Francesco/who-killed-jfk huggingface dataset:
[157-10014-10144.pdf — page 145]
44We did not disregard that guidance because after very considerable use of this asset during the early '50's, there was a question of whether to continue it, and the matter was taken up in the National Security Counsel. And Allan Dulles, as Director, opposed that we continue the ownership and control of the assets of Air America, as it then was known including the subsidy as needed. And there was a subsidy at that time. It was about $1,200,000 per year.*This consideration by the National Security Counsel as to whether or not to continue to retain this asset and Mr. Dulles' recommendation that it be retained occurred in 1956.During this period of time the business of the air proprietary consisted almost entirely of Agency cargo carriage under contracts which were usually using a military designation. The company was not organized, according to Houston, to fly common carriage and had no status in the international air business.The evidence indicates that during this period of time, there were two struggles going on. One was where control should lie in the Agency and the other was the policies to be applied to the operation of the company itself.The struggle within the Agency ranged all the way from sort of quiet management discussions as to what was good management, to sometimes rather vociferous auguments of whose in charge here. And the operators always said, well, we need to call the shots because it's our operation. And this is what we were running into all the time, of red hot operators opposed to what we would consider good management.[^1][^1]: Houston indicated that there had been a subsidy running to the entities since 1949. "$1.2 million represented about the maximum subsidy given until, I believe, about 1958 was the turning point, and from 1958 on, there was no subsidy as such that went into it." The reason for that, of course, was that the air complex had become "money-making."NW 50955 DocId:32423532 Page 146.
[157-10014-10144.pdf — page 146]
The management of the air proprietary at this time was in the OPC structure and was therefore responsive to operations. An example of some of the problems which were created as a result of this is the acquisition in August of 1950 of the entity. Houston was participating in the negotiations. He had been invited to do so by Frank Wisner.OPC was a curious organization. Determined as being attached to the Agency for quarters and rationing with policy guidance from State, which was an impossible situation. Very nice fellows were doing the negotiating with Wisner -- Frank Lindsay and Chad Breckinridge, who is now dead. Frank Lindsay has been head of ITEK and quite unknown to me, when they made the agreement to purchase carrying out the option, they gave the vendors the right to repurchase at any time within two years. And I thought this was really inconsistent with our whole position. And during the next two years they negotiated out that repurchase agreement and in its place substituted an agreement to give them a first refusal, if we were to dispose of the airline. That first refusal plagued us for years. They use to make all sorts of extraordinary claims under it and it was never exercised and eventually it was sort of forgotten when Chennault and Willauer died. It ran to them personally, whether it ran to them and two others personally, and they all are dead now. But this shows a part of the learning curve, which was thing we were going through. It also became clear that the organization of the airline was really impossible, it's sort've semi-formal partnership with the Ministry of Transportation or the Ministry of Communications (of the Nationalist Chinese Government).That basically describes the preliminary situation from the period 1950 through 1954. It was in 1954 that George Doole first came onboard as a consultant. Doole and Houston went to the Far East in the summer of 1954 to observe the operation. "George went out there* The Nationalist Chinese had by this time retreated to Taiwan, they maintained a maintenance base tied to Hainan "The maintenance base at that time was on a LST and a great big steel barge. And we brought the LST and the steel barge up to Kiaoshung, and it was really extraordinary what a maintenance job they did on what was almost impossible facilities. I went down and was enormously impressed by the difficulties and how well they had overcome them, *noted Houston*.
