The MacNeil/Lehrer NewsHour

Intro JIM LEHRER: Good evening. Leading the news this Tuesday, Attorney General Meese announced replacements for two top positions at the Justice Department. Armed hijackers are holding a jumbo jet in Iran with 111 people onboard. Secretary of State Shultz talked Middle East peace with King Hussein of Jordan, and 1300 U. S. troops flew to Panama. We'll have the details in our news summary in a moment. Robin? ROBERT MacNEIL: After the news summary, we analyze the role of Jordan's King Hussein, man in the middle of the Middle East peace process. Then Tom Bearden has a documentary report on the bittersweet success of airline frequent flyer bonuses, and an industry analyst discusses their bottom line impact. A report from Phoenix updating the story of the conviction of Governor Evan Mecham. And we close with a Penny Stallings essay about some pleasing notes from the underground. News Summary MacNEIL: Attorney General Edwin Meese today filled top vacancies in the Justice Department with acting appointments, pending confirmation by the Senate. The posts were vacated last week by men who resigned reportedly over concern about Meese's own legal problems. At a news conference today, Meese said he recommended that President Reagan nominate two distinguished men.

EDWIN MEESE, Attorney General: I'm very pleased today to announce that I have recommended to the President the appointment of two truly exceptional public servants to fill the posts of Deputy Attorney General and Associate Attorney General. They are, as Deputy Attorney General John Shepherd, the former president of the American Bar Association, who is from St. Louis, Missouri, and as Associate Attorney General Francis A. Keating, the Assistant Secretary of the Treasury for Enforcement. These two distinguished men will be appointed in an acting capacity, pending nomination and confirmation in the normal course. REPORTER: Mr. Keating, a number of people have said that you were having second thoughts over -- this was a week ago -- whether or not to take this job. FRANCIS KEATING, Assoc. Attorney General Nominee: Certainly the events of last week made me as a professional pause. But I have every confidence in the leadership of the department under the Attorney General, and I think with our new team here, the operation of the department will continue, and I hope to be able to provide in my own area leadership and professionism that I think the office of Associate Attorney General demands. MacNEIL: Earlier today, Meese's first choice for the number two job, former Federal Judge Arlin Adams, turned it down. Adams said he had too heavy a caseload in his Philadelphia law practice. A Justice Department source said the other job vacant, Assistant Attorney General in charge of the Criminal Division, had been refused by Salvatore Martoche, now an Assistant Secretary at the Labor Department. Meese wanted to fill the jobs before he leaves tomorrow for a week long conference on drugs in South America. Jim? LEHRER: A Kuwaiti Airlines 747 jumbo jet was hijacked this morning on a flight from Bangkok, Thailand, to Kuwait. Ninety seven passengers and 15 crew members were onboard, including three members of Kuwait's royal family. Five or six hijackers, armed with pistols and grenades, forced the plane to land at an airport in Northeastern Iran, where it was surrounded by security forces. The hijackers threatened to blow up the plane unless 17 pro Iranian prisoners being held in Kuwait on terrorism convictions are released. The demand is the same made by Shiite Moslem terrorists holding Western hostages in Lebanon. The plane's hijackers released one of the passengers because of a heart condition. He described the armed gunmen as Arabs who seized control of the plane three hours after it took off from Bangkok. MacNEIL: Secretary of State George Shultz carried his peace plan to Jordan and Syria today and received no encouragement. Shultz flew to Damascus for talks with Syria's President Hafez Al Assad after flying from Israel to Jordan today, to present Israeli reactions to his plan for an international conference on the Palestinian problem. Jordan's King Hussein did not accept or reject the plan, which only Egypt has backed, and with Syria, insists must include the PLO. Shultz has ruled that out. The Israeli army today said soldiers killed two Palestinian guerillas trying to infiltrate from Lebanon. Four Israeli soldiers were wounded in the fighting. It was the ninth reported border intrusion since last November, and an Israeli spokesman said the guerillas planned to carry out a deadly attack. Defense Minister Yitzhak Rabin said guerilla elements have become emboldened by recent violence in the occupied territories. LEHRER: The first units of another 1300 U. S. troops flew to Panama today. The country's military ruler, General Manuel Noriega charged it was an invasion by the United States. Pentagon officials said the American units are going to assist the 10,500 U. S. troops already there, to protect the Panama Canal, and U. S. property and personnel. The new U. S. troops flew from Ft. Mead, Maryland, Ft. Bragg, North Carolina, and Travis Air Force Base in California. Colin Powell, President Reagan's National Security Advisor, said today the Administration was looking for new pressures to apply on Noriega. One measure, he said, would be to seize tax payments owed Panama by U. S. businesses. A U. S. Senate subcommittee heard more testimony today about Noriega's drug trafficking activities. A convicted marijuana smuggler said Noriega as an army colonel was involved in an offer eight years ago to use a Panamanian island for drug activities. He said Noriega's associate in the deal was then president Omar Torrijos. Senator John Kerry, Democrat of Massachusetts, asked about the Torrijos/Noriega connection.

