Mr. CROWLEY. Well, the passenger rates will very nearly regulate themselves with this infant industry because of the competition between fast trains and because of competition of other air lines. Mr. ELLENBOGEN. Well, you do not think we should have, for instance, two air lines, between Pittsburgh and Washington? Mr. CROWLEY. I doubt if the traffic is heavy enough. In fact, the difficulty with these two lines that we have is that they were not only operating on regular mail schedule, but they vied with one another in competing with their rates, to the point where they have both. gone broke, or were going broke fast. Mr. ELLENBOGEN. Where you have two competing air lines it reduces the efficiency of the operation in which they are engaged, does it not? Mr. CROWLEY. In some instances. That is because of this off-line provision that got into the bill it was amended over in the Senate. But if that had been left as it was we would not have had that difficulty. Mr. ELLENBOGEN. But generally speaking, where lines ply between two points-and I am not talking about others Mr. CROWLEY. Yes. Mr. ELLENBOGEN. That is true. Mr. CROWLEY. Yes; that is the way I feel about it, that, generally speaking-and there may be exceptions-but, generally speaking, there should not be competing lines until the lines do not need subsidies. If you are going to subsidize them, there is no reason why you should give Government money away to set up other direct competing lines. Mr. ELLENBOGEN. Well, that would apply to transportation of passengers as well as to transportation of mail, would it not? Mr. CROWLEY. I do not think so. I think the air lines will find a rate for passengers that they feel the public is willing to pay for that kind of transportation. Mr. ELLENBOGEN. Yes; but Mr. CROWLEY (continuing). But that is something they will learn from their experience in operation; I think they will know more about what rates to fix than the Interstate Commerce Commission or any other bureau official could know without actually operating an air line. Mr. ELLENBOGEN. Where it is not possible for one line to be operated at a profit, and two lines are going to be operated, that naturally affects the efficiency of the operation, does it not? Mr. CROWLEY. Well, your question is based on that Pittsburgh line, and that was a very unfortunate case. There two companies fell out with one another; and to use an old expression, they went licketysplit to see which one could outdo the other and which one could operate the most service and which one could run their planes at the lowest rate. The CHAIRMAN. We thank you, Mr. Crowley. Mr. CROWLEY. Thank you. The CHAIRMAN. Mr. Mulligan. STATEMENT OF DENIS MULLIGAN, SOLICITOR'S OFFICE, Mr. MULLIGAN. Mr. Chairman and gentlemen of the committee, my name is Denis Mulligan. I am from the Solicitor's office, Department of Commerce. The Department of Commerce wishes to be heard with regard to H. R. 5234, and desires to leave with your committee a written statement concerning the bill. (The statement above referred to is printed in the record, as follows:) Hon. CLARENCE F. LEA, DEPARTMENT OF COMMERCE, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: Reference is made to H. R. 5234, a bill to amend the Interstate Commerce Act, as amended, by providing for the regulation of the transportation of passengers and property by air carriers in interstate, overseas, and foreign commerce, and for other purposes. This bill is identical with the amended S. 2, bearing calendar date March 3, 1937, which, as successively modified, originated about 2 years ago. The Department of Commerce has previously reported upon S. 2, as amended, and its predecessors. With respect to such prior reports, your attention is invited particularly to Department's letter of December 16, 1936, devoted to S. 3420, Seventy-fourth Congress, draft of July 29, 1935; Department's letter of January 11, 1937, addressed to Senator Pat McCarran in reply to his inquiry of December 19, 1936, in which he forwarded mimeographed copy of bill bearing the same title; Department's letter of March 6, 1937, devoted to S. 2, dated January 6, 1937; and comment made by the Department on the amended S. 2 at a hearing before a subcommittee of the Senate Committee on Interstate Commerce, March 11, 1937. Copies of this material are to be found on pages 77-90 of record of hearings before a subcommittee of the Senate Committee on Interstate Commerce, part I, March 8 and 11, 1937. H. R. 5234 and S. 2, as amended, would add a new part (part III) to the Interstate Commerce Act. Considered together with H. R. 4652, a bill to promote the safety of scheduled air transportation, and S. 1760, it would, in addition to other purposes, transfer the present jurisdiction of the Department of Commerce over air lines to the Interstate Commerce Commission. The Department takes cognizance of the primary intention of the bill to vest in the Interstate Commerce Commission the economic regulation of the transportation of passengers and property by air carriers in interstate, overseas, and foreign commerce. While it is in accord with the aim to eventually consolidate the activities of the Federal agencies dealing with transportation, this Department is unable to give its approval at this time to the enactment of the legislation proposed in H. R. 5234. Regarding the purport and scope of the provisions