[157-10014-10144.pdf — page 147]
specifically to look at the organization of the Airline." In thisregard, it is noted that at the time the Agency purchased the Air-line it had formed a Delaware corporation to buy it which was firstcalled the Airdale Corporation, counsel for which was BrackleyShaw. Shaw and Doole were both very concerned about the technicalorganization or lack of it, of the operation. Doole demonstratedto Houstonto my satisfaction that it was an absolute situa-tion and that no one out there had the slightestunderstanding of the problem or what they were upagainst, or wanted to do anything about it (in termsof airline management).As a result of this Shaw and Doole planned the organization whichthey thought was necessary for the future of the operation. HughGrundi was installed as President of the corporation by the end of1954. Management responsibility internally was given to Lyle Shan-non "who was a management type, although he was assigned to theDDO, or by that time it might have been the DDP."The upshot of this review by the Agency was that the theoryof running the airline was that it would be managed by manage-ment to be responsive to Operations "but not managed by Opera-tions."In order to improve its cover "the Chinese not only were wil-ling, but at that time wanted it to be the airline that showed theflag of China." This was done on overt records through Civil AirTransport Company, Ltd., which was the subsidiary of Pacific Corp-oration. Pacific Corporation held title to 40 percent of the
[157-10014-10144.pdf — page 148]
equity in the corporation and 60 percent of the equity was osten-sibly owned by the Chinese, who gave deeds of trust to the Agencyfor their shares. This overt arrangement demonstrated for purposesof international law that the company was majority-owned and con-trolled by Chinese. The Chinese continued to press the companyto get into the international common carriage field. The companyhad several DC-4's and began modest operations between Hong Kong,Taipei and Tokyo. They graduated to DC-6's, and it was at this timethat the Agency first got into the question of competition with U.S.industry. Northwest was then flying to Tokyo and Seoul and toManila, and was trying to obtain rights into Hong Kong. Don Nyrophad noted the Agency's interest in this area when he had beenChairman of the Civil Aeronautics Board in the late 1940's and theearly 1950's. Houston told the Committee:He (Nyrop) became head of Northwest, a very tightmanager, a very capable fellow, and he used tocomplain that we were interfering, we were takingpassengers off his airline, and we would go to himand say, we have to keep the airline in this busi-ness because the Chinese say they need an internationalairline. They're not ready to start their own yet.And it is necessary to its overall cover status as agoing commercial concern.By 1959 Mr. Nyrop was complaining that the Agency was doing too much.Finally Nyrop decided to complain to the Civil Aeronautics Board andthe Agency agreed to place it before that Agency for a decision.A meeting was held with the entire Board, at which time Nyrop wasable to make his case "for the fact that he was a private industry,he should not be interfered with by government competition."
[157-10014-10144.pdf — page 149]
The Agency explained its situation, the cover need, the Chinese pressures, and the fact that they were keeping the carriage to what they thought was a minimum that appearances could stand. And it ended up by one of the members of the Board turning to Nyrop and saying, Don, you ought to be glad that you don't have a really good, reliable competitor in there. He said, If you were being competed with by private business, you'd have real headaches. You ought to be real glad that it's not worse than it is. And that's the end of that.Houston conceded that some passengers were going on basically CIA planes instead of Nyrop's Northwest planes. The impact, however, was minimal. Moreover, the CAB in this proceeding was advised of the dilemma. They did participate in discussions with both the Agency and the particular business entity that was making the complaint, and the CAB, after hearing both sides, "came down on the side of the Agency after making a reasoned judgment."By this time the airline's commercial international business was not making money. A maintenance contract work, which was being done at Taiwan, however, was "normally a money-maker, and this was primarily, although not exclusively, with the U. S. Air Force."*There were management problems in terms of the maintenance aspects of this operation. This originally stemmed from the fact* The LST and barge which had previously been used for maintenance purposes became inadequate. Therefore the Agency built a plant in Taiwan "that is now there but has been recently disposed of to E Systems, and a very good plant it was." E Systems' role in the acquisition of proprietary assets is detailed later.
[157-10014-10144.pdf — page 150]
that individuals out in the field are not particularly astute at costing their contracts. Doole gave excellent advice in this area. Moreover, Doole was quick to advise when an operation is bordering on not being responsive to the demands of good management. Houston cited one instance when Doole replaced a controller in the corporation who was very able but "had his own ideas of bookkeeping and controls." Doole insisted that the corporation put in bookkeeping and controls completely consistent with U. S. CAB and FAA practices. And of course the maintenance contracts with the military were audited constantly by the military audit teams that were right in the plant.By this time the Agency had organized an exemption from the Contract Renegotiation Board on the grounds that if the renegotiation personnel became too involved in the business, they might recognize that this was not a straight commercial operation and discover the fact that the CIA was involved. The Agency went to the head of the Contract Renegotiation Board and got a letter from the Department of Defense asking for an exemption on what the Agency and the Department considered "perfectly legitimate grounds." Indeed, there was a basis for exemption in the Renegotiation Act if the business was entirely overseas, which was the case with this airline. And so, the exemption was granted on that basis. The Agency was concerned, however, by the fact that it had in principle made a type of profit, over 40 percent on these Air Force maintenance contracts, that might have well have been the subject of re-
