Senator BIBLE. If the particular case that is now under consideration is decided favorably so as to strengthen your route structure, then you can secure the necessary financing for purchase of four F-27's?

Mr. MYHRE. Mr. Chairman, this commitment was not geared to the F-27 because of its-it wouldn't have been available immediately. This particular commitment referred to Convair aircraft, which could be made immediately available provided the case were won. And it was our case of course at that time that we would start service with the Convair aircraft and we would eventually phase them out in favor of the F-27. You see that commitment would have then supported our financing to move into the F-27.

You see, the heart of the problem: insofar as our experience is concerned, in financing large amounts of dollars, the banks do not feel that our earning history is or has been sufficient to assure the repayment of such substantial loans. It was only because this particular case that I referred to had the potential earnings within it to return enough to pay back the loans on this particular case.

Senator BIBLE. If the Board decides adversely to you, then you feel that you will be unable to secure adequate financing commitments without the enactment of this bill?

Mr. MYHRE. Yes, sir.

Senator BIBLE. If this bill is not enacted then you will be unsuecessful in securing financial commitments.

Mr. MYHRE. We feel that we would find it most difficult, and perhaps impossible, to go ahead with such a program.

Senator BIBLE. Thank you, Mr. Myhre.

We appreciate your testimony. The next witness is Colonel Mackey. president of Mackey Airlines, Inc.

STATEMENT OF JOSEPH C. MACKEY, PRESIDENT AND CHAIRMAN OF THE BOARD OF MACKEY AIRLINES, INC.

Mr. MACKEY. Mr. Chairman and other distinguished members of this committee: I am Joseph Mackey, president and chairman of the board of Mackey Airlines, a Florida corporation. Our company operates regular daily passenger service between Tampa, St. Petersburg, Fort Lauderdale, Palm Beach and Nassau and other islands of the Bahamas.

I wish to express my sincere appreciation for the opportunity you have given me to appear before you in regard to Senate bill S. 2229. I represent our company in support of this bill. I do, however, wish to comment on the coverage of this bill in its present phraseology. I shall deal with these problems separately. I have heard a considerable amount of the testimony given here and I shall attempt to avoid being repetitious.

I can give you an example of our present problem which I believe will impress upon you the need for this legislation. Last December. our company had a requirement for another DC-4. At that time we had approximately $2 million in physical assets which consisted primarily of aircraft and related parts. We had no short-term or longterm obligations whatsoever and we had adequate operating capital. We purchased this DC-4 from Capital Airlines for a price of $400,000. We had made a $50,000 deposit from our working capital. The transaction necessitated our borrowing $350,000. The legal loan limit from

our local bank was $200,000 so they made us the loan by farming out $150,000 to a New York banking institution. To get this money we were required to mortgage all of our assets which had a book value of some $2 million and an actual distress sale value considerably in excess of this. In spite of this amount of collateral, we were only able to get the loan for 6 months. We had managed to pay this obligation down to a remaining $160,000 which we renewed for another 90-day period last week but with the necessity of our still having all of the assets of our company pledged against only $160,000. The interest rate on this loan was 6 percent.

It so happens that Mackey Airlines placed the first order for the first two F-27's. This means that we recognized the value and importance of this aircraft early. Since this subject has been well covered by others we will not dwell on it further.

I have been attempting for 6 months to finance these 2 aircraft and I have been unable to do so through any normal financing channel. I have at the moment a commitment of private funds, the cost of which will run between 15 and 20 percent.

Senator BIBLE. That is the interest charged on the loan for 1 year, between 15 and 20 percent interest? Mr. MACKEY. That is correct.

Obviously, we can't stand this kind of a deal but at the moment we have no alternative.

Let's take a look at the reasons which create this problem. Everyone agrees that our company is sound, that we have made steady and important progress, that we have increased our route structures and our gross income, at the same time keeping our costs below the industry average, and we are to be commended for having accomplished all of this with no subsidy and no airmail pay. However, in spite of all this, we have never made any money and we have never paid a dividend. So after we hear a very glowing account of our administrative ability, our operational ability, and our tremendous potential for the future, we finally get to the point that we can't borrow any money.

Aviation to the average banker is something that he knows little or nothing about, and my experience is that in most cases he has little interest in finding out anything about it.

