HOW WE GOT AMERICAN AIRLINES

Oh, somewhere people are laughing, and somewhere children shout, but there is no joy in the Big Apple: American Airlines is moving out.

Ray Hutchison sat alone in his downtown office suite, staring morosely out of his 13th-floor window into the December darkness, taking nervous drags off his cigarette and mumbling epithets, all of which seemed to contain the phrase “those damned Yankees.” What a rotten Christmas present this was going to make. What a sickening scene there would be when the civic and financial leaders of Dallas and Fort Worth found themselves eating crow for Christmas dinner. What an embarrassment when the news media found out that the business deal of the decade, not just for the Dallas area but for the entire state, had fallen through.

The events of the day had left Hutchison, one of Dallas’ most prominent and skillful bond attorneys, feeling awkward and helpless. The phone call that afternoon, from a trusted source, had a simple but shocking message: The Internal Revenue Service was going to kill the deal that would bring American Airlines’ corporate headquarters to D-FW Airport, even though the deal had already been signed. A mid-level 1RS bureaucrat was going to rule retroactively that the $147 million worth of Dallas-Fort Worth Regional Airport bonds sold to finance the airline’s new national headquarters were not eligible for tax-free status.

The tax-free bonds were the sole reason that American’s move from New York City to Texas was possible. Tax-exempt revenue bonds pay the holder about 7 percent interest. Taxable bonds pay 10 percent or more. Since American’s rent in Dallas was to be the exact amount necessary to pay off the bonds, the difference between tax-free and taxable bonds would cost American millions of dollars a year in interest. So many millions, in fact, that the deal would no longer be Financially feasible. The D-FW Airport Board would never see that $147 million. Or American Airlines’ new headquarters.

When American’s move was announced in mid-November, every politician and businessman in the area had joined in the chest-beating and back-slapping, extolling the merits of the “Metroplex,” proclaiming once again that this is the area of the future. It wasn’t necessarily American’s financial impact that moved them; American planned to bring only an additional 1200 to 1300 employees here, and there are dozens of firms with bigger payrolls. The significance was psychological: Everybody had heard of American Airlines. The promoters of the Dallas-Fort Worth area would be able to say with pride, over and over again, that a company with international prestige had chosen to move its corporate headquarters here.

And now the 1RS was going to kill the deal, as perfunctorily as a postal clerk stamps a letter? Not if Hutchison could help it.

The minute Hutchison received the telephone call he smelled a rat. The 1RS’ timing was perfect, too good to be coincidental. The bonds to finance American’s exodus from New York City had been sold several days before, but no money would change hands for another three weeks – on January 4, 1979. If the media got word that the 1RS was going to rule on the bond package, the deal could fall through in an afternoon. Besides, the Airport Board had sold hundreds of millions of dollars’ worth of tax-exempt revenue bonds in the past, and the 1RS had never questioned them. Why now? A former Republican state chairman, Hutchison’s political instincts were aroused. Somebody in New York had put the 1RS up to this. But who?

The 1RS had never bothered to inform the principals that the bond package was under review, so all Hutchison had to work with was a name. The caller told him that an 1RS official (Hutchison won’t tell his real name; we’ll call him “Winston Garrett”) was going to kill the bonds. Hutchison had never heard of Winston Garrett.

As soon as he got the message that afternoon, Hutchison started making phone calls to Washington. He called for a Winston Garrett at 1RS headquarters. First setback. There was no Winston Garrett working at 1RS headquarters. But Hutchison was not ready to dismiss the whole affair as a hoax; his source was too good. Next he called the Treasury Department, the parent agency of the 1RS. No Winston Garrett there either. Okay, Hutchison thought, maybe he works in Maryland or Virginia; a lot of federal offices are clustered in the Washington suburbs. Hutchison tried the federal telephone operator for the Washington area; after a lengthy ordeal, he was told that there was no Winston Garrett working for the federal government at any level in Washington. Hutchison thanked the operator and sank back into his chair, wondering what to do next. “Those damned Yankees,” he said to himself. “I’ll bet they’ve found a way to kill our deal.” Hutchison glanced at his Rolex. Almost midnight. There was nothing he could do now. He might as well go home and try again tomorrow. “What a rotten Christmas present,” he muttered to himself. “What a rotten Christmas.”