Sen. JOHN KERRY, (D) Mass. : In 1979, you met with the president of Panama, then Torrijos, and with Col. Noriega at the time, and this is in 1979? MICHAEL VOGEL, convicted drug smuggler: Late '79 -- Sen. KERRY: Late '79 you were cutting a deal at that time, or a deal was being proposed with respect to the use of Panama and essentially they were too greedy for you, so you didn't take it? Mr. VOGEL: Yes, yes. Senator, in this business, a lot of things are proposed. Everybody's got an idea. You find very few people with either the know how or the money to make something work. It's nice that you can have governments working for you. LEHRER: The witness also told the committee about extensive efforts to avoid arrest. He said smugglers used official radio frequencies to spy on authorities. He said at one time he knew the frequency used by the President's plane, Air Force I. MacNEIL: A scientific panel said today that Americans are still eating too much animal fat for their health, and called for changes in government regulations to change meat production. A committee of the National Research Council reported that consumption of animal fat has gone down, but many Americans are still inviting poor health, there's too much cholesterol, fatty acids and salt. The committee said it would help to market leaner meat if government regulators would let fat be trimmed by meat packers so that growers would not be rewarded for producing fat meat. It also called for clearer labeling of low fat foods, and more precise standards for terms like ''light'' and ''lean. '' LEHRER: This was primary day in Wisconsin, and thus another eventful day in the race for the Democratic presidential nomination. Eighty one delegates to the Democratic Convention are at stake. It finally came down to a two man race, between Michael Dukakis and Jesse Jackson, their second major test since Jackson swamped Dukakis in the Michigan caucuses almost two weeks ago. Dukakis bounced back to beat Jackson in last week's Connecticut primary, but Dukakis has taken a 45% to 39% lead over Jackson in last night's Colorado caucuses. The polls show Dukakis ahead going into today's Wisconsin vote. Albert Gore and Paul Simon were also in today's contest, but expected to run far behind the two frontrunners. MacNEIL: That's our news summary. Ahead on the NewsHour, King Hussein and Middle East peace, frequent flyer bonuses, Governor Mecham's conviction, and notes from the underground. High Frequency MacNEIL: First tonight, we return to the volatile world of the airline business. Our story is about a good thing that may have gone too far. It's about frequent flyers, the estimated 20 million people who fly enough to win free flights from the airlines. Seven years ago, the airlines started rewarding their star customers. Now as Tom Bearden reports, the reward system is in danger of becoming a burden to the airlines themselves.

TOM BEARDEN: Tim Atkinsons spends a lot of his time in airplanes and in airports. He's a service representative for a high tech company in California. He few 134 times on United Airlines alone last year. The miles he flew are very valuable to him. They can be redeemed for free travel to almost anywhere in the world. Atkinson belongs to United's frequent flyer bonus program. Each month he receives a statement from the airline, sort of like a savings account. TIM ATKINSON, frequent flyer: Denver, St. Louis, San Francisco, Chicago, Orlando, Florida -- some of the pilots have actually said that I fly -- I'm in a plane more than they are. They're kind of restricted on their hours.

BEARDEN: In six years of steady flying, Atkinson has been credited with more than 1. 6 million miles. In the United program, 50,000 miles can be exchanged for two free round trip tickets anywhere in the United States. Atkinson uses his mileage to bring relatives to see him so he can spend his vacations at home. Mr. ATKINSON: It makes me very popular with relatives. It brings the family together, really.

BEARDEN: To keep those relatives coming, Atkinson flies almost exclusively on United. And that is exactly why frequent flyer programs were started in the first place. American Airlines introduced the first frequent flyer program, called Advantage, in 1981. Since then, an estimated 8 million people have signed up for one or more such programs. They created something the industry had never seen before -- brand loyalty. Because frequent flyer programs are most lucrative when customers concentrate their travel on one carrier. Jim Motta is a land developer based in Florida. His wife Patty is a travel agent. JIM MOTTA, frequent flyer: Most of my miles are on Delta. I've got miles on United, American, Eastern, but most of them are on Delta. PATTY MOTTA, frequent flyer: They'll fly out of their way to stick with their frequent flyer programs, definitely.

BEARDEN: And the airlines also see frequent flyer programs as a rousing success. American Airlines: MICHAEL GUNN: Tremendously successful.

BEARDEN: Continental: DOUG BIRDSALL: They're absolutely crucial.

BEARDEN: Delta: MATT GUILGOYLE: Maybe the single most productive marketing program the airlines in general have ever come up with. [various employees telling customers about their mileage awards]

BEARDEN: The airlines refused to be specific in detailing just how successful the programs have been. But American Airlines, for instance, has some four million active frequent flyer accounts, enough to keep these 80 American representatives busy answering questions all day long. But there could be a serious problem looming on the horizon. The account balances have been building for years. More and more free tickets are being issued. On some popular routes, like Hawaii, demand for free travel exceeds the number of seats available. Some analysts thought the airlines would be forced to cut back on the freebies, or at least restrict them. [commercial]

BEARDEN: But competitive pressure has recently forced a huge, and some say downright financially dangerous, expansion of frequent flyer benefits, so called triple mileage. [commercial for triple mileage on American]

BEARDEN: How fast? It used to take ten trips between Denver and Miami on United, for example, to earn one free round trip ticket. With triple mileage benefits, three and a half trips. All the airlines are promoting triple miles heavily. But some aren't very happy about it. American Vice President Mike Gunn thinks triple miles are too generous, that it doesn't make economic sense. MIKE GUNN, American Airlines: I think the industry has quickly recognized -- at least the people who initiated this recognize -- that they've created a problem for themselves as well as the industry. BEARDEN: Why did you go to triple miles? Mr. GUNN: Well, unfortunately there's a rule of thumb in this business that you're at the mercy of your least intelligent competitor.