At the close of the war when hundreds of surplus aircraft were placed on the market by the military services, a great number of romantic plans came forth, many of which were developed by persons with more ambition than knowledge of the subject, and many banks in this country bought some of this romance. This had absolutely nothing to do with the scheduled airline industry but in some sections of the country, and our section is one of them, the word "airplane" became a nasty word in some financial circles. Those of us who must lepend on the small financial institutions for money must now bear he results of that era.

In this bill before us, the Government is being asked to guarantee hat private capital will not lose in making loans to the smaller opertors for the purchase of equipment. This means that for the Government to be protected we must take a look at the collateral.

Historically, aircraft have never come down in price and value for - given model as production continued. If any change develops it is pward. I believe I am correct in saying that the Fairchild F-27 ither has already increased in delivery price or is going to and the first ircraft has not yet been manufactured. Since traditionally it is al

ways 18 months to 3 years after an order has been placed before delivery can be made on any transport aircraft, this means that the supply rarely, if ever, reaches the demand.

Another important item to consider when thinking of one's collateral against a loan is that the aircraft must be maintained in topnotch condition at all times by Civil Aeronautics Board and Civil Aeronautics Authority regulations and that the maintenance of that aircraft is under constant Government supervision. We have all been discussing D-3's and we know that these aircraft are selling today for a price higher than their original acquisition cost 20 years ago. In any other industry a piece of mechanical equipment is depreciated a substantial amount the day it is delivered. The demand for the piece of equipment on necessary liquidation is doubtful and the piece of equipment may be completely worn out in a year or two because there is no Government agency charged with and given the power to see that that piece of equipment is properly maintained.

It is also important to note when thinking of a piece of machinery as collateral that in the case of aircraft, the original delivery cannot be made to the purchaser until the manufacturer has satisfied Government agencies that it is properly designed, properly tested, and safe for operation. All of these are highly important safeguards in analyzing the collateral which is in effect pledged against the Government's guaranty.

Where it is possible for an operator to borrow money today for aircraft purchases, I do not believe that this legislation will make any drastic difference in interest rates. Under the present conditions of what seems to be limited supplies of available investment funds it appears that banking institutions can get all of the loans they want in the 5 to 6 percent bracket. Under these conditions, it would seem obvious that they need not move into a lower interest loan. What this legislation will do, however, is make it possible for the small operator to secure loans that he otherwise cannot secure at all.

It must also be realized that aircraft presently in operation cannot be sold and used as a substantial downpayment. The new aircraft must be acquired and placed in operation before liquidation of the old one is possible.

I would like to discuss an item which I feel is of profound importance. Since the following comments are with reference to a military situation, it might be considered that these comments do not belong before this particular committee. However, the Senate as a body. and therefore you gentlemen as individuals, must certainly be interested in our defense problem. I'll take a moment to qualify myself for the following statements.

I was a base commander for the Air Force at the Miami Air Base. My mission was to develop and operate an airlift from Miami to India. This operation was carried on for a period of 32 years reaching a point where one hundred and fifty 5-man aircrews were involved as well as thirty-five 4-engine aircraft. Our problem from the start to the finish was the acquisition of trained personnel. Not only did the shortage exist in the case of flight crews, but the problem was even worse with regard to trained mechanics, and specialists such as hydraulic and electric.

Now let us take a look at what we have in the local service, territorial, and other small carriers. We have a small army of top-grade flight

crew members, mechanics, specialists, operations people and related experts, all highly skilled and highly trained on aircraft 20 years old and by any and all standards obsolete.

We are now entering an era of complete change in the principal of power for aircraft. The military services and the industry as a whole are rapidly approaching the end of piston power with a complete changeover to turboprop and jet engines. Under the present circumstances most small airlines will be unable to move into the turboprop field. If they were able to do so, it would mean that this small army of which I speak would have to be completely trained from the bottom to the top in operation of modern equipment. This would thus create a vast pool of equipment nad personnel available in the case of a national emergency which as of today does not exist. All of these specialists are made available to our country in an emergency at no additional cost to the taxpayer.

