on the alarm buzzers, and the other – I don’t even remember why I went the second time. Oh, yes, wait, I do. I was driving around talking to Spyros Skouras about some business deal and we both suddenly had to take a leak. I realized we were only a few blocks from Romaine, so I said, ‘Come on, Spyros, I haven’t visited my office for ten years. Let’s go there and take a leak’ – which we did.

Anyway, I had one of my Chevies parked in Solana Beach, north of La Jolla, and I met Noah there, and I told him I wanted that indictment dismissed. I didn’t want Hughes Aircraft’s name blackened by this kind of thing. This applied to me also. Because I had specifically told my people
not
to use veterans’ priorities, and once I gave an order I figured that was that. Noah said it would cost plenty of money to get the case dismissed before it came to trial, and we couldn’t possibly get Odekirk and the others off the hook, since the veteran in Honolulu had blown the whistle loud and clear.

But I said to him, ‘I don’t give a damn what it costs, I want my company cleared. Try to save our people too, but I’m sure as hell not going to have the Hughes name tarred and feathered with this kind of thing.’

We worked it out and figured the only way to do it, as usual, was go right to the top. That’s the way to solve a major problem.

I sent Noah to Washington and I told him he had half a million dollars from the political fund at his disposal. I didn’t care how it was used, but I wanted Hughes Aircraft cleared. Noah spoke to someone at Democratic Party headquarters and, being Noah, he didn’t offer the half a million. He wanted to get it as cheaply as he could, so he told them he’d give them $100,000 in the form of campaign contributions, $5,000 each to any twenty men they picked.

But there was some backtalk from the Justice Department. The Justice Department had a hot case and naturally they didn’t want to drop it. Someone had to lean on them.

The man from the Democratic Party headquarters said, ‘Listen here, my friend, you’re running for public office’ – the Justice Department official he was talking to had announced his candidacy for a high post.
‘If you want to be elected, if you want the Democratic Party to back you, you better play ball.’

He played ball, and the company name was dropped from the case. And when it finally came to trial, two of the Toolco employees had to plead
nolo contendere
– no contest. They were fined a few thousand dollars each, and that was that.

I was personally exonerated by the United States Attorney. I wasn’t accused, but I wanted a more positive affirmation. The United States Attorney got up in court and said that Howard Hughes had had no knowledge of this and had nothing to do with the fraud. My hands were clean.

THE NEXT ITEM on the agenda – as they like to say in the board of directors’ meetings that I never attend – is Hughes Aircraft.

In some ways this was my most successful business venture. Toolco was the backbone of my fortune, but that was my father’s doing, not mine. I made it into a multimillion dollar company, but he founded it. On the other hand, Hughes Aircraft was my baby.

I originally started it way back in 1934, but it was just a workshop. I needed some space to develop the planes I used for my assaults on the various records, and then later of course we worked on the Hercules there, and we also did these conversion jobs on the surplus planes which got me into that legal mess I told you about. And during the war we made feeder chutes for ammunition.

What really got us off the ground was the electronics revolution. I saw this coming, and I backed up my hunch with a big stack of chips. I hired the best scientific talent around, built up a team of topflight R & D men, brought in a couple of retired generals into the top management spots – Ira Eaker and Harold George. They weren’t particularly knowledgeable in research and development, but they had knowhow in administration, and they knew the right people, which was even more important.

Ninety-five percent of our business at Hughes Aircraft was done with the Air Force, and both my top men, Eaker and George, were
ex-Air
Force generals. I could never get along with Eaker personally, but he was a good administrator. What I couldn’t stand about him was that
he was a warmonger. You know I’m anything but a hawk, and this guy Ira Eaker was a screaming eagle. He would have torn a poor hawk to shreds, would have made it look like a sick pigeon.

We had a few discussions about politics and the Korean War, and after that I said, ‘Look, let’s just talk business or we’ll have a terrible argument.’

Years later this guy wrote a preface to a book about the bombing of Dresden during the Second World War. More civilians were killed in Dresden than when we dropped the atomic bombs on Hiroshima and Nagasaki – it was a totally defenseless city with no war industry, just civilians – and Eaker said yes, it was terrible and all that, but it wasn’t so terrible, it was justifiable if you remembered that Germans were using the V-1s and they’d started the war in the first place. If he had written this piece when he was working for me at Hughes Aircraft, I would have fired him on the spot.

As for Harold George, the only thing I held against him was that he spread stories about me that I was a pennypincher, that I borrowed dimes from him for telephone calls and never paid him back. Here’s a guy who was making a hundred grand a year and he begrudged me a few dimes. He used to give me an accounting every month or two of the dimes I’d borrowed from him. He loved to twist it around and say I was a cheapskate. Who was the cheapskate, him or me? I borrowed the dimes and he complained that I hadn’t paid them back to him. So who was the cheapskate?

