SUBSIDY PAYMENT TO AIR LINES

Now, Mr. Chairman, I think because we are going to be limited here for time and obviously we are going to have to have another session with you people, if we would get down to-turn to page 18, and we will discuss the rest later, on your subsidy payments to air

carriers.

Mr. BOYD. Yes, sir.

Senator MAGNUSON. We will put your whole statement in the record, but we want to come back to some of these other items at some other time, but I think it will save time if we get down to payments to air carriers.

(Mr. Boyd's prepared statement follows:)

STATEMENT OF ALAN S. BOYD, CHAIRMAN, CIVIL AERONAUTICS BOARD

Mr. Chairman and members of the committee, it is a pleasure for us to meet with you again to discuss the Civil Aeronautics Board's program goals and financial requirements. I believe that our budget justifications which you have, provide you with a detailed picture of our requirements. Therefore I will cover highlights of our accomplishment and future needs. First, I would like to bring you up to date on the status of the industry the Board is charged with regulating and promoting.

STATUS OF THE INDUSTRY

Six charts, attached to this statement as exhibit 1, show the tremendous growth of the air carrier industry for the period 1947-63, and the comparative size and scope of today's air transport industry. The operating statistics for 1963 also represent a substantial growth over the preceding year.

PASSENGER TRAFFIC INCREASES

For example, passenger traffic was 15 percent higher for the calendar year 1963 than for the preceding year. Some 15 percent more seat-miles were offered in 1963 than in the preceding year. It is interesting to note that the increased volume of operations was performed with a smaller total aircraft fleet-1,910 aircraft at September 30, 1963, compared with 2,033 a year earlier. However, this fleet includes a greater number of the highly productive and larger capacity turbinepowered aircraft.

The industry had progressed substantially in its historical conversion from piston- to turbine-powered aircraft by the end of 1963. The cumulative effect of the conversion, which started in late 1958, shows the certificated route industry with 683 turbine-powered aircraft, of which 415 are large turbojet and turbofans, in its total fleet of 1,910. Eighty-three percent of domestic and 94 percent of international mainline passengers now are being carried in turbine-powered

aircraft.

Last year and the year before I reported to the committee that the industry profit picture was not impressive compared to the growth in traffic and capacity. This year the financial picture of the carriers is pretty good. The domestic trunks had a net operating income of $75 million in 1962. That is the operating profit before interest, income taxes, and other "below the line" items. They had a net operating income of $145 million in 1963. Their net income in 1962 was $8 million, and jumped to $17 million in 1963. The nine trunks, excluding Eastern and Northeast, reported net income of $63.4 million. We hope and expect to see better figures for 1964.

Industrywide, the return on investment for 1958 was 5.5 percent. It then slumped. The industry earned only 3.2 percent in 1960 and 2.1 percent in 1961. The turning point came in 1962 when the industry realized a 5.7-percent return on investment. The recovery continued during 1963 with the result that the 12 months ended September 30, 1963, was 6.8 percent, significantly above the 1958 level of 5.5 percent which preceded the aircraft conversion period.

The international and territorial carriers, particularly, have shown a sharp improvement in return on investment. In 1958, it was 3.2 percent. Last year it was 13.2 percent.

Prospects are bright for future profitability of the certificated industry as a whole. This is primarily due to the marked improvement in the economics of the turbine-powered aircraft over piston-powered aircraft.

PROSPECT OF LOWER FARES

With a better adjustment between capacity and traffic to permit an improvement over present load factors, there is every likelihood that the industry can look forward to continued improvement in profitability while at the same time holding out the prospect of lower fares to the public.

Average domestic trunkline fares yield per passenger-mile-both first class and coach-turned downward last year for the first time since 1957. The lower yields result from the various special fares and fare changes introduced by the carriers which I will discuss later.

SALARIES AND EXPENSES

We

Now let us turn to our appropriation request for salaries and expenses. are requesting $10.8 million for 1965, an increase of $572,000 over the preceding year. This increase is a net figure consisting of several elements of increases and decreases.

