Mr. BOYD. Yes. Congress in its wisdom has seen differently. Mr. BOYD. Yes, sir. Mr. VAN ZANDT. A question, please. Mr. Boyd, the two versions of the bill that are now in conference: do they contain the authority you think necessary for you to properly administer the supplementals? Mr. BOYD. Mr. Van Zandt, as a result of a very intensive investigation conducted jointly with the FAA, I believe the Board will submit additional considerations. Mr. VAN ZANDT. Will these additional considerations be based on the Imperial accident at Richmond in early November? Mr. BOYD. I would say that certainly is a related subject; yes, sir. Mr. VAN ZANDT. I imagine, the directive of November 17 will have some effect on the considerations you submit? Mr. BOYD. No, sir. Mr. HARDY. Go ahead, Bob. Mr. SMART. From the testimony it is clear that some of these supplemental carriers and I emphasize "some"-have been flagrant violators of the economic provisions of the law. There is an indication that one case took some 7 years of assorted hearings and litigation to sustain your revocation order. There is strong indication that the management of some of these revoked companies are back in business by simply buying the controlling interest in one or more valid supplemental certificates. Can you enlighten the committee on this aspect of the problem and state whether or not you have any effective authority with which you can cope with this situation? Mr. BOYD. If I can answer this question backward, Mr. Smart, I would say so far as the Board is concerned, we do not have what we consider effective authority to deal with the situation. This is not to say that we will not utilize what we have available. Mr. SMART. At that point, would you agree that what you have available is insufficient? Mr. BOYD. Yes, sir. Mr. SMART. And this particular point. The existing bills in the Congress: will they give you the authority which you need to cope with it? Mr. BOYD. We think that they probably would. Because the existing bills would not provide for grandfather rights. Each carrier of the supplemental class would have to come before the Board for a permanent certificate. And this would give us a better, that is, a stronger arm than we have now. Mr. SMART. Yes Mr. BOYD. However, we think there are other means, much more preferable, to resolve this situation. And I think this is within the scope of what we will probably recommend in connection with the legislation. Mr. SMART. You do agree, do you not, that you need the authority to cope with these so-called gypsy management types? Mr. BOYD. Yes, sir, we sure do. We feel, the Board is very strongly of the opinion that the supplemental industry is beneficial to this country, but we have the old situation of one or two rotten apples wrecking the whole barrel. And we would like to be able to get the rotten apples out. Mr. HARDY. In connection with this point. Now, we discussed a while ago the statutory requirement for Board approval, the regular statutory requirement in the case of a sale of a certificate. Mr. BOYD. Yes, sir. Mr. HARDY. Now we are talking about something else, accomplishing the same thing through another procedure, apparently, where you might have a corporate certificate holder with the transfer of ownership through the sale of stock and a change of management. Isn't your certificate tied also to ownership, effective ownership as well as corporate ownership? Mr. SMART. The control. Mr. HARDY. I am talking about the control of the corporation. Mr. HARDY. Your certificate does not have any limitation with respect to change of ownership on management? Mr. BOYD. No, sir; the law doesn't give us that authority, Mr. Chairman. Mr. HARDY. Well, that is the question. Now that is done, of course, in some of our regulatory agencies. Mr. BOYD. Yes, sir. The only authority we have in this area is where you get into an interlocking situation, where the individual involved or individuals are engaged in a phase of aeronautics at the time they acquired ownership of the stock of a company holding a certificate. Then that individual, or individuals, is required to seek approval of the Board before that interlocking can be effected. Mr. HARDY. Actually, then, an individual to whom you had denied, that is, whose application you had denied, could get an application by simply buying out the control of the corporation that held them? Mr. BOYD. Yes, sir. Mr. SMART. You are aware, Mr. Boyd, that MATS, under its new direction from the Secretary of Defense, has disapproved four of the supplemental