with crews and there is certainly much left to be desired in making the civil air reserve fleet a very responsive instrument.

Mr. MINSHALL. How many planes are in the pool?

General KELLY. 222, on the average in CRAF. It varies a little bit because as Pan American or American Airlines gets a new jet, they certify it, it comes in.

Mr. MINSHALL. One further question. How many of these planes are being used most of the time, how many are on the ground, and how many are leased out? In other words, how many remain in the pool and how many are actually being operated by various companies of the 222?

General KELLY. I do not have the exact figures on that.

Mr. MINSHALL. It fluctuates, but what is the average?

General KELLY. This fluctuates because they lease them out for charter other than MATS business.

Mr. MAHON. At this point give us your best estimate of the utilization of these so-called pooled aircraft.

General KELLY. I would judge that about 150 of them belong to airlines such as American Airlines, Pan American, TWA, Northwest, that are using them actively all the time. Then there are another

50

Mr. MINSHALL. These are most of the DC-6, -7, some -4?

General KELLY. DC-6's, Constellations. Those are the type that are sort of in these pools that are operated by some of these companies. Flying Tigers and Slick own their aircraft, but you have Overseas National and Resort and Southern Air Transport, TransCaribbean, Trans-International, World Overseas Airways, and you have some DC-4's still in there which we are trying to get out of CRAF. The rest are DC-6's and it is the DC-6's and the Connies that we call L-1049's. There are 36 total DC-6's and 41 total Connies. Some of those DC-6's and Connies are being operated by Seaboard & Western, Pan American as cargo aircraft. I would say roughly there are 50 in this sort of rotating group.

Mr. MINSHALL. How many planes do you have in this rotating pool?

General KELLY. I would say, roughly, there are 50 in this sort of rotating pool.

Mr. MAHON. Check your remarks for the record and amplify them, if you can, in order to give us a better picture.

General KELLY. Yes, sir.

(The additional remarks referred to follow:)

ROTATING POOL-CIVIL AIRCRAFT OWNERSHIP-LEASE STATUS

In the civil 4-engine fleet of the general types of aircraft included in the CRAF (B-707, DC-4, DC-6, DC-7, DC-8, L-1049, L-1649), there are approximately 156 aircraft owned by companies not authorized to engage in commercial air transportation. These are aircraft that are available for lease and for the purpose of this reference, are considered to be pool aircraft. Of these pool aircraft, 39 are presently allocated to the CRAF from airlines possessing the aircraft under leasing arrangements. The balance are predominantly passenger-type aircraft not required in the CRAF program.

Mr. FORD. Mr. Chairman, I had the impression based upon the presentation we had a year or two ago that the Air Force had specific contracts with individual companies that owned these aircraft, and they were very specific in the terms of the agreement as to how they

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.

it?

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

67438-61-pt. 2- 70

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

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:)

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

American International

Seven Seas

Transocean Airlines

Central Air Transport
Coastal Cargo

Pacific International
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 131⁄2-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 have 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?