During fiscal year 1960, cash available to the "Industrial fund" decreased by $1.2 million (table III). This decrease is a net result of transfers to the Treasury totaling $11.6 million, offset by $10.4 million which represents the amount collections exceeded expenditures.

Total assets will increase during fiscal year 1961 by $2.5 million and will remain at about this same level through fiscal year 1962. The increase over fiscal year 1960 is consistent with the increase in revenue. Available cash will increase by $12.4 million during fiscal year 1961 due to reduction in accounts receivable and increased sales. Total assets, accounts receivable, and cash balance on June 30, 1962, are expected to remain at approximately the fiscal year 1961 level.

Total liabilities will increase $4.3 million during fiscal year 1961 and remain at this level during fiscal year 1962. This increase is consistent with the increase in expenses over the fiscal year 1960 level.

Government investment will decrease from $83.8 million June 30, 1960, to $82 million by June 30, 1961, with no further change anticipated during fiscal year 1962. The reduction which occurs during fiscal year 1961 is the result of the transfer to the Treasury, of $1.8 million, accomplished in fiscal year 1961.

TABLE III.-Air Force industrial fund statement of financial condition

You will also find statements for each of the divisions of the "Stock fund” and the three services of the "Industrial fund," along with more detailed explanations, in the brochure which was provided previously.

SUMMARY

In summarizing, the scope of these funds has not changed significantly during the 3-year period in the stock or industrial fund. No funds are requested for either of the funds in fiscal year 1962. The cash balance as of January 1961 as compared with the data in the President's budget is attached for your information.

STATEMENT OF LT. COL. SAM W. ALDERSON, DIRECTORATE OF TRANSPORTATION, HEADQUARTERS, USAF, ON AIRLIFT SERVICE INDUSTRIAL FUND

BIOGRAPHICAL SKETCH OF WITNESS

Born in Olathe, Kans., 1916. Attended Southern Methodist University, Dallas, Tex. He served with the Air Training Command as a flight instructor during World War II and as a combat pilot in Korea. His peacetime assignments have been primarily in the operations function of the Military Air Transport Service. He holds a command pilot rating. Decorations include the Distinguished Flying Cross, the Bronze Star, and the Air Medal with three OakLeaf Clusters.

Mr. Chairman and members of the committee, as you requested, my presentation will cover the airlift service industrial fund as reflected in the President's fiscal year 1962 budget. It is in agreement with the report on working capital funds previously submitted. Since the development of the President's budget, the decision has been made to equip MATS with C-135 aircraft. Precise financial implications on the industrial fund are currently under consideration.

The purpose of the airlift service is to insure that the D-day and wartime airlift requirements of the Department of Defense are met. The size of the organization and the extent and nature of its operations are keyed to approved military wartime demands. These break down into two significant areas: the hard-core requirements which, because of their nature or timing, must move in military operated aircraft, and civil eligible traffic for which civil capability is not available. In order to maintain a proper state of readiness, organizations comprising the airlift service must be exercised at an appropriate rate. When commercial capability becomes available to meet more of the wartime civil eligible requirements, military operations will be adjusted accordingly.

Proficiency in the airlift function goes beyond flying skills. It must also embrace an entire air transport system, consisting of technical operations, supply systems, communications, control teams, maintenance capability, and other elements. Exercising the airlift system produces a transport capability. To the extent such capability is available, the dictates of economy warrant its use in meeting peacetime airlift needs of the Department of Defense. Airlift service resources are utilized to provide air evacuation of patients; special air missions; training of airborne troops; and, as augmented by commercial aircraft, commonuser airlift for passengers, cargo, and mail. This is accomplished under an industrialized funding system wherein using agencies are billed in accordance with established tariffs for airlift service provided.

AIRLIFT RESOURCES

During fiscal year 1960, the strategic transport force of MATS operated an average of 431 aircraft. With the planned reduction in inventories, the average will drop during fiscal years 1961 and 1962 to 406 and 393, respectively. This reduction represents the phasedown and phaseout of older, less productive aircraft, offset to some extent by an increase in C-133's.

66

57

65

CHART 1.-Department of the Air Force airlift resources, fiscal year 1962

While average numbers of aircraft are being reduced, the transport airlift capability is maintained at approximately the same level due to the greater capacity of the C-133. During fiscal year 1960, three C-97 squadrons were phased out of the MATS strategic transport force and the aircraft transferred to the Air National Guard. The reduction in C-124's indicated in chart 1 for fiscal years 1961 and 1962 represents the transfer of aircraft to Air Force Reserve units for modernization of the reserve fleet. The C-135 aircraft MATS is now programed to receive amount to 24 aircraft during fiscal year 1962 or an average of 14 for the entire year. These aircraft will assume the same emergency mission as is presently assigned the strategic transport fleet; that is for cargo, troop and equipment transport in support of limited and general war requirements. Peacetime employment of the C-135 will be for joint and unilateral exercises or to transport common user cargo airlift requirements. Concurrently with the acquisition of C-135 aircraft, 36 C-118's will be withdrawn from the scheduled operation and the MATS inventory correspondingly reduced.

