'

4

!

GUARANTEED LOANS TO AIR LI N E^

' O f

GOVERNMENT

Storage

H E A R IN G S

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON

INT ERSTA TE AND EOREIGN COMMERCE 

HOUSE OE REPRESENTATIV ES

2S EIGH TY -SE VE NT H CONG RESS

SECOND SESSION

ON

H.R. 10129

A BIL L TO AMEND THE ACT OF SEPTEM BER 7, 1957, RELATING 

TO AIRCRAFT LOAN GUARANTEES

J]

H

10

m

rR

C

KSU LIBRARIES

□

□

O'

H

H

< MAY 9 AND 10, 1962

Printed f or the use of the 

Committee on I nt er state and Foreign Commerce

}

I

I

«4828

U.S . GO VE RN MEN T PR IN TIN G O FFIC E 

W AS HI NG TO N : 196 2
COMMITTEE ON INTERS TAT E AND FOREIGN COMMERCE

OR EN HA RR IS, Arkansas, Cha irman

JO HN BELL WILLIAM S, Mississippi

P E T E R F. MA CK , Jr., Illinois

K E N N E T H A. RO BE RT S, Alabama

MOR GA N M. MOUL DE R, Missouri

HARLE Y O. STAG GE RS , West Virginia

W ALTE R RO GE RS , Texas

SA MUE L N. FRIE D EL, Ma ryland

T O R B E R T H. MA CD ON AL D, Mass achu setts

GE ORG E M. RH OD ES , Pennsylvania

JO HN JA RM AN , Oklahoma

LE O W. O’BRIE N, New York

JO HN E. MOSS, California

JO HN D. DIN GEL L, Michigan

JO E M. KI LG OR E, Texas

PA UL G. RO GE RS , Florida

RO B ER T W. H EM PH IL L, South Carolina

DA N RO ST EN KO WSK I, Illinois

JA M ES C. HE AL EY , New York

HO RA CE R. KO RN EG AY , No rth C arolin a

JO HN B. BEN N ETT, Michigan 

WILLIAM L. SP RI NGER , Illinois 

PA UL F. SC HE NC K, Ohio 

J. AR TH UR YO UN GE R, California 

HA RO LD R. CO LL IE R, Illinois 

M IL TO N W. GL EN N, New Jersoy 

SA MU EL L. DEVIN E, Ohio 

AN CHER NEL SE N, Minnesota 

HA ST INGS KEIT H, Massachusetts 

WILLA RD S. CU RTI N, Pennsylvania 

AB NER W. SIB AL, Connecticut 

VE RN ON W. TH OM SO N, Wisconsin 

PE T E R H. DO M IN IC K, Colorado

W. E. Williamson, Clerk

K enneth J. Painter, As sis tant Clerk

Professional St af f

Andrew Stevenson Sam G. Spal

Kurt Borchardt Martin W. Cunningham

Subcommittee on Transportation and Aeronautics

JO HN BE LL WILLIAM S, Mississippi, Chairman

HARLE Y O. ST AG GE RS , West Virginia WILLIAM L. SP RIN GER , Illinois

SA MUE L N. FR IE D EL, Mary lan d HA RO LD R. CO LL IER, Illinois

TO RBERT H. MAC DO NA LD , Ma ssachusetts SA MU EL L. DEVIN E, Ohio 

JO HN JA RM AN , Oklahoma
’ .9 62 ’ ’

C O N T E N T S \& .

__________

Hearings held on— 

May 9, 1962______________________________________________ 1 Page

May 10, 1962___________ 47 Text of H.R. 10129____________ 

Report of— 1

Budget Bureau------------ 

Federal Aviation Agency-------------------------------- 43

Statem ent of position___________________________________ 4 Commerce, Secretary of_____________________________________ 6 Proposed amendments__________________________________ 8 Treasury, Department of____________________________________ 9 Statem ent of—

Adams, Joseph P., general counsel, Association of Local Transport Airlines_________________________________________________ 58 Arata, Winfield H., Jr., manager, market planning, Aircraft-Missiles Division, Fairchild Stratos Corp____________________________ 85 Boyd, Hon. Alan S., chairman, Civil Aeronautics Board__________ 10 Chalk, O. Roy, president, Trans Caribbean Airways_____________ 76 Chicago Helicopter Airways, Inc_____________ _____ __________ 44 Driscoll, Edward J., Deputy to the Assistant Secretary of the Air Force, Materiel, for Transportation and Communications_______ 105- Fitzgerald, Richard A., vice president, Washington affairs, Seaboard World Airlines, Inc----------------------------------------------------------- 66 Hewitt, Robert M., president of Riddle Airlines, Inc____________ 100 Los Angeles Airways, I nc .------ ---------------------------------------------- 105 Mackey, Joseph C., president, Mackey Airlines, Inc ____________ 82 Martin, Hon. Clarence D., Jr., Under Secretary for Transportation, Department of Commerce_________________________________ 47 Newman, Ross I., Associate General Counsel, Civil Aeronautics Board__________________________________________________ 10 O’Grady, Gerald P., general counsel, Pacific Northern Airlines, Inc-_ 118 Rentzel, Delos W., on behalf of Slick Airways___________________ 107 Roth, Irving, Director of Bureau of Economic Regulation, Civil Aeronautics Board------------------------------------------------------------ 10 Tompkins, George W., president of the National Air Carrier Asso­ ciation_________________________________________________ 94 Additional data submitted to the committee—

ALTA policy statement_____________________________________ 48 Aircraft purchased by local service carriers with and without guaran­ teed loans since inception of loan guarantee program through April 30, 1962 (exclusive of DC-3 aircraft), table submitted by Chairman Boyd--------------------------------------------------------------- 13 Average direct operating costs comparison, local airline service, table enclosed with letter from W. H. Arata, Jr., dated May 14, 1962___ 90 Civil Aeronautics Board schedule of guaranteed loans, table sub­ mitted by Chairman Boyd-------------------------------------------------- 17 Loan guarantee program, loans, approved and aircraft operated by eligible carriers, table submitted by Chairman Boyd___________ 14 Public Law 85-307-------------------------------------------------------------- 2 Purpose and need for proposed legislation, statem ent concerning___ 1 Communications submitted to the committee—

Arata, W. H., Jr., manager, marke t planning, Fairchild Stratos Corp., letter dated May 14, 1962------------------------------------------ 89 Boyd, Alan S., chairman, Civil Aeronautics Board, lette r dated May 29, 1962------------------------ ------------------------------------------------ 90 Fitzgerald, Richard A., vice president, Washington affairs, Seaboard World Airlines, Inc., letter dated May 17, 1962----------------------- 75 Gudeman, Edward, Under Secretary of Commerce, letter dated June 12, 1962________________________________________________ 51 Murphy, Robert T., vice chairman, Civil Aeronautics Board, letter to Hon. John W. McCormack dated February 6, 1962____________ 1 Oliver, Robert W., attorney for Chicago Helicopter Airways, Inc., letter dated May 7, 1962---------------------------------------------------- 44 Sayen, Clarence N., president, Airline Pilots Association, letter dated May 7, 1962------------------------------------------------------------------- 45

in

GUARANTEED LOANS TO AIRLINES

WEDNESDAY, MAY 9, 1962

H ou se of R ep re se nta ti ves , S ubcom m it te e on

T ra ns po rt at io n an d A er on au ti cs of t h e C om m it te e

on I nt er st at e an d F or eign Com mer ce ,

ashington, D.G.

The subcommittee met, pursuant to call, at 10:20 a.m., in room 

1334, New House Office Building, Hon. Joh n Bell Williams (chairman of the subcommittee) presiding.

Mr. Williams. The committee will be in order, please.

This morning the Subcommittee on Transportation and Aeronautics 

is meeting to begin hearings on II.R. 10129, a bill to extend the act 

which authorizes a Government guarantee of p rivate loans to certain 

air carriers to purchase aircraft.

The bill was introduced by Air. Harris, chairman of the committee, 

at the request of the Civil Aeronautics Board. Without objection, 

the letter addressed to the Speaker requesting introduction of the bill 

and enclosing a statement of the need for the legislation will be included in the record at this point, followed by the bill, Public Law 

85-307, and agency reports.

(The documents referred to are as follows:)

Civil Aeronautics Board, 

Washington, D.C., February 6, 1962.

Hon. J ohn W. McCormack,

The Speaker, House of Representatives,

Washington, D.C.

Dear Mr. Speaker : The Civil Aeronautics Board recommends to the Congress 

for its consideration the enclosed dra ft of a proposed bill to amend the act of 

September 7, 1957, relating to aircra ft loan guarantees.

The Bureau of the Budget states tha t it is unable, a t present, to advise as to 

the relationship of the proposed bill to the administration’s objectives.

Sincerely yours,

Robert T. Murphy, Vice Chairmen.

[H.R. 10129, 87th Cong., 2d sess.]

A BILL To amend the act of September 7, 1957, relating to aircraft loan guarant ees

Be it enacted by the Senate and House of Representatives of the United States

of America in Congress assembled, Tha t section 8 of the Act of September 7, 

1957 (71 Stat. 629), is amended by strikin g out the word “five” and inserting in 

lieu thereof the word “ten”.

Statement of Purpose and Need for Proposed Legislation

a BIL L TO AM END THE ACT OF SEPTEM BER 7, 1 9 57, REL ATING TO AIRC RAFT LOAN 

GUA RAN TEES

The act of September 7, 1957, authorizes Government guaranty of private 

loans to certain air carrier s for purchase of airc raft. By the terms of the 

act this auth ority expires 5 years from the date of enactment.

1
2 GUARANTEED LOANS TO AIRLINES

The act authorizes the Board to guaranty loans made to local service and 

-certain other air carriers for the purchase cf aircraft to improve their service 

and efficiency, with the purpose of enabling these carriers to borrow the necessary 

funds on reasonable terms. Experience with the act has amply demonstrated 

tha t lenders, in order to obtain a guaranty, are generally willing to give more 

favorable terms than they would without a guaranty. A significant portion of 

the equipment modernization by eligible carriers, achieved during the life of 

the act, has been financed by guaranteed loans. As of December 31, 1961, a total 

of $30,349,503 had been borrowed on such loans, with $23,379,152 still outstanding at that date. These funds have been used to purchase (1) 33 twin-turbine 

engine F-27 aircraft, (2) 12 twin-engine (piston-type) Convair 340/440 aircraft, 

which can be converted to turbine power, (3 )3 twin-engine (piston-type) Martin 

404 aircraft, (4) 5 single-engine (piston-type) Vertol 44-B helicopters, and 

(5) 1 twin-turbine-engine helicopter. Applications have been approved for one 

jet airc raft and three additional twin-turbine helicopters, the delivery of which 

will take place in the near future. Applications are now pending for the guarantee of loans for the purchase of eight twin-turbine helicopters, fo ur CV-240’s 

and two DC-6’s.

Although much use has been made of the act, not all of the eligible carriers 

have reequipped, and, in many cases, these carriers must acquire modern equipment if in the long run their subsidy needs are to be reduced. In the coming 

years it is anticipated that suitable new equipment will be offered for sale by 

manufacturers, and that many of the trunk carriers will be disposing of excellent equipment at reasonable prices. The development of air transportation 

would be delayed if the smaller carriers could not obtain loan guarantees when 

they cannot otherwise borrow funds to purchase this more efficient equipment on 

reasonable terms.

It thus appears tha t there will be need for loan guaranties during the foreseeable fut ure ; accordingly, the dra ft legislation in effect provides tha t the 

authority contained in section 3 of the act is extended for another 5 years from 

the present expiration date of September 7,1962.

Public Law 85-307, 85th Congress, S. 2229, September 7, 1957

AN ACT To provide fo r Gover nm ent gu ar an ty of pr iv ate loans to ce rtain air ca rrie rs for 

pu rchase of modern air cra ft and equ ipm ent, to fo ster the dev elo pm ent and use of 

modern tr an sp ort a ir cr af t by such ca rri ers, an d fo r othe r purpo ses

Be it enacted by the Senate and House of Representatives of the United States

of America in Congress assembled, That it is hereby declared to be the policy of Congress, in the interests of the commerce of the United States, the postal 

service, and the national defense to promote the development of local, feeder, 

and short-haul air transportation.In furtherance of this policy it is deemed 

necessary and desirable that provision be made to assist certain air carriers 

engaged in such air transportation by providing governmental guaranties of 

loans to enable them to purchase aircra ft suitable for such transportation on 

reasonable terms.

Sec. 2. As used in this Act—

(a) “Board” means the Civil Aeronautics Board.

(b) “Aircraft purchase loan” means any loan, or commitment in connection 

therewith, made for the purchase of a commercial transport airc raft, including 

spare parts normally associated therewith.

Sec. 3. The Board is hereby authorized to guarantee any lender against loss 

of principal or interest on any airc raft purchase loan made by such lender to 

any air carrier holding a certificate of public convenience and necessity issued by 

the Board (a) designated therein to be for local or feeder air service, or (b) 

providing for operations wholly within the Territory of Hawaii, or (c) providing 

for operations (the major portion of which are conducted either within Alaska 

or between Alaska and the United States) within the Territory of Alaska (including service between Alaska and the United States, and between Alaska 

and adjacent Canadian territo ry), or (d) providing for operations within the 

Commonwealth of Puerto Rico (including service to the Virgin Islands and the 

Dominican Republic), or (e) providing for operations between Florida and the 

British West Indies (including service to Cuba), or (f) for the purpose of 

authorizing metropolitan helicopter service. Such guaranty shall he made in 

such form, on such terms and conditions, and pursu ant to such regulations, as
GUARANTEED LOANS TO AIRLINES 3

the Board deems necessary and which a re not inconsistent with the provisions 

of this Act.

Sec. 4. No guaranty shall be m ade :

(a) Extending to more than the unpaid interest and 90 percent of the unpaid 

principal of any loan.

(b) On any loan or combination of loans for more than 90 percent of the 

purchase price of the aircraft, including spare parts, to be purchased therewith.

(c) On any loan whose terms permit full repayment more than 10 ye ars after 

the date thereof.

(d) Wherein the total face amount of such loan, and of any other loans 

to the same carrier, or corporate predecessor carrier or carriers, guaranteed and 

outstanding under the terms of this Act exceed $5,000,000.

(e) Unless the Board finds that, without such guaranty, in the amount 

thereof, the air carrier would be unable to obtain necessary funds for the purchase of needed aircraft on reasonable terms.

(f) Unless the Board finds tha t the aircra ft to be purchased with the 

guaranteed loan is needed to improve the service and efficiency of operation 

of the air carrier.

Sec. 5. The Board shall prescribe and collect from the lending institutio n 

a reasonable guaranty fee in connection with each loan guaranteed under this 

Act.

Sec. 6. (a) To permit it to make use of such expert advice and services as it 

may require in carrying out the provisions of this Act, the Board may use available services and facilities of other agencies and instrumentalities of the Federal 

Government with their consent and on a reimbursable basis.

(b) Departments and agencies of the Federal Government shall exercise their 

powers, duties, and functions in such manner as will assist in carrying out the 

objectives of this Act.

Sec. 7. (a) Receipts under this Act shall be credited to miscellaneous receipts 

of the Treasury.

(b) Payments to lenders required as a consequence of any guaranty under 

this Act may be made from funds which a re hereby authorized to be appropriated 

to the Board fo r that purpose.

(c) Administrative expenses under this Act shall be paid from appropriations 

to the Board for adm inistrative expenses.

Sec. 8. This Act shall become effective upon enactment, and the authority contained in section 3 hereof shall expire five years thereafter.

Approved September 7,1957.

Executive Office of the President,

Bureau of the Budget, 

Washington, D.C. May 9,1962.

Hon. Oren Harris,

Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.C.

Dear Mr. Chairman : This is in reply to your letter of February 23, 1962, 

requesting the views of the Bureau of the Budget on H.R. 10129, a bill to extend 

the act of September 7,1957, relating to aircraft loan guarantees for an additional 

5 years.

While the Bureau of the Budget would not oppose extension of the loan guarantee program for an additional 5 years to carriers now eligible, it would be unable 

to support, on the basis of any evidence thus f ar made available, the expansion 

of this program to make other carriers eligible.

In his transportation message the President recommended trans fer of responsibility for the aviation loan guarantee program, if extended, from the Civil 

Aeronautics Board to the Department of Commerce. The Bureau of the Budget 

strongly supports this change. If H.R. 10129 were amended to provide for the 

tran sfer of responsibility for the loan guarantee program from the Civil Aeronautics Board to the Department of Commerce, the Bureau of the Budget would 

have no objection to its enactment.

Sincerely yours,

Phillip S. Hughes,

Assistant Director fo r Legislative Reference.
4 GUARANTEED LOANS TO AIRL INES

F edera l Avia ti on Agen cy,

Offic e of t h e A dm in is tr ato r,

Washington, D.C., Jun e 11,1962.

Hon. J o h n B el l W il l ia m s ,

Chairman, Subcommittee on Transporta tion and Aeronautics, Committee on

Interst ate and Foreign Commerce, House of Representatives, Washington,

D.C.

D ea r Mr. Ch a ir m a n : Enclosed is a statement of this Agency’s views on H.R.

10129, a bill which would extend the Airc raft Loan Guarantee Act of 1957 for 

an additional 5 years. In stating the Agency’s position on this bill, we have also 

addressed ourselves to Senator Sinather’s amendment to the Senate companion 

bill (S. 2815) which would also make scheduled all-cargo carriers eligible for 

loan guarantees.

I regret very much the conflicting schedule which prevented me from testifying before your committee during its hearing on H.R. 10129.

Sincerely,

N. E. H al ab y, Adm inistrator.

Sta tem en t of F edera l Avia ti on Agen cy ’s P osi tio n on H.R. 10129 an d S. 2815, 

B il l s T o E xt en d t h e A ir cr af t L oan G uarante e Act, an d Sen at or Sm a t ii er s' 

P ropos ed A m en dm en t T o E xt en d t h e Be n e f it s of t h e Act to S ch ed ul ed AllCargo Carr iers

The act of September 7, 1957, which provides for Government guarantee of 

private loans to certain air ca rriers for the purchase of a ircraft and equipment, 

was originally proposed by the Civil Aeronautics Board in 1956. The Senate 

committee, in reporting out the hill, stated tha t its purpose was “to enable the 

feeder and short-haul type ca rrier to purchase equipment that will result in an 

economical and profitable operation, and to encourage the development of a suitable aircra ft designed for that purpose.” We think it fair to state tha t this 

purpose has not been fully achieved.

The subsidy to local service carriers has increased from approximately $24 

million in fiscal year 1956 to approximately $66 million in fiscal year 1962. Many 

factors contributed to this increase, such as extended routes and improved service 

to the public. The fact remains, however, tha t the local service carriers have 

not yet achieved “an economical and profitable operation.”

Nor have any new aircraft been developed for local service use as a result of 

this legislation. When this legislation was under consideration, the Fairchild 

F-27 was the only new aircraft on the horizon for the short- and medium-haul 

market. That airc raft has since become operational and 35 of them are now in 

service.

While a critical evaluation of the legislation compels the conclusion that it 

has failed fully to achieve its stated objectives, nevertheless, the availability of 

Government guarantees has enabled the local service carriers to modernize their 

fleets, improve their service, and reduce operating costs. So long as the local 

service carriers remain on subsidy, it would seem to be in the Government’s 

interest to improve their operations wherever possible through such devices as 

loan guarantees which, to date at least, result in no cost to the Government. 

For this reason, we favor extension of the act.

In supporting an extension, however, we should return to and focus rather 

sharply on the basic purposes of the act as originally conceived by the Congress. 

The act has not permitted the carriers to achieve economic independence; it has 

not provided the new aircraft envisioned. If we are to realize the original purposes of the act, clearly other steps must be considered.

As to the development of a new local service airc raft, we must quite frankly 

state that, at the moment, we do not know its specifications. Secondly, we do 

not know its cost, nor its marke t potential. Finally, we ar e not at all sure that 

a new a ircra ft, by itself, will assure a profitable, subsidy-free local service air 

transi»ort ation system. We suspect tha t more is required.

To permit us to resolve some of these questions, there has recently been 

established within the Agency the Airc raft Development Service. One of the 

Service’s first tasks will be to study the feasibility of developing a local service 

aircraft. This study will embrace the aircra ft’s characteristics, its market 

potential, its possibile military use, propulsion system, and design. Evaluation 

of this data will permit a reasoned decision as to whether and in what manner 

the Government should further proceed in encouraging its development. We 

would hope to present our findings during the next session of Congress.
GUARANTEED LOANS TO AIRL INES 5

If, in the next 3 years, airc ra ft tail ored to the needs of local service carriers 

can be developed, we believe the Government’s guara nte e should be limited to 

loans for their purchase. Accordingly, it is recommended th at the act be extended for only 3 yea rs ra th er tha n the 5 yea rs now proposed. This will permit 

reev alua tion in ligh t of a ircr af t coming into production a t tha t time.

As indicated, we do not believe th at the development of a new aircraft, regardles s of its efficiency, will solve all of the economic problem s of the local 

service carrie rs. The ultimate solution is not to be found in reduction of direct 

operating costs alone. Wh at the industry must look to now is a reduction in 

indirec t operating costs, such as reservation service, ticketing, baggage, and so 

on, as well as rou te structure. These are the most fertile areas for a breakthrough. The time afforded by a 3-year extension of the act will be ample to 

explore this frontier.

We have considered with great care the amendment to the Sen ate bill (S. 

2815) proposed by Sen ator Smathe rs which would bring scheduled all-cargo carrie rs within the scope of the act. While we do not object to the amendment, it 

rais es some serious questions which we believe the committee should consider 

before adopting it.

The guara nte e by the Government of loans to private borrowe rs is an exceptional method of achieving national policies. It is not the norm. There is a 

strong nat ion al policy to encourage the scheduled local service c arrie rs which a t 

present are the p rincipal beneficiaries of the act. The local service carri ers and 

the metrop olitan helic opter carriers both receive subsidies auth oriz ed by the 

Congress, a clear indication of Congress feeling th at fostering local ai r service 

is in the nation al interest. Furthermo re, operations within Haw aii, Alaska, or 

the Commonwealth of Puerto Rico pose special problems for the United States 

which deserve special consideration s. One of the things th at makes this country 

strong and con tributes to the nation al integr ation of our dista nt Sta tes and 

ter ritories is a fas t, relia ble transporta tio n system promoting a free flow of persons and goods.

Entirely differen t considerations are involved in weighing the nation al interest 

served by extension of the guara nte e loan benefits to scheduled all-cargo carriers. The Nation does not depend on them in the same manne r or for the same 

reasons as it depends on the local service car riers. The service scheduled allcargo carriers ren der is to a large extent also ava ilab le from scheduled passenger c arr ier s who carry freig ht, both in their passenger a irc raft and in special allcargo air craft. In addition, a sub sta ntial amount of cargo, particularly under 

con tract with the m ilita ry, is ca rrie d by s upplemental carriers.

Grantin g th at the all-cargo carriers do con trib ute to the Nation ’s ai r tra ns ­

port system and nation al defense capability, we believe it is a basic and sound 

principle that they stand on the ir own, and th at their operations meet the test 

of competition. It was this und erstanding that the Civil Aero nautics Board 

certificated these carriers.

One of the thin gs about thi s amendment th at trou bles us is th at it selects for 

benefits und er the ac t only fou r of the many carri ers which are engaged in cargo 

transp ortation. An ana lysis of the scheduled domestic all-cargo ca rrier operations fo r the y ear 1961 indicates th at only about 20 percent of the ir revenues was 

derived from scheduled operations. The balance of revenues was derived primarily from milita ry charter and con tract work. This indicate s tha t, from the 

standp oint of tra nsp ort ation services rende red, most of these carri ers are quite 

sim ilar to the 32 certificated supplemental car riers. This leads one to wonder 

whether the line disting uishing between the ca rriers eligible for benefits under 

the amendment and those not can be meaningfully drawn.

There is, however, a more basic problem. Loan gua ran tees have been advocated as fac ilitating improved emergency airlift capability, increased civil capacity for movement of military cargo in peacetime, and development of the a irca rgo 

market. If these are the objectives, it is difficult to argue again st exte nding the 

act, not only to supplemental carri ers b ut also to scheduled combination carrie rs. 

Certainly, sub sta ntial improvement in emergency ai rlift capability can not be

achieved by extending guaran tee s to only fo ur carrie rs.

We do not, however, endorse extension of the act to the oth er classes of carreiers. We believe all three classes should compete witho ut special Government 

assistance. Fa ilu re to adhere to this principle, in time, may well lead to reque sts 

for subsidiza tion of the marginal competitors. In any event, no case has been 

made th at the tru nk carriers require a guara nte e in ord er to obtain financing. 

And certain ly until the reevaluation of the supp lementa l carrie rs, contemplated

13 IS 62
6 GUARANTEED LOANS TO AIRLINES

by other legislation now before this committee, has been completed we believe 

extension of loan guarantees to such carriers would be premature, to say the 

least.

The Federal Aviation Agency strongly supported a cargo aircra ft loan guarantee bill in 1960 (S. 2774). That bill was designed to encourage the manufacture 

of efficient, newly developed, modern cargo aircra ft and to fa cilitate the acquisition of such aircraft by the carriers. Another principal motivation was the 

belief tha t the national security of the United States would be substantially 

strengthened if our civilian air carriers had available, and could make available 

during time of emergency, efficient powerful aircra ft specially designed to haul 

large and heavy cargo.

However, circumstances have changed since 1960. U.S. airlines have acquired 

foreign-made turbine-powered cargo airc raft, the Canadian CL-44 and the 

British AW-650, and apparently these planes have proved to be satisfactory. 

Furthermore, the program to develop and build the Lockheed C-141 has commenced and, hopefully, this will give to the United States a specially designed 

all-cargo aircraft, as envisioned, suitable for both military and commercial use. 

Finally, both Boeing and Douglas will begin deliveries within the next year of 

cargo versions of the 707 and DC-8. The need for a guarantee loan program 

to spur development and increase the acquisition of modern cargo a ircraft is this 

not as great as it was 2 years ago.

There were other provisions of the 1960 bill which are not included in this 

amendment—specifically, the requirements th at the aircraft purchased be modern 

and found suitable for defense purposes, and tha t they be made available to the 

Department of Defense in times of war or emergency. Should the committee 

report favorably this amendment, we would urge that it include these 

requirements.

The Project Horizon report also dealt with this problem and is now being 

considered by the executive branch. The Agency’s Aircraft Development Service 

has begun to determine how certain events occurring subsequent to the report 

affect its recommendations. Included in this task is a study of the extent to 

which the Canadian CL-44, which can be purchased with loans guaranteed by 

the Canadian Government, is meeting the needs of our present all-cargo carri ers; 

also, the extent to which the proposed C-141 can be expected to meet those 

needs when it becomes available in 1965 or 1966. When the Horizon report was 

issued, no CL-44’s had been delivered to American all-cargo ca rri ers; since that 

time a substantial number have been put into service, and we propose to investigate jus t how efficiently they are operating. Also since tha t time, the C-141 

has become a much more precisely described aircraft, and the DC-8 and 707 

cargo types are close to reality. Any recommendation by this Agency to embark 

on a guarante e loan program to help purchase modern cargo airc raft for all-cargo 

carriers will depend in large part on the results of these inquiries.

In summary, the Agency endorses the extension of the act for an additional 

3 years. At the end of that time we would propose a general review of the legislation in light of new aircra ft then available and other developments which will 

lead to improved economy and financial independence of the local service 

carriers. Similarly, without objecting to the inclusion of the all-cargo carriers, 

we question whether a line can be meaningfully drawn between them and other 

carriers, whether their inclusion will give us any really significant improvement in the Nation’s emergency airlift capability, and whether the bill can be 

expected to spur the development of any new cargo aircra ft not already being 

delivered or being developed.

T h e Secretary of Commerce, 

Washington, D.C., May 9, 1962.

H on. Oren H ar ris ,

Chairman, Committee on Interstate and Foreign Commerce,

U.S. House of Representatives, Washington, D.C.

Dear Mr. Chairman : This is in response to your l ette r requesting the views 

of the Department on H.R. 10129, a bill to amend the act of September 7, 1957, 

relating to a ircraft loan guarantees.

The act of September 7, 1957, authorized Government guarantee of private 

loans to certificated short-haul air carriers for purchase of airc raft. By the 

terms of the act, this authority expires 5 years from the date of enactment. The 

purpose of H.R. 10129 is to extend the authority contained in section 3 of the 

act fo r another 5 years from the present expiration date of September 7,1962.
GUARANTEED LOANS TO AIRLINES 7

H.R. 10129 was introduced at the request of the Civil Aeronautics Board. The 

Board, in proposing the bill, noted tha t although much use had been made of th e 

act, not all of the eligible carriers had reequipped, and, in many cases, these 

carriers must acquire modern equipment if their subsidy needs are to be reduced 

in the long run. Extension of the authority under section 3 of this act for another 5-year period would provide a means by which the smaller carrier s who 

have not as yet taken sufficient advantage of the act could obtain loan guarantees for the purchase of aircr aft to improve their service and efficiency.

The benefits accruing from the loan guarantee program since its inception in 

1957 have been measurable both to the carriers receiving the loans and to the 

traveling public. Under the act of September 7, 1957, no guarantee shall be 

made unless it is found that the air carriers cannot otherwise obtain funds needed 

on reasonable terms, and tha t the aircra ft purchased are required for improvement of the service and efficiency of the operations of the air carrier. By reequipping, the air carriers are in a position to improve their operations by using 

aircra ft that are efficient and can be operated at a lower cost per passenger-mile. 

The traveling public benefits directly from the operation of modern equipment 

tha t would not otherwise be operated.

If subsidy-free status is to be achieved, passengers must be attracted to the 

airlines. Yet without the proper equipment, a service that will att rac t passengers and thereby broaden the passenger base cannot be achieved. The carrie rs, 

in many cases, do not have the resources to break out of this circle and achieve 

self-sufficiency. It is rcognized t hat loan guarantees are not a panacea, but they 

can be used as a tool by the carriers and the Government to improve the problem 

of subsidy. Without a doubt, subsidy cannot be reduced unless the carrier s have 

a product to sell—namely, service. However, synonymous with the word “service” is the type of equipment tha t produces the service. The public has become 

sophisticated in its demands, and unless a type of equipment is used tha t will 

att ract the traveling public, they will not use air travel to the extent tha t will 

make air carrier operations self sufficient.

The report by this Department on a similar Senate bill included comments on 

an amendment which would “render scheduled all-cargo carriers eligible to pa rticipate in the aircra ft equipment loan guantee program.” The Department is 

of the opinion tha t the addition of certificated scheduled aircargo carriers, such 

as Riddle Airline, Slick Airways, Flying Tiger Line, and Seaboard-World Airlines to those carriers presently covered by the loan guarantee program would be 

in the national interest. Such a program could afford the scheduled all-cargo 

carriers the opportunity of obtaining aircra ft designed for their special need 

The Task Force on National Aviation Goals (Project Horizon) in its report 

stated, “While it is not clear tha t direct subsidization of cargo services is presently wa rranted, we are of the opinion that indirect aid should be provided in the 

form of Government support of aircargo transport vehicle development, the expanded use of aircargo service for mail and military cargo * * * and guaranteed 

loan legislation, subject to the most detailed scrutiny * * * of characteristics 

of the a ircraft as an economic vehicle, before approval for such loans is granted.”

The requirements channeled into this Department, as a result of its responsibility in the field of civil mobilization planning, indicate the need for increased 

cargo capability. A suitable aircra ft that could be developed or purchased for 

the use of the scheduled all-cargo carriers would aid the U.S. aircargo capability 

to meet the civil and defense needs during an emergency.

In order to make it possible for the carriers to purchase the higher cost aircra ft tha t are suitable for use in all-cargo operations, it is believed th at the present limitation of $5 million to any one car rier should be increased to $15 million.

As the President pointed out in his message of April 5, 1962 on the transp ortation system of our Nation, if the loan guarantee program is extended it should 

be transferred to the Department of Commerce. This recommendation was 

based on the fact that this Department is a focal point for Government tra nsportation activities and in the interest of program coordination these activities 

should be further consolidated. The Department in transmitting its legislative 

recommendations to implement the President’s message, which was tran smitted 

to the Congress on May 1, contained language which would transfer the loan 

guarantee programs presently administered by the Civil Aeronautics Board and 

the Interstate Commerce Commission to the Departm ent of Commerce.

We are enclosing proposed amendments to H.R. 10129 which would extend the 

act of September 7, 1957 for another 5-year period, extend its coverage to include 

scheduled all-cargo carriers, increase the maximum allowable amount that can 

be guaranteed to any one ca rrier to $15 million, and provide for transfer of the
8 GUARANTEED LOANS TO AIRLINE S

loan guara ntee function from the Civil Aero nautics Board to the Department 

of Commerce.

The Department supp orts e nactment of this legislation if it is amended as we 

have recommended.

The Bureau of the Budget advises there is no objection to the submission of 

this rep ort from the standpoint of the ad minis tration’s program.

Sincerely yours,

Luther II. Hodges, 

Secreta ry of Commerce.

Proposed Amendments to H.R. 10129, 87th Congress

Amend H.R. 10129 by adding the following new sections at the end thereo f:

“Sec. 2. Section 1 of the Act of September 7, 1957 (71 Stat. 629), is amended 

by adding immediately after the words ‘development of’ in the first sentence 

the following: ‘scheduled all-cargo and’.

“Sec. 3. Subsection (a) of section 2 of the Act of September 7, 1957 (71 Stat. 

629), is am ended by strikin g out the words ‘Board’ and ‘Civil Aeronautics Board,’ 

and inserting in lieu thereof the words ‘Secre tary’ and ‘Secretary of Commerce,’ 

respectively.

“Sec. 4. Section 3 of the Act of September 7, 1957 (71 Sta t. 629), is amended 

by:

“ (1) Striking out the word ‘Boa rd’ where it appears the first and third times 

there in, and inserting in lieu thereof the word ‘Secretary ;’ and

“ (2) Ins erting the words ‘Civil Aeronautics’ immediately before the word 

‘Board ’ wh ere it appears the second time therein ; and

“ (3) Striking the period immediately following the word ‘service’ at the end 

of the first sentence and adding the following: ‘or (g) for scheduled all-cargo 

service.’

“Sec. 5. Section 4 of the Act of September 7, 1957 (71 Sta t. 629), is amended 

by:

“ (1) Str iking out the amount ‘$5,000,000’ in subsection (d ), and inserting 

in lieu thereof the amount ‘$15,000,000’; and

“ (2) Striking out the word ‘Board ’ in subsections (e) and (f ), and inserting 

in lieu ther eof the word ‘Secre tary’.

“Sec. 6. Section 5 of the Act of September 7, 1957 (71 Stat. 629), is amended 

by striki ng out the word ‘Board,’ and inserting in lieu thereof the word 

‘Secre tary’.

“Sec. 7. Subsection (a) of section 6 of the Act of September 7, 1957 (71 Stat. 

629), is amended by:

“ (1) Striking out the word ‘it ’ where it appears the first time therein, and 

inserting in lieu thereof th e word ‘hi m ;’ a nd

“ (2) Striking out the word ‘it ’ where it appears the second time therein, and 

inserti ng in lieu thereof the word ‘he ;’ a nd

“ (3) Striking out the word ‘Board ’ and inserting in lieu thereof the word 

‘Secre tary ’.

“Sec. 8. Section 7 of the Act of September 7, 1957 (71 Sta t. 629), is amended 

by strikin g out the word ‘Board’ wherever it appears therein, and inserting in 

lieu thereof the wo rds ‘Departme nt of Commerce’.

“Sec. 9. Section 410 of the Fed eral Aviation Act of 1958 (49 U.S.C. 1380) is 

amended by repla cing the period at the end of the last sentence with a colon, 

and adding the following: ‘Provided, however. That the provisions of this section 

shall not be applicable to the guara nty of loans by the Secretary of Commerce 

und er the provisions of the Act of September 7, 1957 (71 S tat. 629), as amended, 

but the Secretary of Commerce shall consult with and consider the views and 

recomm endations of th e Board in making such guaran ties’.

“Sec. 10. (a) All orders, dete rminations, rules, regulations, permissions, approvals, agreements, rulings, directives, and privileges which have been issued, 

made, or granted, or allowed to become effective, by the Civil Aeronau tics Board, 

or any cou rt of competent jurisdic tion, und er any provision of law amended by 

this Act, or in the exercise of duties, powers, or func tions which, und er thi s Act, 

are vested in the Secretary of Commerce, and which are in effect at the time 

this Act take s effect, shall continue in effect according to the ir terms u ntil modified. term inated, superseded, set aside, or repealed by the Secreta ry of Commerce 

or by any court of competent jurisdiction, or by o pera tion of law.

“ (b) The provisions of this Act shall not affect any proceedings pending at 

the time thi s Act takes effect before the Civil Aero nautics Boa rd ; but any such
GUARANTEED LOANS TO AIRLINES 9

proceedings shall be continued before the Secreta ry of Commerce, orders issued 

therein, and paym ents made pursu ant to such orders, as if this Act had not 

been en ac ted; and orders issued in any such proceedings shall continue in effect 

until modified, term inated, superseded or repealed by the Secretary of Commerce, or by operation of law.

“ (c) The provisions of thi s Act shall not affect sui ts commenced prior to the 

date on which it takes eff ect; and all such suits shall be c ontinued by the Secretary of Commerce, proceedings therein had, appeals the rein taken, and judgments therein rendered, in the same manne r and with the same effect as if this 

Act had not been enacted. No suit, action or other proceeding lawfully commenced by or aga inst the Civil Aeronautics Boa rd or officer of the United States, 

in rela tion to the discharge of official duties, shall aba te by reason of a ny tra ns ­

fer of autho rity , power or duties from the Board or Commission or officer to 

the Secreta ry of Commerce under the prov isions of this Act, but the cou rt upon 

a motion or a suppleme ntal petition filed at any time w ithin twelve months, after 

such transf er, showing the necessity for a survival of such suit, actio n or other 

proceeding to obtain a settlement of the question s involved, may allow the same 

to be maintained by or again st the Secretary of Commerce.

“Sec. 11. (a) The officers, employees, and pro per ty (including office equipment 

and official records) of the Civil Aeronau tics Board which the Burea u of the 

Budget, after consulta tion w ith th e Board, shall determine to have been employed 

by the B oard in the exercise and performance of those powers and duties vested 

in and imposed upon it by the Act of September 7, 1957 (71 Sta t. 629), and 

which are vested by thi s Act in the Secretary of Commerce, shall be transfer red 

to the Departme nt of Commerce upon such date or dates as the Burea u of the 

Budget shall spe cify: Provided, Th at the tra ns fer of such personnel shall be 

withou t reduction in classification or compensation, except that this require ment 

shall not operate after the end of the fiscal yea r during which such tra ns fer is 

made to prevent the adjustment of classification or compensation to conform 

to the duties to which such tra nsferre d personnel may be assigned.

“ (b) Such of the unexpended balances of app ropriations ava ilab le for use by 

the Civil Aero nautics Boa rd in the exercise and performance of those powers 

and duties vested in and imposed upon it by the Act of Septem ber 7, 1957 (71 

Stat. 629), and which are vested by this Act in the Secretary of Commerce, shall 

be tra nsferre d to the Department of Commerce upon such date or dates as the 

Bureau of the Budget shall specify, and shall be available for use in connection 

with the exercise and performance of the powers and duties vested in and imposed upon by the Secreta ry of Commerce by this Act.

“ (c) All records tra nsferre d to the Secreta ry of Commerce und er this Act 

shall be ava ilab le for use by him to the same extent as if such records were 

originally records of th e S ecretary.”

The General Counsel ofthe Treasury,

Washington, June 18,1962.

Hon. Oren H arris,

Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.C.

Dear Mr. Chairman : Reference is made to your request for the views of this 

Dep artm ent on Il.R. 10129, to amend the act of September 7, 1957, relating to 

aircraft loan guaran tees.

The bill would extend for 5 y ear s the a uthority of the Civil Aeronau tics Board 

to guara nte e loans fo r the purch ase of a ircr af t by local service air car riers.

The Departme nt is of the opinion that, if the guara ntee au tho rity is to be 

extended, it should not contin ue to be vested in a quasi-judicial body. The duty 

of the Civil Aeronautics Board to protect the inte rests of the Government as a 

guara nto r of an air carri er creditor, or as an air carri er creditor itself when 

fun ds have been paid out as a consequence of a guarantee, would conflict with 

the duties of the Board to the public in discharging its quasi-judicial functions.

In th at connection, the President in his message of April 5, 1962, relative to 

the transportat ion system of our Nation, sta ted th at if th e aviation loan g uaran tee 

is extended, it should be tran sfe rre d to th e Dep artm ent of Commerce. He furth er 

sta ted tha t thi s problem is not regu lato ry in n atu re and is clea rly separable from 

the chief functions of the Civil Aeronautics Board and can be acted upon more 

expe ditiously by an exec utive agency.

In addition to the foregoing, it is our und erstanding th at a proposal has been 

advocated to extend the gua rantee autho rity to aircraft suitable for scheduled
10 GUARANTEED LOANS TO AIRLINES

all-cargo air transportation. As a general policy, this Department is opposed to 

the extension of existing guarantee programs into new areas, except where such 

extension is considered highly essential to implement impelling national policy 

objectives. Guarantee programs, by placing the credit of the Government at the 

disposal of particular groups, clearly gives these groups an advantage in competing for available funds over others who are not so favored. If this disruption 

of the normal m arket processes proves costly, it is the taxpaying public, not the 

receiver of the funds, that must bear the m ajor share of the loss. In order to be 

justifiable, therefore, the extension of guarantee programs should involve a 

comparable retu rn to the Nation as a whole. It has not been demonstrated to 

this Department tha t the extension of the guarantee program to scheduled allcargo aircraft meets this requirement.

The Department has been advised by the Bureau of the Budget that there 

is no objection from the standpoint of the administration’s program to the submission of this report to your committee.

Sincerely yours,

Robert H. Knight, General Counsel.

Mr. Williams. The loan guarantee program was established by 

Public Law 85-307, approved September 7, 1957. The purpose of 

the act is to provide a means whereby certificated local service, ter ritorial, and helicopter air carriers can obtain reasonable financing for 

the purchase of modern aircra ft more suitable to their needs, and 

thereby obtain more economical operations, with the view of decreasing the dependence on Federal subsidy.

The authority of the Civil Aeronautics Board, which handles the 

program, expires September 6, 1962, H.R. 10129 would extend the 

program for 5 years.

Our first witness this morning will be the Honorable Alan Boyd, 

Chairman of the Civil Aeronautics Board.

Mr. Boyd, I believe you have a prepared state ment; is tliat correct ?

STATEMENT OE HON. ALAN S. BOYD, CHAIR MAN, CIVIL AERONAUTIC S BOARD, ACCO MPANIED BY ROSS I. NEW MAN, ASSOCIATE

GE NERA L COUNSEL, AND IR VIN G ROTH, DIRECT OR OF BUREA U

OF ECONOMIC REG ULA TION

Mr. Boyd. Yes, sir.