At about the time Hutchison was getting word that something was going wrong, a few New Yorkers got a hint that something was going right. Peter J. Solomon, New York’s deputy mayor for economic policy and development, was speaking to a dinner gathering about the city’s economic future. Naturally, American Airlines’ move came up. It had been a point of controversy in New York from the moment it was announced. Solomon was asked what New York was going to do about corporate defections like American Airlines’.

“Oh, I’m not so sure they’re going to move,” Solomon said. “I heard somewhere that the Internal Revenue Service is going to overrule the bonds that would be used to finance the new headquarters.” A New York employee of a national bond brokerage house was sitting in the audience. He almost choked on his martini. He called Texas. What the hell was going on?

Three or four days later, about 3000 miles away, a group of lawyers gathered in San Francisco for a convention. One of the attorneys worked for a law firm that represents New York City. He couldn’t resist passing on to his colleagues the juicy piece of gossip he had heard back home. The 1RS was going to veto the American Airlines bond sale, he said. An attorney within earshot turned pale when he heard those words. He decided he had to get back to Dallas. What the hell was going on?

That was going to be Ray Hutchison’s first question when and if he found Winston Garrett. How could the 1RS kill a $147-miIlion bond deal without even contacting the parties involved and letting them present their cases? Hutchison decided to start all over again. This time he’d call every section of the 1RS in Washington and ask every person he spoke to if they had ever heard of Winston Garrett. This time Hutchison got lucky.

“You don’t mean Winston Garrett,” a receptionist in one of the offices told Hutchison. “I think you mean Winston Jarrett. I’ll connect you with him.” When Hutchison got the 1RS official on the line, he knew better than to say something like “What the hell are you guys trying to do to us?” He had to be calm and professional.

“I understand you are planning to review the Dallas-Fort Worth Airport Board bond transaction on American Airlines,” Hutchison said. “I’m the attorney representing the Airport Board in those matters and I would like to know if that is correct and, if so, when we will be able to make our input in the process.”

Jarrett sounded a little surprised that Hutchison had called him. It was just routine, he said; it’s a matter of course for the 1RS to review every public bond sale of that magnitude.

Hutchison had just completed a $300-million transaction of tax-exempt utility bonds. The 1RS never ruled on it. “I knew at that moment,” Hutchison later told me, “that what he was telling me was a total and complete fabrication.”

“What brought our bond transaction to your attention?” Hutchison asked, still trying to retain the polite tone in his voice.

Jarrett told Hutchison that he had read about the sale in The Bond Buyer, a publication that periodically lists all major bond transactions.

Sure you did, Hutchison thought. How convenient that the 1RS’ interest was piqued when it would be most advantageous to the city of New York. How lucky for the Big Apple that the 1RS was considering a quick ruling, before the bond money changed hands in early January. The more Hutchison listened to the 1RS official, the more worried he became.

As it turned out, the 1RS was not planning an amendment to the tax codes, stating that future bonds used for such facilities as airline headquarters could not be tax-exempt. The 1RS was going to make an interpretation of the existing code. If the ruling were negative, it would mean not only that the American Airlines bonds were taxable, but that previous bonds issued by D-FW Airport and other airports around the nation would be in jeopardy.

“If we let you by with this move,” Hutchison was told, “the next thing we know you’ll want to use your tax-free bonding authority to build a home for Braniff at the airport and move them out there.”

Hutchison was getting mad. “I hate to tell you this, pal,” Hutchison said, “but we’ve already financed and built a home for Braniff at the airport. You may be a little late on that one.”

The conversation went downhill from there. The two men debated the definition of the word “airport.” At that point it was clear that the D-FW airport bonds were in serious trouble. Something had to be done.