BEARDEN: Continental Airlines Vice President Doug Birdsall. BEARDEN: Why triple miles? DOUG BIRDSALL, Continental Airlines: Triple miles is really -- you really need to go to Atlanta and ask Delta about that.

BEARDEN: We did. Triple miles was Delta's idea. And they say if it's a loser for the other carriers, they only have themselves to blame. Delta gives triple mileage only for tickets charged to American Express cards, limiting their exposure. Delta Vice President Matt Guilfoyle was surprised when the other carriers matched the program without a similar restriction. MATT GUILFOYLE, Delta Airlines: We didn't believe they would go to the extent that they did. It didn't make financial success or financial sense for us. It would not have made -- I don't think it does for them as well.

BEARDEN: Salomon Brothers analyst Julius Maldutis has precisely the same concerns. JULIUS MALDUTIS, Salomon Brothers: If you include the liability that had been accumulated prior to the triple mileage program, the airline industry has a potential revenue loss, or a contingent liability of somewhere about $1. 2 billion.

BEARDEN: As an industry wide liability, that figure is relatively small. But it's enough to play havoc with profits. In a 1986 court case, American Airlines testified that Advantage members had banked so many miles that if they were all cashed in at once, the airline would have to issue 800,000 free tickets. But the airlines say such concerns are overblown, that they have the system under control. JULIUS BIRDSALL, Continental Airlines: The total amount of free flying that occurs on this airline is less than 2% for all the people riding on the airlines. And even in triple mileage world, that number could increase by maybe another half percent or so.

BEARDEN: But financial analysts are worried about the possibility that the Internal Revenue Service might make good on its longstanding threat to tax frequent flyer bonuses. They think that might lead to a run on the mileage banks. And they are also concerned that a recession, coupled with the recent trend toward fare increases might mean travelers would start to cash in their accounts to save money. Those scenarios could decimate airline income at a point when they could least afford it. The airlines say there are enough empty seats to meet the demand, that the average flight is just 60 to 70% full. But Maldutis is not convinced. Mr. MALDUTIS: On a system wide basis, most carriers have 40 or 45 of their seats empty. Consumers who are reaping their free mileage, however, are choosing to go to very popular destinations, that are always virtually sold out. WOMAN: To Australia, you could use our 60,000 mile award that is good only between October l and April 30, the off peak season. If you're using it any other time, you would need to use a 90,000 mile award.

BEARDEN: The airlines say they aren't helpless, that they can manipulate the demand for free tickets by offering special deals that encourage off peak travel, whereby actually restricting the number of seats available for free tickets. Continental is doing that now. Mr. MALDUTIS: The airline managements are going to be walking a very thin line between how much of this manipulation -- I'm very sorry, but there are no seats available, it's a blackout period, etc. -- that they can restrict the use or redemption of free tickets.

BEARDEN: The airlines know that they could alienate the very people they are trying to attract, and whose business they are trying to keep. Mr. ATKINSON: When they have changed the award level, there's been a lot of pressure from people like me who say, Hey, enough is enough. You know, when I signed up and I work this hard, and I work -- a lot of people, you know, take several years to get the awards, you know, to fly to Hawaii, or whatever. If they raise the award to fly to Hawaii, you know, it's really frustrating to have something like that happen.

BEARDEN: Both Continental and American say triple mileage is a potential financial problem only if it lasts beyond the end of the year. Mr. BIRDSALL If this were to continue for three or four years, yes, there would be a terrific downside, a huge liability.

BEARDEN: United, which wouldn't discuss the issue on camera, also wants triple mileage to die a quiet death. But Delta isn't quite ready to say they'll definitely drop it. Mr. GILFOYLE: The program certainly has done what we wanted it to do. And while we still have an expiration date of the end of the year, we'll probably review the entire program in the fourth quarter and then make a final decision.

