declining balance method which you mentioned or the sum of the years digits method. But it works out-what you said is essentially correct, that the depreciation gets lower as time goes on, and thereafter, given an equal amount of revenues and all other things being equal, their rate of return should go up.

Senator MONRONEY. The life of the planes would undoubtedly be much, much longer than 10 years.

Mr. BOYD. We certainly hope so.

RELATION OF PROFITS TO DEBT SITUATION

Senator MAGNUSON. The point I am trying to make is that even though an airline might have had last year a $10 million profit-use that as a round figure-an airline, that same airline might still owe and be in debt actually $100 million.

Mr. BOYD. Easily.

Senator MAGNUSON. Yes. That is the point I am trying to make. And it might be possible for them to pick up some of this debt with these profits if they wanted to, but if they have that system, as Senator Allott points out, that comes in one way and goes out the other, they probably would not want it.

Mr. BOYD. I think that is probably true. It also tends to give them more leverage.

Senator MAGNUSON. Any further questions on this point?

STATUS OF NORTHEAST CASE

Senator ALLOTT. I would like to ask one more question. What is the present situation on the Northeast case? Where is it pending? Mr. BoYD. It is pending before the court of appeals, Federal Court of Appeals in Boston, which is, I guess, the first circuit. There was argument on the case about the first of March, and we are waiting now for a decision of the court.

LOCAL SERVICE CARRIERS

Senator MONRONEY. Mr. Chairman, before you leave this completely, I would like to ask when do you get to the local service airlines? Feeder lines.

Senator MAGNUSON. We are coming to that later, aren't we? Mr. BOYD. Yes, sir.

Senator MONRONEY. Will you go into the economics of that?

Senator MAGNUSON. Yes. We will go into that. I want to get the general picture. Off the record.

(Discussion off the record.)

TRUNKLINE EQUITY

Mr. BOYD. The stockholders have in the trunkline industry today roughly $750 million in equity.

Senator MAGNUSON. With the planes, is that right?

Mr. BOYD. That is what they own or have put in.

Senator MAGNUSON. But that is over a long period of time.

Mr. BOYD. No doubt about that. I am not trying to argue the point with you. I am just trying to get the figure in.

Senator MAGNUSON. And I do not think we would have had this tremendous growth and giving service to the people of this country, the finest, I think, in the world, if we had not worked it this way. I do not think we would have been able to do it. This could not work any other way and keep up with modern equipment and things of that kind.

Mr. BOYD. I think you are exactly right.

Senator MAGNUSON. I am not criticizing, but I think people ought to understand that it is a good job of management actually when you come right down to it, very necessary.

NORTHEAST AIRLINES

Senator SALTONSTALL. If this is the proper time, Mr. Boyd, we are very interested in the Northeast Airlines.

Senator MAGNUSON. Go right ahead. This is the proper time for Northeast.

FINANCIAL CONDITION OF NORTHEAST

Senator SALTONSTALL. You people threw out Northeast Airlines on the grounds that it was not financially strong and therefore should be eliminated from this Florida run and Miami flight, which of course was its lifeblood. Now, my question is how far is it in your authority to go into the financial status of an airline? That is what I have never understood. I thought your job was to determine, we will say, destinations or see that routes were fairly distributed and that the carrier was able to carry out its responsibilities. Now, how far do you figure that you can go into finances? The case is now in the courts.

Mr. BOYD. Yes, sir. I think we can talk freely about it.

First of all, Senator, I would like to say, sir, with all deference, that your reading of the case gave you a completely different impression than what we thought we did because we did not deny Northeast renewal of their certificate on the basis of financial inability or lack of financial fitness.

CAB DETERMINATION OF CARRIER FITNESS

To answer your other question, the Federal Aviation Act and its predecessor, Civil Aeronautics Act of 1938, required the Board to make findings on the fitness of a carrier seeking certification. So we feel in view of that provision in the law that we have full authority from the Congress to go into every detail of the finances of the carriers that are regulated by the Broad or who seek to be certificated by filing an application.

Senator SALTONSTALL. Well, to carry that to an extreme case, in your opinion have you got the responsibility of, we will say, putting a line into bankruptcy if you want to do it, if you think it ought to go into bankruptcy?

Mr. BOYD. No. That is a matter for the court. That is provided, I think, in title II.

REVENUE SITUATION AT NORTHEAST AIRLINES

Senator SALTONSTALL. In Massachusetts, Northeast Airlines is really our lifeblood in the air to a great extent and if you take away what they claim is their most profitable route, you will make our whole New England area a feeder line area.

Mr. BOYD. Well, of course, this is an area where I am sure you can get all sorts of different opinions, Senator.

Senator SALTONSTALL. I know you can.

Mr. BOYD. And I think that the situation is that the Board just does not happen to agree that the operation of Northeast Airlines to Florida at the present time is in the total public interest.

NORTHEAST REVENUES

Senator SALTONSTALL. And yet Northeast Airlines on their Florida route, from what they tell me, had their best year. I won't say "best year," but had a very good year. That is what I was told.

Mr. BOYD. Yes, sir, and if I may refer to some figures, I think that here again we run into some differences. I am looking for the figure on the revenues of the carriers. My recollection is that Northeast wound up with fewer total revenues than they had the previous year. According to the figures we have, Senator Saltonstall, Northeast revenues were down nearly 16 percent in 1963 over 1962. Senator SALTONSTALL. They are overall.

LOSSES AND DECREASES

Mr. BOYD. Yes, sir. And at the same time, their operating expenses were down 11 percent. So that they had a net loss of 5 percent according to these reports which are filed by Northeast.

Senator SALTONSTALL. Decrease?

Mr. BOYD. That is right. Net decrease.

Senator SALTONSTALL. Did they show a net loss?

