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to $27,000. This is not considered a valid saving.
Company exhibit No. 18 is a detailed memorandum pre-
pared by the Chief of the Procurement Division,
Panama Canal Company, concerning "inland freight
savings,".

Total increased loss under this item

$185,000

Income lost and cost avoided by other Panama Canal Company bureaus and divisions

Since the cash costs that would be avoided or incurred, shown in the report under this heading, were computed in part by the Company, they are generally acceptable with the addition of cost avoided in the New York Accounting Office on discontinuance of the Panama Line. This increases the savings by $71,000.

New York accounting and administration

In order to place the financial summary in its
proper perspective, the cost that would be avoided
in the New York Accounting Office must be stated
as to its cash effect on the U. S. Government. This
item was excluded by the Company under "Net cost to
U. S. Government ... above." The Company's evalua-
tion of costs avoided in the New York Office, made
available to the Drake consultants at the time of
their visit on the Isthmus, is as follows:

12 positions abolished x $5,506

$(71,000)

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Interest income on disposal value of Panama Line ships.

Interest on book values

The Drake Report has indicated that there is a depressed
market for all types of ships (Drake Report, p. 67), particu-
larly for vessels 20 years old. They have assumed a disposal
value of 50% of book value, and should these funds be paid into
the U. S. Treasury there will be an annual interest savings of
$34,000. The Company cannot accept as fact the statement that
income will be obtained from disposal value of the ships
(Drake Report, p. 67). The converse could just as easily be
the fact. The sale of the ships to other than a foreign flag
is doubtful, and we consider that this item of saving should
be eliminated as representing any cash inflow to the U. S.
Treasury. The Company, therefore, has eliminated it in its

$34,000

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recomputation. There is a real possibility of the Govern-
ment's losing the full book value of $2,600,000 if the Line
is abandoned. This loss, of course, would be dependent upon
any disposal value that might be received, but the present
outlook is that a loss of some magnitude would be suffered
by the U. S. Government,

Additional taxes paid by commercial lines

$902,000

The amount of $902,000 in savings identified as additional taxes paid by commercial lines is considered impractical of calculation, and has been eliminated as a savings. Any tax computation involves many ramifications and assumptions far beyond those reflected in the over-simplified arithmetical calculation contained in the Drake Report. It is the view of the Company, supported by the opinion of tax experts, that "Elimination of the Panama Line would have effects upon Federal income taxes collected by the U.S. Government beyond those dealt with in the Drake Report. We believe that such other effects would result in a reduction of Federal income taxes to the U.S. Government." (Company Ex. 19, p. 13). For further details in support of this conclusion, see Company Analysis, pps. 19-24 and Company Ex. 20.)

Exhibit 4, Schedule I

Concluded 6

Schedule supporting recomputation of Employee's home leave travel.

The Drake Report, in Exhibit U-II-1, states that 1,007 passengers may be accommodated in existing unused capacity of regularly scheduled passenger ships as follows:

Southbound passengers
Northbound passengers

404

603

Total

1,007

These figures are based upon unused berths available on Grace Line 52-passenger vessels in the "base year". It is the practice, and necessarily so, to make assignments to provide proper family accommodation and sex distinction, thereby reducing total available berths to an effective berth availability. This was apparently overlooked by Drake in this specific calculation; however, the Drake Report (Drake Report P. 8 and Drake Schedules U,-II,-1; Q,-II and W,-II) recognizes effective capacity in other instances.

In recalculating this cost, the effective passenger capacity of Grace Line vessels was assumed to be at the same rate of 85.6% (185 216) as used for the Panama Line (Drake Report p. 8).

As a base, the statistics shown in Drake's Exhibit N have been revised (Schedule attached) to develop an effective passenger capacity of:

Southbound passengers
Northbound passengers

211

483

Total

694

Passengers who can be accommodated on Grace Line's 300 passenger ships. The availability of Grace Line's two 300-passenger vessels for low-cost service to Panama Canal Company employees is extremely doubtful. There is no reason to assume that the Federal Maritime Board would permit these vessels to be withdrawn from the required service on "Line C" for voyages to a privileged port-ofcall on "Line A". (Ex. 2, prospectus for Santa Rosa Bonds). It would probably be unprofitable for Grace Line to do so. The Drake Report, in determining the increased taxable income derived from the implementation of Plan I, does not indicate that any passengers would be carried, or revenue derived, from the use of these two vessels. (Drake Report, Ex. U-X). "Grace Line has experienced a steady demand for its passenger service, and, with new ships such as the new Santa Rosa and the new Santa Paula, it believes that passenger capacity will be substantially filled for a considerable period of time." (Co. Ex. 2, p. 10)

Accepting, though with reservation, the assumed negotiated rate of $220 per passenger (Drake Report Schedule U-II) for those passengers that could be carried on Grace vessels, a recomputation of this passenger cost is as follows:

Exhibit 4, Schedule II
Continued-1

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Costs via commercial airlines. As there is insufficient surface transportation via Grace Line to handle those employees requesting surface transportation, the report assumed that the 767 additional home leave passengers would have to travel by air. The Company does not accept this assumption and believes that we must be consistent with the detailed requirements of transportation in the "base year" for home leave travel. There remain to be carried by surface transportation (not necessarily American flag) the following passengers:

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Minimum rates for sailings of Grace Line's scheduled service between New York and west coast, South America, including the Canal Zone, vary from a high of $385 to a low of $210, depending upon the season and direction of travel. As the greater portion of Panama Canal surface transportation must be sought on a space available basis, it is conservatively estimated that the average rate would approximate $320. It could very well be greater. For the purpose of the computation the $320 rate is used.

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(a)

Drake Schedule shows 160 berths, obviously an error since 3 x 52 = 156. (b) Drake Schedule shows 2,606 berths, obviously an error based on (a) above.

Exhibit 4, Schedule II
Concluded-3

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