Mr. Chairm an and members of the committee, I am accompanied 

this morning by Ross I. Newman, Associate General Counsel of the 

Board, and Irv ing Roth, Director of our Bureau of Economic 

Regulation.

The Board appreciate this opportunity to appear in supp ort of 

H.R. 10129. This bill, which is a companion bill to S. 2815, would 

extend for an additional period of 5 years the act of September 7,1957, 

which authorizes the Board to provide Government guarantee of 

private loans to the local service and certain other air carriers for 

the purchase of commercial transp ort a ircraft and spare parts. Unless renewed this legislation will expire on September 7, 1962.

The existing loan-guarantee law was originally sponsored by the 

Board in 1957. At th at time new aircra ft were being developed which 

it was felt would be more economical and efficient, and better adapted 

to the needs of the local service carriers than the DC-3 which was 

then commonly in use. It was apparent, however, that many of the 

carriers would have found it difficult or impossible to obtain new aircra ft without some kind of Government assistance. The Board suggested, therefore, tha t legislation be enacted which would permit the
GUARANTEED LOANS TO AIRLINES 11

Government, unde r appropriate conditions, to assist these air carriers in acquiring new equipment by guaranteeing p rivate loans negotiated by the carriers for the purchase of such aircraft. Legislation 

to implement these recommendations was enacted on September 7, 

1957, as Public Law 35-307.

The benefits of the act are limited to carriers holding a certificate 

of public convenience and necessity issued by the Board designating 

them for local or feeder service; for metropolitan helicopter service; 

for service within Alaska, Hawaii, or Puerto R ico; for service between 

the United States and Alaska or between Florida and the British 

West Indies.

The act authorizes the Board to guarantee loans up to $5 million 

per air carrier; a guarantee may not exceed 90 percent of the face 

value of the loan and 100 percent of unpaid interest.

The loan itself may not exceed either 90 percent of the purchase 

price or $5 million. Loans must be repaid within 10 years. A g uarantee may be made only if the Board finds th at the air carrie r would 

not otherwise be able to obtain funds for the purchase of aircra ft 

upon reasonable terms and only if the aircra ft purchased are needed 

to improve the service and efficiency of the air carrier. In general, 

the reasonableness of other terms and conditions of the loan is determined by the Board.

When the Board originally testified in support of this legislation 

in 1957, the local service carriers, the Alaskan carriers, and the Hawaiian carriers were operating approximately 220 DC-3 airc raft. 

As of September 30, 1961, the number of DC-3’s being operated increased to about 250 despite the fact th at during the 5 years th at the 

Loan G uaran ty Act has been in effect, loans totaling nearly $37 million 

have been made f or the purchase of 33 twin-turbine-engine F-27 aircraft, 12 twin-engine Convair aircra ft which can be converted to 

turbine power, 3 twin-engine Martin airc raft, 5 single-engine Vertol 

helicopters, and 1 twin-turbine-engine helicopter.

It is our view tha t the continuation of the reequipment program of 

the smaller carriers is of th e utmost importance to their financial success and the ir prospects for long-range subsidy improvement. Notwithstanding the progress which has already been made on the equipment front, many of the carriers will have requirements for furthe r 

reequipment, particularly in connection with route modifications and 

extensions.

The Congress has indicated clearly its desire to foster and develop 

modern and efficient air transportation for the smaller communities. 

The Board has established a program to carry out this congressional 

intent, and at the same time to derive the maximum benefit from each 

subsidy dollar. Our objectives include reexamination and modification of route structures where approp riate, the development of more 

effective subsidy rate machinery designed to provide incentives to 

management to maximize revenues and to minimize costs, and the administration of th e loan guarantee program to assist in the financing 

of more modem equipment.

The amendment to S. 2815 proposed by Senator Smathers would 

also make the certificated cargo carriers eligible for Government loan 

guarantees. The operations of the all-cargo carriers have not been 

profitable. It must be admitted that the development of transporta-
12 GUARANTEED LOANS TO AIRLINES

tion of cargo by airc raft has been disappointing, especially in the 

terms of the predictions made for this industry in the early postwar 

period. While there has been a remarkable growth in ai r trans portation in the years since World War II, the vast market which is believed 

to exist for air cargo remains largely untapped. The all-cargo carriers have found it necessary to extend their operations to the m ilitary 

and passenger charter field in order to obtain additional revenues. 

Some have been forced to suspend their all-cargo services because of 

inability to sustain profitable operations.

The Board believes that the failue of the air tran spo rt industry to 

realize its potential in the movement of air cargo is attributable in 

part to the lack of modern specialized aircraft designed prim arily to 

carry cargo profitably and at low rates. The Board feels th at if the 

all-cargo carriers were able to acquire a fleet of modern, high-speed, 

low-cost, cargo aircraft, there would result a material contribution 

to the national defense and an invaluable benefit to the postal service 

and to the commerce of the United States. In order to make sure 

tha t the requirements of the national defense are met, the bill should 

contain a provision to the effect that loan guarantees for cargo aircra ft 

shall be made oidy for the purchase of turbine-powered a ircraft which 

would be made available to the Department of Defense in time of national emergency. With this qualification, the Board supports the 

amendment as proposed by Senator Smathers.

Tha t completes my statement, Mr. Chairman. With the permission of the committee, I would like to submit at this time three exhibits. 

One is a two-page exhibit contained on one sheet of paper, which 

shows the a ircr aft purchased by local service carriers with and without guaranteed loans since the inception of the loan program through 

April 30 of this year, exclusive of DC-3 aircraft.

The second is a five-page exhibit which provides historical data on 

the loan guarantee program, showing loans approved and aircra ft 

operated by eligible carriers.

The th ird is a three-page exhibit showing a schedule of guaranteed 

loans completed and approved, the dates, interest rates, and names of 

the lenders.
GUARANTEED LOANS TO AIRL INES 13

(The exhibits ref erred to are as follows:)

Aircr aft purchased by local service carriers wi th and witho ut guaranteed loans

since inception of loan guarantee program, through Apr. 30, 1962 (exclusive of

DC-8 aircra ft)

C arr ie r

P urc hase d w it h gu ara n te ed loa ns P u rc h ased w it h o u t g u ara n te ed 

lo ans

A ir cr af t

A m o u n t of 

lo an 1 A ir cra ft

C o st o f a ir ­

cra ft a n d 

en gin es 2

A lleg hen y_____________________________ 9 M -2 02 ’s $1,454 , 534

2,5 31 ,94 8

10,50 8, 517

2, 339,000 

601, 722

B o n an z a__________________ ________ _ 8 F-2 7’s ................... $5,449 , 500

8 CV-3 40 ’s...............

5 CV-5 40 ’s_______

3 F -2 7’s C e n tr a l_______________________ ____ _ 4 CV-2 40 ’s F ro n ti e r______ _ __________________ 7 C V-3 40 ’s . .......... 3,1 50,00 0

L ake C e n tr a l................... ............. ............... 5 C V-3 40 ’s 2,225, 684 

1,1 06, 019 

3,66 3,31 8 

581, 523 

2,0 57 ,00 8

M o h aw k ____ _________ ______ ________ 7 C V-2 40 ’s

N o rth C en tr al _______________________ 5 CV-3/440 ’s. . 2,3 40,00 0 

2,1 18,99 6 

4,5 31, 000 

469,000 

4,8 50,00 0

5 CV-4 40 ’s_______

9 M -4 04 ’s................

5 C V-3M 40’s

O za rk ____________ _______ ____________ 3 F -2 7’s ...............

P ac if ic ________________________________ 6 F-2 7’s _____ 5 M -4 04 ’s 1,0 15, 000

P ie d m o n t_____________________________

3 M -4 04 ’s________

8 F-2 7’s _________ 17 M -4 04 ’s 3,2 50,00 0 

650,809

1,1 99,60 5 

4,159, 520

S o u th ern ____________________________ 5 M-4 04 ’s

T ra n s-T e x as_________ _______ ___ ____ 8 CV-2 40 ’s

W est C o ast_________________________ . 7 F -2 7’s

S u m m ary _____ ____ ______ ___________ 25 F -2 7’s _________ 10 F -2 7’s

T o ta l, a ll a ir cra ft t ypes__________

12 C V-3/440 ’s ____ 23 CV -3 /440 ’s . . .

3 M -4 04 ’s________ 36 M -4 04 ’s...............

19 C V-2 40 ’s______

5 C V-5 40 ’s_______

9 M -2 02 ’s________

40______ _________ 22,90 8,4 96 102 37,34 4,2 07

1

 A ll lo ans w er e f or n o m ore t h a n 90 p erc en t of p u rc has e pri ce w h ic h i n clu d ed s pa re s. 

> D oe s n o t in clu d e a n v spare s o th e r th a n e ng in es .

84 82 8— 62 -----2
Loan fguarantee program, loans approved and aircraft operated by eligible carriers

Ca rri er

Sta tu s of loans as of M ar. 31,1962 Aircraft operated Dec. 31,1961

Lo ans

ap prov ed

A m ou nt 

dr aw n down

Ba lan ce

ou ts ta nd in g

Pu rcha se d with 

gu aran teed loan

Other

Ow ned

aircr aft

Lea sed

LOCAL SERVICE CARRIERS (13)

A ll eg h en y Airline s, In c_____________________________________ .. 8 D O -3 ’8..................

3 D C -3 ’s.

1 CV-340.

3 D C -3 ’s.2 D C -3 ’s.

Bo na nz a A ir Lines, In c.:

1st loa n____________________________________________ 6 F -2 7 ’s . . . _

15 M-202 ’s..............

8 CV-3/4 40’s...........6 C V-540’s..............

1 F-27...................... $4,324,500 

1,125,000

$4,325,500 

1,125,000

$3,244,651

1,003,511 2d lo an _________________________________________ 2 F-27’s...................

Su bt ot al ...............................................................................................................

Cen tra l Airline s, In c_______________________________________ 15 D C -3 ’s................ 5,449,500 6,449,500 4,248,162

Fr on tie r Airlin es, Inc.:

1st lo an .............................. ................................................................ . 5 CV-3 40’s..............

4 O V-24 0’s..............23 D C -3 ’s................ 2, 250,000 

900,000

2,250,000 

900,000

1,472,832 

770,400 2d l oa n____________________________________________ 2 C V-340’s..............

Subto ta l................... ........................... . .................................... ........................

La ke Cen tral A irli nes , In c________________________ _________ 20 D C -3 ’s................ 3,150,000 3,150,000 2,243,232

M oh aw k Airlines, I nc................................. ............................... . .............................

5 CV-340’s..............

7 D C -3 ’s..................

N orth Cen tral A irli nes , In c. 2________________________________ _____ _ 2,340,000

2,118,996

2,340,0002,118.996

0

1,631,439

5 CV -3/44 0’s_____

14 CV-240 ’s............

5 C V-44 0’s..............9 M -404’s________ 1 misce llan eou s L . 28 D C -3 ’s.............

Ozark Air Lines, In c................. ................................................................................. 3 F-27’2...................

5 C V-3/440’s_____ 21 D C -3 ’s. ..............

Pacific Air Lin es, Inc.:

1st lo an . ________ '4,531,000 

469,000

4,531,000 

469,000

3,258,850 

357,333

6 F-27 ’s................... 5 D C -3 ’S— ............

2d lo an 3 M -404’s ................ 2 M -202’s . . ............

Subto ta l________ ____ __________ ___________ ___________________

P ie d m o n t A ir li n e s, Tn e _____ . . . . . 8 F-27’s...................

5 M -404’s................

14 D C -3 ’s................ 5,000,000 4, 850,000 5,000,000 4,850,000 3,616,183 3,953,000

So uthe rn Airw ays, In c 26 D C-3 ’s...............Tr an s-Te xa s Airways, In c

5 M -404’s................

23 D C -3 ’s................

W es t Co ast Airli nes, Tn e

8 C V-24 0’s..............7 F-27 ’s...................

•

14 D C -3 ’S................
HAWAIIAN CARRIERS (2) Aloha Airlines, Inc.:

1st l oan............ . ............................................... ........................... 2,290,000 

2,200,000

2,290,000 

2,200,000 1,955,160 1,815,000 3 F -2 7 ’s 3 D C -? ’?

1 DC-4.

1 DC-6 A.

2 D C -6 B ’s.

2 L-7 49’s.

1 DC- 3.

2 C -46’s.

16 miscellaneous.

1

1 DC-3.

1 DC -6.

1 DC-6 B.

2d lo an ............................................ ........................... 3 E 27’s

Subto ta l_______________________ _____ . 4,490,000 4,490,000 3,770,160 H aw ai ia n Airlines, In c____ _________________ _________ f iD C 3 ’s

ALASKAN CARRIERS (12 ) Alask a A irli nes, In c............... ............................................

6 CV-34 0’s..............

1 D C-6 A.................

1 D C -4

Bris tol B ay A irlines *...................................... ..........................

1 D C -6 C .................

1 CV-880 .................

2 m isc ellaneous *..

Alask a Co astal Airlines , Inc.<................................................ 15 miscellan eou s L . 

2 D C 3 ’s Cordo va Airlines , I n c .. ................. ................... ............

El lis A ir Li nes, Inc.< ..........................................

1 C-46......................

9 misce llaneous 

1_ 8 mi sc ell an eo us

1__ 5 misce lla ne ou s

1__ K od ia k Airlines , In c........................................ M un z Airw ays, In c?______ ________ N or th er n Co nsolidate d Airlines , I n c ............... 3 F -2 7 ’s

Pa cif ic N or th er n Airlines, In c........................... 4, 231,123 3,826,636 3,826,636 1 B 720 5 10 m isc ellaneous >. fi T— 74Q’«

Reeve A leut ia n Ai rw ay s, In c........... ......... 3 D C-3 ’s.................. 2 D C 3 ’s

W estern Alas ka Airlin es, In c....................................

2 C -46’s...................

2 D C -i’s.......... .

2 misc ellaneous > ... 

9 miscellan eous >... i n o 3 W ien Al aska A irli nes, In c............................ 1,305,270 1,305, 270 951, 298 2 P -2 7 ’s

CARIRREAN AREA AND FLORIDA TO RRITISH WEST INDIES (2)

Car ib be an A tlan tic Airli nes, In c...................................

3 C-4 6’s_________ 6 misc ellane ous 

1__ 7 D C 3 ’s M ac ke y Airlines, In c___ _____________________ 2 D C 3’s

METROPOLITAN HELICOPTER SERVICES (3)

Ch icago H el ic op ter Airw ay s, In c................................................................

3 D C -4 ’s..................

7 8 5RC’s

Los An geles A irw ay s, In c................................................................................. 2,891,637

1,000,000

3, 200,000

1,498,876

1,000,000

1, 469,376

245,613

4 S -fil L ’s • 5 8 fifi’s New Y or k Airw ay s, In c.: 1st lo a n .................................................................................................................... 5 V -4 4 B ’s 1 B-4 7T 2d lo a n .. .................................................................................................................. 4 V 107’s 1

S ubto ta l......................... ..................................................................................... 4,200,000 1,000,000 245, 613

GUARANTEED LOANS TO AIRLINES

See footnotes at end of table.

tn
Loan guarantee program , loans approved and aircraft operated by eligible ca> riers— Co ntinued

SU MM AR Y

Carrier

Sta tus of loans as of Mar. 31, 1962 Aircraft operated Dec. 31, 1961

Loans

appr oved

Amoun t

drawn

down

Balance outstan ding

Purchased 

with guaran­ teed loan

Other aircraft

Owned Leased

3 __________________________________________ ________ 230

6

17

19

26

29

5

11

6

2

5

1

10

2 C-46 - _________________________ ______________________________ 202 ________________________________________________ _____ [ 404 ______________________________________ 3

GV 240 ____________________________ P V *1/440 ____________________________________________________________ 12 1

CV 540 ___________________________________ ___ _ _ __ j? 27 - ________________ ___ _____ ___ ________________ 33 PC 4 _ ------------------ ------------------------------------------------------- 1

5

2 L 749 ________________________________________ _____— --

CV 880 - - ________________________________________ 720 _ ______ ____________ _-- - - - - - - - - - - - - - - - ---_ 1 ,q .55 _ _________________________________________ ____ 5

7

1 S 58C _____________ _________ _____ ______ _______________ B-47J _________________________ ___________________________ V 44H _ _____________________________________ ___________ 5

4

4 S 61L _______ -____________ -_____ -_____________ ___ _____ V 107 ............................................................. ...................................

Miscellnn onus 1 ______________________________________________ 67 16

Total _______ _____-____ ___ ____________________________ 40,026,526 35,029, 278 25, 955,099 62 437 37

1 All aircraft smaller th an DC-3. 

s This loan was repaid on Ma r. 20,1962. 3 Bristol Bay a nd Mu nz are no longer operating und er certificate authorizations. « Alaska Coastal and Ellis were merged on Apr. 1, 1962. « Aircraft delivered to Pacific Northern on Mar. 23, 1962. Aircra ft placed in service Apr. 27,1962. PN A has purchased a 2d B-720 with out a gua ranteed loan which was also placed in service Apr. 27, 1962.

6 2 S-61L’s placed in service Mar. 1,1962; 2 more yet to be delivered. The S-61 L’s will replace the S-55’s.

7 1st aircraft deliv ery due Apr. 30,1962, rem ainder in calendar year 1962. 1st loan to be repaid before drawd own on 2d loan The V-107’s will replace the V-44B’s.

Note.—The following aircraft were purchased witho ut guaranteed loans since Dec. 31, 1961, and have come to our attention : Bonanza, 2 F-27’s: Piedm ont, 14 M-404’s.

GUARANTEED LOANS TO AIRL INES
Civil Aeronautics Board schedule of guaranteed loans

COM PL ET ED AND AP PR OV ED

Carrier

Am oun t of 

equ ipm ent purchased

Am oun t 

of loan

Amount 

guaran­ teed 

1

Interest

rate

Du ration of 

loan Equip me nt

Date

docketed Date guarantee agreem ent executed

New York Airw ays. $2,053,342 $1,000,000 $900,000

Percent

5. 25

Years

5 5 V-44B.......... Apr. 22,1958 Ma y 15,1958 Helicopters.

Bonanza _____ 4, 805,003

5, 732,636

4, 324, 500

4, 850,000

3,892,050 5.50 10 6 F-27’s........... Feb. 3.1958 Jun e 19,1958

Pie dm ont_________ 4,36.5,000 5.50 10 8 F-27’8........... Apr. 14,1958 Oct. 6,195SPacific.......................

No rth Ce ntr al_____

5,145, 565 2,600,000

2,545,000

1,450,300

2,500,0002,354,440

620,000 

2, 450,153

1, 605,637 1,000,000

4,531,000 2,340,000

2,290,000

1,305,270

2,250,0002,118,996

469,000 2,200,000

1,125,000 900,000

4,077,900 2,106,000

2,061,000

1,174,743

2,025,000

5.25 5.50

10 6 F-27’s...........

5 CV-340’s_._. Aug. Dec. 27,1958 3,1958 Dec. 1,1958 Jan . 9,1959

Aloha __________ 5.55 10 3 F-27’s......... . Jan. 8,1959 Ma r. 31,1959

W ien-Al aska _____ 6.00 10 2 F-27’s_____ Mar. 27,1959 May 19,1959Fr on tie r___ ______ 5.50 7 5 CV-34O’s___ Ma y 25,1959 July 22,1959Ozark ________ 1,907,096

422,100 1,980,000

1,012,500 810,000

5.50 10 3 F-27’s_____ May 5,1959 Aug. 14,1959

Pacific (2d loan)----- Aloha (2d loa n)........

Bonanza (2d loan). . Fro ntier (2d lo an )...

6.006.00

7

10

3 M-404’s........

3 F-27’s_____

Dec.Dec.

3,1959 11,1959 Ma y 9,1960 Ma y 24,1960

6.00 10 2 F-27’s_____ June 2,1960 Oct. 3,1960 5.50 7 2 CV-340’s .. . . Mar. 10,1961 Ma y 17,1961

Pacific N ort her n.... 4, 701,248

3,212,9303,800.000

4,231,123

2,891, 6373,200,000

3,808,0112,602, 473

5.50 10 1 B-720-.......... Apr.

Sept.

28,1961 Nov. 7,1961

5.50 10 4 S-61_______ 12,1960 Nov. 22,1961

New York (2d loan) . 2,880,000 5.34 7 Helicopters. 4 V-107______ May 6,1960 Mar. 30,1962 Helicopters.

46,576,254 40,026,526 36,023,873

Lender

Manufactur ers Hano ver Tr us t Co., the United States Tr us t Co. of New York, and Federation Bank & Tr us t Co.Fir st N ational B ank of Neva da, Fir st Western Bank A Tr us t Co., Walker Bank & Tr us t Co., and First National Bank of Arizona.

Prudential Insurance Co. of America, the Bank of New 

York, the United States Life In surance Co. in the Cit y of New York, and the Gulf Life In surance Co. Bank of America National Tr ust & Savings Association. Nor thwestern Nationa l Bank of Minneapolis and Irvi ng Tr us t Co. Con tinental Assurance Co., and the United Stales Life Insurance Co. in the c ity of New York. The Bank of New York, and Teachers Insurance & Annui ty Association of America. The Cen tral B ank & T rust Co., Irving Tr us t Co., and Bank of America Nationa l Tr us t & Savings Asso­ ciation.

The Cit y N ational Ban k & T rust of Kansas City, Mo. (participating with Mercantile Trust Co., of St. Louis, Mo.). Ban k of America National T rus t & Savings Association. Teachers Insuran ce & Annuity Association of America, Continental Assurance Co., and Kansas City Life Insurance Co.

Girard Tr ust Corn Exchange B ank. The Central B ank & T rust Co., Irving T rust Co., and Bank of America Nationa l Tr us t & Savings Asso­ ciation.

Ban k of America Nationa l Tr us t & Savings Associa­ tion.

Do.

Man ufacturers Hano ver Tr ust Co., the United States Tr us t Co. of New York, a nd Emp ire Tr us t Co.

See footnote at end of table.
00

Civil Aeronautic s Board schedule of guaranteed loans— Co ntinued

Ca rri er

Ch icago..............

Oz ark (2d loan) M ac ke y______

T ota l___

A PPL IC A T IO N S IN PR O C ESS

A m ou nt of 

eq ui pm en t purcha sed

A m ou nt 

of loa n

A m ou nt 

gu aran ­

te ed 

1

In te re st

rate

D ura ­

tio n of 

loa n E qu ip m en t

Dat e

dockete d

D at e guaran tee 

ag reem en t 

execute d

Le nd er

$3,250,000

1,265,000 

920,000

$2,925,000

1,125,000 

820,000

$2, 632, 500

1,012,500 

738,000

Percent

6.00

5.50

5. 7126

Years

10

7

4 S -6 1 .. ........... Aug . 15,1960

Dec. 13,1961 

Ja n. 24,1962

Harris T ru st & S aving s Ban k, th e Fi rs t Nationa l C ity B an k of New Y ork , Con tin en tal Assurance Co., an d C ou ntry Life Insu ranc e Co. B an k of St. Louis.

Fi rs t Nationa l Ban k, in Fo rt La ud erda le, an d Fir st Nationa l B an k of N ew Y ork .

Heli copte rs.

4 CV-240’s___

2 D C -6 ’s ..........

5,435,000 4,870,000 4,383,000

i Amou nt g ua rantee d is 90 pe rcen t of lo an in all cases.

GUARANTEED LOANS TO AIRLINE S
GUARANTEED LOANS TO AIRLINES 19

Mr. Williams. Than k you, Mr. Chairman.

Mr. Jarm an, do you have any questions ?

Mr. J arman. Yes.

Mr. Chairman, with reference to the all-cargo carriers, have they at 

any time applied for subsidy support in their operations?

Mr. Boyd. One of them has, Mr. Jarm an, has applied specifically. 

Another one, as I recollect, has indicated tha t whether it would reinstitute and continue its scheduled operations would very possible depend upon whether or not subsidy was available.

Mr. J arman. Approximately when was the decision made by the 

CAB as to that subsidy request ?

Mr. Boyd. The decision was issued May 4, 1962, which was last 

Friday.

Mr. J arman. Was the subsidy request granted or denied ?

Mr. Boyd. No, sir, denied.

Mr. J arman. In your own statement, you make reference to the 

fact tha t the operations of the all-cargo carriers have not been profitable.

Mr. Boyd. That is right.

Mr. J arman. I would like to have a furt her comment from you, Mr. 

Chairman, on forseeing what the possibilities might be if the allcargo carriers are included under this Government guarantee bill. 

If the operations of the all-cargo carriers continue to be unprofitable 

to the point tha t they cannot service the loans, tha t they cannot make 

their payments on the loans guaranteed by the Government, would not 

every pressure be exerted by these carriers to obtain access to other 

sources of traffic to protect their loans ?

The only other real source of traffic, it seems to me, would be in the 

passenger field, and thus, through the device of the guaranteed loans, 

would not the cargo carriers eventually try to emerge as passenger 

carriers in an already overcrowded passenger field ?

Mr. Boyd. If one accepts the assumption tha t the cargo carriers 

would not be able to make a go of it, then I think tha t your conclusion 

is absolutely correct, tha t they would try to get into the passenger 

field. However, I should say tha t this would be nothing new, they 

have been trying to in one way or another get into the passenger field 

since the word “go”. This is one of the many incessant pressures the 

Board has to face and I say this without any sense of criticism. These 

people are trying to make a living and they have every right to push 

just as hard as they legally can to improve their position. However, 

the Board has taken a very firm stand to the effect that we will not 

permit cargo carriers into the combination field.

And I would like to point out also, Mr. Jarman, that the only 

source—your statement tha t probably the only source of revenues 

would be from the passenger field does not really take into consideration the tremendous amount of military business being done by the 

cargo carriers, which we at the Board have encouraged to the greatest 

extent, and I think w ith considerable success, certainly with the recent 

cooperation of the m ilitary services. This, I thin k, would be—will be 

a continuing source of revenues fo r the all-cargo carriers, and rig htfully so.

Mr. J arman. How many all-cargo carriers are there?

Mr. Boyd. Four.
20 GUARANTEED LOANS TO AIRLINES

Mr. J arman. Are all of them experiencing the financial problems 

that you refer to in your statement ?

Air. Boyd. Yes, sir.

Mr. J arman. Are all four of the carriers scheduled carriers ?

Mr. Boyd. Yes, sir. Three of them are domestic carriers and one 

intern ation al—Seaboard World Airlines is our international all-cargo 

carrier operating across the Atlantic. Riddle is the North-South carrier; Flying Tiger and Slick are the East-West transcontinental 

carriers.

Mr. J arman. Would you enlarge a little on your statement tha t if 

all-cargo carriers are included under this bill, it should be limited to 

the purchase of turbine-powered a ircraft ?

Mr. Boyd. Yes, sir, one of the considerations leading to the Board’s 

judgment on this matter is the military requirement for modern allcargo equipment to be utilized in the event of a national emergency, 

or even in times of lesser strain than national emergency, the military 

has a requirement for long-haul turbine-powered a irc ra ft; not because 

it is turbine-powered per se but because of what tha t permits the size 

and shape and range of the aircra ft to be.

Air. J arman. Thank you, Air. Chairman.

Air. Williams. Air. Springer?

Air. Springer. Air. Chairman, has the CAB, either under your 

jurisdiction or previous jurisdictions made any examination of why 

the all-cargo has not caught on more ?

Air. Boyd. I don't believe we could say we have made any exhaustive 

investigation, Air. Springer. The aviation world is rife with opinions 

as to why air cargo has not yet caught on. There does appear to be a 

consensus that one of the reasons it has not caught on is th at the right 

vehicle has not yet come into being.

Air. Springer. You mean for carrying it ?

Air. Boyd. For carrying it, for carryin g the cargo and having at the 

same time an integrated loading system. One of the things tha t has 

been of tremendous expense has been the ground handling cost of 

cargo, getting it off and on an airplane. A great deal of development work has been done in constructing integrated loading systems 

and we thin k tha t considerable progress has been made in tha t area, 

which should tend to cut down ground costs considerably.

Also, the turbine engine does provide for a lower operating cost on 

a unit basis than the piston engine. This is true whether it be passenger movement or cargo movement, and this, of course, can be 

related to the tariffs.

Air. Springer. Are you ta lking now in terms of the turbojet prop?

Air. Boyd. Well, at this stage of the game, we are thinkin g in terms 

of the pure turbine. The turbo prop is a cheaper engine to operate 

than the piston engine, however.

Air. Springer. And you think tha t the only economical way is by 

jet?

Air. B oyd. Well, I do not want to make any categorical statement 

like that. I think that a jet operation offers a greater potential for 

economic operation. This is a rather difficult area to discuss in these 

terms, because there is some effort being made at the present time to 

utilize more or less fully depreciated piston equipment for cargo 

movement, which does not give effect to—for lack of a better word,
GUARANTEED LOANS TO AIRL INES 21

tlie real cost of operating a service, when you take a fully depreciated 

piece of equipment, and this gives us some concern, because we feel 

that the rates to be charged for the movement of cargo should be 

based on costs tha t will stand up. They cannot operate obsolete 

piston equipment forever.

Mr. Springer. Then I take it, to reduce this to the irreducible, the 

two points you have made are tha t this probably is going to be profitable only over a long period of time and that it will also service the 

public by turbine ?

Mr. Boyd. Yes, sir.

Mr. Springer. The second is that the loading facilities and the cost 

of so doing have not caught up with the business?

Mr. Boyd. That is right, sir.

Mr. Springer. Are th ere any other factors ?

Mr. Boyd. Yes; I think that another factor th at is rather significant, 

and this is personal opinion, I must say, is th at the air cargo operators 

need to do a great deal more study and research on what are the 

distribution flows in this country and where air cargo can provide a 

more advantageous service than the present distribution systems. To 

me, this is a highly important and a very significant matter.

Air. Springer. Would you feel that it would fall under your body 

to make such a survey, or would it fall to the industry ?

Air. Boyd. Well, I think this would be an industry requirement. 

AAre try to stay out of the business operations. It is difficult to know 

from a philosophical point of view where the Board should come into 

something like this, because I thin k very possibly, the requirements 

for a thorough examination of this whole distribution system may 

cost a great deal more tha n the cargo carriers, either individually or 

collectively, can scrape up. Now, whether there is enough public 

interest in havin g this information fo r the government to do it through 

the aegis of the Board, I do not know, but I can say tha t currently, 

we have no plans nor any funds to undertake such a study.

Mr. Springer. I take it, overall, then, your impression, as I gather 

from all the testimony you have given thus far, plus your statement, 

is tha t the futu re for air cargo at this point is not very promising? 

I will p ut it that expansion of all-cargo is not very promising?

Air. Boyd. No; I do not mean to give that impression.

Air. Springer. Actually, there was quite a jump in aircargo last 

year, contrary to what th e history was in the passenger field.

Mr. Springer. Now, what was the reason for th at ?

Air. Boyd. One of the reasons was undoubtedly that some of the 

carriers got new equipment, specifically the CL-44, a Canadian air ­

craft. It is a so-called uncompromised cargo plane.

Mr. Springer. I s this piston operated ?

Air. Boyd. It is a turboprop. Actually, it is a version of the B rittania passenger plane tha t the British developed several years ago. 

This is a more efficient operator, we think, th an any other plane in the 

cargo fleet at the present time.

Another factor was that—again, this is personal opinion—because 

the combination carriers, what we normally call the trunklines, all 

have cargo authority ; because they had a number of pieces of piston 

equipment for which they had no market, they converted them into 

cargo operation and devoted more time and effort to the movement of 

cargo than they had done in the past.
22 GUARANTEED LOANS TO AIRLINES

Mr. Springer. Did you say these are the re gular scheduled airlines?

Mr. Boyd. Yes, sir.

Mr. Springer. Now, let me come to another point.

Let me stay on th at point for just a second. Was the increase last 

year in the carrying of cargo in the all-cargo field, or was this increase 

in the scheduled airlines increase of carry ing cargo?

Mr. Boyd. It was in both.

Mr. Springer. Both ?

Mr. Boyd. Yes, sir.

Mr. Springer. How did they compare with the percentage of rising 

cargo business.

Mr. Boyd. I do not have those figures in my mind.

I will be glad to submit them for you if I may.

Mr. Springer. Do you have an impression at this time to give to 

the committee ?

Mr. Boyd. No, sir; I do not. The only figure I can recall now is 

tha t the cargo over the North Atlantic was up 25 percent last year.

Mr. Springer. But you are not sure who carried it ?

Mr. Boyd. No—all of the carriers carried it. Now, the combinations carriers, in addition to their conversions, also carried a great 

deal of cargo in their passenger aircraft.

Mr. Springer. Now, when you come to an all-cargo certificate, th at 

means tha t they cannot carry passengers ?

Mr. Boyd. Tha t is correct.

Mr. Springer. They are not permitted.

Is Flying Tiger certificated by you ?

Mr. Boyd. Yes, sir.

Mr. Springer. They can carry personnel, but they cannot carry 

regular schedule; is tha t it ?

Mr. Boyd. I think I should explain this to you rather fully. None 

of the all-cargo carriers has certificate authority to move passengers. 

However, in an effort to bolster the financial condition of the cargo 

carriers to enable them to develop a common carriage operation of 

cargo, we have permitted, throu gh the exemption process, the allcargo carriers to engage in passenger charters, prim arily in the tran satlantic area, in addition to which the Board has authorized the carriers to operate under contract to the military for whatever the military wanted to move aboard th eir aircraft. In some cases it has been 

passengers, in some cases cargo.

The cargo carriers move primarily cargo f or the military, but they 

do also carry some personnel. I do not know w hat the relative p ercentage is.

Mr. Springer. Now, what is your large cargo carrier on the North 

Atlantic ?

Mr. B oyd. Seaboard World Airlines.

Mr. Springer. Now, what percentage of business last year was carried by th at line in passengers and how much in cargo?

Mr. B oyd. I do not have any idea. Wh at percentage do you want 

to relate t hat to, Mr. Springer?

Mr. Springer. I want to relate tha t to their total carriage in terms 

of dollars.

Mr. Boyd. May I provide th at for you ?
GUARANTEED LOANS TO AIRLINES 23

Mr. Springer. Can any of your experts give tha t to us now? It 

would be more helpful to have it now.

Mr. Boyd. You understand they carry no individually ticketed 

traffic ?

Mr. Springer. Yes, I understand that.

Mr. Boyd. You want to know how many total passengers—the revenue they derive from passengers ?

Mr. Springer. From each source.

Mr. Boyd. Do you want a breakdown between military and civilian ?

Mr. Springer. Ju st how much they carried in passengers and how 

much they carried in cargo.

Mr. J arman. Would the gentleman yield?

Mr. Springer. Yes, sir.

Mr. J arman. It has been my understanding, Mr. Chairman, that 

Seaboard is currently applying for the right to carry passengers on 

a top-off basis. Could you explain what is meant by that?

Mr. Boyd. Yes, sir. Seaboard is a cargo carrier. The CL-44 tha t 

I referred to a few moments ago has a loading system which has as an 

integral pa rt pallets which go on rollers, are placed in the plane on 

rollers, and are then anchored. My recollection is tha t the CL-44 has 

space for 10 of these pallets, each one of which is stressed to carry 

6,500 pounds. The concept of Seaboard in seeking this so-called topoff traffic, as I understand it, is th at they would have several pallets 

available, with seats, and when they are ready to load a plane out, i f 

the cargo they have available takes up, say, eight pallets, they would 

like then to sell the remaining space to anybody who wants to be tran sported and is willing to stand around to find out if there is going to 

be any space a t a ra te which would be equivalent to the average yield 

that Seaboard derives from cargo on the basis of a 6,500 pallet. This 

is the top-off concept.

Mr. J arman. How recent a request is that to the Board? Ju st roughly ?

Mr. Boyd. My recollection is tha t they first filed this request approximately a year and a half ago.

Air. Springer. Has any action been taken on that ?

Mr. Boyd. Let me refresh my memory. I think we turned them 

down once on it. But they are an optimistic group.

Th at is correct; we turned them down once and it was subsequently 

placed into—as an issue in a case which we are now undertaking, 

Transatlantic Renewal case.

Mr. J arman. Would the gentleman yield further ?

Air. Springer. Ju st one further question.

Their Transatlantic Renewal case or somebody else’s ?

Mr. Boyd. This involves the renewal of everybody who operates 

certificated over the Atlantic.

Mr. Springer. Fo r passenger and cargo?

Mr. B oyd. Yes, sir.

Air. S pringer. I yield.

Mr. J arman. As I understand, then, if they were granted the right 

to carry on this so-called top-off basis, then actually they would be 

carrying the 6, 8, or 10 passengers who might stand by to see if accommodations were available—they would be carrying them on an 

individually ticketed basis?
24 GUARANTEED LOANS TO AIRLINES

Air. Boyd. That is corre ct.

Mr. J arman. Ra ther tha n on a ch arter ed basis?

Mr. Boyd. Tha t is corre ct.

Mr. J arman. My un de rst an ding of the rate th at is suggested 

would be based upo n the revenue th at the ca rrier would receive fro m 

cargo in the sam e am ount of space ?

Air. Boyd. Tha t is rig ht , sir. Th ere is some so rt of an equiv ale nt 

the re.

Air. Springer. Und er t hi s tic ke tin g arrangem ent, they could s olicit 

either type of space if th ey so saw fit ?

Air. Boyd. Tha t is wh at they sou ght, yes, si r; an d I would assum e 

th at would be true i f th e B oard were to a pprov e th is.

Air. Springer. Ap prox im ately h ow man y flig hts pe r week does t hi s 

line engage in across th e N orth A tla ntic?

Air. Boyd. Sch edu led flights?

Air. Springer. Rough ly.

Air. B oyd. Ten rou nd tr ip s a week.

Air. Springer. Do you hav e any arrang em en t fo r tic ke tin g on any 

cargo a irl ine now?

Air. Boyd. No, si r; nev er have.

Air. Springer. Tha t is all, Air. C hairm an.

Air. William s. Air. Friede l?

Air. F riedel. Air. Boy d, I wan t to apologize fo r being late .

Off the record.

(Discussion off th e record.)

Air. F riedel. Air. Boy d, I missed quite a few questio ns. I would 

lik e to know wheth er, if this leg islation is passed, it would give the 

cargo ca rri ers cre dit ad va nta ge not enjoyed by th ei r nonsu bsidized 

comp etitors th at ca rry both pas sen ger s an d ca rgo.

Air. Boyd. A cre dit advanta ge.

Mr. F riedel. Yes.

Mr. Boyd. I do no t rea lly know how to answer th at , Air. Fried el. 

One of the things th at is of some interest to me is the fact th at the 

tru nk lin es, th e com binatio n carriers, th ro ug h th ei r own resources, 

have not only been able to finance t he purchase o f sufficient equip me nt 

to op era te th ei r rou tes, hu t they seem to have pu rch ased a gr ea t deal 

more th an th ey need. I wou ld say in an ab str ac t sense, if I c an ge t a 

gu aran tee to b orrow m oney a nd you do no t find y ou rse lf in a p osition 

to g et a gu ara nte e, the n at lea st in theo ry I have an advanta ge. But 

I th in k you hav e to look to wha t t he s itu ati on is at the tim e the guar ­

antee is granted . In t hi s rea l w’orld, if you look at the financial conditio n of the cargo carriers, I wou ld say th at rea lis tic ally they pr ob ­

ably are no t ge tting any ad va ntag e in the sense th at th e tr unk ca rrie rs are able to finance, hav e been ab le to finance, a nd it is questio nab le 

wh eth er the cargo c arrie rs could at all, w ith ou t some so rt o f as sista nce. 

I c annot say th at th ey c annot.

Air. F riedel. Th e pu rpose of my questio n was th is : I un de rst an d 

th an 10 y ears ago, whe n th ey p asse d a law f or the a ll-cargo op era tor s, 

it was sta ted th at the y would no t req uir e any sub sidy. Now, these 

all-ca rgo carriers th at are sup posed to ca rry all car go will be able, 

if we pas s th is bil l, to finance up to 90 perce nt, and th e regu larly 

scheduled ai r carriers do no t come un de r th is b ill. To my th inki ng ,
GUARANTEED LOANS TO AIRLINES 25

the all-cargo carriers would have an advantage, if they could be 90 

percent financed, and tha t to me is getting around to a subsidy.

Mr. Boyd. Of course, this is the type of thin g you gentlemen have 

to resolve. So much of this is a m atter of degree, and the question is, 

where do you draw the line, or should there be any line drawn?

Mr. Fiuedel. In the earlier bill there is no provision that this be 

1 united to all-cargo carriers; is tha t correct?

Mr. Boyd. There was none provided. Are you talking about the 

1957 bill?

Mr. F riedel. All-cargo carriers received their original certification 

10 years ago on the basis that all-cargo carriers would not require 

subsidy.

Mr. Boyd. That is correct, and they have not received subsidy, 

although, as I stated, I believe before you arrived, in a recent domestic 

all-cargo case, in which a decision was rendered by the Board last 

Friday , application was made for subsidy by the carriers—by some 

of them. I think they were perfectly within their rig hts to seek them.

Mr. Friedel. Getting it is another thing ?

Mr. Boyd. Yes, sir.

Mr. Friedel. Would this bill be limited to all-cargo carriers, or 

could the trunklines come under the bill ?

Mr. Boyd. Well, there again, this is—my discussion has been limited to an amendment to the companion bill of the House bill we 

are discussing this morning, introduced by Senator Smathers, in which 

he limited this by the amendment to all-cargo carriers.

Mr. W illiams. Mr. Chairman, do you have the text of that amendment available?

Mr. Boyd. Yes, sir; I believe I do.

In the enacting clause the Smathers amendment would provide the 

addition of the words “scheduled all-cargo and’’, which would follow 

the word “of” and precede the word “local”, so that the enacting 

clause would read, in pa rt :

In the inte rests of the commerce of the United States, the postal service and 

the national defense, to promote the development of “scheduled all-cargo and” 

local feeder and short-haul a ir transp ortation.

It would also insert in section 3 a new lettered phrase, which would 

be titled “ (g )” following the present “ (f )” which now reads: “ (f) 

for the purpose of authorizing metropolitan helicopter service”. Then 

there would be a semicolon, and “or (g) for scheduled all-cargo 

service.”

Mr. J arman. Would the gentleman yield ?

Mr. Friedel. Yes.

Mr. J arman. Mr. Chairman, if the legislation is extended to allcargo carriers, should it not in all fairness be extended to any c arrier 

tha t carries cargo ?

Mr. Boyd. Mr. Jarm an, the only thing I can say there is that I 

have no position from the Civil Aeronautics Board on this subject. 

It has not been discussed by the Board and I would prefer to submit 

a statement later on tha t, because I do not feel qualified to speak for 

the Board in this matter.

Mr. J arman. You will submit a statement later ?

Mr. Boyd. Yes, sir.