But they were generals, so they knew who to talk to when contract time came round. Our R & D team was headed by Dr. Ramo and Dean Woolridge, top-flight scientists, and they really produced. Hughes Aircraft made fire control systems for the F-86 and F-94 jets, and then around 1950 we came up with a sophisticated system which the Air Force accepted for the F-102 supersonic interceptor. We beat out General Electric for that one. We built a new plant in Tucson to make the Falcon air-to-air guided missile. And we got deeply into solid state physics. We make the finest germanium diodes in the United States. By 1952 we had over half a billion dollars in contracts. We had about 90% of the Air Force business in all those fields.

Ramo and Woolridge got up an expansion plan, felt they needed more laboratory space, more men to handle the flood of stuff that was coming in from the Air Force. We were in the Korean War at the time. I saw the need for this expansion, but I wanted a new plant to be built in the Las Vegas area, where I was starting to spend a lot more time, and where I could be in closer touch with it. I felt Las Vegas was a coming section of the United States, an area wide open for development, whereas Culver City was already pretty well sealed off.

Ramo and Woolridge balked. They said it would be destructive to expand the R & D section into Las Vegas, separated from the main facilities. And they were backed up by the administration, by Eaker and George. They argued with me like they were the Longshoreman’s Union, only they were management.

There were other problems, too, but they were largely Noah’s doing. Hughes Aircraft was more than he could cope with. It was making lots of money, far more than Toolco in its palmy days.

You mean that in 1952 Toolco wasn’t the backbone of your business empire?

This was part of the trouble. Toolco had fallen into second slot. Noah felt he had to take control in California – he felt he was in second place, which was true, and he hated it. And he precipitated the showdown. One year, for example, he wouldn’t pay any bonuses to the executives, and the company at the time was making a small fortune. He called it an economy drive.

I held off making any decisions. There’s a lot of talk about the ability to make snap decisions, but it’s the ability to
not
make decisions which can be even more important, on my level. I found that often if you just sit quiet, the problems disappear all by themselves. What’s vital today, if you keep postponing it, eventually becomes irrelevant.

At the time – with all that trouble brewing – I decided I’d better find out just how much I owned in Hughes Aircraft: how much it was worth. This was just in case I decided to bail out completely, in case I decided it was another albatross like RKO.

I don’t know if you’re aware of this, but there’s no one you can call
in and ask, ‘How much is my company worth?’ You can, but they’ll lie to you, tell you what they think you want to hear. If you want to find out how much something is worth, you’ve got to find out how much someone is willing to pay for it.

For that reason, I had put Toolco on the block back in 1948. I went to Fred Brandi at Dillon Read, the New York brokerage house. Dillon Read was just starting to make inquiries when it leaked from someone and got into the papers. The people at Toolco were very upset – they wanted to know if their jobs were still safe. Apparently they liked working for me, and I was upset and embarrassed. I had to make all sorts of announcements that no one would be pushed aside if and when the new management took over.

We never could agree on a price. The Dillon Read group was offering around a hundred fifty million. It was supposed to be the largest sale of a company since the Dodge widows sold out to Chrysler. But, as I said, I had no intention of selling. I was just trying to find out what the company was worth – I think, in the end, they would have come up with about two hundred and twenty five million.

So again, in 1952, on the pretext that I was thinking of selling Hughes Aircraft, I opened up negotiations with Westinghouse, and General Electric, and Bob Gross at Lockheed.

Poor Bob, I drove him all over the desert around Las Vegas, night after night and day after day. I was used to the heat and he wasn’t. I almost always keep the windows of the car shut tight, and I stuff any cracks with Kleenex. I did that with Bob Gross in the Nevada desert. It didn’t bother me at all but he sweated like a pig, while we talked figures. We started somewhere around $35 million and I goosed him along night after night and got him to, oh, around fifty – and this was just for leasing Hughes Aircraft. I still would own the property.

Bob finally realized that I had no intention of selling, and he said, ‘Thanks for the midnight view of the cactus, Howard, but I’ve got work to do.’

But he couldn’t really be angry at me, because during these bargaining sessions I saved him from a terribly embarrassing incident.
The first night, in Las Vegas, we’d stopped at a little drugstore for coffee. Bob had coffee and I had a glass of milk, and when we left, Bob stopped at the counter to pay the bill. I was looking at a magazine rack at the time, and I remember, just as he paid, as the woman took his money and turned away to the cash register, I saw something – well, I couldn’t believe my eyes. I saw Bob Gross – he was president of Lockheed Corporation, one of America’s biggest corporations – reach out and stick a candy bar in his pocket. He stole it.

When we got out outside I couldn’t contain myself. I said, ‘For God’s sake, Bob, what in the world are you doing stealing that candy bar?’

He turned red for a minute. Then he laughed and said, ‘Well, every once in a while, it’s a kick. It’s more fun than paying for it. You ought to try it some time, Howard.’

I was totally flabbergasted. He told me he did this, not every day by any means, but whenever the impulse moved him. Never anything of value, you understand, not diamond watches or sable coats – a candy bar, that’s all.

