Section 5 continues in effect for 2 more years the present system of compensation for the carrying of the air mail.

Section 6 makes it unlawful, after the enactment of the bill, for an air-mail contractor to engage directly or indirectly in any phase of the aviation industry except the transportation of mail, passengers, and express, and activities incidental thereto.

Section 7 prohibits the Interstate Commerce Commission from considering any application for the establishment of any air-mail line or air-transport service, or to grant any such application on the grounds of public convenience and necessity, or for any other reason.

Below is quoted a letter received from the Postmaster General on this subject:

Hon. JAMES M. MEAD,

Chairman, Committee on the Post Office and Post Roads,

House of Representatives.

MY DEAR MR. MEAD: I submit herewith a draft of a bill to amend the airmail laws and request that if it be consistent with your own views you introdue it in the House.

The reasons for recommending the amendments are as follows:

Section 1: A definition of the term "nonmail schedule" is necessary to give effect to other provisions of the law as we see it.

Section 6 (e) provides that in fixing and determining the fair and reasonable rates of compensation for air-mail transportation, the Interstate Commerce Commission shall disregard losses resulting from the unprofitable maintenance of nonmail schedules.

A number of the air-mail lines operate trips in addition to those trips for which they have air-mail contracts. This Department recommended that the law be enacted as it was for the purpose of preventing air-mail contractors expending money received in Government subsidies on unprofitable trips operated in the carrying of passengers and express only. It was obvious that if such nonmail or noncontract trips were operated, and they proved unprofitable, the expenses of the operators would be increased and the Interstate Commerce Commission would be asked to consider such expenses in the fixing of fair and reasonable pay rates for the transportation of air mail.

The law contains a provision that "The Postmaster General may, upon application by an air-mail contractor, authorize said contractor for his own convenience to transport air mail on any nonmail schedule or plane, with the understanding that the weights of mail so transported will be credited to regular mail schedules and no mileage compensation will be claimed therefor and the miles flown in such cases will not be computed in the annual aggregate of flown mileage authorized under this section."

This arrangement is very convenient for the heavy mail-carrying lines which are thus permitted to distribute their daily mail loads between planes on mailpay trips and other trips which are flown voluntarily by the contractor without mail pay; however, the contractor is credited with the weight of the mail carried on non-mail-pay trips and this weight is included in the total weight for the month, from which the average load is computed. The advantage to the contractor is that he is enabled to avoid overloading his planes operating on pay trips, which overloading would result in him being compelled to displace passengers and perhaps express, with a resultant loss in revenue from these sources. Some of the decisions of the Interstate Commerce Commission would indicate that the Commission differs with the Post Office Department in its construction of the non-mail-trip provision. In one order the Commission says:

"Without at this time deciding whether weight-credit schedules upon which air mail is transported without mileage compensation, are 'nonmail' schedules within the meaning of the act, we do not find that petitioner has sustained losses of the character which we are directed to disregard in arriving at fair and reasonable rates."

Thus it appears that the Interstate Commerce Commission, in determining fair and reasonable rates, has not construed the act to prevent the consideration of losses incurred on nonmail trips where mail is carried on planes at the request of the contractors and on the weight-credit arrangement.

The Post Office Department has contended that the provision of section 6 (e) is that the Commission shall disregard losses resulting from unprofitable non

mail trips. It appears advisable to make the intent of Congress perfectly clear on this point.

Section 2: It is recommended that section 2 of the attached bill be enacted so as to more clearly provide that no increase in rate shall be allowed during the initial period for which any contract is let, and that the contractor shall be required to perform his contract for the full initial period at the bid rate.

Section 3: Subsection (c) of section 3 of the present law authorizes the Postmaster General to grant "extensions" of air-mail routes. The suggested amendment merely adds the words "from either terminus thereof." The recommendation for adding these words is made to avoid the Department having to consider applications for the establishment of lines extending from points on air-mail lines other than from the terminal points. The Department has consistently held that the power to grant an extension of an air-mail route gave us the power to extend only from the terminal point but I think that the limitation of this authority should be made clear, if that is what Congress intended.

Section 4: Amendment to subsection (f) of section 3 is recommended so as to authorize an increase of 3,000 route-miles and 5,000,000 airplane-miles annually. This recommendation is made because the Air Mail Service has been so developed that under the present limitations new routes and extensions are needed and additional schedules on some routes are needed, and hence the recommendation is made to increase the amount of service that the Postmaster General is authorized to maintain. This additional service will not, of course, be commenced except in cases where it is found necessary in the public interest and where such additional service can be provided within the appropriation.