Mr. J arman. Thank you.
26 GUARANTEED LOANS TO AIRLINE S

Mr. Friedel. Has the Budget Bureau approved this proposed 

amendment ?

Mr. Boyd. No, sir.

Mr. Macdonald. I just have a very few questions.

I do not think they are perhaps directly to the point, but they are 

relevant enough, I think, not to be ruled out.

Mr. Chairman, it is a pleasure to see you up here again. Actually, 

the Smathers amendment is new to many of us, but I thin k if the 

airline industry is in as bad shape as they say they are, I am sure 

that the so-called local lines must be in bad shape, too.

I do have a question of what is a local line. Northeast, as a concrete example, which serves my part of the country, is in pretty bad 

shape. They want to drop all local service, or as many people in 

New Engla nd think of it as local service—in favor of the long haul. 

Would you call Northeast a local service or a trunkline?

Mr. B oyd. We call Northeast a trunkline, Mr. Macdonald. Northeast has a substantial local service operation, but it is a trunkline. 

Of course, most, if not all of the trunk carriers have local service 

operations.

Mr. Macdonald. That brings me to the crux of my question. If 

local service were to be helped, how do you differentiate when Northeast, a concrete example, is being trunkline and when it is being local 

service?

Mr. Boyd. We do not make distinctions within a company.

Mr. Macdonald. I suppose United has some local service, has it 

not?

Mr. Boyd. Yes, sir.

Mr. Macdonald. Then it has also trunkline runs ?

Mr. Boyd. Yes, sir.

Mr. Macdonald. Then the carriers cargo as well ?

Mr. Boyd. Yes, sir.

Mr. Macdonald. How can you differentiate when it should be 

helped and when it should not be helped under the terms of this bill?

Mr. Boyd. Well, under the terms of the bill, the limitation is expressed in terms of certificate authority, and the Board has issued 

certificates to air carriers operating prim arily short-haul routes, in 

which the certificate itself identifies the carrier as being a local or 

feeder operation. This has been, along with other things—the intr aAlaska, States-Alaska, Intra-Hawaii, and so forth, specified in the 

bill itself, which has been tied into the certificate autho rity issued by 

the Board. These are the standards, the definitions. So it is a matter 

of what you might call arbitra ry definition. But it is a standard ; 

it is one tha t everybody can see and everybody understands.

Mr. Macdonald. Well, one of the things I have been concerned 

with and still am, and will look a t this bill in the ligh t of it, is th at 

most everybody has been crying about the poor shape of the airlines 

and trying to help them. We all have voted for many bills th at have 

tried to help the airlines. But I was wondering if, during this pinch 

on the airlines, the passengers were not getting a rather rough shake.

Fo r a concrete example, I know th at just recently—I think it was 

May 1—your Board put out a regulation saying that if I had a flat 

tire on the way to the airp ort and could not make the plane, tha t I 

would be subject to a fine up to 50 percent of however far I was
GUARANTEED LOANS TO AIRL INES 27

f

oing. Yet on the other hand, it has happened, I am sure, to everyody in the room—you can call up an airline and say is a flight X YZ 

going at a certain time and they will assure you it is. You go to 

the airport, wait an hour, 2 hours, sometimes; they will just have to 

tell you that it is tied up in Iowa City, but it is due in Washington 

at 4:15. About 2 hours later, they will put a sign up, “Flig ht 

canceled.”

Do you think t ha t is f air for the airlines to be not subjected to some 

sort of penalty when the passengers are on the basis of the contract 

into which both sides have entered ?

Mr. Boyd. I am a fraid tha t you may have misconceived, Mr. Macdonald, exactly what the Board did.

Mr. Macdonald. I would like to hear what they did.

Mr. Boyd. To answer you specifically, I thin k our action was 

eminently fair.

Mr. Macdonald. Let’s pu t it this wa y: Am I wrong in saying that 

a passenger who does not make a plane is subject to fine ?

Mr. Boyd. That is correct. That is not the whole story, however. 

Mr. Macdonald. Am I also inaccurate in saying tha t a plane tha t 

does not take off, even though it had 50 passengers waiting for it, with 

a ticket contract, and these 50 passengers have been assured that the 

plane is going to go, tha t th at airline is not subject to any action from 

the 50 passengers ?

Mr. Boyd. I cannot give you a precise answer.

Mr. Macdonald. Can you answer that and then explain it ? If I am 

inaccurate, I would like to know.

Mr. Boyd. Yes and no.

Mr. Macdonald. Yes and no?

Mr. B oyd. If you would let me explain, sir, I would be glad to.

Mr. Macdonald. Yes, sir.

Mr. Boyd. The proposal which the Board approved to be effective 

May 1 does not penalize the airline if its flights are late or canceled 

based on matters over which it has no control, nor could it foreseeably 

anticipate. If it is a matter over which the airlines does have control, then the airline is penalized to the same extent that the passenger 

is penalized if he does not show up for a flight.

Now, I would like to point out two things, if I may, before completin g my answer. One is th at you are absolutely r igh t in your first 

statement about the passenger being penalized. But after all, in th is 

business as in any other, you have got to assume that a rule of reason 

will be applied.

Mr. Macdonald. That is quite an assumption in the airline business, I will say that.

Mr. Boyd. It may be; but you have to have faith somewhere along 

the line. The second point relates directly to this. This is a 6- 

month experiment. We do not make any statement that this is a 

fine, a great th ing. We think it is beneficial to the public and to the 

airline.

Mr. Macdonald. How does the public benefit ?

Mr. Boyd. How does the public benefit? Because if they get a

reservation, they get a seat. If they do not get a seat-----

Mr. Macdonald. Th at is the whole point. I have a reservation, I 

have a seat, but I do not have a plane. They just pu t a sign up,
28 GUARANTEED LOANS TO AIRLINES

“Plan e canceled.’’ “Plane 3 hours delayed.” I am not now talking 

about weather or safety measures, because obviously the airlines have 

no control over either of those.

Mr. Boyd. These are the only two items I can think of offhand.

Mr. Macdonald. You use the word “foreseeable.” Would you not 

think it is foreseeable if the airline gets pinched for an airplane to 

have another aircraft in the vicinity, when the aircra ft from overuse 

is laid up for “mechanical difficulty,” which, goodness knows, covers 

a multitude of sins?

Mr. Boyd. I thin k your point is that the airlines have the advantage tha t they can take advantage of the public if they want to, by just 

writing “Mechanical delay.”

Mr. Macdonald. If you will yield, I would go further to say more 

than they may do this, I would say that they do it. Because certain 

lines tha t I can name you and I would like to have a repo rt from you 

sometime about the ontime performance of our domestic airlines, and 

I think you would find that they are very poor indeed, although Ai rline Daily, and other trade papers, may say they are very good. What 

do you think the chances are i f you had a ticket for any destination in 

the United States, leaving from Washington today, tha t that plane 

would go out on time ? Wh at is your estimate, as both a flyer, a passenger, and a man who is experienced in this field, th at the plane will 

go out on time?

Mr. Boyd. I do quite a bit of flying and if you will perm it me to 

include the flights out of that very fine airport near Baltimore at 

Friendship, and pa rt of this is because my experience is based between 

Washington and Friendship, and I find i t very har d to distinguish in 

my mind where I departed from when, I would say in the last year my 

experience has been that about 80 percent of the flights I have departed 

on have been on time.

Mr. Macdonald. About 80 percent ?

Mr. Boyd. Yes, sir.

Air. Macdonald. On the reverse side, tha t is 20 percent tha t does 

not go out on time.

Mr. Boyd. Yes, sir.

Mr. Macdonald. If you are inconvenienced, if you are one of the 

20 percent and you get no explanation from the airline, do you not 

think you should have some recourse or redress from the airline if, 

through no fault of your own, you get a flat tire on the way to the 

airport, or bad traffic, you don’t make that flight and you have a 

business engagement which means money to you, or a speaking engagement, which may mean votes for you, whichever way you want to 

look at it, it is something of value to you, yet you show up and there is 

no plane? What do you do then, except talk to somebody who has no 

control over it anyway, like the clerk who is so busy tha t he is not 

going to listen to you? Wh at recourse does the passenger have? We 

both know he has no recourse; right ? But do you not th ink he should 

have a recourse ?

Mr. Boyd. I go back to what I said originally. If it is the carrier’s 

fault, yes. Wha t you and I are discussing at the moment is what is 

the carrier’s fault.

Mr. Macdonald. Right, and who checks it? Why would not your 

Board check it?
GUARANTEED LOANS TO AIRLINE S 29

Mr. Boyd. Well, we w ill; we will. But let me point out, Mr. Macdonald, the policy of our Congress and our Government has not been 

tha t we have an army of enforcement people. We work very diligently 

investigating complaints. Our enforcement staff is totally involved in 

doing just exactly what you are talking about. But we cannot investigate every flight that shows up.

Mr. Macdonald. That is not really my point. I am not criticizing 

the CAB. I know you have a very difficult job.

Mr. Boyd. I am not trying to defend, either.

Mr. Macdonald. You have a very difficult job and so does the Board. 

The whole area is in a difficult period of transition. But this it not 

criticism of the CAB.

Wh at I am trying to get at is why the passenger should be penalized 

for not making a flight throu gh no fau lt of his own, when he is 

penalized if the airline does not live up to th eir part of the contract?

Mr. Boyd. Well, Mr. Macdonald, let me mention something tha t 

may have some bearing here. All of us, including you, I believe, tend 

to look at things in the light of our own situation.

Now, you are an honorable man and I am an honorable man, and 

when we make a reservation, we plan to go on that Hight, and unless 

something completely unforeseen comes up, you will be there and I 

will be there. However, this whole business was developed—again I 

say as an experiment—not to penalize you or me, but to penalize the 

people, of whom there are legion, particularly in the resort areas of 

this country, who call up and who make reservations, who buy tickets 

on any number of flights. This is a very bad thing, particula rly in 

Miami, which I happen to know quite a bit about. Transportation 

superintendents a t hotels will buy tickets on numbers of airlines and 

make reservations and then scalp the tickets to hotel guests and people 

like that. Consequently, we get these raving letters from people who 

said they could not get a reservation out of Miami and they go out 

to the airpo rt and they see National or Eastern go out with a plane 

half empty.

Mr. Macdonald. You have taken care of tha t by this overbooking 

provision.

Mr. Boyd. That is not overbooking.

Mr. Macdonald. Is it not a custom of the industry to overbook by 

roughly 10 or 15 percent, or had it not been before your regulation ? 

In other words, selling seats where there were no seats?

Mr. Boyd. We have not tried to eliminate overbooking, but oversales we have tried to eliminate.

There is a distinction.

Mr. Macdonald. Well, it is a very fine distinction.

Mr. Boyd. It is a fine distinction and what it boils down to is 

whether or not the airline gets caught. If it does not get caught, if 

enough people cancel out, then what, were oversales are seated so there 

is no problem. But this is something that, so far as I personally am 

concerned, is not a great problem, in view of the fact that the airlines 

must, I think, do a certain amount of overbooking, just as every hotel 

will do overbooking.

Mr. M acdonald. It is the official position of the CAB that you 

countenance overbooking, tha t you thin k tha t is a legitimate business practice ?

84828—62 3
30 GUARANTEED LOANS TO AIRL INES

Mr. Boyd. No; it is not.

Mr. Macdonald. Overselling an airplane—yon think that is a legitimate practice?

Mr. Boyd. No; I want to make it clear that overselling is a reprehensible practice.

Mr. Macdonald. But you say it is common and-----

Mr. Boyd. No; I said I think we have cut out overselling, but I 

think there is always going to be a certain amount of overbooking, 

because the airlines know, through past histories, just as hotels know’, 

that there will be a percentage of cancellations and they run their risk 

trying to cover this.

Mr. Macdonald. Yes. But are they not running a risk with an 

honorable passenger which you have described, who buys a ticket in 

good faith and he goes and shows up and there is no seat for him? 

It. has happened to me, 1 know’. Why should I be inconvenienced because the airline overbooks and oversells?

Mr. Boyd. You should not be.

Mr. Macdonald. Why does the CAB say it is all ri ght to do?

Mr. Boyd. We do not say it is all right to do. I am telling you that 

in my personal opinion, there must be some overbooking.

Mr. Macdonald. You would not be here i f you were just a private 

citizen.

Mr. Boyd. I am giving you the Board ’s position. It is that we are 

opposed to overselling and we have tried to eliminate overselling.

Mr. Macdonald. To get back to my original question, do you not 

think, just from sheer equity, it is fair that a passenger has recourse 

when an airline has disrupted a business or—let us just say engagement of his when he, the passenger, has entered the contract in good 

faith ?

Mr. Friedel. Will the gentleman yield?

Mr. Macdonald. When I hear an answer I will yield.

Mr. Boyd. I will go back to my original statement, Mr. Macdonald, 

that it is fair, provided it is the fau lt of the airline which could have 

been reasonably avoided.

Mr. Macdonald. You say foreseeable. I do not desire to fly on any 

airline which works those planes to such an extent tha t a mechanical 

failure is practically inevitable. It is a fairly short hop. I fly it. 

They just lieat those airplanes to death and they do not have any 

'tandby equipment. I check with their passenger agents because I 

know’ of their past history. I check with them, saying, “Is flight X 

going out on time?” They will assure me, “Yes, certainly it is going 

out on time?” 1 will disrupt what I am doing, take a half or threequarters of an hour drive to the airport, get to the airport; there will 

be no airplane. Do you think I am being treated fairly By those a irlines?

Mr. Boyd. I can only say it depends on whose fault it is.

Mr. Macdonald. Do you not feel th at I should have some recourse 

to somebody rathe r than lodging a protest with a clerk who does not 

have anything to do with it and who has had so many protests tha t 

he is just irritable himself, for which I do not blame him?

Mr. Boyd. Well, I think the-----

Mr. M acdonald. Tt would be bad enough. Mr. Boyd, if von would 

just say, “V\ ell, that is the way the ball bounces.” But I find on the
GUA RANTEED LOANS TO AIRL IN ES 31

other hand now, I get caught in traffic on this three-quarter hour drive 

to the airport and 1 miss it, they can fine me under your regulation 

one-half of my ticket price.

Mr. Boyd. Tha t is exactly right, sir.

Mr. Macdonald. I say you are wrong if it is equally fai r not to 

have the passenger have the same privilege, not to have a cause of 

action against the airlines.

Mr. Boyd. I think that you have to consider where does the public 

interest lie in this thing, Mr. Macdonald.

Mr. Macdonald. We are here talkin g about subsidies for these a irlines. I think the public has supported these airlines for a long time, 

I have nothing against airlines. They are wonderful. They are 

necessary for our economy and certainly it is a difference of a 2-liour 

air ride or a 12-hour car ride for me to get from my home here to 

Washington. I am not against the airlines. I am just saying if 

you let it sit, well, that is the way the ball bounces if I do not make 

my plane, or the plane does not go, but when the Government interferes and says the passenger can be fined one-half of his passenger 

fare because he has had a flat tire and it is all right for the airline 

to cancel out, I think you are wrong.

Mr. Boyd. Let me say we did not say tha t it is all right for the 

airline-----

Mr. Macdonald. You may not have said it, but tha t is the net effect of it.

Mr. Boyd. I want to say in reiteration, this is an experiment. It 

may prove to be wrong. If it is, we will say we are wrong.

Mr. Macdonald. Are you going to levy fines in the period of the 

experiment ?

Mr. Boyd. Surely.

Mr. Macdonald. Then how is it an experiment? If I have a plane 

to the west coast and I have put up $300 or $320 or whatever it is, 

and I get fined $150, it is not an experiment to me; it is an out-ofpocket expense.

Mr. Boyd. Of course it is not. It is an experiment in the sense tha t 

we do not know whether this is the best approach in the public interest. 

Then the only way we feel we can find out is to have an actual tria land-error period. This is the way you get advances. It is also the 

way you find out where your losses are. Nobody could have known 

whether the air shuttle, which E aste rn Air Lines operates, is a good 

thing or not. As a matter of fact, the bulk of the people in the aviation industry said that Eastern was crazy to operate this thin g and 

the only way tha t Eastern could find out was to put the planes in 

and run them. They could not put a study in an IBM machine 

and figure out whether this was good or bad. They had to put their 

money on the line. It proved to be a great success.

There have been other things done that were great losses, but they 

found out by trial and error.

r would make one more point to you, Mr. Macdonald, which is th at 

if you buy a ticket to California at $320, the maximum you are going 

to pay is $40. That is still a lot of money, T grant you. but it is not 

something th at is going u p to astronomical figures.

Mr. Macdonald. This is my last question. How do you ^hink that 

even in a resort area, the man who is going to get fined is not the
32 GUARANTEED LOANS TO AIRL INES

man who has done the scalping; the man who is going to get fined 

is the sucker who bought the ticket. You are never going to get to 

the source.

Mr. Boyd. The difference between us is tha t you have reached your 

conclusions before it has gone into effect and 1 am going to wait until we have concluded to decide.

Mr. Macdonald. The difference between us is when they hear you 

are on board, they are going to go on time.

Mr. Boyd. They do not normally know I am on board.

Mr. Macdonald. You do not fly under a fictitious name, do you?

Mr. Boyd. No, but I buy my ticket in the regular-----

Mr. Macdonald. I think the name Alan S. Boyd is better known 

than Torbert Macdonald to the airlines. And I would think you 

would have a little more influence on their on-time performance.

Mr. Boyd. Well, they will let me in the-----

Mr. Macdonald. I have had in my files since I introduced this bill 

between 500 and 600 letters from people, not just for the bill, but in 

relating experiences they have had, many of which are much worse 

than I have ever had, so it must be a common th ing in the industry.

1 am sorry, Mr. Friedel.

Mr. F riedel. I can understand your concern when the airlines oversell and the passenger comes to the airport to board the plane. But 

as I understand it, under the ruling of the CAB, the airlines will be 

fined if they do not have a seat for them.

I just want to bring one thing to your attention.

Mr. Macdonald. What is your fine if the plane is not there?

Mr. Friedel. If the plane is there and they oversold it, the airline 

is subject to a fine.

Mr. Macdonald. If you can prove overbooking. How do you prove 

it?

Mr. Friedle. Well, the passenger has a ticket.

Mr. Boyd. It is a very simple proposition on overselling.

Mr. Friedel. You yielded to me. Ju st let me get to one thing.

On one day last month, there were 31 flights, oversea flights that 

were supposed to land at Idlewild that could not land there because 

of weather conditions and they landed at Friendship. That was I 

day. I think for 2 or 3 days, a lot of oversea flights landed at Friend ­

ship. I had to get this plug in anyway. What do you do in a case 

like that?

Mr. Macdonald. The bill I have would not lie affected by your condition—No. 1, it would not, as i t was grounded due to weather, and 

No. 2, because the regulation does not affect oversea flights. The 

CAB regulation does not affect oversea flights for some reason.

Air. Boyd. Mr. Friedel, in response to your question, if I may, I 

would like to put in a plug for a civil penalty that the Board has 

sought for some time which would help us greatly in enforcing our 

rulings and our rules. I will say very frankly, gentlemen, as 1 see it, 

when you have situations involving weather when you have situa ­

tions involving mechanical difficulties which are related to safety, and 

it is very difficult to say that any mechanical difficulty is not related 

to safety, you could have a case on each one to find out whether it was 

because the toilet would not flush in the lavatory or something like 

tha t, but if it is something tha t affects control services, engines, in-
GUARANTEED LOANS TO AIRL INES 33

struments, or communications equipment, I do not believe that I, as 

Chairman of the Civil Aeronautics Board, would say that such a delay 

was not a safety-cause delay. But if we could have civil penalties, 

as both Houses have approved civil penalties in another piece of legislation, and I hope this civil penalty thin g does not get lost in the 

shuffle, I think we can do a more effective job of regulating the carriers 

under our jurisdiction.

Mr. MacDonald. Thank you, Mr. Chairman.

Mr. Williams. Mr. Boyd, legislation before us, as I understand it, 

is limited in participation to local feeder and short-haul air transp ortation. Do the terms “short haul” and “feeder” include helicopter 

services ?

Mr. Boyd. No, sir. There is a separate phrase, clause, which specifically covers metropolitan helicopter services.

Mr. Williams. I s that in this loan guarantee bill ?

Mr. Boyd. Yes, sir; tha t is in the existing legislation and would be 

in the extension.

Mr. Williams. This does not include trunk carriers?

Mr. Boyd. No, sir.

Mr. Williams. Well, they would not be eligible to get a guaranteed 

loan under this legislation ?

Mr. Boyd. That is correct, sir.

Mr. Williams. According to your testimony, the Board has g uaranteed some $37 million-plus in loans since the enactment of Public 

Law 85-307.

Mr. Boyd. Yes, sir.

Mr. Williams. I believe tha t a breakdown on these loans is included 

in the exhibits which you furnished with your testimony.

Mr. Boyd. Yes, sir.

Mr. Williams. The list includes amounts, dates of the loans, interest on the loans, and the date payable. Have there been any defaults 

on any of these loans?

Mr. Boyd. There have been no defaults, and I might point out, 

Air. Chairman, that the Board charges three-eighths of 1 percent 

service fee for servicing this loan guarantee legislation and has to date 

collected $231,683, which, of course, goes into general receipts, but 

this amount of money covers the cost of administration.

Mr. Williams. I would presume that most of these loans are 

amortized?

Mr. Boyd. Yes, sir.

Mr. Williams. And there have been no defaults in meeting any 

of the payments thus f ar ?

Mr. Boyd. That is my understanding; yes, sir.

Mr. Williams. Now, we are paying, as I understand it, some $70- 

million-odd in subsidy to the local service carriers. Is tha t correct?

Mr. Boyd. Yes, sir.

Mr. Williams. Do you have the amount at your fingertips ?

Mr. Boyd. For fiscal 1963, the Board has requested $71 million for 

the local service carriers.

Mr. Williams. W hich is, by any interpretation, quite a substantial 

amount of money.

Mr. Boyd. Yes, sir.
34 GUARANTEED LOANS TO AIRLINES

Mr. Williams. What is the Board doing, if anything, toward encouraging or promoting the development of an airc raft which is 

specifically suitable to the needs of the local service carrier?

Mr. Boyd. We have encouraged manufacturers to discuss with us 

any plans they may have for short-haul carriers. We have sought 

the assistance of various manufacturers. We have a study going at 

the moment, attempting to define this in terms of total cost, operating 

cost, range, cruising speed, and so forth, which the Board feels will 

fulfill the requirements of short-haul transportation. We have developed a number of figures which we think are pretty sound and have 

publicized these figures. This is the extent of our efforts to date, because we have no—we have no design research people of our own and 

we are not trying to get into this field at all.

Mr. Williams. As I understand it, what the Board has done has 

been to more or less circumscribe or delineate the economic features 

that would lie required of an aircraft suited specifically for local 

service operations.

Mr. B oyd. With the basic objective of reducing subsidy while continuing to provide the same or a better service th an we have today.

Mr. Williams. Do you know how many airc raft are now being 

operated by the local service carriers?

Mr. Boyd. Approximately 300.

Mr. Williams. Of which I believe you indicated 250, or thereabouts, 

are DC-3’s, all of which are now something over 20 years of age. 

Is th at correct ?

Mr. Boyd. Yes, sir.

Mr. Williams. It is my understanding tha t a DC-3 in reasonably 

good condition will bring as much or more on the market today, 20 

years after it was manufactured, than at the time it was new. Is 

that a reasonable assumption ?

Mr. Boyd. Aly understanding, Air. Chairman, is that the DC-3 

going price today is considerably lower. The last on which I have 

any specific information involved some DC-3’s owned by Bonanza 

Airlines, which were sold last year, and my recollection is that the 

maximum price they received, depending on time since overhaul, was 

$70,000.

Air. Williams. Then I stand corrected on that.

Approximately what was the original price on the DC-3 ?

Air. Boyd. $125,000.

Air. Williams. So in 20 years it has only depreciated about 40 

percent?

Air. Boyd. Yes, sir.

Air. AVtlliams. In actual value.

Can you advise us whether or not any program of research and 

development is being carried on by the industry at this time in seeking 

a solution to this problem? I said the industry. I meant tha t to be 

limited to the domestic industry.

Air. Boyd. Alv understanding is that the last meeting of the Association of Local & Territorial Airlines established a committee to work 

on this. Other than that, I have no knowledge of any action being 

taken in the industry.

I do understand, sir, that the Federal Aviation Agency is doing 

some work in this field, but, of course, I am not qualified to speak for
GUARANTEED LOANS TO AIRLINES 35

them and do not know the extent of the work or how far it has 

proceeded.

Mr. Williams. I)o you know whether NASA or any other Government agency is doing any specific research work in this field?

Mr. Boyd. No, sir; although it is my understand ing that NASA 

and the FAA are working together in this general area. Such efforts 

as they have are more or less combined.

Mr. Williams. Mr. Boyd, with a cost of some $70 million annually 

in subsidy to these carriers, it would appear to me to be in the 

interest ol the general public and the U.S. Government that the Government engage in a program of research and development, with the 

view in mind of developing an aircra ft that would be particularly 

suitable or adaptable to local service needs. If by the expenditure of 

several million dollars—well, let us just use a round figure of $8 or 

$10 million—we could reduce the subsidy by $5 or $6 million a ye ar; 

then over a period of years, the Government woidd eventually profit, 

in a sense, from carrying on a program of this type, would it not ?

Mr. Boyd. Yes, sir, and I subscribe wholeheartedly to your belief. 

Assuming tha t we cannot get a sustained effort on the pa rt of the 

manufacturers, with their own risk capital, then I think it is clearly 

in the public interest to do just exactly what you have jus t stated.

Mr. Williams. It would appear to me tha t the future of local 

service curriers would depend upon the development of such a vehicle, 

tha t subsidy will be with us always until they have a vehicle or an 

aircra ft which is suitable to their needs and which can be bought a t a 

reasonable price and operated with a reasonable amount of economy.

Has the Board given consideration to recommending such a program 

to the Congress ?

Mr. Boyd. All I can tell you on that, Mr. Chairman, is that we have 

stirred it around a little bit, but we have not felt at this juncture 

tha t we should take a position, because we are waiting to see what 

other agencies and the manufacturing industry, particularly, will do. 

We are not trying to build any empires, but if something is not done 

tha t strikes us as being concrete in the near future, I think it is fair 

to believe t hat the Board will make a very strong effort to sell such 

a program.

Mr. Williams. Well, the industry has had some 18 or 20 years w ith 

which to come up with something th at is suitable for the local service 

carriers. As you indicated, you were not certain just how much at ­

tention is being given to this problem by the industry at the moment. 

Could it be possible tha t the industry is waiting for the Government 

to do something about it ?

Mr. Boyd. Yes, sir; I would say tha t this is in the realm of possibility. I am rather inclined, however, to think th at the local service 

industry, despite the fact that it has been subsidized since its inception, has had enough problems of its own in trying to maintain its 

operations that it has not gotten into research to any extent at all, 

beyond some efforts in sales research, trying to sell more tickets.

Most of these companies are really quite small and have very small 

staffs, and I thin k tha t up until the very recent past we would be 

wrong in criticizing them for not having undertaken a research program such as is involved here.
36 GUARANTEED LOANS TO AIRLINES

Mr. Williams. I did not have in mind the carriers themselves. I 

had in mind such manufacturers as Douglas or Lockheed or some of 

the other people.

Mr. Boyd. 1 think they have missed the boat completely. I thought 

tha t when they did not build a medium-range jet. It seemed to me 

because of the obvious greater profits that come from long-haul transportation, they have devoted most of their time to long haul, either 

commercial transportation or to military operations and have let this 

medium haul, until the 727 came along, and the short haul, which is 

in the area we are talking about here, just sort of go by the boards.

Mr. Williams. It would a ppear to me tha t there would be a market, an immediate market potential of at least 300 aircra ft, if such a 

prototype were to be developed, using the figures you have already 

given us and not to include those aircraft which might be purchased 

for executive use. It is rather difficult for me to understand why 

they have not carried out the necessary research in order to develop 

such an aircraft.

I know tha t tha t is not a question: tha t is simply a statement of 

opinion. If you would like to comment on that, 1 would like to have 

your comment, sir.

Mr. Springer. May I ask a question, Air. Chairman?

Are you talking about a short-haul jet?

Mr. Williams. No; not necessarily a jet. I am speaking of an 

airc raft which is specifically adaptable to the needs of th e local service jet, whether it is a jet, turboprop, or piston-engined aircraft.

Mr. Boyd. One of the mechanical problems, as I understand it, Mr. 

Springer, about jets is th at for short-haul operations, up to the present, they have not come up with one tha t can operate effectively, efficiently, because the jet, in its present stage of development, operates 

most efficiently at high altitudes, and the shorter your hop the less 

reason there is to try to gain altitude to get the benefits th at are inherent. in the design of the jet itself.

Mr. Springer. That has not answered the chairman’s question, has 

it?

Mr. Boyd. lie did not ask a question. He asked me if I wanted to 

comment, and I thought by answering you 1 signified I had no comment to the chairman’s statement.

Mr. Springer. Will the chairman yield?

Mr. Williams. Certainly.

Mr. S pringer. Maybe I misunderstood you, Mr. Chairman. I want 

to be sure I did not misunderstand you, first.

Did you say tha t you felt that they missed the boat when they did 

not develop an intermediate range jet?

Mr. Boyd. Yes, sir. A “medium range” is what I said.

Mr. Williams. What do you consider a medium-range jet ?

Mr. Boyd. I think the classic example today is the Caravelle.

Mr. Williams. What is the shortest run tha t a Caravelle could 

make profitably?

Mr. Boyd. I do not know the answer to that, Mr. Chairman. It 

would depend to a considerable extent on the loads.

Mr. Williams. That is understandable. I understand that.

Mr. Boyd. But I would imagine probably something like 350 miles 

would be the minimum.
GUARANTEED LOANS TO AIRL INES 37

Mr. Williams. Of course, tha t would not be adaptable to localservice carriers ?

Mr. Boyd. Oh, no.

Mr. Williams. Because local-service carriers, as I understand it, 

run from something like 60 to 80 to 100 miles, do they not ?

Mr. Boyd. Yes, sir. Our studies indicate that the bulk of the stage 

links will run between 90 and 150 miles. Tha t would be where the 

bulk of th e flights would fall. Now, we do have some th at will run 25 

miles, but fortunately, these are very few.

Mr. Springer. Have you made any study of the Caravelle?

Mr. Boyd. No, sir.

Mr. Springer. Do you know whether or not it is economical ?

Mr. Boyd. Well, I can tell you this, that my only knowledge of the 

economics of the Caravelle comes from statements made to me by 

responsible officials of the United Air Lines, who are operating the 

Caravelle, and th eir statement is yes.

Mr. Springer. Were you in on any part of the development of the 

707?

Mr. B oyd. No, sir.

Mr. Springer. Well, when Carl Henshaw was on this—1 am not 

trying to disapprove you, Mr. Chairman, but I was here on all of 

tha t prototype and Mr. 'Williams was, too, and we wrestled tha t 

up one side and down the other on the 707, and the companies could 

not possibly put the necessary research in on the 707. All the research 

on that was by the U.S. Government, as you know, and it ran hundreds 

of millions of dollars.

Mr. Williams. It was estimated that something like $175 million 

of research went into that, was it not? Most of that carried on by 

the military for the KC-135, I believe, or whatever airc raft it is.

Mr. Boyd. I just would like to say, Mr. Chairman, that I hope that 

Mr. Springer did not misunderstand me, tha t I was not criticizing 

Boeing or Douglas for building long-range jet aircraft by any means.

Mr. Springer. I understand, but you were saying they did not 

develop a medium-range airc raft and that was a question of finances. 

The research that went into the 707, and I am sure the chairman 

will correct me if I am wrong, but it was a lot more than $175 million. 

If you take the Army’s figures on it, it runs closer to $1 billion, something like $900 million, for all the money to finance Boeing, to get 

that airplane to where it flew. If you go back and look those figures 

up, I think I am right on that.

Mr. Boyd. I do not question that.

Mr. Springer. But anyway, take the development of a prototype 

in this field. I had no idea until Mr. Henshaw got into tliis thing, 

and I do not think he did, either, but we have wrestled with this 

prototype before this committee. At the present time, I can visualize 

that unless more research were done, again, I do not think it would 

take anywhere near tha t amount. But my understanding of this is 

entirely different from yours if you thought this was a thin g that 

they just did not do because maybe they forgot about it or did not 

want to. This is a matter, as 1 understand it, and I am pretty sure 

of it, of economics.

Mr. Boyd. Let me make this point, Mr. Springer, if I may. If 

you see it differently than 1 do, I will stand corrected.
38 GUARANTEED LOANS TO AIRLINES

You bad three companies manufacturing big, long-range jet tran sports—Boeing, Douglas, and Convair. My assertion was th at somebody missed the boat in not building a medium-range jet. Now, 

the facts as 1 understand them today are tha t Boeing, Douglas, and 

Convair have all lost money on the long-range jets that they constructed.

If you go back to 195(5, you will find an article in Fortune magazine in which a very prophetic author wrote just exactly what was 

going to happen, and it did. He said these companies are tooling up 

to build aircraft to the extent tha t each of them thinks it is going to 

sell the entire supply of aircraft to the jet market and this is exactly 

what happened. So we had probably not three times the production 

we needed, but considerably more than we needed on a long-range 

transport, and here comes Sud Aviaciones of France, which wipes up, 

worldwide, with a medium jet and we do not have a medium jet. So 

I say somebody missed the boat.

The Board, I am advised, supported the prototype legislation for 

the Boeing 707. But the fact remains, with the g reatest manufacturing facilities in the world, everybody involved bet on the long-range 

jet and they all felt they were going to garner the majority of the 

market, and they, so I am advised, all have lost money on it when it 

seems to me th at they would have done a lot better if somebody had 

gotten into a medium-range jet. That is my whole point.

Mr. Springer. Actually, the tru th about the market was tha t the 

market was a military market. Was not the market the military? 

And the military has accepted a good portion of tha t market. That 

is what they were going for?

Mr. Boyd. Well, I do not know. Convair certainly has not gotten 

into the military market. At least, I do not believe they have sold 

anything to the military.

Mr. Springer. Well, anyway, on the 707, and that is the one tha t 

I am familiar with. Also I went through the Comet. I knew them 

and everything else. I will say this for the Boeing people. Over 

there, they told me when there is an economical jet produced, they 

would produce it and they were the first ones tha t did. There was 

not an economical jet produced until they produced the 707. Certainly the Comet was not economical. The only way they could pro ­

duce the Comet was with the Government in the operation.

I wanted to bring this out because there was a lot more to the 

development of a short-range than tha t somebody missed the boat. 

I think that was due to economics alone.

Mr. Boyd. I would like to say in connection with your statements 

about the 707 tha t the Board has been quite gratified to hear from 

Boeing th at they are going to try to come up with a design along the 

lines that we feel are required in the short-haul area, which I think 

is marvelous.

Mr. Springer. If they do, it will be. I am willing to concede that. 

I would like to see figures on the development,

Mr. Boyd. We will be happy to provide you with what we have 

on our form 41 figures.

Mr. Springer. Thank you, Mr. Chairman.

Mr. Williams. Mr. Boyd, is this a reasonable surmise? Our 

American aviation industry has been so preoccupied with development
GUARANTEED LOANS TO AIRL INES 39

of high-speed and supersonic jet aircraft and space operations that 

it has neglected to a large extent the development of short-haul subsonic aircraft?

Mr. Boyd. Well, so far as we know, there has been no serious effort 

to develop in recent years a short-haul aircraft. I think that all of 

us, including the Board, have to a g reat extent been carried away by 

the jet age and we are gradually getting our feet back on the ground 

to some extent in coming to the realization that you can haul an 

awful lot of people from New York to Los Angeles at 35,000 feet, 

but there is still, in terms of absolute numbers, a great many moro 

people flying from Chicago to St. Louis and places like that.

Mr. Springer. Would the chairman yield at that point?

Mr. Williams. Surely.

Mr. Springer. How did the F-27 develop ?

Mr. Boyd. II ow did it develop ?

Mr. Springer. Yes.

Mr. Boyd. I have no knowledge on it, Mr. Springer. My understand ing is t hat it was developed by the Fokker Aircraft Co. in the 

Netherlands.

Mr. Springer. Who is the manufacturer in this country?

Mr. Boyd. Fairchild was manufacturing it and closed down their 

production lines. I understand tha t Fairchild has reopened its production lines and proposes to manufacture approximately one aircraft. a month on a speculation basis, or on the shelf.

Mr. Springer. Mr. Chairman, this is one of the problems, I will 

say this to you. And there were all kinds of devil raised with this 

committee, but you got the F-27. The DC-3 was all these fellows 

had to work with and the figures we had before this committee on 

more than one occasion on what was needed, and finally, because of 

all this racket, what this committee got, most of the subcommittee, 

tha t is how you got the F-27. Now, is the F-27 an economical operation for St. Louis to Chicago, and tha t is what you are ta lking about, 

down my throat, because tha t is where they fly across me?

Mr. Boyd. Yes, sir ; I understand it is.

Mr. Springer. I understand it is, too. Now, this is the plane 

which you wanted developed in the long haul and you got it. Now, 

are the companies buying it ?

Mr. Boyd. They bought 33 so far. T understand 33. There may 

have been more than that.

Mr. Springer. Bonanza bought eight, under the purchase guarantee loan. They bought three under the purchase without guarantee. 

The Ozark bought three under the guaranteed loan. That is the 

airline that, flies across my district. Pacific bought six under the 

guaranteed loan pro gra m; Piedmont bought eight under guaranteed 

loan; West Coast purchased, without guaranty, seven. In summary 

there are 25, purchased with guaranty loans, 2 without guaranty 

loans. That is a total of 27 out of 142. Now, maybe some of these 

other ones tha t were bought did better, or are doing a better job. I 

have no way of knowing on these others tha t were bought how they 

are serving on what they were purchased for. But it was this committee tha t brought the F-27 out.

Thank you, Mr. Chairman.

Mr. Friedel. Would the chairman yield for this one question?

Mr. Williams. Mr. Friedel.
40 GUARANTEED LOANS TO AIRLINES

Mr. Friedel. Mr. Chairman, is not the noise factor with the big 

jets one of the big problems for this short haul ?

Mr. Boyd. I have no knowledge of the noise factor being a problem 

in short-haul operations of jets, Mr. Friedel, because I do not know 

of any short-haul operations of the type we are discussing in the 

local service area utilizing jet operations.

However, there is no question but what the noise factor is a big 

problem in the operation of jet aircraft. It is a tremendous problem 

and one th at I think all agencies of the Federal Government interested in aviation, as well as local agencies, are going to have to fight 

with for a long, long time.

Mr. Macdonald. Could I ask one question?

Mr. Williams. Mr. Macdonald.

Mr. Macdonald. To go back to what we were discussing, Mr. Chairman, what is the CAB's idea of how these tines for having a flat tire 

are to be assessed? Who assesses them ?

Mr. B oyd. Well, first off, I want to make sure we understand each 

other. We do not have any flat fine, Mr. Macdonald.

Mr. Macdonald. My implication was tha t if you did, you would 

be penalizing the airplanes because they have flat tires, too, I suppose, 

on this mechanical-difficulty escape clause tha t you now give them. 

Mechanical difficulties can be a flat tire, or it can be the washroom 

does not operate, it can be a battery in the galley. That is all mechanical difficulty and can inconvenience 60 people without any refund; 

is that righ t ?

Mr. Boyd. I think th at is corre ct; yes, sir.

Mr. Macdonald. Well, my real question is: Who assesses the fine 

against the passenger who, through no fault of his own, does not make 

the flight ?

Mr. Boyd. Who assesses the fine? The airline.

Mr. Macdonald. In what way?

Mr. B oyd. When he presents his ticket either for refund or for another flight.

Mr. Macdonald. In other words, if you bought a ticket from Boston to here, it costs you $32 or whatever it does. You then would 

have to pay $32 plus another $16 to fly the flight?

Mr. Boyd. If that is the correct figure.

Mr. Macdonald. That is the correct figure, $32.57,1 think. So you 

have to pay an additional $16?

Mr. Boyd. Yes, sir—no, wait a minute.

It would be based on—is that a one-way fare?

Mr. Macdonald. Yes.

Mr. Boyd. It would be a percentage of the one-way fare.

Mr. Macdonald. Up to 40 percent of the one-way fare. You mean 

it would be more if it was a round trip?

Mr. Boyd. No; I was just tryin g to make the point, on the first leg.

Mr. Macdonald. You think the airline then would charge you $32, 

plus $16?

Mr. Boyd. Yes, sir; assuming the figures are right.

Mr. Macdonald. How many customers would ever fly tha t line 

again ?

Mr. B oyd. Actually, I do not think it makes any difference.

Mr. Macdonald. You say you are doing this to protect the industry.

Mr. Boyd. No; I did not say tha t at all.
GUARANTEED LOANS TO AIRLINES 41

Mr. Macdonald. I had tha t trouble following you, because I did 

not follow the overbooking versus the overselling.

Mr. Boyd. Suppose I furnish you with the opinions and orders of 

the Board so you will t hen know-----

Mr. Macdonald. I have written you letters about this, so your 

communication, both written and oral, 1 am sure can be improved 

upon. I am now asking you what is your opinion and I do not need to 

be furnished any reports. If it is not done to help the industry, what 

is the purpose of it ?

Mr. Boyd. It is done to a considerable extent to help the industry.

Mr. Macdonald. I)o you think you would lie helping the industry 

to have them line somebody? Do you think anybody else, that individual, would ever ride the same airline that has lined him $16?

Mr. Boyd. This could well be the case, Mr. Macdonald. I can 

easily conceive that if this were done to me by American Airlines, I 

would say 1 would never ride American again. At the sjime time, if 

the disgruntled passenger is a rational individual, he would realize 

tha t this would be done to him by any airline under the same circumstances.

Mr. Macdonald. Is it not left up to the airline to decide whether or 

not to impose the fine ?

Mr. Boyd. Yes, sir.

Mr. Macdonald. Why do you say every air line would do it? Those 

airlines that want a lot of business and are ha rd put already, it seems 

to me, would not exercise this.

Mr. Boyd. They all have the same tariff provision and they violate 

the law if they violate the tariff.

Now, I must go back again and say that this is the experiment, because frankly, we have some doubt in our own mind as to how well 

this is going to work. We do not know. And it gets back to the 

same old thing that 1 mentioned earlier about the rules of reason. We 

have to either operate on the theory that these people are going to violate the tariff that they filed or that they are not.

Mr. Macdonald. It is not a violation not to impose the penalty.

Mr. Boyd. Yes, sir; it is a violation not to impose the penalty.

Mr. M acdonald. It is mandatory'?

Mr. Boyd. It is mandatory.

Mr. Macdonald. If you miss the plane, you are to be fined ?

Mr. Boyd. There are, as I recall, certain exceptions.

Mr. Macdonald. What are the exceptions?

Mr. Boyd. I do not know. I will he happy to furnish you with the 

tariff, but I am not great-----

Mr. Macdonald. This is the greatest thing for the shuttle that has 

ever been, because if I want to get on a shuttle and do not go, I am not 

fined.