But this is just background. A few nights later, Bob and I gave up negotiating, and at about nine o’clock in the morning we were driving back to Los Angeles. We passed through one of these little crossroads towns and I spotted a 7-11. And I felt a yen for some Mallomars and a container of milk. You know, Mallomars are those puffy marshmallow chocolate cookie. Unfortunately it’s getting harder and harder to find Mallomars. The damn fools at Nabisco had a winner and they went to sleep on it. I’ve had men go out and scour the stores to find me Mallomars, and they had to go to half a dozen stores before they found them. It’s the Cadillac of cookies – at least for me.

I stopped the car. This was in the midst of a lot of publicity about me and TWA, and I didn’t want to go in, so I asked Bob if he’d do me a favor and go in and buy me a package of Mallomars. ‘If you can’t get Mallomars,’ I said, ‘I’ll take plain butter cookies or graham crackers. And a container of milk.’ Bob said he’d be glad to do it.

So he went in, and I waited, and I waited, and no Bob. I thought, ‘What the hell’s going on?’ Finally, ten minutes later, I got out of the
car and went into the 7-11. Inside, one man had Bob by the elbow, and Bob was talking hard, talking for his life, it looked like, to another man.

He’d stuck those damn Mallomars inside his windbreaker and zipped it up. That’s not a candy bar – a package of Mallomars is bulky. And the damn fool had got caught.

Did he try to steal the milk too?

No, he’d paid for the milk. That must have been against his principles, to steal milk.

I stood there. What could I do? Go up there and say, ‘I’m Howard Hughes and you must let this man go. He’s the president of Lockheed Corporation.’ I don’t know whether Bob had identified himself as Robert Gross, president of Lockheed, and I didn’t want to embarrass him, and I didn’t want to be hailed into court as an accessory to a Mallomar theft in a supermarket. That would have made page one everywhere.

How far had he gotten with the Mallomars?

They grabbed him on the outside, near the door. They always wait, I understand, until you’re past the checkout, otherwise you can sue them for false arrest.

I soon realized that Bob didn’t want to identify himself as one of the leading corporate executives in the United States. He wanted to pay these people off get out of there as quickly as possible. That’s what he was trying to do when I walked into the supermarket. But he didn’t have enough cash with him. He had maybe ten or fifteen dollars, and that wasn’t enough to get these hick-town people off his neck.

Didn’t he have a checkbook?

Of course he did, in the car, in his briefcase, but how could he give them a check and sign it Robert Gross? That would have allowed them to blackmail him for the rest of his days. He needed more cash. You don’t buy yourself out of a situation like that with ten dollars.

They had posted a man at the door, some beefy young guy in a
T-shirt
, to see that Bob didn’t scoot out. Bob sidled up to me and told me what had happened and that he had to have something substantial to pay these people off. ‘Howard, I’ve got to have a hundred dollars.’

I don’t carry that kind of cash on my person, of course, but I did in
the lining of my hat. I had my hat on the back seat of the car. They let me go – they had nothing against me except that I was the friend of the thief, and I went out to the car, tore open the lining of my hat, found a hundred-dollar bill and brought it back in.

I thought you said that you only carried thousands and singles in your hat.

I was lucky this time, or Bob was lucky. I had a few hundreds. If I’d only had thousands it would have cost Bob a thousand dollars, because I’m sure they wouldn’t have made change for him. They probably would have had him arrested for passing counterfeit money. I gave Bob the hundred-dollar bill and he gave it to the store manager, and they examined the bill a long time and finally said,’ Okay,’ and let him go.

We went outside together. He was red in the face and sweating. He said, ‘Here’s your damn Mallomars. Next time go in and buy them yourself.’

‘I didn’t tell you to steal them, you goddamn idiot.’ I made him a long speech: ‘You ought to know that crime doesn’t pay. You should be grateful I had the money to bail you out of this. I could just as easily have turned tail and run and let you go to jail. How would it look if I was associated with a shoplifter? It would ruin my reputation.’

And that’s true: I doubt very much if Equitable Life would have loaned me $40 million if I’d been involved in a shoplifting scandal, even for a package of Mallomars. But of course, mostly I was just kidding Bob, and he knew it. On the way to Los Angeles we laughed about it, although it was kind of a strained laugh on his part. I often wondered afterwards if he went on with his candy stealing, or if that was the high point of his criminal career.

Anyway, the following year, 1953, I became involved in another selling attempt, which was chiefly the result of a misunderstanding between me and Spyros Skouras. I’d been talking to him in a Greek gin rummy club that he frequented, and I said I was interested in expanding my medical institute, and I might sell out everything in order to do it. What I meant was that I might transfer all my assets to the medical institute once it got going, but he misunderstood and thought I wanted to sell everything I
owned and become a philanthropist. Spyros didn’t speak English perfectly and I couldn’t understand half of what he said when he was talking fast, and maybe I didn’t hear some of it and just nodded – you know how that can happen. You just nod and say, ‘Yeah, yeah, sure.’ Your mind is somewhere else.