With respect to increases, we are requesting

1. $194,700 to cover the additional half-year's cost of the second step of the 1962 pay raise which was effective in January 1964;

2. $172,400 to cover the cost of mandatory within-grade salary increases which will be in effect for only part of 1964 and the additional ones becoming effective during 1965;

3. $185,500 to cover an increase of approximately 15 man-years of employment as a result of reduced lapses going with fuller utilization of positions and the various other cost adjustments detailed in the justifications; and

4. $213,300 for increasing program activities and which, except for an amount of $17,300 for increasing the memory capacity of our electronic computer, is for safety activities including 12 additional positions.

We are projecting decreases, totaling $193,900, resulting from our planned elimination of 26 positions throughout our various activities. The exception is in the Bureau of Safety.

ORGANIZATIONAL IMPROVEMENTS

The reduction in positions and financial requirements will be possible, we believe, through improvements in organization and procedures, as well as continued improvement in the overall efficiency of the staff over and above that attained during the past 2 years and that originally planned for 1964.

We are in the midst of consolidating various supporting functions in the Office of the Secretary. This, we anticipate, will enable us to improve the performance of those functions. At the same time we will be able to eliminate four positions in 1965. Another example of consolidation is the establishment of a central file facility in the Office of Administration where Board files and related positions from the several offices and bureaus have been transferred. Here again, we anticipate we will be able to eliminate three positions.

The Board is requesting an increase of 12 positions and $196,000 for the Bureau of Safety activity. We also are requesting $17,300 for an additional memory unit for the electronic computer as well as for increased utilization of the computer. Of the 12 positions for the Bureau of Safety, 7 are to permit needed training of safety technical personnel, 4 are for accident prevention and safety promotion work, and 1 is needed to handle the increase in workload and backlog in the "accident analysis and determination of probable cause" area.

ACCIDENT INVESTIGATION

In our safety activities the first priority is, of course, given to the primary function of aircraft accident investigation. For the first half of this fiscal year we initiated 524 investigations, of which 138 involved air carriers. The remaining 386 were in general aviation. For the comparable period in the preceding fiscal year, 482 investigations were initiated, 134 involving air carriers, and 348 in general aviation.

We have no investigatory backlog and we have maintained a normal level of pending cases for the last 6 months. Thus, we are holding our own while experiencing about a 9-percent rise in investigatory workload.

I am happy to say, that unlike last year, we now are able to provide some sorely needed training for our safety personnel so they can maintain their proficiency in this rapidly changing technological field. Keeping technical personnel abreast with advances in the state of the art is one of our real critical problems. to provide continuous refresher training to the staff through courses offered by manufacturers, educational institutions or other Government agencies.

We aim

During the first half of this fiscal year, 32 people attended 17 different training courses. During the last half of this fiscal year we plan to send an equal number to other training courses.

CAB-FAA SCHOOL AVAILABLE

Also available to us is the National Aircraft Accident Investigation School at Oklahoma City established jointly by the CAB and FAA. This school is a joboriented practical course in the latest techniques of aircraft accident investigation aimed at teaching our personnel, who have accident investigation duties, the latest techniques, procedures, and methods of conducting an investigation.

The school opened September 30, 1963, with a prototype class limited to 15 students selected from the CAB and FAA. This first class was completed in November 1963. Based on our evaluation of the results of this first course refinements in the curriculum material were made and incorporated in the course of study for the second class which began in early March. Seven CAB investigators were in the first class and the same number is in the second class. We have scheduled 27 persons to complete the course at the school in fiscal 1964 and 49 in 1965.

We believe that this school is a worthwhile undertaking, and it will be one of the most valuable contributions in many years to the improvement in aircraft accident investigation knowledge and skills.

If our investigating personnel are to live up to the worldwide reputation of experts that they have achieved, they must be schooled in the latest developments in the science and art of aviation and flying.