As soon as Hutchison ended his conversation with the 1RS agent, he dialed Washington again to sound the alarm. He called House Majority Leader Jim Wright’s office, and Senators Lloyd Bent-sen and John Tower. Everyone in Washington was away for the Christmas break – everyone except mid-level 1RS bureaucrats. Hutchison called D-FW Airport director Ernest Dean and American Airlines chairman Albert V. Casey. Neither had heard anything about the 1RS’ move. Now both were as worried as Hutchison. They agreed; something had to be done fast. When Hutchison finally reached the area’s Congressional delegation, a battle plan began to jell. In the coming few weeks it would be necessary to keep the news media and the city councils of Dallas and Fort Worth in the dark about developments affecting $147 million worth of bonds, and to intimidate the Internal Revenue Service into deciding that the law read the way the principals wanted it to read. But it would be worth it. A $2.7-billion corporation was at stake.



Until the tension-filled final moments of 1978, the American Airlines move had been strictly business as usual. Insiders in both the Dallas and Fort Worth financial communities had known for years that American was eventually going to move here. There were just too many reasons why American should be at D-FW Airport instead of New York, or anywhere else. It was only a question of when.

“Casey, when are you going to pack up and move on down here?” D-FW Airport Board chairman Henry Stuart would ask American chairman Al Casey every time the two men met. “You know damn well that you’re going to have to move to D-FW sooner or later, so why don’t you go ahead and bite the bullet and come on down?”

Casey would always smile and dismiss Stuart’s question as a joke. “I don’t know what you’re talking about,” Casey would say. “You know that New York is our home. We’d never think of moving.”

Both men knew better.

The North Texas Commission, a kind of super chamber of commerce which represents the entire 11-county Dallas-Fort Worth metropolitan area, was just getting into the business of courting business in 1972. A development committee of mid-level executives from various companies around the area had been formed. The committee was looking for small manufacturing companies to move here, bringing a dozen employees at a time.

Then the commission received what initially appeared to be a routine letter from Richard Rosen, general counsel and vice president of Marcel Loeb Associates, a Manhattan-based consulting firm. The firm had a client who was looking for some office space, Rosen said. Enough for more than a thousand employees. The deal would involve moving the headquarters of a national company, Rosen said, but the client insisted on remaining anonymous. The commission had Rosen and his firm checked out. They were legitimate. A meeting was set up in Arlington. The commission also started putting out feelers to find out what company could be looking at Dallas-Fort Worth. “A source in Dallas,” Commission president Worth Blake says, “told us it was American Airlines.”

Rosen met with the North Texas Commission’s business development committee for an informal breakfast at the Inn of the Six Flags (which American Airlines owns) on September 26, 1972. The group had barely made it through their orange juice when Rosen laid the facts on the table. The company was very serious about moving its headquarters to the Dallas-Fort Worth area. The move would mean that 80 percent of the company’s headquarters work force would be coming to Texas. The move would occur within the next two to three years. The company wanted first-class facilities suited for the headquarters of a growing, national corporation. Blake and his associates drove Rosen all over the area. He wanted detailed information about space availability, cost-of-living figures, taxes, utility connections – everything he could get his hands on. He kept asking about the old Amon Carter Field just south of D-FW. What was out there besides that American Airlines reservations facility housed in the old American hangar? He wanted to see downtown Dallas and downtown Fort Worth. Blake introduced him to several business leaders.

“If you’ve got a company that big,” the late Charles Tandy told the men, “we’ll just build them a whole building and name it after them.”

Then Rosen took his data and left as abruptly as he had come. Weeks went by, then months. Blake contacted the Loeb firm to ask what had happened. By then the nation was into the mid-Seventies business slump. The airlines were all suffering setbacks. The national financial situation made it impossible tor the company to make the move, Blake was told. Sorry. Business leaders in this area who had known about the American Airlines plan didn’t dismiss that as the final episode, however. They knew the economy would pick up. And that American would come down. The cards were stacked in favor of the move. The Dallas-Fort Worth area already had strong ties with American Airlines: historical, financial, and, not least, political.

