SEPARABILITY CLAUSE "SEC. 321. If any provision of this part, or the application thereof to any person or circumstance, is held invalid, neither the remainder of this part nor the application of such provision to other persons or circumstances shall be affected thereby. "EFFECTIVE DATE "SEC. 322. This part shall be effective and in force from and after its passage: Provided, That the Commission shall, if found by it necessary or desirable in the public interest, by general or special order, postpone the taking effect of any provision of this part to such time as the Commission shall prescribe, but not beyond the 1st day of the third month following the passage of this part." The CHAIRMAN. A general regulatory air bill was filed in the House (H. R. 4600) on the 10th of February by Mr. Ellenbogen; and a bill (H. R. 4652) by Mr. Crosser, a bill to promote the safety of scheduled air transportation, relating to safety matters, was filed in the House on February 11, 1937. There is a bill in the Senate (S. 2), introduced by Senator McCarran, and a bill similar to 5234 has been introduced as an amendment by way of a substitute to S. 2. I am advised by Senate authorities that the bill we are considering this morning will be substituted for the McCarran bill and will be the bill upon which the Senate will act, which is now under consideration by the Senate committee. Hearings were held on S. 2 on the 8th and 11th of March and, it is expected, will shortly be completed, as soon as the chairman of the subcommittee having the matter in charge will have an opportunity to complete the hearings. We have asked the Interstate Commerce Commission to be represented at this hearing this morning, and Commissioner Eastman will appear for that purpose. At this point we will place in the record a report from the Interstate Commerce Commission, which discusses this bill somewhat at length. It is a favorable report but makes some suggestions as to changes in the text of the bill and one or two suggestions for the consideration of the committee as to the policy to follow. (The report referred to is as follows:) Hon. CLARENCE F. LEA, INTERSTATE COMMERCE COMMISSION, March 29, 1937. Chairman, Committee on Interstate and Foreign Commerce, House of Representatives. DEAR MR. LEA: The Chairman of the Commission has referred to our legislative committee your request of March 3, 1937, for a report on your bill (H. R. 5234) introduced "To amend the Interstate Commerce Act, as amended, by providing for the regulation of the transportation of passengers and property by air carriers in interstate, overseas, and foreign commerce, and for other purposes." This bill has had the careful consideration of the legislative committee, and I am authorized to submit the following comments in its behalf. H. R. 5234 provides comprehensive regulation in the public interest of air transportation in "interstate", "overseas", and "foreign" commerce, similar in scope to parts I and II of the Interstate Commerce Act, governing, respectively, the regulation of railway and highway carriers. Present regulation of air transportation is provided by three acts, namely, the Air Commerce Act, 1926, as amended; the Air Mail Act, 1934, as amended; and the Foreign Air Mail Act. 1929. The first of these has to do with safety standards, and aids to navigation, and is administered by the Department of Commerce. The second deals chiefly, directly or indirectly, with the carriage of domestic air mail, and in that connection is administered partly by the Post Office Department and partly by this Commission. The third is administered by the Post Office Department. In various respects there is a somewhat confusing division of authority, and over certain important matters there is an entire absence of authority. The Commission commented on this situation in its recent fiftieth annual report for the year ended November 1, 1936, as follows: "In the part of this report dealing with the Bureau of Air Mail reference is made to our special report to the Congress pursuant to the provisions of section 6 (e) of the Air Mail Act of 1934 as amended by the act of August 14, 1935. "In the outline of controlling provisions of law and of our views as to important principles involved in their application, which preceded our findings in that report, we called attention to certain situations needing correction. "Divided authority over air-mail compensation.-In the chapter dealing with weight credit schedules we showed that prior to our initial investigation into the general rate structure part of the contract air-mail service had been operated without payments for the mileage flown under an informal arrangement whereby, in lieu of such payments, the weights of mail so flown were credited to certain mail-pay schedules without increasing the compensation to the carriers unless the monthly average weight of mail over their routes thereby exceeded the weight specified in their contracts and the act and then only at a fraction of the base rate named in the contracts. We also showed that the rates of compensation prescribed by us were applicable to all airplane-miles flown with mail on the theory that the act contemplated that whatever rate was found by us to be fair and reasonable for any carrier should apply alike to all mail service rendered under its contract. We further pointed out that by the amendments of August 14, 1935, a provision was added to section 3 (f) specifically authorizing this free or reduced-rate service in the discretion of the Postmaster General, which had been barred by our decision. It is apparent that rates prescribed by us could not insure fair and reasonable compensation to the carriers when applied in conjunction with a system of free service and negotiated rates exclusively under the control and authorization of another agency of the Government burdened with the cost of the service. The amendment creates divided authority over the compensation to be paid for the transportation of air mail. "The system of accounts.