Mr. BOYD. Yes, sir. They sure did. They show an operating loss for 1963 of $7 million. For 1962, they showed a loss of over $6 million. Senator SALTONSTALL. Now, on the Florida run alone, did they make any money or lose it?

Mr. BOYD. We do not have that breakdown. The only figures we have on that were in the renewal case.

Senator SALTONSTALL. Now, another thing

Mr. BOYD. Excuse me, sir. May I continue?
Senator SALTONSTALL. Excuse me.

Mr. BOYD. And on the one run from Miami to New York and Boston they made money. On their route certificate they lost money. That is, including Jacksonville, Tampa, St. Petersburg, and Washington, Baltimore, Philadelphia. When you take the whole picture, they lost money on all if its except for that one route, Miami-New York-Boston.

Senator SALTONSTALL. And that is the one route you deprived them of or tried to.

Mr. BOYD. We did not try to discriminate. We took it all away from them.

AMERICAN AIRLINES SERVICE TO BOSTON

Senator SALTONSTALL. Now, may I ask you just one more question? I am not critical of this, particularly, but when you mention working out routes, I am reminded that you have just allowed the American Airlines to go in again to Boston which will completely knock out Northeast as I see it. Now, maybe that is the right thing to do, I do not know. The American Airlines have good service, and I am not critical of it, but they are going in with Eastern and Northeast into Boston, four more round trips a day, from Washington. That may be nice for a fellow who travels like myself, but I would think it would raise the dickens with Northeast Airlines.

Mr. BOYD. I think it probably will, Senator, but there again we had nothing to do with that. American Airlines was certificated into Boston at the time the CAB was established 25 years ago. In fact, it was serving Boston at the time the Board was established, and what you are talking about, if I am not mistaken, American has now added four additional daily flights which they are perfectly entitled to do under the Federal Aviation Act because it specifically provides that the CAB shall not control the scheduling of the carriers.

Senator SALTONSTALL. So the minute they are certificated to Boston, they can put in as many flights as they want.

NORTHEAST TEMPORARY CERTIFICATION

Mr. BOYD. Yes, sir. And one other distinction here is that American has a permanent certificate whereas Northeast did not have a permanent certificate, and I fear that many people look on the Northeast case as one where we took something away from Northeast Airlines, and if the law means anything, Northeast Airlines had nothing to be taken away. The question was, having operated on a temporary certificate, which Northeast took of its own volition for a 5-year period which ran to 7 years, I think, was it in the public interest for the Board to certificate third carrier on the east coast route given the circumstances which the Board found at the time the case was decided.

Now, my own judgment is that had the Board decided to certificate a third carrier on that route, there would have been some equity in the position of Northeast Airlines having operated it for a 5-year temporary period, but the cold law on the subject is that Northeast had a temporary certificate. That certificate had expired. It was continuing to operate by virtue of section 9(b) of the Administrative Procedure Act and it had no legal right to operate between Florida and the Northeast except that procedural right given it under section 9(b) of the Administrative Procedure Act which says merely if a timely application for renewal is received, the carrier may continue to operate until such time as the Board has reached a final decision.

Senator SALTONSTALL. Just one other question on that. Of course, if it was a temporary certificate for 5 years-of course, that temporary certificate was granted before you came into the Board, but one difficulty was that your Board never fished or cut bait on that. In other words, it should have been made a permanent certificate long before it was or taken away, because they built up their schedules, they built up their advertisement, and they bought some planes or tried

to buy some planes-I guess they had to lose them again-on the basis of that certificate. Am I not right on that?

Mr. BOYD. I think that is probably correct, Senator, and in looking back on it, it may well be that what you say is what should have been done. Now, actually we had no right to stop them before the 5 years was up, and in point of fact, both the Board members and the staff extended themselves to great lengths to try to help Northeast keep going in an effort to work themselves out of their problems, and I think in retrospect, knowing what we do now, if we had said in 1960 when Northeast came in and had to have some money right away, and could only get it by virtue of help from the Board, if we had said right then, sorry, boys, we certainly would not have had all the ruckus that has transpired since then. They would have gone under in January or February of 1960.

NEW ENGLAND A FEEDER LINE AREA

Senator SALTONSTALL. I will just say this. I won't take the time of the Senators at this time, but, Mr. Boyd, of course, you are making our whole New England area of five States-I do not think Connecticut will be included a feeder line area with no, really main lines coming in there at all.

Mr. BOYD. Well, in that connection, Senator, if I may elaborate a little bit, I think that one of the things the Northeast renewal case brought out with a great deal of clarity is that New England is in fact a feeder line operation. One of the points that was originally made when Northeast Airlines sought certification in the first instance, and one of the bases on which it was granted, was that there was a great need for single carrier through plane service from New England to Florida. Well, the record reflected that what they were talking about after six and a half or seven years experience was 19 passengers a day outside of Boston, and this is not something that you can say is in the major public interest. There just are not enough of those people, 19 a day, to say that the public interest demands that you have this type of operation, at least by our standards.

SPLIT DECISION ON CASE

Senator SALTONSTALL. Mr. Chairman, I thank you and thank the members of the committee for permitting me to go into this question which is a very vital one up our way. I respect Mr. Boyd's integrity and character, and I have told him this, but, of course, there are a great many people who feel upset over the 3-2 decision of your Board. As I say, I respect your character, but as I told you personally, I disagree very strongly with your position because it relegates us to a very difficult position.

Mr. BOYD. Yes, sir; I appreciate that, and I would say, Senator, that I have no guarantee our decision was right. We think it was. But I would hope that you did not have concern because there was a split vote because when you gentlemen or your predecessors estab-. lished CAB as a five-man Board, it must have been in the expectation that there would be different points of view brought to bear on the issues that came before the Board.