TRENGTHEN UNITED STATES-INTERNATIONAL AIR TRANSPORTATION FRIDAY, MAY 13, 1966 UNITED STATES SENATE, COMMITTEE ON COMMERCE, Washington, D.C. The subcommittee met at 10:15 a.m. in Room 5110, New Senate fice Building, Hon. A. S. Mike Monroney (chairman of the submmittee) presiding. Senator MONRONEY. The Aviation Subcommittee of the Committee Commerce will receive testimony in the hearing this morning on 3197 and S. 3198. Both measures were introduced by Chairman agnuson and are designed to strengthen the competitive position of S.-flag carriers in international transportation. The first measure, S. 3197, would seek to amend section 416 of the ederal Aviation Act so as to broaden the exemption authority of the vil Aeronautics Board with respect to U.S.-flag carriers. The bill ould authorize the Civil Aeronautics Board to exempt a U.S.-flag rrier from enforcement of section 401, relating to authorization to gage in overseas or foreign air transportation, if the Board finds that e carrier would otherwise be placed at a competitive disadvantage regard to foreign air carriers. The bill makes clear that the Board ay not issue such an exemption without the affirmative approval of e President. The second bill, S. 3198, would amend section 402 of the Federal iation Act of 1958 to clarify the authority of the Civil Aeronautics pard with respect to operating permits issued to foreign air carriers. he bill would authorize the Board to suspend a foreign-air carrier rmit without notice and hearing and, after notice and hearing, to ter, modify, amend, cancel, or revoke a foreign-air carrier permit henever it finds that the government or aeronautical authorities of y foreign country have, over the objections of the Government of the nited States, taken action which impairs, limits terminates, or denies reed-upon operating rights of any air carrier designated by the nited States to conduct flight operations to, from, through, or over e territory of such foreign country. Without objection, I would like to place in the record at this point e text of the remarks which Chairman Magnuson made when he troduced these bills and which sets forth in detail the background d objectives sought. Staff counsel assigned to this hearing: William T. Beeks, Jr. 1 In addition, I would like to place at this point in the record texts of both bills, together with comments which the committee received from various Government agencies. (The material follows:) AMENDMENT OF SECTION 416 OF THE FEDERAL AVIATION ACT Mr. MAGNUSON. Mr. President, I introduce for appropriate reference at amend section 416 of the Federal Aviation Act. The need for this amendmen urgent in order to protect and promote the U.S. international air transportat system and to eliminate a built-in procedural advantage enjoyed by fore airlines serving the United States. The speed and flexibility of the jet airplane has brought about mirace changes in the air commerce of the world, none of which were envisaged when Civil Aeronautics Act was first enacted in 1938 or when it was reenacted in Federal Aviation Act in 1958. Unfortunately, however, our statutory proced have not kept pace with these changes and as a result our U.S.-flag carriers often placed at a serious disadvantage in seeking to compete with foreign ar for traffic to and from the United States. To meet the eruption of foreign air travel brought on by the jet plane. " United States, acting through the State Department and the Civil Aeronat Board, has granted numerous foreign countries important air routes to through the United States in exchange for reciprocal routes for Americancarriers. These exchanges are made through bilateral air transport agreemen negotiated between the United States and foreign governments. Once an a ment is signed calling for an equitable exchange of routes, a procedural ano takes place. Under the present act, the foreign government is able to imple its route promptly whereas the United States, because of its own inter procedures, must often delay years before permitting an American-flag cam to operate the reciprocal route. In order to place in operation the route granted by a bilateral air trans agreement, a foreign airline must file with the CAB an application, under se 402 of the act, for a foreign air carrier permit. This is a simple procee involving only the one foreign air carrier applicant. Since the route applies has already been included in a bilateral agreement, the hearing is pro forma generally uncontested. The President approves the Board's recommended sion almost as a matter of course and a foreign air carrier permit issues promp often within a matter of 60 to 90 days after the filing of the original applicat Once the permit is issued, the foreign airline is free to start operations. No such simple or expedited procedure is presently available to permit American-flag carrier to operate the reciprocal route. Under the present act President is often required to wait years, notwithstanding the important for relations or national defense considerations which