Section 5: The enactment is recommended of the proposed amendment to subsection (b) of section 6 of the Air Mail Act to require the Interstate Commerce Commission to furnish the Postmaster General with a copy of each report made to the Commission by any auditor, examiner, or employee, covering any examination of books, records, accounts, contracts, and business records of air-mail contractors.

The law required the Commission to make audits and investigation of the books, records, and accounts of the air-mail contractors. I do not feel that this Department should maintain a large force for the purpose of auditing and investigating in detail all the books, records, and accounts of the contractors as the Commission is also required to do this. These investigations are made in order to fix just rates of compensation of the carriers.

When an application for increased rates is made to the Interstate Commerce Commission by an air-mail contractor, the Postmaster General is served with notice of such application. While, of course, it is not the policy of the Post Office Department to resist the granting of fair-pay allowances for transporting the mail, it is desirable and important that a thorough audit and investigation of the books, records, and accounts of each contractor be made before a decision on the contractor's petition is reached, and that any data or memoranda relating to any such in estigation on which the Commission expects to act, should be furnished to this Department so that it may have a reasonable opportunity to determine its position before the date of hearing.

SECTION 6: It is recommended that subsection (e) of section 6 of the Air Mail Act be amended. Three changes are suggested.

The law now provides that the Commission shall fix air-mail rates that are "designed to keep the aggregate cost of the transportation of air mail on and after July 1, 1938, within the limits of the anticipated postal revenue therefrom." This would require that the Commission fix as the total amount of air-mail rates, effective after July 1, 1938, a sum not in excess of estimated postal revenues. We do not believe that the revenues derived from air mail by 1938 will be sufficient to maintain the fine air-mail service that the country now enjoys and that the period should be extended for an additional 2 years so as not to require the impairment or curtailment of the present excellent service.

The air-mail revenues have steadily increased since the air-mail contracts were reawarded in 1934 and the new Nation-wide system was set up. During the fiscal year 1933 there was carried 6,741,788 pounds of air mail that produced a revenue of $6,116,441.57. During the fiscal year 1936 there was carried 15,337,993 pounds of air mail that produced a total revenue of $9,702,676.46. The payments to air-mail contractors during the fiscal year 1933 were $19,400,264.81. The payments to the air-mail contractors during the fiscal year 1936 were $12,035,864.70. Thus it will be observed that the revenues have steadily increased and there is only about a $2,500,000 difference between the payments to the air-mail contractors during the fiscal year 1936 and postage derived from air mail.

Another suggested change is to provide that the Postmaster General should estimate the anticipated postal revenue from air mail and make report thereof to the Commission. The Cost Ascertainment Division of the Post Office Department keeps a constant check on all classes of mail and is equipped to make reasonably accurate estimates on postal revenue received from all classes of mail and this Department is perfectly agreeable to giving the Commission all the information it obtains with respect to air mail.

Another proposed amendment is the last sentence which provides that no change in rates ordered by the Commission shall be retroactive or become effective at any time prior to the date of the order of the Commission fixing such rates or changing such rates.

Section 7: It is recommended that section 6 be amended by adding thereto a provision that whenever any application for a reduction or increase of air-mail rates, if filed by any interested party, the Interstate Commerce Commission shall make a complete audit of the books, records, and accounts of the contractor affected, and shall transmit two copies of the audit to the Postmaster General and the contractor at least 30 days prior to the date for such hearing. It further provides that no hearing shall be held or ordered held on such application until such audit and report is made to such contractor and the Postmaster General, and the Postmaster General may be granted 30 days' time to make an additional independent investigation if he thinks the public interest requires it to develop any necessary facts not covered by the Commission's audit.

The Department in the proceedings before the Commission has always insisted that these audits and investigations should be made before any case is set for hearing to fix just rates. This Department has insisted that the law required this audit and investigation to be made before any hearing is held. The Commission construes the law as requiring them to make the investigation for the purpose of determining "no unreasonable profits have accrued or are being paid to the contractor."

The responsibility for determining rates is one resting with the Commission, but, unless the Department is furnished with information concerning the business affairs of the contractor within a reasonable time to examine them before the moment of the actual hearing, this Department is handicapped and cannot intelligently present any views on the merits of any particular case, and we, therefore, urge that this proposed amendment be enacted into law.