BEARDEN: Triple mileage is merely the latest in what some observers see as a dangerous game of one upmanship. They believe these programs could potentially squeeze profits to the point that weaker competitors could be forced to the brink of bankruptcy. Others say they are already pushing up the price of air travel. Fares on some routes were doubled recently. Critics say all of this once again proves the truth of the old saying, ''There ain't no such thing as a free lunch. '' MacNEIL: In what one analyst called a mindboggling, incredible move, both Continental and Eastern Airlines announced yesterday that they were extending the qualifying period for triple mileage credit to May 15. Other airlines may soon follow. We talk about this development and the future of frequent flyer programs in general with Candace Browning, airline analyst with Wartheim, Schroeder and Company, a Wall Street investment firm. Ms. Browning, are the airlines in over their heads with the frequent flyer competition? CANDACE BROWNING, Airlines analyst: Well, if you're talking about in the sense of financial risk, I estimate that it could produce maybe as much as 20% earnings dilution -- which is very manageable. So in that sense they're not over their head. Was the program a mistake? It was definitely a mistake. MacNEIL: I'll come back to that in a moment. The London economists said in an article this week that if they put that as a debit on their balance sheets, their share prices might go into a sickening fall. Is that correct? Ms. BROWNING: Well, I think to some extent that's already in the stocks, because investors for the past several months have been concerned about that, and there's a lot of numbers out there about how big the potential liability is. I think the stocks would go down, but they wouldn't go into a dramatic fall. MacNEIL: You say it might affect earnings by as much as 20% if you added them all up. They don't have much earnings, do they? Ms. BROWNING: No, they don't. This is a very unprofitable industry. In fact, the industry since deregulation has only generated about a . 2% net profit margin. MacNEIL: Two tenths of one percent a year? Ms. BROWNING: Yes. MacNEIL: How does that compare with other average American industries? Ms. BROWNING: About 5% for the average American company. So it's far below. MacNEIL: So can the airlines put themselves into serious financial trouble -- if they're so near the margin of profitability, can they with these bonus programs put themselves in serious financial trouble? Ms. BROWNING: The whole key is how they manage it. And on the taped segment you talked about blackout periods. I think you're going to see more and more blackout periods. You're also going to see -- MacNEIL: When they tell somebody who's accumulated a whole lot of miles, Sorry but you can't use it for those flights -- or that kind -- Ms. BROWNING: Right. You can't go to Hawaii on Christmas -- MacNEIL: You can't go to Hawaii, yeah -- Ms. BROWNING: We call it the Frankfurt in December trick. They're going to try and encourage you to go to places that are out of season. There's also other ideas -- they can change the award structure. They can create things called mileage IRAs that will encourage you to save your miles perhaps until you retire. You're going to see all sorts of very creative ways for the airlines to get people not to fly. MacNEIL: I see. Why are Continental and Eastern extending their triple mileage periods, when everybody's talking about how risky all of this is? Ms. BROWNING: Well, what they really did is they went out to their current mailing list, their One Pass members, which are their frequent flyers. And they looked at the list of who had accumulated a lot of miles in 1987, but had not qualified for triple miles in 1988. And that's a subsegment of their whole list. And they're going out with the offer just to those people. So what was reported originally is really incorrect. It's a fairly limited offer. Why are they doing it? Because their load factor -- well, Continental's load factor, percentage of seats filled, is about 62% vs. I expect American and United will report maybe 68, 69% in March. Clearly, Continental, because of its service problems in the past, and the fact it doesn't have exciting award structure, is not generating the excitement about triple miles that its competitors have generated. And that's why I think they're doing it. MacNEIL: Because Continental typically doesn't fly to dream vacation spots like Hawaii and so on? You heard three airline executives tell Tom Bearden that this was the most successful thing they'd ever seen, and it's pointed out that it has produced dividends in terms of passenger loyalty to a particular airline that they'd never experienced before. Why do you call it a mistake? Ms. BROWNING: Well, I think when the programs first started they were brilliant. Because what they did is they allowed the big carriers to beat up against the small carriers. Because if you lived in a city like Chicago, whose frequent flyer program are you going to join, Midway's or United's? Probably United's. So they really worked then. But now, in a consolidated industry, where you've got one big guy fighting it out against another big guy, they don't make as much sense. And is it really necessary to give away triple mileage in an industry that's consolidated? That's why I'm calling it a mistake. It's overblown. MacNEIL: I have to correct myself. I've been reminded in my ear that Continental does fly to Hawaii. Sorry about that, they do fly to Hawaii. Ms. BROWNING: But they don't have as much exposure, for example, in Europe -- MacNEIL: I see. Ms. BROWNING: -- as American does at this point. MacNEIL: Yeah. Are airlines having to increase prices to other flyers in order to be able to pay for these bonus to their very frequent flyers? Ms. BROWNING: Well, I think the airlines would say no. But airline fares are up on average about 10% in a year over year basis. There is very strong demand for travel out there, and that definitely has something to do with the fare increases. My guess is triple miles probably also has something to do with why they raised the fares, though. MacNEIL: What is the reading among analysts like yourself about the likelihood of the IRS throwing a scare into this whole system, as Tom Bearden said could happen, if they decide to make that count as taxable income? Ms. BROWNING: I think if the IRS did it, my guess would be that they would grandfather in old miles. I think that the airlines would be able to convince the IRS to do that, because if the IRS did not do that, it would really cause a lot of financial strain for the airlines. Now, if the IRS decided to tax new miles, 1989 miles for example, that might be a wonderful way to just end the programs. MacNEIL: So you might find the airlines not fighting too bitterly against an attempt to tax that -- to get themselves off the hook, in other words. Ms. BROWNING: That's precisely right. MacNEIL: I see. Is this considered a likely thing to happen among -- Ms. BROWNING: Well, the IRS hasn't done it yet. And the programs have been in existence for five or six years. So I would guess it's probably not too likely to occur. MacNEIL: If competition is so intense between a handful of big airlines, I mean how many airlines now dominate the business? Ms. BROWNING: Basically, about seven airlines control about 93% of the domestic market. MacNEIL: In terms of profit, if it's so intense that none of it is really making any really sort of profit to boast about, what's the future shape of the industry going to be? There's been a lot of consolidation, a lot of takeover, what's going to happen now? Ms. BROWNING: Well -- MacNEIL: Is there room for seven big airlines to keep on going and making almost no profit? Ms. BROWNING: I think there's probably room for six. In other words, I think we haven't seen the end of all of the shakeout from deregulation. We've got some sick airlines out there financially -- TWA, Pan Am, Texas Air, all of whom are really on the walking wounded list. And I think you're going to see some more restructuring. But in the long run, really, travel is a growth industry. Americans love to travel. If you look at -- in 1978 when we had deregulation, you had about 275 million airline passengers. There were well over 400 million last year. That's an enormous growth in passengers. And once we get to an industry with six carriers, say, at that point I think you can see this industry returning to the 2% net profit margin that it had. MacNEIL: Prices for tickets after all that ferocious price cutting and price warfare and discount fares of every kind, prices have begun to go up again. Now and at the same time, we're back to a situation where a few carriers dominate the industry again. So aren't we back to something like the situation we were before deregulation? Ms. BROWNING: Well, we are structurally -- MacNEIL: Apart from the huge growth in actual travel, you said -- Ms. BROWNING: In terms of pricing, though, the average ticket price is down about 10% still. MacNEIL: From where? Ms. BROWNING: From 1981. So right after the oil shock. It's down about 10%. Now, carriers can afford to carry the passengers for a little bit less. But the answer is that the economics are now only starting to resemble what they did prior to deregulation. And in fact, airline prices have not kept up with inflation. There's a huge gap between inflation and airline prices. MacNEIL: Thank you very much for joining us. Jim? LEHRER: Still to come on the NewsHour tonight, King Hussein and Middle East peace, Governor Mecham's conviction, and notes from the underground. Monarch in the Middle LEHRER: Secretary of State Shultz is back on the road he hopes will lead to peace in the Middle East. Yesterday, he talked again to the leaders of Israel, whose reluctance to accept much of the Shultz proposal has been labeled a major stumbling block. Today, Shultz went again into the other world of stumbling blocks, the Arab world, going first to Jordan for talks with King Hussein. It is this Arab ruler, his positions, possibilities and probabilities that we focus on next tonight. Three people who know him well are with us. We'll hear from them after a brief King Hussein refresher by correspondent Charles Krause. KING HUSSEIN, Jordan: In view of our genuine desire for peace, we are willing to negotiate.

