(Prepared statement of Mr. Mulligan follows:)

TOPIC IV. THE EFFICIENCY OF THE COMMISSIONS-WHAT CHANGES, IF ANY, IN THE EXISTING STATUTORY PROVISIONS RELATING TO SUBSTANCE OR PROCEDURE ARE NEEDED TO ENABLE THE COMMISSIONS TO COPE WITH THE INCREASINGLY ENORMOUS VOLUME OF BUSINESS COMING BEFORE THEM?

Comments of M. C. Mulligan, Director, Bureau of Air Operations, Civil Aeronautics Board, at a panel discussion concerning administrative process problems held before the Special Subcommittee on Legislative Oversight of the Committee on Interstate and Foreign Commerce of the House of Representatives, on June 15, 1959

Mr. Chairman, my name is M. C. Mulligan and as Director, Bureau of Air Operations, I have been designated to present a statement with respect to the fourth topic in the committee's outline for these panel discussions.

Under the ground rules of the outline, the views here expressed are my own and may or may not reflect the official position of the Board. Although such could, of course, be the case, I am not myself aware of any instance in which the views expressed are, in fact, inconsistent with those of the Board.

In view of the understandable time limitation, I shall not attempt to cover each and every legislative change which might conceivably improve the efficiency of the Board's operations. The items which I shall present are six in number and they fall within the context of topic IV only, of course, as that topic relates to the Civil Aeronautics Board. All references hereinafter to "the act" mean the "Federal Aviation Act of 1958."

ITEM 1-CIVIL PENALTIES

The first item concerns the necessity for legislation to authorize the imposition of civil penalties for violations of title IV of the act.

Title IV, of course, comprises the principal economic regulatory provisions of the act. Under the present law, the procedures for dealing with violations of the provisions of this title are exceedingly cumbersome and the penalties quite severe. These are well designed to deal with serious cases involving knowing and willful violations. However, there are many instances of relatively minor infractions which either do not fall within the "knowing and willful" category or for which a criminal penalty, or revocation of operating authority is entirely too drastic a sanction.

The power to impose civil penalties, on the other hand, would give the Board a far better opportunity to tailor enforcement action to fit the nature of the violation. It would also enable the Board to deal with violations speedily and avoid situations such as have existed in the past where offenders have been able to persist in violations during the time required to prosecute a formal proceeding or court action. Finally, the mere existence of the civil penalty power would probably go a long way toward preventing violations from occurring in the first instance.

ITEM 2-ELIMINATION OF THE HEARING REQUIREMENT IN CERTAIN CASES UNDER SECTION 408

Section 408 requires Board approval of certain air carriers mergers, consolidations, acquisitions of control, and other transactions which involve purchase, lease, or contract to operate properties. The Board may not grant approval required by this section without first conducting a hearing upon an application presented to it.

Many of the matters requiring Board approval, such as a proposed merger of two airlines or the acquisition of control of an airline, are transactions which have substantial effect upon the public interest. In these cases a hearing is obviously appropriate and necessary. However, experience over a period of more than 20 years has shown that in many situations a hearing serves no useful purpose. Examples here are cases involving relatively simple transactions such as the purchase or lease of a small number of aircraft-often only one aircraft and seldom more than three.

In the absence of authority in section 408 to dispense with hearing, the Board has on various occasions followed the procedure of exempting the parties from

the requirements of section 408 pursuant to the exemption authority contained in section 416(b) of the act. However, in those cases where the applicant or one of the applicants for approval of a transaction under section 408 is not an air carrier, the Board cannot act under section 416 (b) since its application is limited to air carriers. In such cases, the Board again has had no choice other than to hold a hearing.

In cases where the nature of the section 408 transaction is such that a hearing is not required in the public interest and no person disclosing a substantial interest requests a hearing, it is believed that the Board should have authority to act without a hearing. Similar authority has already been granted by Congress to the Interstate Commerce Commission and the Federal Communications Commission.

