When he called last January to say that it was over, that the era of bitterness and pain and triumph they had endured together was finished, it was 11:45 p.m., and Lee Pareti and her three children were asleep.
"Guess where I am?" he asked when she answered the phone. "Guess what I just did?"
She couldn't guess, so he told her. Harold J. (Hap) Pareti, 37, Lee's husband, was standing in a phone booth in Newark, N.J. And what he'd done, moments before, was resign from his job as president and chief operating officer of People Express, the fastest growing airline in American history, a four-year-old, $1 billion corporation with 4,000 employes and a seemingly boundless future.
A wife's surprise when her husband announces that he is unemployed is to be expected, and indeed Lee Pareti was shocked -- but her astonishment was overwhelmed by elation. For years she had tried to persuade Hap, a man she knew was driven by an "inner force" to achieve and create and win, that he was overlooking the "human sacrifice" demanded by People Express, the company he had helped found and that had made them both very rich. That sacrifice was so obvious to Lee Pareti, so poignant -- the good couples they had known who were now separated or divorced, the young children she saw shunted back and forth on weekends, the growing sense of isolation in her own marriage -- that it was frustrating not to be able to end it unilaterally, with a bold stroke. And while Lee thought "Hap was aware of [the sacrifice] as time progressed, more and more," she also knew that walking away from People Express and all it represented -- the achievement, the money, the prestige -- would be "a terribly difficult decision for him to come to."
So after Hap Pareti told his wife that he had handed in his resignation to People Express Chairman Donald Burr, that they were free to leave New Jersey, where People is headquartered, and return to the big house they owned in a treeless subdivision in McLean, it hardly mattered that a few weeks later, after seriously considering a number of job offers, Hap proclaimed that he was going to build another airline from scratch.
"I knew, I really knew," Lee Pareti says now, "that things could be different."
So far, they have been. As Hap Pareti announced at a news conference yesterday, Presidential Airways Inc. -- the full-service, deep-discount airline he began to organize at his kitchen table last winter -- begins service to five cities out of Washington-Dulles International Airport on Oct. 10. In the last nine months, Pareti and the group of young executives he has assembled at the company's Dulles headquarters -- nearly all of them in their thirties, many of them defectors from People Express -- have raised more than $30 million through private and public stock offerings, arranged for $70 million in aircraft lease financing, hired 250 employes, and spent long hours preparing for the arrival of their first red, white and blue Presidential 737 this week.
Yet, "I just feel so much healthier now than I was then," Hap Pareti says. Stout, bespectacled, with a thick head of graying hair, he speaks urgently. "It's not the least bit of a hassle for me to deal with the kids . . . and I think the children see me in a whole different light than they did before. I'm now their daddy, versus some figure that came in and out of their lives, rushing around.
"It's not a question of the number of hours, or the intensity of the project," he says. "I mean, if I had left because I was working too hard, I would never have started another airline. I would have found a 9-to-5 job in the government and been home every night for dinner." It was more that People Express was "very, very oriented toward the work environment. There, the feeling was that if you had [a life] with your family, that had to be at the expense of your level of commitment to the company.
"At a certain point I came to recognize that this really wasn't the way I wanted to lead my life . . . I wasn't controlling it the way I wanted to. That's kind of a frustrating, sad feeling . . ."
Why Hap Pareti would forsake a life of downtown club memberships, six-figure salaries and three-martini lunches, why he would instead risk more than $500,000 of the personal fortune he made at People Express to start a new company in the volatile, unforgiving airline industry, is a question neither he nor his wife nor his close friends can answer clearly.
"It's a lot more than money," says Terry Johnson, an attorney and McLean neighbor of the Paretis who gave up his own law firm to become Presidential's senior vice president. "I mean, Hap was already rich . . . Money is a way of keeping score."