-Under the caption the System of Accounts, we discussed the amendment to section 10 which now requires that the system of accounts for air-mail carriers be promulgated by the Postmaster General. The original act, prior to the amendments, gave us equal powers with the Postmaster General in respect of the keeping,, examining, and auditing of the carriers' books, records, and accounts. By still other provisions of the original act, very materially broadened by the amendments, we are directed to make an exhaustive examination and audit of the accounts of the carriers, to scrutinize carefully their purchases and rents, and to investigate the relation of their stockholders and employees to their vendors. A situation is now presented where one agency of the Government is required to police the carriers' accounts and business transactions recorded under rules and regulations prescribed by another. This division of responsibility should be resolved by the Congress. "Postal revenue limitation on rates.-Under the caption Postal Revenue Limitation, we discussed the provision of the original act requiring that rates fixed and established by us for all routes shall be designed to keep the aggregate cost of the transportation of air mail, on and after July 1, 1938, within the limits of the anticipated postal revenue therefrom. For reasons stated in the report it is quite apparent that, unless a phenomenal increase occurs in the revenue from air-mail postage by 1938, compensation measured by rates confined to such revenue would not enable the carriers to operate the present class of mail service, if it would permit them to operate at all. "Control over rates for nonmail services. We wish to call attention to the fact that while in the determination of air-mail rates we are directed to take into consideration revenues and profits from all sources, control over the rates, fares, charges, and practices of the carriers for the transportation of persons and property, other than mail, is withheld from our jurisdiction. "Control over new service. While under the provisions of amended section 15 we are given limited jurisdiction over the establishment of new service by air-mail carriers, that jurisdiction does not extend to any carrier which does not hold a mail contract, such carriers not being subject to the air-mail acts. While practically all scheduled air-transport operators carry mail, a situation might suddenly arise where the inauguration of unregulated nonmail services over or in connection with the Federal airways would adversely affect the operations and earnings of the air-mail carriers, which could not be prevented except by regulation of all interstate air carriers. Removal of the present prohibition of section 15 against the inauguration of new service by an air-mail carrier which in any way competes with the service maintained by another airmail carrier appears desirable and would be consonant with the authority we now exercise over the establishment of new services by rail and motor carriers. "Need for different type of legislation.-Many provisions of the present law are so worded, and their requirements interlocked with other provisions in such a manner that interpretation and administration are exceedingly difficult. As an alternative to further amendment of the existing acts, the drafting of an entirely new law for comprehensive regulation of interstate air transportation similar in scope to parts I and II of the Interstate Commerce Act governing the regulation of interstate railway and highway carriers appears, therefore, to be preferable. While the present scheduled air-transport service began as an exclusive mail service, the transportation of persons and property has grown to such volume and extent in recent years that transportation by air has become an integral part of the transport system of the Nation and should be regulated as such." It will be noted that the Commission suggested, as an alternative to further amendment of the existing acts "the drafting of an entirely new law for comprehensive regulation of interstate air transportation similar in scope to parts I and II of the Interstate Commerce Act governing the regulation of interstate railway and highway carriers." H. R. 5234, which would repeal the present air-mail acts, is along the lines of that suggestion. Recent developments have, we feel, emphasized the need for legislation of this general character. Air transportation in the United States, and, indeed, in all parts of the world, is growing very rapidly. During the period of more than 21⁄2 years in which the Commission has had limited jurisdiction over domestic air carriers, we have had an opportunity to observe this remarkable growth. In June 1936 the scheduled air carriers of the United States transported 137.5 percent more passengers than in June 1934, when the present air-mail act was passed; while increases of 275 percent in pounds of express, and of 166.2 percent in pounds of mail carried, were recorded in the same period. The business of the industry, therefore, has nearly trebled in the last 2 years. It is interesting to note, also, in this connection that in 1936 the total commercial aircraft operations in the United States were considerably more than twice those of the scheduled air carriers alone, the figures being as follows: Passengers carried by domestic scheduled air lines___ Domestic scheduled_. 