« PreviousContinue »
Mr. ELLENBOGEN. That is what we want to discuss. In that case you felt that it was best to eliminate competition and establish a monopoly.
Mr. CROWLEY. Not exactly that. That does not establish monopoly so far as any other contractor is concerned.
Mr. ELLENBOGEN. In effect it does, though. Two lines were competing
Mr. CROWLEY. Well, that is so, but that does not keep you from starting your line if you want to. This bill does keep you from doing so if you want to.
Mr. ELLENBOGEN. Well, you just told us that both lines were losing money.
Mr. CROWLEY. They certainly were.
Mr. ELLENBOGEN. Now, with the two lines losing money there was not
very much of an incentive for another party to come in, and because of that you felt it was best to eliminate competition and establish a monopoly.
Mr. CROWLEY. I would not say that at all. These concerns wanted to consolidate. They were both authorized under the law to maintain air-transport service out of Washington. They both were losing money. They made an application for reorganization which made one line out of it running from here to Milwaukee. A hearing was held. It was shown that these two Government subsidized air lines were both losing money and that after a consideration of the law it was decided that they could be permitted to come under the ownership of one corporation. That was done purely on the basis of it appearing to be to the best interest of the public and it was not done for the purpose of giving anybody a monopoly; but it was done to keep two Government-subsidized lines from going broke.
Mr. SADOWSKI. If business increases along that line sufficiently there would not be anything to keep a competitor from going right into the business and carrying on?
Mr. CROWLEY. Of course, if you do not pass this bill.
Mr. SADOWSKI. But if they had to apply for a certificate of convenience and necessity then you would have another situation entirely.
Mr. CROWLEY. They could never get it.
Mr. SADOWSKI. Then you would have as much of a monopoly created between Washington and Detroit as between Washington and Pittsburgh. It would affect my city as much as it would affect yours, Mr. Ellenbogen.
Mr. ELLENBOGEN. I am not criticizing the Department for the action in that case. I am only pointing out the fact that in that case the Department acted and eliminated competition and established what is today a monopoly.
Mr. CROWLEY. No; not a monopoly. If any citizen wants to operate a line from here to Pittsburgh, he can go on and do it if he wants to.
Mr. ELLENBOGEN. But he would not get a mail contract.
Mr. WADSWORTH. Mr. Crowley, does not this bill confer upon the Interstate Commerce Commission jurisdiction in a broader field, because it takes jurisdiction over airplane companies that do not carry mail as well as those which do? Does not this bill permit mergers
such as the Post Office Department permitted in this case between Washington and Pittsburgh?
Mr. CROWLEY. No. It does much more than that.
Mr. WADSWORTH. If you will read section 310 relating to mergers, you will see
Mr. CROWLEY. I think that the Congressman here just stated a minute ago that the action of the Post Office Department merely permitted one contractor to operate an air-mail service between here and Milwaukee. Under the provisions of this bill no person can establish an air transport business without a certificate of convenience and necessity.
If you want to stifle all competition and require a certificate of convenience and necessity before a man can invest his own capital and operate a little air line from point to point as they are going to do
Mr. SADOWSKI (interposing). At this time we only have about 22 companies engaged in commercial aviation in the United States. Is that right?
Mr. CROWLEY. I think something like that.
Mr. WADSWORTH. Mail carriers. There are a great many more than 22 if you include the others.
Mr. CROWLEY. This means that the mail contracts will remain in the hands of the present contractors. Of course, the Department does not favor that.
Mr. WADSWORTH. Is it not the present practice of the Post Office Department to do the same thing with respect to the existing mail routes; you give them an indefinite contract and do not permit two carriers to compete upon the same line between the same points.
Mr. CROWLEY. That is, they cannot operate off-line service. They can establish competing service.
Mr. WADSWORTH. They can establish competing service ?
Mr. CROWLEY. They can establish competing service. We have a case pending right now where the great city of Denver wants some east and west service and hearings have been held on that, and briefs have been filed for one side and briefs on the other side will be in in a few days.
We have under consideration the adding of the city of Denver as a stop on the transcontinental air lines, the United Air Lines, as a stop for carriage of the mails.
Mr. WADSWORTH. But within your discretion?
Mr. CROWLEY. Within the discretion of the Post Office Department.
Mr. WaDSWORTH. You exercise that power?
Mr. CROWLEY. Even that might be competitive, and even as to that we feel that the law is plenty broad.
Mr. ELLENBOGEN. Just one other question.
Mr. CROWLEY (continuing). To cover such a case as that, service can be provided for such a city in some manner, whether by this application or some other way. Mr. ELLENBOGEN. Mr. Chairman.
The CHAIRMAN. Mr. Ellenbogen.
Mr. ELLENBOGEN. Coming back to the merger we have discussed. In that case the Post Office Department, I believe, was advised that it would affect passenger rates.
Mr. CROWLEY. I never heard of it in my life. Mr. ELLENBOGEN. Well, was the Post Office Department advised of that at the time it held hearings?
Mr. CROWLEY. No. We have had nothing to do with the fixing of passenger rates.