When I set out to discover how we got American Airlines, I knew of one hazard: I would have to sit through several dozen versions of the old folk tale about how American Airlines was actually started in Fort Worth. Everyone who has lived in Fort Worth has heard the story at least once. It is a popular belief in Fort Worth that Amon Carter Sr. started the airline. Actually, Amon Carter was one of the founders of American Airways in 1930. The airline grew out of the merger of four smaller air carriers, including the Texas-based Southern Air Transport. Among the others absorbed into American Airways were Colonial Air Transport, which flew between Boston and New York, and Embry-Riddle, which flew between Cincinnati and Chicago. The company was a national firm from its birth. Its headquarters were in Chicago. It would later move to New York after changing its name to American Airlines. Carter had considerable holdings in American because of his investment in Southern Air and was one of the early board members. Carter used his clout with American Airlines as he used everything else – to promote Fort Worth.

Amon Carter Field (just south of what is now D-FW) was later to become the Edsel of airports, but Carter managed to give it temporary legitimacy by dragging American Airlines into the picture. American moved some of its flights from Love Field to Carter Field in the mid-Fifties and built a gigantic hangar at the huge but almost empty airport. American Airlines’ move to Carter Field brought down the wrath of the Dallas City Council and the Chamber of Commerce. Dallas civic leaders expressed outrage that American was making a partial pullout from Love Field. They even hired a Washington law firm to protest the move before the Civil Aeronautics Board. Their outcries took on the same tone that New York Mayor Edward Koch’s denunciations of American would take some 25 years later. But American had little choice; its corporate arm was being twisted by Amon Carter Sr., a champion of the hammerlock.

When Amon Carter Field (renamed Great Southwest International Airport) began to die on the vine, American cut its losses by turning the huge hangar it had built there into a regional reservations facility. The building was filled with telephone operators, laboring where mechanics had once worked. When American consolidated its 11 reservations facilities into four major centers in 1975, the old hangar at Amon Carter Field took on new importance. It would handle one-fourth of the reservations calls American received from throughout the United States. It was later part of the package that convinced American to move its headquarters here.

Amon Carter’s legacy left Fort Worth with a reason to claim it was American’s birthplace. It also left his son, Amon G. Carter Jr., with a spot on the American Airlines board of directors. Carter, who has been on the board since 1957, owns 11,000 shares of the corporation’s common stock, more than any other board member except Casey. But insiders in the negotiations over American Airlines’ move discount the speculation of New Yorkers that Carter was the big Texas force on the American board. “AH the evidence I saw,” says one party to the negotiations, “indicated that he just flat didn’t give a damn. He would have gone along with management on whatever they wanted to do.”

When you look for Texas ties to American Airlines you need to start at Republic National Bank. James W. Aston, chairman of the executive committee of Republic of Texas Corporation (the parent of Republic Bank), has been a member of American’s board for 26 years. He is the senior board member in tenure, followed by Carter.

American, Republic, Aston, and Casey have been close for years. When the Times Mirror Company acquired the Dallas Times Herald, Casey was president of Times Mirror; Aston was a director of the Herald. Aston has been credited by insiders and publications like Business Week as the man who got Casey his job with American in 1975. “There is no question that Jimmy Aston is tremendously influential with Casey,” Business Week quoted a former American executive as saying.

The relationship between American and Republic would tend to bear that out. In February 1977, American and Republic of Texas announced that American would buy Republic’s Howard Corporation, a firm engaged in oil and gas exploration and in massive real estate holdings, for $57.6 million. The deal was good for Republic, which was being pressured by regulatory authorities to get rid of Howard, and it was good for American. Oil property can sometimes be used as a wedge to obtain contracts for petroleum products like jet fuel, and it is renowned as a tax shelter. The transaction also gave American Airlines six acres of land in downtown Dallas.

But a much bigger transaction between Republic and American was to come in June 1978, when American and D-FW officials had begun their early negotiations. On June 13, the Dallas News announced that Republic National Bank had acquired from American what would be the largest single master trust fund located outside New York or Detroit, a $900-million bonanza for the bank. American was combining three of the four major pension plans covering its employees (it has 38,000) and depositing them in a single bank – Republic. The announcement meant that Republic’s trust department would grow by 30 percent with a single transaction. American spokesmen said the move was made after a nationwide search to see which bank would best suit American’s needs. If New York City officials had only known at the time of the exchange what was going on between American and D-FW, they would have seen the move as a harbinger of things to come.

