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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 212 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--
1,020, 297 Passengers carried by domestic nonscheduled operators.
1,027, 280 Miles flown: Domestic scheduled..
63, 777, 221 Domestic nonscheduled.
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 foreigu 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,
mportant 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 320 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
concerned. It will be noted that no similar provision is made for payment of overseas or foreign air transportation of such officials and employees, and such provision would seem desirable.
The bill gives the Commission authority like that given to the Federal Trade Commission and the United States Shipping Board Bureau of the Department of Commerce to prevent unfair competition and grants the carriers wide authority to make agreements with respect to both service and rates, subject to the approval of the Commission, which will bar the operation of the antitrust laws. While not wholly clear as to the scope of these provisions, and their language in various respects, we are inclined to favor them in principle. The provisions referred to are found in sections 311 (c) and 313.
Section 310 (j) provides that nothing in the bill shall prohibit an air carrier in foreign transportation from arranging with any foreign country, or with the Postmaster General, for the transportation of mail of such country, and from receiving compensation therefor; and a proviso to that section prohibits such carrier from receiving compensation therefor both from such country and the United States in respect thereto. Both in principle and as a matter of practical expediency these provisions are probably sound. It occurs to us, however, that substitution of the following language would better express the objective sought and prevent the possibility of a construction not intended :
“(j) Nothing in this part shall prohibit an air carrier holding a certicate to engage in foreign air transportation from arranging with any foreign country for the transportation of mail of such country and receiving compensation therefor under any such arrangement now or hereafter existing, or from receiving compensation for the transportation of such mail from the Postmaster General in instances where payment therefor is made by the foreign country directly to the Postmaster General: Provided, That no such carrier shall be entitled to receive compensation both from such foreign country and from the United States in respect of the transportation of the same mail.”
Section 311 (b) (4) contains the usual restrictions upon interlocking directorates. However, the following language found in the corresponding paragraph of part I of the Interstate Commerce Act has been omitted from H. R. 5234 and, in our opinion, should be inserted : "or to participate in the making or paying of any dividends of an operating carrier from any funds properly included in capital account.”
Section 312 provides the same control over the issuance of securities as that of parts I and II of the Interstate Commerce Act. However, an additional paragraph (c) has been added to H. R. 5234 which would exempt from control of the section securities of an air carrier in respect of which a registration statement under the Securities Act of 1933 is in effect at the date of passage of the bill. We understand this provision is intended to cover the case of certain securities for which registration statements have been issued by the Securities and Exchange Commission but of which complete delivery has been and will be delayed. We see no objection to the proposed exemption.
To conform the bill more nearly to the pattern of the present Interstate Commerce Act, we suggest striking paragraph (b) of section 315, and inserting a new paragraph (b) to section 316 reading as follows:
"(b) If any air carrier or person subject to this part operates in violation of any provision of this part (except as to the reasonableness of rates, fares, or charges, and the discriminatory character thereof) or any rule, regulation, requirement, or order thereunder, or of any term or condition of any certificate, the Commission or its duly authorized agent may apply to any distriet court of the United States of competent jurisdiction, including the district court for any district in which such carrier operates, for the enforcement of such provision of this part, or of such rule, regulation, requirement, order, term, or condition; and such court shall have jurisdiction to enforce obedience thereto by a writ of injunction or by other process, mandatory or otherwise, restraining such carrier or person, his or its officers, agents, employees, and representatives from further violation of such provision of this part or of such rule, regulation, requirement, order, term, or condition, and enjoining upon it or them obedience thereto."
To prevent a hiatus and to preserve existing proceedings we suggest the addition of a new paragraph (b) to section 319 reading as follows:
“(b) Nothing in this part shall be construed to affect, alter, or impair any order, determination, rule, or regulation made by the Commission or any court of competent jurisdiction and in effect at the time this part takes effect, or to terminate any proceeding pending at that time before the Commission or such
court, under any provision of law repealed or amended by this part, and all such orders, determinations, rules, or regulations shall continue in effect until modified, terminated, superseded, or set aside by the Commission, or such court, or by operation of law, and all such proceedings shall be continued by the Commission or such court as though originally commenced under this part: Provided, That the Commission, in its discretion, may reopen proceedings decided under any provision of law repealed or amended by this part, and dispose of such proceedings under the provisions of this part, or consolidate them with proceedings instituted thereunder.”
In addition to the above matters of rather general importance there are matters of minor importance which invite comment, and quite a few places where we think some minor changes in language might be appropriate. We would prefer, however, with the consent of your committee, to withhold suggestions as to details until we have had an opportunity to study the other pending bills affecting regulation of air transport, and perhaps also to consider criticisms and suggestions offered at public hearings. In our judgment, our comment on these matters of detail will be more helpful to the committee, if it can be so deferred.
So far as the general purposes of H. R. 5234 are concerned, and also the general nature of its provisions, the bill has our approval, subject to the comments above made. Respectfully submitted.
JOSEPH B. EASTMAN,
Chairman, Legislative Committee. The CHAIRMAN. Mr. Eastman, we will be glad to hear you. Mr. MAPES. May I ask a question, for information ? The CHAIRMAN. Mr. Mapes.
Mr. MAPES. I would like to ask if the criticism we received from the Postmaster General a short time ago of a bill before the Senate applies to this bill.
The CHAIRMAN. A report was sent to this committee, and a report was sent to the Senate committee.
Mr. MAPES. I am not referring to the report, but to a mimeographed copy of a statement of the Postmaster General.
Mr. BULWINKLE. To the Senate committee?
Mr. MAPES. Perhaps it was to the Senate committee. Does that apply to this bill?
The CHAIRMAN. Well, I take it that it does. There was a criticism of this bill in the Senate. Prior to this bill being filed there was also a criticism in the Senate directed at S. 2 from the Post Office Department. So that is a consideration which will have to be taken up with the committee in the course of these hearings.
Mr. MAPES. I took occasion to read that statement and that is the reason that I asked.
The CHAIRMAN. Before the hearings are concluded, the Post Office Department, through its representatives, will appear here to state their position.
Mr. Eastman, we will be glad to hear from you now.
STATEMENTS OF COMMISSIONER JOSEPH B. EASTMAN AND NORMAN B. HALEY, DIRECTOR OF AIR MAIL, INTERSTATE COMMERCE COMMISSION
Commissioner EASTMAN. My name is Joseph B. Eastman. I am a member of the Interstate Commerce Commission and chairman of its legislative committee.
I appear here as chairman of that committee in general support of H. R. 5234.