CHARLES KRAUSE: Jordan's King Hussein has always been regarded as pro Western and a friend of the United States in the Middle East. But convincing the cautious monarch to go along with U. S. policy and sign a peace agreement with Israel has so far proven impossible. In the late 70's, Hussein refused to join in the Camp David process. And he's turned aside Reagan Administration initiatives as well. But because of his country's key geopolitical position, bordering Israel and Syria, Hussein remains the object of constant wooing. His Hashimite Kingdom. originally created by the British, lost control of the predominantly Palestinian West Bank to Israel in 1967. And now, partially as a result, Palestinians make up at least 60% of Jordan's East Bank population of 2. 5 million. That limits Hussein's diplomatic options. And his most delicate diplomacy is often among his fellow Arabs. Especially the Palestinian Liberation Organization and its leader Yasir Arafat. The question of who speaks for the Palestinians has been and remains a major stumbling block to negotiations with Israel. The Israelis for their part have always said that they want direct negotiations with Hussein. YITZHAK SHAMIR, Prime Minister, Israel: My appeal was to King Hussein to come to direct negotiations about peace with Israel --

KRAUSE: Now, Secretary Shultz is trying to persuade Hussein to go along with his plan, which calls for an international conference that would include Israel, Jordan, and some Palestinians. Shultz has said the King's support and participation are vital. But so far, Hussein has refrained from endorsing any part of the U. S. plan. LEHRER: Three views of King Hussein now. Those of Karen Elliott House, foreign editor of the Wall Street Journal. She visits with and writes often about Hussein and Jordan. Dean Brown, the U. S. Ambassador to Jordan from 1970 to 1973, and Robert Satloff, a fellow at the Washington Institute for Near East Policy and author of Troubles on the East Bank: Challenges to the Domestic Stability of Jordan. Karen, it's been suggested by critics for a long time now that King Hussein is too weak and too scared to ever make peace. Is that -- how do you react to a statement like that? KAREN ELLIOTT-HOUSE, Wall Street Journal: He's not the strongest leader in the Arab world, so he's not likely to get into something unless he thinks there's some quite reasonable prospect that once and for all he can wash his hands of the problems. LEHRER: And how does he see the problem? Wash his hands of what problem? Ms. ELIOTT-HOUSE: Well, I think for him, I think he -- he does not believe any more that somehow he can retrieve the West Bank, and make it part of Jordan as it was before the 1967 war. But he -- the problem is that he lost that territory to the Israelis in the war, and the Palestinians obviously resent this living under Israeli occupation. They have no desire to live under his occupation either. But because he's the Arab ruler that has a population that's half Palestinian, and he's living right next door to Israel, the problem is his problem, just as it's Israel's problem. LEHRER: Dean Brown, in personal terms, as much as political terms, how do you assess Hussein and his ability to make peace? DEAN BROWN, former U. S. Ambassador to Jordan: In a sense it's very much as Karen has said. He has a hard time doing it. He does have this feeling, which he shared with his grandfather, that somehow he has some sort of responsibility for Jerusalem. But what he's seeing, particularly I would say in these last few months, is the drifting away from the Palestinians from any -- of giving him any hope that he could have any influence on the Palestinians in the West Bank and Gaza. He doesn't have it any more. And I think that's what these events have shown. His friends there are the moderates, the rather elderly people, the merchant families, the people that are related to people who live in Jordan. But it's not those young kids who are out on the streets every day, who seem to -- well, for one thing, they don't know who King Hussein is. They never lived under his regime. They just look back at it as another occupation: British, Jordanian, Turkish, Israeli. And all the things that they talk about when they say, ''We want to be independent. '' LEHRER: How do you feel about -- how would you assess King Hussein's ability to make peace? ROBERT SATLOFF, Institute for Near East Policy: Well, I don't think it's an issue of ability or inability. I think, rather, that King Hussein has a rather cold calculation of Jordanian national interests. Which all parties in the region do. And as a result of that calculation, his most important factor is making sure the Hashimite regime gets passed on to the next one in line. And one of the things that would stop that would be to get involved in a negotiation or representing a Palestinian population that doesn't want him representing them. Or getting involved in a negotiation that might undermine the stability of his own regime. LEHRER: How could that happen? How could sitting down and negotiating with Israel, say, undermine his own security? Mr. SATLOFF: There are a variety of ways this could work. For Hussein, it could work if he were to gain control of a large number of Palestinians -- if they were to come under Jordanian control. At the moment, Hussein has been remarkable in being able to forge a nationality, a nation, a kingdom, out of nothing. But it would be pushing the bounds to try to put another million or so Palestinians under Jordanian rule. LEHRER: Why? Mr. SATLOFF: Because most of the Palestinians, especially the ones in the West Bank and Gaza, have about as much dislike for Hussein as they do for Shimon Peres or Yitzhak Shamir. LEHRER: They just wouldn't recognize him as king, right Dean Brown? Mr. BROWN: I think that's right. I mean, the people in Gaza had no relationship at all in any sense with Jordan. And the people on the West Bank have grown apart from him. The Israelis now have been on the West Bank longer than the Jordanians are on the West Bank. And I think that has a very definite effect, you have generational gaps here. And so that each year that goes by, there's less appeal of Jordanian option as far as the people of Palestine are concerned. LEHRER: Well, then, Karen, where does that leave Hussein as far as being able to exert any power or influence? What kind of game does he have to play? Ms. ELIOTT-HOUSE: I don't think he does have many cards, that's the tragedy of being King Hussein. He's touched this tar baby, and I don't mean that in a derogatory sense, but in a figurative sense, and he can't either get rid of it or deal with it. What interests me is that I think that he and the Israelis have in this sense very identical interests. This Palestinian group of people living on the West Bank is reproducing much faster than Israelis or Jordanians, and it's -- again, I don't mean to be derogatory, but descriptive -- it is a cancer growing between both countries that could consume either one of them. And so far, neither the Israelis nor Jordan knows how to deal with it. LEHRER: Well, so, when Yitzhak Shamir says, I want to sit down and have negotiations with Hussein, what is he saying then? I mean he wants to negotiate with somebody who can't deliver? Who doesn't have the power? What -- Ms. ELIOTT-HOUSE: Well, what he wants is -- I think what he wants to sit down and get some piece of paper that says the issue's finished. Which -- I mean, he has no intention of giving up any of the territory. He wants negotiations because with Jordan, precisely because Jordan is a weak negotiating partner, and if you could have some sort of negotiations that produced some kind of deal, then