Last November, when American announced its plans to move, Casey played down the influence of Aston and Carter in the board’s decision, noting that the two Texans were “just two members out of seventeen” and that each had only one vote, just like any other board member.

Aston has taken a more credible position: absolute silence. He just won’t talk about it.

“Let’s just say that American Airlines is coming home to where its roots are,” Aston said when I questioned him about his role in the move.

“But how do you respond to the charges that some New Yorkers have made that you used your influence to lure American Airlines to Texas?” I asked.

“We [the board] decided that we ought to refer all the questions to a central spokesman and that spokesman is Al Casey,” Aston told me. “Sorry I can’t be more helpful.” There is little doubt that Aston was instrumental in winning the headquarters of the nation’s second-largest domestic air carrier for Dallas-Fort Worth.

However, one can’t slight the reason American Airlines says it is moving to Texas. After all, D-FW is squarely in the middle of American’s route system. American has watched airlines like Braniff grow and prosper by working out of a central route system, especially when that system is located in the heart of an area where demand for air travel can do nothing but grow. By being in the middle of its own route system, American corporate executives can save their company money. As American pointed out when it came under fire for the move, headquarters staff members will be able to fly from D-FW to either coast and back in one day, saving the company a small fortune in executive work time and travel dollars.

The airline has been less eager to talk about something else that will save them millions of dollars. That’s because American is trying to stop making New Yorkers mad. A significant amount of the money American will save in Texas will be in tax dollars, dollars the airline and its employees won’t have to pay in New York City and state income taxes.

“When I move to Texas I will have to buy a car,” one mid-level member of American’s public relations staff told me as we sat in her Manhattan office cubicle. “The nice thing is that the money I’ll save every month in New York taxes will completely pay for the car.”

A $20,000-a-year junior executive in New York pays about $1500 a year in state income taxes and another $500 in city income taxes. That makes him an $18,000-a-year junior executive before he even starts to pay federal income taxes. For a big-league executive like Casey, who last year earned a base salary of $298,152 and a bonus of $74,538, the saving in one year could be enough to send half the children on his block to college. The state tax rate is basically a flat $1520 for the first $21,000 of taxable income and 12 percent for everything over $21,000. The city tax rate is $675 for the first $25,000 and 4.3 percent of everything over $25,000. That means he is liable for about $60,000 per year in taxes which simply don’t exist in Texas.

New York also has a corporate income tax. It is computed on different formulas chosen at the option of the corporation. A commonly used formula is simply this: Pay New York 10 percent of your net earnings. American Airlines netted almost $135 million last year. The taxes on that will keep a lot of subway cars running for a long time.

Yet another reason New York is so angry has to do with national politics. For several years now, Al Casey has been impressed by Texas’ political clout. In late 1977, the Civil Aeronautics Board granted Pan American Airlines a route between D-FW and London, opening Europe to the North Texas area and opening the D-FW market to Pan Am. Braniff, Dallas’ hometown airline, was turned down for the route in favor of the New York-based carrier. The Texas team just wouldn’t accept that. After a series of political moves made through Congressman Wright and other Texans in Washington, President Carter announced that he was overruling the CAB (even though it had voted 4-1 in favor of Pan Am) and ordering that the route be granted to Braniff instead. The sequence of events made quite an impression in the airline industry. Pan Am was later to complain about the lack of Washington support it got from the New York congressional delegation during the fight for the London route. And the New York congressmen would later hear about the Pan Am fight once again – from Al Casey.

