AIR TAXI OPERATIONS

We also have programs for the promotion of air taxi operations. An air taxi guide to fares and services was published in December 1963 as a part of the Official Airline Guide representing a major new marketing tool. This action represented the culmination of closely coordinated work by the National Air Taxi Conference, trade associations, and Government agencies to develop a program to promote the services offered by the non certificated air taxi operators.

CARRIER SERVICES

I would now like to discuss the carrier services area. Public Law 87-528 empowered the Board to issue permanent certificates of public convenience and necessity for supplemental air service. Pending completion of formal proceedings involving applications for permanent supplemental certificates, the Board was authorized to review on an expedited basis the qualifications of supplemental air carriers holding authority as of the date of enactment of Public Law 87-528, and to issue interim certficates to those found qualified.

Three of the carriers found unqualified requested expedited proceedings on their applications for permanent certificates. The Board proceeded to hold hearings on these applications. Decisions have been issued affirming the earlier findings that these carriers are unfit to hold certificates.

The Board recently decided to process the 48 applications for permanent certificates authorizing supplemental air transportation in a consolidated proceeding. It is anticipated that this proceeding will get underway soon.

The Board also concluded a landmark case in which it authorized a foreign air carrier to engage only in charter services over a specified route between the United States and Great Britain. The Board also has been engaged in proceedings involving applications of several other foreign carriers for similar authority. A case in which a number of U.S. carriers sought permanent authority to engage in transatlantic passenger charter transportation was recently decided with the issuance of 5-year certificates to two supplemental air carriers. At the direction of the President the Board has reopened this proceeding to consider further the financial qualifications of a third carrier which, on the record, had initially been found qualified to receive a similar certificate.

MAJOR PROBLEMS FOR 1965

Now I would like to mention some of the major problems that will be before the Board in 1965.

1. The Board feels transpacific fares are higher than required to support profitable and efficient operations and will exert every effort to persuade the U.S. carriers to reduce them.

2. At the present time there is no binding IATA agreement in effect on fares to and from the United States. IATA will hold a conference in the fall of 1964 to review and/or negotiate fares applicable on a worldwide basis for a 2-year period beginning April 1, 1965. Cargo rates, applicable on a worldwide basis, will also be considered at this conference. The Board will encourage U.S. carriers to press for the lowest fares and rates consistent with reasonable carrier earnings under efficient and economical management.

3. The Board will inquire into the domestic fare structure situation with a view to establishing more definitive fare policies. The fare structure issues include the appropriate relationship of fares among various classes of services, updating the Board's domestic coach fare policy and an endeavor to identify the standards or criteria by which tariff filings will be judged.

4. In view of the conversion from high-cost piston aircraft to low-cost, turbinepowered aircraft the Board will reexamine current service airmail rates in transatlantic and transpacific operations to determine what revisions should be made. 5. Alterations in MATS domestic and foreign charter service requirements, as well as the new minimum rates set by the Board, will require Board implementation in fiscal year 1965.

6. Now that a healthy financial climate has been largely restored in the industry, the Board will face increasing demands for additional services. While most of the major markets in the country enjoy two-carrier or three-carrier competition, there are a few areas without a single carrier or competitive service. The jet age, of course, has necessitated a new look at the application of traditional standards for such services.

7. The statement of policy regarding international aviation, approved by the President on April 24, 1963, has created policy modifications and recommendations which will undoubtedly result in an increased workload.

PROGRAMS TO CONTINUE

Many programs previously initiated have not been completed and work will continue on usch programs as:

(a) Reduction of multiple competition on domestic routes where such competition appears uneconomic.

(b) Review of the need for U.S.-flag, point-to-point competition in the international area.

(c) Guidelines for determination of local service versus trunkline route authorizations.

(d) Advisability of direct competition between subsidized and nonsubsidized carriers in domestic and oversea markets.

8. In his transportation message of April 5, 1963, President Kennedy recommended that Congress "should declare as a matter of policy that through routes and joint rates should be vigorously encouraged, and authorize all transportation agencies to participate in joint boards.' In this connection, the Board, along with the Federal Maritime Commission and the Interstate Commerce Commission, will examine closely the role of the Railway Express Agency in the through movement of property.

The Board itself will give consideration to certain existing agreements between REA and various airlines relating to the through movement of air-surface traffic. 9. Legislation has been enacted authorizing all-cargo carriers to engage in passenger charter transportation and establishing the supplemental air transportation carriers as charter specialists. Coupled with this legislation, changes have taken place in the operations of the combination route carriers since regulations governing their charter operations were adopted. These factors prompted the Board to issue a proposed regulation which would, if adopted, substantially alter the charter authority of the several classes of air carriers.

OUTLINING CARRIER ROLES

In so doing this the Board would further delineate the roles of the combination carrier, the all-cargo carrier and the supplemental carrier with respect to charter business and cargo "blocked space” arrangements. The major objective of the policy is to assist the all-cargo and supplemental air carriers in their respective roles as cargo and charter specialists.

10. There are pending a number of applications seeking permanent certificates of public convenience and necessity to perform supplemental air service. Major attention of the Board will be focused on processing these cases.

11. The Board also faces during the coming year a major policy decision concerning grant of air freight forwarder authority to long-haul surface carriers of household goods.

