instituted a proceeding on its own motion in December, in which it has taken voluminous evidence and testimony with respect to the methods for determining the anticipated postal revenues.

The Post Office Department cooperated with us in a very high degree by putting their technical men on the stand to explain their methods of determining the amount of air-mail postage revenue.

The CHAIRMAN. May I ask, Senator McKellar, who is the gentleman who was sitting back here, advising you a minute ago, and who is now sitting back in the room?

Senator MCKELLAR. Will you give your name?

Mr. O'BRIEN. William C. O'Brien.

The CHAIRMAN. What is your business, Mr. O'Brien?
Mr. O'BRIEN. Attorney, Post Office Department.

The CHAIRMAN. How long have you been there?

Mr. O'BRIEN. For 23 years.

Mr. HALEY. May I make just one more explanation of that? The cost ascertainment section of the Post Office Department each year makes an estimate of the revenue received separately from air-mail postage. It has not made any forecast, as I understand it, of what that revenue will be in the future, so this is a rather new problem. It feels that it can do it, however, and it has strongly recommended to the Commission that it ought to do it and that the Commission ought to take its figures.

On the other hand, the air lines generally believe I think perhaps they all do that no methods similar to the one used by the Department for determining revenues in the past can adequately be used for making the determinations in the future. That is to be decided and is pending before the Commission.

Senator MCKELLAR. Have you audited the books of each company? Mr. HALEY. Yes, sir.

Senator MCKELLAR. How many times?

Mr. HALEY. I will ask Mr. Freeland to state that.

The CHAIRMAN. Has Mr. Stough finished his statement?

Mr. STOUGH. Yes.

Mr. HALEY. Mr. Freeland is our chief accountant. He has been with the Commission for 16 years. He handled the research work for the Black committee, investigating the ocean- and air-mail contracts. Six of the men that he had with him on that job are now with him in the Bureau of Air Mail, and those are some of the men whom we sent out to work on these audits.

The CHAIRMAN. They are not, then, on the pay rolls of any of the air-mail companies?

Mr. HALEY. They are employees of the Interstate Commerce Commission.

I will now ask Mr. Freeland to answer the question.

STATEMENT OF J. C. FREELAND, CHIEF ACCOUNTANT, BUREAU OF AIR MAIL, INTERSTATE COMMERCE COMMISSION, WASHINGTON, D. C.

Mr. FREELAND. We have audited most of the carriers twice and are now in process of auditing some of them the third time. The act provides that they shall be audited annually.

Senator MCKELLAR. You have not done that, or have you done it?

Mr. FREELAND. We have done it twice in all the companies, and are in the process of doing it for the third time at present.

Senator MCKELLAR. How many of the companies have not been audited the third time?

Mr. FREELAND. None of them has been audited the third time as yet.

Mr. HALEY. That is in progress, Senator.

Senator MCKELLAR. But you have audited each company?
Mr. FREELAND. Twice.

Senator MCKELLAR. In making those audits, do you scrutinize all expenditures and purported expenditures of the holders of the contracts for goods, lands, commodities, and services, in order to determine whether or not such expenditures were fair and just?

Mr. FREELAND. No, sir; we do not. I might add that that is done by the Bureau of Air Mail as an adjunct, separate, and apart from the field work of an intensive audit of the books and accounts.

Senator MCKELLAR. The Air Mail Bureau in your department? Mr. FREELAND. No; not my department; as to the expenditures. Mr. HALEY. May I explain that Capt. J. E. Whitbeck, who is also here, has charge of that particular work. It is not done in direct connection with the field audit of the accounts.

Senator MCKELLAR. If he is going to explain, I will finish my question.

The CHAIRMAN. I want the witness to have an opportunity to finish his answer.

Senator MCKELLAR. And that such expenditures were not improper; excessive, or conclusive in the cases of the eight air-mail contracts which are allowed, by a previous report of the Commission, the rate of 3313 cents per mile, under the provisions of the act of June 12, 1934?

Mr. FREELAND. That was upon a special report made to the Congress in that connection.

Senator MCKELLAR. Was not the report of the examiners there that 3313 cents was ample compensation?

Mr. FREELAND. The Commission recommended, or rather in answer to the mandate of the statute suggested, that the ceiling not be lifted on those eight routes.