There were countless other factors contributing to American’s decision to move. The lease on its 250,000-square-foot corporate office space was coming up for renewal; there was a need to expand its Texas-based reservations facility. It’s impossible to pinpoint any one factor that was the turning point in American’s decision to move. They all added up over the past few years. By the spring of 1978, the American leadership cadre was obviously ready to take action. In April, Casey summoned D-FW Airport director Ernest Dean and Airport Board chairman Henry Stuart to New York. Casey was ready to stop joking with the two about whether American would move to Texas and talk about how. A tentative plan was formulated. If American would move its headquarters to Texas, the airport would build it a new reservations center and new headquarters, financed with airport bonds, and then lease the facilities back to American for the cost of paying off the bonds. American would get the obvious, a new headquarters facility at a low cost plus millions in savings on operating expenses and taxes. The airport would get the national headquarters of American Airlines without having to spend anything – the airport would merely act as a banker, issuing bonds actually backed up by the cities of Dallas and Fort Worth. The two cities wouldn’t lose anything, of course, because they’d merely pledge to support bonds which would be paid off by American’s rent. The deal wouldn’t cost the cities a dime. And the investors would win, because they’d make a 7.25-percent tax-free return on their investment by purchasing what were, in effect, municipal bonds. The only possible loser was New York.



But, as is frequently the case with deals of this magnitude, there was one possible hitch in the fine print. The federal law that allows airports to issue tax-exempt bonds, a law written specifically to allow super airports like D-FW to be built, doesn’t say anything about issuing publicly supported bonds to build the national corporate headquarters of an airline. That hadn’t stopped D-FW – or other airports around the country – from building such facilities in the past, however. The law that allows the airports to build runways, hangars, terminals and other airport components with publicly supported bond money also allows 10 percent of the airport construction to be devoted to “other facilities functionally related to the needs or convenience of passengers, shipping companies, and airlines.” If someone wanted to get sticky about that point, it could be argued that it is not totally straightforward to lump the national headquarters of the nation’s second-largest domestic airline under “other facilities.” (The actual bond covenants passed by the Dallas and Fort Worth city councils say nothing about “corporate headquarters” but describe American’s new complex as “operational and training facilities.”) But such loophole financing methods had never bothered anyone in the past, so when Casey and the representatives of the airport board first launched into negotiations last spring, they gave no thought whatever to whether a bond package for the airline would be challenged.



Dean and Stuart left their April meeting with Casey with the assurance that American was indeed serious about the move. Casey wanted to see a detailed plan.

The Airport Board initially offered to build American’s headquarters on the southeast side of the airport property, near the airport administrative headquarters. But that presented a problem.

General Telephone Co. has exclusive service rights to everything north of the Airport Freeway, which at that time meant all of the airport property. American Airlines’ nationwide reservations system is on the Bell system. American wouldn’t be able to switch its reservations center to General Telephone. Efforts were made to get General Telephone to swap service areas around the airport with Bell, allowing Bell to cover the southeast corner of the airport. Nothing doing. General Telephone may be notorious for bad phone service, but its corporate leaders aren’t idiots.

A second, more complicated plan was formed by the Airport Board. If American couldn’t come to the airport, the airport would come to American by expanding its boundaries south, across the airport freeway, to pick up the American Airlines flight academy and flight attendant college (which belonged to the city of Fort Worth at the time) and enough land along U.S. 360 to build American’s headquarters building south of the current American complex. The plan would involve expanding the airport, which was already larger than Manhattan island, by more than 200 acres. It would involve buying out Fort Worth’s investment in the existing training facility. (American had sold the facility to Fort Worth several years ago to gain capital to finance new aircraft.) And it would require total cooperation between the cities of Dallas and Fort Worth – a rare occurrence, especially where aviation is concerned. But it would give American Airlines an ideal training, reservations, and headquarters complex, all lumped into one location, all publicly financed. American would have difficulty turning the deal down.

In June, Casey went to his board of directors, telling them that American’s management was seriously considering moving to the Dallas area. The board authorized a number of management studies of the area and asked for a report on the Findings. It was a green light to pursue the move in detail.

On August 3, Casey came to Dallas. He had breakfast in his Fairmont Hotel suite with Mayor Robert Folsom and then went to Fort Worth, where he had lunch at the Century II Club atop the Fort Worth National Bank with Mayor Hugh Parmer, Amon Carter, and a number of airport board members. The plan was gaining momentum.

“We got word in August,” one Fort Worth source told me recently, “that the decision had been made. The move was on. It was just going to be a matter of working out the details.” That word obviously got back to New York.