None of them doubt that his family played an important role. But precisely why the eldest son of Harold A. Pareti -- mayor of a New Jersey hamlet and, says Lee Pareti, "the kind of guy who grew up in a small town, knew everybody, stayed there, did some good for the town" -- would strike so firmly out on his own eludes them. Hap's father says that his son "has always been driven. He always wanted to be first. He's not afraid, either." And Hap Pareti has tried from the beginning to please his father. When he finally decided to leave People, he says, he was "very concerned that my father wouldn't understand why I was leaving." But when Harold senior expressed his support for the decision by buying 50,000 shares of Presidential stock ("He's not a very wealthy man," Hap says), Pareti the younger responded by putting his father on the company's board of directors.
"You often get pressure to have a completely outside board," he says. "But I just felt, maybe it was a little selfish, but I had an opportunity once in my life to kind of recognize the contribution he's made to me in terms of setting goals . . . So I think some of that I've been able to repay."
But Hap Pareti's "inner force" cannot be described simply as an accumulation of external influences -- his family, the lure of enormous wealth or the fact that he was able to attend college only because his speed in the quarter mile earned him a track scholarship to the University of Pittsburgh, where, while attending classes, he also worked as a cab driver and airline baggage handler to make ends meet. It must be, too, as Pareti puts it, "that I feel very confident about what I'm doing. I don't see it as quite the risk that others do. It's a combination of that confidence and that inner drive." He says he never really looked at starting Presidential "from a risk standpoint. I looked at it and said, 'You know, if there's one thing I can do better than anything else, it's exactly this.' "
"Failure," says Lee Pareti of her husband's new venture, "never, ever entered my mind. I've known Hap since he was 19. Failure is not a word you use in association with Hap."
In the cramped temporary offices of Presidential Airways, located in a glass box of a building 200 yards from Dulles airport's black control tower, the creation of a brand new airline proceeds clamorously. The company's lobby is less a reception area than a staging ground for impromptu negotiations, urgent strategy sessions and boisterous camaraderie. Clutching telephone message slips, secretaries trail their managers into the hallway, pleading with them to stop for a moment and return important calls. Periodically, above the din of competing conversations, there rises a shattering burst of laughter, an emotional exclamation point on the wild exhilaration of it all.
A few doors down, in an unadorned conference room, Presidential's senior officers assemble for a 10-hour staff meeting, at which there will be much talk of "coordinating," and the "cost standpoint," and the "organizational standpoint," and other standpoints. Pareti, their leader, has been through this all before; in 1981, he and four other top managers at Texas International Airlines followed the charismatic Donald Burr when he left to start People Express. Pareti knows intimately the myriad pieces that must fall into place before Presidential's jets can roll out onto the Dulles tarmac, carrying their first loads of paying customers. The complexity of his undertaking is sometimes awe-inspiring. At this week's staff meeting, more than 75 separate agenda items must be covered: upcoming "proving runs" to secure Federal Aviation Administration safety certification, the recently closed public stock offering, staffing requirements, computer purchases, banking strategy, negotiations over airplane maintenance contracts, preparation of Presidential's frequent flyer program, gate and terminal construction, and on and on and on.
And beneath the surface of this agenda -- deliberately, even defiantly suppressed -- lies an awareness of the endeavor's utter fragility. For despite Pareti's confident bravado, and despite his wife's shining faith that he will succeed once more, it is impossible to ignore the airline industry's seasonal bankruptcies, its spate of disastrous accidents, its increasingly ruthless competition -- impossible to ignore that when you add it all up, as Terry Johnson puts it, Presidential's eventual failure "is more a probability than a possibility." In each contract negotiation, each hiring decision, each purchasing choice, there lurks the seed of Hap Pareti's first and most profound defeat.
So the exuberant informality of Pareti and his cohorts at their weekly strategy session is all the more remarkable. As the meeting progresses, jokes ricochet off the walls. Senior vice presidents stand and nearly shout so their one-liners will be heard over the resounding guffaws.
They are discussing whether to purchase several mobile passenger lounges that are for sale at John F. Kennedy airport in New York.