Mr. ELLENBOGEN. You are not interested in that?
Mr. CROWLEY. Well, as the air lines develop and as they progress they have their rates, they have different rates. They are making rates, of course, as low as they can to compete with the railroads and at the same time allow themselves to operate. Naturally, competition is taking care of the rates.
Mr. ELLENBOGEN. If you eliminate competition, then that does not take care of the rates.
Mr. CROWLEY. If you fix it so that the Commission can fix the rates for the carrying of passengers, then if somebody who has the fixing of rates fixes a low rate for the carriage of passengers, below the real cost of that service, then the cost of operating the air line has got to be made up by the Government. The Government pays the freight, and will whenever you pass this bill establishing monopoly in the air-transport industry and give the Commission the right to fix the routes and to fix the rates of pay for carrying of passengers.
I would like to file, Mr. Ellenbogen, for your information, a copy of a letter, or as an exhibit, a letter addressed to Senator Truman on March 16, 1937, on this question of merger.
Mr. ELLENBOGEN. I would like to have a copy of it.
Mr. CROWLEY. You will find that at page 147 of the hearings before a subcommittee of the Committee on Interstate Commerce of the Senate. (The letter referred to is as follows:)
POST OFFICE DEPARTMENT,
OFFICE OF THE SOLICITOR,
Washington, March 16, 1937. Hon HARRY S. TRUMAN, Chairman, Subcommittee of the Committee on Interstate Commerce,
United States Senate. MY DEAR SENATOR TRUMAN: At the conclusion of the hearing before your subcommittee, on March 11, 1937, you requested that I supplement my testimony by furnishing you with a copy of my opinion in the matter of the application of Pennsylvania-Central Airlines Corporation to acquire the air-mail contracts on routes A. M. 14 and A. M. 32.
This was an application submitted to me by the Pennsylvania-Central Airlines Corporation to acquire the air-mail contract covering route A. M. 14, then held by Central Airlines, Inc., and running from Washington to Detroit; and the airmail contract on route A. M 32, then held by Pennsylvania Airlines & Transport Co., and running from Detroit to Milwaukee, at a public hearing held on October 20, 1936.
This opinion was delivered orally at the hearing and was spoken as follows:
“Solicitor CROWLEY. Gentlemen, I feel that this application ought to be acted on, either approved or rejected, as soon as possible, and so far as I am concerned I will not cause any delay. A question of this kind has got to be finally decided by the Postmaster General.
"It is submitted to me for a hearing under the regulations of the Department, under the order of the Postmaster General and by the Second Assistant Postmaster General's Office, who have to decide the administrative questions involved.
"The application was filed here on the 25th of September by PennsylvaniaCentral Airlines Corporation, joined by the two mail contractors, Central Airlines, Inc., and Pennsylvania Airlines & Transport Co., for the assignment of the two air-mail contracts covering routes 14 and 32 to the new corporation, I believe it has been organized, has it not?
“Mr. LUDINGTON. The corporation exists as an entity; yes.
"Solicitor CROWLEY. The contractor, Central Airlines, Inc., has the air-mail contract for carrying passengers and express between Washington and Detroit, yia Pittsburgh, Akron, and Cleveland, a distance of 464 miles, over route no. 14. The Pennsylvania Airlines & Transport Co. has the contract over route 32 to carry mail between Detroit and Milwaukee, a distance of 263 miles.
“The Pennsylvania Co. operates, in addition to its air-mail contract, off-line service between Washington and Detroit; the entire distance served by Pennsylvania on its off-line and its mail-contract service being approximately 727 miles.
"This application shows that the two contracts being transferred to the new corporation are in exchange for 51,340 shares of stock of the new company to be issued to the shareholders of the Pennsylvania and 41,100 shares of the new company's stock to be issued to the shareholders of the Central, plus in the case of the Central a surrender to the Central of approximately 70 percent of its outstanding common stock and 25 percent of its outstanding preferred stock, which will not participate in such exchange of shares, and the assumption by the new company of certain portions of the liabilities of both of the corporations. In consideration for that the two air-mail contractors will convey to the new company, all its planes, engines, and other assets, including the air-mail contracts on routes 14 and 32. The new company will also issue 45,560 shares of new stock that has been contracted for by two New York Stock Exchange houses for sale to the public, by Carl M. Loeb & Co. and (ohu Bros., both being copartnerships. This stock is not to be purchased by these companies for their own account but for resale to the public and providing new capital to the company, resulting in approximately $410,040 new capital to be paid in to the new company.
"I believe the application and the evidence obtained by the Post Office De partment shows that section 7 of the Air Mail Act with reference to the ownership of interests in air-mail-contract companies would not be violated if this application should be granted, and Mr. Ludington, the attorney for the petitioners, assures us that he carefully investigated and took that section of the law into consideration in drawing this application.