Mr. HALEY. That was the report of the Commission and not of the examiner. I just want to make that correction in the record.

May I also say that the report has been printed as House Document No. 141, Seventy-fifth Congress?

Senator MCKELLAR. Does somebody else want to answer to the reports?

Mr. HALEY. Captain Whitbeck is our aerotransport engineer and has been for 20 years in aviation, about half of that time in commercial practice and about half in the Government service, including the Post Office Department.

The CHAIRMAN. It ought to be a recommendation for you, Captain Whitbeck, if you were in the Post Office Department.

STATEMENT OF CAPT. J. E. WHITBECK, BUREAU OF AIR MAIL, INTERSTATE COMMERCE COMMISSION, WASHINGTON, D. C.

Captain WHITBECK. We have made examinations of the expenditures, for their fairness and reasonableness, of all carriers, and in

no case has there been any outstanding incident where it could be said they were not fair and reasonable.

The CHAIRMAN. The only pure departments of the Government now are those departments under the Post Office Department or the other executive departments.

Senator MCKELLAR. I do not think that, Mr. Chairman; I disagree with you about that.

Captain WHITBECK. I meant to say the air-mail carriers. If I did not, I will so state.

Senator McKELLAR. You examined into each one?

Captain WHITBECK. Yes, sir.

Senator MCKELLAR. Did you make a report?

Captain WHITBECK. Yes, sir.

Senator MCKELLAR. Have you a copy of the report, and will you make it a part of your deposition?

Captain WHITBECK. Those reports are submitted to the director. I think he can arrange to furnish them for you.

Senator MCKELLAR. Mr. Director, can you arrange to furnish those reports?

Mr. HALEY. If the committee wants them, we shall be very glad to furnish them.

Captain WHITBECK. I might just mention, for your information, that on one of the major lines there were 122,000 items-separate invoices and for some 17 companies it runs into a substantial amount of detail. The reports would cover this table to quite a height. [Illustrating.]

Mr. HALEY. Of course, Mr. Chairman, we are perfectly willing to furnish and want to furnish anything that you or any member of the committee desires. Those reports are inter-office reports. They are not reports of the Commission but are merely reports of our section in the Bureau, but we shall be very glad to furnish them to you.

The CHAIRMAN. Have they been passed upon by the Commission itself?

Mr. HALEY. They will ultimately be. They are informal reports underlying the formal reports under section 6 (b), which we have not yet rendered.

The CHAIRMAN. If it is just in the form of informal reports
Mr. HALEY. It is an informal intra-bureau report.

The CHAIRMAN. I should like to ask the Commissioner whether or not the Commission would care to furnish those before the Commission has passed on them.

Commissioner McMANAMY. It would be contrary to our custom; but as far as I know now, I think there would be no objection.

The CHAIRMAN. The only objection I can see to that is that it might be taken as the Commission's report when the Commission has not finally passed on it.

Commissioner McMANAMY. I think we can clear that up in a statement to be furnished with it. We want to furnish this committee with everything it wants.

Senator MCKELLAR. Why would it not be proper for him to furnish that with such statement as he would care to make?

The CHAIRMAN. What kind of report would you want?

Senator MCKELLAR. It is just their report, just as they have it. The reason why it is important is that the act says that in arriving at such determination of rates, the Commission must consider those various things as stated in section 6 (e).

Mr. Haley, what is the average pay of the United under the 3313and 40-cent rates that they now operate on?

Mr. HALEY. Do you mean under the air-mail act? Under those limitations?

Senator MCKELLAR. Yes; under those limitations what is the average rate that is paid United?

Mr. HALEY. What average compensation is paid?

Senator MCKELLAR. Yes; if they carry so many thousand or million pounds of mail a year, I want to know what rate is paid.

Mr. FREELAND. Forty cents a mile. Each airplane mile flown by them is compensated at the rate of 40 cents a mile.

Senator MCKELLAR. How does that happen? They never carry a load as light as 300 pounds, do they?

Mr. HALEY. It has always been over that. I have already read into the record the average load on that route, which is 586 pounds.

Senator MCKELLAR. Is that sufficient to give them the 40-cent rate? Mr. HALEY. It works that way, Senator?

Senator MCKELLAR. Why do you give them under those circumstances the rate of 31 cents, when you give one of the other transcontinental lines 26 cents and the other one 24?