he could say to the whole world, we've solved this problem. I don't think it would change things on the ground, frankly. LEHRER: Do you agree, Dean? Mr. BROWN: Well, if a negotiation does take place, and there's no give on land, on territory for peace, the king will have to walk away from it. I mean, he cannot simply be the one Arab leader who goes and signs with Shamir some kind of agreement that says Jerusalem: that's been settled; the West Bank: that's Judea and Sumeria. All we're doing is signing a peace settlement saying we won't fight with each other any more. I don't think he'd last 10 minutes if he did that. LEHRER: Who would get rid of him in 10 minutes? Mr. BROWN: I think first of all, he would lose all of the financial help that he gets from various people. Immediately. I think his own army would be a little bit angry with him. And he'd certainly have trouble with his large Palestinian population, which is very quiescent and very much part of the system now. LEHRER: Mr. Satloff, why then does Secretary Shultz and other American negotiators through this long history of Middle East negotiations always say King Hussein is the key to any solution? If he has so little power, so little influence, why is he always the key? Or the potential stumbling block? You can fill in any cliche you want to. Mr. SATLOFF: Because Hussein is indispensable. LEHRER: Well, now, how could he be indispensable? Mr. SATLOFF: What we have here is a person who himself is necessary, but not sufficient. And that's always been the problem in making Middle East peace. Hussein is the person with whom both Israeli political parties want to deal. Right then and there, you've made him indispensable. He's the guy who's our friend. He's the guy whose interests we care about. We do not have very many friends in the Palestinian community. We've got a lot in Jordan. He's the guy whose long term survival is important to the West. I mean, it's interesting, there aren't very many monarchs living in the East Bloc. King Hussein knows whose friends he is. Also, even in the endgame, at the end of the road, Jordan's survival depends upon what happens in the West Bank. The -- any sort of Palestinian entity, whether a confederation, independent, however you want to make it, is going to survive in tandem with Jordan. Jordan is its gateway to the Arab world. LEHRER: And so when -- he's got the same sort of security problem on the table, every table, any table, that Israel does. Mr. SATLOFF: Well, actually, one could argue that Jordan is living -- has already lived through this sort of demographic nightmare that Shimon Peres paints for the future of Israel, in that Jordan has already, inside its quarters, that majority Palestinian population. But the thing is that King Hussein has managed to create a polity out of that. And what he doesn't want to do is upset that by throwing in another million and a half under his own rule. LEHRER: Okay, let's say, Dean Brown, that Hussein is indispensable, but not everything. What is it going to take? What is George Shultz going to have to show or do to get Hussein to go along? Mr. BROWN: I think he'll have to perform a miracle. Because -- simply because King Hussein is going to sit back and remember, I went through all of this before, under President Reagan's administration. Went through this with the Reagan Plan, and all the negotiations and commitments and discussions, public and private, that were held between the United States and Jordan at the time. And nothing happened. The United States lost interest. And I think this is one of the things that concern King Hussein, as it concerns other people in the area, is the United States has an enormous issue at a certain moment, and says that we've got to get those people, the stumbling blocks, we've got to get them out of the way, we've got to persuade them. And then something else comes up, the United States forgets about it, and they're left sort of holding a big, large sack. And I think that's what the caution is all about. He's talked to Israelis before, he can talk to them again. He's talked to them over the last 20 years. It's not that. He wants to know what's going to happen out of it all. And if it's simply that there's going to be a conversation and then he's going to end up looking foolish and denounced by somebody or another, he's not -- LEHRER: But Karen House, one of the things that Hussein apparently has always insisted on is an international Middle East peace conference. Well, that's step number one in George Shultz's plan. Why doesn't he warmly endorse this publicly and walk down the aisle hand in hand? Ms. ELIOTT-HOUSE: Because I think he does not believe that we're endorsing an international peace conference. We haven't made it clear -- the Israeli view of this, or at least the Prime Minister's view of this international peace conference is not that it's a conference, it's an opening ceremony, and that's it. I think beyond what Dean Brown said about his own lack of faith in American stick to itiveness, he also looks at Israel now, which is totally divided. A Prime Minister who is completely against the Shultz plan, but doesn't want to say so, he wants the King to be the one that kills it, and a Foreign Minister who is basically the genesis of this American plan. And until Israel has an election, and one or the other of those guys wins, and one or the other of those positions wins, I think the king would be crazy to be stepping forward to be humiliated again, as I think we did to him in 1983 when he struggled quite, I think, admirably to try to make something of the first Reagan peace plan, and George Shultz was nowhere around. We threw it on the table and left the king to try to do it on his own, and he couldn't do it. LEHRER: And so he's not about to try that again? Ms. ELIOTT-HOUSE: He's not going to make the same mistake again. He must wonder why George Shultz is so interested this time when he wasn't in 1983. LEHRER: Well, the obvious question that comes up is what do they talk about again today for 90 minutes? I mean, Shultz went to see him for 90 minutes, they had, you know, one of these frank exchanges, as the spokesmen for both sides -- what are they talking about, Karen? Ms. ELIOTT-HOUSE: I presume Shultz spends time trying to explain to the king why with this unrest several things -- with the unrest going on the West Bank, how this is a danger to his own regime in Jordan. I mean, to make the king feel personally threatened, which I think the king does -- by what's going on in the West Bank. And then tries by playing on that fear, he probably talks about, you know, American determination to make something happen this time, and talks in some detail about trying to work on some kind of international conference idea. But all the king wants to hear I think is what's -- as someone else has already said -- what's going to happen. Is there any potential for a territorial compromise? Will the Israelis give up any of the land? What they choose to give up might be insufficient, but so far there's been no commitment to give up any land. So I think the king listens and politely probably says I've heard this before. What are you going to do to make it happen? I expect he says that over and over and doesn't get a very good answer. And the Administration's got 8 months left. LEHRER: I hear you, I hear you. We have to go. Karen, Dean Brown, Mr. Satloff, thank you all three very much. Convicted MacNEIL: Next, the conviction of Evan Mecham. It happened to the Arizona governor last night in Phoenix, making him the first sitting U. S. governor in 59 years to be removed from office. Phyllis Palacio of Public Station KEET in Phoenix/Tempe, has this update.