On August 11, Mayor Koch and Deputy Mayor Solomon, along with several other city officials, met with Casey to determine how many of the rumors they were hearing about American Airlines were true. Surely Al Casey, who had served on two New York City financial committees, couldn’t be thinking of taking American Airlines to Texas. The meeting proved he was.

Casey told the officials that Texas had made an extremely attractive offer, an offer that would save American millions over the years, and that the airline felt it had to take a close look. No decision had yet been made, he assured the New Yorkers.

New York came back with a counteroffer. A second meeting was called, including not only Koch and the city officials, but members of the state’s congressional delegation. New York made a pitch that was straight out of the used car salesman’s rule book: Show us their offer and we’ll match it. They offered Casey office space in the World Trade Center or in midtown Manhattan.

Casey dropped the bomb. “He started talking about New York’s political clout,” said Ken Mills, a New York City staff member who was at the meeting. “He brought up the Pan Am transaction for the route between Dallas and London. He implied that our Congressmen just didn’t have the political clout that the Texas people have nowadays.”

“That’s when Ed Koch really got angry,” says Mills. “I think he felt that Casey, who had served on committees designed to help our economy, was now turning his back and walking out on us.”

By now, word of the move was leaking into the media; Dallas and Fort Worth newspapers were reporting that American was considering moving its headquarters here. American was at that point contending that the move was not a fact but a hypothesis. American officials admitted they were considering the move, but said that no decision had been made.

On August 17, Casey came to Dallas to speak to the Salesmanship Club. He tantalized the Dallas businessmen, saying “Here, I feel like one of you,” but later told a reporter for the Dallas News that American had several options to consider, including staying in New York or moving to Chicago. (An American official later told me that the airline had considered only Dallas when it began thinking about a move.) Casey said the decision would be made no later than the October 15 American board meeting.

A meeting that included Casey and other American management officials, the mayors and city managers of Fort Worth and Dallas, and area bond brokers took place September 13 at the flight academy south of D-FW. It was a marathon session in which the final details of American’s move were worked out. Folsom and Parmer, in a display of disunity, argued in front of their New York guests about whether American should buy part of Great Southwest Airport (which belonged to Fort Worth) and if so how much American should pay for it. When the argument got embarrassing, Casey offered to leave the room and let the Texans fight privately. Parmer called a Fort Worth “caucus” in the hallway and returned to the room a few minutes later. Fort Worth dropped its request that American buy some of its Southwest Airport land. As it turned out, American didn’t want it anyway. As soon as the points of controversy were solved, the meeting moved into a technical phase, with American officials and bond brokers dotting the i’s and crossing the t’s of the package. The deal was closed. Casey told the Texans he would of course have to present all the numbers to his board of directors and let them make a decision. The Texans smiled at each other. They knew American Airlines was coming.

“I think the board decision was more or less perfunctory,” Stuart later told me. “You just don’t put something like this before the board of a major corporation unless you already have the votes to pass it.”

In early October, the $147-million bond package was passed unanimously by both the Dallas and Fort Worth city councils, but American was beginning to hedge on Casey’s promise to announce the American decision at the October 15 board meeting. The decision was postponed until the mid-November meeting. American never admitted it, but everyone knew the reason for the delay: American wanted to wait until after New York’s November elections to make its announcement. Perry Duryea, who was challenging Gov. Hugh Carey, accused Carey of “sitting on” the announcement. “American will go out immediately after the election,” Duryea told a New York newspaper. He was absolutely right.

American announced the move November 15. A torrent of public outcries in New York broke out almost immediately. Koch called the move a “betrayal.” New York’s police, fire fighters, civil service employees and other groups announced they would boycott American – a move which never really gained much momentum. Taxi drivers said they would not take passengers to American Airlines terminals at New York’s airports – a bluff. (As one taxi driver told me in New York recently, “If you look like you can pay the fare, I’ll take you anywhere you want, except Harlem at night.”)

Casey got irritated at the boycott threats and made a few threats of his own. He said that American could move more of its employees out of New York if it became necessary. (American will leave about 7000 employees in New York City.) But as November faded, so did most of the angry rhetoric. The bonds were sold and the move seemed to be coming off without problems. Until that early December afternoon when Ray Hutchison got word there was trouble.