1, 020, 297 1,027, 280 Domestic nonscheduled 63,777, 221 88, 480, 000 These figures do not include privately owned airplanes not operated for hire. During the same period air carriers of the United States engaged in foreign commerce carried 125,841 passengers a total of 9,590,938 miles. Only a few years ago 70 percent of the revenues of the domestic air carriers was derived from air mail; but for the calendar year 1936 only one-third of their revenues came from that source. This means, of course, that there has been a phenomenal growth in the passenger and express business of the domestic air carriers, because both the poundage of air mail transported and the air-mail mileage have also shown very heavy increases in the same period. American air transport now spans the Pacific to China, with a connecting link projected from Hawaii to Australia and New Zealand; and reciprocal airtransport service across the north Atlantic is planned by American and foreign companies for the summer of 1937. Undoubtedly these transoceanic services will materially increase the future business of the domestic lines. It has recently been announced that July 1, 1937, will probably mark the inauguration of a trans-Canadian airway, for mail and passengers, to operate in cooperation with the trans-Atlantic service which is to be established by the British Government. The main line of this service, extending from Halifax to the British Columbia coast, will connect with the United States lines. Aside from the spectacular growth of the industry, certain other developments have occurred which indicate the need for governmental supervision of air transportation. From inquiries to our Bureau of Air Mail it appears that several individuals and firms are contemplating the institution of new air transport services. These interests seem to be concerned only with the transportation of passengers and express. The present air-mail laws apply only to those air-transport operators holding mail contracts. New nonmail air carriers entering the competitive field of passenger and express transportation thus would not be subject to any of the provisions of those laws, and serious competitive situations might arise from their operations. Recently there has been a sharp reduction in passenger fares by at least five scheduled air-transport companies in a competitive race for more business and another company has inaugurated an air freight service at rates substantially lower than air express rates. It appears, therefore, that without some governmental supervision over rates, fares, charges, and practices for the transportation by air of both persons and property, as well as mail, a situation may be created which will endanger the stability of commercial air transport in the United States. At present our jurisdiction over rates is limited to establishing fair and reasonable rates of compensation for the transportation of air mail under contracts between the Post Office Department and the carriers. The Air Mail Act specifically directs that in making determination of such rates we shall take into consideration the revenues and profits from all sources. While passenger and express revenues, therefore, are now important factors considered in fixing mail-pay rates, there is no regulatory control over the rates from which such revenues are derived, and nothing to prevent destructive competition in such rates, possibly at the expense of the Government. The history of the development of commercial air transportation in the United States indicates that its inception was primarily for considerations of national defense. Insufficiently organized productive capacity in the manufacture of aircraft, together with a scarcity of trained personnel, experienced during the World War, were two important reasons why civil areonautical development appeared not only desirable but necessary. The large land area of the United States and the economic necessity for rapid communication and travel are factors which will assist the Federal Government in any program designed to foster commercial air-transport development as an adjunct to national defense. Orderly planning is essential to the success of any such program. Unregulated and destructive competition might easily endanger and retard progress in such development. H. R. 5234 generally follows the pattern of parts I and II of the Interstate Commerce Act, but there are certain matters upon which comment is desirable. H. R. 5234 would extend the Commission's jurisdiction to air carriers operating in "foreign commerce", in addition to such carriers engaged in the transportation of passengers and property within the continental United States (interstate commerce) and to and from and between the Territories and possessions of the United States (overseas commerce). The regulation provided over air transportation in overseas and foreign commerce, however, is not as extensive, in all respects, as that provided for air transportation in interstate commerce. There are considerable difficulties and complexities in connection with the regulation of air transportation in foreign commerce, and it has been our thought that it would be well to start with the regulation of interstate and overseas air transportation, as defined in H. R. 5234, and then let the Commission, as it gains experience and if it seems desirable, recommend an extension to foreign air transportation. It appears, however, that the air carriers themselves may wish the act to include foreign commerce from the outset. There is in principle no objection to regulation of air transportation in foreign commerce. The only objections which can be raised are based upon considerations of practical expediency. It is true, also, that operations in foreign air commerce are increasing with great rapidity. In connection with the provisions of section 