Mr. Williams. This is to protect against people who call up and use 

assumed names and book flights on three or four different airlines, who 

are unticketed and then when they get on the airlines they want to 

go on, they go out and buy the ticket and go on it and leave the rest 

of them hanging ?

Mr. Boyd. Yes, sir.

Mr. Williams. Under those circumstances, there is hardly any way 

to track down the offender ?
42 GUARANTEED LOANS TO AIRLINES

Mr. Boyd. Tha t is right.

Mr. Macdonald. Will you yield, Mr. Chairman ?

Mr. Williams. Yes.

Mr. Macdonald. Somebody who comes from an area where they 

can take a choice of airlines is certainly a fortunate person. People 

in my area do not.

Mr. Williams. Mr. Boyd, gettin g back to the problem at hand 

with respect to the local service carriers, has the Board given consideration to permitting flyovers under certain circumstances, and 

also to grantin g nonstop flights between points on their routes?

Mr. Boyd. Oh, yes, si r; yes, sir.

Mr. Williams. What has been done in that regard ?

Mr. Boyd. We have eased up quite a bit on our restrictions tha t 

were originally applied to the local service carriers in terms of eliminating the multistop requirement and eliminating in a number of cases 

the one-stop requirement, so on a number of routes, the carriers can 

now operate nonstop afte r they have taken care of the basic pattern 

requirement.

Mr. J arman. Will the gentleman yield ?

Mr. Williams. Go ahead.

Mr. J arman. In your statement, you make clear that under the 

existing legislation, before a Government guarantee is made on a 

loan, the Board must reach a finding tha t the airline cannot get the 

loan from other sources at a reasonable rate.

Mr. Bon). Yes, sir.

Mr. J arman. Have there been instances in which an application 

for a loan under this legislation has been turned down because the 

Board concluded tha t adequate financing was available elsewhere, 

without turning to the Government for that ?

Mr. Boyd. Let me ask Mr. Both.

No, sir.

Mr. J arman. No instance?

Mr. Boyd. No, sir.

Mr. J arman. As an example, my understanding is that Stand ard of 

New Jersey and General Dynamics have a good-sized share of 

Seaboard.

Mr. Boyd. Yes, sir.

Mr. J arman. Would it be within the CAB’s operational policy or 

survey of a Seaboard application to check into why Seaboard could 

not get financial help from Stan dard of New Jersey or General Dynamics before coming to the Government for assistance?

Mr. Boyd. We would check. We do check all of the normal sources 

of financing for the company, and require from them, as I understand 

it, statements tha t they Yvould not, tha t the company could not acquire 

financing on what we consider to be reasonable terms. If you look 

at this exhibit, the last exhibit I presented, you will see what we consider reasonable terms in the sense of interest rates, p articularly, and 

this is all debt financing.

Mr. J arman. Thank you.

Mr. Williams. Mr. Boyd, the time is 12:10 and we expect a rollcall on the House floor at any moment. I had wanted to interrogate 

you regarding the recommendations made by the President, which 

I understand Yvould transfe r these powers or transfer the loan guaran-
GUARANTEED LOANS TO AIRLINES 43

tee program under the CAB and I believe also the Interstate Commerce 

Commission to the Department of Commerce.

We have a witness, I believe, scheduled to testify on this legislation from the Department of Commerce, Mr. Clarence Martin, Jr. , 

Under Secretary for Transportation.

Mr. Boyd. I would like to come back later, because the legislation 

on this matter was only recently introduced and through our procedures, we do not state our postion until the bill comes to th e Board 

for comment. So I have no Board position on this at the moment and 

I would be most appreciative if you would give me some time to 

develop a Board position.

Mr. Williams. I thin k it is only fair that the Board should be 

given that time and since we do have Mr. Martin to come before us, 

I presume tha t would be gist of his testimony in regard to that pr oposal. I thin k the committee p erhaps should adjourn this morning 

and attem pt to meet at ‘2 o’clock this afternoon. We will ask you to 

come back later, Mr. Boyd, at a time in the future that is convenient 

to the committee and to you.

Before the committee adjourns, I have some insertions to go into 

the record. I think perhaps more immediately following Mr. Boyd’s 

testimony, it would lie well to place into the record a policy statement 

issued by ALTA , which is th e Association of Local and Transport 

Airlines, having to do with the development of a local service 

prototype.

I have a letter for insertion into the record from Mr. Robert W. 

Oliver, containing a statement on behalf of Chicago Helicopter 

Airways.

I also have a letter from Mr. Clarence Sayen, president of the A irline Pilots Association, on this legislation.

Without objection, these will be included in the record at th is point.

(The documents referred to are as follows:)

ALTA Poijcy Statement 1

The problem of continued scheduled airlin e service to smaller interm ediate 

cities over rela tive ly low density routes has been ably noted by Senator A. S. 

Mike Monroney, chairma n, Aviation Subcommittee, Senate Commerce Committee, Congressman John Bell Williams, chairman, Subcommittee on Tra nsp ortation and Aeronautics, House In terstate and Foreign Commerce Committee, 

and other congressional aviation leade rs. Continued service to such citie s is 

at issue as is an expansion of scheduled airl ine services to other deserving cities 

not now being served. In this regard, the construction of a new, more economic 

sho rt-h aul airc ra ft has been advocated in ord er to provide continued and expanded service to such affected communities at a minimum cost and a t a minimum 

level of Fe der al sup port.

The members of ALTA have carefully considered this problem and have 

concluded that full exploration of this matt er should be made by the ind ustry, 

and ALTA will work cooperatively on this problem with all inte rested parties 

in the Congress, the CAB and the FAA.

We anticip ate, however, th at in order to meet this objective, the following 

ma tters must l>e reviewed among oth ers:

(1) The sound economic development of an airc ra ft adaptab le to low 

density routes and the small volume of commercial use anticipa ted at the 

smaller cities.

(2) Adaptation of civil air regulations now applicable to non airline 

operators to airlin e operation of such aircraft by presently certificated 

scheduled carriers.

Ad op ted. AL TA sp ri ng re gi on al mee tin g, A tl an ta , Ga.
44 GUARANTEED LOANS TO AI RL IN ES

(3 ) Pro m ul ga tion of Civil A er on au tics Boa rd ru le s and re gul at io ns 

ad apte d to th e ty pe of op er at io n her e co nt em pl at ed .

The qu es tion is an in tr ic ate one and vital to th e pu bl ic in te re st . To th e end 

th a t al l influ en cing fa cto rs may be br ou gh t to get her an d co ns id er ed by th e 

Co ng ress, th e Civil A er on au tics Boa rd , th e Fed er al A vi at io n Ag enc y, an d th e 

in d u str y in th e de ve lopm en t of an effective an d eq ui ta ble plan , we ha ve fo rm ed 

a co m m itt ee of ALTA un de r th e ch ai rm ansh ip of Les lie O. Bar ne s. T his comm itte e is di re ct ed to ex ped ite it s review an d stud y, to co nfe r w ith ap pro pri ate 

co ng re ss io na l le ad er s an d pert in ent G ov er nm en t ag en cies an d to co nta ct th e 

a ir c ra ft m an ufa ct ure rs , an d to dr aw up on su ch re so ur ce s of its m em be rs as may 

be ne ce ss ar y to co mplete it s st udy an d re port a t th e earl ie st po ss ib le dat e.

P ogue & Neal,

Washington, D.C., May 7, 1962.

Hon. J oh n Bell W il lia m s,

Chairman, Subcommittee on Transportation and Aeronautics,

House Interstate and Foreign Commerce Committee,

Washington, D.C.

Dear Mr. C ha irman : A tta ch ed is a st ate m ent of C hica go H el ic op te r Airw ay s, 

Inc., in su pport of H.R. 10129 which we as k to ha ve in cl ud ed in th e tr a n sc ri p t 

of th e hea ri ngs on th is bill.

You rs ve ry tru ly ,

R obert W. Oliver,

Attorney for Chicago Helicopter Airways, Inc.

Sta teme nt of Chicago H elic opt er Air way s, I nc., in Supp ort of H.R. 10129

Chica go H el ic op te r Airw ay s, In c., su pport s th e en actm ent of H.R. 10129, 

which wo uld ex tend fo r anoth er 5 years th e ex is ting Pub lic Law 85-30 7, wh ich 

pr ov id es fo r Gov ernm en t guara nte e of pri vate lo an s to cert ain a ir c arr ie rs (i n ­

clud in g th e he lico pt er c arr ie rs ) fo r purc has e of m od er n a ir c a ft and eq uipm en t.

The need of ex tens io n of th is le gi slat io n is dem onst ra te d by th e m an y gu ara n ­

tees which th e Ci vil A er on au tics B oa rd has b een ca lled u po n to g ra n t under Public Law 8 5-307.

T he re ne w al of th is l eg isla tion is of sp ec ia l in te re st to Chica go H el ic op te r A irway s, Inc. T his is be ca us e it is th e on ly on e of th e th re e cer ti fi ca te d he lico pt er 

ca rr ie rs which has no t yet st art ed th e co nv ersion fr om pi ston -p ow er ed to tu rbine -p ow ered h elicop ters.

Chica go H el ic op te r A irw ay s ord er ed tu rb in e- po w er ed eq ui pm en t an d tiled an 

ap pl ic at io n w ith th e Civ il A er on au tics Boa rd fo r a G ov er nm en t g u ara n te e un der 

th e p ro vi sion of P ub lic Law 85-307. How ev er, th e f ill ing of th e o rd er an d ac tion 

on th e guara nte e ap pl ic at io n has be en def err ed in ord er to re appra is e th e nu m ­

be r of n ew h el ic op te rs t o be r eq ui re d in Ch ica go in view of th e ch an gi ng s it uati on 

a t M idwa y A irport in Ch ica go an d to aw ait cl ar if ic at io n of th e oper at in g ru le s 

fo r th e n ew tu rb in e h el ic op te rs being estab lish ed b y t h e FAA.

Pu blic La w 85-307 ex pi re s on Se ptem be r 7, 1902, an d th e ree qu ipmen t, pr og ra m 

of Ch ica go Helicop te r A irw ay s may not be im plem en ted in tim e to obta in a g u arante e un der th e ex is ting sta tu te p ri o r to it s ex pir ati on on Se ptem be r 7.

Con sequ en tly , Ch ica go H el ic op te r A irw ay s is in th e post ure w he re it may no t 

be ab le t o act in tim e to ob ta in a g u ara n te e unde r th e ex is ti ng l aw , an d is, th ere ­

fore, vital ly in te re st ed in th is le gi slat io n be ing ex te nd ed fo r an ad dit io nal 5 y ea rs .

W het he r a co nv ersion to new and mor e eff icient tu rb in e hel ic op te rs ca n be 

ac co mplishe d in Ch ica go m ay well de pe nd on w het her th is le gi sl at io n is ex ­

tend ed . Len de rs ha ve alr ea dy ag re ed to m ak e th e ne ce ss ar y eq ui pm en t lo an s to 

Ch ica go H el ic op te r A irw ay s if a G ov er nm en t guara nte e is gra nte d under Pu blic 

La w 85-307 . How ev er, if th e avail abil it y of th is g u ara n te e w er e to be w it hdra w n by th e fa il u re to ex te nd t h is le gi sl at io n, th is fin an cing wo uld be p re clud ed , 

an d th e re ve rs al of policy in her en t in fa il in g to rene w th is le gi slat io n m ig ht pre ­

clud e an y ot her fina nc ing a t re as on ab le term s.

F or th e f or eg oing reas on s, Chica go H el ic opte r A irw ay s, Inc., urg es th e p as sa ge 

of II.R . 10129.
GUARANTEED LOANS TO AIRL IN ES 45

Airline FTlots Assoc iation ,

Chicago, III., May 7 ,1962.

Hon . J oh n Bell Wil lia m s,

Chairman, Subcom mittee on Transporta tion and Aeronautics, Interstate and.

Foreign Commerce Committee, House of Rep resentatives, Washington, D.C.

Dear Congressman W il l ia m s: The pu rp os e of th is w ri ti ng is to acquain t yo u 

w ith th e vie ws of th e A ir Line Pilots A ss oc ia tio n on II.R . 10129 whi ch is cu rre ntl y be ing co ns id er ed by y our co mmitt ee . T his hil l, as we are in fo rm ed , wou ld 

ex te nd an d en la rg e p ri o r legi slat io n pro vi di ng fo r Gov ernm en t g u ara n te e of 

pri v ate lo an s to pr om ot e th e de ve lopm en t of loc al, feed er, an d sh ort -h aul tr a n sport at io n, bo th w ithin th e U nited Sta te s, Alask a, an d H aw ai i.

As m os t of yo ur co m m itte e mem be rs a re no do ub t aw ar e, th e A ir Lin e P il ots 

Assoc iatio n is an as so ci at io n of pro fe ss io nal air li n e pi lo ts of sc he du led U.S . 

a ir carr ie rs . P re se ntly it has an ac tive and in ac tive m em be rshi p in ex ce ss of 

15,00 0; th e ac tive m em be rs be ing em ploy ed by som e 50 ce rt if ic at ed a ir carr ie rs . 

The as so ci at io n re pre se nts it s m em be rshi p in al l as pec ts of th eir pro fe ss io na l 

lif e. I t is th e ir co lle ctiv e bar gai nin g agent under th e Rai lw ay Lab or Act, m ai nta in s an ex te ns iv e a ir sa fe ty org an iz at io n in a ver y la rg e num be r of it s c ou nc ils 

sc att ere d th ro ughout th e U ni te d S ta te s and se ve ra l fo re ig n co untr ie s, an d is 

sp ok es m an fo r th e air li ne pilot in his re la ti onsh ip w ith th e m un icipal. Sta te , an d 

F edera l Gov ernm en ts, and al l loca l and nati onal org an iz at io ns . As th e re pre ­

se nta ti ve o f th is im port ant se gm en t of the bu sine ss o f avia tion we seek to e ng ag e 

as ac tive ly a s po ssible in th e ord er ly de ve lopm en t of th e avia ti on in dust ry . We 

are pl ea se d inde ed to ac quain t you r co m m ittee w ith th e po sition of our const ituen cy on th is pr op os ed le gis la tion and a re ho pe fu l th a t it will be of some 

help to y ou in y ou r d el ib er at io n up on t he m ea su re .

T he A ir Lin e Pil ots A ss oc ia tio n des ir es to go on re co rd in firm su pport of 

II .R . 10129 an d th e pur po se s fo r which th is bi ll is in te nd ed . It is our co nv ictio n 

th a t it s pas sa ge is im per at iv e in ord er th a t th e im pe tu s ga in ed in th e a re a un der 

re vi ew a nd c on si der at io n s hall be m ai nta in ed a nd f urt here d.

We w er e pr iv ileg ed to ad dre ss th e A vi at io n Su bc om m itt ee of th e In te rs ta te 

an d Fore ig n Co mm erc e Co mmitt ee of th e U.S . Sen at e in Ju n e 1957, on th e pre dec es so r le gis la tion to th e pre se nt bil l. W e st ro ng ly ur ge d it s pa ss ag e. At th a t 

tim e we sa w th e pr op os ed le gi sl at io n as th e logica l so lu tion to a prob lem which 

had lon g hara ss ed th e su bj ec t a ir carr ie rs , a m os t im p o rt an t se gm en t of th e 

av ia ti on in dust ry . N ot hi ng has oc cu rr ed in th e in te rv en in g tim e to ch an ge our 

op inion, inde ed , ev en ts ha ve firm ed o ur c on viction.

I t is gen er al ly reco gn ized th a t th e air li n es which a re be ne fici ar ie s under th is 

bi ll are ty pic al ly sm al l-bu sine ss a ir li n e s ; th e ir ea rn in gs a re mea ge r. In co ns equ en ce, th e ir ca pac ity to bo rrow in th e mo ne y m ark ets is lim ited an d ex trem el y 

co stl y. The se air lines , ho wev er, are per fo rm in g a vit al fu nct io n to hundre ds of 

co m m un ities th ro ughout th e U ni te d Sta te s, an d th e ne ce ss ity fo r mod er ni zi ng 

th eir fleets is no les s th an th a t of th eir bi gg er bre th re n in th e in dust ry . Su ch 

m od er ni za tion is ne ce ss ar y fo r a num be r of re as on s. T oday ’s de m an ds are fo r 

mor e eff icient eq ui pm en t w ith re su lt an t b ett er pr of its . G re ate r pro sp er ity, in 

tu rn , is a m ea ns to st ab il it y. I t is our fe el in g th a t in th e le gi sl at io n under co nsi der at io n lie s th e ba se s fo r th e co nt in ue d gr ow th an d de ve lopm en t of th es e 

carr ie rs , in a m an ner whi ch will h ast en th e day whe n th ey w ill become 

se lf-s us ta in in g.

The re port of th e Ci vil A er on au tics B oar d under date of A pr il 12, 1962, on 

th e Gov ernm en t guara nte ed loan s, co mpleted an d in pr oc es s under su ch le gi sl atio n, in fo rm s us th a t some 12 of th e su bj ec t a ir carr ie rs ha ve be en se rv ed by a 

to ta l bo rrow in g of appr ox im at el y .$50 mill ion. W e th in k th e ne ed fo r th e le gi sla ti on is th u s m an if es tly dem onst ra te d. W he n it is co ns id er ed th a t th is 

sign ific an t en co ur ag em en t to t he d ev elop m en t of a ir tr an sp o rt ati o n in th e U nite d 

S ta te s has be en ac co mplishe d w ithout any out la y of F edera l ca sh , we a re 

gr at ifie d th a t we ha ve been p art y to th e en co ur ag em en t of i ts pa ss ag e.

848 28— 62 4
46 GUARANTEED LOANS TO AIRLINES

We believe that H.R. 10129 is gre atly in the public inte rest. It is our hope 

therefore th at your committee will look with favor ui>ou the bill and will move 

it to the cale ndar w ithout delay.

We appreciate the opportunity to make our view known on the subject legislation and the committee is assured of our assis tance in any manner possible in 

its deliberatio ns on this important ma tter.

Sincerely yours.

Clarence N . Sayen, Pr esi den t.

Mr. Williams. The committee will a djourn until 10 a.m. tomorrow.

(Whereupon, at 12:15 p.m., the committee adjourned, to resume at 

10 a.m., Thursday, May 10,1962.)
GUARANTEED LOANS TO AIRLINES

TH URSD AY, M AY 10, 19 62

H ouse of Representatives,

Subcommittee on Transportation and Aeronautics of

th e Committee on I nterstate and F oreign Commerce,

Washington, D.G.

The subcommittee met at 10 a.m., pu rsuant to recess, in room 1334, 

New House Office Building, Hon. John Bell Williams (chairman of 

the committee) presiding.

Mr. William s. The committee will come to order, please.

Our first witness this morning is Hon. Clarence D. Martin, Jr. , 

Under Secretary for Transportation, Department of Commerce.

STATEMENT OF HON. CLARENCE D. MARTIN, JR., UNDER SECRETARY FOR TRANSPORTATION, DEPARTMENT OF COMMERCE

Mr. Mart in. Mr. Chairman, my name is Clarence D. Martin. Jr. 

I am Under Secretary for Transportation in the Department of 

Commerce.

I appreciate this opportunity afforded me to express the Department’s views on H.R. 10129.

We favor enactment of H.R. 10129. We are of the opinion tha t 

the extension for another 5-year period of the act of September 7,1957, 

now due to expire on September 7, 1962, would allow those carirers 

eligible to obtain loan guarantees for the purchase of aircraft to improve their service and efficiency.

A review of the program since its inception in 1957 will clearly 

demonstrate tha t the public and the aviation industry have materially 

gained by this program. The public has had the benefit of modern 

comfortable aircraft, the industry has been able to take advantage of 

more efficient equipment.

Tables Nos. 1 and 2 which are attached to my statement show the 

number and type of equipment tha t has been obtained and the number 

of carriers by class that have taken advantage of the loan guarantee

program.

Under this program, aircraft equipment has been guaranteed to the 

amount of $36 million which represents 90 percent of the total loans 

of $40 million.

At the present time, the Board has applications pending which 

would guarantee additional equipment to the amount of $4,383,000 

making a grand total of about $40.5 million guaranteed under this 

program since 1957.

All this has been achieved without any cost to the Government.

47
48 GUARANTEED LOANS TO AIRL INES

Senator Smathers proposed an amendment to the Senate bill which 

would make the scheduled all-cargo carriers eligible to participate 

in the aircraft equipment loan guarantee program.

Such an extension would make certificated scheduled air-cargo carriers, such as Riddle Airline, Slick Airways, Flying Tiger Line, and 

Seaboard World Airlines eligible for the loan guarantee program.

This Department favors amending this bill to provide for the extension of this program to include the scheduled all-cargo carriers.

The need for additional incentive to increase civil air cargo capacity 

is clearly evident by applying the Joint Chiefs of Staffs civil cargo 

aircraft requirements against current capability.

The exact figures, which are classified, point up a serious deficit for 

both total and limited military emergencies.

The lack of capacity to meet Jo int Chiefs of Staff requirements for 

limited war is the prime reason for urgent action to provide incentives 

to increase the air-cargo capability by the civil air transporta tion industry.

The Civil Aeronautics Board report, dated October 1961, entitled 

“Commercial Air Transportation Capabilities and Requirements 

Under Partial Mobilization and Limited War,” which used as an 

experience facto r the increased transportation requirements of the 

Korean war ?

 indicates a deficit of 14 DC-7F equivalents to meet 

essential civil air-cargo needs without regard to the military requirements.

The most recent CAB report, dated February 1962, entitled : “Minimum Civil Requirements for U.S. Air Transportation in Time of 

AV ar—h iscal V ear 1962—63, reveals tha t under the most favorable 

conditions of assumption a civil air cargo requirement, not counting 

the military requirement, in excess of available capability by some 

44 DC-7F equivalents in the last month of fiscal 1962, and 64 DC-7F 

equivalents in the last month of fiscal 1963.

We must bear in mind that these projected requirements are for 

only essential civil air cargo traffic needed to maintain the economic 

capability of national defense production during an emergency.

An important, part of this Department’s responsibility is to recommend programs to beneficially improve in peacetime the structure 

and capability of the total transportation system for use in an emergency.

The Department feels that the loan guarantee program could be of 

assistance in financing the equipment so necessary to the Nation in 

time of emergency as well as in time of peace.

However, to fully accomplish this objective, we suggest an additional amendment to H.R. 10129. Under the act of September 7, 1957, 

the maximum allowable amount that can be guaranteed to any one 

carrier is $5 million.

We recommend that the maximum allowable amount to any one 

carrier should be increased to $15 million. This would allow for the 

higher costs of an aircra ft suitable for use in all cargo operations.

As you know, the President in his recent message on tran spo rtation recommended tha t the loan guarantee function be transferred 

from the Civil Aeronautics Board to the Secretary of Commerce.

The President listed a number of ways in which he hoped “to 

achieve a better balance of Federal promotional programs.”
GUARANTEED LOANS TO AI RL INES 49

No. 5 state d:

L ast year th e Con gr es s ex tend ed until Ju n e 30. 1963, th e au th o ri ty by which 

th e In te rs ta te Co mm erc e Co mmiss ion has be en guara nte ein g in te re st and pri nci pal pa ym en ts on em erge nc y lo an s to th e ra il ro ad s fo r op er at io ns, m ai nt en an ce , 

and ca pit al im pr ov em en ts fo r which th e carr ie rs ca nn ot oth er w is e obta in fu nds 

on re as on ab le te rm s.

A si m il ar law by which th e G ov ernm en t guara nte es lo an s fo r a ir c ra ft an d p art s 

be ing pu rc ha se d by cert ain ce rtific at ed a ir c arr ie rs will ex pi re th is yea r. Sin ce 

th e D epart m ent of Co mm erc e is alr eady a fo ca l poin t fo r G ov er nm en t tr an sp o rta ti o n acti vit ie s an d sin ce, in th e in te re st of pro gr am co or di na tion and co nsi st en cy of po lic y th es e acti vit ie s shou ld be fu rt h er co ns ol id at ed , I reco mmen d 

th a t th e ra il ro ad lo an g u ara n te e auth ori ty , an d th e avia tion loan gu ara n te e 

auth ori ty , if it is ex tend ed , be tr an sf err ed to th e D ep ar tm en t of Co mm erc e.

The se pr og ra m s are no t re gula to ry in n atu re an d are cl ea rly se para ble from 

th e ch ie f fu nct io ns of th e In te rs ta te Co mm erc e Co mm iss ion an d th e Civil Aeron auti cs Boa rd , an d ca n be ac te d up on more ex pe di tiou sl y by an ex ec ut iv e ag en cy .

There are good reasons why the President has recommended to 

Congress the transfer of both railroad and air carrier loan guarantee 

authority to the Department of Commerce.

If one reason had to be selected to account for Government's responsibility for the chaotic patchwork of inconsistent and often obsolete legislation and regulation under which we now operate in transportation matters, it would be th at there is little central direction to 

realize a national transportation policy in accordance with a preconceived plan.

Probably the most glaring area of lack of central direction is with 

respect to the promotional programs of the Government. This was 

emphasized in Senate Report No. 445, 87th Congress, 1st session, on 

national transportation policy, where it was indicated tha t there is 

no central leadership for the promotion of transport programs or in 

coordinating one program with any of the others.

This problem has long been recognized. Now something is l>eing 

done about it. Among other programs of action to build and operate 

a transport system w ithin an overall concept are the present legislative proposals to coordinate highway planning with urban tran spo rtation needs; the transfer to the Department of Commerce by Executive 

order of auth ority for emergency transportation planning; the placing of responsibility in the Secretary of Commerce by the President 

to undertake a broad evaluation of research needs in transportation 

and of ap prop riate methods to meet those needs; the proposal here to 

transfer to the Department of Commerce the promotional responsibility of the Civil Aeronautics Board to guarantee loans for air carriers.

The retention of th is authority in the Civil Aeronautics Board may 

be rationalized on the basis that the program is not costly and that it 

can be administered capably by the Board.

However, since the time, scope, and amount of money involved in 

these loans are proposed to be extended, it is no longer a minimal 

program.

In addition, sight should not be lost of the overall objective to 

achieve, as soon as possible, greater central direction in the Government's responsibility to promote a coordinated transportation system.

Therefore, we strongly recommend that the aviation loan guarantee 

authority be transferre d to the Department of Commerce, as requested 

by the President.

I have attached to my statement proposed amendments to II.I\. 

10129 which would (1) , extend the act of September 7, 1957, for an-
50 GUARANTEED LOANS TO AIRL INES

other 5-year period: (2) extend its coverage to include scheduled allcargo carriers; (3) increase the maximum allowable amount tha t can 

be guaranteed to any one c arrier to $15 million; and (4) provide for 

the trans fer of the loan guaranty function from the Civil Aeronautics 

Board to the 1 )epartment of Commerce.

Thank you, Mr. Chairman.

Mr. Williams. Does that conclude your statement, Mr. Martin?

Mr. Martin. Yes, sir.

Mr. Williams. Mr. Friedel, any questions?

Mr. F riedel. Referring to your amendment No. 2 to extend coverage to include all scheduled cargo carriers, would you also include 

trunklines, to haul cargo and passengers? Would they be able to get 

a loan, if necessary ?

Mr. Martin. No, sir; our statement of position does not address itself to that. We refer specifically to the exist ing carriers that are eligible under the present program plus the extension to the cargo carriel’s.

We do not envision the extension of this to the certificated scheduled 

trun k carriers.

Mr. Friedel. The reason I ask that question, is it not favoring the 

carriers that are receiving subsidies now and giving them a benefit 

that the other carriers do not get ?

Mr. Martin. Well, Mr. Friedel, the major trunk carriers all ato ne 

time or another received subsidy and received substantial amounts of 

subsidy.

Their whole business was pioneered by the Federal Government with 

assistance in the mail and passenger operation subsidy. They are now 

self-sufficient.

Mr. Friedel. This is an advantage to the existing carriers. You are 

talking about raising it to $550 million and most of the cargo carriers 

would be subsidized. You are pu tting them in the position to compete 

with the trunkl ines that are not getting a subsidy.

Mr. Martin. Now, the cargo carriers are not under subsidy, but the 

feeders are. It can be demonstrated that the feeders cannot operate 

without it under today’s conditions and the major trunk carriers have 

and can operate without subsidy.

They have far greater resources to draw upon that these small feeders and the cargo people cannot draw upon.

Mr. Friedel. Now, I notice under the Senate bill and the House 

bill in its present form it permits the local service, Hawaiian, intnvAlaskan, mainland-Alaska, intr a-Puerto Rico, part of British Indies, 

to obtain financing fo r aircraft otherwise unavailable to such carriers.

Would you be opposed to Senator Hartke’s amendment ? I understand his amendment to also include the Caribbean area and the Commonwealth of Puerto Rico.

Mr. Martin. I am not familiar with Senator Hartke’s proposed 

amendment. I did not know it was up and I am not informed on that 

at all. I would be glad to consider that and we would be happy to 

transmit to the committee the Department’s views on it.

I am not informed on that at all, sir.

Mr. Friedel. Thank you.

Tha t is all, Mr. Chairman.
GUARANTEED LOANS TO AIRL INES 51

(The information requested was subsequently furnished in the following letter to Senator Magnuson from Under Secretary of Commerce Edward Gudeman da ted June 12, 1962:)

The Secretary of Commerce, 

Washington, l) .C.,Jnne 12, 1962. Hon. Warren G. Magnuson,

Chairman, Comm ittee on Commerce,

U.S. Senate, Washington, D.C.

Dear Mr. Chairman : This is in fu rthe r reply to y our request for this De partment’s comments on the amendment intended to be proposed by Senator Hartke 

to S. 2815, a bill to amend the a ct of Septem ber 7, 1957, relating to airc ra ft loan 

guarantees.

The amendment would provide for inclusion in the classes of certificated ai r 

carriers otherwise eligible und er the act of September 7, 1957, for Government 

guara nte e of private loans for the purchase of airc ra ft those with certificates 

“ (g) providing for ojierations between the United States and the Caribbean 

area the major portion of which are conducted between the United Sta tes and 

the Commonwealth of Pu erto Rico.”

Such amendment would, in effect, enlarge the a ct to include a domestic tru nk ­

line air carri er as well as a carri er whose principa l operation s are between 

the United States and Puerto Rico. It would not app ear th at this proposed 

amendment would encourage purchase s of airc ra ft of those types in ina deq uate 

supply for possible mobilization needs, nor does it app ear th at the amendment 

would res ult in any lessening of subsidy payments by the Government. Moreover. the Departm ent does not have info rmation which would lead us to believe 

th at the carriers affected by the proposed amendment would be unab le to 

modernize the ir equipment if the amendment were not adopted. For these 

reasons we are unable to endorse the proposed amendment.

The Burea u of the Budget advised the re would be no objection to the submission of thi s rep ort from the stan dpoin t of the adm inistration’s program. 

Sincerely yours,

Edward Gudeman,

Under Secre tary of Commerce.

Mr. Williams. Mr. Devine.

Mr. Devine. No questions.

Mr. Williams. Mr. Martin, on what basis clo you claim tha t the 

Department of Commerce is better able to administer this program 

than the CAB ? What is the basis for that statement ?

Mr. Martin. The statement I do not think says that we could better 

administer the program than the CAB. The President recommends 

it be placed in the Department.

Mr. Williams. I understand th at.

Mr. Martin. In tha t the Department already has promotional responsibilities in the areas of transportation and it is better to have 

these programs in one centralized location so a more coordinated approach can be taken to the whole transportation picture, that is only 

as far as the promotional aspects are concerned.

I would think the loan guarantee program is a promotional item.

Mr. Williams. It would appear to me that the Civil Aeronautics 

Board which is charged with encouraging or promoting the interests 

of aviation would have to be in a better position to try and provide 

for the needs of these local service carriers perhaps than would the 

Department of Commerce which is interested in every mode of 

transportation. Would you care to comment on that?

Mr. Martin. Yes. The department is responsible for the promotion as you say of all modes of transportation , equally and fairly. 

I am sure you are familiar with the number of proposals that have 

been made in the last year or two, I would say in the last 2 years,
52 GUARANTEED LOANS TO AIRLINES

in particular, for the establishment in the executive branch of the 

Government of a separate department of transportation to bring all 

modes and forms, promotional and regulatory aspects under one roof.

I do not mean regulatory to the extent of the abolishment of the 

CAB or the Interstate Commerce Commission in their regulatory 

duties but on the promotional duties.

Now these programs for maritime, public roads, aviation, and so 

forth, are getting to lx* very substantial in size. We have $2 billion 

a year in public roads. We have upward in the area of $500 million 

a year in maritime. The aviation programs tha t you are familiar 

with run into hundreds of millions of dollars a year.

I think a strong case can be made that these promotional programs 

should be better administered as far as budgetary reasons are concerned if for no other reason under one centralized area of the executive branch of the Government.

Now the Department of Commerce has played a major role in 

the transportation message which the President transmitted to the 

Congress in April and we have a substantial legislative program 

there which I think has been quite well accepted generally in the 

transportation industry.

At least it shows a step in the direction of executive responsibility 

in tryin g to coordinate our whole transportation picture and for tha t 

reason this is a good program.

There has l>een no question raised as to how it has been administered, no criticism, and the President feels tha t this is a promotional 

program and it could be better administered and controlled within 

the executive branch with the thought of coordinating this program 

with all promotional programs in transportation.

Mr. Williams. It would seem to me that, the Board, which is immediately familiar with the problems attendant to this industry and 

there are peculiar problems attend ant specifically to the local service 

industry, would be in a much better position to determine the practicability, for instance, of application on the pa rt of any particular local 

service carrier than would the Department of Commerce because it can 

relate tha t to the problems and economics of the entire industry.

Now, while I can see, of course, the reasoning behind the request, 

as you know, the Civil Aeronautics Authority was once under the 

Department of Commerce and was subsequently removed therefrom.

Is this the beginning of a retreat back into the Department of Commerce for aviation ?

Mr. Martin. Mr. Chairman, I would not like to quarrel with anything you say, but I would never acquiesce in the word “retreat.”

Mr. Williams. Well, a return.

Mr. Martin. I would say it is a progressive step forward.

Mr. Williams. It is a step forward to a return to where we were?

Mr. Martin. As far as the administering of the program. Well, 

I cannot speak for, nor can this administration speak for, any prio r 

administration on these programs.

I can only speak to what we hope to do now.

Mr. Williams. Thank you, Mr. Secretary.

Our next witness is Gen. Joseph P. Adams, general counsel, 

Association of Local Transport Airlines.
GUARANTEED LOANS TO AIRL INES 53

STATEMENT OF JOSEPH P. ADAMS, GENERAL COUNSEL, ASSOCIATION OF LOCAL TRANSP ORT AI RL IN ES

Mr. Williams. General, I believe you have a prepared statement. 

You may proceed.

Mr. Adams. Thank you, Mr. Chairman.

Chairman Williams and distinguished members of the Transporta ­

tion and Aeronautics Subcommittee of the House Interstate and Fo reign Commerce Committee, it is a great pleasure and a privilege to 

appear before you advocating the extension and increased loan limits 

of the act of September 7, 1957, being Public Law 85-307.

It is appropriate to pause here and extend the heartiest congratulations and appreciation of the members of the Association of Local 

Transport Airlines—Alaska Airlines, Alaska Coastal-Ellis Airlines, 

Allegheny Airlines, Aloha Airlines, Bonanza Air Lines, Central Airlines, Cordova Airlines, Lake Central Airlines, North Central Airlines, Northern Consolidated Airlines, Ozark Air Lines, Pacific Airlines, Piedmont Airlines, Reeve Aleutian Airways, Southern Airways, 

West Coast Airlines, Wien Alaska Airlines—for the wonders you 

gentlemen wrought just 5 years ago when you actively participated 

in the enactment of II.R. 7993 introduced by your distinguished chairman of the House Interstate and Foreign Commerce Committee, Hon. 

Oren Harris.

The legislation approved by your subcommittee 5 years ago has 

been a trium phant success. It has brought financial stability to the 

operations of the short-haul air tran spo rt industry and it has made 

it possible for the industry to mark up giant strides in revenue passenger-miles each year since the passage of the legislation while the 

trunkline industry has been marking time in the same statistical field 

of passenger service.

Your foresight and aviation transportation experience has made it 

possible for the member carriers of ALTA alone, to purchase 33 postwar turbopowered airplanes, 19 postwar piston-powered aircra ft and 

all with ( Government. guaranteed loans of some $35 million.

Not one cent of this loan amount is in default.

Your responsiveness to the public convenience and necessity needs 

of the smaller communities represented in your constituencies has 

resulted in literally millions of these passengers receiving service in 

postwar, pressurized, larger, and more comfortable riding equipment.

This new and improved service to the public has been made possible 

in 295 communities in 31 State s: Alaska, Arizona, California, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, 

New Mexico, North Carolina, North Dakota, Ohio, Oregon, South 

Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia, 

Wisconsin, Wyoming, and the I)istrict of Columbia.

Not one of these cities or States could reasonably have expected 

to have received this improved air service without the benefits and 

the enactment of the Guaranteed Loan Act of 1957.

This flat statement is unequivocably supported by reason of your 

wisdom in writing section 4 of the act of 1957, which read s:

Sec. 4. No gu arantee shall be made:

(e) Unless the Board finds that, without such gua rantee, in the amount 

thereof, the ai r carrier would be unable to obtain necessary fun ds for the pu rchase of needed a ircr af t on reason able terms.
54 GUARANTEED LOANS TO AIRLINES

The Civil Aeronautics Board in administering the act and carrying 

out the intent of Congress prepared Form CAB-411 (a) for the ap plication for loan guarantee and question 8 reads:

Would lender gra nt this loan, or a comparable loan, withou t gua ran tee by the 

Civil Aeronautics Board?

No more specific or even legal evidence need he introduced to support the position that these millions o f “Americans with a suitcase’’ 

were and are completely dependent on you distinguished members of 

this subcommittee and, of course, your colleagues for their everincreasing aviation transportation needs and requirements.

The unqualified success of this public interest legislation marks an 

historic example of the “arm of Congress” concept, as applied to administrative agencies of the Government.

This legislation was originally sponsored by the Civil Aeronautics 

Board, an “arm of Congress” and then studied, amended, and passed 

by Congress.

The purpose of the legislation in 1957 was to enable the feeder 

and short-haul type carrier to purchase equipment tha t would result 

in an economical and profitable operation, that would provide pressurized aircraft for passenger comfort, improve the attractiveness of 

the service to the public, and to generate increased traffic.

That these objectives have been attained in the fullest sense is beyond 

dispute.

The purpose of the legislation proposed in 1962 (H.R. 10129) is the 

same as that of 1957 and there is every reason to believe that its success 

when extended will match tha t of the past 5 years.

The Civil Aeronautics Board has made available to this committee 

a two-page detailed schedule of guaranteed loans, dated April 5, 

1962, which is a complete up-to-date report of each loan made since 

the passage of the act in 1957.

I would be repetitious to reoffer this document on behalf of ALTA 

although it is relied on to supp ort most of references to the success 

of the program made earlier in this statement or to follow.

Renewal of the act throu gh its extension is necessary because the 

new equipment procured only through the operation of the act has 

been a major factor in enabling local service carriers to realize substantial traffic growth in a 5-year period when air traffic generally 

was realizing only restrictive growth.

Between 1957 and the year ended .rune 30, 1961, local-service commerical revenues doubled. The ability to acquire new equipment 

under the Guaranteed Loan Act was a significant if not the most important feature in this unusual growth record.

The committee rep ort of 1957 stressed as one purpose of the legislation the necessity of making it possible for a carrier to obtain the 

funds for the purchase of a ircraft on reasonable terms.

The words “on reasonable terms” are as significant today as they 

were 5 years ago. An example of the assistance given carriers in 

realizing such terms is best illustrated by the example of Bonanza 

Air Lines, an ALTA member carrier.

Bonanza Air Lines financed its original acquisition of F-27 turboprop equipment on a 10-year basis with interest rates of 5^4 and 6 

percent. Having exhausted the $5 million guarantee available under 

the Guaranteed Loan Act of 1957 by reason of the $5 million ceiling,
GUARANTEED LOANS TO AIRL INES 55

the airline was required in 1961 to finance its ninth F-27 without the 

benefits of the act.

In so doing, it was required to write off this latest loan in 5 years at 

a 6%-percent rate.

While an airline may be able to finance one-ninth of its equipment 

on a short-term basis with high interest rates, it cannot conduct an 

overall fleet modernization program on such unsatisfactory financial 

terms.

Renewal and extension of the terms of the Guaranteed Loan Act 

of 1957 is vitally important to provide the additional equipment that 

will be needed to carry the passengers now in sight. Aloha Airlines, 

Inc., an ALTA member carrier operating in the State of Hawaii, has 

prepared a study of its aircraft needs to include 1965 and it is indicative of the growing requirements of this dynamic industry.

Aloha has determined that the available seat-miles required by the 

carrier in 1965 will he approximately 143,200,000. The existing fleet 

of six F-27 aircraft can produce a capacity of 86,580,000 seat-miles, 

leaving an apparent deficiency of approximately 56,620,000 seat-miles.

These are conservative figures and based on six airc raft with current utilization of 1,850 annual hours, cu rrent speed of 195 miles per 

hour and 40 available seats.

The fact that Aloha Airlines had a system load factor of 64 percent in 1961, the highest load facto r achieved by any scheduled certificated U.S. airline, lends credence to the accuracy of the carrier's 

predictions.

Aloha Airlines' study could be duplicated and supported by the 

growth requirements reasonably to he anticipated by the 10 local 

service ALTA members and the six Alaskan carrier members.

The seat-miles rexpiired by Aloha Airlines in the immediate 5-year 

period cannot be provided without the extension and renewal of the 

Guaranteed Loan Act of 1957.

The Association of Local Transport Airlines takes this opportunity to not only unqualifiedly recommend the renewal and extension 

of the Guaranteed Loan Act throu gh the passage of H.R. 10129, hut. 

respectfully requests tha t Public Law 85-307, section 4(d), be 

amended to increase the present loan limitation ceiling from $5 

million to $10 million.

Extension of the act with a dollar limit sufficient to embrace future 

technological improvements, will insure the ability of this industry 

to obtain the amount and type of equipment needed to meet its public 

service requirements on reasonable terms.

The. following statistics descriptive of all phases of short-haul air 

transport operations which dictate aircraft needs of the local service 

carriers are purposefully offered for the exact 5-year period durin g 

which the Guaranteed Loan Act of 1957 has been in full force and 

effect.

Mr. Chairman and distinguished members of the committee, I call 

your attention to exhibits A, B, and C, and to the fact that this is a 

somewhat new method wherein on the righ t hand column I have indicated t hat in all of the statistics concerning these pa rticular airlines, 

during the 5-year period of the existence of the present Guaranteed 

Loan Act, the needs of these carriers for equipment and everything 

concerned with their operation has doubled and in some cases almost 

4 times what it was in 1957.
56 GUARANTEED LOANS TO AIRLINE S

I have used t he identical qu ar te r s ta rtin g in 1957, th e th ir d q ua rter 

because the act was signed in Septe mb er of 1957, and using th is time 

perio d should b rin g yo u up-to-d ate.