carriers? Mr. BOYD. Yes, sir. Mr. SMART. For military contracts. These four supplementals are still obviously certificated by CAB. Mr. BOYD. Yes, sir. Mr. SMART. Are you aware of MATS' reasons for disapproval, and if so, are you in agreement or disagreement with them? Mr. BOYD. I can't say that we are aware in any detail, Mr. Smart, of the reasons. MATS has been most helpful-the Department of Defense, Air Force and MATS-in providing us with information. I checked this morning before coming over here and find that we have the results of the MATS action in these cases, but we do not have the detailed knowledge, although I understand that MATS has offered to make it available to us. But we do not have it at the present time. Mr. SMART. It would be desirable, would it not? Mr. BOYD. Yes, sir. We propose to obtain it. Mr. HARDY. Then you have not initiated action against any of those? Mr. BOYD. No, sir. Mr. SMART. The committee has previously received testimony relative to the agreement between the Executive Director of the Military Traffic Management Agency on behalf of the Defense Department and other Government agencies, and the Independent Airlines Association in behalf of its supplemental carriers. Is this as of prior to November 17? Mr. BOYD. Yes, sir. Mr. SMART. I understand that this agreement and others like it must be approved by CAB, is that correct, sir? Mr. BOYD. Yes, sir. Mr. SMART. You are aware of the fact that a number of the supplemental air carriers who were formerly members of IAA have withdrawn from that association and have formed or are in the process of forming a new and separate association? Mr. BOYD. Yes, sir. Mr. SMART. Have you approved any similar agreement between the new association and the governmental agencies? Mr. BOYD. Yes, sir; we did. We approved an agreement last week between the new association, which I believe is called National Air Carriers Association, and the proper agency in the Department of Defense. We approved this on an interim basis, pending our action on the agreement for the association, itself, as to whether or not-that is, whether or not we will approve the formation of such an association. Mr. SMART. Yes. Well, my query was based on the fact that MTMA could not contract through that association until it had your approval. Mr. BOYD. Yes, sir. Mr. SMART. And I was curious to know how we are doing business with this new supplemental organization, as it relates to whether you had or had not approved it. Mr. BOYD. Yes, it was approved immediately. It was a rather routine petition. Mr. SMART. Mr. Chairman, that completes my questions on this phase of the matter. Mr. HARDY. That being the case, I think the committee will adjourn, to reconvene at 3 o'clock, when we will get into the second phase of your statement, Mr. Boyd. Mr. BOYD. Thank you, Mr. Chairman. Mr. HARDY. Thank you very much. (Whereupon, at 11:58 a.m., the subcommittee recessed to 3 p.m. of the same day.) AFTERNOON SESSION Mr. HARDY. Mr. Smart, I believe you have two or three other points that you wanted to finish. Mr. SMART. Thank you, Mr. Chairman. I have two areas that I would like to cover, Mr. Boyd. I want to go back to your authority to invoke civil and criminal penalties. You have pointed out that you have no authority to invoke civil penalties; is that correct? Mr. BOYD. That is correct, sir. Mr. SMART. You say that you have only the authority to invoke criminal penalties. Now may I ask you: Does this relate principally to rate structure; that is, rate violations? Mr. BOYD. Yes, sir. Also falsification. Mr. SMART. Falsification. It really then doesn't go to the safety matter, which is under FAA? Mr. BOYD. No, sir. Mr. SMART. What has been the experience of CAB in its previous attempts to invoke criminal penalties? And in that connection may I ask: Can you do it through your own legal department or must you go through the Department of Justice? Mr. BOYD. We must in all cases go through the Department of Justice. Mr. SMART. And what has been your experience with reference to the cooperation of the Department of Justice when you have attempted to invoke criminal penalties? Mr. BOYD. By and large, my understanding is, Mr. Smart, that the Department of Justice has been very cooperative. There have been a few instances over the years where the Department did not see fit to press charges where the Board felt there should be. This was a matter of judgment. I think the primary concern we have had in that connection is that, as you can appreciate, and the committee can, most of the matters with which