Mr. HALEY. I have explained earlier, as you will recall, that while the compensation differs here, and the compensation is the product of not only the rate but the mail-pay miles and poundage, that reduced to mills per pound-mile the compensation is exactly the same on routes 1 and 2-67 miles.

Senator MCKELLAR. But on that basis of calculation one gets from the Government $2,400,000 and the other gets $2,600,000.

Mr. HALEY. It renders a great deal more service, Senator.

Senator MCKELLAR. Absolutely, but why should one have a greater rate? You do not give the TWA the maximum rate of 40 cents, do you?

Mr. HALEY. No; I have already explained why, Senator.

Senator MCKELLAR. What does it get?

The CHAIRMAN. Do they have a basic rate?

Mr. HALEY. They have a base rate.

The CHAIRMAN. Does TWA?

Senator MCKELLAR. TWA has 24, and the United has 31.

Mr. HALEY. But I explained those base rates of compensation. I explained that earlier in my testimony.

The CHAIRMAN. Why should they not have the same base rate? Mr. HALEY. You have a different frequency and volume of service? The CHAIRMAN. I know; but does the TWA have more frequent or greater volume of service?

Mr. HALEY. No; it does not; it has less.

The CHAIRMAN. It gets a lower rate, then?

Mr. HALEY. Mr. Freeland will tell you the present rate.

Mr. FREELAND. A little over 32 cents for the

year 1936.

Senator MCKELLAR. Is that the next highest company?
Mr. HALEY. We have several at the top, you know, Senator.
Senator MCKELLAR. Which ones get the 40-cent rate?

Mr. FREELAND. That 40-cent rate, Senator, comes through the operation of the law itself. Our rate for United

The CHAIRMAN (interposing). Some of us will not be able to follow the witness and understand him if you keep interrupting, Senator. Mr. FREELAND. The rate for United is 31 cents for 300 pounds. Further on the law steps in and says that for every fraction of a hundred pounds over 300 pounds they shall receive 10 percent. So, up to 400 pounds it is 34.1 cents.

Similarly, when they go over 400 pounds and up to 500, it is another 10 percent. So, obviously, after three steps they get the maximum rate of 40 cents.

Senator MCKELLAR. Yes; I understand that.

The CHAIRMAN. But what I am trying to get at is, why one gets 31 cents and the other 24 cents. Why should there be that difference in the base rate?

Mr. FREELAND. What contemplates it, Mr. Chairman, to a great extent is this: That under these basic contracts, which go into the initial advertisement for service, passenger service is required of these carriers as well as air-mail service. Of course, that means that in the ship carrying mail, passengers are also carried. There is a certain difference, for instance, in AM-1.

The CHAIRMAN. What is AM-1?

Mr. FREELAND. Air mail docket no. 1, fixing the rates under which United and TWA are now being compensated.

The CHAIRMAN. United and TWA? TWA carries it from Chicago to Los Angeles, does it?

Mr. FREELAND. They do not go into Chicago with mail; they have a separate passenger operation there.

The CHAIRMAN. Where do they go to?

Mr. FREELAND. They go straight across the country to Los Angeles. The CHAIRMAN. The United goes to San Francisco?

Mr. FREEMAN. Through Chicago.

The CHAIRMAN. I cannot for the life of me understand why one should have a higher rate than the other.

Mr. FREELAND. They carry a larger volume of mail than TWA. The CHAIRMAN. I understand that, but what difference should that make? Why should not the base rate be the same? I can understand how it goes up; but if your base rate is 24 cents for one, it should be, it seems to me, 24 cents for the other, and I should like to have the reason for it.

Mr. FREELAND. You understand, of course, that I cannot speak for the Commission as to their fixation of rates. They may have considered many elements that we in the Bureau did not consider. But it has to be pointed out that TWA was carrying more passengers on this mail ship. In other words, in looking at the total revenue

The CHAIRMAN (interposing). Which is the one that gets the most passengers? The TWA?

Mr. FREELAND. At that time they were carrying more passengers in the mail ship, and the total revenue per mile from mail, express,. and passengers was greater than United. That may have had some bearing upon the difference in the rates.

The CHAIRMAN. As long as you have that differential between the lines that carry mail substantially across the country, and you have