The CEO Who Came in from the Cold

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Rautenberg's periodic visits to his Valley branch coincided with the ongoing need to keep up appearances. In negotiations with the landlord, for example, or whenever tax or local authorities came by for a visit, Rautenberg would hop into his car and make the half-hour trip from his real office to the Valley branch. Once there, he signed blank forms required for export documentation or to open or close bank accounts, and conducted other routine business -- such as initialing purchase orders for things like lumber or nails, or signing a variety of letters and documents prepared by lawyers from O'Melveny & Myers. One of those letters, signed in 1966, stated that Air Asia had the right to review its relationship with Rautenberg's company on an annual basis and to terminate that relationship with 30 days' notice. The 1966 letter was required, Rautenberg was told, as a routine part of being a government contractor.

"They would put the papers in front of me, and I would sign them," he says of the documents, which he never saw again. "I never dreamed there would be a problem signing those papers."

Worried that the increasingly unpopular Vietnam War might soon have a negative impact on his business, Rautenberg worked even harder at building up his commercial accounts. Although business was never better for ASF than it was at the height of the Vietnam War, the country was in turmoil. "The people were demonstrating in the street," he recalls, "and they had no idea what was going on in our building. We were right smack in the middle of it all."

The unraveling of ASF's partnership with the CIA, like its beginnings, took place in stages. As the Vietnam War wound down, the Valley branch's business began to shrink, falling roughly 40% from its peak levels. Some CIA cargo still moved to other destinations in Southeast Asia, like Taiwan and Thailand, and shipments to Mexico and Latin America continued. But around 1973 a CIA-owned airline operation, Air America, blew its cover when a group of pilots sued the government, demanding employee benefits comparable with those provided to other military pilots. As a result of that and other incidents, Idaho senator Frank Church convened his attention-getting investigation into the misbehavior of the CIA. Air Asia became a principal target of the Church committee.

"It was a very painful time," Rautenberg recalls. "We didn't know how far the investigation would go or what the results would be." When it was over, the CIA was directed to sell or disband the private companies it owned, particularly those that, like Air Asia, had been exposed. In January 1975 the CIA sold Air Asia to E-Systems Inc., allegedly for $1.9 million.

That company, a secretive Dallas-based defense contractor well known for maintaining the electronic gear on Air Force One, had on its board at the time retired admiral William F. Raborn, a former CIA director. E-Systems assumed all of Air Asia's obligations, including its relationship with ASF, along with the government's promise of complete indemnification from any financial liabilities related to Air Asia's previous operation. (A few years later, according to court documents, the air force awarded E-Systems $2.4 million to compensate the company for losses it sustained after making the $1.9-million purchase. "It seemed to me like the sale of the century," Rautenberg says. "They were paid more for buying Air Asia than it cost them.")

Immediately after the transfer, Rautenberg was reassured that nothing much was going to change as far as ASF was concerned. "They told me it was going to be the same thing in a new wrapper," he recalls. Any legal problems would still be handled, free of charge to Rautenberg, by O'Melveny & Myers. And many of the people who worked for Air Asia continued to do the same jobs at E-Systems.

But according to Rautenberg, things did change. The first shot across ASF's bow came when the manager appointed by E-Systems to run the Valley branch informed Rautenberg that he intended to personally take over the bookkeeping chores -- along with the monthly stipend. When Rautenberg protested that doing so might once again attract the attention of tax authorities, the manager relented -- and gave the job to his wife instead.

Bookkeeping hassles, including late payments to employees and vendors, worsened the situation at the Valley branch. By now, the teamsters' union, dissatisfied with the changes, was threatening to walk out and picket Rautenberg's legitimate ASF office. What started out in 1956 as a patriotic business venture had, by 1980, "turned into a den of thieves," Rautenberg says. And then, what he calls "the disaster" happened: the hammer fell.

In a short, two-paragraph letter dated July 27, 1981, an E-Systems employee thanked Rautenberg "for the support that your company has provided Air Asia since 1969," the date of one of the documents Rautenberg had previously signed at the request of Air Asia. The next sentence hit like a ton of bricks: "Regrettably, we must discontinue your services to Air Asia." The cancellation, effective in 30 days, promised to wipe out more than half of ASF's gross sales. Rautenberg immediately called his old friends at O'Melveny & Myers and was told, he says, that O'Melveny had orders from Washington, D.C., to cease representing Rautenberg and ASF.

Enraged, he headed over to the Valley branch with a locksmith and two of his real ASF employees in tow. "I had no idea what was going on," one of the ASF employees who made the trip that day recalls. In his capacity as the lessee, Rautenberg had the locks changed. For the first time in 31 years, he had keys to the Valley branch. He relinquished them only after getting signed receipts from E-Systems representatives "for all the cargo and equipment, every single toothpick in the place."

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