ҮЯАЛЕЦ all of these objectives, the legislative program carries the specific endorsement of the Hoover Commission, The bill replaces section 406 of the Civil Aeronautics Act of 1938 with an entirely new section. Payments for the transportation of air mail will continue to be made out of funds appropriated to the Post Office Department. Mail rates are initially set by the bill for domestic and for overseas mail services. These rates are subject to modification from the outset and subsequently may be adjusted from time to time by the Civil Aeronautics Board on the basis of cost. Rates for foreign air services by United States carriers will be set by the Postmaster General. Such subsidy grants as may be justified will be determined by the Board and payable to certificated air carriers from funds appropriated to the Board for that purpose. They may be awarded to support an appropriate air transportation system in the interest of the national defense, the economic development, and the air commerce of the United States. If the national defense of the country makes it advisable to augment civil aviation facilities and services beyond their natural economic level, this objective should be recognized as a proper security cost. Undoubtedly, the essentiality of many schedules, routes, and entire carrier systems will require careful review by the Board. In the foreign field dependence on subsidy may well be justified and, following maritime precedent, contracts up to 10 years in length are authorized to cover subsidy requirements for foreign air transportation, with an appropriate recapture clause in event of excess earnings. The effective date for the separation of subsidy from air-mail pay for domestic and overseas air services is July 1, 1952, and July 1, 1953, for air-mail transportation to foreign countries. The bill amends the 1938 act (1) to require the approval of the Postmaster General before the Board may issue a new certificate of public convenience and necessity_authorizing the transportation of mail only and (2) to require the Postmaster General to dispatch by aircraft all mail bearing air-mail postage except under unusual conditions where the mail would be unduly delayed if routed by air. PROVISIONS OF PRESENT LAW Section 406 of the Civil Aeronautics Act of 1938 directs the Civil Aeronautics Board to fix fair and reasonable rates for the transportation of mail by aircraft, including an undisclosed additional amount, when required, for subsidy purposes. The 1938 act does not specifically require the Board to publish how much of a particular rate is for "service" and how much is additional "need" subsidy, and the Board has never done so. However, in a few mail rate proceedings the Board has found that the carrier did not require "subsidy" and so fixed what it designated to be a "service" rate. After enumerating specific factors that should be considered in determining rates for the transportation of mail, subsection (b) of section. 406 of the 1938 act goes on to direct the Board to consider also 1 The act defines air transportation in sec. 1 (10) as "interstate, overseas, or foreign air transportation or te transportation of mail by aircraft." Interstate, overseas, and foreign air transportation are further defined in sec. 1 (20). "Overseas" means trans ortation between a r lace in the United States proper and a place in a territory or possession of the United States or between places in two such Territories or possessions, but "interstate" includes transportation between places in the same Territory or possessions. the need of each such air carrier for compensation for the transportation of mail sufficient to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the postal service, and the national defense. This unique "need" provision has been interpreted by the Board to mean that where any air carrier has been unable, under honest, economical, efficient management, to earn a fair return on the transport services found by the Board to be required for the development of a sound air transportation system to serve the national objectives named in section 406 (b), air-mail pay may be raised to cover deficiencies in the airlines' commercial revenues to the point where it constitutes a cost-plus operation. Like many other cost-plus systems of paying for Government services where close supervision is impossible, it may have discouraged economy and efficiency on the part of management. Air-mail payments by the Board to the domestic and international United States air carriers in recent years are summarized in appendix A as of August 28, 1951. No other promotional public utility statute is known to commingle a service payment with direct subsidy grants in the manner of the Civil Aeronautics Act in such a way as to keep the two elements completely hidden. Prior to 1936, ocean steamship companies were subsidized in a comparable manner through the mechanism of mail payment, but this led to abuses and was replaced by the Merchant Marine Act of 1936 with provisions for direct subsidies on the basis of construction and operating differential costs. The Interstate Commerce Commission fixes fair and reasonable rates for the transportation of mail by railroad without authority to include subsidy in such rates. SUPPORT FOR IMMEDIATE SEPARATION For many years, committees of