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SENATOR SCHMITT'S QUESTIONS Question 1. Airline Deregulation has allowed smaller commuter airlines to carve out a niche in the marketplace. This is true not only along the high density corridors but in rural areas as well. What can be done to continue expansion of commuter airlines while also making interline transfer more convenient?

Answer. As the costs of serving smaller markets with large jet aircraft continue to rise the commuter industry should continue to grow. While subsidies paid under the Board's essential air service program enables some commuters to operate which otherwise might not, it is growth in demand spurred by good service that is the best guarantee for the success of the commuter industry. As the commuters carry more traffic to hub airports, I suspect that larger carriers will seek to improve interline services in order to secure more feed traffic for their longer haul routes.

Question 2. Many consumers who fly today are looking for the lowest fare. When they call an airline, many times they are quoted a regular coach fare, a "Y" class fare, as the lowest rate. What will the CAB be doing to either broaden the consumer's knowledge of fares, or to encourage carriers to provide more information about. varying fares and services?

Answer. The Board's staff publishes a booklet for consumers which reminds travelers to check for the lowest fares. Generally, I feel that promoting various fares and services is in the individual airline's self interest. However, if we were to find evidence that a carrier was intentionally trying to mislead passengers through bait and switch advertising or other deceptive practices, I am sure the Board would institute an investigation and impose an appropriate sanction if the allegations proved to be true.

Question 3. I know you to be an advocate of early sunsetting of the CAB. What effect is total deregulation having on certain inter-carrier agreements like interlining?

Answer. I understand that the Board has expressed the view that deregulation will not have any significant effect on interlining. I am not yet fully familiar with how interlining operates or how it might operate after deregulation. But, I intend to look into this question and all other loose ends related to sunset over the next several months.

If you or any other members of the Committee have particular questions related to sunset that you would like to have answered by the Board please do not hesitate to contact me. In the meantime, I hope my answers here are sufficient to complete the record on my confirmation hearing. Sincerely,

Dan MCKINNON,

Chairman.

THE WHITE HOUSE,

Washington, D.C., October 5, 1981. DEAR MR. MCKINNON: From information which you have provided this office in connection with your proposed appointment as Chairman of the Civil Aeronautics Board (“the Board” or “the CAB”), it is our understanding that among your financial holdings are the following: First, 77 percent of the issued and outstanding shares of stock of Broadmoor Broadcasting Corporation, the licensee of radio station KSON-AM, San Diego, California and the parent corporation and owner of 100 percent of the issued and outstanding shares of stock of KSEA, Inc., the licensee of radio station KSON-FM, San Diego, California; second, 20 percent of the issued and outstanding shares of stock of Texas Telecasting Company, Inc., the licensee of KBMT-TV, Beaumont, Texas; and third, 30.85 percent of the issued and outstanding shares of stock of Texas Telecasting Company, Inc., the licensee of KIII-TV, Corpus Christi, Texas.

You have told us that during the first six months of 1981, gross advertising revenues from your two radio stations totalled approximately one million dollars, of which approximately $67,000 was derived from airlines, tour operators and travel agencies subject to the Board's regulatory jurisdiction. Because of your interest in Broadmoor Broadcasting Corporation, the revenues derived from such advertising constitute an indirect financial interest within the meaning of 18 U.S.C. § 208(a).

With respect to the two television stations, any revenues derived from advertising by airlines, tour operators and travel agents also constitute an indicrect financial interest within the meaning of 18 U.S.Č. $ 208(a). Of course, as a minority shareholder of the two television stations, your beneficial interest in those advertising revenues is substantially less than the revenues received by the radio stations.

In your letter of September 16, 1981, to David M. Kirstein, General Counsel of the CAB (a copy is attached), you agreed not to exercise any control over the daily management activities of any of your broadcast properties after your appointment. In addition, with regard to the radio stations, in which you own a controlling interest, you have appointed a general manager who has assumed responsibility for day-to-day management operations.

Working closely with the Office of Government Ethics and the Office of the General Counsel of the CAB, we have determined that in this case your indirect financial interests in the advertising revenues discussed above are “de minimis” and are not so substantial or direct as to affect the integrity of the services which may be expected of you while serving as Chairman of the Board, provided the following conditions are observed: First, as you have previously agreed, you will not exercise any control over the daily management activities of your broadcast properties; second, commencing January 2, 1982, the general manager of Broadmoor Broadcasting Corporation and KSEA, Inc.