I do not have available the cost of training a mechanic, a specialist or a flight crew in the military services, but I am certain that the figure applied to the hundreds and thousands of people who would thus be trained in this civilian program would be a staggering sum. think that this situation to which I refer alone would more than justify the passage of this bill, yet this in effect is just an additional valuable development to the advantages that would accrue to the general public by virtue of the ability of the small airlines to acquire modern equip

ment.

Now I should like to discuss the coverage of this bill. In its present form it covers local services and territorial carriers only. Mackey Airlines is classified as a trunkline operation for some mysterious reason. We have never asked for any subsidy or mail pay and we receive none. We have always been very proud of this fact but I am finding it increasingly difficult to explain to our directors and 1,400 stockholders what the advantages of remaining in this position are. First, permanent certification is given to the local-service carriers by legislation to make long-range planning possible and ease their financing problems. Now it appears that Alaskan and Hawaiian air carriers are to be treated likewise. It seems that we will have the dubious honor of being the only regularly scheduled passenger airline in existence with a temporary certificate.

Now we come to the present bill, S. 2229. Mackey Airlines, which is smaller than any of the local service carriers, is eliminated from the bill. This does not seem to us like the way to develop an incentive to other carriers to get off of subsidy, and it certainly provides little reason for us to continue to remain off subsidy.

I have not discussed this matter with the Chairman of the Civil Aeronautics Board, but I prefer to think that we were forgotten because of our unique position rather than that we were deliberately rejected.

We therefore ask that the terminology of S. 2229 be changed so that Mackey Airlines could be included on the same basis as the local service carriers.

We suggest the following terminology, and it is on the last page of my statement. I should like to state that this terminology is naturally established for Mackey Airlines and to cover us alone. If there are other carriers who should also be covered it is not our intention to delete them by virtue of this phraseology. We would be perfectly satis

fied with any phraseology that included us if others were involved as well.

The phraseology we suggest is as follows:

1. In the enactment provision

(a) delete the clause "both within the United States and within the Territories of Alaska and Hawaii," or

(b) amend said clause to read:

within the United States, within the Territories of Alaska and Hawaii and between the United States and nearby places outside thereof.

2. In section 3, at the end of the first sentence, add the following clause:

or (d) authorizing the transportation of persons and property (but not mail), without restriction to all-expense escorted tour service, between Florida and points in the Bahama Islands and Cuba.

Again, Mr. Chairman, we merely make this suggestion as covering If there are other carriers who should be covered or feel that they should be covered, we have no objection to how the terminology should

us.

read.

Senator BIBLE. Thank you, Colonel Mackey.

You mentioned in your prepared statement that you weren't aware of reasons as to why the CAB had not made provision for you in their bill. I have just been handed a supplemental statement that has just come down to the committee from the Civil Aeronautics Board relating to your airline, and they say the following, and I think in fairness to you, you might care to comment on it. It is a very short statement concerning Mackey Airlines:

This is a United States air carrier holding temporary nonmail certificates to engage in foreign air transportation between points in Florida and points located on the off-shore islands and Cuba. We have no information that this carrier cannot independently finance the purchase of new aircraft on reasonable terms. It is our understanding that Mackey placed one of the earliest orders for the F-27 and that it will receive delivery in about December 1957 of the first F-27 off the production line.

As a nonmail carrier, Mackey Airlines is not eligible for subsidy and consequently the proposed legislation, while undoubtedly of potential value to the carrier, would not have any effect on the subsidy obligations of the United States, which was the basic consideration of the Board in proposing the legislation.

That is the comment that the Board makes concerning your situation. In hastily looking at the report they sent down, they apparently say they feel you do not come within the purview of S. 2229. However, if Congress feels the legislation should be extended to cover them, the Board would not object to amendment of the bill for that purpose.

As I understand from your prepared statement, you do have two F-27's on delivery, but you have private commitments at the present time where the interest rate would be between 15 and 20 percent.

Mr. MACKEY. That is right.

Senator BIBLE. That might be a partial answer to what they say here. I would be happy to have any further comment from you. Mr. MACKEY. I would certainly like to comment on that, Mr. Chair

man.

Senator BIBLE. I feel that you should.

Mr. MACKEY. I certainly feel that a very peculiar look is being taken at this thing when we find one carrier-and I believe perhaps the only