may be involved, before CAB is able to submit to him for approval a recommended decision covercertification of an American-flag carrier over the route in question. It is situation to which the bill I have introduced is addressed. Under the existing law, American-flag carriers may obtain new operating ng by one of two methods: First. By a lengthy certificate proceeding under section 401 of the act, ind ing notice and hearings, or Second. By an exemption under section 416 of the act, applicable in cer very limited situations. Under the certificate method, the Civil Aeronautics Board has adequate per to grant the necessary operating rights, but the decision in Ashbacker v. F. 326 U.S. 327 (1945) has been held to control CAB certificate proceedings. I Air Lines v. Civil Aeronautics Board, 228 F. 2d 17 (D.C. Cir. 1952). This requ?” all applications seeking the same or similar rights to be heard in the same proc ing. As a result, the certificate proceedings involve numerous applicants and are necessarily slow and cumbersome, normally consuming several years bec completion. Under the exemption method, the proceeding can be fast enough but the p ent statutory provision as interpreted by the courts severely restricts the pr of the Civil Aeronautics Board to grant relief. The requirements in the stat that the Board find "an undue burden" on the air carrier applying for relief reason of the limited extent of the operations of such air carrier" or "by of unusual circumstances affecting the operations of such air carrier," is in preted by the courts to require a showing of something more than loss of poteri enue pending completion of the certificate proceeding. American Airlines v. il Aeronautics Board, 235 F. 2d 845 (D.C. Cir. 1956), Pan American World ways v. Civil Aeronautics Board, 261 F. 2d 754 (D.C. Cir. 1958). Whatever y be said for the wisdom of this result in a domestic route situation where the npetition consists only of other U.S. carriers-the situation for which the proion was primarily designed-the result is clearly undesirable where the traffic lost to foreign competition and where the development of the U.S. flag intertional air transportation system is accordingly delayed. The present exempn provision gives neither the Board nor the President authority to act in cases ere public interest considerations alone require temporary authorization of one more U.S. air carriers pending the completion of certificate proceedings. As esult, the U.S. carriers are relegated to lengthy certificate proceedings as the ly method of relief. A few examples are in order. Years ago two American-flag carrier-Braniff d Panagra-applied to have their routes extended to New York so as to prole the first U.S.-flag one-carrier through-service between New York and the st coast of South America. These applications, together with those of numers other applicants were later consolidated in the United States-Caribbean-South nerica case. After 41⁄2 years this case is still at the examiner hearing stage. In e meantime, two foreign carriers-BOAC and Lufthansa-already are operat5, by virtue of permits issued by the CAB and the President under section 402, e only one-carrier through-services between the United States and the west ast of South America. The two U.S. carriers are at an obvious competitive sadvantage and can obtain no relief until the United States-Caribbean-South nerica case is decided some years hence. A second example occurred some years ago when Trans Canada Airlines started erating a through-service between Cleveland and Europe via Toronto. TWA, hich serves Cleveland on its domestic network, did not at that time have effece authority to operate through-service between Cleveland and Europe on its insatlantic service. An amendment of its certificate was necessary, but this uld not be accomplished until the so-called Cleveland-New York nonstop case is finally decided. This case involved a large number of domestic carriers and ok several years before TWA finally obtained the necessary authority to comte with Trans Canada for Cleveland-Europe passengers. The point is that, lely as a result of the CAB's and the President's lack of authority to cope with e problem expeditiously, Trans Canada obtained a several-years lead on TWA this purely U.S. traffic market. Another example is found in the current Transpacific Route case in which the AB is confronted with the enormous task of passing upon the applications of 23 .S. airline applicants for routes throughout the Pacific Basin area. The current roceeding is a continuation of a proceeding which first began in 1959 and after spension in 1961 was reopened in 1965. It will take years for the Board to sort it these conflicting applications. Meanwhile, two foreign carriers-Qantas d BOAC-by virtue of the expeditious section 402 procedures are already proding transpacific services to and through the United States identical to those hich are in issue in the Transpacific Route case. In December 1965 the United cates concluded a new air transport agreement with