AIRLINE EXECUTIVES FEDERAL REGULATION: CASE STUDIES IN AMERICAN ENTERPRISE FROM (Historical Perspectives on Business Enterprise Series) Review

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AIRLINE EXECUTIVES FEDERAL REGULATION: CASE STUDIES IN AMERICAN ENTERPRISE FROM (Historical Perspectives on Business Enterprise Series) ReviewThis is a book about airline executives and their relationship with the government. Some embraced regulation, others abhorred it. This is a case study which highlights the benefits and failures of government in the growth of commercial aviation. The leaders are individuals of strong egos, character and vision. They are the subject of this book and the author has selected executives of representative airlines based on size, scheduled or unscheduled, and manner of dealing with federal regulators.
Case studies are focused on the forty year period after 1938. To begin Lewis, in his introductory statement presents a conventional summary of events leading up to the Air Commerce Act of 1926, except that he includes some information on individuals whose careers were ruined by Walter Folger Brown's vision of federal regulation. For example Harris M. Hanshue, of Western Air Express (WAE), succumbed to Brown's desire for a central transcontinental air route. WAE was a highly successively line but did not fly east of the Mississippi River. Executives who were resilient in the face of this kind of oversight, hardship, and ruin are the heroes. This is a book of their strategies in dealing with the regulatory environment. The reader is left with a better understanding of the workings of government in the aviation business.
Briefly summarized are the individuals and the airlines highlighted.
George R. Hann was the President of Pittsburgh Aviation Industries Corporation (PAIC), parent of Pennsylvania Air Lines. PAIC was incorporated on November 15, 1928. An aviation promoter, Hann agreed with Postmaster General Brown that a large well funded company could operate better that many unruly smaller ones. The "shotgun wedding" merged Transcontinental Air Transport (TAT) and Western Air Express to create Brown's central transcontinental route. By manipulating the regulatory system, Hann insured PAIC's gain.
Despite his abilities, politics intruded when, as a result of the fallout from the "spoils conference," Airlines were forced to change their names in order to be eligible to rebid on new temporary mail contracts. Hann was forced to give up his position as president because the new company could not include former executives. Hann's approach to federal regulation was characterized by his willingness to link his business to government policy.
C. R Smith's American Airlines thrived under government regulation. American's success is a testament to his legacy. Smith did not totally embrace federal regulation but he understood the reality of the situation and worked within the system to gain whatever advantage was possible. A native Texan, Smith maintained connections to the top people in the Democratic party and influential Texans. In 1934 he was appointed president of the reorganized American Airlines. He saw "the airline industry as a business in concert with a federal presence as it evolved within national and international environments."(84)
On the one hand he knew when and how to get government help. Direct federal assistant from a Reconstruction Finance Corporation (RFC) loan acquired with the help of his friend Jesse Jones, head of the RFC, permitted American's acquisition of the Douglas Sleeper transport (DST). On the other hand when he miscalculated he knew it was better to back off. It became certain the CAB would not approve the proposed merger of American and Eastern and Smith withdrew from merger discussions before the board could issue an adverse finding. Not everything went Smith's way, but regulation did not stand in the way of American's success under his tutelage.
Donald W. Nyrop provides the unique perspective of a federal regulator and an airline executive. Nyrop rose to head the Civil Aeronautics Board (CAB) before becoming president of Northwest Airlines. He resigned from the CAB when it became unlikely he would be reappointed following the presidential election in which the Democrats were not favored to win. At Northwest Nyrop preached frugality and led the company to profitability in the industry. This didn't suit the CAB as route awards were not necessarily based on successful operations and given to weaker competitors. Northwest had early on been a beneficiary of this philosophy but not now. It was frustrating to Nyrop that efficiency and profitability were reasons to reject Northwest's route applications. While he did not favor total revocation of the Civil Aeronautics Act of 1938, as he thought proponents of deregulation sought to lower passenger fares, he thought route awards to efficient carriers would serve to stabilize prices. Nyrop's position as regulator and executive thus provides insight into both sides of the federal regulatory equation.
Continental Airlines, Robert F. Six's style fits into the regulatory environment just as C.R. Smith. He worked the system and Continental prospered. Interestingly Six, like Nyrop, thought that only an adjustment to the system was necessary to meet the original intent of the CAA, not wholesale deregulation. A proven player in the regulated game, when the game folded and deregulation passed, Six resigned as CEO.
George T. Baker, National Airlines, benefited from the regulatory problems of Eddie Rickenbacker and Juan Tirpp. A small carrier in Florida, National grew in stature and importance from route awards denied to larger enterprises. Rickenbacher's arch conservatism and Tripp's lack of a domestic route structure hamstrung Eastern's and Pan American's influence on the CAB. Thus Baker succeeded, not so much for who he was, but for who he was not!
Rickenbacher was a free market entrepreneur. He valued individualism, self help, and the work ethic. In Federal regulation he saw inefficiency rewarded and public money being wasted. Appointed Eastern's general manager in 1934, Rickenbacker turned the lagging carrier around and earn a profit the next year. In 1940 Eastern's net profit of $1.5 million was the largest net income in the industry. But following WWII profit and efficiency went unrewarded by the CAB. Routes went to less successful airlines infuriating Rickenbacker and his political and economic views, coupled with his outspokenness, were out of step with the times. In 1963 he was dismissed by Eastern's Board.
Regulation created irreconcilable dilemmas for other carriers. Robert E. Peach with Mohawk Airlines, a local service carrier, criticized the CAB for interfering in matters best left to management. The CAB, Peach charged, used its subsidy power to dramatically reduced recoverable expenses for his company's acquisition of Convair 440s. A lesser company would not have been able to survived and he argued against the CAB. It should not manage or second-guess company dedisions, but apply regulations fairly and consistently.
The final essay highlights Orvis M. Nelson and the problem of supplemental or nonscheduled class of airlines. Federal regulation, Nelson, charged led to the CAB's abuse of power in favoring scheduled carriers. Struggling within the system from 1946 until 1960 Transocean Air Lines barely survived bankruptcy but in the end, it succumbed. The reality was that in a regulated environment there simply was not room for supplemental air carriers.
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