AIRLIFT PRODUCTION

During fiscal year 1960, the resources of the strategic transport force, as augmented by commercial air carriers, produced 391.5 million passenger tonmiles, 553.6 million cargo ton-miles, and 306.9 million special assignment airlift ton-miles in airlifting the requirements of authorized users. Passenger ton-mile requirements are programed to increase slightly during fiscal years 1961 and 1962. Cargo ton-mile requirements are expected to decrease during these time periods based on the estimated oversea logistical requirements of the Department of Defense. During fiscal year 1960 commercial air carriers provided the airlift to satisfy 53 percent of the passenger lift and 14 percent of the cargo ton-miles.

Although some decreases in airlift requirements, commercial augmentation, and scheduled military airlift production are anticipated for fiscal years 1961 and 1962, the general relationship between these factors is currently forecast to continue with little change. Of the total requirements listed for fiscal year 1962, those from the Army and Navy represent 22 and 12 percent of the total while Air Force requirements represent 65 percent. This latter figure is an increase from 59 percent for fiscal year 1960.

SPECIAL ASSIGNMENT AIRLIFT

Airlift requirements which do not normally flow through MATS traffic terminals, identified as special assignment airlift, will increase from 306.9 million ton-miles in fiscal year 1960 to 329.5 million ton-miles in fiscal year 1961. This increase of 22.6 million represents the utilization of MATS military aircraft in the Congo airlift operation. On the basis of user requirements for fiscal year 1962, it is planned that 259.6 million ton-miles of traffic will be transported as special assignment airlift.

MAIL

Beginning in fiscal year 1961, the transportation of ordinary mail over routes normally served by scheduled U.S. civil airlines to, from, between, and within oversea areas will be transported via U.S. commercial carriers. It is anticipated that commercial carriers will transport 37.4 million ton-miles of ordinary mail overseas in fiscal year 1961 and approximately 44.9 million ton-miles in fiscal year 1962.

The diversion of ordinary mail from military aircraft to commercial common carriage airlift is in accordance with the presidentially approved courses of action relating to MATS. Based on the inauguration of the ordinary mail policy, the Secretary of Defense directed that all reimbursements to the Post Office Department for commercial airlift of military airmail be made by the airlift service industrial fund, effective fiscal year 1961. Department of Defense airmail has been transported commercially since 1954 and paid for by DOD postal facilities direct to the Post Office Department from appropriated funds. Funding arrangements established for ordinary mail are applicable to oversea airmail beginning in fiscal year 1961.

FINANCIAL CONCEPT

The industrial fund technique was applied to the airlift Service to improve the management of both the operator and users of MATS lift. One of the essentials under industrialization is that a break-even operation be achieved. That is to say that revenues received in payment for services rendered equal, as nearly as possible, costs incurred in providing such services. Under the airlift service operation, this is accomplished in two ways: first, the Strategic Transport Force, which provides scheduled and special airlift between the United States and overseas, recovers costs incurred by means of published tariff rates. In the Aeromedical Evacuation, Troop Carrier and Special Air Mission Forces, the services provided authorized agencies are considered to be the responsibility of the Air Force. Therefore, reimbursements are made from Air Force appropriations for net expenses incurred by these latter operations.

The general concept of airlift service industrial fund expenses are as outlined in the reports on Public Law 216. Costs incurred in providing airlift include civilian labor, materials, aviation fuel and lubricants, maintenance on aircraft and engines, purchase of commercial airlift and other current operating expenses. Items such as allowances normally included by commercial concerns, ie., for depreciation and taxes, as well as a proration of military personnel expenditures, are not included. Further, current Department of Defense instructions implementing Public Law 216 preclude the industrial fund from financing land acquisition, construction or procurement of aircraft and other capital equipment. Thus, tariff rates are established to recover from using agencies sufficient revenues to equal only those costs financed by the industrial fund.

OPERATING RESULTS

Airlift service operations during fiscal year 1960 resulted in revenues exceeding expenses by $11.8 million. This amount was returned to the U.S. Treasury in order to partially satisfy the provisions of section 631 of the 1960 DOD Appropriation Act. The difference between the $85 million specified and the $64.1 million expended for commercial airlift amounted to $20.9 million. An additional