Japan whereby a Japanese rline was granted the right to operate from Japan across the Pacific to California nd across the United States to New York and beyond to Europe and around the orld. JAL has now applied for a section 402 permit for this route. No Amerin-flag carrier is permitted at present to offer such a service, although the national terest in providing it was recognized by the CAB as long ago as 1960. Nor will y be able to operate it-even on a temporary basis-until the Transpacific oute case is decided years from now. Thus, the national interest is frustrated procedural deficiencies. The problem presented is not a temporary one. The cases mentioned are a ortent of the future. They indicate that the same type of competitive disadantage is likely to arise when new equipment requires changes in the internaonal route pattern, and when new international routes are exchanged by bilateral greement between the United States and foreign governments. Under present ocedures, the foreign-flag carriers will be able promptly to secure operating ghts under section 402, whereas the U.S. air carriers will again be involved in ngthy and cumbersome certificate proceedings. Obviously some revision in the controlling statute is needed. The bill which I ave introduced is intended to provide this relief. The bill broadens the exemption power of the CAB to permit it to cope with tuations such as I have described. It authorizes the CAB, pending decisions on applications by U.S.-flag carriers under section 401 of the Federal Aviation Ar to exempt a carrier from enforcement of section 401-thus permitting it we erate for a temporary period if the CAB finds that the carrier "is placed . competitive disadvantage" with respect to foreign carriers and that the nati interest is thereby "adversely affected." The Board's action is subject to proval by the President which assures that the President's constitutional prere tive in the conduct of foreign policy is fully respected. If enacted, the present procedural inequity will be removed, the CAB an President will be able to grant interim operating rights to U.S. air carries timely fashion to enable them to compete on even terms with foreign air care who receive rights under the expedited procedures now available to them, and t sound development of the U.S.-flag international air transportation system V. be promoted. In short, the bill will permit the CAB upon a proper showing to clear a some of the procedural underbrush which has been allowed to frustrate national interest. The effect will be to put the CAB and the President in a p-- fi tion promptly to place U.S.-flag carriers in a position of competitive equality permit them to make their full contribution to the commercial interests of " United States and the important balance-of-payments objectives which be attained. The bill also provides that any exemptions involving overseas or foreigntransportation and which may be granted by the CAB under the existing seet 416 shall also be subject to approval by the President. This is consistent *** section 801 which requires approval by the President of any certificate authori granted by section 401 involving overseas and foreign air transportation. AMENDMENT OF SECTION 402 OF FEDERAL AVIATION ACT OF 1958 Mr. MAGNUSON. Mr. President, there has been much discussion in years, both at home and abroad, about the authority, or lack of authority, of Civil Aeronautics Board to deal directly and appropriately with foreign air? riers when and if their governments arbitrarily restrict U.S.-flag air carr operations to, from, through or over their territories. Since the problem arisen in the past, and undoubtedly will arise again in the future, any questi about the Board's authority to respond in kind ought to be settled. There are many who believe that the Civil Aeronautics Board now posses adequate authority under section 402 of the Federal Aviation Act to conditie otherwise limit foreign air carrier operating permits where required by the p interest in such cases. But questions and debate about the extent or limitat of the present authority have depreciated its value and usefulness. In fact, publicly expressed differences of opinion here about this authority probably ba weakened our bargaining position abroad, and may even encourage the imposit of restrictions on U.S.-flag air carriers by foreign governments in their absener o concern over the objections of, or retaliation by, the U.S. Government. This bill is introudced to stimulate the necessary discussion and review of the Board's authority in this connection. Its purpose is to amend the Federal Av tion Act of 1958 if it is found necessary to make clear that the CAB has the auth ity to take action against foreign carriers when their governments arbitrari restrict or limit U.S.