of the bill relating to overseas and foreign commerce, it is pointed out that the control provided for is dual in nature and extent. Under the prevailing law, the authority in the matter of foreign air lines operating, or seeking to operate, an air-transport service over, into, or away from United States territory is exercised by the Secretary of Commerce in virtue of section 6 of the Air Commerce Act of 1926, as amended. The bill does not attempt to repeal that authority. It does, however, place in the Interstate Commerce Commission broad authority over United States air lines now operating, or which will seek to operate, in overseas or foreign air commerce. In this connection, emphasis is given to the factor that when foreign air lines seek to establish air routes and services in United States territory in exchange for similar privileges to be granted to United States air lines, such privileges are negotiated for on the basis of reciprocity. It would seem to be highly desirable that the responsibility for such negotiation should be centered in one organ of this Government. Likewise, it would appear desirable, from the standpoint of organization, that the proper regulation of all for eign air commerce affecting the United States, whether by foreign-flag air lines or United States air lines, should be vested in one head if unity of command is to result. In the Department of Commerce there is a specialist aviation organ, the Bureau of Air Commerce, which has been administering these matters for an appreciable period. In this regard, it is apparent that the foreign air commerce of the United States greatly exceeds that of any other nation. Incidentally, in advancing this view, the Department takes note of the fact that the policy of the Government has been to permit considerable independence of action to United States air lines operating in foreign territory in obtaining and continuing their air-navigation rights or privileges in such territories, from which there does not come to the United States foreign air-line services. A detailed consideration of several of the provisions concerning the regulation of overseas and foreign air commerce will better reveal the attitude of this Department toward this aspect of the bill. Section 305 (a), among other things, provides that no air carrier shall engage in overseas or foreign transportation unless there is in force a certificate issued by the Commission authorizing such carrier so to engage. In its long administration of our foreign water-borne commerce this Government has not seen fit to require such certificate. Is it necessary now to require such certificates in a mode of transportation that is only emerging from the experimental stage? Section 305 (e) contains the proviso: "That a certificate issued under this section to engage in foreign air transportation shall designate such points only insofar as the operation is to take place within Territories or Territorial waters subject to the sovereignty or authority of the United States and otherwise shall designate only general trade route and the foreign market to be served." This proviso is objectionable for a number of reasons. The proviso would appear to be in conflict with not only the existing Federal law but with international policy and practice. The Secretary of Commerce, according to the Air Commerce Act of 1926, as amended (44 Stat. 568), is authorized to designate and establish civil airways, which are routes in the navigable air space suitable for interstate or foreign air commerce. The most important single body of law governing this question, to which most of the world powers have adhered, is the International Convention for the Regulation of Air Navigation, signed at Paris on October 13, 1919. The last paragraph of article 15 of that convention provides: "Every contracting state may make conditional on its prior authorization the establishment of international airways and the creation and operation of regular international air navigation lines, with or without landing, on its territory." Moreover, it is to be recalled that in the Habana Convention on Commercial Aviation, which is the only multilateral convention on public international air law ratified by this Government, the "fixation" or designation of routes has been provided for. From this it is to be inferred that the idea of a definite location of airways is well established in law. There are also practical reasons why the airway should be definitely located and its location, in some measure, be agreed upon, not only in our own territory but in the foreign territory over which the United States air line operates. It is understood that one of the basic rules in fixing mail-pay aid is that the mail be carried by the shortest, most direct route. No doubt this criterion would be followed, no matter what scheme of subsidy be adopted, so long as a subsidy is necessary. It will also be necessary to know such locations if proper authority is to be granted to United States air lines to carry American passengers and goods safely in foreign or overseas air commerce. It may be, for example, that this Government would find it desirable to certify only a particular kind of equipment for operation over certain routes in foreign or overseas territory. In these remarks it is comprehended that a government can exercise sovereignty only over its own territory