Section 8: The proposed amendment to subsection (a) of section 7 is presented for consideration to be disposed of as Congress sees fit.

Section 7 (a) of the law directly forbids an air-mail contractor to buy, acquire, hold, own, or control, directly or indirectly, any interest in any other partnership, corporation, or business engaged in any phase of the aviation industry, or in turn he owned, bought, acquired, held, or controlled by any other concern interested in any phase of the aviation industry.

The law, however, does not specifically provide that no air-mail contractor, itself, may engage in other phases of the aviation industry than carrying the mail and other air-transport business. One or more of the air-mail contractors are also engaged in the manufacture and sale of airplane parts and engines as well as performing service under its air-mail contract and operating an air-transport business. The question has repeatedly been raised by Members of Congress as to whether or not this Department was permitting violation of the law in this manner. We have felt that the authority of the Department to control an air-mail contractor in engaging in another business, itself, was doubtful, and therefore the amendment is presented for consideration. It reads as follows:

"(a) After December 31, 1934, it shall be unlawful for any person holding an air-mail contract to buy, acquire, hold, own, or control, directly or indirectly, any shares of stock or other interest in any other partnership, association, or corporation engaged directly or indirectly in any phase of the aviation industry, whether so engaged through air transportation of passengers, express, or mail, through the holding of an air-mail contract, or through the manufacture or sale of airplanes, airplane parts, or other materials or accessories generally used in air transportation, and regardless of whether such buying, acquisition, holding, ownership, or control is done directly, or is accomplished indirectly, through an agent, subsidiary, associate, affiliate, or by any other device whatsoever, or to engage directly or indirectly in any phase of the aviation industry except the transportation of mail, passengers, and express: Provided, That the prohibitions herein contained shall not extend to interest in landing fields, hangars, or other ground facilities necessarily incidental to the performance of the transportation service of such air-mail contractor, nor to shares of stock in corporations whose

principal business is the maintenance or operation of such landing fields, hangars, or other ground facilities."

Section 9: There is an apparent conflict between section 12 and section 13 of the law. Under section 12, the Secretary of Commerce is authorized to prescribe the maximum flying hours of air-mail pilots, and the safe operation methods on such lines; and section 13 provides that the rates of compensation and the working conditions and relations for all pilots and other employees of the contractor shall conform to decisions of the National Labor Board.

An old decision of the National Labor Board has fixed maximum flying hours at a different number than those fixed by the Secretary of Commerce. Changing conditions and methods of flying airplanes require that some governmental agency be authorized to promulgate the proper regulation governing the maximum flying hours of pilots and copilots to meet changing conditions. We think that the Department of Commerce is well equipped to handle such problems and should be vested with that authority and given that responsibility.

Section 10: It is recommended that section 15 of the Air Mail Act be amended by adding the following proviso: "This act shall not be construed as giving the Commission jurisdiction to consider any application for the establishment of any air-mail line or air-transport service, or to grant any such application on the grounds of public convenience and necessity or for any other reason."

The Post Office Department has consistently held the position that the present air-mail law did not give the Interstate Commerce Commission any authority to grant certificates of convenience and necessity for the establishment of air-transport service. Hearings have been held on the subject before the Commission. The Department went thoroughly into the legislative history of the Air Mail Act, as amended, and points out that giving the Commission the power to establish air-transport lines by the granting of certificates of convenience and necessity has been before Congress many times and that in each instance Congress refused to grant this power to the Commission.

We have presented the view that the only way air-mail lines could be established was by the Post Office Department awarding contracts by advertisement and competitive bidding and that the air-transport operators have a right to establish other lines carrying on a general transport business without air-mail contracts so long as they do not compete with any other air-mail contractors; that the establishment of off-line service by an air-mail contractor was either lawful or, if it were established contrary to the provisions of section 15 in competition with an existing air-mail line, it was unlawful. Extensive hearings on this subject were held on one case and another case is pending. In the first case the Commissioners were divided in their opinions, five of them holding that they had the power to grant certificates of convenience and necessity and four of the Commissioners dissenting.

I expressed the hope that these recommendations will receive your consideration and officials of the Post Office Department will be glad to appear at any hearings that you may hold in connection with any air-mail legislation.