, will file a quarterly report with the General Counsel of the CAB which lists the total gross advertising revenues per station per quarter, and the identity and amount of every advertising account placed with each station by airlines, tour operators and travel agents; and third, commencing January 2, 1982, the general managers of Texas Telecasting Company, Inc., and South Texas Telecasting Company, Inc.

, will file quarterly reports with the General Counsel of the CAB which lists the total gross advertising revenues per station per quarter, and the identity and amount of every advertising account placed with each station by airlines, tour operators and travel agents.

The foregoing determination, made under the authority set forth in 3 C.F.R. 100.735–32, applies only to your present ownership interests in radio and television stations as set forth in the first paragraph of this letter.

Should you have any questions concerning the action I have taken in this case, please do not hesitate to contact me. Sincerely,

FRED F. FIELDING, Counsel to the President.

Civil AERONAUTICS BOARD,

Washington, D.C., September 28, 1981. Senator BOB PACKWOOD, Chairman, Committee on Commerce, Science, and Transportation, U.S. Capitol, Washington, D.C.

DEAR MR. CHAIRMAN: As the CAB's designated ethics official, I must certify to the Senate Committee on Commerce, Science and Transportation that Mr. McKinnon's financial interests do not pose, from the CAB's perspective, a conflict of interest problem in confirming his nomination as Chairman of the CAB. The Board's inquiry has focused on the following issues: (1) whether Mr. McKinnon holds any financial interest in any civil aeronautics enterprise; · (2) whether he is engaged in any other business, vocation or employment; 2 and (3) whether his financial interests would conflict with his duties as Chairman of the CAB.3 In the course of preparing this letter, my staff has discussed these issues with the Assistant White House Counsel, Chris Hicks, and with Gary Davis of OGE.

In his SF-278, Financial Disclosure Statement (Appendix A), Mr. McKinnon states that he is presently the majority stockholder in Broadmoor Broadcasting Corporation, San Diego, California, which owns and operates two radio stations, and a minority stockholder in two television stations. In addition, he has financial interests in a music publishing company, a ranch, and stockholdings in a natural gas company. As none of these holdings are primarily civil aeronautical in nature, I can certify, that he does not hold any ownership interest in a "civil aeronautics enterprise,” as defined in 49 U.S.C. 1321(b) and the Board's regulations. 4

When I conferred with Mr. McKinnon in my office on September 11, 1981, he indicated to me that he has resigned from the positions of Vice-President and

4

1 The term “civil aeronautics enterprise” is defined in 14 CFR Part 370.735–13(d) as any enterprise which is primarily civil aeronautical in nature.”

2 49 U.S.C. 1321(b) prohibits Board Members from engaging in outside employment.

3 18 U.S.C. 208 prohibits federal executive branch and independent agency employees from participating in any “particular matter” in which, to his knowledge, he, his spouse, minor child, partner, organization in which he is serving as officer, director, trustee, partner or employee, or any person or organization with whom he is negotiating or has any arrangement concerning prospective employment, has a financial interest.'

Supra, note 1.

Member of the Board of Directors of Texas Telecasting Company, Inc., and Chairman of the Board of Directors of South Texas Telecasting Company, Inc. In addition, on September 16, 1981, Mr. McKinnon submitted his assurance in writing (Appendix B) to resign from the positions of President and Member of the Board of Directors of Broadmoor Broadcasting Company and KSEA, Inc.

My staff has been in contact with Mr. McKinnon's attorney, Dennis Wickham, Esquire,5 who has submitted two employee severance agreements for my approval and OGE's concurrence (Appendices C and D). After careful review and consultation with Gary Davis of OGE, I find that the severance agreements comply with the applicable OGE Regulations.

