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would be made available and what had to be done for reconfiguration if called for in an emergency. I gathered the very distinct impression that this was a highly systematic and very precise program.

I am shocked this morning to hear what I have heard.

General KELLY. We do have contracts with the companies, but when you get into who owns an airplane, in most any company now they are leasing engines and they are leasing various other things and the lease arrangement has become very complex in the airline industry.

Mr. FORD. I can understand that for non-Civil Reserve Air fleet aircraft, but I do not understand it if they are a part of the Civil Reserve Air fleet. This is a special category of aircraft. This is something we are depending on, and I cannot understand why it has fallen into this kind of setup.

General KELLY. There is an organization in the Department of Commerce known as DATA that allocates these aircraft and certifies them, and we have the contract with the carriers to turn them over in case of a national emergency.

We are trying in MATS to hold a little war game with the carriers in order to see where these airplanes are and what they are doing and, really, how responsive they are.

Mr. Flood. This is 1961, and when I think, Mr. Chairman, of the outrageous statements made by the civilian Secretaries and the generals of the Air Force, specifically MATS, in the last 10 years in connection with these hearings, this is the most disgraceful result I have heard since I have been in Congress.

They do not know where these planes are. They do not know what kind of shape they are in. I have been trying to tell everybody this for 10 years. This whole thing is a disgrace and is appalling.

Mr. Mahon. Let me proceed a minute, if I may:

COMPETITIVE BIDDING

General, the import of your testimony is that competitive bidding does decrease the cost to the Government?

General KELLY. That is correct.

Mr. MAHON. Mr. Sikes inquired as to whether or not anyone has gone bankrupt by reason of the competitive bidding system.

General KELLY. There have been some reorganizations of the various companies.

Mr. Mahon. Of the smaller companies?
General KELLY. Smaller companies; yes, sir.

Mr. Mahon. What has been the result of the quality of service to the individual who flies in these planes such as dependents and military and civilian personnel? Are they receiving better service and more dependable, reliable service under this new structure of procedure than they did under the old, and is it less haphazard?

General KELLY. We are getting very good service from the commercial carriers. We are paying exactly the same though for a passenger that rides nonstop in a 707 or DC-8 as we are for the passenger who rides in a convertible cargo Constellation.

Mr. Mahon. Well, is that proper?
General KELLY. Well, to my way of thinking, it is not.

Mr. Mahon. What ought to be done about it and why do we not do it?

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General KELLY. We have no control over that, as long as we have a floor and they all bid the same. We are trying to allocate the business on the basis of CRAF participation.

Mr. Mahon. I do not think you have commented adequately on the double-barreled question which I asked you. Will you undertake to do that, General?

General KELLY. Yes, sir.

RELIABILITY OF CONTRACTORS

Mr. MAHON. That is, the reliability of this service and so forth. I have been concerned about the safety of people who fly these airplanes.

General KELLY. We have had some contractors that we have just terminated for lack of reliability and we just terminated one this past month. We check them continuously and we inspect every airplane before we accept it for a specific flight, and if they do not measure up to our reliability standards, first, we give them a warning letter and if the second month they do not measure up, we terminate the service. We have just recently terminated one this past month.

Mr. Mahon. Is your new system improving the reliability or is it any different or any better?

General KELLY. I cannot see substantial improvement in the type of service we are getting for the increased money or increased reliability. We are getting the same service we got before. Mr. Mahon. Off the record. (Discussion off the record.)

General KELLY. We do have a high percentage of the big companies getting the business, though. Mr. MAHON. Well, is that good?

General Kelly. I think if we are going to pay the money, we should get the best service available, but I still want to maintain a base for more expansion.

CONTRACTORS UNDER NEGOTIATED BID SYSTEM

Mr. Sikes. General Kelly, would you please provide and this can be done for the record if you do not have the facts immediately available-a listing of the companies which have received contracts under the negotiated bid system and the percentage of the total which was received by each?

General KELLY. Yes, sir; I will have to supply that for the record, Mr. Sikes.

(The information requested follows:)

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Mr. SIKES. In any instance are they the same people who received the bids--who received contracts--under competitive bids?

General KELLY. Yes, they are in many cases.

Mr. Sikes. In instances where they are the same people, will you identify them?

General KELLY. Yes, sir.
(The information requested follows:)

CARRIERS RECEIVING CONTRACTS UNDER NEGOTIATED SYSTEM Yes, sir; I refer you to the table which I prepared for the insert immediately preceding. All carriers listed are the same carriers who are receiving contracts under present method of negotiating all oversea airlift contracts with the following exceptions: Air America

Central Air Transport American International

Coastal Cargo Seven Seas

Pacific International Transocean Airlines

Twentieth Century

INCREASED COST OF NEGOTIATED BIDDING

Mr. Sikes. How much more is this costing in total per year?