or territorial waters, and that the fixing of air routes between any two or more points within a territory of a state is ultimately a matter for decision by that state; but if the proviso proposed were to be written into the Federal law it is felt that a certain amount of the influence now exercised by the United States in determining the route to be traversed by the reciprocal services operating between this country and other countries would be foreclosed by this proviso. In short, the liberty to bargain, even in a matter where the sovereignty of the other country is controlling, would be negatived by such a statutory provision, a liberty which has already appeared to be of value, and may be of very great value in the future establishment of our foreign air routes and services. It is thus to be seen that where reciprocal international air services are to be established, the countries concerned agree to establish routes over their ter ritories and permit air lines of their respective nationalities to operate services over such routes. An example of this rule is to be found in paragraph 3 of the Air Navigation Arrangement between the United States of America and Great Britain (Executive Agreement Series, No. 76), which provides: "Subject to the provisions of this note, United States aircraft will, in time of peace, be allowed liberty of passage to and over the territories to which this note applies: Provided, however, That no regular air route or service may be established or operated to, within, or over any such territory, with or without a landing there, except by prior consent of His Majesty's Government in the United Kingdom." From experience already accumulated it is deemed desirable in the furtherance of national policy that the element of routes in our foreign air commerce, as well as the services over the routes, especially when such routes enter or traverse United States territory, should be left in the control of the Government. If this is done, it is believed that a repetition of the condition now existing in our merchant marine will be prevented from arising in our foreign air commerce. From the record, it appears that at the present time only about 35 percent of American goods in foreign commerce is carried in American bottoms. Of interest in the same connection is the fact that 70 percent, or more, of the passengers crossing the Atlantic Ocean by steamer in American flag and foreign-flag vessels are United States nationals. It is, therefore, urged that the proviso contained in section 305 (e) be omitted and that there also be omitted from the same section another proviso contained in it. The last-mentioned provides that: "No term, condition, or limitation of a certificate shall restrict compliance by a carrier engaged in foreign transportation with any treaty, agreement, or convention between the United States and a foreign country, or with any fran chise, obligation, right, privilege, duty, or liability granted or imposed by any foreign country, in respect of transportation outside of the United States." This clause is objectionable unless it be amended so as to provide that the Government of the United States should not be so bound by any franchise, obligation, right, privilege, duty, or liability granted or imposed by any foreign country which had been entered into by private American person, or company, with such foreign country, unless this Government saw fit to agree to the terms of such franchise, obligation, right, privilege, duty, or liability. As a sample of the mischief that could be wrought under such proviso, there is cited an agreement which has recently come to the attention of the Department of Commerce. It was entered into by an American air-line company and a foreign country and provides that if the American company was to be permitted to establish an air route and service in the territory of the foreign country, the United States Government would have to permit an air line of the foreign country, or an air line approved by it, to establish a reciprocal route and service into the territory of the United States. One of the articles of this agreement provides that all contracts of carriage, whether of passengers, mail, or other cargo by aircraft used in conducting the certain service, shall be deemed (wherever entered into) to be made under, and shall in all respects be subject to and conform with the law of the foreign country. Casual study of this article shows it to mean that even though an American national purchased a ticket in the United States on an aircraft of United States registry to travel to the foreign country and suffered injury en route, the American national, in seeking redress, would be subject to the laws of the foreign country. The hardship that might be worked by this provision to one of our own citizens traveling under such circumstances should be guarded against by governmental negotiation. These propositions suggest that, in keeping with international policy and practice, all arrangements relating to the establishment of air routes and services in foreign commerce between the United States and a foreign country, where such country demands, or it is to be expected will demand, a reciprocal service by one of its air lines into the United States, should be arrived at between the Governments of the United States and the other country if the interests of