310 dealing with the transportation of mail and the fixation of rates therefore, we call attention to the language of section 302 (a) containing the declaration of policy of Congress, to section 304 (e) specifying the factors to be considered by the Commission in fixing rates, including rates for the carriage of the mails, and to section 310 (f) relating to the fixation of rates of compensation for such transportation. In the case of the railroads, the endeavor of the Commission has been to fix compensation which would cover the proportionate part of cost of operation and the return fairly assignable to mail service. The mail service, however, is a far more important factor in the case of the air carriers than in the case of the railroads, and it has been contended that the transportation of the mail constitutes the primary and essential function of the air carriers. If they are to carry the mails efficiently and successfully, it will be argued that the compensation must make it possible for them to operate at a profit-i. e., it must sustain the greater part or all of the burden, if it appears that other classes of service are incapable of sustaining their shares. Whether or not this ought to be done is a matter of policy for Congress to determine. We call attention, however, to the fact that H. R. 5234 is so drawn that it opens the door to this argument. The emphasis throughout on the transportation of the mails will be noted. The Commission is mainly concerned that the language of the bill with respect to the policy to be followed in fixing compensation for carrying the mails shall be as clear as possible so that there may be no doubt as to the intent of Congress. The railroad and motor carrier statutes give the Commission wide discretion in determining whether public convenience and necessity require new operations; but H. R. 5234 contains, in addition, provisions for the special protection of those now in operation, these provisions being contained chiefly in paragraphs (d), (k), and (m) of section 305. In addition to providing for notice to the Postmaster General of any application for a certificate of convenience and necessity, section 305 (c) also provides, in respect of such certificates to operate in foreign air transportation, that notice thereof shall be given to the Interdepartmental Committee on International Civil Aviation, or such other agency as the President may designate for the purpose. Presumably the purpose of this paragraph is to insure that the Commission be fully informed of negotiations and agreements with foreign countries, and it appears to be a wise provision. The first sentence of the proviso to section 305 (e) requires that a certificate of convenience and necessity to engage in foreign air transportation shall designate terminal and intermediate points to be served only insofar as operation is to take place within Territories or territorial waters of the United, States, and otherwise shall designate only a general trade route and the foreign markets to be served. We understand this provision is designed to avoid conflict with the regulatory powers of foreign countries, which might designate destination or intermediate points for landings and take-offs differing from those named in our certificate. Section 305 (m) gives the Postmaster General authority to advise the Commission when the needs of the Postal Service require transportation of mail by aircraft between points where it is not already provided or in addition to that now provided. Upon such advice, which is to be advertised widely by notice, the Commission must start proceedings to determine whether such new facilities should be established. In view of the constant pressure from communities all over the country, and others, for air-mail service, this provision seems of doubtful wisdom, particularly as the final responsibility is left with the Commission and not the Postmaster General. Without this provision, the bill permits any air carrier to apply at any time for a new certificate, or an amendment to an existing certificate, authorizing new service, and requires the Postmaster General to be notified and to be given an opportunity to present his views in that event. It seems to us that that is sufficient, without the proposed paragraph (m). Section 306 (c) would give the Commission access to the property, accounts, records, etc., of air carriers. The committee may wish to consider the advisability of extending the provisions of this section to cover those controlling or affiliated with, or directly or indirectly controlled by, such carriers, a similar provision having been incorporated in the Motor Carrier Act. While the need for such authority cannot definitely be foreseen, it may well be that in following specific accounting transactions of the air carriers it will be desirable to trace them through to their source or final disposition. There is, of course, no intention in this suggestion to conduct general investigations into the affairs of these other interests. Sections 308 and 309 give the Commission the usual jurisdiction over rates and charges in respect of air carriers operating in interstate commerce. It does not give the Commission similar jurisdiction in the case of air transportation in overseas and foreign commerce, and at the outset this omission is probably wise in respect of foreign commerce. The provisions for free or reduced-rate transportation, found in the first proviso of section 308 (b), are more restricted than those in either parts I or II of the act. We have no comment as to this charge. The last proviso of section 308 (b) authorizes payment for interstate air transportation of Government officials and employees with the approval of the head of the department |