ITEM 3-EXEMPTION OF AIR CARRIERS FROM FILING CONTRACTS AND AGREEMENTS OF A ROUTINE AND MINOR NATURE

Section 412 of the act requires air carriers to file with the Board a wide variety of contracts or agreements which affect air transportation and which are entered into between two or more carriers. The several types of agreements listed in the act are very broad and include a category called other cooperative working arrangements.

A large percentage of the contracts and agreements filed for approval under section 412 cover such minor matters as the joint use of a public address system at an airport, the joint use of a piece of ramp equipment, and the joint use of porter service. The Board received a total of over 1,700 agreements under section 412 in a recent 12-month period. I would estimate that something less than 50 percent of these presented any significant regulatory problem.

I believe that if the Board were given the clear power, by amendment to section 412, to establish categories of contracts and agreements, the filing of which would not be required in the public interest, no worthwhile regulatory purpose would be sacrificed by such amendment and savings to both the Board and the carriers would result.

ITEM 4—CLARIFICATION OF THE EXEMPTION POWERS OF THE BOARD IN SECTION 416 (B) Section 416(b) of the act, among other things, permits the Board to exempt any air carrier or class of air carriers from the requirements of title IV of the act. To grant such exemption the Board must find:

(1) That compliance with the requirements would be an undue burden on the air carrier by reason of the limited extent of, or unusual circumstances affecting, the operations of such carrier.

(2) That compliance with the requirements is not in the public interest. This section of the law has raised very difficult questions of interpretation, particularly in respect to applications for exemptions from section 401 of the act so as to permit the furnishing of certain air transportation services without the necessity for a hearing and the grant or amendment of a certificate of public convenience and necessity. A recent court decision (Pan American Airways, et al. v. Civil Aeronautics Board, C.A.D.C. Nos. 14,497, 14,506), which set aside a Board order under section 416(b), reflects a more restrictive interpretation of the section than the Board had previously placed upon it.

The volume of exemption applications is quite large and fairly constant. Efficiency of operations would be significantly increased, I believe, if section 416 were amended in two respects:

First, to clarify it and state in clear, unambiguous terms the circumstances under which the Board has power to grant exemptions;

Second, to broaden the scope of that power at least to recognize limited extent of the authority sought (as distinguished from limited extent of the carrier's operations) as a basis for granting exemption.

At present, the processing of most exemption applications is quite time consuming because of the existing uncertainty as to what meets the statutory criteria. Thus, each application requires varying degrees of legal research. Whether or not the Board's authority were to be broadened, so long as it were unmistakably clear what that authority is, applications could be handled more speedily and with less expenditure of manpower.

ITEM

5-CLARIFICATION OF THE BOARD'S POWER TO DEFINE THE SCOPE OF ITS OWN PROCEEDINGS

One of the most troublesome problems the Board has encountered in the area of route proceedings has been the contention of applicants at the consolidation stage, citing the Ashbacker doctrine, that they are entitled as a matter of legal right to consolidation of particular applications. Such an applicant usually asserts that the grant of an application which the Board proposes to hear would preclude a subsequent grant of its own application, and that the Board therefore must also hear its application in the proceeding and accord it contemporaneous consideration. In several instances in the past, refusal by the Board to consolidate particular applications has resulted in an appeal to the courts from the consolidation order, with a request that the court stay further procedural steps in the Board proceeding pending disposition of the petition for review.

The Board has consistently adhered to the principle that applications which, as a matter of economic fact, are mutually exclusive should be afforded comparative consideration before any one of them is actually granted. It has, however, taken the position that failure to consolidate an application alleged to be mutually exclusive in a particular proceeding does not in and of itself result in any deprivation of right, and that, in any event, errors in consolidation, like any others which may occur in the course of a particular case, are not judicially reviewable except as an incident to judicial review of the Board's final order entered at the conclusion of the proceeding. Legislation to make this clear would, I believe, be highly desirable.