PHYLLIS PALACIO: After listening to five weeks of testimony, the Arizona Senate decided in about an hour late Monday afternoon that Governor Evan Mecham should be removed from office. For many of the senators, it was an emotion packed moment. State Senator JAN BREWER, (R) Arizona: I believe that the charges before us are not arrogance, they're not incompetence, and they're not insensitivity. All of which that I believe this administration is guilty of. Thecharges are simply the obstruction of justice. And I don't find that that particular case has been sufficiently made. And I vote no. State Senator JESUS HIGUERA, (D) Arizona: Mr. Presiding officer, the only defense that we have heard is ignorance of the law. The citizens of this state will not tolerate this evil insensitivity to the constitution and the laws of the state. Therefore, I vote as the facts have been presented and stand to be, and I vote aye. State Senator PETER RIOS, (D) Arizona: Mr. Mecham has by his actions shown to the state of Arizona that he is poorly equipped to serve as the governor of our state --

Ms. PALACIO: The vote was one more than needed, 21 to 9 on the first charge against Mecham, that he had blocked the investigation of a death threat against a grand jury witness. VOICE: Evan Mecham is convicted of high crimes, misdemeanors or malfeasance in office, as contained in Article I of the articles of impeachment.

Ms. PALACIO: The vote on the second charge was not so close: 26 to 4 as the ranks of Mecham supporters dwindled even more. Mecham was accused of borrowing $80,000 from the state protocol fund. The money was loaned to his Pontiac dealership. Republican Tony West spoke directly to the governor, who sat quietly with his back to the Senate chamber. State Senator TONY WEST, (D) Arizona: It is with a heavy heart that I have found through the testimony and the facts all the evidence that your veracity and your ethics, particularly in government, are in a state of bankruptcy.

Ms. PALACIO: While the senators convicted Mecham on both charges, they declined to invoke the Dracula clause, so called because it could have prevented him from ever holding public office again in Arizona, thus driving a stake through his political heart. The vote was 17 to 13, 3 votes short of the 2/3 necessary. ROSE MOFFORD (repeating after unidentified man) I Rose Mofford do solemnly swear that I will support the Constitution of the United States and the constitution and laws of the state of Arizona.