SUBSIDY PAYMENTS

Now with respect to our second appropriation, "Payments to Air Carriers," we estimate an appropriation of $82,824,000 for 1965. This appropriation is of the no-year liquidation of contract type and is, therefore, to provide the Board with the funds required to pay subsidy to the carriers as the subsidy becomes due. Subsidy payments are estimated at $82.8 million in 1965, a reduction of $2.7 million compared with estimated payments of $85.5 million in 1946. Consistent with the limitation in the subsidy appropriation language for fiscal 1964, subsidy for the three helicopter operators serving the Chicago, Los Angeles, and New York metropolitan areas is budgeted at $4,300,000 for 1964. A total of $3 million is requested for fiscal 1965.

HELICOPTER SUBSIDIES

The three helicopter operators had been operating under an open rate for the period starting July 1, 1963, and received temporary subsidy on that basis. The Board on February 20, issued an order fixing final subsidy rates for these operators aggregating $4,300,000 a year, based on its determination of such rates in accordance with section 406 of the act and the limitations in the appropriation act for fiscal 1964.

In order for these three carriers to live within the $4.3 million rate which we have proposed for fiscal 1964, they must, in our view, contract their volume of service. On the basis of our present knowledge of the facts, we believe that any further significant contraction below the levels of service to which they must reduce for the current fiscal year would render the helicopter experiment of little value.

The order which the Board issued on February 20 is effective for an indefinite period. In other words, it is effective for a period which will extend into fiscal 1965 and beyond. This is unless, or until, it is challenged by one or more of the carriers or reopened by the Board on its own initiative. We decided on this course of action because termination of the rates for the helicopter operators at the close of the fiscal year for which they were being established has tended to impair the stability of the carriers and their opportunity to plan ahead for the conduct of required services on a sound economic basis. Another factor, as explained earlier, is that $4.3 million subsidy per annum will in any event support a minimal level of operations. This will mean that an annual governmental obligation in the same amount will exist on a continuing basis by virtue of this order unless reopened by the carriers or the Board.

BOARD COUNSEL OPINION

It has been the opinion of the Board's counsel that the limitation on the helicopter subsidy appropriations by Congress in fiscal years 1962 through 1964 does not constitute an amendment or modification of the standards of section 406 of the Federal Aviation Act.

As a result, unless action is taken by Congress to amend the act, the Board must necessarily continue to be guided by such standards and principles in carrying out its duties and responsibilities. If the promulgation of subsidy orders including the one of February 20-pursuant to section 406 results in subsidy claims by the helicopter operators in excess of the amounts appropriated by the Congress, we believe that the Board would be obliged to seek a supplemental appropriation, or alternatively, the operators would be entitled to pursue their remedy in the Court of Claims to recover the amounts of subsidy due them over and above the amounts appropriated to the Board.

I have gone into this in some detail, Mr. Chairman, so that you and the committee would have a clear understanding of where we think our duty lies in carrying out the intent of Congress as expressed in the Federal Aviation Act of 1958 and the appropriation acts.

The estimate of subsidy accurals, which are the amounts due the carriers under final subsidy rates and on which the payment estimates are based, shows a reduction of $1.8 million from $85 million in 1964 to $83.2 million in 1965.

DOMESTIC TRUNKLINE SUBSIDY

Subsidy accrual of $3.7 million is projected under the domestic trunkline category to sustain the New England services of Northeast Airlines, Inc. This represents the subsidy rate established by the Board for Northeast in October 1963, following the decision not to renew the services of that carrier south of New York. The $3,700,000 is solely for the New England regional services. All other domestic trunklines are expected to continue to be subsidy free in 1965.

LOCAL SERVICE SUBSIDY (EXHIBIT NO. 3)

Subsidy accrual for the 13 local service carriers is estimated at $67 million in 1965, compared with $67.8 million in 1964, a reduction of $800,000. The 1965 estimated of $67 million includes a full year of operation of the new routes recently awarde to Trans-Texas. Excluding this factor, the 1965 estimate is some $1 million less than the estimate for 1964.

The 1965 estimate is tentative at this time as the Board and its staff are currently reappraising and reassessing the economic needs of the 13 local service carriers for the purpose of establishing a new class subsidy rate during 1964.

The level of subsidy estimated for all Alaskan services shows a favorable trend from the 1963 level of $9,467,000 to $9,225,000 estimated for 1964 and $8,614,000 for 1965. This decline is anticipated essentially as the result of the significant upward trend in mail volume, based on Post Office Department estimates.

Increased payments for mail services serve to reduce the carriers' subsidy need in substantially the same manner as any other source of commercial revenue. However, the actual subsidy for both 1964 and 1965 may prove to be significantly higher depending upon current and future developments in requirements of the two subsidized carriers providing service between the Pacific Northwest and the State of Alaska.

The recent earthquake in Alaska has caused some damage to the airline industry that operates in that part of the United States. We are reviewing the situation and attempting to get a firm position on losses and how they fit into the subsidy picture.

The two carriers serving the State of Hawaii are estimated to require the same amount of subsidy in fiscal 1965 as currently estimated for 1964-$886,000 each year. These estimates assume that third-carrier services, authorized by the State public utilities commission in 1963 but enjoined by the Federal District Court of Hawaii in mid-1963, will not be reinstituted, and that the carriers' use of fourengine equipment for expanded traffic needs will have a beneficial effect on their operating requirements.

That concludes my statement. I will attempt to answer any questions you may have.