Very truly yours,

CHANGES IN EXISTING LAW

JAS. A. FARLEY,
Postmaster General.

In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in the Air Mail Act of 1934, as amended, made by the bill (H. R. 4732) are shown as follows: (Existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, existing law in which no change is proposed is shown in roman.)

AIR MAIL ACT OF 1934, AS AMENDED

SECTION 2 (B) (U. 8. C., 1934 ED., TITLE 39, SEC. 469)

(b) When used in this Act

(1) The term "air mail" means mail of any class prepaid at the rate of postage prescribed in subsection (a) of this section.

(2) The term "person" includes an individual, partnership, association, or corporation.

(3) The term "pilot" includes copilot.

(4) The term "nonmail schedule" means one for which compensation at mileage rates is not authorized by the Post Office Department.

SECTION 3 (A) (U. 8. C., 1934 ED., SUPP., II, TITLE 39, SEC. 469A (A))

SEC. 3. (a) The Postmaster General is authorized to award contracts for the transportation of air mail by airplane between such points as he may designate, and for initial periods of not exceeding three years, to the lowest responsible bidders tendering sufficient guaranty for faithful performance in accordance with the terms of the advertisement at fixed rates per airplane-mile: Provided, That where the Postmaster General holds that a low bidder is not responsible or qualified under this Act, such bidder shall have the right to appeal to the Comptroller General who shall speedily determine the issue, and his decision shall be final: Provided further, That the base rate of pay which may be bid and accepted in awarding such contracts shall in no case exceed 33% cents per airplane-mile for transporting a mail load not exceeding three hundred pounds. Payment for transportation shall be at the base rate fixed in the contract for the first three hundred pounds of mail or fraction thereof plus one tenth of such base rate for each additional one hundred pounds of mail or fraction thereof, computed at the end of each calendar month on the basis of the average mail load carried per mile over the route during such month, except that in no case shall payment exceed 40 cents per airplane-mile. Notwithstanding any other provision of law, the rate of compensation bid by the contractor and accepted by the Postmaster General shall remain in full force and effect for the entire term of the initial period of any contract awarded by the Postmaster General after the date of enactment of this amendatory sentence.

SECTION 3 (C) (U. S. C., 1934 ED., SUPP. II, TITLE 39, SEC. 469 A (C))

(c) If, in the opinion of the Postmaster General, the public interest requires it, he may grant extensions of any route from either terminus or any intermediate point thereof: Provided, That the aggregate mileage of all such extensions on any route in effect at one time shall not exceed two hundred and fifty miles, and that the rate of pay for such extensions shall not be in excess of the rate per mile fixed for the service thus extended.

*

SECTION 6 (B) (U. S. C., 1934 ED., SUPP. II, TITLE 39, SEC. 469A (B))

(b) The Interstate Commerce Commission is hereby directed at least once in each calendar year from the date of the award of any contract to examine the books, accounts, contracts, and entire business records of the holder of each airmail contract, and to review the rates of compensation being paid to such holder in order to be assured that no unreasonable profit is being derived or accruing therefrom, and in order to fix just rates. In determining what may constitute an unreasonable profit the said Commission shall take into consideration the income derived from the operation of airplanes over the routes affected, and in addition to the requirements of section 3 (f) of this Act, shall take into consideration all forms of expenditures of said companies in order to ascertain whether or not the expenditures have been upon a fair and reasonable basis on the part of said company and whether or not the said company has paid more than a fair and reasonable market value for the purchase or rent of planes, engines, or any other types or kind, or class, or goods, or services, including spare parts of all kinds, and whether or not the air-mail contracting company has purchased or rented any kind of goods, commodities, or services from any individuals who own stock in or are connected with the said contracting companies or has purchased such goods and services from any company or corporations in which any of the individuals employed by or owning stock in the air-mail contracting company have any interest or from which such purchase or rents any of the employces or stockholders of airmail contracting companies would be directly or indirectly benefited. Within thirty days after a decision has been reached upon such review by the Interstate Commerce Commission touching such profit a full report thereof shall be made to the Postmaster General, to the Secretary of the United States Senate, and to the Clerk of the House of Representatives. The Interstate Commerce Commission shall furnish to the Postmaster General a copy of each report made to the Commission by any auditor, examiner, or employee covering any examination of books, records, accounts contracts, and business records of air-mail contractors referred to in this section.