Now 1 also feel I wou ld like to add to my sta teme nt in th is r egard. 

Th e asso ciation is not recom mending th at you ad d $10 m illi on in loan 

eligibi lity to wh at the ca rri ers have now on loan, but th at the ceiling 

be increased and th at would includ e the amounts th at the y pre sentl y 

have on loan.

In o ther words, if they now hav e $5 million , why, they could b orrow 

an ad dit ion al $5 millio n and th at , gen tlem en, is based com pletely on 

these sta tistics, whi ch ind ica te th at if the $5 millio n cei ling was ap ­

pr op riate in 1957, the ceiling of $10 millio n now is exactly equ ally 

as ap pr op riat e and in one respec t does no t represent an increase in 

yo ur intent to aid these ca rriers but to con tinue the aid at the same 

"degree a nd in the same rel ation to th ei r need th at existed in 1957.

The indiv idual ma nag em ent s of th e ALTA member ca rri ers believe, an d I sta te to you with my fulle st fa it h in th ei r position , th at 

th is reques ted increase in the loa n ceilin g is a development inh ere nt 

in the continued successful op era tio n of th e Gua ranteed Lo an Act.

Th e figu res provide d in the forego ing exhib its all indic ate th at in 

the 5-y ear per iod since the pas sage of the act, the req uir em ent of the 

public fo r seats has doubled , needing more ai rc ra ft at alm ost t rip led 

fleet costs.

A LTA requests yo ur s up po rt fo r extend ed gu aran teed lo an leg islatio n th at will serve the same purpose as the 1957 act, op erate in the 

same efficient ma nner as the 1957 act, and provide the millio ns of 

sh ort-h au l tran sp or t pas sen ger s th e same impro veme nt in service as 

made possible u nd er the 1957 act.

To accomplis h this same continued public benefit, th e act need l)e 

amend ed only in the m at te r of the do lla r am ou nt o f th e loa n ceiling , 

with no ad ditio na l co sts to t he U.S. Gove rnm ent.

Th e Civil Ae ronauti cs Bo ard in testify ing in supp ort of the Gua ranteed Loan Act of 1957 estim ate d th at , on the basis of $G0 million 

of gu aran teed loans am ort ize d ove r a 10-year period, its expenses 

wou ld be $450,000 as again st income from fees of $1.5 millio n, a net 

re tu rn to the Gover nment of ap prox im ately $1 million.

Fur th er , a failu re to amend the 1957 act to i ncrease the loan ceiling 

wou ld find most of th e prese ntly qualified ca rriers und er the Gua ranteed Loa n Act o f 1957 ineligible t o receive a loan un de r the extend ed 

act du ring its lifetime .

Th is un satis facto ry sit ua tio n is determined by an analy sis of the 

cu rren t CA B loan schedu le which ind icates th at 10 of the loans are 

pre sen tly fo r 10 ye ars, 5 a re f or 7 years, and 1 fo r 5 ye ars.

App lying th is loan sch edu le to an extension of the act for 5 yea rs 

at the present $5 million cei ling wou ld mak e it imp ossible fo r the 

majo rity of the ca rri ers presently incl ude d in the leg islation to contra ct fo r a loan in addit ion to th ei r presen t com mitment, reg ard les s 

of the passengers who may be wa iting a t the gates at seve ral hu nd red 

small city air po rts .

Th e G ua rante ed Loan A ct o f 1957 ha s proven an unqualif ied success.

Th e Associa tion of Local Tr an sp or t Airlines res pe ctfully requests 

its exte nsion by the passage of H.R. 10129, amend ed to increase the 

deb t ceilin g from $5 millio n to $10 million fo r the reason s offered at
GUARANTEED LOANS TO AIRL INES 5 7

This hearing. The opportunity to particip ate in this hearing is sincerely appreciated.

Mr. Williams. General, permit me to commend you on your usual 

excellent presentation to this committee. From the information tha t 

has been made available to the committee by the Civil Aeronautics 

Board, I would be inclined to agree tha t this program has been a 

tremendous success and most certainly should oe continued in the 

interest of the public who patronize the local service carriers.

Perhaps the best example that I can think of with regard to the 

contribution that this program has made would be found in Bonanza 

Air Lines which is the largest participant in the program and which 

has converted to an all turboprop or all jetprop service.

M ould you say tha t Bonanza Air Lines, by this conversion, reduced 

their operating costs, provided greater service, and increased passenger 

miles?

Mr. Adams. The answer is in the affirmative. The subsidy moneys 

paid to Bonanza Air Lines in 1961 were reduced by reason of this 

change to one-type fleet, turbopowered, and in a special mail rate 

order issued by the Board last month, in connection with an award 

by the Board to Bonanza Air Lines of a new route throu gh Los 

Angeles, the Board specifically reduced their subsidy an additional 

approximate $96,000 for the future year.

Mr. Williams. So it actually has resulted in a savings to the 

Government ?

Mr. Adams. Yes, sir.

Mr. Williams. I n i year of $9(5,000 ?

Mr. Adams. Yes, sir.

Mr. Williams. Not to mention the servicing charge that the Government got out of handling the lo an?

Mr. Adams. That $96,000, Mr. Chairman, is the combination of 

the type of airc raft and the new route.

It is a combination of the two that is going to reduce it that much.

Mr. Wilijams. lia s tha t conversion tended to reduce their cost of 

operation ?

Mr. A dams. Yes, sir.

Mr. Williams. On a proportionate basis?

Mr. Adams. Mr. Chairman, one of the first results of your act was 

the increase in traffic, over the segments already operated by many of 

these carriers when they put into effect postwar type equipment.

In some areas the traffic on some of these segments increased as 

much as 30 or 40 percent.

Mr. Williams. Mr. Friedel, do you have any questions?

Mr. Friedel. 1 would like to compliment the general for his fine 

statement.

I do have one question.

I notice that Mr. Martin, Junior, Under Secretary for Transportation, Department of Commerce, recommended that the maximum 

allowable amount guaranteed to any one carrier be $15 million.

You request it be increased to $10 million.

Mr. Adams. Congressman Friedel, I believe that is based on their 

having tailored the necessity by their study to the all-cargo carriers 

to procure additional turbine-powered equipment, and I believe, that 

anything less than that amount would not be practical for the pur-
58 GUARANTEED LOANS TO AIRLINES

chase of the type and size of equipment that is generally being talked 

about for those operators.

I, of course, have no problem with the amount beiiw- $15 million 

as against $10 million. The $10 million was sponsored by our group 

because of it being tailored to what we believe are the needs of our 

members and the present eligible people under the act.

Mr. Friedel. Would you like to comment, as far as transferring 

jurisdiction from the CAB to the Department of Commerce? I do 

not want to embarrass you but ask if you would care to comment?

Mr. Adams. No, sir. The act as it is now in full force and effect 

has been ably administered, in my opinion, by the CAB.

Knowing the staff and the appointed officials of the Department of 

Commerce, I feel that they could continue this in an efficient manner, 

but I do not believe, Congressman Friedel, that it is particularly appropriate for we, who are the beneficiaries of the program, to urge 

upon you one administration of it or another.

I believe th at is more fully within your jurisdiction.

Mr. Friedel. Would you like to comment on the trunk carriers 

that have been losing money? They cannot take advantage of this 

low interest rate financing by the guaranteed loans of the Government, why they should not be included ?

Mr. Adams. I know of no reason why they should not be included, 

Congressman Friedel, and 1 only can assume, having lived with the 

legislation from its inception, that they may not. feel the need of it 

and tha t may be why they are not requesting inclusion.

But 1 cannot speak for them, of course, and I cannot answer your 

question any more adequately than that.

Mr. Friedel. But it does put the trunklines at a disadvantage as 

far as financing is concerned against the smaller short route haul 

carriers?

Mr. Adams. Well, 1 may not be the best witness on a financing 

proposition, but 1 would think in this regard that the size of most of 

the trunk carriers and the size of their financing is such th at it has a 

greater appeal to national financial houses than the relatively small 

carriers represented in ALTA where mostly we have under 500 employees and the companies are relatively unknown to New York financial houses.

I believe th at is the discrepancy that we are curing by this legislation. I have no reason to believe, Congressman Friedel, that the 

large carriers pay the high rates that our people would pay under 

similar circumstances.

Mr. F riedel. Thank you.

Mr. Williams. General, the local-service territorial airlines are not, 

except perhaps in isolated cases, in competition with the trunklines, 

are they ?

Mr. Adams. That is correct, Chairman Williams. The Board’s 

policy does not permit that although there are isolated segments where 

by reason of the necessity for what we call right of entry into a terminal point, we may parallel a trunk on a short segment but it is not 

intentionally planned tha t way.

Mr. Williams. Since these are feeder airlines, so to speak, they 

actually make business for the trunk lines, do they not ?

Mr. Adams. That is correct, Mr. Chairman.
GUARANTEED LOANS TO AI RL INES 59

Mr. AV illiams. Can you give us some indication as to what percentage of your passengers <>r your ticket purchasers buy tickets 

through on trunklines?

Mr. Adams. I believe the ligure of 40 percent is good and if 1 find 

on my return to the office that tha t is in error, I will write you a letter.

Mr. Williams. Mr. Collier, any questions?

Mr. Collier. No questions.

Mr. Williams. Mr. Macdonald.

Air. Macdonald. As representing the short-haul or feeder airlines, 

do you know whether or not your airlines plan to assess penalties 

against passengers who cannot make an airplane after they have purchased the ticket for that airplane?

Mr. Adams. The Association of Local Transport Airlines is on 

record having opposed that particular tariff that you are discussing 

and individual members, when meeting with the committee of the 

industry that planned the implementation of the tariff, opposed the 

tariff; however, Congressman Macdonald, it developed tha t it was 

impractical or it might be said to be impossible for the tariff' to have 

gone into effect unless everyone followed it and to tha t extent our 

carriers where the matter is in relation to a trunk interline, they would 

be required to follow the tariff.

Mr. Macdonald. You mean if it was part of an overall tri p ; in other 

words, coming from Manchester, N.IL, on a feeder line and changing, 

say, at La Guardia and going on to Miami, you would assess a penalty ?

Mr. Adams. If the person was ticketed by the local carrier on a 

trunk.

Mr. Macdonald. Togo beyond the point that your airline can carry ?

Mr. Adams. Yes, sir.

Mr. Macdonald. But you would not assess him, would you, if he 

were only to carry out tha t part of the ticket that was completely 

within your control ?

Mr. Adams. That is my understanding; yes, sir.

Air. AIacdonald. And what v.ere the reasons that your organization or the feeder airlines opposed this imposition of penalties, this 

one-way imposition of penalties against passengers?

Air. Adams. Well, 1 may not be the best witness for you on tha t 

subject inasmuch as tha t is quite a technical matter of operations 

within the carrier, but. I will attem pt to tell you that I believe our 

carriers have a lower system load factor than the trun k carriers, and 

they did not feel tha t it was significant to the industry in the case 

of a “no-show” to the same extent it is on the trunk carriers.

But secondly, the administrative costs and the work involved in 

carrying out tha t tariff, I believe, are going to be quite considerable.

Air. AIacdonald. All right, sir. Has your position been made public in opposition to this tariff?

Mr. A dams. I believe only io the extent that the position of our 

people has been discussed in the relative trade papers, our aviation 

trade papers.

Air. Macdonald. Did you make your views as an association known 

to the CAB ?

Mr. Adams. Yes, I believe we did.

Air. AIacdonald. Who was pushing for this penalty provision ?
60 GUARANTEED LOANS TO AIRL INES

Mr. Adams. I can only report on what I have read in the past 6 

months in the trade papers and my knowledge o f the parties involved.

I believe it originated almost a year ago. When the Board invited 

the presidents of all the trunklines to come in and have a real firm 

discussion of the industry problems which most people realized were 

severe and during those discussions, it is my understanding tha t the 

thought was put forward th at one of the costly operation features 

today is the “no-show.”

Mr. Macdonald. Yes, sir. But you have just testified tha t the 

mechanics, in order to oppose this tariff would be even more costly 

than the “no-shows,” themselves.

So if it is true for your airlines, why would it not be true for the 

other airlines?

Mr. Adams. Well, Congressman Macdonald, I do not believe I said 

quite that. But what I meant to say is that the relative significance 

of both the penalty and the failure of the person to show up is less 

on a carrier that has generally 80-mile traffic segments than it is a 

trunk carrier that was dealing in, maybe, 750-mile segments, and so 

there the significance to the carrier, dollarwise, is proportionately 

much greater than in the case of the short-haul operators.

I assume there is an administrative cost on the part of the trunk 

carriers but in relation to the ticket cost it could be insignificant,

Mr. Macdonald. I see. Even though you say on page 6 of your 

statement that Aloha Airlines is part of your airlines and had the 

highest load factor achieved by any scheduled or certificated airlines 

scheduled in the United States ?

Mr. Adams. Th at is correct, and they are 20 percentage points 

higher than the industry average.

Mr. Macdonald. But you feel their position in opposition to this 

imposition of the penalty would not be akin to that of the regular 

trunklines who, I am sure, do not have a 64-percent load factor?

Ju st mere processing of each ticket would seem to me would be 

costly.

Mr. Adams. Well, Congressman, I am not too sure how it works but 

I do not believe anything is done to each ticket. It is only in the case 

of the pei-son that presents a ticket that had a previous reservation 

and did not show.

Mr. Macdonald. That is right, sir. That is exactly what I meant, 

Yesterday, Mr. Alan Boyd testified tha t the airline itself is charged 

with the duty of collecting the tine. Now, wouldn’t the man-hours and 

arguments, and so forth, go into tying up the personnel on the ground ? 

This, incidentally, is an area which it would seem to me the airlines 

have already cut back to a dangerous degree.

There are not enough ground personnel, in my mind, to service the 

aircra ft properly. Do you not feel this will be a step in the direction 

to even make more arduous the ground personnel’s duties ?

Mr. Adams. Well, Congressman Macdonald, I do not believe I can 

lie helpful because the plan has been in effect now just about a week 

and I honestly have not heard just how it is operating.

I am sure that your question would be a productive one if we had 

someone that is dealing in that particular phase of operations and 

could tell you what has happened since the first of May.

Mr. Macdonald. Thank you very much.
GUARANTEED LOANS TO AIRL INES 61

Thank you, Mr. Chairman.

Mr. Williams. Mr. Devine.

Mr. Devine. Mr. Adams, you were in the room when Un der Secretary Martin testified this morning?

Mr. Adams. Yes, sir.

Mr. Devine. Did you listen to his testimony ?

Mr. Adams. Yes, sir.

Mr. Devine. You notice there is a slight variance in th at they recommend the loan guarantee be increased to $15 million and your organization suggests $10 million?

Mr. Adams. Yes, sir.

Mr. Devine. Do you have any objection to the increased amount or 

any reason why $15 million would be too much ?

Mr. Adams. No, s ir; we have no objection at all to the increased 

amount, and I would like to call your attention to page 2 and the section 4 of the act because it is my honest opinion, having worked with 

this act that no one can receive money that is unneeded because the 

company has to, in effect, make an affidavit, that they need this equipment and the CAB studies th eir routes and know’s their needs, so I do 

not believe th ere is any danger, although it certainly pays, Congressman, to be alert to th at subject.

But I do not believe tha t there is any danger of anyone borrowing 

more money than is needed by the carrier in its specific operations.

So we would have no problem with the amount being $15 million 

instead of $10 million.

Mr. Devine. Do you feel $10 million would be enough ?

Mr. Adams. That is the position of our grou p; yes, sir.

Mr. Devine. And I was not quite clear, but, again, Mr. M artin sugg

ested this m ight be trans ferred from the CAB to the Department of 

ommerce.

Do you have any feelings on that?

Mr. Adams. Well, Congressman, as a beneficiary of the full force and 

effect of the act, I do not believe it is quite appropriate for us to recommend who is to administer it.

I believe that your committee is the only logical motivating factor 

in such a suggestion.

Mr. Devine. I would agree with that. But, of course, we like to 

have recommendations from those tha t are living in the trade.

Has your experience been satisfactory with the administration of 

the act?

Mr. Adams. Our experience has been completely satisfactory; yes, 

sir.

Mr. Devine. You then would have no objection if it remained where 

it is?

Mr. Adams. No, sir.

Mr. Devine. Thank you.

That is all, Mr. Chairman.

Mr. Williams. General Adams, you have served as a member of the 

Civil Aeronautics Board and have quite a distinguished record in 

aviation.

While you may not be able to speak for the association with authority in th is regard, I would like to have your personal opinion as 

to whether you think th at it would be in the interest of our transpor8 4 82 8— 62 ------- 5
62 GUARANTEED LOANS TO AIRLINE S

tation system and in the interest of the public which patronizes local 

services for this program to be placed under the Department of Commerce?

You made the remark a few minutes ago in response to a question 

asked by Mr. Devine, I made a note of the words you used, you said, 

“The CAB, in considering these loan applications, studies the routes 

and they know the needs ot the particular carriers.”

Now, would tha t also be true in the case of the Department of 

Commerce ?

Mr. Adams. It would be necessary for whoever is administering the 

loan to be cognizant of the operating requirements and necessities in 

the public service of tha t p articu lar carrier which relates to its equipment ; yes, sir.

Mr. Williams. Which of the two do you personally feel would be 

best qualified to administer this program in the interest of the public?

Tha t is, the flying public.

Mr. Au>ams. Well, Mr. Chairm an, as I indicated, the adm inistration 

of the program during its 5 years of life has been most efficient and the 

carriers that have required the loans have been granted the loans and 

I have no reason to believe tha t anyone has failed in the intent of the 

act through its administration, and I know many of the personnel and 

the people in the Department of Commerce under the Transp ortation 

Section, and I know they are well qualified.

I would assume tha t they would procure the basic transportation 

statistics in relating to a carr ier from the CAB, which is the only 

source of the operating statistics of all certificated carriers.

These statistics are made a p art of what is known in the trade as 

form 41 reports and they are submitted monthly, quarterly, and the 

Board has those, and throu gh studying those you can tell the load 

factors, the frequency of flights, the schedules, the route-miles, and 

every variant tha t is needed in discussing the need of a carrier for 

equipment.

Mr. Williams. General, getting into another field, what is the cost, 

if you know, was the seat-mile cost of op erating a DC-3 as compared 

to the seat cost of operating an F-27 ?

Mr. Adams. I would be pleased to offer th at later, Mr. Chairman. 

I do not have it with me.

(The requested information was submitted by letter from Mr. Win ­

field H. Arata, Jr. , dated May 14, 1062, appearin g on p. 89.)

Mr. Williams. Can you advise us whether the F-27 is a cheaper 

aircra ft to operate on tha t basis than the DC-3 ?

Mr. Adams. I feel quite certain it is, Mr. Chairman. But you are 

going to have appearing before you later in this session representatives of the Fairchild Co., and I am sure tha t they can provide you 

with some actual results in equipment that they have manufactured 

and sold to date.

Mr. Williams. Well, while you are before the committee, I have 

some questions that I would like to ask you in reg ard to what is being 

done in the way of developing an aircra ft specifically designed for 

your needs.

Mr. Adams. Well, Mr. Chairman, I would like to refe r to a statement which you were so kind as to p ut in the record yesterday.
GUARANTEED LOANS TO AIRLINES 63

It is entitled “ALTA Policy Statement,” dated April 27, 1962. 

This was adopted at our spring regional meeting in Atla nta, Ga., 

at which meeting the distinguished chairman of this committee was 

our speaker.

This statement deals with the subject th at you have raised and if I 

might, may I read the first paragraph.

Mr. Williams. Surely.

Mr. Adams (read ing) :

The problem of continued scheduled airline service to smaller intermediate 

cities over relatively low density routes has been ably noted by Senator A.S. 

Mike Monroney, chairman of the Aviation Subcommittee, Congressman John 

Bell Williams, chairman of the Subcommittee on Transportation and Aeronautics, House Int ers tate and Foreign Commerce Committee, and other congressional and aviation leaders.

Continued service to such cities is at issue as is an expansion of scheduled 

airlin e services to other deserving cities.

In this regard, construction of a more economical short-haul aircra ft has been 

advocated in order to provide continued and expanded service to such affected 

communities at a minimum cost and at a minimum level of Federal support.

The statement goes on to give several oth er requirements and also 

to name the president of Allegheny Airlines as chairman of a committee which is to proceed on behalf of our group to explore every 

facet of the subject you have raised.

Mr. Williams. I have no further questions.

Mr. J arm an, do you have some questions ?

Mr. J arman. General Adams, I am sure you are familiar w ith the 

so-called Smathers amendment tha t would bring all cargo planes 

within this legislation ?

Mr. Adams. Yes; I am.

Mr. J arman. Would you care to comment on that recommendation?

Mr. Adams. I am happy to comment on it.

The association tha t I represent and our carriers have no difference 

or problem with a decision by this committee or either arm of Congress to add qualified people to the loan, and if, in your wisdom, these 

people have a need f or the guaranteed loan to the same extent tha t the 

carriers named by this statement have, then I am sure t hat you will 

add them.

Mr. J arman. Have you given any thought to the position of the 

CAB as expressed by Chairman Boyd yesterday in which he indicated 

that the Board would support the Smathers amendment provided the 

bill contained a provision to the effect th at loan guarantees for cargo 

aircra ft shall be made only for the purchase of turbine-powered air ­

craft which would be made available to the Department of Defense 

in time of national emergency?

Mr. Adams. Yes; I heard him make tha t statement, Congressman 

Jarman, and I believe that that is a point tha t you will want to consider, and I am sure the reasoning for it, having myself served in a 

similar capacity, is that the Board would feel tha t it is proper to include such a ircraft but may not feel it is p roper to include some reworked piston-type a ircraft where they may only have cut out larger 

doors or something to make it into a cargo plan e; whereas if the plane 

as described by the Chairman of the CAB is a modern, up-to-date 

turbine-powered aircraft which could be either a prop jet or power jet 

plane, that would be suitable to the military’s needs, I feel that that is 

an added reason why the cargo airc raft loan might be considered in 

the public interest.
64 GUARANTEED LOANS TO AIRL INES

Mr. J arman. If the Sm athe rs am endm ent sho uld be adopted , do 

you feel th at th e leg islation e xte nding t he p rov isions to a ll-cargo ca rrie rs sho uld conta in a lim ita tio n th at the ai rc ra ft acq uired thro ug h 

gu aran tee d loans be used only in schedu led car go service?

Mr. Adams. I wou ld feel, Cong res sman Ja rm an , th at th e loan sh ould 

be based on the ty pe of ca rri er, a nd y ou, if you add “c ar rier s” you will 

ad d them by name, I assume, as yo u did in yo ur orig inal legislation.

So once you have d ecid ed th at such and such airli ne is to be eligible, 

I would no t think , C ong ressman Ja rm an , th at you w ould wa nt to ta ke 

the next step and sta te ex actly in wh at ty pe of serv ice they shou ld use 

it.

I believe that once you have satisfie d yo urself t hat t hat com pan y a nd 

th e op era tio ns of whi ch are kno wn to you b y its t itle and descr iption 

need the loan and qu ali fy, th at th at wou ld be adequate.

Mr. J arman. Would you feel th at inclu ding th e all-ca rgo ca rri ers 

in this leg islati on w ould g ive the all-ca rgo carrie rs a c redit advanta ge 

th at is no t enjoye d by th ei r comp etitor s who provide bo th pas sen ger 

and ca rgo service ?

Mr. Adams. I do not th in k so, and fo r th is re as on : I believe th at 

the ca rri ers, th e trun k carriers, toda y are basically of such size and 

co rporate wo rth th at they are ha ving no difficulty wi th th ei r financing of ai rc ra ft, and the di sp ar ity exists tod ay in the fact th at they 

are in such a better co nditio n or position t ha n these v ery sm all ca rri ers 

th at all th is loan leg islati on does is to do awa y wi th the di sp ar ity by 

givin g these sma ll com panies an op po rtu ni ty to borrow money in the 

money marke t th at they do no t now’ h ave, and, if an ything , it merely 

equalizes th ei r op po rtu nity with th at of t he t ru nk carriers .

I do not th in k th at it ends in inc rea sin g o r c on tin uin g the disparity .

Mr. F riedel. Do you no t th in k the tr unk ca rri ers sho uld be able 

to ge t financ ing at the same rate or un der the same pro vision s th at 

you do now ?

Mr. Adams. I believe, Congressman Friede l, th at the tru nk ca rri ers 

have been able to ree quip at ra te s th at are com parab le to those th at 

have been realize d by ou r ca rri ers throug h the exercise of the Gua ranteed L oan Act.

Mr. F riedel. W hy sho uld the y no t be includ ed in the presen t bill ? 

I f the rates are com parable, they w’ould no t ge t any benefit at all 

according to wha t you say b ut evid ently the y w ould lik e to be included ?

Mr. Adams. Oh, Con gressm an Fr iede l, these ca rgo c arrier s are v ery 

small op erato rs in rel ati on to wha t we know as the 11 trun k ca rri ers 

in the Un ite d State s an d th ei r financia l position, at least as ind ica ted 

in the trad e pre ss fro m tim e to tim e is quite margina l an d the y, I 

assume, are ha ving difficulty with th ei r cre dit ors or they wou ld not 

be as kin g yo ur assistance.

How ever, I do not k now th at fir sth an d, as I do no t represen t them .

Mr. F riedel. We ll, wou ld it be fa ir to have the m inc lud ed at the 

same ra te of finan cing ?

Mr. A dams. We ll, I w ould hav e no pro blem.

Mr. F riedel. All they are askin g is an equal op po rtun ity to finance 

their pla nes at the same rate you are ge tti ng un de r ou r prese nt law’ ?

Mr. J arman. Will the ge ntlem an yield ?

Mr. F riedel. Yes.
GUARANTEED LOANS TO AIRLINES 65

Mr. J arman. It is your understanding th at these trunklines do not 

need this kind of assistance ?

Mr. Adams. Tha t is my understanding.

Mr. J arman. Are you speaking generally ?

Mr. Adams. Yes, sir.

Mr. J arman. Does your general statement include all the major 

trunklines ?

Mr. Adams. Yes, sir ; it would include all the trunklines.

Mr. J arman. You know of no major trunkline tha t is having any 

difficulty getting loans for purchase of equipment ?

Mr. Adams. I do not know of any; no, sir.

Mr. Friedel. How about TWA ?

Mr. Adams. Well, 1 do not believe I am qualified to comment on that 

other than to say I think their problem is much broader than that of 

just getting a loan.

Mr. J arman. If the Congress should decide to include the all-cargo 

carriers within the provisions of this legislation, do you not feel th at 

in fairness, any carrier authorized to carry cargo should be able to 

obtain the benefits of this legislation ?

Mr. Adams. Well, I will answer you directly by saying tha t I would 

have no problem with your inclusion of anyone tha t this committee 

feel needs this type of Government aid and, if these carriers tha t you 

describe need it, I see no reason why they should not be added and 

I see no reason why this act should not pertain to all the 11 t run k 

carriers because it is self-policing.

Nobody uses this act unless they have to because, each time a ca rrier 

gets a loan under this act, they have to state that they cannot procure 

the money in a comparable manner from any source without the 

guarantee.

Furthermore, when they apply to the Civil Aeronautics Board for 

a loan, tha t is public knowledge to the industry and to the hanking 

fratern ity and if there is any banker in any part of the country tha t 

would like to loan the carrier the money under the terms tha t are 

being discussed, he need only step forward and say, “I will loan you 

that money.”

Then the carr ier can withdraw his application for the loan gua rantee. So in a unique fashion, the act is completely self-policing. No 

one gets a loan that they do not need and it has been proven to be 

the case in every loan to date.

Mr. Macdonald. Just to buttress your remarks about TWA, I would 

like to point out tha t just very recently Howard Hughes made application and made quite a campaign within the CAB to get permission to purchase another airline, to wit, Northeast Airlines, 

and they were given that permission.

So I would think financially the CAB must think they are in pretty 

good shape to give them permission to take over an airline that is 

operating with a deficit.

Mr. Friedel. Let me ask you one more question.

I asked Mr. Martin, and I am sure you heard me, whether he would 

object to including an amendment introduced by Senator Hartke to 

include Puerto Rico in the bill.

Do you have any comment on tha t ?
66 GUARANTEED LOANS TO AIRLINES

Mr. Adams. I will answer you definitely. We have no problem 

with it and there is a earner, a short-haul carrier, that operates in 

that area.

1 believe it is Trans Caribbean Airways that might desire this aid. 

I am sorry I cannot think at the minute whether they are included 

in the act of 1957 or not.

Mr. Macdonald. Mr. Roy Chalk is the president of tha t company 

and is sittin g behind you and probably can testify as to that.

Mr. Adams. Trans Caribbean is not included in the act. They are 

asking it be amended to include them. There is an additional carrier 

in the area and I misstated the name. It is Caribair.

T have no difficulty with the inclusion of Puerto Rico or Trans 

Caribbean Airways if that carrier needs this type of aid.

T wish to say, again, that I know of no piece of legislation tha t 

has been as successful as this act in the 5 years it has been in 

effect.

It is unique and the committee and you gentlemen are not receiving the commendation you should in the public mind for having 

conceived such a fine piece of legislation and it has just been wonderful.

Mr. F riedel (presiding). Any more questions?

Our next witness is Mr. R. A. Fitzgerald , vice president, Washington affairs, Seaboard World Airlines, Inc.

STATEMENT OF RICHARD A. FITZGERALD, VICE PRESIDENT, WASHINGTON AFFAIRS, SEABOARD WORLD AIRLINES, INC.

Air. F itzgerald. Mr. Chairman and members of the committee, I 

appreciate this opportunity to testify on H.R. 10129.

Aly purpose is to urge the expansion of the provisions of the bill 

to include guaranteed loans to all-cargo carriers for the purchase of 

cargo aircraft.

Seaboard World Airlines is a certificated all-cargo carrier, o perating over the North Atlantic, and serving points in Western Europe, 

including the United Kingdom, Ireland, the low countries, Germany, 

Switzerland, and France.

Seaboard World is the only scheduled international all-cargo air 

carrier presently operating under the American flag. It has its headquarters at the Idlewild Airpor t in New York.

Seaboard World Airlines has been operating freight services across 

the North Atlantic since May 1947. Until 1956, it operated as a nonscheduled cargo carrier. Since April 1956, it has operated under a certificate of convenience and necessity which authorizes scheduled cargo 

and mail service between the United States and Europe.

Seaboard World has many proud accomplishments in the public 

interest.

It was one of the first air carriers to provide transatlantic air lift 

support for the Berlin airlift in 1954—during the 6 months of the 

Berlin airlift it onerated 107 transatlantic freig ht flights, carry ing 

1,394,000 pounds of cargo.

Two years later—in July 1950—Seaboard World was the first carrier to take off from Travis A ir Force Base in California to inaugurate 

the Pacific air lift to Tokyo in support of the Korean action.
GUARANTEED LOANS TO AIRLINES 67

During the following 44 months Seaboard World operated 2,500 

flights, totaling 17 million miles, carrying 23 million pounds of freig ht 

and 34,000 military passengers.

Since the end of the Korean conflict, Seaboard W orld has continued 

to provide a large volume of air lift for the U.S. military establishments while, at the same time, developing the commercial airfre ight 

market bet ween the United States and Europe.

This company’s contribution to the development of U.S.-flag commercial cargo service between the United States and Europe is demonstrated by the fact that North Atlantic commercial freight carried 

by U.S.-flag carriers has increased from 4,539,000 kilos in 1955, which 

was prio r to certification of Seaboard World, to 31,847,000 kilos in 

1961, an increase of sevenfold; and the U.S. carriers’ share of the 

North Atlantic market increased from 38 percent in 1955 to 48 percent 

in 1961.

Seaboard World’s share of the U.S.-flag total increased from 32 

percent in 1957 to 51 percent in 1960.

At the present time, Seaboard World is the only carrier—United 

States or foreign—operating modern, turbine-powered cargo aircra ft 

on the North Atlantic route.

We believe tha t our operation has substantially stimulated the 

growth and development of aircargo and tha t our continued operations 

will stimulate more vigorous cargo development in the future.

In 1959, Seaboard World contracted to purchase five Canadair CL - 

44 prop jet cargo aircra ft to be delivered in 1961.

We ordered them from Canadair, which is a Canadian company.

The CL-44 is a swing-tail turbine-powered propeller aircraft having 

a capacity in excess of 30 tons on the North Atlantic route. It is convertible to passenger service and will carry 165 passengers with their 

baggage.

It is the only modern all-cargo aircra ft in service today, and it is 

the only existing cargo a ircraft which has a chance of making a profit 

at existing and foreseeable cargo rates.

The CL-44 is manufactured in Canada by Canadair, Ltd., which 

is a subsidiary of General Dynamics—a U.S. corporation. The action 

of our company in acquiring the CL-44 was dictated by the fact th at 

it was the only modern, long-range, all-cargo airc raft available to us 

at the time.

Moreover, we were able to acquire these airc raft only because the 

Canadian Government assisted us in financing the airc raft by an arrangement which is basically comparable to the guaranteed loan program here u nder consideration.

I should say it is a much less favorable system than we have under 

the present law fo r the local-service carriers.

But for this assistance, we would not have the CL-44’s in operation 

today, and the United States would have five less modern cargo planes 

in its Civil Reserve Air Fleet, and, as you know, there are few of 

those.

Seaboard W orld’s accomplishments have not been achieved without 

serious sacrifices by its stockholders and management.

Unlike the scheduled passenger air carriers, all-cargo air transportation has not been an economic business up to this point in time.

This is illustrated in our case by the fact tha t our earned surplus
68 GUARANTEED LOANS TO AIRLINE S

as of December 31, 1961, was a deficit of $13,210,000 and by the fu rther fact tha t our losses totaled over $11 million during the past 2 

years.

The basic cause of our past losses was the lack of aircra ft capable of 

operating at sufficiently low un it costs to permit rates which would 

produce a reasonably economic volume of service.

We now have the aircra ft which can do the job. The CD-44 can 

produce unit costs which will permit profitable operations at current a ir freight rates. This does not mean that we are sure of making 

a profit, for our operations are subject to the same competitive problems about which our large r passenger carrier brothers so loudly complain—and we have the tremendous handicap of being required to 

operate without the benefit of passenger revenues and without the a dvantage of carry ing freight in the cargo holds of large passenger a ircraft.

On the other hand, all of the other 17 passenger carriers operating 

over the North A tlantic can operate all-cargo aircraft, and a number 

of them do.

With the delivery of our fifth CL-44 aircra ft we have now established a pattern of service under which we expect to make a modest 

profit. This pattern of service includes a substantial volume of military contract service, and we are dependent on military traffic for a 

substantial part of our revenues.

At the present time, Seaboard W orld is considering th e purchase of 

additional CD-44 aircraft. Because of the complex problems of crew 

integration, maintenance, and other technical problems, it would be 

uneconomical for us to acquire a different aircra ft type a t this time.

Our efforts to acquire these additional aircra ft are dependent in 

large pa rt on financing to be guaranteed by the Canadian Government, and I am speaking of the CD-44.

Although we feel that we have no existing requirement for U.S. 

manufactured cargo airc raft, we foresee a strong possibility tha t we 

will require pur e jet aircraft within the next 3 to 5 years.

Both Boeing and Douglas have indicated th at they plan to produce 

all-cargo versions of the Boeing 307 and DC-8 jet passenger aircraft, 

and Bockheed A ircraft Co. is well along in its production of the C141 cargo jet, which is designed to provide much grea ter lif t and 

substantially lower unit costs.

It remains to be seen whether the converted passenger jets will 

produce unit costs which are lower than those produced by the CD-44.

It is clear, however, that the pure-jet aircraft will have a significant 

speed advantage which may have an effect on our ability to compete 

in the market. In any event, it is almost a certainty tha t the next 

generation of freight aircra ft will be pure jets and we will have an 

urgent need for such a ircraft in order to remain competitive against 

other U.S.-flag carriers and the many foreign airlines with whom we 

compete.

In considering the proposed legislation, it must be remembered th at 

the various committees of Congress, the President, and the Dep artment of Defense have repeatedly emphasized the fact that the pr imary deficiency in our military airlift capability is in long-range 

cargo aircraft.
GUARANTEED LOANS TO AIRLINE S 69

This deficiency was underscored by the Department of Defense 

report titled “The Role of the Military Air Transport Service in 

Peace and Wa r” which included the “Presidentially Approved 

Courses of Action,” issued in February 1960, which declared:

Military rea din ess : Existing deficiencies in cargo ai rlift capability adve rsely 

affect milita ry read iness. There is not sufficient commercial cargo capa bility 

to accommodate the m ilitar y wa rtim e traffic which could otherwise move in commercial air craft.

The quantitati ve deficits in commercial cap ability to meet wartim e needs are 

such th at the continuity of the oversea pipeline cannot be assured in cases of 

emergency and forces whose operations ar e gea red to airlift support may be 

deprived of airlift at a time of urgent need.

* * * * * * *

The overall cargo ai rlift situation is serious and unless action is taken to 

modernize and expand the n ational cargo capability, both milita ry and commercial, effective airlift sup port cann ot be ass ure d the Armed Forces.

Fu rth er, unless cargo cap ability is modernized and expanded, the D epartment 

of Defense and the Natio n will continue to be denied efficient a nd economical ai rlif t service.

The objective of encouraging the development of new and modern 

all-cargo aircra ft was also recognized in the so-called Project Horizon 

report, “Report of Task Force on National Aviation Goals, September 

1961,” where there is set forth as one of the “national aviation goals 

for 1961-70":

Support and encourage accelerated development of the civil air-cargo i ndu stry 

in a manner th at will con trib ute in peacetime to the economic grow th of the 

Nation and of the world and will, as well, supply a fleet of efficient cargo aircr af t to meet any m ilit ary emergency.

The serious cargo airlift deficiency in the CRA F program was affirmed by Gen. Joe Kelly, commanding general of the Military Air 

Transport Service in a panel presentation to the press at the Ai r Force 

convention on September 22,1961.

General Kelly sta ted:

Since all planne d passenger requ irem ents will soon be satisfied by civil jets, 

the only deficiency in CRAF equipment is in cargo capability. The delivery 

in the near fu ture of 17 Canad air CL—44 to 3 CRAF carri ers will mean some 

improvem ent in this area.

The fact tha t the aircra ft which wotdd be acquired under the pro ­

posed legislation covering all-cargo aircraft is urgently needed in suppor t of the national defense is a most im portant reason for approving 

an adequate guaranteed loan program fo r all-cargo carriers.

In addition, such a program will provide important support to the 

cargo carriers in their efforts to acquire and maintain modem and 

fully competitive aircra ft in the development of trade and commerce 

for the United States.

The present law fixes a $5 million limit on all-cargo loan guarantees. 

We urge that the amount be increased to $20 million for the cargo 

carriers.

The price of modern cargo aircra ft is such tha t $20 million may 

well be required for a minimum fleet. Pan American World Airways 

has announced tha t the two cargo jets which it recently ordered cost 

more than $13 million fo r the two.

It would appear th at the cost of cargo jets for a carier not now operating the same type of aircra ft would be substantially greater, since 

it would involve the purchase of many spares which Pan American 

does not have to buy, since they already operate the basic 707 airplane.
70 GUARANTEED LOANS TO AIRLINES

We have found that a fleet of five turboprop airc raft is close to 

the minimum size for efficient operation. It is reasonably apparent 

that at least three jet aircra ft would be the minimum which could be 

operated effectively.

Fo r this reason we urge tha t the maximum guarantee for all-cargo 

carriers be increased to $20 million.

The inclusion of the all-cargo carriers in the guaranteed loan proS

’am is endorsed by the “Presiden t’s Task Force on National Aviation 

oals” (Project Horizon) issued in Sepember 1961, which recommended :

While it is not clear that direct subsidization of cargo services is presently 

warranted, we are of the opinion tha t indirect aid should be provided in the 

form of Government support of air-cargo services for mail and military cargo, 

and guaranteed loan legislation subject to the most detailed scrutiny by the 

Civil Aeronautics Board.

Mr. Friedel. Thank you for a very fine statement. I understand 

you have to appear before the Senate and will ask the Members if 

they have any questions?

Mr. F itzgerald. I have a problem and I have not been able to avoid 

these two commitments coming right together.

Mr. Friedel. Mr. Staggers, any questions?

Mr. Staggers. No questions. I thin k your statement is well put. 

At the present time I gather from your statement tha t you just do 

not need this but you are looking into the future for this and for 

others in the event of any emergency ?

Mr. Fitzgerald. Yes. Mr. Staggers, I thin k the prim ary argument we can make in support of this legislation is not so much our 

personal and private interest which is substantial, but the fact tha t 

this probably will and in any case may, have the effect of increasing 

the modern cargo air lift fo r the Department of Defense.

Th at is more important than our own interests. To me that tra nscends any argument about private rights in this case.

Mr. Staggers. As I say, I want to emphasize again, most of your 

airline is equipped with CL-44’s and you are looking ahead to the 

futu re as to what you might need ?

Mr. Fitzgerald. We foresee the time when th is may be very vital 

to us and may make an entire difference to us in the futu re because 

as Mr. Adams explained, our problem of financing is difficult.

We are having problems with our present financing since we have 

a 5-year limit under our present financing and we have high-interest 

rates and it has almost put us out of business a couple of times.

Mr. J arman. Am I correct in understanding you to say tha t Seaboard has no immediate need for this kind of financing?

Mr. Fitzgerald. We had assumed that this would not apply to 

foreign aircraft. It would be very helpful to us if we could have 

it apply to one or two additional CL-44 airc raft, and I think you 

could make the argument tha t tha t would be of benefit to the 

Government.

But we had sort of assumed that i t would n ot be, tha t it would be 

limited to U.S. manufactured aircraft. But if it could be expanded 

to include foreign-manufactured aircraft, that is aircra ft which are 

valuable to our national defense, it would be of benefit to us and aside 

from the future benefit.
GUARANTEED LOANS TO AIRLINE S 71

Mr. J arman. Would the Smathers amendment limit this ?

Mr. Fitzgerald. No, hut 1 thought it was implied. Maybe I was 

wrong in my assumption.

Mr. J arman. I am just asking for information.

Mr. Fitzgerald. I do not know. The Smathers amendment does 

not have any thing specific on it; neither does the present legislation, as 

I understand it.

Mr. Macdonald. I just have one question if Mr. Staggers will 

yield.

Sir, I appreciate your interest in national defense and I am very 

pleased to hear you say this.

What I do not quite understand is, if it is a matter of national defense, why the Defense D epartment does not build their own aircargo 

planes ?

Mr. Fitzgerald. The Defense Department is building a very substantial number of its own aircargo aircraft.