we deal are fairly technical matters and it is sometimes very difficult for us to make our points with people who are laymen. We have had difficulty on occasion with the Department of Justice in that area. But their sense of cooperation has been excellent. Mr. SMART. Well, the essence of all of this testimony on this point is that you are almost threadbare of current legal authority to really police the action under your jurisdiction? Mr. BOYD. Yes, sir. That is a very fair statement. Mr. HARDY. In that connection, then, if there were a violation by an air carrier of the terms of the certificate, there is no criminal nor civil penalty available to you? Mr. BOYD. We have the authority, as I mentioned this morning, Mr. Chairman, to press for a cease and desist order. This is the only area in which the Board has any authority. Mr. HARDY. That is not a penalty. That is merely a matter of saying "Back up and don't do it any more." Mr. BOYD. That is right, sir. From a penalty point of view, we have no provision-there is no provision in the law which gives us the right to Mr. HARDY. In the case of a violation. Mr. BOYD. That is right, sir. Mr. SMART. With reference to your jurisdiction on the economic side, if you should find that a specified company does not measure up to the economic soundness which you require, is it possible that the Small Business Administration may issue a certificate of competency which would permit that company to continue to operate, in spite of your finding? Mr. BOYD. Yes, sir; I believe that is correct. Mr. HARDY. You mean you can find a company incompetent and the Small Business Administration can say "You don't know what you are talking about?" Mr. SMART. Economically. Mr. HARDY. I am talking about economically. Mr. VAN ZANDT. Yes. Mr. BOYD. I think that is essentially correct, Mr. Chairman. Now Mr. HARDY. They have to know more about it than you do, then? Mr. BOYD. Well, I don't think it goes off that way. I am certainly no expert on this matter. But my impression is that a certificate of competency puts the Small Business Administration to some extent behind the carrier. Mr. VAN ZANDT. Once they issue the certificate of competency, there is nothing you can do about it. Mr. BOYD. That is correct. Mr. VAN ZANDT. The company has been declared eligible to operate? Mr. BOYD. Yes, sir; that is correct. Mr. VAN ZANDT. To function as a supplemental carrier? Mr. BOYD. Yes, sir. Mr. HARDY. And their certificate of competency would take out of your hands any determination of the economic values in that word "fit" which the act contains? Mr. BOYD. I think that is right, under the existing situation. Now, as I understand it, the matter of a certificate of competency really has involved MATS contracting more than anything else. I have no knowledge of the carriers obtaining certificates of competency to engage in civilian business. Mr. HARDY. Well, then, actually, the Small Business Administration has not overruled you insofar as the awarding of a certificate is concerned? Mr. BOYD. Well, we can get to where we are chasing our tails here, I think. Because there were no certificates of competency involved when the Board first issued the certificates. And now we find outselves in the situation where there is nothing effective we can do to eliminate any certificate. So it really doesn't make a great deal of difference to us whether Small Business Administration issues a certificate Mr. HARDY. Unless you have some new applicants? Mr BOYD. That is right, sir. But we would not-I don't believe that we would be bound to accept a certificate of competency to establish fitness on a new applicant. Mr. HARDY. You don't think you would? Mr. BOYD. No, sir. Mr. HARDY. That was the thing that I was trying to determine. Mr. BOYD. No, sir. I would say this, Mr. Chairman, that if there is some legislation to provide for a class of supplemental air carriers, the Board is going to establish its standards within the framework of that legislation. And I assure you, sir, we will not abdicate to any other body. Mr. HARDY. Well, of course the Department of Defense has had to abdicate once or twice to the Small Business Administration. Mr. BOYD. That is a different situation. Mr. VAN ZANDT. Mr. Boyd, suppose that one of these supplementals bid on a piece of business, like the transportation of a football team. Mr. BOYD. Yes, sir. Mr. VAN ZANDT. Or a church group. Mr. BOYD. Yes, sir. Mr. VAN ZANDT. Soneone challenged the legality of their certificate. And you found they did not meet the requirements of the |