ACCIDENT PREVENTION

Although accident investigation is the most immediate of the Bureau's work priorities, its more rewarding and more enduring function is accident prevention. The lessons learned from accidents are put to use in preventing other accidents. We have made some strides in our accident prevention program. We must do

more.

For the past 3 years the number of safety recommendations we forwarded to the FAA and other agencies has increased. In 1961 we forwarded 22 of which 18, or 82 percent were accepted and adopted in the form of Federal air regulations, airworthiness directives or other directive-type material. In 1962 we forwarded 65 recommendations and had 57 or 87 percent accepted; in 1963, 87 were forwarded and 72 or 83 percent were accepted. So far this fiscal year we have forwarded 51. I can't give you a report of acceptance for 1964 because many of the recommendations still are under study.

I cite these statistics only as one quantitative illustration of the accident prevention work we do. We are increasing the quantity and we believe maintaining the quality of our accident prevention work.

ACCIDENT RATES DROPPING (EXHIBIT 2)

The accident rates in both general aviation and air carrier operations have been dropping slightly over the past 10 years-in general aviation, from 3 accidents per million miles flown in 1954 to 2.5 in 1963; in air carrier operations from 0.122 accidents per million miles flown in 1954 to 0.059 in 1963.

We must do all we can to increase the safety of flight. And today's prevention work is tomorrow's safe flight. Four of the twelve position increases we are requesting for this fiscal year will be utilized in accident prevention and safety promotion activities.

DETERMINING PROBABLE CAUSE

The accident analysis function for which the 12th position is being requested mainly involves general aviation. The most severe accident problem is in general aviation. To illustrate, for the past 4 years there has been an annual average of 4,790 accidents of which 441 were fatal. Over this period fatalities have averaged 828. Nine hundred persons lost their lives in 477 fatal general aviation accidents in 1963.

It is the analysis function where the accidents probable cause is determined. It is from this work that accident statistics are derived, and it is on this work that much of our accident prevention program is based.

Since the inception of this function in 1959 and the implementation of the Federal Aviation Act, the backlog of general aviation accidents already investigated but pending analysis has increased. One of our prime objectives in our program is to decrease this backlog.

PLAN TO INCREASE ADP CAPACITY

The Board has made substantial progress in mechanizing the statistical and analytical procedures involving the handling of voluminous factual data in the field of both economics and safety. These reports include all of the origindestination passenger traffic statistics used extensively in route proceedings and bilateral negotiations, and the traffic and financial data widely used in all use-itor-lose-it cases and many other regulatory proceedings.

At the present time the automatic data processing facility is being used on a two-shift basis with some requirement already for further overtime operation. In order to accommodate the extension of operations to numerous other areas within the Board which are adaptable to mechanized procedures, we plan to increase the capacity of the present facility by adding an additional memory unit.

IMPROVED EFFICIENCY

There are numerous examples that I could cite within our overall activities which would illustrate the improvements already made in our operations or planned for 1965 to improve our efficiency.

I would like to emphasize at this point that the improvements made and those anticipated, together with the resultant savings in dollars and positions reflected in the budget estimates before you, are the payoff, so to speak, of ideas, plans, and a lot of hard work.

In this connection you may recall, Mr. Chairman, that I said last year we would significantly improve our efficiency in 1963. I think we achieved that goal in

1963.

In the budget estimates submitted to you we predict continued improvement in productivity during 1964 and 1965 in most areas of our work. The best evidence that I can present to you of our increase in productivity, both accomplished and expected, is our budget justifications. They show that despite a continuing increase in our economic workload, we are going to eliminate 26 positions with a commensurate reduction in related costs. This will be achieved by improvements in management control, discovering adequate shortcuts and better and more efficient ways of doing our work, and by just plain harder work. Last December I personally made a pledge to the President that we would do our utmost to make the Civil Aeronautics Board one of the leaders in the field of economy and efficiency in Government operations. The Board unanimously endorsed this program. I am prepared today to make that same pledge to this committee and the Congress. We shall relentlessly pursue this objective.