ITEM 6-SEPARATION OF SERVICE MAIL PAY AND SUBSIDY

Under existing law the establishment and payment of compensatory rates for the carriage of mail are merged in section 406 of the act with the establishment and payment of subsidy to air carriers operating under certificates authorizing the transportation of mail by aircraft. Although Reorganization Plan No. 10 of 1953 (67 Stat. 644, effective October 1, 1953) and the incorporation of the substance thereof in section 406 (c) of the act accomplished a major part of the objectives of subsidy separation, there still exists some misapprehension as to the distinction between payment in compensation for the service of transporting the mail and payment in support of the development of air transportation. Instead of fixing, determining, and publishing a single rate which includes an element to be paid by the Postmaster General as service pay and an element to be paid by the Board as subsidy, legislation which would permit a separate subsidy rate exclusive of the compensatory pay element to be fixed, determined, and published by the Board for payment by the Board, is, I believe, long overdue.

This change, recommended by the General Accounting Office in 1956, would eliminate the confusion which still exists in the public mind as to the difference between subsidy and service mail pay and would simplify procedures for the Board, the carriers, and to some degree, the Post Office Department.

The CHAIRMAN. I am sure that in time the committee will give consideration to these legislative recommendations. Some of them are pretty difficult, I must say.

If you care, however, to briefly now outline them, we would be glad to have that and let your entire statement be included in the record.

Mr. MULLIGAN. I think that would be sufficient as far as I am concerned. I would be very happy to have it go in the record and would look forward to testifying on some of these things before you at a later date.

The CHAIRMAN. I might say for the information of the committee, he deals with the civil penalties which this committee has considered in the past, and with reference to section 408 which this committee has dealt with too, and also the contractual matters and agreements between carriers, which are important considerations, and the

Board's action in relation to section 416(b) of the act, and a rather new and important item is discussed and that is the clarification of the Board's powers to define its own procedures, which has also been discussed rather extensively during the course of the hearing.

I wonder if any member of the panel has had an opportunity to read Mr. Mulligan's statement and would like to comment on it? Mr. H. T. BROWN. I would agree with everything he says, with two exceptions:

His item 4(2) I would not agree with. I would also not agree that the Ashbacker doctrine should be scrapped and that the Board should not be required to give concurrent consideration to competing applications for licenses that will be affected by the decision.

I don't want to go further in attempting to explain my position. Except for that, I would agree with everything he states.

Mr. PIRIE. Mr. Chairman, I would like to state that I agree thoroughly that the Board's interpretation of sections 408 and 412, which involve the filing of agreements in certain types of transactions, has been misconstrued. It has not been interpreted in accordance with what I regard as being the intent of Congress, and Mr. Mulligan indicates that the Board seems to have the same feeling that they should have a much more limited application; that is, these sections should. If legislation is necessary to accomplish that, then I would be all for that.

I would disagree with the other recommendations made by Mr. Mulligan because I don't think any of them are essential.

The definition of the scope of the exemption power, I think, has been very clearly accomplished by the Court and needs no further clarification at this time, nor do the other things, I believe, pose any great problem.

The CHAIRMAN. Gentlemen, before concluding this panel discussion, I would like to say that we have received a communication from Mr. Westwood, addressed to Mr. Lishman, dated June 15, 1959, expressing his regret not to be able to be here today and supplementing his remarks of yesterday.

Without objection, this will be included at the appropriate place in

the record.

(Letter referred to is reproduced at end of Civil Aeronautics Board discussion.)

The CHAIRMAN. Gentlemen, on behalf of the committee, let me thank you very much for your willingness to appear both yesterday and today and discuss as a panel these important items affecting thisshall I call it an agency?

Mr. DURFEE. Start calling it a commission.

The CHAIRMAN. We do appreciate the very forthright discussion that we have had and I anticipate that the committee will hold hearings on specific legislation, that is H.R. 4800 and the American bar bill, H.R. 6774, as soon as the schedule of the committee will permit, at which time you and others will have an opportunity to direct your attention to those specific proposals in the legislation and such others as you may decide.

I think this has been a very worthwhile discussion and a very fine panel.

Thank you very much for your participation.

(Material later received for the record follows:)