Mr. Macdonald. You say you only need two more. Do you believe 

it would put their budget out of balance if they had money to build 

two more of these aircraft ?

Mr. F itzgerald. These are aircra ft that are in addition to the basic 

defense requirement and they are a standby fleet, in effect, although 

they are used also in support of MATS currently.

It is very expensive to maintain an airplane tha t you do not need 

all the time, and we can use them in the commercial service at little 

or no expense to the Government and have them available as additional 

airlift when the Department of Defense needs them.

Mr. Macdonald. Who are your main competitors in this field ?

Mr. Fitzgerald. Pan American, KLM, Swfissair, TWA, Alitalia 

Airlines.

Mr. Macdonald. I did not know TWA did cargo service ?

Mr. F itzgerald. They have a North Atlantic certificate.

Mr. Macdonald. Wh at percentage, if you know, of their miles 

flown are cargo ?

Mr. Fitzgerald. You mean all cargo ?

Mr. Macdonald. Yes.

Mr. F itzgerald. They carry a very substantial amount of cargo in 

the jet bellies, you know. It is small.

Mr. Macdonald. Tha t is mainly mail, is it not ?

Mr. Fitzgerald. No, no. It is a lot of freight, also; I mean more

freight than mail.

Mr. Macdonald. 

Mr. Fitzgerald.

Do you have any mail contracts ?

We carry the mail, yes. There is no contract as 

such. We have the certificate authority to carry the mail.

Mr. Macdonald. Have you ever received from the Government a 

payment for carrying the mail ?

Mr. Fitzgerald. Oh, yes; and a substantial part of our revenue is 

mail.

Mr. Macdonald. To what extent ?

Mr. Fitzgerald. Last year, we had total revenues of $20,924,892 

transport revenues, and of that $5,187,183 was mail.

Mr. Macdonald. I did no t follow the figures.

Mr. Fitzgerald. Roughly, $21 million, of which roughly $5 was 

mail. As a matter of fact, if we did not have the rig ht to carry mail
72 GUARANTEED LOANS TO AIRL INES

it is do ub tfu l if we co uld com pete in the marke t because the ma il has 

a h ig he r value .

If yo ur comp etitors hav e a lot of mail an d you do not, we do not 

have the rig ht m ix o f revenue.

Mr. Macdonald. Do you happ en to know who gets the bu lk of the 

mail co ntracts ?

Mr. Fitzgerald. Pa n Am erican carrie s, roughly , 50 percen t of the 

tran sa tlan tic m ail ; a l ittle more tha n th at .

Mr. Macdonald. And how m uch do you get?

Mr. F itzgerald. Rig ht now we are gettin g 8.9 percen t.

Mr. Macdonald. 50 po int as to 8.9 ?

Air. F itzgerald. Yes.

Mr. M acdonald. Tha nk you.

Mr. Fitzgerald. We have go tte n more th an th at in th e pa st bu t it 

ha s gone dow n grea tly .

Mr. J arman. Mr. Ch air ma n, I h ave tw o or th ree que stions I wou ld 

like to ask.

We un de rstand th at Seaboard is cu rre ntly ap plyi ng fo r the righ t 

to c arry p asseng ers both on a topoff basis a nd in gr ou ps of 25 or more ?

Mr. F itzgerald. Yes, sir.

Mr. J arman. An d t hat was testifie d to yeste rday ?

Mr. Fitzgerald. Yes, sir.

Mr. J arman. In con nection wi th these appli cat ion s, Mr. F itz ge rald , 

isn ’t it t he Seabo ard position th at it ca nnot make a go of it i f lim ite d 

to the tra ns po rtatio n c arg o on ly ?

Mr. Fitzgerald. No, we say it is going to be very difficult if we do 

no t have some inter im help wh ich is som ewhat com parab le to the 

very larg e am ount of help th at the pass enger c arrie rs h ad in th e form 

of dir ect subsid y.

Th is is an interim th in g we are ta lk in g about.

Mr. J arman. I am no t clear on th at . Th e interim req uest is fo r 

wh at ?

Mr. Fitzgerald. Well, we re quested the au thor ity to c ar ry so-called 

top-off passengers.

Mr. J arman. Whic h wou ld be on an indiv idua l tic ke t basis?

Mr. Fitzgerald. Yes, fo r 1 ye ar an d th at was a prop osition we 

thou gh t would no t only be beneficial to us bu t also to th e trav elin g 

public since it wou ld mak e available a ra th er auste re sta nd by service 

fo r t hose p eople who cou ld no t a ffo rd to p ay th e re gu la r j et f are .

We pro pose to charg e $133 across the Atla ntic, an d you do get a 

fa re like t hat i f you are a mem ber of 25 or more but you cann ot get it 

indiv idua lly , and there are a gr ea t ma ny people who do no t tra ve l 

because o f the pric e.

We tried to lim it the div ers ion fro m t he p ass enger ca rriers b y puttin g it on the basis where the passe nger would h ave to sta nd b y un til 

6 hours before de pa rtu re before he wou ld kno w wh ethe r he cou ld go 

or not.

We sugg ested t hat it be trie d f or 1 yea r but we h ave not been successful in ge tti ng it appro ved. Recen tly, when IA T A ap prov ed the 25- 

passe nger-gro up fare we asked fo r tem po rary ex am inati on which 

would perm it us to ca rry grou ps of 25 on ou r cargo plane s.

You u nd ersta nd bo th of the se are on carg o planes ?

Mr. J arman. Yes, I und ersta nd .
GUARANTEED LOANS TO AIRL INES 73

Mr. F itzgerald. And slip in a few seats here and there. It is somethin g akin to riding a freighter on the water except it is a lot faster.

Mr. J arman. I am frank to say t ha t the real concern I have over 

this particular proposal, the so-called Smathers amendment, is the 

danger th at I see in the futu re of adding to the already highly competitive and overcrowded passenger field.

Mr. F itzgerald. I am glad you mentioned that.

Mr. J arman. Particu larly in light of our foreign competitors who 

have been given such liberal treatmen t in our own country. Their 

landing rights have placed them in a highly competitive position with 

our American flag carriers. That concern lies at the basis of a number of the questions tha t I have been asking with reference to the 

Smathers amendment.

Mr. F itzgerald. Could I make a comment on tha t, Mr. Jarm an ?

I think tha t we would not object to anything tha t made it clear 

tha t these would be cargo aircraft. Now, there is a very substantial 

difference between a cargo plane and a passenger airplane.

You can interchange them but a real cargo airplane has equipment 

in it, it has beefed-up floors and many features which are not necessary 

in a passenger aircraft and which are uneconomic burdens.

Mr. J arman. Would you be agreeable to a provision tha t the air ­

cra ft acquired throu gh Government loans under this legislation lie 

used only in scheduled cargo service?

Mr. F itzgerald. I want to say th is : I thin k it would probably make 

the legislation impossible from our standpoint because the military 

insists tha t when we use the aircra ft in the ir service tha t it be convertible airc raft and we have equipped our aircra ft so you can put 

temporary seats in, these collapsible seats and pu t in certain collapsible 

equipment and it is nothing like the thing you get on Pan American, 

and we would need to have that ability in o rder to use them effectively 

in support of the military.

This is one of the MATS requirements that the a ircraft be convertible. How long is this limitation going to go on? Suppose we sell 

it? Ho we carry it on there that nobody can use it in passenger 

service ?

You put such a stigma on the airplane I doubt it would be very 

feasible to get anyone to lend you the money. If you can figure out 

some way so we do not have to buy a plush jet like PanAm or TW A 

we would be agreeable to that.

Mr. J arman. As a followup to the inquiry as to your application 

for top-off authority and in groups of 25 or more, if either of these 

passenger rights are granted to Seaboard by the CAB, would not 

Seaboard lose its status as an all-cargo carrier and its eligibility for 

guaranteed loans under your proposal ?

Mr. Fitzgerald. Well, that may be. I have not thought of that. 

Technically, you could argue we were no longer an all-cargo carrier 

because we carried some passengers on our cargo flights. I just do 

not know.

Of course, if you give us the right to carry passenger top-offs, our 

need won’t be so great, not you, but the CAB. ‘

So far they have turn ed us down once and they have tentatively 

turned us down again.
74 GUARANTEED LOANS TO AIRLINE S

Mr. J arman. You have mentioned your plans for acquiring three 

additional CL-44’s?

Mr. F itzgerald. We are talking about two.

Mr. J arman. Is that predicated on anticipation of obtaining the 

rig ht to carry passengers ?

Mr. Fitzgerald. No, s ir; not at all. It is predicated on the hope 

we are going to get some milita ry traffic.

Mr. J arman. You mention on page 4 of your statement that your 

losses totaled over $11 million over the past 2 years ?

Mr. Fitzgerald. Yes, sir.

Mr. J arman. In the ligh t of t hat record of the past 2 years, would 

you anticipate th at if all-cargo carriers are included under this legislation Seaboard would be financially in a position to carry its payments under loans that were guaranteed by the Government?

Mr. F itzgerald. Yes, sir ; and I assume that whoever examines this 

loan will have to make the determination th at we can before we receive 

it.

The point is tha t the losses we have had in the past 2 years were 

accumulated during the period when we were operating Constellation 

aircra ft which is an airplane tha t cannot make a profit a t the present 

time in the cargo business.

The CLr-44 has very substantially improved our prospects of operating a profitable service. It carries almost twice as much cargo and 

the operating cost is only slightly more.

Mr. J arman. You mentioned the assistance you have had from the 

Canadian Government in financing aircra ft under an arrangement 

which is basically comparable to the guaranteed loan program under 

consideration in our committee ?

Mr. F itzgerald. Yes.

Mr. J arman. You have also mentioned tha t the planes you pu rchased are manufactured in Canada by a subsidiary of General Dynamics. It is my understanding tha t Standard Oil of New Jersey 

and General Dynamics do have a large stake in Seaboard?

Mr. F itzgerald. Yes.

Mr. J arman. In approving the financial arrangement, did the 

Canadian Government look into the possibility of Seaboard getting 

its financial help from Standard of Indiana and General Dynamics 

rath er than coming to the Canadian Government for a guarantee on 

a loan ?

Mr. Fitzgerald. I do not know the answer to that question, Mr. 

Jarm an. But let me te ll you that we have great difficulty in gettin g 

any additional financial support from these people.

Now they have been sort of forced to go along with us for a while 

because if they do not we do not know where else to go.

But they have an investment in the company essentially because 

they were creditors and the company at one time was not able to pay 

off completely so they made arrangements so it would be possible 

for the company to continue operating until they got these airplanes 

in-being. The theory th at we have an untapped source of capital there 

is completely wrong and just as no other airline tha t has wealthy 

stockholders can assume that they can go to them at will.

The fact tha t Mr. Hughes owns TWA would not eliminate their 

need for bank financing as has been very well demonstrated.
GUARANTEED LOANS TO AIRL INES 75

Mr. J arman. How much of Seaboard does S tandard Oil of New 

Jersey own?

Mr. F itzgerald. They were given 200,000 shares. They exchanged 

some debt for 200,000 shares recently with the understanding they 

were going to dispose of it promptly.

Let me see if I can find th at exact figure here.

Mr. Jarman, I do not have the exact figures on how much Esso 

has. They not only have some equity but they also have some debt.

I would be glad to furnish that.

Mr. J arman. Let me ask tha t you furnish the committee wha t 

Stan dard Oil of New Jersey and General Dynamics own of Seaboard 

stock, and what debt Seaboard owes the two companies.

(The following letter was submitted for the rec ord :)

Seaboard World Airlines, Inc., 

Washington, D.C., May 17,1962. Hon. John Bell Williams,

Chairman, Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D.C.

Dear Mr. Williams : Pur suant to the request of Mr. Jarm an on page 139 of 

the transcript of hearing on H.R. 10129, it was requested tha t I furnish for the 

record the amount of stock owned in, and indebtedness to, Seaboard World 

Airlines, Inc., by Standard Oil of New Jersey and General Dynamics Corp.

Our records indicated tha t Canadair Ltd. (a subsidiary of General Dynamics) owns 250,000 shares of the company’s common stock and is the holder of 

debentures and other evidence of indebtedness totaling $24,742,835. This includes $1,020,000 principal amount of the company’s 6 percent subordinated 

cumulative income debentures, which are entitled to 33% votes per $100 principal amount. The income debentures and common stock owned by Canadair are 

subject to a voting tru st agreement running until November 1, 1908, with the 

United States Tru st Co. of New York as voting trustee, under which the voting 

trustee has agreed to vote such securities in accordance with the recommendations of the company’s management.

Esso International, Inc., holds 200,000 shares of the company’s common stock 

and, in addition, holds notes totaling $500,000 due December 31,1963.

Very truly yours,

Richard A. Fitzgerald,

Vice President, Washington Affairs.

Mr. J arman. A final question along this line: I understand tha t 

you take the position that you feel tha t there would or might be 

difficulty in getting additional financial help from these large companies who are a par t of Seaboard ?

Mr. F itzgerald. Yes, sir. They have already put a lot of money in 

the company and I think they feel th at they have p ut as much in as 

they want to. They do not want to put more in.

They have been forced to do that. This is not only my feeling but a 

very definite experience in the last few months of getting them to go 

along with furt her financing.

Mr. J arman. Thank you very much.

Thank you, Mr. Chairman.

Mr. F riedel. The meeting will stand in recess until 2 this afternoon.
76 GUARANTEED LOANS TO AIRL INES

(Whereupon, at 12:10 a.m., the subcommittee recessed, to reconvene 

at 2 p.m., the same day.)

AFT ERNOON SE SS IO N

Mr. Williams. The committee will come to order, please.

Our first witness this afternoon is Mr. O. Roy Chalk, president of 

the Trans Caribbean Airways.

STATEMENT OF 0. ROY CHALK, PRESIDENT, TRANS CARIBBEAN 

AIRW AYS

Mr. Chalk. Mr. Chairman and other distinguished members of this 

committee, my name is O. Roy Chalk, and I am president of Trans 

Caribbean Airways, a certificated airline holding authority from the 

Civil Aeronautics Board to perform scheduled operations between 

New York City, San Juan, P.R., and Aruba, the Netherlands Antilles. 

I am most grateful for this opportunity to appear before you in support of H.R. 10129, which would extend the aircraft loan guarantee 

program for an additional 5 years, and to request your favorable consideration of an amendment to that bill which would extend the benefits of the loan guarantee program to Trans Caribbean Airways.

As you know, Public Law 85-307, commonly called the Aircraft 

Loan Gua ranty Act, has, for the last 5 years, permitted the local service, Hawaiian, intra-Alaska, mainland-Alaska, intra-Puerto Rico, 

Florida -British West Indies and helicopter carriers successfully to 

obtain financing for aircra ft reequipment otherwise unavailable to 

them on reasonable terms by placing the credit of the United States 

behind loans to such carriers for the purchase of aircra ft which are 

found by the Civil Aeronautics Board to meet the standards set forth 

in that act. Before this committee at the present time is H.R. 10129, 

which would extend the authority conferred by this act for another 

5 years; a measure which Trans Caribbean Airways wholeheartedly 

endorses as a carrie r currently experiencing the same problems which 

initially persuaded the Congress to enact the loan guarantee program—that of obtaining capital for the purchase of aircra ft on reasonable terms.

At the time Public Law 85-307 was approved by Congress in September of 1957, however, Trans Caribbean Airways had not yet become a certificated, scheduled a ir carrier, and was, therefore, not included as a carrier eligible for a Government guarantee. H.R. 10129, 

in extending the authority conferred by this act, contains no provision 

for including within the scope of th e guarantee program carriers certificated subsequent to the passage of Public Law 85-307. It is thus 

to remedy this anachronism that my remarks today are directed requesting your favorable consideration of an amendment in the form 

attached hereto which would permit the gra nt of loan guarantees to 

Trans Caribbean Airways.

Although not certificated as a regularly scheduled air carrier until 

November of 1957, Tran s Caribbean Airways conducted extensive 

operations as a nonscheduled carrier from the time of its organization 

in 1945.
GUARANTEED LOANS TO AIRLINES 77

From that time until it commenced certificated scheduled operations 

in March 1958, Trans Caribbean Airways operated flights carry ing 

more than 175,000 passengers a total of more than 324 million passenger-miles. Prior to November 1955, Tra ns Caribbean carried 

passengers and cargo between points within the United States, its 

possessions and territories, and between the United States and foreign 

points, on a nonscheduled basis in charter and individually ticketed 

and waybilled services, and operated flights in domestic and foreign 

air transportation under contracts with the Armed Forces and various 

civilian organizations. Thereafter, until commencement of certificated 

scheduled passenger and cargo operations between New York City and 

San Jua n, in March 1958, Trans Caribbean also operated as a “supplemental” air carrier in limited scheduled service, prim arily confined 

to the New Y ork-Puerto Rico route.

In November of 1957, subsequent to the passage of the Guaranteed 

Loan Act, with the approval of the President, the Civil Aeronautics 

Board awarded a certificate of public convenience and necessity to 

Trans Caribbean to carry persons and property between New York 

City and San Juan , on an unlimited regularly scneduled basis. Service under this certificate was commenced in March 1958. Subsequently, in Jan uar y 1960, the CAB also granted temporary auth ority 

to Trans Caribbean to extend its routes from San Juan, P.R., to Aruba, 

the Netherlands Antilles. Since the commencement of certificated 

service in March 1958 through 1961, Tran s Caribbean carried more 

than 400,000 passengers in its scheduled low-cost services.

As a result of its early experience in the New York-San Juan market, T rans Caribbean became aware of the extraordina ry demand for 

low-cost air tra nsportation in this market and the need for specialized 

service specifically tailored to this demand. It was on the basis of 

this need and the concentrated attention which Trans Caribbean would 

provide this market tha t the Civil Aeronautics Board and the President authorized the entry of Tra ns Caribbean on this route—an action 

noted by the Civil Aeronautics Board in its release of the decision as 

“an historic step in U.S. commercial aviation marking the first trans ition of a supplemental carrier to certificated passenger-carrying status 

in a major market.”

To fulfill the unique requirements of th is market, Trans Caribbean 

pioneered the development of low-cost thrift fares which, on a per mile 

basis, became the lowest in the scheduled air transportation industry. 

The entry of Tran s Caribbean’s specialized certificated service in the 

New York-San Juan market, in competition with the well-established 

Pan American World Airways and Eastern Air Lines, produced the 

expected benefits to the public, and a very sharp increase in traffic 

resulted together with even sharper impact on availability of lowfare service.

Until late in 1961, Trans Caribbean operated its New York-San 

Juan service exclusively with the DC-6B piston aircraft. It presently 

utilizes a DC-8 fan jet in high seats capacity configuration, 168 seats, 

by the way, and a DC-6B. A second DC-8 is on order, and is expected to be available fo r operations in early summer of this year.

From this brief description of Trans Caribbean’s history of operations and present status, it is apparent that this airline is not a large 

company; and yet it is in competition for traffic with two of the largest 

84828—62 ------6
78 GUARANTEED LOANS TO AIRLINE S

carriers in the industry. Competitive circumstances and the unusual 

characteristics of Trans Caribbean’s specialized routes have made 

imperative its provision of jet service between New York and San 

Jua n, for it is only by operating large-capacity, high-density jet 

aircra ft tha t Trans Caribbean can continue to provide the low-fare 

th rift service which it pioneered and which the traveling public requires, in the face of ever-rising costs. But jet aircra ft of the type 

needed by Trans Caribbean have an acquisition cost exceeding $6 

million apiece. And Tra ns Caribbean must seek financing for such 

aircra ft in the same market with a ir carriers many times its economic 

size and wfith carriers of comparable size with Trans Caribbean tha t 

can offer financing institutions the security of Government guarantees 

for their loans.

In recently seeking financing for the first of its DC-8 fan-jet a ircraft, these economic facts were forcefully made evident to Tran s 

Caribbean. Because of its limited route structure, specialized operations, and the competition wdiich exists for financing by other carriers 

in a position to offer greater security for borrowed funds, Trans Caribbean found tha t the only arrangement for financing available to 

it at the time was a lease-purchase arrangement providing for high 

rate payments, well above the going market interest rate available to 

carriers eligible for Government guaranteed loans.

This disparity of financing costs is best illustrated by citing the 

example of Pacific Northern Airlines, a carrier obtaining financing 

for the acquisition of two jet aircraft at approximately the same time 

as Trans Caribbean’s purchase of one DC-8. In most respects, Pacific 

Northern’s operation is similar to tha t of Trans Caribbean. It also 

is a comparatively small carrie r; and it provides service predominantly 

over a nonstop route between Po rtland and Seattle, on the one hand, 

and Anchorage, Alaska, on the other, quite similar in length to Trans 

Caribbean’s New York-San Jua n route. Pacific Northern, furthermore, was also taking its first step toward obtaining jet equipment. 

However, whereas Trans Caribbean found it necessary to pay high 

carrying charges for its unassisted aircraft financing, Pacific Northern, 

under the aegis of the loan guarantee program was able to obtain 

financing at an interest rate of 5.5 percent per annum ; a striking 

disparity. I thin k that the terms of these two financing arrangements—comparable in most respects as to carrier characteristics, aircraft, and time of financing—speak with much more persuasion than 

I possibly could with regard to the effectiveness of the guaranteed 

loan program, and the reasonableness of the financing terms available 

to Trans Caribbean without eligibility for a guaranteed loan.

And Pacific Northern ’s financing under the loan guarantee program 

is not unique. In no instance has a carrier obtaining a loan guarantee 

had to pay in excess of 6 percent interest per annum ; and this rate 

of interest has been the exception rath er than the rule. In most cases 

guaranteed loans have carried a rate of 5.5 percent or less.

Now tha t Tran s Caribbean approaches the time it must obtain 

financing for its acquisition of a second jet a ircraft, the seriousness of 

its inability to offer Government supp ort for a purchase loan has become even more acute. While discussions we have had with various 

financing institutions have indicated th at adequate money is available 

to Trans Caribbean, the terms required to obtain such financing are
GUARANTEED LOANS TO AIRL INES 79

clearly not reasonable when viewed in relation to the terms available 

to comparable carriers which are in a position to offer the security 

of a Government guarantee. And as additional aircra ft are required 

for Trans Caribbean’s operations in the future, the terms for necessary 

financing will move further and furthe r from the zone of reasonableness, and from that available to carriers eligible to obtain Government guaranteed loans.

The necessity of incurring higher interest rates and more restrictive credit terms than other carriers with whom Trans Caribbean 

must compete for available capital, inevitably places Trans Caribbean 

in an unf air position. Not only is Trans Caribbean’s earnings position thereby weakened, but the service it performs for the public 

becomes adversely affected. And the possibility that fares in its 

principal New York-San Juan m arket will ultimately have to be in ­

creased cannot be overlooked; a market so unusually dependent upon 

low-level th rift fares.

It is thus on the basis of correcting an historical circumstance of 

timing tha t Tran s Caribbean today requests this committee to consider inclusion of Tran s Caribbean as a carr ier eligible for Government guarantee of aircra ft purchase loans, now th at the basic legislative authority for this program is up for review. It is our belief t hat 

had Trans Caribbean already received its certificate for regularly 

scheduled service a t the time Public Law 85-307 was enacted, it too 

would have been included among the eligible carriers just as Pacific 

Northern Airlines and Alaska Airlines, which conduct predominantly 

long-haul operations over similarly situated nonstop routes in competition with major trunklines, were made eligible in the basic legislation. Lacking this initial eligibility, Trans Caribbean has keenly 

felt the inequity of being obliged to compete for available capital with 

carriers of comparable means and route structures which have the 

ability to obtain the benefits of Government guaranteed loans. The 

difference in eligibility has, in the past, caused Tran s Caribbean to 

suffer substantially as indicated above, and with futu re capital requirements only months away, this disparity of financing costs will 

continue to grow, to the detriment of T rans Caribbean and the valuable pioneer th rift service it provides for the public in the unique 

New York-San Juan market.

While it is tru e tha t T rans Caribbean’s service is provided without 

Government subsidy support, a status not common to most of the 

carriers initially made eligible for guaranteed loans, this obvious 

attribute should not be held against it. Tran s Caribbean’s responsibilities to the public are the same as those of all other eligible certificated 

carriers, and the fact t hat subsidy support is not available to it only 

compounds its difficulty in obtaining financing on reasonable terms. 

Moreover, Mackey Airlines, which similarly conducts subsidy ineligible operations is one of the carriers already authorized to receive 

Government loan guarantees. Mackey, in fact, presently has an ap plication for guarantee pending before the Civil Aeronautics Board.

It similarly cannot be said t ha t the fact that Trans Caribbean operates under a temporary certificate of public convenience and necessity 

precludes its eligibility for loan guarantees. This again is a major 

factor increasing this carrier’s difficulty in obtaining financing on 

reasonable terms without a guarantee, and the Congress has previously
80 GUARANTEED LOANS TO AIRL INES

authorized the three helicopter operators and Mackey Airlines, each 

also holding only temjiorary certificates, to receive loan guarantees. 

New York Airways, Chicago Helicopter Airways, and Los Angeles 

Airways each has been granted guarantees by the Board under this 

authority, and Mackey's application, as indicated above, is currently 

pending.

Trans Caribbean, moreover, offers an advantage which few of the 

other guarantee eligible carriers can provide—that of making available to the national defense the jet aircraft it acquires throu gh the 

Civil Reserve Air Fleet program ( CR AF ).

As a matter of fact, we are presently in negotiation with the leading 

manufacturers for the purchase of jet cargo aircraft, convertible both 

for cargo and passenger use as is the I)C-6A.

Trans Caribbean’s presently operated DC-8 jet has been designated 

as a CRA F program aircraft which in time of emergency will be 

available for m ilitary defense operations. The second DC-8 soon to 

be acquired similarly will be included in CRAF. And to th e extent 

tha t T rans Caribbean’s eligibility for loan guarantees will enable it to 

acquire additional jet airc raft more easily on reasonable terms, these 

too will be available through CRAF for the defense of our Nation.

The Congress has given a mandate to the Civil Aeronautics Board 

to promote air transporta tion by all feasible means in the interest of 

the national defense, and commerce of the United States, and toward 

this end has made available Government loan guarantees to the smaller 

certificated carriers who are otherwise unable to obtain necessary 

financing for the purchase of needed airc raft on reasonable terms. 

The loan guarantee program during its first 5 years of operations has 

been eminently successful in fostering this goal without the expenditure of a single taxpayer’s dollar.

Trans Caribbean believes that the program should be extended for 

an additional period of 5 years in accordance with H.R. 10129, and to 

correct the historical omission of an otherwise eligible carrier that 

received its certificate of public convenience and necessity after the 

initial enactment of this program, should also be extended to include 

Tran s Caribbean Airways in accordance with the proposed amendment 

attached to this statement. Both the national defense, through CRAF 

availability of Tran s Caribbean’s jet aircraft, and the commerce, 

through improved service to the public at continued low-cost thrift 

fares—Trans Caribbean’s specialty—will thereby be materially 

advanced.

I am pleased to inform this committee that at a hearing held this 

morning before Senator Monroney’s committee, Senator Vance Hartke 

introduced an amendment which in effect would correct the inequity 

which I have called to the attention of this committee.

I am also informed that Congressman Friedel is likewise considering the submission of an amendment to correct the inequity which I 

have called to your attention, so tha t II.R. 10129 would include those 

carriers, the major portion of whose operations are between the XTnited 

States and Pu erto Rico.

I also understand tha t Under Secretary Martin has proposed an 

increase in the original bill to the amount of $15 million. I heartily 

endorse such a proposal because I feel th at it has proven itself at $5 

million at no cost to the United States, and it can certainly do a much 

better job if more money were available.
GUARANTEED LOANS TO AIRLINES 81

I want to thank you sincerely for perm itting me this opportunity 

to appear before this committee and to state the views of my company.

Mr. Williams. Thank you very much. Mr. Chalk, is Trans C aribbean presently operating at a profit?

Mr. Chalk. I would say just about, just about; a pretty marginal 

operation.

Mr. Williams. In the event tha t Trans Caribbean failed to meet 

its operating costs, would it be eligible for subsidy?

Mr. Ciialk. No ; we are not a subsidized carrier.

Mr. Williams. Are you authorized to carry mail?

Mr. Chalk. No; not between New York and Puerto Rico.

Mr. Williams. How many other airlines find themselves in the same 

category ?

Mr. Chalk. None whatsoever.

Mr. Williams. Do we have any airlines which are operating the 

major portions of their operations between California and Hawaii 

and California and Alaska?

Mr. Chalk. Yes; there are airlines which operate between California and Alaska, but they are eligible for the benefits of this act. 

We are comparable to the Pacific Northern Airlines.

I called the attention of this committee to tha t fact. This is one 

airline tha t we are comparable to. As a matter of fact, we are about 

the same length. It is about 1,450 miles between Seattle and Anchorage, and they do have subsidy but we do not. They do have the 

benefits of this act on financing. We do not have the benefit. We 

are performing a major public service and we are entitled to make 

some money, but on the basis of our costs and financing charges such 

as this, it is extremely difficult. We are competing against the two 

giants of the industry, Pan American and Eastern.

Mr. Friedel. Mr. Chalk, I would like to congratulate you on your 

very fine statement, and I do intend to offer the amendment in executive session under the usual procedure. I think it is a fai r request, 

and I will offer it.

Am I correct, in your statement when you said tha t you are just 

about breaking even or making a little money?

Mr. Chalk. We are making a little money.

May I add to that tha t we have been competing during the past 

year with piston engine aircraft against jet, and tha t is a pretty difficult job. So I would say during this past year, the year just passed, 

that was the toughest of all. In previous years we have been able 

to do so.

Mr. Friedel. I understand you have one jet now and you are paying 

about 8 percent in financing costs for that, and reducing tha t cost to 

V/2

 percent would mean tha t much more profit to your company.

Mr. Chalk. That is correct, if we were able to save the difference.

Mr. Friedel. If you could come under this act, you could finance 

the second plane and have better service, and you would probably be 

in a better position to repay the loan ?

Mr. Chalk. That is correct.

As a matter of fact, we would be in a position to order a th ird jet, 

which we would like to do, which could operate for the military in 

its cargo-passenger operations.
82 GUARANTEED LOANS TO AIRLINE S

Mr. Friedel. The Commerce Department, suggested this morning 

that they would like to have jurisdiction over the loans. The CAB 

has the jurisdiction now. I will not try to embarrass you by asking 

you which you prefer.

Mr. Williams. Thank you, Mr. Chalk.

The next witness is Mr. Joseph C. Mackey, president of Mackey 

Airlines, Inc.

STATEMENT OF JOSEPH C. MACKEY, PR ESIDENT, MACKEY 

AIR LINES, INC.

Mr. Mackey. Mr. Chairman and other distinguished members of 

this committee, I am Joseph Mackey, president and chairm an of the 

board of Mackey Airlines, a Florida corporation. It is our belief 

tha t the importance of this public law to our industry as a whole 

will be adequately covered by other witnesses. In the interest of 

conservation of your time, we will therefore limit our testimony 

to our specific concern.

Our company has conducted scheduled operations for 10 years and 

operates a regular daily passenger service between Tampa, For t 

Lauderdale, Palm Beach, Miami, Nassau, and other islands of the 

Bahamas. We are also authorized to serve Cuba. This service has 

been suspended—we hope, temporarily.

I wish to express my sincere appreciation for the opportunity you 

have given me to appear before you in regard to bill H.R. 10129. I 

represent our company in support of this bill. We are included in 

the present law and we would hope tha t our participation would 

continue.

Our company is in a somewhat different position from most of 

those affected by this bill. While the local-service carriers are faced 

with a controlled competitive position, we are not. Within the past 

2 years we have been subjected to multiple foreign competition far 

beyond what the economics of our route system could be expected to 

stand. In our opinion, this situation is brought about by pressure of 

the State Department on the Civil Aeronautics Board. I am not 

here to discuss the righ t or wrong of this subject, bu t I merely point 

out that the fact exists. We are living in the only country in the 

world where a small business could even have the opportunity to 

compete for international air traffic. We are proud of the fact tha t 

we have been able to retain 70 percent of the tota l market on our route 

system in spite of the fact that we find ourselves in a competitive 

position with Bahamas Airways, a branch of British Overseas A irways Corp., which, in effect, is the British Government. Our competitive problem is also compounded by competing at the moment in 

secondary markets with Cunard Eagle Airways. These problems 

are mentioned for the purpose of showing the importance to our 

company of the bill here being considered.

I foresee the strong probability tha t by 1965 it will be necessary 

for us to acquire compact jet equipment similar to the Douglas model 

2086 presently on the drawing boards. We feel tha t this development is inevitable whether or not such a ircraft makes complete economic sense on our route system because of the competitive problems 

involved. Unfortunately, nothing has to make economic sense to our
GUARANTEED LOANS TO AIRLINES 83

competitors. All present indications are tha t this airc raft will fit 

our route system admirably. Prim arily , I am pointing out tha t the 

competitive situation may require this move whether or not we no rmally would be entirely ready for it. Our one and only chance to 

acquire such aircra ft when needed is through the relief provided by 

this bill.

Since the un it price of these ai rcraft will probably approach $3 million, which would mean in the neighborhood of $7 million for two 

units and associated spares, we strongly urge that the limits in this 

bill be increased to $10 million as opposed to the $5 million limitation 

of Public Law No. 85-307. We feel that any other carrier making 

a move in this direction would necessarily move w ith two or more 

units, which would make the $5 million limitation inadequate.

Our company has recently been granted relief under the present 

public law which allowed us to purchase two DC-6’s which are adequate for us to retain our proper competitive position a t the moment. 

This action could not have been taken without benefit of the present 

law. Although the total amount of this loan was only $820,000, it 

could not have been arran ged without benefit of the present law. 

Without this help and, therefore, our ability to retain the major 

portion of the market, our continued existence would have been questionable. Thus, our 150 employees and 2,000 stockholders directly 

benefited while there was essentially no financial risk to the Government.

The most important advantage to flow from this bill may be overlooked. It is the fact th at the law itself is a statement of confidence 

by the Government in the future of the aviation industry.

Mr. Williams. Does that conclude your statement ?

Mr. Mackey. Yes, sir.

I would like to comment on the admin istration of this bill. I find 

in my business experience that any bill, act, or even business statement is very difficult of good accomplishment. I find in my own 

business th at I come up with a rule, but tha t without proper administration the rule fails.

My experience in watching the results of this bill in the past 5 years 

indicates to me an excellent, top-notch job of administration, and I 

would certainly hate to see something th at we know is good gambled 

against something we know nothing about. I would like to see the 

administration stay where it is.

Mr. Williams. Mr. Mackey, w ith what airlines do you compete?

Mr. Mackey. At the moment we are competing indirectly with 

Pan American and Cunard Eagle and directly with Bahamas Airways.

Mr. Williams. What other one did you say ?

Mr. Mackey. Cunard Eagle, a British scheduled airline.

Mr. Williams. Bahamas Airways is also a British airline?

Mr. Mackey. Yes, sir.

Mr. Williams. I was very much interested in the statement that 

you made in your prepared statement where you s ay :

Within the past 2 years, we have been subjected to multiple foreign competition fa r beyond wh at the economics of our rou te system could be expected 

to stand. In o ur opinion, thi s s ituation is bro ugh t about by pressu re of t he S tate 

Department on the Civil Aero nautics Board.
84 GUARANTEED LOANS TO AIRL INES

Mr. Mackey. Yes, sir.

Mr. Williams. Do you have any evidence of pressure that might 

have been brought to bear upon the Civil Aeronautics Board by the 

State Department?

Mr. Mackey. Yes, sir. I do not have it with me, but I have letters 

from the State Department to the Board. Further, in the case where 

Cunard Eagle was authorized, the hearing examiner in the case stated 

if this was authorized, it could well be the end of Mackey Airlines 

and predicted an $800,000 loss for our company if it was authorized. 

It was authorized, and I cannot see how the Board could do that without outside pressure.

Mr. Williams. Is Mackey Airlines eligible now under the present 

act for loan guarantees ?

Mr. Mackey. Yes, sir; we are eligible.

Mr. Williams. Then the chief basis of your testimony, I would 

gather, would be tha t you feel that the limits should be increased?

Mr. Mackey. Tha t is correct, and tha t the bill should be renewed.

Mr. Fiiiedel. I want to than k you for your very fine short statement.

In the second paragraph on the first page you say your company 

has been conducting scheduled operations for 10 years, a daily passenger service between Tampa, Fo rt Lauderdale, Miami, and Nassau. 

Could you tell us for the record w hat is your shortest and th e longest 

run, in miles?

Mr. Mackey. From Fo rt Lauderdale to Miami, which is 23, and 

the longest on our certificated operation would be Cuba to Nassau, 

350, which we are not operating. The longest run we are operating 

at the moment would be 196 miles.

Mr. F riedel. Would it pay to have jet service?

Mr. Mackey. I spent several days recently in California studying 

this model 2086, and it appears to be headed for an economical operation on a 200-mile range and not too uneconomic in even 50- and 75- 

mile ranges.

Mr. Friedel. W hat a ircraft is that?

Mr. Mackey. The Douglas model 2086, which is now on the drawingboard and a model exists and Douglas is trying to get enough 

orders to manufacture it.

Mr. Friedel. Is that a jet ?

Mr. Mackey. Yes, sir, a twin jet.

Mr. Williams. It is a pure jet ?

Mr. Mackey. Yes, sir. It is smaller than the Caravelle and definitely designed for thi s type of operation.

Mr. F riedel. In other words, you are in favor of th e extension of 

this bill for five more years and to increase the loans from $5 million 

to $10 million?

Mr. Mackey. Yes, sir, that is correct.

Mr. Friedel. The most you have borrowed in guaranteed loans from 

the Government is $820,000 ?

Mr. Mackey. Yes, sir, tha t has just been concluded.

Mr. Harris. Mr. Chairman, before Mr. Mackey leaves, may I ask 

a question or two ?

You say you do have an $800,000 loan now ?
GUARANTEED LOANS TO AIRL INES 85

Mr. Mackey. Yes, sir , it has been appro ved. Th e actual pa pe rwork has not been com pleted, bu t it has been approv ed by the Board .

Mr. H arris. Tha t mu st have been since M arch 31 ?

Mr. Mackey. Yes, sir. As a matter of fac t, it was last Fr iday .

Mr. H arris. T hat was the firs t loan you ha d un de r th is prog ram?

Mr. Mackey. T hat is correct.

Mr. H arris. I observe fro m the sta tem ent pre sen ted by the Bo ard , 

th at you hav e three DC -4 ’s an d one D C-6B .

Mr. Mackey. We own three DC -4's. We have been op erating the 

DC-6 ’s unde r lease, a nd we a re now purchasing .

Mr. H arris. Thi s shows you own three DC-4 ’s and lease two 

DC-6 B’s.

Mr. M ackey. We lease two DC -6 B’s.

Mr. H arris. Are you in t he passen ger business only ?

Mr. Mackey. No, we ha nd le freigh t, too, but it is supplem ental.

Mr. H arris. Do you op erate in th e C aribbean a rea ?

Mr. Mackey. Yes, sir, in the Bahama s specifically.

Mr. H arris. Tha nk you, Mr. C ha irm an.

Mr. W illiam s. Tha nk you, Mr. Mackey.

Mr. Macdonald. Ac tuall y my questio ns do n’t go to y ou r testim ony, 

bu t I was wo nderi ng i f y ou r com pan y goes alo ng with this im position 

of a pe na lty on passe ngers who do not show fo r yo ur a irli nes?

Mr. Mackey. We are an internationa l ca rri er, and we are no t 

affected.

Mr. Macdonald. W hy ar e you not affec ted ?

Mr. Mackey. Beca use we are an interna tio na l carrier.

Mr. M acdonald. I see you h ave daily passe nger service between F ort 

La ud erda le, T am pa , and P alm Beach.

Mr. Mackey. T hat is c orrect, but ou r classificat ion is i nte rnationa l. 

In othe r words, we have an othe r certificat e, No. 145, th at does 

autho riz e dom estic service between those intern ationa l points, b ut it is 

strictly supplem ental, an d we would fal l wi thin the requisite of an 

in tern ationa l ca rrier. We would presum e th at we are not covered 

by th at.

Mr. Macdonald. I t only we nt int o effect on May 1, but even on 

the dom estic flights yo u would no t be co mpe lled to ch arg e th is pe na lty ?

Air. Mackey. We are ass um ing t hat we wou ld not, and we a re not.

Mr. J arman. No questions.

Mr. Mackey. Tha nk yo u, M r. Ch air ma n.

Mr. W illiam s. Our n ex t an d last witness is Mr. Winfield II. Ara ta. 

Mr. A ra ta is man ag er of marke t plan ning , Fa irch ild St ra to s Co rp., 

Ha ge rst ow n, M d.

STATEMENT OF WI NF IELD H. ARATA, JR., MANAGER, MARKET PLANNING, AIRC RAFT -MISSILES DIVISION, FAIRCH ILD

STRATOS

Mr. Arata. Mr. Cha irm an an d dis tin gu ish ed members o f th e committee ?

 the op po rtu ni ty to exp ress ou r th ou gh ts re ga rd in g th e contin ua tio n of gu aran tee d loa n leg islation is gr ea tly ap preciat ed.

Since initi al enactm ent of th is leg islation, th e class ma il ra te has 

gon e into effect fo r the loca l air lines, as well as the co nti nu ati on of 

Go vernm ent su pp or t of op erati on s of t hes e airlines. These form s of
86 GUARANTEED LOANS TO AIRLINES

su pp or t are pr ov iding the envir on ment wh ere in equity ca pital is 

being attrac ted to the air lines. As tim e ^oes on, th is will impro ve the 

ab ili ty of the airlines to secure pr iv at e fina ncing. Ev en so, the Govern men t gua ranteed loan le gisla tio n is im po rta nt enough th at i t should 

be re new ed as an ac t of Congres s.

Th e Fa irch ild orga niza tio n has been intim ately effec ted by th is 

leg islation. Pri or to its enactm ent, Fai rc hi ld was ju st be gin ning 

th e m an ufacture of th e F -2 7 tur bo pr op tran sp or t.

Dur in g th is t im e perio d, i.e., 1956-57, the local air lin es were somewh at an unknown qu an tit y to financ ial institu tio ns rega rd ing the 

un de rw ritin g of new tran sp or ts, as up to th at tim e, su rplus ai rc ra ft 

ha d been used.

A t th is time, re fe rrin g to th e pre vio us p eri od, whe n the tr unk air ­

lines were pr oc ur ing je t equip me nt, the local air lin es also deem ed it 

necessary to beg in th ei r mo derniza tio n program s. Since the in di ­

vidu al ne t wo rth of the air lin es was then quite lim ite d, some means 

was necessary i n or de r to perm it mo derniza tio n th ro ug h no rm al ba nk ­

ing pro ced ures. Th e Go vernm ent Gu aran teed Lo an Le gisla tio n Ac t 

of Septe mb er 17, 1957 (71 St at . 629 ), prov ide d the mechanism fo r 

th is modern iza tio n t o begin.