the public, the Government, and the aviation industry as a whole are to be properly advanced and regulated. Section 305 (k), providing that, "If any person applying for a certificate for foreign air transportation, holds a contract, license, permit, concession, or franchise, which was in effect at the dates of the passage of this part, permitting such transportation, the Commission shall give preference to such holder over any other applicant if such holds is fit, willing, and able properly to perform such transportation", like the preceding provisions discussed, is presumably designed to freeze the field. It is very probable that such contracts, licenses, permits, concessions, or franchises, as are referred to in the provision, and as relate to most of the desirable air routes of the world, are already held by a few individuals or groups. The requirements of the bill respecting certificates of convenience and necessity cause this Department no little concern. It is appreciated that the matter is one of policy and consequently is for the Congress to determine. In deliberating upon this aspect of the bill, however, it is suggested that the following be taken into consideration: Our air-transport industry is still in a formative state with a history of about 7 years; the airways map is still devoid of feeder lines; and, in the opinion of informed persons, there is not yet enough competition to promote the potential traffic. This country is not sufficiently provided with air-line routes as it is with rail or motor routes. The domestic routing of air lines at this time is about 30,000 miles. The total express and freight carried by our air lines in 1936 (estimated for all services, foreign and domestic) was about 3,800 tons; the total mail carried was about 8,000 tons; and the number of passengers carried was about a million and a quarter. These traffic figures are significant on the question of the necessity for such requirements now. Another matter of policy which raises a query, disquieting from the standpoint of public interest, includes those phases of the bill whereby the provisions of the Air Mail Act of 1934, as amended, regarding consolidation, merger, and acquisition of control, are materially relaxed or entirely omitted. The following structural features of H. R. 5234 should be given careful consideration before any final action is taken on the proposed legislation: Paragraph (b) of section 302 would serve to place very broad regulatory powers in the hands of the Interstate Commerce Commission. If the intent is only to place jurisdiction of the purely economic phases of air carriage in the hands of such tribunal, leaving all control of safety matters to the Secretary of Commerce, such intent should be made clear of possible ambiguity. Paragraph (1) of section 303 does not indicate the status of the Philippines under the proposed legislation. This matter should be clarified. Paragraph (a) of section 305 would appear to require a certificate of convenience and necessity for nonscheduled air carriers quite as well as scheduled air lines. It is believed that, at the present time, there is no real need for any such regulatory provision and that a more careful differentiation should be made with respect to the regulatory features applicable to each kind of aircarrier service. Attention should be given to the provisions of the Motor Carrier Act of 1935, wherein a clear distinction is drawn between the various carrier services. Paragraph (g) of section 305 definitely requires all air carriers, holding or operating under a certificate of convenience and necessity, to undertake, when authorized and required by the Postmaster General, to transport the mails. The bill extends to nonscheduled, or charter carriers, as they are known in the trade, as well as to the scheduled line carriers. The nonscheduled air carrier business in the United States today is still in the formative stage. Should the provision of section 305 (g), therefore, extend to all air carriers, including nonscheduled carriers? This provision would seem to be open to serious question. If any restriction is intended, it is believed that the restriction should be set forth. Paragraph (j) of section 305 provides for revocation of a certificate only after a showing of willful failure, on the part of the holder, to comply with its terms. The inclusion of the "willful" element would clearly serve to place an undue burden on the Government; in fact, a burden so great as to rather completely emasculate the power of revocation. Paragraph (a) of section 316 contains similar (knowingly and willfully) and the comments immediately above are believed applicable. Paragraph (d) of section 303 requires only a holding of 51 percent of the voting interest for air-carrier operations. While such a percentage is required under the provisions of the Air Commerce Act for purposes of determining the nationality of owners of aircraft, it is at least open to question whether such a percentage should suffice for air-carrier operations receiving economic protection from a Federal agency. It is believed that serious consideration should be given to the water-carrier precedent of requiring at least a 75-percent ownership, on the part of our nationals, before engaging in certain kinds of commercial enterprise. The features differentiating stock ownership from stock control |