MAJOR ACCOMPLISHMENTS

I think we can look with pride on the major accomplishments we made during fiscal year 1963, particularly in the field of international rate policy and domestic fares.

The Board rejected a proposed increase in North Atlantic round trip fares and was influential in securing substantial reductions in new passenger fares to go into effect April 1, 1964.

In reversing the upward trend, the Board fulfilled one of this Government's announced objectives outlined by the President in his April 1963 statement on international air transport policy.

Tariffs now being filed with the Board reflect an overall reduction of approximately 12 percent on the world's most densely traveled routes over the North Atlantic. This will result in an estimated saving in excess of $50 million for U.S. travelers during the coming season. These fares also become effective in time for the opening of the New York World's Fair. Thus, this Government's efforts to encourage foreign travelers to visit the United States will be materially assisted with a resultant favorable effect on U.S. balance of payments. The World's Fair will be brought closer to the doorstep of the European traveler.

GROUP EXCURSION FARES

We also approved group excursion fares for transatlantic travel providing for discounts of 38 percent below normal economy fares.

Out in the transpacific area, the Board forestalled an increase in fares by disapproving an IATA agreement.

Domestically, our achievements have been many. The Board approved reductions of up to 14 percent in first-class fares in numerous major markets, and new thrift fares in the Hawaii-west coast market that were 25 percent below lowest then available fares.

There have been a number of promotional fares approved since we last met with this committee.

FAMILY PLAN APPROVED

The board approved application of family plan to coach, business, and one-class services for the first time at a 25-percent discount from regular fares; disapproved a series of uneconomic family plans that threatened to precipitate a nationwide rate war; approved numerous individual and group excursion fares; approved various local service carrier "Visit U.S.A." fares, and approved military furlough standby fares at a 50-percent discount from jet coach fares.

With reference to domestic and foreign military charter rates, the Board reduced minimum rates for MATS foreign and oversea charters (pt. 288) to take account of lower operating costs of new turbine-powered aircraft. This will save the Government about $10 million annually. In addition, the Board has issued a notice of proposed rulemaking which would further reduce cargo rates in 1965 about $3 million annually. The Board also initiated action to explore feasibility of stablizing rates for logair and quicktrans domestic cargo services

In the 2-year period prior to January 1963, the trunkline carriers were faced with a chain of circumstances which put a severe strain on their financial resources. The wide expansion of jet fleets created an immediate overcapacity in services. Traffic failed to maintain historic growth rates. Consequently, the industry as a whole, for the first time in recent years, sustained red-ink balances in their profit-and-loss statements.

STRENGTHENING ECONOMIC CLIMATE

While some of its programs were initiated prior to January 1, 1963, the Board has been engaged since then in efforts to strengthen the economic climate of the industry. To this extent is has

(a) Established and pursued the area airport program which seeks consolidation at a single airport of services offered at two or more adjacent airports, where such action will provide significant economies in carrier operations with minimum inconvenience to the traveling public;

(b) Initiated a review of markets having multiple competition, where such competition might produce excess capacity and prevent reasonably profitable operations;

(c) Reexamined, or is preparing to do so, the authorizations of U.S.-flag carriers in foreign and oversea transportation to measure the impact of foreign carrier competition and, in light of such competition, the necessity of traditional pointto-point competition among U.S.-flag carriers in these areas; and

(d) Given priority consideration to route transfers and other trunk route adjustments necessitated by the changing character of their fleets.

While the emphasis has been placed on improving the carriers, improvements in service have not been neglected. The Board has heard proposals for additional service in several large markets where competitive service had been eliminated as the result of the United-Capital merger.

LOCAL SERVICE AREA

In the local service area, the Board continues to furnish all local service cities with tabulations of average daily passengers originated. The Board has continued to set down for decision the need for continuation of air service at points not meeting the use-it-or-lose-it traffic standards. There were 81 points not meeting the standard as of December 31, 1963-a decrease from a level of about 129 2 years ago. Many of these 81 points are at issue in pending cases.