[157-10014-10144.pdf — page 151]
negotiation, had it not been subject to the exemption. "So thequestion was what to do about it. And finally, we made a volun-tary repayment against part of the profit on that contract to theAir Force."As noted previously, the commercial airline aspect of theoperation was not making a profit and in fact operated mostly ata loss. Indeed, there were periods of time when the C-46'sand C-47's cargo carriers were very busy on either CIA contracts,the Korean War, Diem Bien Phu, and other paramilitary aspects.There would be periods in between these activities when there wasnothing for the airlines to do. Nonetheless, the airline was stillsaddled with expenses such as crews' salaries and maintenance ofthe aircraft which sat on the ground.So George posed, and we finally organized, the stand-by contract, which was an apparent military entity onOkinawa. It was our entity, but it had a militarydesignation. I can't remember the name for it. Andthat entity contracted with Air America for so manyhours of cargo stand-by to be available any time oncall, and that they would pay so much for that capa-bility being maintained. . . so that is how we keptthe subsidy going to maintain them during periodswhen there was not profitable flying.Another area of concern was the question of the relationshipwith the Internal Revenue Service. From the very start, the companymanagement was informed that they would be required to pay theappropriate U. S. taxes, and while there were the usual businessarguments about whether certain items were appropriate for taxationand whether certain deductions should have been granted, the rela-
[157-10014-10144.pdf — page 152]
tionship maintained with the IRS was basically a normal one. Houston recalled that in the mid-50's the company, Air America, received a notice that they were going to be audited by the IRS. Company officials came to the Agency and indicated that this might pose a problem in terms of security. The Agency went to the Commissioner of the Internal Revenue Service and indicated that they would like to have the Commission conduct the audit and have the audit done by a team on an unwitting basis to see what they could find out. "We thought it would be a good test of the security of our arrangements."They put a very bright young fellow on and he went into it. They came up with discrepancies and things that would be settled in the normal tax argument, corporate-IRS argument, and all of these were worked eventually, and then we went to this fellow and said, Now, this was owned and backed by the CIA, the U. S. Government. What was your guess as to what was happening?And he said, Well, I knew there was something there, and I thought, what a wonderful asset it would be for the Russians to have, but I came to the conclusion that it was Rockefeller money.Thereafter, the IRS would be notified if it began to conduct an audit on an Agency proprietary, and the audit would be discontinued.As the operations of Air America developed the problem of large cargo carriers arose. In the early days of its operation the airline was using C-54's, which had an extremely limited range but were able to perform notwithstanding under demanding circumstances. Discussions proceeded during that period about modernizing the equipment and the Agency, through the proprietary, bought DC-6AB's, a conversion of the DC-6, which had large cargo doors installed in it. They,
[157-10014-10144.pdf — page 153]
however, did not maintain any jet equipment at that point. This cargo system which they developed was getting heavily into a military air transport contract system. The system was first known as MATS, and then it became MAC.They got MATS contracts, and Air America got these, and these were very good to keep a constant utilization at a good rate, the MATS rates were usually good, because the policy was not to do competitive bidding for the lowest bidder because then you got the poorest service, but give good rates to the carriers, and then require the carrier belong to the Civil Reserve Air Fleet.In 1956 MATS changed its policy and required that bidders on the contracts to be certificated. Of course, there was no real way that Air America could become certificated and so the Agency decided to purchase Southern Air Transport. While it was technically a separate entity, not involved in the Air America complex, it was actually an integral part from the management point of view, in that all management decisions were centered again in George Doole and the advisory team in the Agency. MAC eventually also decided to require that bidders not only have to be certificated, but had to have equipment qualified for the Civil Reserve Air Fleet and this meant jet equipment. As a result the Agency went into the acquisition of Boeing 727's. Mr. Doole eventually convinced Boeing that they should modify the 727 to enlarge the ventral exist, which was already in the plane, so that the plane would then have a large airdrop capability. Boeing did so modify the plane and it proved entirely useful for these purposes. "So the theory was that the
[157-10014-10144.pdf — page 154]