"Let me ask a logistics question," says Don Hoydu, a vice president in charge of plant and facilities. "How the hell do you get one of those things down here from Kennedy?"
"That's a problem," concedes Scott Andrews, a finance vice president. He extends his hands before him, gripping an imaginary steering wheel, and begins frantically bouncing up and down in his chair, pretending to pilot one of the huge mobile lounges down a highway. "You and I can drive 'em down I-95. Fifteen miles an hour. We'll be out there for three weeks!"
Peals of laughter roll across the room. "The happy bus!" exclaims one executive. "With a Presidential logo on the side!"
"The fun bus!" shrieks another.
When the uproar has faded, Andrews says, "Seriously, there wouldn't be much point in buying the damn things if they're going to get stuck in an underpass."
"They're 18 feet high and the Harbor Tunnel is only 14 feet," adds Terry Johnson.
"Maybe they float!" Andrews exclaims, and the chortling begins anew.
From the head of the conference table, Pareti's sharp "Ha!" occasionally leads the joyful chorus. He leans back in his chair, props his shoe on the edge of the table, and waves his arm like an orchestra conductor. Lunch is brought in, compounding the clutter on the conference table, which is strewn with yellow legal pads, printed charts, and bound cost summaries. On the far wall, someone has taped up a large sheet of white construction paper and labeled it "Follow Up Items." The list grows and grows.
It is time for a presentation from Geoffrey Crowley, senior vice president for marketing. (Crowley went through a divorce while working at People Express and says he followed Pareti to Presidential in part because at People, families weren't "a high enough priority in the list of things to get done . . . I wasn't going to stay there under those conditions.") He explains to the company's senior management team that he is working on a program "where we'll write a letter for Hap to 140 chief executive officers or key executives in the Washington area, giving them a free ticket so we can get them accustomed to what Presidential's all about."
"Geoff, on that, what about the congressmen and senators?" asks Terry Johnson.
"Well, our list right now is solely business, but there's no reason we couldn't expand it if we choose to. Are you thinking everybody?"
"Yeah, everybody . . . The idea being that if you're going to be Washington's airline, Washington's main industry is government. Therefore, getting the senators and congressmen to experience the product is an important way of getting the word around."
But another vice president objects. "I guess I would agree to doing it for the congressmen from the cities that we're going to be serving. I mean, I think giving a ticket to a congressman from Idaho, or Wyoming, isn't a good idea."
"Yeah," says Scott Andrews, "They'll all use them to go to Miami."
When the laughter subsides, the topic is postponed for further discussion.
At odd hours last winter, when there was something they wanted to discuss -- whether the idea that Presidential should become "Washington's airline," or what routes its planes should fly, or some other facet of the company's ambitious business strategy -- Hap Pareti, Terry Johnson, and Kevin Reed would call each other up and say, "Hey, I'm going to take out the garbage."
All three were lawyers (Reed is Presidential's general counsel); all three lived by the same McLean cul de sac. Each had said to himself, as Johnson puts it, "Let's buy some cheap stock and see if I can hit a home run." And each, as the head of a suburban household, was responsible for the disposal of his family's refuse.
So they stood in the middle of the street, leaning on their trash cans, plotting the future of Presidential Airways.
The idea, in a nutshell, was to combine the full service frills of, say, United or American with the deep-discount prices of People Express. The strategy demanded that several elements be combined: an underused, low-cost airport to serve as the airline's hub and headquarters (Dulles); a lean, nonunion, highly productive labor-management structure (based on employe stock ownership and borrowed largely from the People Express model); and a corporate culture devoted evangelically to customer service. (Pareti says Presidential won't compete directly for People's routes; he wants to avoid flying against other airlines' strengths.)
Over lunch at the Dulles airport Marriott last week, furiously scribbling numbers on his napkin, Pareti explained how it all will work.