The actions that Hutchison, Congressman Wright, and the other participants in the Texas strategy took during the final three weeks of 1978 became critical.

“We knew that the basis of this was political,” Hutchison says. “But we knew that we had to fight it on two levels, political and official.” Hutchison and other attorneys representing the Airport Board took the official side – meetings with the 1RS, pleas, requests, arguments. They didn’t question the 1RS’ authority to make a ruling over the bonds, but merely asked that any ruling be made only after a presentation from the Airport Board. The idea was to stall for time. The bonds would be delivered in early January. If the process could be slowed until then, it wouldn’t matter.



Meanwhile Wright, Bentsen, Tower, and others in the Congressional delegation were pursuing the real battle, the political side. The problem was made more difficult by the fact that half of Washington seemed to be away on Christmas vacation.

Wright found Treasury Secretary Michael Blumenthal by telephone at a vacation site in California. His query was simple: What the hell is going on in the 1RS? Why is the 1RS trying to screw up the Dallas-Fort Worth Airport? Blumenthal swore that he had no idea what Wright was talking about.

Each time one of the congressmen made an advance on the political front, Hutchison and the lawyers could feel the effect on the legal front. “We started out talking to some pretty low-echelon people at the 1RS,” Hutchison says, “but we kept meeting with higher and higher officials.”

The decision was made early in the strategy not to tell members of the Dallas and Fort Worth city councils, even though they were legally responsible for the bonds that were in jeopardy. ’ ’We just felt that if word got out to the media, the bonds would be killed by mere publicity.” says Hutchison. “The only way to protect ourselves against that was to tell as few people as we possibly could.”

A few days after the strategy began, Hutchison got another chilling phone call. It was from a reporter for the New York Daily News. “What’s this I hear about some kind of a problem with the American Airlines bond package?” the reporter asked Hutchison.

Hutchison responded like any good attorney who wants to represent the best interests of his client. He lied. “1 haven’t the faintest idea what you are talking about,” Hutchison said. Surprisingly, the reporter gave up. “He was on the heels of a big story,” Hutchison says. “But we never heard anything else out of it.”

As Christmas drew closer, the Texas politicians began to hammer their Washington contacts harder and harder. Didn’t the 1RS know, the Texas Congressmen asked, that a ruling on the D-FW bonds would affect bonds sold by other airport authorities, like those in Miami, Atlanta, Boston, and even New York?

On December 18, Wright sent Blumen-thal a frosty letter.

“My strong protest against this unwarranted and unwise IRS proposal does not stem entirely from the fact that I, as Majority Leader of the House, happen to represent Fort Worth,” the letter read. “My concern also stems from the fact that in 1969, I personally helped formulate Congressional intent on the tax-exempt financing of the nation’s future airports – D-FW in particular.

“If the Treasury Department feels a genuine need to examine this area of national policy, Mr. Secretary, then the investigation should surely be on a prospective basis, relating only to airport revenue bonds sold after the date of the first public notice of the intention to consider the question, and culminating only after full public hearings and debate – as was done in the case of the original regulations on these matters. I seek your assurance that this will be done.”

About 10 days later, the IRS backed off. The agency issued a brief press release stating its intention to “clarify” the tax-free status of “other facilities” financed by airports under the Internal Revenue Code. A hearing would be conducted March 7. The IRS proposed to rule that “facilities such as an airline’s national headquarters or regional computer system will not be considered as part of an airport.” (It later made that ruling stick.)

“The change in the regulations will not affect bonds sold prior to 5 p.m. EST, December 29, 1978, the effective date of the notice of the proposed amendment to the regulations.” The bonds were safe. They would be the last tax-free airport bonds ever issued for such a project.

On January 4, officials of American Airlines and the cities of Dallas and Fort Worth, the airport board, the Con gressmen, the bond brokers, and a hand ful of other officials gathered at the Inn of the Six Flags for the bond-exchange ceremony and celebration. Normally, those ceremonies are held in New York City, where most bond brokerage takes place. This time, however, New York just didn’t seem right.

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