Is This Any Way to Buy an Airline?

It is a wonder that anyone would want to buy the "Mickey Mouse airline," which is what patrons of Air West call the Western states' regional carrier. Its turboprop planes are notorious for late arrivals and departures, and the company is losing cash nose over wingtip. It ran up a deficit of $3.6 million in the first nine months of 1968. For all that, Hermit Billionaire Howard Hughes eagerly snatched up Air West on New Year's Day.

The line was the product of a unique three-way merger that in 1968 brought together Pacific Air Lines of San Francisco, Phoenix-based Bonanza and Seattle's West Coast. None of the three was big enough to boss the other two, and the result of divided leadership was snarled schedules and fouled-up reservations. The Bank of America, which financed the merger with $54 million and expected its money back by Jan. 1, advised Air West's management to sell the company "before it is no longer at tractive." Meanwhile, no more loans.

Bitter Brawl. Enter Hughes. His of fer last August of $22 a share, or about $94 million, set off a turbulent board room brawl. Air West Chairman Nick Bez, 73, former head of West Coast and a generous contributor to the Democratic Party in Washington State, spoke for Hughes. Lined up against him were Vice Chairman Edmund Converse, for mer head of Bonanza, and President G. Robert Henry. They insisted that Air West has enormous potential and that the offer, made through the Hughes Tool Co., was far too low. Says Henry: "We're spread over the richest and most progressive part of the country. You couldn't have a better territory." In deed, since the merger Air West has increased its routes by more than one-third, to 9,982 miles crisscrossing eight Western states and reaching into Canada and Mexico.

The anti-Hughes forces were relieved when Mallory Randall Corp., a Brooklyn-based manufacturer of plastic containers, stepped forward with an alternative bid, offering to swap shares worth some $109 million. Then, only seven days before the Hughes offer ran out on Dec. 31, Northwest Airlines made an attractive stock-swap proposal. Air West's routes would tie in perfectly with Northwest's, Henry argued.

Nonetheless, Air West's stockholders two weeks ago voted 52% in favor of Hughes. Then, in a surprising move, Air West's directors voted 13 to 11 not to sanction the sale. With that, some big pro-Hughes shareholders threatened court action. Hughes' agent, Francis Fox, who communicates with his secretive boss via closed-circuit TV, got in touch with the holdout directors. Perhaps because of the threatened lawsuits, six of them switched to Hughes.

Next Moves. Unless the Civil Aeronautics Board turns thumbs down or President-elect Nixon vetoes the deal, which he can do because flights to foreign countries are involved, Hughes will get back into a business for which he has long had an appetite. A pilot himself, he set speed and round-the-world flight records, and designed such innovations as retractable landing gears. But he has a dismal record of running airlines. In control of Northeast Airlines from 1962 to 1964, he sold out when the carrier was just short of bankruptcy. Under new management, Northeast recovered. From 1939 to 1960, Hughes also controlled TWA, which flew low in the later stages of his capricious reign. Financial pressures forced Hughes to surrender his 78.2% ownership of the airline to a trust. He eventually sold his 6,584,937 shares for $546.5 million in 1966.

Despite those setbacks, the elusive industrialist is likely to make additional moves into Western aviation. He is eager to buy Los Angeles Airways, a helicopter carrier, and has an eye on the San Francisco & Oakland Helicopter Airlines. He would also like to manufacture corporate jets and look into applications and routes for vertical-take-off and short-takeoff planes. For now, Air West fits neatly into his pattern for profit. It flies from several key cities into Las Vegas, Hughes' headquarters. In Nevada, which Hughes likes because it has no state income tax, he has picked up an estimated $150 million worth of properties, including the Sands, the Desert Inn and huge ranch lands. If, as Hughes predicted in a rare statement, Las Vegas should balloon to the size of Houston, Air West will be flying right alongside.

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