"The evidence shows, and in fact it is a matter of common knowledge, that these two air-line companies, competing as they do between Washington and Pittsburgh and Washington and Detroit, are engaged in ruinous competition to themselves. I believe the statement this morning by Mr. Monro is that the companies have lost approximately one-half million dollars of their capital in that service, in that sort of competition. This condition led originally to the Post Office Department urging restrictions on off-line services by aviation companies and the experience of these two companies operating such service proves that an unreasonable amount of off-line or nonmail services cannot be maintained except that there be a very considerable demand for air-transport service generally, which does not exist anywhere in the country today.
“Mr. Monro has made a very fair statement about the new company's attitude toward their men, the men employed by the Central and Pennsylvania today, and their connection with the new company in the future. If this application should be granted, I am sure that the employees would all be fairly treated. Of course, the new company is not going to be expected to continue men in employment that are not needed.
“With reference to the letter of the Transcontinental & Western Air, Inc., I think Mr. Monro has made a fair statement about the position of the company with reference to connecting schedules with the other three transcontinental lines. There does not appear to be any agreement or understanding that would be contrary to the interests of any one of the three main transcontinental lines or that would give them the advantage, or would favor any one against the other.
“As to the rate of pay in effect, Mr. Monro states that under the present line of operation their companies are facing bankruptcy. I think that that is true, that they are facing bankruptcy if this condition continues to exist. He also says that if consolidation can be effected it would materially reduce expenses and allow the new company to make, he thinks, a reasonable profit.
“The granting of the application would change the service between Washington and Milwaukee by a revision of the time of departure of the planes. The
present-day schedules out of Washington would be staggered to accommodate a certain public, rather than having two planes going out at approximately the same time by the two lines. Seven of these would go through to Detroit, possibly affording better connections to the three transcontinental lines that they would connect with, the American, TWA, and United.
“There is one feature of this application, and only one, that seems to me to present any serious legal obstacle and difficulty ; that is the question of the two contractors operating parallel routes may merge or may enter into an agreement which might put them into one ownership. Before the passage of the Air Mail Act of August 14, 1935, contractors were permitted to conduct any off-line services that they desired. In 1935 H. R. 8511 was introduced, which was approved on August 14, 1935, and became a law. This bill, as originally drafted, contained a prohibition against any off-line service or flying over any route of the air-mail contractors, or by any air-mail contractor off the line of its route.
"At the time hearings were held on the bill I believe the Pennsylvania Airlines proved to the satisfaction of the committees that they had been in long-established service over this route between Pittsburgh and Washington, that they had investments that were fixed along the route to build up the business. The record shows that they satisfied Congress that they had rendered a service in the public interest there.
“The position of the Pennsylvania at that time influenced the legislation which permitted contractors operating off their routes prior to July 1, 1935, to continue their operations. I am not going to review the lengthy history of this legislation, but the line affected mostly at that time was one of the applicants in this case.
“Under section 15 of the present law it is ‘unlawful for air-mail contractors competing in parallel routes to merge or to enter into an agreement, express or implied, which may result in common control or ownership. After June 30, 1935, no air-mail contractor shall be allowed to maintain passenger or express service off the line of its air-mail route which in any way competes with the passenger or express service available upon another air-mail route, except that off-line competitive service which has been regularly maintained on and prior to July 1, 1935, and such seasonal schedules as may have been regularly maintained during the year prior to July 1, 1935, may continue if restricted to the number of schedules and to the stop schedules in effect during such period or season.'
"I do not recall the number of schedules that Pennsylvania was operating at the time this law was passed, but it is my impression that the bill originally provided that off-line services may not be continued in effect unless it was maintained 4 months prior to July 1, 1935. The Pennsylvania represented they had two additional schedules that were necessary to be maintained that were begun 4 months prior to July 1, 1935. At any rate, the bill that finally passed contained the prohibition of service inaugurated after July 1, 1935, but specifically permitted service to continue if begun prior to July 1, 1935.
“It is undoubtedly true that Congress intended the air-mail services to be an aid to the domestic air-line operators and put them on a self-supporting basis. They intended to restrict unreasonable competition between two lines, at the same time encourage competition where it appeared to be in the interests of the public. In order to assure competition they provided against the merging, of lines competing in parallel routes.
“Section 15 of the Air Mail Act provides that 'it shall be unlawful for air-mail contractors competing in parallel routes to merge or to enter into any agreement, express or implied, which may result in common control or ownership.'
“When we take into consideration the fact that Congress intended these lines to be added in order to be self-supporting and that they threw around these lines, particularly the Pennsylvania, this protection, making it impossible for any agency of the Government to stop them from rendering this service off their line except when it is contrary to the public interest, it is not an unreasonable conclusion that the prohibition against the merger of parallel competing routes as used in section 15 would apply to off-line service as well as to air-mail service. The prohibition 'it shall be unlawful for air-mail contractors competing in parallel routes to merge or to enter into any agreement, express or implied, which may result in common control or ownership’, might have been intended by Congress to apply to every kind of service, whether on-line or off-line, of the air-mail contractors.
“But the law does not specifically so state. There is no dispute as to the facts here, as to these two services from Pittsburgh or from Detroit to Washington not only being parallel but they operate over practically the same sched