I understand from Mr. McKinnon and his attorney that approximately $54,000 of the 1980 gross advertising revenues for the two radio stations of approximately $2.1 million is derived from advertisements by airlines, travel agents and tour brokers that are regulated by the Board or have an economic interest in the Board's activities. In the first six months of 1981, approximately $67,000 of the radio stations' total gross advertising revenues of approximately $1.0 million is derived from similar sources. 6 Based on this estimate, I recommend that a waiver of this interest be granted pursuant to 18 U.S.C. 208(b), on the ground that: (1) the advertising revenue that Mr. McKinnon's stations derive from entities regulated by the Board is “de minimis” in nature and not so substantial as to be deemed likely to affect the integrity of the services that the Government may expect from him as Chairman of the CAB; (2) the practical and logistical difficulties posed by divestiture of the radio and television broadcasting stations are so substantial that it is questionable that divestiture would be completed prior to the proposed 1983 sunset of the Board;? (3) a trust arrangement could not legally qualify as either a “blind,” "excepted,” or “diversified" trust within the meaning of OGE's regulations; 8 and (4) Mr. McKinnon has agreed to turn over the daily operation of his stations to an independent general manager, although, as a licensee, he will retain ultimate control of the stations as required by 47 U.S.C. 310.9 As a part of any Section 208(b) waiver, the CAB will require the general manager of the radio and television stations to report to CAB on a quarterly basis the identity and amount of each advertising account placed by airlines, travel agencies and tour operators on each station, as well as gross advertising receipts for the quarter.

Mr. McKinnon has agreed to these proposals, subject to OGE's concurrence. Based on the foregoing, I can now certify to your committee that Mr. McKinnon's financial interests do not pose a conflict of interest problem in confirming his nomination as Chairman of the CAB.

If you need any furthr information or desire any further assistance, please contact Mr. Bradford K. Talamon, Office of the General Counsel, at (202) 673-5791. Sincerely,

David M. KIRSTEIN,

General Counsel.

5 P.O. Box X-3399, San Diego, California 92103 (714-291-3003).

6 Mr. McKinnon's attorney, Mr. Dennis Wickam, has agreed to provide my staff with a computer listing of all advertising accounts with each of the radio and television broadcasting stations since January 1, 1981. This data should provide sufficient verification of Mr. McKinnon's estimates.

? In addition to the problem of finding one or more pourchasers for the stations (a process that will undoubtably take several months to complete), any sale of the stations would have to be approved by the Federal Communications Commission (which will undoubtably take several more months).

8 Any such proposed trust would pose the problem of the grantor's (Mr. McKinnon's) knowledge of identity of the trust assets, as well as the related problem of non-diversification of the trust assets.

9 The intent of this proposed solution is to sever the “chain of knowledge” between Mr. McKinnon and the advertisers on his stations. With an arrangement such as this, it would be very difficult for a litigant who challenges a CAB action in court to link the official actions of the Chairman to specific knowledge of any benefit which he could arguably derive from an interested party, particularly when coupled with a Section 208(b) waiver based on a financial interest that has been determined to be "de minimis."

The Office of Information Law and Policy, U.S. Department of Justice, has informally advised my staff that the requirement imposed by 49 U.S.C. 1321(b) that no Member engage in any

.. business, vocation or employment . does not bar Mr. McKinnon from owning any interest in the stations.

FEDERAL COMMUNICATIONS COMMISSION,

Washington, D.C., October 1, 1981. FRED F. FIELDING, Esquire, Counsel to the President, The White House, Washington, D.C.

DEAR MR. FRED FIELDING: We are in receipt of a copy of Mr. Dan McKinnon's letter of September 16, 1981 to the General Counsel of the Civil Aeronautics Board (CAB) which you have transmitted to us for comment.

As we understand it, Mr. McKinnon, upon confirmation of his appointment to the CAB, will immediately resign as President and member of the Board of Directors of Broadmoor Broadcasting Corporation and KSEA, Inc., licensees of radio stations KSON-AM and KSON-FM. Mr. McKinnon, however, will retain his ownership interests in those broadcast properties but will not be engaged in the active management of the radio stations' operations. Neither Mr. McKinnon's retention of his broadcast ownership interests nor his decisions to resign as president and director and to refrain from day-to-day management while serving as a CAB member present any legal problems under the Communications Act or the regulations which this agency administers.

From our standpoint, we find no impropriety in Mr. McKinnon serving as a Civil Aeronautics Board Member while also retaining his broadcast interests.

Of course, the stations may not use Mr. McKinnon's governmental position to promote their commercial interests. Such activity would raise questions concerning whether the stations have been operated in the public interest.

We appreciate the opportunity to submit our views on this matter and if anything further is required, kindly advise us. Sincerely yours,

STEPHEN A. SHARP,

General Counsel.

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