A t the tim e of the enact me nt of leg islati on an d subsequen t to this, 

Fa irch ild has been successfu l in selling F -2 7 ai rc ra ft to the fol low ing 

U.S. local airli ne s: Aloha, Bonanza, Nor th ern Co nso lidated, Oz ark , 

Pacifi c, Pied mon t, Wien A las ka, an d W est Coast Ai rlines. Of these 

air lin es, Aloha, Bonan za, O zark, Pacific, Piedmo nt, an d Wien A las ka 

ut ilized the gu aran teed loa n l eg islati on in ord er to modernize w ith th e 

F-2 7 ai rc ra ft. T hat is, all bu t two air lin es utilized the loan pr ov isions.

Sin ce modern, inter med iat e ran ge ai rc ra ft, wi th spa res, rep res ents 

an inv estme nt ap proa ch ing $1 million, it becomes obvious th at comple te airline mo derniza tio n with t hi s ai rc ra ft cannot tak e place when 

the ma xim um loan lim it is only $5 million. Th erefo re, at th is tim e 

whe n the legislati on is b ein g reviewed for possible renewal, i t is r ecommended t hat the loan lim it be increased.

Th e leg islation as ena cted in 1957 mad e no pro vis ion s fo r schedu led 

all-ca rgo airlines. Se na tor Sm ath ers has pro posed an am endm ent to 

the bill, S. 2815, which wo uld correct this sho rtcom ing . Th is is a 

step in th e ri ght dir ection, as i t will provide a means f or th e all-ca rgo 

ca rriers to modernize th ei r fleets ju st as the local airli ne s have begu n 

to m odern ize thei r fl ight equipm ent.

Pr es en t pro blems with the mo derniza tio n of lo ga ir and quic ktran s contr actors wo uld be minim ize d if th e gu aran teed loa n leg islat ion includ ed th e schedu led all-ca rgo opera tor s. Such cha nge s in 

the leg islati on w ould also no do ub t allow thes e air lin es to secure loa ns 

at a m ore reason able i nterest rate. In th e lon g run, a h ealth y ai r c ar ­

rier i nd us try op erating at n orma l interest r ates is to th e ad va nta ge of 

th e economy o f th is country.

Th e follow ing recom me ndations are offered fo r conside rat ion re la ­

tiv e to the possible renewal of the gu aran teed loan le gi slat io n:

1. Th e pro posed bil l by Se na tor Magnuson , S. 2815, dated Feb ru ­

ary 7, 1962, f or exten din g th e act an othe r 5 y ears should be enacted . 

At the end of th is tim e perio d, an othe r review can be ma de of the 

need f or further legis lation .
GUARANTEED LOANS TO AIRLINE S 87

2. Increase the total loan value as specified in section 4, parag raph 

d, of the act, 71 Stat. 629, dated September 7, 1957, to $15 million 

applicable only to new aircraft. While this increase in loan amount 

will not provide complete modernization, with class mail rate and 

equity value of the airlines increasing, this new value should permit 

the continuation of modernization with new aircraft which is desired 

and necessary.

3. Include all-cargo air carriers as recipients of the guaranteed 

loan legislation. It is lielieved tha t the all-cargo carriers are in as 

much need of help today as the local airlines were 5 years ago.

Since this legislation has been in force for 5 years and a modern 

aircra ft has been in local airline service for almost 4 years, sufficient 

time has elapsed to establish the merits of the legislation, both to the 

airlines and to the airfram e industry.

Thus, it can be concluded that continuing guaranteed loan legislation will help the local airlines and airframe manufacturers in the 

common task of local airline modernization. This modernization 

effort will provide jet-age passenger comfort to the local airlines, as 

well as improve operating efficiency to all-cargo airlines.

This modernization effort should help in the early reduction of 

subsidy tha t President Kennedy requested in his message on transportation to the Congress of the United States on April 4, 1962.

Thank you very much.

Mr. Williams. Thank you, Mr. Arata.

Mr. F riedel. I am very glad Mr. Arata is here and represents Fairchild, which is b uilt in Hagerstown, Md. I am from Maryland, although you are not in my district.

I am very much concerned, too. You say tha t the guaranteed loan 

program has helped the F-27 ?

Mr. Arata. Yes, sir.

Mr. F riedel. How many orders do you have on hand at the present 

time?

Mr. Arata. We have ju st finished completing, and manufacturing, 

delivery of our 92d airplane. This is delivered to Bonanza Air Lines, 

one of the airlines I mentioned in the testimony.

We are building beyond tha t 15 additional aircraft on a one-a-month 

basis. This manufacturing rate of one a month is not the most efficient 

rate a t which we would like to build them, but in our estimation and 

in working with our commercial market for airlines and executive 

aircraft, this seems to be the logical thing to do.

I thin k you realize tha t we are also talking to different Government 

agencies, prim arily military agencies, with different versions of the 

F-27 with the idea that if acceptance of the airplane is secured, the 

quantity of aircraft would be larger than the numbers tha t we have 

been delivering to our present type of customer, and we would then 

be in a position to increase the monthly manu facturing rate.

Mr. Friedel. Fairchild was hard hit and has a lot of unemployment.

Mr. Arata. Tha t is still true.

Mr. Friedel. I know, and you are not getting enough defense contracts and not enough orders from the carriers. I am hoping that 

we can take up this slack by some of the carriers converting more to 

F-2 7’s and help the industry in Maryland, and themselves as well.
88 GUARANTEED LOANS TO AIRLINES

Mr. Williams. Mr. Arata , Fairc hild stopped man ufacturing F-27 ’s, 

did they not?

Mr. Arata. Let me back up a little, if I may. In Fe brua ry of 1961, 

a year ago, a new management came on board with the company. 

They reviewed all of the manufacturing programs of the company, 

including the F-27. They concluded tha t there was a future for the 

F-27 and, as a result, at t hat time, which was a little over a year ago, 

steps were taken to continue the manufacture of the F-27.

This was done last year, initially picking up in the fall at the rate 

of one airplane per month. This rate is in continuation at the present 

time and, as I mentioned a few minutes ago, this manufacturing rate 

is scheduled on the current block of airc raft through the early fall 

of 1963. Th at is, we are providing this continuity both for our 

present customers and anticipated customers.

Mr. Williams. How many orders do you have ?

Mr. Arata. We have been building the aircra ft and in a sense selling them upon delivery. We do not have what you would call a backlog, but we have been very fortunate in delivering airplanes to customers as they are manufactured.

Mr. Williams. Have you received any indication of a continuing 

demand for these airc raft on the p art of the local service carriers?

Mr. Arata. Yes, there is continued interest. We are negotiating 

with a few of them at the present time. The problems are the usual 

ones. At this stage, afte r an airplane has been in service and it is 

proven, it is not the technical aspects that are a point of discussion, but 

it is the financial aspects tha t are a po int of discussion.

Mr. Williams. The a ircra ft, at the outset, I believe, ran somewhere 

around $800,000.

Mr. Arata. Initiall y the cost was a little under tha t. At the present time the base price is a little more than that.

Mr. Williams. Now it is close to a million dollars?

Mr. Arata. The actual price tha t we are quoting to the customer, 

regardless of the quantity he has in mind, is $890,000 for an airline 

F-27A.

Mr. Williams. That is rat her heavy for these local-service boys to 

have to carry.

Mr. Arata. Perhaps so. In turn, I could only pass judgment on 

tha t by reflecting the operating efficiency of some of the airlines which 

are using the airplane and particularly the one th at General Adams 

mentioned this morning, Bonanza Air Lines, which was the first airline, either trunk or local, to have all-turbine aircra ft equipment, in 

this case the F-27 A.

Mr. Williams. The bells have rung for a quorum or rollcall in the 

House for the Representatives, so it is going to be necessary for us 

to adjourn. I regret that, we did not have more time because there 

are quite a number of questions I would like to ask you. I will ask 

you one question, and then I am afraid th at th e committee will have to 

adiourn.

Do you have information, or could you supply this committee with 

information, based on your 40-seat capacity? Is th at not the general 

configuration for airline service?

Mr. Arata. That is correct.

Mr. Williams. And the DC-3, 24-seat configuration. Is tha t not 

the usual configuration?
GUARANTEED LOANS TO AIRLINES 89

Mr. Arata. That is correct.

Mr. Williams. Could you give us an average cost pe r seat-mile of 

operation on a comparative basis between the F-27, the DC-3, and I 

would like to add in the Convair if I could.

Mr. Arata. As you know, there is more than one version of the 

Convair. Do you want the Convair 240, which is considered more 

competitive, or do you want other Convair versions?

Mr. Williams. I would think that the Convair tha t is in most 

general use by general service carriers, whichever tha t might be.

Mr. Harris. That is the 240.

Mr. Arata. Yes, sir.

Mr. W illiams. I thin k tha t tha t information would help give the 

committee some indication of what kind of savings and economies 

might be effected by these airlines in a transition to the F-27 from 

the DC-3 or transition to the Convair from the DC-3.

Mr. Arata. I would like to take advantage of tha t very much, if I 

ma y; to be more factual, I would like to deliver it to the committee 

rath er than making my remarks at this time.

Mr. Williams. I have one more question, Mr. Arata, and then I am 

through.

As I understand it, Fairchild several years ago had some studies 

made on a contract basis with a Dr. August Raspet of Mississippi 

State College, which is now Mississippi State University, not to lie confused with “Ole Miss,” the University of Mississippi. I am informed 

that as a result of what might be called cleaning up on the airflow 

over the airc raft, that a given speed of one of your cargo aircraft, 

the so-called boxcar, at a given throttle setting, was increased rather 

considerably. I would like to have for my information and for what 

worth it might be to the committee some information about what 

Fairchild is doing in studying the subject of laminar flow and 

boundary layer control applications to the ir aircraft, if that information is available.

Mr. Arata. I might, mention T met Dr. Raspet on one of his visits 

to our plan t in previous years. I do recall discussing this with him. 

I do not have any results here with me.

Mr. Williams. I had heard that he got some phenomenal results 

in his work.

Mr. Arata. I would like to investigate this and direct the material 

to you.

Mr. Williams. Thank you.

(The following letter was received from W. II. Arata, Jr., dated 

May 14,1962, to supplement his statement:)

Fairchild Stratos Corp.,

Air cr aft M is s il e s D iv is io n , 

Hagerstown, Md., May I f , 1962. Hon. J ohn Bell Williams,

Chairman, Subcommittee on Transportation and Aeronautics, Committee on I nterstate and Foreign Commerce, House of Representatives, U.S. Congress,

Washington, D.C.

Dear Mr. William s : We wa nt to thank your committee aga in for the opportun ity we had to tes tify with regard to rene wal of gua ran tee d loan legislation 

with respect to H.R. 10129.

Enclosure (1) supplies the information th at you requested with regard to 

average direct operatin g costs per seat-mile for F-27, DC-3, and CV-240 a irc raft. 

It can be noted th at the F-27 offers the g rea tes t possibility for ope rating profit
90 GUARANTEED LOANS TO AIRLINES

for users of the aircra ft listed. For your information, the F-27 is powered by 

the Rolls-Royce Dart 6 engine and the F-27A by the Dart 7 engine. These 

operating costs ar e based on average stage lengths of local airline service. This 

distance is about 90 miles.

In regard to your question about Dr. Raspet, I find that he visited Fairchild on 

December 17, 1958. At this time, discussions were had with regard to his work 

at Mississippi State College and how it could be applied to improvements on 

Fairchild aircraft. Inquiries with our contracts department discloses no contract between the Fairchild organization and Dr. Raspet. Apparently only an 

informal relationship existed.

In addition to this, Fairchild has conducted many inhouse studies on boundary 

layer control and drag reduction. These studies coupled with information available from NASA art* utilized by our engineering department for specific design 

efforts requiring boundary layer considerations.

If there is additional information tha t we can provide with regard to the 

hearings tha t we recently attended, please let us know.

Sincerely yours,

W. H. Arata, Jr., 

Manager, Market Planning.

Enclosure (1 )

Average direct operating costs comparison, local airline service

M an uf ac tu re r Aircraft

N um be r 

of p as ­

sen ger 

seats

Re ve nu e 

ca pa ­

bility i

Flyi ng

op eratio ns

Dire ct

m ai nt ena nce

Dep recia tio n

Dire ct

op erati ng

costs, 2

sea tmiles

Di rect

op erating

costs,

sea tmiles

Fa irch ild..................... F-27 40

Perce nt

167 $0.4798 $0.4422 $0. 925 101.45 2.536

D o ....................... F-27A 40 167 .4531 .3948 . 1355 98.34 2.458

Dou glas ___________ DC-3 24 100 .4086 .2306 .278 66.70 2.779

C onv ai r___________ CV-240 40 167 .5102 .4681 .1056 108.39 2. 710

» R ev en ue ca pa bi lity ba sed u po n ave rage local se rvice ra te p er pass enger mile w ith th e D C -3 c ap ab ili ty 

eq ua l to 100 per cent.

3

 C ost d a ta are based up on 12-month period en ding Sept. 30, 1961, as repo rte d to th e CAB on for m 41 

sch ed ule P-5.2.

Mr. W illiams. The record will remain open for 5 days. The material the committee receives for the record may be inserted at this 

point,

(The material referred to follows:)

Civil Aeronautics Board, 

Washington, D.C., May 29,1962.

Hon. John Bell Williams,

Chairman, Subcommittee on Transportation and Aeronautics, Committee on

Interstate and Foreign Commerce, House of Representatives, Washington,

D.C.

Dear Mr. Williams : When the Board testified before your subcommittee on

May 9, 1962, in support of H.R. 10129, a bill to extend the Loan Guaranty Act 

for an additional period of 5 years, we were requested to furn ish additional 

information for the record.

There are attached five tables which set forth the factual information you 

have requested. Table A contains load factor data for Bonanza Airlines reflecting an exclusive DC-3 operation, a mixed DC-3 and F-27 operation, and an 

exclusive F-27 operation. This table also shows the effect of the introduction 

of larger equipment types into certain local service segments. Table B is a load 

factor comparison of F-27 and piston aircra ft for selected local service carriers.
GUARANTEED LOANS TO AIRLINES 91

Table C shows the revenue ton-miles of property and mail carried in domestic 

operations on combination passenger-cargo planes and on all-cargo planes. 

Table D sets forth the operating revenues, broken down between passenger 

and cargo charters, of Seaboard World Airlines for the calendar year 1961, and 

table E shows United’s operating expenses for Caravelle aircra ft for the third 

and fourth quarters of 1961.

With respect to extending the applicability of the Loan Guaranty Act to the 

certificated route carriers for the purchase of all-cargo aircraft, the Board sees 

no need for such an extension, but would interpose no objection if the committee 

feels that this is desirable. Nor do we see any reason why the use of guaranty 

loan funds should be restricted to the purchase of American made all-cargo 

equipment. However, if the committee determines such a restriction to be 

desirable and in the public interest, the Board would not object to it.

The amendment proposed by Senator Hartke would amend section 3 of the 

Loan Guaranty Act by adding a new subsection (g) to extend the applicability 

of the law to carriers providing operations between the United States and the 

Caribbean area the major portion of which are conducted between the United 

States and the Commonwealth of Puerto Rico. We understand tha t the purpose of this amendment is to extend the applicability of the Loan Guaranty Act 

to Trans Caribbean Airways. The Board is not aware of any such need on the 

par t of Trans Caribbean and is therefore opposed to the amendment. Moreover, 

the amendment as drafted is ambiguous and would appear to make eligible 

for guaranteed loans several certificated route carriers in addition to Trans 

Caribbean.

With respect to the tran sfer of loan guaranty authority to the Secretary of 

Commerce, the Board agrees in principle with the administration’s proposal to 

tran sfer authority to the Commerce Department and wishes to point out tha t 

there is need for a close relationship between the Board and the Department in 

granting subsidies on the one hand and providing loan guaranties on the other.

Subsequent to the presentation of our testimony on May 9, the Board was 

advised by the Bureau of the Budget that there is no objection to the presentation of whatever statem ent the Board deems desirable on H.R. 10129 and the 

proposed amendment extending the loan guaranty program to all-cargo carriers, 

but tha t the Bureau, while not objecting to the extension of existing authority 

for 5 years, would be unable to support expansion of the program to the all-cargo 

carriers, at least until a more adequate determination of their need for improved 

equipment has been made, the suitability of available or prospective equipment 

for commercial use has been investigated, and the efficacy of this program for 

financing it has been more fully explored.

Sincerely yours,

Alan S. Boyd, Chairman.

Table A.—Bonanza

12 m o n th s e n d e d — R ev enue 

pas se nge r 

lo ad fac to r

A ir cra ft ty p e

D ec . 31, 1958___________ _________________ Pe rcent

45.44

46.38

44.96

41.35

39.76

42.99

47.80

Excl usi ve D C -3 .

M ix ed D C -3 a n d

F-2 7.

Do.

Do.

Do.

Do.

E xclu si ve F-2 7.

Ju n e 30, 1959______________________ _____ _

D ec . 31, 1959____________________________

Ju n e 30, I96 0________________ ____ ____

D ec . 31, 1960______________________

Ju n e 30, 1961................. ........................ ........

D ec . 31, 1961__________________________
92 GUARANTEED LOANS TO AIRL INES

T able A -l .—E ffe c t o f th e in tr o d u c tio n o f la rg e r e q u ip m e n t ty p e s in to c e r ta in

lo c a l- se r v ic e s e g m e n ts ( J a n u a r y 19 62 a n d th e sa m e m o n th a y e a r a g o )

A. AV ER AG E PA SS EN GE R LOADS

Segment

5 6 7

Centra l Airlines:

Ja nu ary 1962 average passenger per 

mile.

Ja nu ary 1961 average passenger per 

mile.

11.8

10.3

9.3

5.4

14.6

9.8

Mixed DC -3 and CV-240.

Exclusive DC-3.

Souther n Airways:

Janu ary 1962 average passengers per 

mile.

Janu ary 1961 average passengers per 

mile.

Segment

Mixed DC -3 and M - 

404.

Exclusive DC-3.

3 5 6 8 9 11

9.2

6.4

12.9

10.0

11.4

9.7

10.4

8.3

4.5

3.8

6.6

5.1

Trans -Texas Airways :

Jan uary 1961 average passengers per 

mile.

Ja nu ary 1962 average passengers per 

mile.

Segm ent

Mixed DC -3 a nd CV-240.

Exclusive DC-3.

2 3 5 6 9

13.5

10.0

14.8

12.4

11.7

9.6

10.8

8.2

16.9

10.7

B. PA SS EN GE R LOA D FA CT OR S

Segment (percent)

5 6 7

Central Airlines:

Jan uary 1962 load factor__________ 40.5 33.9 41.0 Mixed DC-3 and CV-240

Jan uary 1961 load factor______ ____ 42.9 22.5 40.8

Segment (percent)

3 5 6 8 9 11

Southern Airways:

Jan uary 1962 load factor__________ 31.7 43.0 38.0 33.5 14.1 19.4 Mixed D C-3 and M-404

January 1961 load factor 26.7 41.7 40.4 34.6 15.8 21.2 Exclusive DC-3.

Segm ent (percent)

2 3 5 6 9

Trans-Texas A irways:

Jan uary 1962 load factor__________ 35.5 44.8 37.7 37.2 42.3 Mixed DC-3 and CV-240.

Jan uary 1961 load factor__________ 41.7 51.7 40.0 34.2 44.6 Exclusive DC-3.
GUARANTEED LOANS TO AIRL INES 93

Table B.—Comparison of passenger load factors, scheduled service, realized by

local-service carriers on F—21 versus all-piston aircraft and all aircra ft types

for selected periods

Pe rio d an d air craft ty pe

Re ve nu e pas sen ger load factors, sch edule d serv ice (pe rce nt)

Bo na nz a Oza rk Pacific Pi ed m on t W est Co ast

1961:

4th qu ar te r:

F-27........................

All pi ston .......... ..

All aircr aft t yp es .

3d qu arter:

F- 27 ........................

All piston _______

All aircr aft t yp es .

2d qu arter:

F- 27 ........................

All pi ston _______

All aircraft t ypes .

ls t qu arter:

F-27........................

All pi ston _______

All airc raft ty pe s.

1960:

4th qu arter:

F-2 7.......................

All p is to n_______

All aircraft ty pes .

3d qu ar te r:

F-27........................

All pi ston ............

All a irc raft ty pes .

1959:

4th qu arter:

F-27........................

All pi ston _______

All aircraft ty pes .

1958:

4th qu arter:

F -2 7 ......................

All pi ston _______

All airc raft ty pe s.

1957:

4th qua rter 1

.................

50.6

50.6

45.9

'45.'9*

46.3

46? 3" 

48.5 

48.5"

40.3 

30.9 

40. 1

37.6

33.6

37.3

45.7

29.9

40.5

44.2

44.2

42.7

48.7 

44. 1 

45.3

46.5

42.6

43.6

49.7

42.9

44.5

41.9

38.9

39.6

44.3 

41.5 

42. 1

43.8

39.4 

40.2

42.1 

42.1

46.7

46.7

42.5

56.9 

44.0 

49.0

54.7 

44. 1 

48.4

57.1 

45.0

49.9

52.0

40.7

45.2

52.8 

46. 3 

49.3

55.9

53.5

54.6

56.5

48.0

51.7

48.6

48.6

50.4

48.0

44.9

46.7

50. 1 

44.4 

47.6

49.9

43.8

47.2

43.3

36.4 

40.3

48.9

47.6

48.3

44.2 

41.9

43.3

63.3

58.1 

58.6

52.2

45.9

34.1

41.6

49.2

37.6

44.9

47.2

35.3

42.9

45.8

37.3

42.7

46.5

33.9

41.7

48.6

45.6

34.9

40.8

53.7

43.5

47.6

46.0

1 The la st f ou rth quar te r before ina ug ur at io n of tur bo pr op service. 

Source: CA B form 41, sch edule T -3 .

T able C.—Rev enue ton-miles in scheduled service of m ail and all other classes of

property carried in domestic operations on combination passenger-cargo planes

and on all-cargo planes, calendar years 1960 and 1961, and percent change

1961 over 1960 1

Com bina tio n

passenger-carg o

planes

All-cargo planes

Co mbina tio n

passengercargo 

pla nes— 

All

classes of 

pr op erty

All-cargo 

pla nes— 

All

classes of 

pr op er ty

Ma il

All other 

classes of 

pr op erty

Mail

All o ther 

classes of 

pr op erty

Re ve nu e ton-miles (th ou sa nd s):

1960_______________ ______ 121,022 

132,079

9.1

262,347 

296,160 

12.9

13,582 

13, 775 

1.4

239,802 

255,654 

6.6

383,369 

428,239 

11.7

253,384 

269,429 

6.3

1961________________

Pe rcen t i ncrease 1961 over 1960

1

 Dat a reflect all dome sti c o peratio ns , exc ept for in tra-IIaw aii an d int ra-A lask a.

Source: CA B form 41, sch edule s T - l an d T- 2.

84 82 8- 62 - -7
94 GUARANTEED LOANS TO AIRLINES

Table D.—Operating revenues, Seaboard World Airlines, Inc., calendar year 1961

To ta l op era ting reve nu es

C ha rter

All othe r

Pas sen ger Cargo

$20,446,889 - ________________ ____________ __________ $5,022,473 $2,693,165 $12,731,251

Source: CA B form 41, schedule P-3.

Table E.—Aircraft operating expenses and selected operating data fo r Caravelle

aircraft (SE -210), experienced by United Air Lines for thir d and fou rth

quarter of calendar yea r 1961

1961 quar te r en de d

Se pt. 30 Dec. 31

Tot al aircraft o pe ratin g expense s, excluding de preciatio n of fli ght e qu ip m en t 

an d re nta ls............................................................. .......................................................

De preciatio n of flight eq ui pm en t an d re n ta ls .. .......................................................

Tota l aircraft op era ting exp ens es_______________ _________ _________

$471,524

347,346

818,870

$1,648,444 

900,808

2,549,252

Utilization (ho urs p er d a y ).__________ ______________________________

Averag e air borne s peed (mi les pe r ho ur )........................................... ..................

Average stage length (miles)____ _______ _____________________________

Avera ge nu mbe r of seats p er a irc ra ft__________ _____ _____ ____________

Tot al airc raft operating expen ses per:

Ai rcr aft h ou r 1______ ____ ___ ____ _________________________ dollar s..

Ava ilable se at- m ile. .._______________________________________ ce nt s.

Av ailable ton -m ile ______________ ____ _____ ___________________d o .. ..

Tot al a irc raft op era ting expense s, exclud ing d ep rec iat ion of flight eq ui pm en t 

an d rentals, per:

Aircraft ho ur 1______ ______________________________________ do llar s..

Ava ilable seat-m ile____ _____ ________________________________ cent s.

Ava ilable ton -m ile_____________ _____ ________________________ d o ... .

3:48

378

546

63.5

545. 55

2.40

17.53

314.14 

1.38 

10.09

4:00

366

442

63.4

577.67

2.54

21.41

373.54 

1.64 

13.85

1

 H ou rs consum ed in tr aining per son nel w ere e lim inated , since s uc h ho ur s were ap pa re nt ly capi talize d.

N ote.—United Air Lines s ta rted op erations w ith the Carav elle SE-2 10 o n J u ly 14,1961. D ue to lim ite d 

exp erie nce for th is aircraf t, the u n it costs m ig ht be co nside rably disto rte d.

Sou rce: CA B for m 41, schedules P -5.2, T- 3, an d T- 4.

Sta tem ent of George W. T o m p k in s , P res id en t of t h e Na tio na l Air Car ri er

A ss oci ati on

My name is George W. Tompkins. I am president of the National Air Ca rrier 

Association, and I am also president of Overseas National Airways, a supplemental a ir carrier.

Attached hereto as exhibit 1 is a list of the officers and members of the Nation al Air Carrie r Association. All of the members of our association are c lassified by the Civil Aero nautics Board as suppleme ntal ai r carrie rs. Technically, 

at the present time, the re are some 32 carriers holding autho rity from the 

Civil Aeronautics Board to engage in air transp ort ation as supplemental air ca rriers. However, a sub stantial number of these companies are inactive or the ir 

operatio ns are so small as to be insignificant. The eight members of National 

Air Ca rrie r Association currently have assets of over $22 million, or about 73 

percent of the total assets of all supplemental a ir car riers.
GUARANTEED LOANS TO AIRLINES 95

Ou r members ar e eng age d in a va rie ty of air tran sp or ta tion se rv ic es : Oversea co nt ract and ch ar te r op erati on s for the Dep artm en t of D ef en se ; dom estic 

cargo services for the Air F orc e; spe cialized op erations fo r th e Na tio na l Aerona utics and Spa ce A dm in is trat io n; low-cost tran sa tlan tic ch ar te r opera tio ns 

fo r ch arter -elig ible gro ups such as fr ate rn al organiz ati on s, schoolteac hers, studen ts, etc .; lim ited individu all y ticketed com mercial serv ices , all-ex pen se tour 

act ivi tie s, and ch ar te r ser vic es fo r mili ta ry perso nnel trav el in g am ong points 

with in the continen tal l im its of th e United St ate s.

Generally spe aki ng, ou r members ar e in favo r of th e princ iple of gu aran teed 

loan leg isla tion for the acqu isitio n of modern air cra ft (p ar ticu la rly tho se of a 

cargo co nfigu ratio n), hu t we ar e definitely opposed to any leg islati on which 

would favo r any relativ ely sm all gro up of ai r ca rr ie rs to th e de trim en t of th ei r 

com pet itors. Specifically, we ar e opposed fo r reason s we will la te r disc uss, to 

the am endm ent to S. 2815 introduced by Se na tor Sm ath ers, which we un de rsta nd would exten d the benefits of gu aran teed loa n legis lat ion to th e sch eduled 

cargo ca rr ie rs only and wou ld den y such ben efits to both th e supplem ental ai r 

ca rrie rs and th e c ertifica ted all-purpo se ca rrie rs .

Ou r members received th ei r ce rtific ate s fro m the Civil Aeron autic s Bo ard in 

1959 a s a re su lt o f he arings which began in 1952. Altho ugh th er e wa s disagreeme nt among t he members of the Bo ard with res pe ct to th e ex te nt to which the se 

ca rr ie rs sho uld be allo wed to eng age in individu ally tic keted services, th e members of th e Bo ard we re unanim ous in th ei r opinion th at ch ar te r and co ntract 

op erati on s by the supp lem en tal air ca rr ie rs ar e requ ire d by th e public interest. 

Moreover, one of th e principa l reasons given by th e Bo ard fo r gr an tin g certificates to the supp lem ental c ar rier s wa s “* * * the vi ta l ser vic es rend ered by the se 

ca rr ie rs in th e i nt er es t o f n ationa l defe nse.” (CAB O rder No. E-1 3436.)

Supplem ental ai r ca rr ie rs ar e in di rect comp etition with th e sch edu led car go 

ca rr ie rs fo r co nt ra ct an d ch ar te r services op erated for th e Dep artm en t of Defense. Attac hed he reto as ex hibit 2 is a ta bu latio n sho wing the allocati on of 

De pa rtm en t of Defen se traffic by the M ili tary Air Tra ns po rt Ser vic e (MA TS) 

du rin g the fiscal ye ar Ju ly 1, 1961, thro ug h Ja nuar y 31, 1962. It will be noted 

th at of the ap prox im ately $126 mil lion in to ta l air li ft co ntracts, $63,808,571 or 

over 50 pe rcent w as allo cated to th e fo ur d om estic cargo c ar rier s ; nam ely, Riddle 

Airline s, Inc., the Fl yin g Tige r Line, Slic k Airways, Inc., an d AAX ICO Airline s, 

Inc. On th e othe r hand , the five m em be rs 1

 of Nati on al Air Car rier Ass ociatio n 

pa rtic ip at in g in MATS traffic receiv ed a to ta l of $25,639,204 in ai rl if t bus ine ss 

or less th an ha lf the am ou nt allocate d to th e fo ur certific ate d car go ca rriers.

The fa ct t hat the ce rtific ate d car go ca rr ie rs h ave been f avored in the aw arding 

of MATS busin ess ha s not, in my opinion, stim ulated the dev elopment of commercial ai rf re ig ht serv ices. On the co nt rary , m ili ta ry co nt ract op erati on s have 

served to di ve rt the tim e and ene rgy of th e car go ca rrie rs from wha t is suppose d 

to be th ei r func tio n ; nam ely, the op eration of com mer cial a irfr ei gh t servic es over 

fixed lin ea r rou tes. Thus, it is reason ab le to ass um e th at any ai rc ra ft to be 

acq uir ed by the cargo ca rr ie rs pu rs ua nt to gu aran tee d loan legisla tion will be 

placed in off- route co nt ra ct an d ch ar te r op erati on s (in direct com pet itio n with 

the supp lem ental ca rr ie rs ) and not in com mer cial fre ight services.

The follow ing ta bu latio n sho ws th at , du rin g the ye ar 1961, only 20 pe rcen t of 

th e to ta l rev enues of the dom estic cargo ca rrie rs was derived from com mer cial 

frei gh t op era tio ns. Seven ty-fou r pe rcen t of th eir revenues wa s deriv ed from 

m ili ta ry co nt ract an d ch ar te r op erations hav ing no relatio nship to th e fixed 

lin ea r ro utes of th e car go ca rriers, an d the re st (6 pe rcent) wa s obtai ned from 

the op eration of com mercial ch ar te rs and the tran sp or ta tio n of express and 

mail.

1

 W or ld Airway s, In c., Cap ito l Airw ay s, Inc., T ra ns In te rn ati o n al A irlin es , In c., Ov erse as N at io nal A irw ay s, In c., an d Sout her n A ir T ra nsp ort , Inc.
96 GUARANTEED LOANS TO AIRLINES

Source of transport revenues, scheduled domestic cargo carriers, 1961

AAXICO Airlines, In c.:

Military c ontracts and ch arter s___________________________ $4,148,165 Commercial ch arters____________________________________ None U.S. mail______________________________________________ None Exp ress_______________________________________________ None Commercial freigh t______________________________________ None

Total________________________________________________ 4,148,165

Riddle Airlines, In c. :

Military contrac ts and c ha rte rs___________________________ 18, 522, 703 Commercial cha rte rs_____________________________________ 907, 234 U.S. mail______________________________________________ 128, 407 Express_______________________________________________ 122, 207 Commercial fre igh t_____________________________________ 3, 959, 082

To tal________________________________________________ 23, 639, 633

Slick Airways, Inc .:

Military contracts and ch arter s__________________________ 11, 662, 405 Commercial ch arter s____________________________________ 112, 738 U.S. mail______________________________________________ None Express_______________________________________________ None Commercial freigh t______________________________________ None

Total________________________________________________ 11, 775,143

The F lying Tiger Line, Inc .:

Military c ontracts and ch arter s___________________________ 18, 656, 239 Commercial ch arter s_____________________________________ 2, 899, 316 U.S. mail______________________________________________ 105,346 Express------------------------------------------------------------------------ 124,687 Commercial freigh t______________________________________ 10, 410,368

Total________________________________________________ 32, 195, 956

So urce : C ar ri er form 41 re port s to th e CAB fo r yea r en di ng Dec. 31, 1961 .

Despite the ir recen t acquisition of so-called modern turbine-powered cargo 

air cra ft, the certificated domestic cargo ca rriers have, during the p ast few years, 

eith er greatly curtailed their commercial freight services or aband oned such 

services altogether. Specifically, the history of such operations is as follow s:

1. AAXIC O Airlines, Inc.—This carri er was certificated by the Civil Aeronautics Board in 1956 to provide cargo services over extensive routes eas t of the 

Mississippi River. The company inaugu rated service over a portion of its routes 

in November 1956 and susi>ended such service on June 30 ,1959.2

2. Riddle Airlines, Inc.—Historically, this company has operated the most 

extensive north/south a ir freight service of any air carr ier. During 1957, Riddle 

generated about 21 million scheduled ton-miles of commercial air freight. By 

1959, this volume had fallen to 16,500.000 ton-miles where it remained relatively 

stable until February 1962, at which time Riddle suspended service over all of 

its domestic route system except between New York City and Miami, Fla.3

 One of the principal argu men ts advanced by Riddle in support of its application to 

suspend commercial airfre igh t service was the alleged fact that the company 

has not been receiving enough MATS business; yet reference to exhibit 2 shows 

that during the 1962 fiscal year, Riddle received more MATS business tha n any 

other air carrier and seven times the amount of such business awarded to the 

average carrier participating in the MATS airlift program. Indeed, in its

2

 CA B O rd er No.. E -1 41 45 dat ed .Tune 3 0, 1959.

3

 CA B Ord er No. E-1 83 00 dat ed May 4, 196 2.
GUARANTEED LOANS TO AIRL INES 97

appli catio n for suspen sion da ted Feb ru ary 7, 1961 (pp. 2, 3) , Rid dle com men ted 

on its loss es from com mercial frei gh t servic e as fo llow s:

“These losses can be ei th er eli minated , by aban do nin g serv ice, or offset, by 

rev enu es from othe r sou rce s.” 4

In othe r words, the fa ct th at MATS ha s favo red Riddle by aw arding th at 

com pany more business th an any othe r ai r ca rr ie r ha s not had th e effect of 

stim ulating the deve lopment of com mercia l ai r fr e ig h t; ra th er , Rid dle h as a pp ar ­

en tly decided to aba ndon com mercia l frei gh t ser vic es and obtai n its revenues 

“from othe r sou rce s,” i.e., Go ver nm ent co nt ra ct and ch ar te r ope ration s.

Rid dle is one of th re e dom estic car go ca rr ie rs which ha s acq uir ed so-ca lled 

modern turbin e-p ow ere d all- car go a ircr af t. In its br ief to the Civil Ae ronauti cs 

Bo ard in th e Domestio Cargo-Mail Service case da ted March 27, 1961, Riddle 

advis ed th e Civil Ae ronautics Bo ard th at it had acquire d some seven Br itishbu ilt Argosy ai rc ra ft for use on its com mer cial frei gh t services. Riddle sta te d :

“One of the princ ipal rea sons of the exam ine r fo r select ing Riddle wa s th at 

Rid dle ‘has subm itted detai led plan s for its op erati on of the needed nor th /s ou th 

rou tes, and purposes installatio n of mo dern jet-po wered all- car go equipm ent on 

its syste m’ (I.D. 76). No ca rr ie r in th e case subm itted such a com plet e and 

detai led propos al. And onl y Ri dd le now ha s in ha nd the airp lane it said it 

would use .” [I ta lic in origi nal.] B

Yet, Riddle has never op erated any of the se air cra ft on com mer cial frei gh t 

se rv ic es ; ra th er , the se pla nes have been ass ign ed en tir ely to a co nt ra ct which 

Rid dle op erate s for the Air Force. Th us, the Go ver nm ent is, in effect, financ ing 

a fleet of Brit ish- bu ilt Ar gosy ai rc ra ft for Ridd le an d yet these air cra ft ar e 

ap pa rently not suite d for com mer cial frei gh t opera tio ns. In any event, the y 

have not been ass ign ed to com mer cial frei gh t services despite th e repr es en tatio ns 

of Riddle to the Civil Ae ronautics Bo ard in the Do me stic Cargo-Mail Service

case.

In view of this his tor y, I sug gest th at it is un reason ab le to ass um e th at any 

ai rc ra ft acquire d by Riddle pu rs ua nt to gu aran teed loan leg islati on will, in 

fact, be placed in com mercia l ai rf re ig ht se rvice s; ra th er , th e reason able assump ­

tion is th at such ai rc ra ft will be uti liz ed by Ridd le in th e sam e ma nn er as the 

Argosy pl an es ; nam ely, pla ced in off-route ch ar te r and co nt ra ct servic es in 

direct co mp etition with the supplem ental a ir car rie rs.

3. Sl ic k Airw ays, Inc.— Pr io r to 1958, this com pany opera ted an ext ensiv e 

ea st/w es t cargo ro ute system . In 1958, how ever, th e com pany suspended all of 

its com mer cial fre ight servic es and ha s not re in stitu te d any such op erati on s 

despite the fact th at it ha s acquired a num ber of Ca na da ir CL-44 ai rc ra ft.

4. Th e F lying T ige r Line .— Th is com pan y’s pr esen tat ion in the Domestic Cargo- Mail Service case was based upon the opera tio n of CL-44 ai rc ra ft in com mer cial 

air ca rgo services ; ye t the se pla nes we re ass ign ed by the Flyin g Tige r Lin e to 

m ili tary co nt ract servic es as soon as they we re del ive red to the com pany beginning abo ut a ye ar ago. In othe r word s, the fa ct th at the Fly ing Tiger Line 

ha s been aw arde d over $20 million in MATS business du rin g the cu rren t 

Government fiscal ye ar (sec ond only to Riddle and Pa n Ame ric an), ha s not 

had the prac tic al effec t of pla cin g any so-called modern tur bin e-p ow ere d cargo 

ai rc ra ft in com mercia l a irfr ei gh t services.

The basic pur pose of th e gu aran tee d loan leg islati on as it was origi nally 

ado pte d in 1957 was to ena ble the local servic e ca rr ie rs (an d als o the te rr itorial 

ca rrie rs ) to convert th ei r opera tio ns fro m DC -3’s (o r sim ila r air cra ft ) to 

more mod ern pla nes . Ge nerally speaking, these ca rr ie rs ha ve ei th er had 

no com petition or lim ited com petitio n amo ng themse lves . Th us the leg islati on 

opera ted to th e bene fit of all members of the cla ss with ou t unj ust discrim inati on 

ag ai ns t any pa rtic ul ar member. On the ot he r hand, the ext ension of th e bene fits 

of the leg islation to the schedu led car go ca rr ie rs would lie a disa stro us blow to 

the sup ple me nta l air ca rr ie rs in a field (con tra ct and ch ar te r op erations) 

where they have ren dered valua ble services sinc e shortly af te r th e end of 

Wo rld War II . Moreove r, all person s who have stu die d the supplem ental 

ai r ca rr ie r problem agree th at t he ir p rim ary op erati on s should be in co nt ra ct and 

ch ar te r services.

* CAB Order No. E-18300 dated May 4. 1962.

8

 Brief of Riddle Airlines, Inc., to the Civil A eronautics Board dated Mar. 27, 1961, p. 11.
98 GUARANTEED LOANS TO AI RL IN ES

Th e su pp le m en ta l a ir carr ie rs were aw ard ed t h eir ce rtif ic at es as a re su lt of th e 

m os t ex te ns iv e he ar in gs ev er co nd uc ted by th e Civil A er onau tics Boa rd . As 

lM)inted ou t abo ve, al l mem be rs of th e Boa rd ag re ed (a nd th e B oard ’s ex am ­

in er s also ag re ed ) th a t th e pu blic in te re st , an d th e in te re st of nati onal de fens e, 

re quir e co ntr act an d ch art er oper at io ns by th e su pp le m en ta l a ir carr ie rs . No 

co m pa ra bl e fin ding s ha ve ev er been m ad e in th e ca se of th e ce rt if ic at ed ca rgo 

carr ie rs . On th e contr ar y, th e off-route ch art er an d contr act opera ti ons ar e 

su pp os ed to be se rv ices which are merely in ci den ta l to th e pri m ary fu nc tion 

of such c a rr ie rs ; na mely , th e de ve lopm en t of comm on carr ia g e air fr eig h t ov er 

fixed li n ear ro ut es . If th e sc he du led ca rg o carr ie rs ar e, in fa ct , to be su pp le ­

m en ta l a ir carr ie rs , th ey sh ou ld be so cla ssifi ed by th e Civil A er onau tics Boa rd 

an d tr eate d in th e same m an ner as oth er su pp le m en ta l a ir carr ie rs . In an y 

ev en t, th e so-call ed ca rg o ca rr ie rs sh ou ld ce rt ai nly not be sing led out fo r 

sp ec ial favo rs .

In su m m ar y, we stro ngl y fa vor guara nte ed lo an le gi sl at io n to en ab le a ir carri ers to acq uir e mod ern jet-po w er ed eq uipm en t, pr ov id ed th is as si st ance is no t 

lim ited to any p art ic u la r cl as s o f c arr ie r but a vai la ble to a ll.

I w ish to th ank th e co m m itt ee fo r th e pr iv ileg e of pre se nting th is testim on y.

E x h ib it 1

NATIONAL AIR CARRIER ASSOCIATION

Ge orge W. T om pk ins, pr es id en t, S ol ar B ui ld in g, W as hi ng to n, D.C.

E. J. Daly, fi rs t vice pr es id en t, O ak la nd In te rn ati o n al A irport , O ak land , Ca lif .

J. F. Sta llin gs , sec ond vic e p re si den t, B err y F ield , Nas hv ill e, T en n.

MEMBERS

Amer ican F ly er s A irline Co rp., Mea ch am F ie ld , F o rt W or th , Te x.

Cap ito l Airw ay s, Inc ., B er ry F ie ld , N as hv ille, Te nn .

Mod ern Air T ra nsp ort , Inc., N ew ar k A irport , H angar No. 8, N ew ar k 5, N.J. 