727's would be used on MAC contracts to be available on an over-riding basis if needed for some major national security operation.They were used, usually when they had spare time.To my recollection, they were only called off once,off the actual contract time, and this was for apossible use which didn't go through. But the WhiteHouse asked if we had the capability to move some-thing from here to there, I think from the Philippinesto somewhere in Southeast Asia, I don't recall, and sothey sent word to management that they wanted a planeavailable at the earliest opportunity at Clark Field.They pulled one of them off the MAC contract and hadit available, I think ready to go, in twelve hours,all set for the operation. And the operation wasnever called. But it showed what the capability was.And what they had to do was get substitute servicefor the MAC contract.During the late 1960's several Chinese airline enterprises started,both of them on quite a small basis, but one of them which becameCAL had official backing. This occurred while the CIA's proprie-tary was still flying under the flag of China. With the establish-ment of these indigenous Chinese nationalist airlines which wouldfly these routes, the Agency began to plan reducing its inter-national carriage work. It decided it would keep the MAC contractsbecause this did not bother the Chinese. There was in fact no com-petition in this area. But plans were started to reduce the inter-national common carriage. This Agency proprietary, Civil Air Trans-port Company, Ltd., which had been organized in 1954, had the rightin international air auditing to negotiate for air routes. Thatwas the entity that therefore did the common carriage. Thereafter,Air America did the American contracting followed on then bySouthern Air Transport, due to its certification. Southern was
[157-10014-10144.pdf — page 155]
brought on to perform the MAC and MATS contracts with planesleased from Air America, which included 727's. Southern AirTransport actually owned one 727 and leased two from Air America.Houston noted that it was at this time that an internal de-cision was made "we probably couldn't justify this major airliftwith the big jets, and so we started giving rid of them. See, theyhad no utilization to speak of down in Southeast Asia. A couple ofsupply flights went into India, and I think we used prop planes forthat, to my recollection." So the Agency began to phase out the727's. This, of course, led to the decision to divest the Agencyof Southern Air Transport and eventually of Air America.Internal management problems were assisted in 1963 by theestablishment of an executive committee of the board of directorsof the Pacific Company, Air America and Air Asia. The overt boardof directors in New York City passed a resolution organizing anexecutive committee, which included Mr. Doole and two other directors.Covertly, the Agency put with that executive committee some of itsrepresentatives. This resulted in management and the Agency beingrepresented on the executive committee of the Board, and permittedthe viewpoints of management, Agency and the operators to meet inthis executive committee to consider policies and make actual deter-minations and give guidance to the company. Houston indicated thatthis mechanism was extremely effective in controlling the company.
[157-10014-10144.pdf — page 156]
So I think for the last, oh, fifteen, eighteen years, the proprietary management system was on the whole pretty effective fromthe Agency point of view. I think we knew what was going on. I think we were able to get things up for decisions, and if we couldn't resolve them at the staff level, we would take them up to the Director for decisions; quite different from the early days in the early 50's that I described, and the operators at least made the claim that they had the right to call the tune.During this period of time Operations people were getting themselves involved in the acquisition of aircraft and which were getting awfully damned expensive at this time, and separate projects were going after some of this expensive equipment without consideration of what might be available elsewhere to the Agency by contract or old aircraft. And so the Director of Central Intelligence set up EXCOMAIR, of which I was Chairman, and had representation from both the operation and management and finance out of the Agency, to try and coordinate the overall control and acquisition and disposition of aircraft.Indeed, a February 5, 1963 memorandum entitled "Establishment of Executive Committee for Air Proprietary Operations," noted that the Committee was "to provide general policy guidance for the management of air proprietary projects, and review and final recommendations for approval of air proprietary project actions." Houston indicated that EXCOMAIR "was sort of an amorphous group" which tried to focus on the question of whether it reviewed the needs first and then came up with recommendations on the operational solutions, or whether the operators came up with a solution and put it through EXCOMAIR. Houston noted that EXCOMAIR worked on a very informal basis because "I knew all these people well, and I said. 'Let's get together and sort these out.'" He indicated that EXCOMAIR wasNW 50955 DocId:32423532 Page 157
[157-10014-10144.pdf — page 157]
reasonably effective in getting overall coordination. It was responsible for making a thorough inventory of all the equipment that the Agency had in the aviation field, and by and large was able to keep track of who needed what and whether an asset was available that could take care of a problem without the necessity of acquiring a new asset.According to Houston, a general shift in thinking at the Agency occurred between 1968 and 1972 on the desirability of their holding substantial contingent capacity of airlift. The records seem to indicate that Mr. Houston apparently convinced the Director in the early 1970's that the capacity should no longer should be retained. Houston commented on this assessment as follows:Through what knowledge I had of the utilization of the various assets, it seemed to me that utilization, particularly of large assets, that is, heavy flight equipment, was going down to the point where there was very little of it. Consequently, we couldn't forecast a specific requirement. Such requirements as you could forecast were highly contingent. But I also remember a couple of times putting the caveat into the Director that with a changing world and with the complications in the aviation field, once you liquidate it, you could to think very, very carefully before getting rid of an asset that did have a contingent capability.