"If you look at what the costs of being a full-service airline are, as opposed to being a no-frills airline [like People Express]. . . going to full service is not a heavy amount of cost, it really isn't." Pareti makes some notations. At People Express, he says, where customers pay for baggage check-in, food and other extras, the average "seat cost per mile" was about 5.5 cents. That number is crucial to any airline's bottom line. It's what you get if you take all the company's costs -- salaries, airplanes, insurance, everything -- and divide them by available seats per mile flown (the number of seats multiplied by the number of miles on an airline's standard routes). People Express' 5.5 figure compares with an industry average of around 10 cents -- that's why it can charge such low prices.
What happens, Pareti is asked, if you add on to that 5.5 cents the cost of traditional airline frills, such as a sophisticated reservations system, complimentary food and beverage service, and free baggage handling?
He scribbles some more. "Of a $2,000-per-hour operating expense for each aircraft, the baggage handling is probably about $45 to $50. That's a small piece. The average food cost is about $1.35 to $1.50 per passenger. The reservations system is not as expensive as you would think . . ." When you add them all up, "maybe you're at $2 more, per passenger, to be a full-service airline." That $2 difference only drives the seat cost per mile "from 5.5 to about 5.7 cents."
But if that is true, if it is possible to provide a full-service airline at People Express prices, why didn't People Express do it first?
The answer, says Pareti, is that People deliberately used its lack of frills to establish its bargain image. "We weren't trying to design a 'no frills' product at People. We were trying to design a low-cost, low-price product that people would see as a smart product because they weren't paying the extras. I think what happened was, at those prices you created such a demand for the product, the demand outstripped the physical plant's capability to handle it. All of a sudden, the business traveler did not want to put up with the hassle. So no longer was it a smart product for the businessman."
From such thinking was Presidential Airways born. Whether from such thinking a handful of suburban husbands will become rich enough to hire their own private trash collection agency, it is impossible to know.
There are times in every day when the numbers recede from Hap Pareti's mind.
Even now, when the bruising daily demands of Presidential's imminent start-up are at their peak, his routine is disciplined, and reflects, he says, a new attempt to "strike a balance between corporate and family life." It begins at 7 a.m., when he drives off in the family Mercedes to swim half a mile at a local pool. By the time he returns, his household is nearing a state of cacophonous chaos rivaling the scene at Presidential headquarters 20 miles away. His 3-month-old daughter is waking up, the 2-year-old is calling for attention, the television is blaring rhymes from Sesame Street, the two older children are debating over their departure for elementary school. From behind the house come the added sounds of hammers and saws. Like his company, Pareti's family is in temporary quarters, while an addition is constructed to the house they own on an adjoining cul de sac.
Through this confusion Pareti moves with glee and confidence: upstairs to diaper and dress the 2-year-old, into the family room to adjust the television, across the back yard to haggle with the construction workers over missed deadlines. Somehow, Presidential and his family are all part of the same operation now. The changes he has made since his days at People seem less a matter of curtailing his work life than of extending his role as chief executive.
Pareti hopes, somewhat vaguely, that this commingling of domestic and corporate responsibilities and rewards will define the culture of Presidential Airways. "We try to have a lot of functions that involve the family," he says. "We've had picnics, and barbecues, and obviously with the start-up coming, we'll have a number of them. We try to get all the spouses involved, family days, where you can really get the kids likewise involved." The kids, he says, "can relate a lot to the airline business. It's very physical, with the airplane and all."
And there are times in Pareti's day, after he's left the house and made the drive to Dulles airport, when the whole idea of Presidential Airways -- its families, its airplanes, its competitive strategies, its very existence -- coalesces in an emotional sensation, an unexpected, boyish flush.
It may happen, as it did one morning last week, in the middle of an important business meeting. He was sitting on the couch in his office, negotiating a long-term contract with the director of a charter airline company, when a commercial jet, taking off from Dulles, came into view through his window. It was climbing at 2,000 feet, wings arched and tilting, engines thundering in the clear sky.
"Another one of those damn planes," Pareti said, stopping the negotiations. He was grinning, craning his neck to see. "Every time I hear one I get excited. Boy, that's a 707.
"Look at that. It's really burning."