Thus, Dr. Stewart, of Purdue University, and four other businessmen and administrators in the State of Indiana have been asked to serve as directors on the board. They have no invested interest whatsoever and are just serving in the capacity of their civic interest for the development of our service in our local area.

As a result, Dr. Stewart is so tied up with his other business interests that he could not be here today, but is so concerned with the permanent certification of the whole local service airlines as an industry that he asked me to bring down this record to read into the record for you gentlemen.

My name is Gwinn Hicks. I reside at 407 North Pennsylvania Avenue, Indianapolis, Ind., and I am reading this statement for our president, Dr. R. B. Stewart, and chairman of the board.

This is a statement prepared for the consideration of congressional committees conducting hearings regarding certification of local service airlines.

My name is Robert B. Stewart. For the past 2 years, I have served as president of Lake Central Airlines under a trusteeship established by and subject to the approval of the Civil Aeronautics Board. I am also vice president and treasurer of Purdue University, the land-grant college of the State of Indiana.

In this capacity, I have responsibility for the management and investment of university funds and trusts. I am also secretary-treasurer of the Purdue Research Foundation and in this capacity have the responsiblity for the management and investment of foundation funds. At one time, the foundation was owner of the now liquidated MidWest Airlines. I was secretary-treasurer of Mid-West Airlines during the period of foundation ownership and directed liquidation of the airline.

The foundation has more recently financed North Central Airlines to the extent of $1 million on equipment loans. That airline has also had severe difficulty with its equity financing of which our foundation refused any part. In connection with my work as treasurer of Purdue University and the Purdue Research Foundation, it is also necessary for me to borrow large sums of money on long-term bonds or through banks and mortgage agencies.

I am also vice president and a member of the executive and of the investment committees of the Standard Life Insurance Co. of Indiana and thus share in the responsibility of the investment of several million dollars annually in securities appropriate in Indiana. With the foregoing background of responsibility and experience in the investment of many million dollars in securities and with the responsibility for both public and private investment, I am testifying that one of the most difficult problems facing the local service airlines is the uncertain tenure of their certificates.

It is almost, if not entirely, impossible to interest any semblance of sound business interests, either individuals or groups, in local service airlines equity financing. It is known to be an engineering fact that until these airlines can approach a 60-percent load factor, it is necessary for them to be paid extra amounts to enable them to perform the service imposed by the Federal Government for transportation and adequate communication between our peoples. It is being demonstrated that it will be several years before self-sufficiency is reached

but the pattern is favorable and is similar to the history of the now essential and successful trunk carriers.

In connection with this problem, it is the considered judgment of those who have studied the Lake Central operations with me that it will take us at least 6 or 8 years to test out and properly realine the local service routes of the airline in its allotted territory-Indiana, Ohio, Michigan—in such a manner to permit a self-sufficient operation. Our experience in approaching businessmen and others located in the several cities on our routes indicates that the first requirement placed by these men upon making an investment in an airline to serve their own cities would be a certificate of sufficient duration so as to permit honest and competent management to develop the route structure and traffic necessary to allow self-sufficiency.

Businessmen in our territory are frank to admit that the local service type of scheduled air carrier is most important to the maintenance of their business contacts in this air age. Yet they demand, for equity finance purposes, a charter which will provide the time needed to perfect the service they require.

We consider it essential therefore that the Federal Government provide for the development of the local service airlines system in such manner as to meet the needs of our local communities. In order to sustain the general economic welfare of our territory as well as to meet the defense requirements of the Nation, it is essential that the smaller, satellite cities around the large trunk terminal centers should be linked with air service. To this extent, therefore, the Federal Government should consider payments to the airlines as, in effect, subsidies to the local communties; the airlines in turn should look to the local communities for sufficient equity capital to meet the basic needs of equipment and operating personnel to provide the necessary service.

Important businessmen in the smaller cities served by our airline have assured me in various ways that they will participate in this problem to meet the needs of our communities as well as to help attain the self-sufficiency of the airlines desired by the Civil Aeronautics Board provided the airlines are granted a certificate long enough to permit them to carry out the development of their business in accordance with the traffic forecasts.