-flag airline operations. Scheduled international air service is conducted by U.S. and foreign-flaglines largely pursuant to one of two foundations-bilateral agreements or t principle of reciprocity. In either case, the right to provide this vital com nication between any two nations requires the agreement, written or tacit both sovereign governments. And once agreement has been reached and right granted, such rights should be fully and faithfully recognized. This Govern should have powers over foreign air carriers no less than other governments over our carriers, both to insure adherence to the letter and spirit of the ri granted, and to permit the taking of action short of actually terminating air servis This bill would clear the air in that area once and for all. It would spell o the power of the Board, in section 402(f) of the act, to take reciprocal set against carriers of foreign nations whose governments impair, limit, terminate deny the agreed-upon operating rights of U.S. airlines to fly to, from, through, over the territory of those countries. Moreover, this bill would deal with anot problem mentioned in the past by some who believe the existing statutory chinery contemplates a hearing process too long and too involved to be effectiv In the face of swift, arbitrary unilateral action with little or no notice by foreign governments, they have felt our present machinery is unwieldy and ineffectual. This bill eliminates the notice and hearing requirement to permit the suspension of foreign air carrier permits for these extraordinary circumstances. Lastly, this bill will preclude avoidance of the intent and effects of the authorized sanctions by such devices as the substitution of service by a foreign air carrier of a third country in the guise of a polling or similar intercarrier cooperative arrangement. Early discussion of, and settlement of, any questions of doubt about the authority of the Civil Aeronautics Board over foreign air carriers would be most beneficial. Perhaps the future would then hold fewer and fewer instances of arbitrary unilateral action being taken against our airlines, and a healthier atmosphere for the continued growth of international air transport in the public interest. I ask unanimous consent that an analysis of the bill, together with the text of the bill, be printed at the conclusion of my remarks. The analysis presented by Mr. Magnuson is as follows: ANALYSIS OF A BILL "TO AMEND SECTION 402 OF THE FEDERAL AVIATION ACT OF 1958" Section 402 of the Federal Aviation Act pertains to the requirements for, and the issuance, terms and conditions, validity, modification and revocation of foreign air carrier permits. Under subsection (f), the Civil Aeronautics Board is authorized to alter, modify, amend, suspend, cancel or revoke foreign air carrier permits, after notice and hearing, whenever such action is found to be in the public interest. The amendment would authorize the Board to suspend a foreign air carrier permit without notice and hearing and, after notice and hearing, to alter, modify, amend, cancel or revoke a foreign air carrier permit whenever it finds that the Government or aeronautical authorities of any foreign country have, over the objections of the Government of the United States, taken action which impairs, limits, terminates, or denies agreed-upon operating rights of any air carrier designated by the United States to conduct flight operations to, from, through or over the territory of such foreign country. The amendment further provides for the restriction of operations between such foreign country and the United States by any foreign air carrier of a third country in order to preclude avoidance of the intent and effects of the authorized sanctions by substitute foreign air carrier service brought about by foreign air carrier pooling or similar foreign intercarrier cooperative arrangements. [S. 3197, 89th Cong., 2d sess.] A BILL To amend section 416 of the Federal Aviation Act of 1958 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Federal Aviation Act of 1958, as amended, is hereby further amended as follows: SEC. 2. In subsection 416(b) relating to exemption of air carriers, amend paragraph 1 by adding at the end thereof the following: "In addition, if an air carrier has filed an application under section 401 to engage in overseas or foreign air transportation, the Board may exempt the carrier from the enforcement of section 401 with respect to air transportation covered by the application, for a temporary period to continue not longer than sixty days after the final decision by the Board on the application filed under section 401, if it finds that pending hearing and final decision on its application under section 401 the carrier is placed at a competitive disadvantage with respect to a foreign air carrier or carriers serving the United States pursuant to permits issued under section 402 and approved by the President under section 801, and that the development and promotion of the United States flag international air transportation system is thereby adversely affected. No exemption shall be issued under this paragraph (1) which involves overseas or foreign air transportation without the affirmative approval of the Board and the President." 63-350-66- -2 |