Congress, executive departments, and interested private groups have contended that they are entitled to know the extent of the Government's commitments of promotional grants to the airlines. During the 2 years that your committee has been studying this problem, pressures have grown steadily in favor of immediate legislation to separate air-mail pay from airline subsidies. In general, it may be said that all interested groups that appeared before your committee during its recent hearings, with the exception of the feeder airlines, favored immediate action. The Hoover Commission, the large airline companies, the Air Transport Association, various labor groups, business and taxpayer associations, and representatives of surface forms of transport joined in this chorus. While generally not opposing legislation, witnesses representing the newest and less firmly established feeder airlines expressed great concern lest separation legislation interfere with adequate subsidy support for them. The views and recommendations of the administration and other governmental agencies particularly should be noted. In his last two budget messages to the Congress, the President of the United States has urged immediate legislation to accomplish separation. In January 1950, President Truman said: The recent rise in total air-mail payments to an estimated level of about $125,000,000 in 1950 has made it increasingly important that the subsidy element be separately identified. I recommend, therefore, the immediate enactment of legislation to authorize the separation of subsidy payments from mail compensation. Such subsidies should be paid from funds appropriated to the Civil Aeronautics Board specifically for that purpose (hearings, p. 180). Again this year, the President restated his endorsement in his budget message: Federal financial assistance has been a major factor in the industry's rapid growth, and should be continued to the extent necessary for the sound development of civil aviation. The method of paying this subsidy should be changed, however, in order to provide the public with full information as to its cost. At present, the airline subsidy is merged with compensation for the cost of handling mail and included in postal expenditures. These two elements should be separated, and the subsidy portion paid by the Civil Aeronautics Board from funds appropriated specifically for that purpose. I again urge the Congress to enact legislation providing for this separation (hearings, p. 180). A more detailed statement was given to the committee on June 26, 1951, by Mr. Elmer B. Staats, Acting Director of the Bureau of the Budget. It reads: There are a number of important considerations favoring the separate provision of airline subsidy. First, and most fundamental, is the right of the public to know the cost of any program which it is financing. With that objective in mind, the President has consistently sought to bring hidden subsidies into the open. Separation of airline subsidy from mail pay would represent a significant step in that direction. It would be especially important at this time in view of the high level of air-mail payments, which exceeded $115 million in calendar year 1950. A closely related consideration is the need of Government agencies, the President, and the Congress to have continuing information on, and an annual review of, the amount being spent for airline subsidies. Policy decisions affecting the development of civil aviation frequently require a balancing of anticipated benefits in relation to costs. Clearly, the availability of data on airline subsidies would assist in the sound formulation of such policies. In particular, such subsidy data should assist the Civil Aeronautics Board in dealing with route and rate problems, and other phases of economic regulation. Airline subsidy separation would also result in a more meaningful budgetary presentation for the postal service. Subsidies for the development of air transportation are not properly an item of postal expenditures, and their present inclusion in air-mail payments distorts to that extent the size of the current postal deficit. Finally, it seems probable that the public identification of subsidy would provide some increased incentive to airline management to achieve maximum efficiency and economy of operations. In short, the separation of airline subsidy from mail pay would achieve a more accurate and meaningful presentation of this promotional program and hence would be in the best interests of the general public, the Government, and the airlines themselves. It is recognized that the actual accomplishment of subsidy separation will initially create a number of practical problems for the Civil Aeronautics Board. However, this Bureau strongly feels that the advantages of such separation outweigh the transitional problems that may arise, and make this reform clearly desirable (vol. II of hearings). The Civil Aeronautics Board has not always favored separation: legislation in principle, apparently because it might interfere with its orderly promotional program of air transport and would impose needless work on the Board that in their opinion was not essential. This atitude has completely changed, and on June 27, 1951, Mr. D. W. Nyrop, Chairman of the Board, testified before your committee as follows: |