This means, for example, that we would have an immediate certificate for not less than 10 years. Under present conditions, it appears that it will be approximately 2 years before a decision can be made relative to any renewal of our certificate or relative to the term of our certificate. This means that during the interim, it is impossible to actually secure equity capital although we have promises for the provision of capital if a certificate of sufficient length is provided. During this interval, therefore, only genius can so motivate a competent staff and secure such capital as will hold the airline together, let alone properly develop business. Yet our energies should be freed from the present uncertain, seemingly unlimited, and time-consuming hearings in Washington so this development can take place. We must be freed from damnation, then, for not developing business so that our efforts can be more concentrated on that task.

I am certain that the circumstances surrounding other local service carriers bear up my own experience which, in turn, is buttressed by

the attitudes with which I deal in connection with the investment and use of many millions of dollars in business enterprises. It is to break this impasse that I have concluded it to be important that the Congress authorize the immediate permanent certification of the local service airlines within their respective areas, particularly if the routes themselves are not thereby frozen and the Civil Aeronautics Board, in conjunction with the respective carriers, can continue to study the realinement of route patterns and the rate structure based upon the variable growth of traffic.

Senator MONRONEY. Thank you very much for your statement.
Are there any questions?

Senator SCHOEPPEL. No questions, thank you.

Senator MONRONEY. We appreciate very much your appearance. Mr. HICKS. Thank you, gentlemen.

Senator MONRONEY. Mr. Hamilton, president of Ozark Airlines. Thank you for your appearance, Mr. Hamilton.

Mr. RODGERS. Mr. Hamilton is not present, Mr. Chairman. I will represent Ozark Air Lines at the hearing.

Senator MONRONEY. You may proceed.

STATEMENT OF PAUL J. RODGERS, EXECUTIVE ASSISTANT TO THE PRESIDENT, OZARK AIR LINES, INC.

Mr. RODGERS. My name is Paul J. Rodgers. I am executive assistant to the president of Ozark Air Lines, a local service airline with general offices and principal maintenance base on Lambert Field, St. Louis, Mo.

Ozark's 2,628 miles of routes extend over an 8-State region in the Mississippi Valley and Great Lakes area. We serve such metropolitan cities as Chicago, Milwaukee, Kansas City, Wichita, Nashville, Indianapolis, and St. Louis, as well as 21 intermediate smaller cities in the States of Illinois, Indiana, Kentucky, Wisconsin, Iowa, Missouri, Kansas, and Tennessee. We have attached a system map showing our routes as appendix A.

Ozark started its scheduled operations on September 26, 1950, under a temporary 3-year certificate which was renewed in August 1954 for an additional temporary 5-year period with some route changes.

I would like to point out there, Senator, that the renewal case in which we are involved, the one referred to there, in August of 1954, is still in progress, because during the Christmas holidays we received another order from the Board directly concerned with our renewal, so that means as of the 1st of March it will be 2 full years that we have been working on our certificate renewals. Ozark, as contrasted to Frontier, is the youngest of the carriers to inaugurate service.

During the past 42 years Ozark has flown 10,890,000 miles and has carried 419,582 passengers with a perfect record of safety. During Ozark's first full year of operation, the calendar year of 1951, Ozark carried 49,507 passengers, in 1952 Ozark increased its volume over 70 percent by carrying 84,463 passengers, and in 1953 with the reliability of our service greatly enhanced by a number of factors, including complete day and night instrument authority which was available for the first time, Ozark transported 125,220 passengers, an increase of 48.25 percent over the previous year. During the past calendar year of 1954 Ozark continued increasing its passenger volume again

by approximately 25 percent and carried 156,391 passengers. A record of Ozark's commercial revenue and traffic growth since the start of our operation is shown in appendix B.

The progress of Ozark in reducing its dependence on Government subsidy is revealed in the rapid and consistent reduction of its breakeven need. Ozark's break-even need during the past 4 years had dropped from 87.3 cents to 58.7 cents per revenue plane-mile, a reduction of 28.6 cents a mile, or 33 percent. I would like to point out there that we are the only area to start operations after the commencement of the Korean war, and I think it is outstanding that we were able to reduce our break-even need in spite of the national trend which was up everywhere. Our commercial revenues have more than doubled, increasing from 24 cents to 53.4 cents per revenue planemile, an increase of 29.4 cents per mile, or an increase of 122.5 percent. Appendixes C, D, and E show the trend and details of Ozark's progress in reducing its dependence on the Government.