General KELLY. Well, this year has not been a very good year in which to test that, because the first 3 months of the fiscal year was under the old system of competitive bidding. Shortly after we went to the new system, we had the President's order that no dependents would travel and we have not been able to get firm requirements. We have no long-term contracts as such. We have been making monthly contracts and daily contracts, as the requirements come up.

Mr. SIKES. Would you provide an estimate of the annual cost under normal conditions and the additional cost now?

General FRIEDMAN. I can give you a feel for that: Referring back to the 13}-percent increase in tariff for passengers, this would cost the Air Force military personnel account something on the order of $6 million. If you spread this across the park with reference to all users, I would give a guess of something on the order of $15 million annually for personnel.

General KELLY. That is the figure which I have here. We have estimated an additional $15 million for personnel costs for next year under the tariff rates.

SMALL BUSINESS

Mr. SIKES. How much set-aside is there for small business?

General KELLY. Actually, small business has gotten, roughly, 60 percent to 70 percent of it. We had it set aside. Let me get the exact figure.

Mr. Sikes. Would that be true under the negotiated bid system as well?

General KELLY. It has so far. It has worked out that small business—we had about a 40-percent set-aside-and they have been getting around 60 percent of the business.

Mr. Sikes. What is the definition of "small business” as it applies in this particular instance?

General KELLY. 1,000 employees or less.

Mr. Sikes. Now, you said a moment ago that there have been some reorganizations in small companies as a result of the competitive bid system. Well, reorganization is not the same as bankruptcy. Could you tell us if there have been actual bankruptcies which bave resulted from bidding too low on Government work?

General KELLY. Well, Seaboard & Western has completely reorganized with different people and further refinancing. Mr. Sikes. Was that preceded by bankruptcy?

General Kelly. I do not think it was preceded by bankruptcy, although I was told

Mr. Sikes. Do you think this was a situation which was caused by the competitive bid system?

General KELLY. I was told by the company that this was brought on by it. We have had one company that has gone--for example, I know of a Trans-Ocean Co., I think it was—but whether or not MATS bidding was responsible, I have no idea. It happened before I came onto this assignment.

Mr. Sikes. Of course, the Government cannot be responsible if people bid lower than they should. In those cases where people have bid too low, have you had a corresponding drop in service and safety?

General KELLY. No; I think we have had good service and good safety records throughout from the companies that have bid exceedingly low. If you get a company that carries a charter flight over to Europe with a civilian group and it is over there and we have some people who come back and they are going to come back empty anyway, they will bid extremely low in order to get something to buy their gasoline to come back. Yet, they will bring you back safely.

Mr. SIKES. Is not that advantageous to the Government?

General KELLY. It is very advantageous to the Government, but we are prohibited from doing that now.

Mr. SIKES. If the Air Force were given the freedom of choice in this matter, would you go back to the competitive bid system?

General KELLY. I do not believe I would, personally, if I had my choice.

Mr. Sikes. Why not?

General KELLY. But, I would have some floors or some standards for different types of equipment.

Mr. Sikes. Why would you not go back to the competitive bid system if you have comparable safety and comfort in travel operation ?

LOGAIR

General KELLY. I would, perhaps, have to qualify what I said before. I was thinking of the old competitive bid where we have a low bidder here for LOGAIR. I would have to go back to something like that where everyone that owned an airplane or could lease one would be allowed to bid.

Mr. FORD. Would the gentleman yield to me at that point?
Mr. SIKES. Yes, sir.
Mr. FORD. In the case of LOGAIR, do you have wide open bidding?

General KELLY. We have this list—the bidders' list-and, of course, every one of them has to be investigated for its capability, its financial soundness, its aircraft and so on. But, when you get into competitive bidding, unless we had certain restrictions like you have on bidding CRAF members and so on. Under those circumstances, I think competitive bidding would be all right, but I would not want to go back to where you get 87 bidders and you are, by law, then bound to take the low bidder if he is financially sound.

UTILIZATION OF KC-97

Mr. Sikes. You did not mention the availability of the KC-97 for airlift capability. You will be acquiring a considerable number of KC-97's that can be used for airlift requirements as a result of the KC-135 being placed in inventory.

They are not designed for this purpose, but it is a big aircraft and it will haul a lot of equipment and a fair number of people. In other words, it is that much more than nothing.

Do you look on this addition as one of significance in airlift capability?

General KELLY. Yes, sir; I do, Mr. Sikes. We have six Air National Guard squadrons now of eight aircraft each and we are planning nine more of eight each. I think this will contribute significantly to the support of any limited war activity.

There is another thing that we are working at very hard in this field: For instance, you go into such places as the Congo and you may not always have gas available. These tankers can, as suchjust as tankers-certainly assist us in refueling and getting in and out of some of these inaccessible places where you would not have fuel available.

Mr. Sikes. When will they become available to you and in what numbers?

General KELLY. It will extend over the next year and a half.
Mr. SIKES. They are already coming in?

General KELLY. They are coming in now and it will stretch over the next year and a half. There will be 85 this calendar year, I am informed.

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