Ms. PALACIO: Democrat Rose Mofford, the former Secretary of State who has been acting governor during the trial was sworn in today at the capital. The former ceremony brought to a close the brief and troubled 15 month governorship of Even Mecham. MacNEIL: This afternoon, Mecham told a Phoenix Kiwanis Club that he still had not made any decisions about his political future.

EVAN MECHAM, former Arizona governor: I'm so grateful to my many supporters throughout this state, and I wanted to thank them profusely, because without them, I wouldn't have lasted in office for about 15 months or slightly less. Without them, nothing would be possible. And without them, I wouldn't have been interested in running in the first place, and of course never would have gotten elected. I want to also make sure that everybody understands that I really don't hold any animosity towards anyone. I really have asked all of my people, and everyone else, to let's not look at those and start pointing fingers and having recriminations. That doesn't solve anything. We've got a great state, and I'm sure we'll survive this upheaval, as we have all others. But I hope that we can learn a good deal by what's going on. And of course, this chapter is -- this is just another chapter in a book, and this book isn't near the end. And so I don't have any announcement today of my future and what I plan to do, and whether I plan to run in a recall election, and whether I plan to go to the Supreme Court and challenge the facts that the trial wasn't really held under the conditions that I think everybody has a right to expect. That will come at a later date. I just want to tell you that any decision that I make will not be one of emotion. It will be based on fact. And the bottom line of true concern for the future of the people of our great state -- and I am very concerned about that. MacNEIL: Mecham still faces a criminal trial later this month on the charge that he concealed a $350,000 loan to his 1986 campaign. Notes Underground LEHRER: We close tonight on a musical note. Our regular essayist Penny Stallings goes underground to find what she can't find anywhere else.

PENNY STALLINGS: There's a certain mindset you take on as you descend into the depths of the New York subway, a sort of blindness. You're aware of your squalid surroundings or the constant threat of danger, but you block it all out, locking your gaze on some faraway point, avoiding the figures that lurk in the shadows. [sound of saxophone playing] But lately, something new has been added to the graffitti splashed world that throbs under New York. The sound of music made by performers who have converted the litter strewn platforms and tunnels into impromptu stages. Yes, more and more musicians are going underground, particularly now that trumped up highrises have overtaken the Manhattan landscape. Rush hour at New York's hub subway stations like Columbus Circle, Grand Central and Penn Station is currently the hottest gig in town. And competition for these prime locations is fierce. What with the job offers that come with the exposure, and earnings of up to a hundred dollars a day. Never mind that we're talking in dimes and quarters. And a good chance of being robbed. What matters is playing front of a live audience, captive though it may be. After one or two numbers, beleaguered commuters who moments earlier were uptight and suspicious, find themselves smiling. With that, they're no longer strangers, but an instant community, human and alive. New York has always been the place you came to make it, but nowadays, there's practically no place for a young performer to polish his act, to get discovered. Time was when the sweet sounds of the big bands of Artie Shaw, Benny Goodman and Woody Herman could be heard in countless New York barrooms, clubs and hotel rooftops. Unable to meet tough union demands, most of the big dancehalls and nightclubs disappeared. By the 50's and 60's, the big bands had been replaced by cool jazz combos, fronted by Mingus, Bird, and Brubeck. The old fogies like Dylan and Phil Oaks polished their craft at Gurds and Folk City. Now Gurds, Birdland, Folk City, all are gone. And on New York's famous 52nd Street, Jazz Street, there remains not even one music club. For the last 20 years, live music or what's passed for it, has taken up residence in stadiums and arenas where stars are so far away that they can only be seen on giant closed circuit screens. Even megaconcerts have lost some of their allure now that stations like MTV bring stars right into your living room, lip synching their latest hits in stereo, and often sounding better than they do live. But down under New York, a brave band of troupers are providing the intimacy between audience and performer. Many have been provided with a permanent venue, thanks to the MTA and Music Under New York, a program designed by Symphony Space, long a friend to struggling artists. Fans of Evelyn Blakey, eldest daughter of jazz great Art Blakey, gladly pay the fareat Herald Square to catch her set of what she likes to call ''Cafe Subway. '' At Penn Station, there's a violinist, James Garson, who plays the G Minor Fugue by Bach so beautifully that riders miss train after train. And just last week, a woman got so carried away by the joyous signs of the Roy Campbell group that she completely disrobed before the cops could calm her down. How can you live in New York, my old Texas friends ask me, and how can you ride that awful subway? Well, naturally, the subway has everything to do with economics. Then, too, crazy as it sounds, there are those of us who thrive on the subway's surreal underground theatre. And those of us who share a very special secret: the subway just happens to have the best live music in town. Recap LEHRER: Again, the major stories of this Tuesday. Attorney General Meese announced the replacements for two top jobs at the Justice Department. Gunmen who hijacked a Kuwaiti airliner to Iran agreed late today to release some women passengers. One hundred eleven persons are on the 747 jumbo jet. And a heavy turnout was reported in today's Wisconsin Democratic primary. Results released this afternoon after Colorado caucuses show Massachusetts governor Michael Dukakis with a 45% to 39% lead over Jesse Jackson. Good night, Robin. MacNEIL: Good night, Jim. That's the NewsHour tonight, and we'll be back tomorrow night. I'm Robin MacNeil. Good Night.