I believe that the Senators on this committee whose States are served by a local service airline will agree that there is nearly unanimous support by the people of these areas for the continuance of their local air service. It is also a matter of record that the Congress last year while considering similar legislation was nearly unanimous and unusually sympathetic with this problem affecting the local service airlines. Their position is clearly understandable as they have firsthand knowledge of the wishes of their constituents on this matter.

In addition to the Federal airport grants the States and local communities have made substantial investments of their taxpayers' money beyond what would be required for private flying to provide approved airport facilities suitable for scheduled local service airline operations. I would like to point out there that in the instance of our operation, one-third of our cities have provided new terminal facilities during the period of operations. They have learned to rely upon the frequent service of the local service airline serving their communities and the service has become a necessary part of their economy. If their local air service was discontinued or if they were given a token service by a trunkline, they would be placed at a disadvantage in community development, prosperity, and growth.

It is not conceivable with the public convenience and necessity of Ozark's service so well established in most of its communities that Ozark Air Lines will be discontinued even if it continues to be plagued with a waste of recurring costs of renewals and the increasing costs of the short time planning and financing, all of which cost is eventually borne by the Government.

The cost of a single certificate renewal for a local service airline, if all items are considered, is around $100,000 plus at least an equal amount for the State and communities. Ozark has no fears at the present time that it will not be renewed again in 1958, but our confidence in our renewal is not acceptable as collateral in arranging longterm financing for more efficient equipment that would reduce our dependence on the Government nor is it tangible enough to finalize any long-term planning that would reduce our cost. No business can possibly succeed economically unless it knows that it will be in existence long enough to plan properly and to secure adequate financing. In the instance before us, we have the paradox of being told to reduce

our expenses and our cost of operation to the Government, while simultaneously being involved in endless procedural steps just to remain in business. The cost of participating in these lengthy and duplicating proceedings far exceeds the savings resulting from economies in our operation.

There is a sidelight, we would like to point out that the Civil Aeronautics Board has requested us to reduce our ground cost. By getting the cooperation of our cities we were able to reduce our costs by $100,000, but by putting the $100,000 back into a certificate renewal case, we are back where we started.

Ozark Air Lines, as an example, has been involved in its certificate renewal case for nearly 2 years, a period dating from March 1953, and is still involved in that proceeding. In excess of $100,000 (approximately $50,000 in segregated cost plus an equal amount resulting from interruption and lost time to the organization) when there was no serious question of Ozark's fitness, willingness, or ability to operate its route structure. The only question raised was in reference to specific communities and certain segments which had not produced traffic in the amount anticipated.

I would like to point out, Senator, if I may, that on a $100,000 expenditure our average cost per passenger is $9.37, which means we would have to go out and get 10,000 passengers just to stay in business. That is more than we board in a year in many of our cities.

This amount of money is more than twice the amount of money spent by Ozark for advertising purposes during the entire year 1954. This expenditure, we are confident, would have returned far greater benefits to the Government and to Ozark Air Lines, if it would have been invested in advertising, sales, and promotion to increase our commercial revenues and thus reduce our dependence on the Government.

Senator MONRONEY. May I ask in that $100,000 figure if you include the cost to the Government through the CAB's loss of time in specialists and costs of hearings, and transcripts, and so on?

Mr. RODGERS. No, sir; this is cost to our own operation. Our certificate expired in September 1953, and in March we started with the original application to be sure it was renewed, with the spadework with the communities, the preparation of exhibits. Our entire executive staff with the exception of our operations manager was present here in Washington on our certificate renewal from approximately the first of October until Christmas of 1953.

Senator MONRONEY. Would it be possible to say that if it cost the applicant a hundred thousand dollars that it probably cost an equal amount to the Federal Government in processing and handling these renewal claims?

Mr. RODGERS. I would believe that would be true.

Senator MONRONEY. We have no way of knowing that. Perhaps our staff could find out something about that.

Mr. RODGERS. I know the hearings, the transcript of the exhibit, the staff work necessary in preparing Bureau counsel exhibits-I would think it would at least equal that amount.

We are, therefore, here today to urge the committee to report favorably on this legislation which would require the issuance to the local service carriers of permanent certificates covering their operations.