O ve rsea s N at io nal Airw ay s, Inc., 404 Sol ar Bui ld in g, W as hin gt on 6, D.C. 

S atu rn Airw ay s, Inc ., Pos t Office Bo x 182, In te rn ati o n al A ir port Bra nc h, 

Miam i, 48, Fl a.

So ut he rn A ir T ra nsp ort , Inc., Post Office Bo x 48- 1266, M iami In te rn ati o n al 

A irpo rt , Miam i 48, Fl a.

T ra ns In te rn ati onal A irl ines , Inc., Post Office Bo x 90277, A irport Sta tion, 

Lo s A ng ele s 9, Calif.

W orld A irw ay s, I nc., O ak la nd I n te rn ati o n al A irport , O ak la nd , Calif.

ASSOCIATE MEMBER

P urd ue A er on au tics Corp ., P urd ue U niv er si ty , L af ayett e, In d.
E x h ib it 2

Military A ir Tran sport Service, fiscal year 1962 dollar obligations, Ju ly 1, 1961, through Ja n. 31, 1962

T o ta l v o lu m e

C a rrie r

L o g a ir , q u ic k tra n s , 

a n d fi xed

E x p a n s io n

A m o u n t P e r c e n t 

o f to ta l

A m o u n t P e r c e n t 

o f to ta l

A m o u n t P e rc e n t 

o f to ta l

R id d le A irli n e s ......................

P a n A m e ric a n ___________

F ly in g T ig e r L in e _______

S li c k A ir w a y s ........................

W o rld A ir w a y s ......................

A A X I C O A irli n e s ______

S e a b o a rd W o rld A irli n e s .

C a p ito l A ir w a y s _________

Z a n to p ........................................

T r a n s I n te r n a tio n a l............

O v e rs e a s N a tio n a l...............

S o u th e rn A ir T r a n s p o r t -

N o r t h w e s t ................................

U .S . O v e rs e a s ____________

G r e a t L a k e s . .............. ..........

C a li fo rn ia H a w a iia n _____

A la s k a A irli n e s __________

T r a n s C a r ib b e a n ..................

$21,

21,

20,

14,

10,

7,

7,

5,

3,

3,

3,

2,

1,

1,

13 4,36 7 

04 7,98 7 

07 9,51 5

76 0.94 8 

63 3,48 1 

83 3,74 1 

41 5,25 6 

31 9,52 7 

77 2,05 8 

75 6,98 7 

57 8,90 0 

35 0, 30 9 

64 8,43 5 

43 7, 55 6

52 8. 94 9 

35 6, 44 9 

22 8,09 0

17 ,133

T o t a l .............................................................................. 12 5,89 9,

S o u rc e: M A T S H e a d q u a r te r s , S c o tt A ir F o rc e B a se , Ill .

JUL 18 19 62

16. 79

16 .7 2 

15 .9 5

11 .72

8. 45 

6.2 2 

5.8 9 

4.2 3 

3.0 0 

2.9 8 

2.8 4 

1. 87 

1.31 

1. 14

.4 2

.2 8

.1 8

.0 1

10 0.00

$15 ,8 45 ,8 10

15 ,9 26 ,1 95 

10, 49 6, 59 8 

9,0 81 , 775

6, 79 3,87 2

7, 78 6,76 4 

5, 77 2,92 2 

2,8 83,1 35 

3, 77 2,05 8 

1, 44 0,8 32 

3,3 49,2 03 

2,3 38,3 62 

1, 380,9 82

86,8 68,5 08

18 .24 

18 .33 

12 .0 8 

10 .4 5 

7. 82 

8.9 6

6.6 5

3. 32

4. 34

1. 66 

3.8 6 

2.6 9 

1. 59

10 0.00

$1 ,3 03,3 53

4,7 45 ,9 94 

5,9 02,9 67 

2,5 88,1 82 

99 6,59 0

93 8,84 1

21 8,21 3 

29 ,241

26 7,45 4

16 ,9 90 ,8 35

7. 67

27.9 3 

34. 75 

15 .23 

5. 87

5.5 3

1. 28

.1 7

1. 57

10 0.00

P e r c e n t 

o f ex ­

p a n s io n 

to fi xe d

8.2 3

29. 80 

56 .2 4 

28.5 0 

14. 67

16 .2 6

15 .14 

.8 7

19 .37

C a ll

P e r c e n t 

o f ca ll 

to fi xed

P e rc e n t 

o f call 

to to ta l

A m o u n t P e rc e n t 

o f to ta l

$3,9 85 ,2 05 18 .0 8 25 .1 4 18 .86

375 , 798 1.7 1 2. 36 1.79

3,6 79,9 50 16. 70 35 .0 6 18. 33

3,0 90 ,9 81 14 .02 34 .0 3 20 .9 4

2,8 43,0 19 12 .90 41 .8 5 26. 74

46 ,9 77 .2 1 .6 0 .6 0

70 3,49 3 3. 19 12. 19 9. 49

2,4 36,3 92 11 .05 84 .5 0 45 .8 0

2,0 97,9 42 9. 52 145.6 1 55 .8 4

20 0,45 7 .9 1 5. 99 5. 60

11 ,947 .0 5 .5 1 .5 1

1,4 37 ,5 56 6. 52 0 10 0.00

52 8,94 9 2. 40 0 10 0.00

35 6, 44 9 1.62 0 10 0.00

22 8, 09 0 1.03 0 10 0.00

17 ,13 3 .0 8 0 10 0.00

22,0 40,3 38 10 0.00

GUARANTEED LOANS TO AIRL INES

CO

CO
100 GUARANTEED LOANS TO AIRLINES

Statement of Robert M. Hewitt, President of Riddle Airlines, Inc.

Mr. Chairman and members of the committee, my name is Robert M. Hewett, 

president of Riddle Airline, a Miami-based cargo carrier certificated for scheduled service between Miami, New York, San Juan, and other cities ; also the 

leading U.S. m ilita ry contract ca rrie r, worldwide.

Though I can speak only for Riddle, I shall sta te wh at I believe to be the case 

for America’s all-cargo industry as a whole.

The pending bill can be an important step toward an air cargo brea kthrough 

without cost to the taxpayers. I urge the following steps, supi»orted by official 

witnesses before y our com mittee:

1. Renew the aircraft loan guara nte e program 5 yea rs beyond its expiration 

next September, as proposed in H.R. 10121).

2. Raise the gua ran tee limit from $5 million to $15 million per airlin e.

3. Include the all-cargo carriers.

We oppose broadening the law to inclu de oth er classes of ca rri ers or for the 

purchase of foreign air cra ft.

R EN EW T H E LA W

For renew ing the Aircraft Loan Gu ara nty Act of 1057 anoth er 5 years, both 

the CAB and Commerce have cited good progress in the first 5 years of the law.

So far, 11 carriers, including 2 helicopter lines, have borrowed $37 million at 

about 5% percent to modernize the ir fleets with 49 a irplanes and 13 helicopters, 

and have repaid more than $14 million. Applications for 10 more aircraft are 

pending. Doubtless more would have been bought had the plane mak ers been 

ready w ith new local service types.

Th at is not the whole story. The presen t law allows 90 percent gua ran tee 

for 32 airline s up to $5 million each, a total of $160 million. But an airline first 

has to be turned down by commercial lend ers before i t goes to CAB. Some, w ithout recourse to guarantee, have received equipment loans on better term s than 

if the door were not open a t th e Board.

One line needed $3 million. Three local banks decided th at if it was a good 

risk for CAB, they could carry it on t heir own. So each lent a million and this 

airline bought its planes.

Beyond the direct measurable resu lts, the law is a yardstick for aircraft 

loans as the Tennessee Valley Authority was for ele ctric rates. Pow erfu l lobbies 

sometimes try to oppose such legislation, but Congress a cts in th e public intere st.

In 1957, the local tra nspo rt lines, the main beneficiaries of the law so far , 

were losing money with their obsolescent planes. Their earnings record was 

aga inst the ir borrowing for new ones. It was to break thi s impasse th at CAB 

proposed loan guarantee.

Conservatives in Congress feared th at such a use of public credit might be 

costly in the end. No airline has defa ulted . Similar aid is being extended to 

the railroa ds. Several foreign nations also have guara nte e for loans to push 

sales of their planes, including sales to U.S. airlines.

Bank ing intere sts trie d to stop the bill on the grounds th at the ir tr ust certificate plan, to give lenders first lien on airc ra ft as for railway rolling stock, was 

enough. Congress passed both bills.

It should be clear th at something more tha n liens on airc ra ft still is needed. 

The trouble in disposing of old air craft, as airl ines converted to turboprops 

and then to jets , has shown th at used planes are not always a quick asset 

to pledge as security. Lenders still must rely on the soundness of the airlines, 

backed by guarantee for those in development stages.

CAB is pushing hard for new types of local service aircraft. This alone 

could well justify the support the Board is giving to renewal of loan guarantee. 

The same applies to cargo planes.

R A IS E T H E LO AN L IM IT

As we have seen, the limit of $5 million per airline can buy quite a few 

plane s of the small local service types. But this will not finance more tha n 

one jet transp ort. The type that most intere sts Riddle will cost close to $7 

million.

Th at is why Riddle wan ts the loan limit increased. The Department of 

Commerce recommends $15 million “to allow for the high er cost of an aircraft 

suitable for use in all-cargo operations.”
GUARANTEED LOANS TO AIRLINE S 101

Not a sing le je t a ir c ra ft is flown by th e ca rg o line s to da y, an d on ly a few 

tu rb op ro ps , w hi ch R id dl e ha s. J e t flig ht is ess ential to th e fu tu re of ca rg o 

li ft j u s t as it is to p as se nge r l if t.

On do mes tic ro ut es , th e pa ss en ge r air li nes a re ga in in g in ca rg o m ai nl y by 

th e sp ac e in th e ho lds of pas se ng er fli gh ts. T his in cl ud es je ts w ith th eir g re at 

ca pa ci ty b eyon d th e wei ght o f p as se ng er s.

The all-ca rg o lin es, w ith th eir pi st on pl an es , ha ve ga in ed li tt le in sc he du le d 

to n mile ag e fo r se ver al ye ar s. The y m us t ha ve je ts to conq>ete.

Across th e oc ea ns, fo re ig n air li nes gai n st eadil y in U.S. tra ffi c. T he ca rg o 

lin es m ust m od er ni ze to do th e ir p a rt in re st ori ng t he U .S. p os iti on .

M ilitar y a ir li ft re quir es th e la te st an d be st in speed, ca pa ci ty , an d econom y. 

The ab senc e o f ca rg o je ts is a w ea k sp ot in A m er ic an re ad in es s.

Most of th e ca rg o air li n e pl an es are pas se ng er co nv er tib le . Sea ts slid e on 

tr ack s or fold to th e wall, eit h er to carr y pa ss en ger s or mak e roo m fo r ca rgo. 

App lic at io ns are pe nd in g in CAB to co mb ine ca rg o an d pa ss en ge rs in ci vi lian 

fli gh ts, a ve ry eco no mical form of tra nsp ort .

To mak e th e m os t of th eir flex ib ili ty an d th eir w or ld w id e ex pe rien ce th e ca rg o 

lin es ne ed je ts . J u s t one je t pe r air li ne wou ld be of lim ited use. I t is un econo mical to m ain ta in a sing le big air p la n e of an y kind . A t le ast tw o a re ne ed ed 

so on e c an fly w he n th e oth er is out o f service .

The $15 mill ion lim it will fin an ce tw o je ts ea ch fo r th e air li nes th a t ne ed 

them . Once in je t op er at io n, they will be on th e way to ac quir in g mo re.

If yo ur co m m ittee do es not w ish to go ab ov e $5 mill ion fo r air li n es us in g 

sm al le r air cra ft , ap p ro p ri ate lim itin g la ng ua ge m ay be in se rted . B ut Rid dl e 

has no ob jection to eq ua l li m it s fo r al l th e air li n es elig ible under th e rene w ed 

law .

N ei th er do we ob je ct to CA B’s pr op os al th a t g u ara n te e fo r ca rg o line a ir c ra ft 

be lim ited to tu rb in e- po w er ed plan es . T h at is w hat R id dl e w ants to buy. But 

we ca nnot fo rs ee th e ne ed s o f oth er ai rl in es , so we su gg es t it be le ft to adm in is ­ tr a ti v e discr etio n.

IN CL UD E THE CARGO LIN ES

In cl us io n of th e ce rtific at ed al l-ca rg o c a rr ie rs i n lo an g u ara n te e is prop os ed by 

an am en dm en t to S. 2815 by S en at or Sm at her s. He told th e Sen at e on M ar ch 8 :

“T hi s is th e on e way I kn ow to de ve lop U.S . a ir li ft fo r civil an d m il it ary use 

w ithout c os t to th e ta xpayers . * * *

“T he ca rg o c a rr ie rs a re th e su rv iv or s of th e co m pa ni es fo rm ed a ft e r W or ld 

W ar II which pi on ee re d in th e ne w and dif fic ult field of ca rg o lift. T heir job 

is to r ender sc he du le d ca rg o se rv ic e on th e ro ute s fo r which th ey a re ce rtific at ed 

by CAB . Fly in g fo r th e m os t p a rt in se co nd ha nd a ir c ra ft de sign ed fo r passe ng ers, th ey ha ve not yet be en ab le to br ea k ev en on th eir ca rg o ro ut es .

“T o st ay in bu sine ss, th e ca rg o air li n es hav e de ve lope d wor ld w id e m il it ary 

and ci vi lian ch a rt e r serv ice , im port ant ex pe rien ce fo r em erge nc y re ad in es s. 

Ev en so, th is br an ch of a ir tr an sp o rt h as in curr ed net losses in re ce nt ye ar s. 

T hi s unfa vora ble earn in gs re co rd m ak es it dif fic ult to se cu re new air cra ft , th e 

ke y t o fu tu re ear nin gs. ”

T he ba ck ing of CA B and th e Co mm erc e D epart m ent fo r ca rg o lin e g u ara n te e 

is in ac co rd an ce w ith reco gn ized Gov er nm en t po lic y in th e “R ei xi rt o f T ask For ce 

on N at io na l A vi atio n Goa ls, ” deve lope d th ro ug h th e F ed er al Avi atio n Adm in istr a to r and ac ce pt ed fo r im pl em en ta tion by P re sid en t Ken ne dy , Sep tem be r 10, 

1901.

“Se ve ra l all-ca rg o carr ie rs hav e w ithdra w n from sche du led co mm ercial se rv ­

ice s an d th e ot he rs re quir e su bst anti al re ve nu es fr om no ns ch ed ul ed se rv ic es to 

su st ain t h eir sc he du led ope ra tion s. * * ♦”

Que stio ni ng su bs id y as a cure, th e report c onclu des:

“W e are of th e op inion th a t in dir ect aid sh ou ld be pr ov id ed in th e fo rm of 

G ov er nm en t su pport of air carg o tr an sp o rt ve hicle de ve lopm en t, th e ex pa nd ed 

us e of ai rc ar go se rv ices fo r m ail an d m il it ary ca rg o * * * an d guara nte ed lo an 

le gi sl at io n su bj ec t to th e m os t de ta iled sc ru tiny by th e Ci vil A er onau tics B oar d 

of th e chara cte ri st ic s of th e a ir c ra ft as an econ om ic ve hicle , be fo re ap pro val of 

su ch lo an s is gra nte d. An d th e m att er of dir ect su bs id y re quir es im m ed ia te 

an al ys is, not on ly in view of th e ob viou s nati onal in te re st in ex pan din g th e de ­

ve lopm en t of th is bra nch of a ir tr an sp o rt ati o n but in te rm s of it s re la ti o n to 

m il it ary a ir li ft ca pabil it y.”

W e in th e air carg o in dust ry wou ld ra th e r ope ra te w ithout su bs idy. W e will 

find it h ard to do s o un le ss n ati o n al po lic ies on paper a re m ad e re al .

84828— 62
102 GUARANTEED LOANS TO AIRLINES

In 1957 it w as ar gu ed th a t lo an g u ara n te e wou ld pa y divi de nd s to th e ta x ­

payers by he lpin g th e loca l se rv ic e air li n es ge t off su bs idy. W hi le m os t ha ve 

not ac hiev ed this, th eir tra ffi c has do ub led an d th ey are m ak in g gre at prog ress.

Loa n guar ante e ca n he lp ke ep th e ca rg o lines off su bs idy. O th er m ea su re s 

ta k e tim e. Aid in de ve loping a tr u e ca rg o a ir cra ft , in st ead of th e m ak es hift 

us e of pa ss en ge r type s, is long ov erdu e. I t w as ur ge d as fa r ba ck as th e a ir 

po lic y re port s of 1948. We h op e so med ay i t will be do ne.

B ut th e ca rg o lin es ca nn ot w ai t. We m ust bu y th e pla nes on ha nd . Je ts 

no w be ing m an ufa ctu re d will he lp us gre at ly , bo th fo r fa st fr eig ht an d fo r 

pas se ng er chart ers . F or m an y pu rp os es it will be bett er to us e pre se nt je ts , 

ca rg o co nv er tib le w ith pa ss en ge r se at s, th an all-ca rg o ty pe no t su it able fo r 

pa ss en ge rs.

We wo uld no t like th e ca rg o- lin e guara nte e lim ited, to fr eig ht use. P a st m ilita ry leas e of p la ne s th u s re str ic te d prov ed im pra ct ic al . W ith co nv er tib le pl an es 

we oft en ca n bal an ce a ca rg o flig ht w ith a re tu rn lo ad of pas se ng er s in st ead of 

fe rr yin g b ac k em pty. The m il it ary va lu e of su ch flex iblit y ne ed s no ar gu m en t.

As t he H orizon r eport say s, f ull s cru tiny b y CAB o f p la ne ty pe s fo r guara nte e is 

a pr op er sa fe gu ar d, if no t prol on ge d in so-call ed ex pe di te d ca se s th a t ta ke 5 

ye ar s.

O ther wise, we i nv ite in sp ec tion be ca us e we are pr oud of our re co rd an d en th u ­

si as tic ab ou t ou r po te ntial , re ady to go if o ffic ials will on ly l if t some of th e unce rta in ti es th a t mak e i t so h ard to g et lon g- rang e fin ancin g.

Of th e po st w ar air li nes th a t tr ie d to prov e th eir fit ne ss in th e ca rg o field, only 

six re m ai n as en tities . On e of th es e di d not oper at e it s ro ute s an d loses th em in 

a re ce nt CAB decis ion . A no th er , w ith ro ute s in to L ati n Amer ica, has a m er ge r 

ag re em en t p en di ng w ith Ri dd le.

So th e Sm at he rs am en dm en t pre su m ab ly w ill add on ly 4 ai rl in es to th e 32 now 

eligible fo r g u a ra n te e : Rid dl e A irline s, w ith nort h-s outh ro ute s in th e E a s t; th e 

F ly in g Tig er Li ne , w ith ea st -w es t ro u te s; Sea bo ar d W or ld A irw ay s, tr a n satl an ti c ; a nd S lic k Airw ay s, n ot curr entl y in r out e service .

The ca rg o ai rl in es ha ve some 120 a ir c ra ft w ith a to ta l pay lo ad ca pa ci ty of 

2,000 tons . The pa ss en ge r air li nes ha ve ab ou t 80 a ir c ra ft of ca rg o- co nv ertib le 

or ca rg o co nf ig ur ation. The su pp le m en ta l a ir c arr ie rs and oth er no ns ch ed ul ed 

opera to rs h av e no mor e th a n 50.

T he ca rg o lin es ha ve m od er nize d th eir fle ets as be st th ey co uld to includ e th e 

la te r mod els of pi st on air cra ft , whe re by th ey ha ve he lp ed m ain ta in th e usedpla ne m ark et fo r t he je t co nv ersion o f p as se ng er li nes.

Als o, th ey are th e f ir st co mm ercial us er s of tr u e ca rg o air cra ft . Since no su ch 

U.S . pl an e w as av ai la bl e, fo re ig n ty pe s were bo ug ht. R id dl e has se ve ra l B ri ti sh 

Argos y AW -650 ’s, a no se-lo ad ing tu rb op ro p. Se ve ra l oth er ca rg o lin es ha ve 

bo ug ht t he a ft -loa di ng C an ad ia n CL- 44—1)4 Sw in gt ai l.

T her e is no earl y pr os pe ct of co nv er ting th e he av y m il it ary ca rg o pl an es in to 

ec on om ical ci vi lian us e or co mpl etin g a co mmercial all-ca rg o pr ot ot yp e. B u t th e 

eligible ai rl in es , ev en if th ey us e th eir cre d it now fo r off-the-sh elf mo dels, may 

re pay en ou gh w ithin 5 years so th ey ca n ap pl y fo r guara nte e ag ai n up to th eir 

loan lm it. Thu s th ey m ay contr ib ute to th e m ark et fo r fu tu re U.S . ca rg o a ir ­

cra ft be fo re Se ptem be r 1967, w ithin th e t er m of t he rene wed law. B ut th e fo rt h ­

comi ng ca rg o ve rs io n of pre se nt co mm er cial je ts by Bo ein g and Dou gl as ga ve 

earl y pr om ise of te st ed an d tr ie d ve hicles a t ve ry low to n- m ile c osts.

F or th e guara nte e to ex te nd to purc has e of fo re ig n a ir c ra ft , w hi le U.S. ca rg o 

ty pes are n ot a va ilab le , seem s unn ec es sa ry . The c ar go line s hav e bo ug ht fo re ig n 

pl an es w ith fo re ig n aid fin an cin g, and may co nt in ue to do so if ne ce ss ar y. I t 

wou ld h av e sa ve d us mo ney had Con gr es s ch osen to re m it the im port d ut y, as w as 

prop os ed . B ut if we ex pe ct Con gress to be co nc erne d w ith th e w el fa re o f U.S. 

air lines , it is only fa ir th a t we in America su pport th e in te re st s of U.S. a ir c ra ft 

m ak er s w hi le fo re ig n go ve rn m en ts s upport th ei rs .

CARGO LINES LEAD IN MILITARY FREIGHT

F o r m il it ary em ergency, th e im po rt an ce of ca rg o li ft is reco gn ized in H or izon 

and oth er hig h-lev el re po rts, an d co mmercial li ft is bo ug ht by th e Arm ed For ce s 

to hel p m ain ta in re ad y l if t ca pa ci ty .

R id dl e is firs t in MA TS work fo r th e fiscal yea r 1962. P an Am er ic an W or ld 

A irw ay s is a close sec on d. Fly in g Tiger , anoth er all-ca rg o lin e, is a clo se th ir d.

O ut of a to ta l of $126 mill ion fo r al l 18 U.S. a ir c a rr ie rs in contr act w or k fo r 

th e M ilitar y A ir T ra n sp o rt Se rvice, 5 all-c ar go lin es to ta le d mor e th an $71 

m illion o r 57 pe rc en t.
GUARANTEED LOANS TO AIRLINE S 103

Much the same ratio prevails as to cargo ai rc ra ft in the civil reserve ai r 

fleet (CR AF)—the airlin e plan es capable of long-range flight over the oceans, 

on call by MATS if the bell rings. Here are recent figures from the Defense Air 

Transpo rt Administration (DA TA).

For the fiscal year 1903, the all-cargo lines are to have at lea st 55 airc ra ft in 

CRAF w ith a total capa city of nearly 1,200 tons payload, more tha n half of the 

total commercial cargo lif t in CRAF. Most of these planes are owned ra th er 

tha n leased, so their purc hase has contribu ted to the lift capacity of the Nation.

The nonscheduled airlines, that some people seem to thin k are the backbone 

of the m ilitary reserve, have 43 planes in CRAF with a payload capacity of 660 

tons, barely half the cargo-line tota l. Many ar e leased, presumably inclu ding 

some from the all-cargo industry, so they have added nothing to U.S. lift. All 

are piston driven, inclu ding 10 DC -4’s of World War II vintage, nonp ressu rized 

and thus below mil itary passenger standa rds.

Pre sen t MATS work of the cargo line includes the route-type logair and 

» quicktrans, on schedule between bases within the United States, as well as

planeload cargo and passenge r flights to U.S. bases over both the Atlan tic and 

Pacific.

Last year, Riddle broke the commercial distance record in a rou tine ferrying 

flight nonstop from Toyko to Chicago. Who can give you a be tter dem onstration 

of global readiness?

Last summer wre flew United States and foreign tourist groups acro ss the 

Atlan tic; we total as many as fou r round trip crossing a day for weeks at a 

time. Tourism at last is encouraged by Government for intern ational good 

will. The more we fly, in competition with foreign car riers, the better for the 

gold balance. It is good f or emergency readiness because such traffic can stop 

and the planes can go at once to m ilitary use.

This yea r Riddle is making con trac t flights out of Berlin to points in Europe. 

The lessons of the Berlin lift, for which America was unprepared, shows how 

valuable it is to have an American airl ine g ainin g f rien ds and experience in this 

sensitive area.

MILITAR Y CARGO JE TS ARE NEEDED

The repo rt on “The Role of MATS in Peace and Wa r,” issued by the Dep artm ent 

of Defense in February 1960, put much stress on cargo lift, including jets. It 

re ad s:

“That with respe ct to services overseas and to foreign countries, commercial 

augm enta tion airlift procurem ent policies and practic es be better adapted to the 

long-range Dep artm ent of Defense requirements, so as to encourage and ass ist 

in sound economic growth, development, and maintenance of an increased aircargo cap ability * * *.

“That since the development of long-range, economical turbine-pow ered cargo 

airc ra ft is essential to MATS modernizatio n and to long-range evaluation of a 

modern civil carg o fleet, suitable arra ngements should be made for Defense 

j and ind ustry par ticipation in the costs of such development.

“That purchase loan guaranteee legislation, if proposed, contain provision s to 

insure the immediate availab ility of cargo airc ra ft covered thereby to meet milita ry and mobilization requiremen ts.”

Riddle, of course, stands ready to place any airc ra ft it may own into the 

service of national defense if the call comes.

CARGO LIN ES ARE LO SIN G MO NE Y

The cargo lines cannot be expected to modernize at the pace required withou t 

the help of loan guarantee. They have strain ed their resources in the reequipment they have done.

It is difficult and costly even for major airlines, let alone smalle r ones, to put 

a new-type plane into operation. The Argosy and Swingtail ar e giving good 

service now. But this costs thou sands of hours of work and millions of dollars 

for engineering, maintenance, crew train ing, and experience.

The all-cargo indu stry, between the baggage-hold competition of passenger 

airlines on its routes and nonscheduled lines withou t rou te resp onsibility in 

its cha rters, is losing money. We waited for yea rs for route system decisions 

that have not solved our problems. We face sudden ups and downs in military traffic and have to scratch for oth er work between times. We meet many 

FAA demands and supp ort union crews. We must have personnel in foreign 

countries.
1 0 4 GUARANTEED LOANS TO AIRLINES

T he c h art er op er at io ns , which a re our m ai nst ay , de pe nd on th e cu mbe rsom e 

proc es s of CAB ex em pt io ns th a t Con gress w an ts to disc ou ra ge . Lo ng -ra ng e 

au th o ri ty fo r ch art er wor k in th e En gle am en dm en t, lon g de la ye d be ca us e of th e 

de ad lo ck of t he co ntr over si al s up pl em en t a ir c arr ie r bill.

All th es e th in gs a re re le vant to your co ns id er at io n of S. 2815 be ca us e th is is 

no t a se para te issu e but p a rt of a p att ern of ch an ge an d pr og re ss de m an de d by 

pu blic ne ce ss ity .

Eve n mor e th a n th e loca l se rv ic e lin es 5 yea rs ago , th a t co uld not go br ok e 

be ca us e th ey dr ew su bs idy, th e un su bs id ized ca rg o lin es ne ed F ed er al ba ck ing 

fo r th e ir c re di t. Mo ney has been h ard to get, lon g te rm an d a t re as on ab le ra te s, 

eit h er fo r ex pa ns io n or t o off set d eficits .

Amid all th es e bu rd en s, unce rt ai nties , an d diffi cu lties of pi on ee ring a new 

in d u str y w ith se co nd ha nd eq uip m en t inte nd ed fo r oth er use, th e all-ca rg o in dustr y ha s in cu rr ed annual defic its . A ft er mak in g a li tt le in it s earl y ye ar s, it 

be ga n to los e in 1954, ga in ed a bit in 1955 an d 1956, an d sin ce re iior te d los ses .

T he annual su m m ar y by th e A ir T ra nsp ort Assoc iatio n, ju st ou t, sh ow s th a t 

th es e air li nes lo st mor e th an $24 mill ion in th e 5 yea rs 1957-61 , des pite in cre asing tra ffic.

W he n th eir sc he du led fr ei ght be gan to h it a de ad lev el in th e mid-1950 ’s, th ey 

dive rsified in to m il it ary and oth er ch art er work to st ay ali ve . I t is an am az in g 

fa ct th a t th eir to ta l tra ffi c sinc e has tr ip le d in ton- mile an d doll ar volu m e; yet 

losses h av e mou nted .

In I96 0, th ey lo st ov er $9 mi llion . In 1961, de sp ite ad de d m il it ary wor k an d 

tr a n sa tl a n ti c chart ers , th ey s ti ll los t mor e t han $6 mi llion .

The bi g tr u n k air li nes op po se us as a m att er of ro ut in e. In th e pre se nt h earing s, th e A ir T ra n sp o rt Assoc iatio n, of whi ch we a re mem be rs, has be en put in 

a n eu tr al po sitio n. B ut it is th e ex am pl e of th e ca rg o line s th a t has po in te d 

th e way to th e ca rg o re ve nu e of th e pa ss en ge r ai rl in es . W ith your help, we 

will t ak e a new lead w ith c ar go jets .

I t wou ld seem mos t u n fa ir to ex te nd loan guara nte e to th e big pa ss en ge r a ir ­

line s fo r ca rg o air cra ft . The y alr eady ha ve th e gre at advanta ge of sp ac e in th e 

be lli es of pa ss en ge r fli gh ts an d, a ft e r al l ca rg o fly ing is our as sign ed job . T he 

pas se ng er air li nes a ft e r W orld W ar II w er e co nt en t w ith th eir hig h-r at e ex pre ss 

an d mail. The y le t th e ca rg o line s deve lop th e air fr eig h t m ar ket , th e sa le s 

metho ds , th e pa ck ag in g an d th e gr ou nd ha nd lin g. No w th ey are bar el y do ing 

m or e th an sk im th e cr ea m as th ey ha ve em pt y sp ac e in pl an es av ai la bl e.

I t may be ho pe d th a t th e prob lems of th e pa ss en ge r air li nes a re te m po ra ry 

duri ng ex pe ns iv e eq ui pm en t ch an ge s an d re ad ju st m ent. T he so lu tion s includ e 

m er ge rs and h ard er pas se ng er s el ling in co mpe tit ion w ith gr ou nd carr ie rs ra th e r 

th an he lp fo r th em to div ert more ca rg o fr om our bra nch of th e in dus try.

Bey on d our ro ute serv ice, if we hav e become al so t h e w orld’s la rg est gr oup o f 

ch art er fly ers , th is is a field th a t th e pa ss en ge r line s ha ve not so ught to deve lop 

ex ce pt as a m in or sid eline, an d one th a t is not re se rv ed fo r any cl as s of carr ie rs . 

If we lea d, it is b y sa le sm an sh ip and m er it.

B an ker s ca nn ot len d on ho pes an d as pir at io ns. We in R id dl e ou ght to be 

ex per ts in air li n e c re d it ; we ha ve kn oc ke d a t th e do or s of more le nd er s, pr ob ­

ab ly, th an an y air li ne in th e world, tr yin g to get w or ki ng capit al a t re as ona ble 

ra te s.

Mu ch of th e cre dit fo r a ir c ra ft purc has es fo r ca rg o air li nes th es e day s come s 

from th e m anufa ctu re rs an d th eir p are n t co mpa nies, ra th e r th an fr om lend in g 

in st it uti ons. T hi s in cl ud es fo re ig n mo ne y an d U.S. in te re st s w ith fo re ig n ho ld ­

ings . G en er al Dyn am ics, Dou glas, Lo ckheed, an d W hit w ort h G lo us te r ha ve 

he lped fin an ce th e ca rg o lin es.

T hi s is n ot o nly to se ll ne w pl an es t hey m ak e h u t to dispo se of old er m od els t he y 

have ta ken as tr ad ei ns. W het her th is ve rg es on a ne w fo rm of dir ect co ntro l, 

un fo re se en in th e mak in g of av ia tion laws, an d w het her ta kin g th e pl an e w ith 

th e ea si est cre dit al w ay s m ea ns th e one mos t su itab le , are m att ers I sh al l no t 

pu rs ue . Ther e is a com plex ta ngle o f in te re st s a t wor k he re.

I do sa y th a t a ir c ra ft lo an guar an te e, to pr ov id e fu nds th ro ugh th e no rm al 

ch an ne ls of lend in g in st it uti ons, h as give n th e lo ca l tr a n sp o rt air li nes a g re ate r 

free do m of choic e in r ee qu ip m en t and c an do th e s am e f o r th e all-ca rg o ai rl in es .

KE EP PROGRAM IN CAB

As fo r tli e ad m in is tr ati on of th e a ir c ra ft lo an guara nte e law , I wou ld reco mmen d th a t it st ay in CAB , th e o ne ag en cy pri m ari ly in th e air li n e bu sine ss. The 

pr in ci pl e of ke ep ing avia ti on in an in de pe nd en t ag en cy , ra th e r th an su bm erge d
GUARANTEED LOANS TO AIRLINES 105

under officials busy in other fields as well, has been upheld over the yea rs and 

Commerce Dep artm ent powers more tha n once were taken away.

Without reflection on present Commerce officials, we can not afford the delays 

att endant on agency tra ns fer and remaking of policies. We should not be expected to w ait behind the problem s of tra nsporta tio n as a wh ole ; we have enough 

problem s in our small pa rt of it.

Our needs are fairly simple and the steps are well marked in policies nationally accepted. But actio n lags between several agencies th at never seem 

to move together. Plea se do not add fu rthe r complications.

In closing, may I suggest tha t resp onsibility between a ca rrier and the Government goes two ways. To win a public franchise, the carri er mu st agree to perform tile required service to the best of its ability. As the giver of the franchise, 

the Government is bound to show some decent regard for the ca rrier, and save it 

from impossible conditions.

The cargo airlines are gra teful to your committee for doing so much to meet 

your share of the responsibility.

Statement op Los Angeles Airways, I nc.

Los Angeles Airways, Inc., supports the e nac tme nt of H.R. 10120, which would 

extend for an oth er 5 yea rs Public L aw 85-307, providing fo r F ede ral Government 

gua ran tee of priva te loans to certain ai r ca rri ers (including the helicopter ca rrie rs) for the purchase of modern airc ra ft and equipment.

By the term s of loan guara nte e docket LG-10, the Civil Aero nautics Board, 

has executed a loan guara nte e agreement with the carri er and the Ban k of 

America under the te rms of which Los Angeles Airways has purch ased fo ur fully 

equipped S-61L helicopters, spa re engines, and par ts. Three of these airc ra ft 

have already been placed in service and are meeting with sub sta ntial public 

approval. In fact, there is every reason to believe th at these turbine-powered, 

aircraft will provide the equipment breakthro ugh awaite d by the scheduled 

helicopter c arrie rs for so many yea rs and w hich will allow the helicopter e xperiment to move fo rward.

The purchase of these revolutionary new aircraft has required the expenditure of approximately .$3 million. Without the loan gua ran tee authorized und er 

Public Law 85-307, LAA would not have been able to borrow enough long-term 

funds or raise sufficient equity on reasonab le term s to finance the pur cha se of 

such equipment.

Los Angeles Airw ays confidently expects th at the acquisitio n of the fou r S61L helicopters will con trib ute substantially to the orderly reduction of its subsidy support.

However, the achie vement of subsidy-free operation is dependent upon exiwinsion of route structur es and im plem entation of sim ilar factors designed to improve 

the carrie r’s sub urban service to cover the entire Los Angeles “megapolis.” This 

may well require increasing LAA’s fleet to include a fifth, sixth , or seventh 

turbin e helicopter, or an entire new generation of equipment. At a time when 

the helicopter expe riment has reached its most challenging stage, Los Angeles 

Airways strongly sup ports extension of the provision s of Public Law’ 85-307 for 

an additional 5 yea rs so t ha t the goal of efficient, economical schedule helicopter 

tra nsp ort ation may be achieved with the most modern equipment as a mean s of 

reducing subsidy support.

Statement of Edward J. Driscoll, Deputy to the Assistant Secretary of the Air Force, Materiel, for Transportation and Communications

Mr. Chairman and members of the committee, my name is Edward J. Driscoll. 

I am Deputy to the Assistant Secretary of the Air Force, Mate riel, for Tr an sportati on and Communications. I app reciate thi s opp ortu nity to express tlie 

views of the Dep artm ent of Defense concerning S. 2815 and the amendment 

thereto proposed by S enator Smathe rs w ith respe ct to the Senate bill.

The Departm ent of Defense has communicated its views to the cha irm an of 

this committee under date of May 11. 1962, and we interpose no objection to the 

enac tment of S. 2815 or the proposed amen dment on the assumption th at decisions as to whether specific aircraft purc hase loans made to scheduled all-cargo 

carriers should be guaranteed by the Government will depend, among other 

factors, upon whether the aircraft being purchased has been determined by the
106 GUARANTEED LOANS TO AIRLINES

Department of Defense to be suitable to meet emergency needs of the Department of Defense.

To give a clearer understanding of the Department of Defense interest in 

guaranteed loan legislation, I believe it would be helpful to review and describe 

for you our normal commercial airlift procurement management practices.

As you are aware, the Military Air Transport Service, functioning as the Department of Defense executive agent for airlift services, has been resi>onsible for 

the procurement and management of commercial airlift for both international 

and long-term domestic services for an extended period of time. Over the years 

we have modified our practices as we gained experience. Our efforts have consistently been directed toward securing the most efficient and suitable air tran sportation services. The scope of this activity includes supplemental, all-cargo, w

and the regularly scheduled carriers.

In Secretary Imirie’s appearance before the House Subcommittee on Military 

Operations of the Committee on Government Operations in June of the past year 

Air Force aims with respect to commercial air transportation were spelled out in 

detail. It may be helpful to summarize them at this time, as follows: J

(1) To encourage civil participation in the civil reserve air fleet;

(2) To insure an expanded capacity of both cargo and passenger civil airlift available to the Department of Defense for use in any limited or localized emergency which does not justify activation of the entire civil reserve 

air fleet;

(3) To encourage the procurement by the air transportation industry of 

modern aircraft best adapted to Government emergency needs and committed to the Department of Defense; and

(4) To provide stability to the air transportation industry so that they 

can properly program their resources and capabilities to the long-range 

needs of the Department of Defense in conjuction with their civil commitments and civil requirements.

In consonance with these objectives the matter of augmenting the Military Air 

Transport Service with commercial airlift has been and is a continuing practice 

of llie Department of the Air Force. Although our reliance upon commercial 

carriers has grown in each of the past successive years, the arrangements concluded for fiscal year 1962 are the largest ever entered into by the Military Air 

Transport Service.

Some elements of this procurement are noteworthy. First, small business obtained approximately 80 percent of the awards. Secondly, if the successful ca rriers show positive signs of moving toward modernization, the Government has 

the option of extending the contracts for 2 successive years. This should be an 

incentive toward the modernization necessary to the civilian fleets and provide 

the c arriers with a firmer basis for financial plans. Finally, the contracts contain expansion features which provide the m ilitary a specific number of aircraft 

to be available in the event of emergency.

The Military Air Transport Service is currently engaged in negotiating with 

the civil carrie rs for fiscal year 1963, and preliminary indications are that the 

Department of Defense has obtained a substantial increase in the civil cargo 

capacity of the civil airlines w'hich would be available to the Departm ent for 

peacetime performance. We understand that at least two carriers have placed 

orders for modern turbine-powered cargo equipment, and that others are in 

the process of negotiating with airc raft manufacturers for the acquisition of addi- <

tional capacity. It is in this latter area that guaranteed loan legislation may 

enable carriers to acquire the modern turbine-powered cargo equipment on more 

reasonable terms and conditions.

I believe it correct to assume t ha t the civil carriers will acquire modern turbine-powered equipment based, at least in part, on the quantity of MATS business that will be made available to these carriers, and as the committee is well 

aware the volume for fiscal year 1962 as well as tha t projected for fiscal year 1963 

is quite substantial. One of our aims is to aid in the development of a sound 

commercial air transportation industry. Without guaranteed loan legislation 

carriers may acquire modern turbine-powered equipment on other than reasonable terms and conditions and this aim may be aborted as the carriers’ financial 

condition may not improve to enable it to continue a modernization program for 

use not only to meet Defense needs but also to meet civil requirements.,

We feel that guaranteed loan legislation would enable the acquisition of aircraft on reasonable terms and conditions, either by private financing or guarantee 

by the Government. We know there are carriers who have not used the Government’s guarantee program as they were able to obtain financing from private
GUARANTEED LOANS TO AIRLINES 107

sources at favorable rates. However, we feel that most of the all-cargo ca rriers 

who are under contract to MATS and who are endeavoring to develop and expand 

their commercial cargo service are probably of a class that would be unable to 

obtain financing absent guaranteed loans at reasonable rates.

I would like to call the committee’s attention to the fact tha t I have addressed 

myself mainly to the cargo capacity. With respect to S. 2815 without the Smathers amendment, while th e Department of Defense interposes no objection to the 

enactment thereof, the Department does not have the same degree of interest 

as it would have in legislation authorizing guaranteed loans for the acquisition 

of modern turbine-powered cargo equipment.

I recognize that this has been a very brief statement of the Department of 

Defense interest, and I will be pleased to answer any questions the committee 

may have.

Statement of Delos W. Rentzel on Behalf of Slick Airways

Mr. Chairman and members of the committee, I appreciate the opportunity 

of appearing before your committee in supjx>rt of the inclusion of all-cargo service 

as one of the categories covered by the guaranteed loan legislation now being 

considered by your committee.

Since 1954 I have been closely associated with Slick Airways, one of the 

Nation’s pioneers of all-cargo service. At various times I have served as its 

president and chairman of the board. Presently I am a director and member 

of the executive committee. Prior to my association with Slick, as some of you 

may know, I spent a number of years in Government, serving as Chairman of the 

Civil Aeronautics Board and Under Secretary of Commerce for Transportation, 

among other positions.

I sincerely believe that the expansion of guaranteed loan coverage to include 

all-cargo equipment, as proposed by Senator Smathers, is urgently needed to 

achieve a successful aircargo industry in this country and the modern cargo 

airlift required by military logistics and national security in the event of an 

emergency.

LA CK OF AD EQ UA TE EQ U IP M E N T H A S HAM PE RED PROG RESS IN T H E A IR FR EIG H T 

IN DUST RY

Slick Airways is vitally interested in legislation which will promote the development and utilization of modern, efficient airc raft in the all-cargo industry. 

Slick is one of the original certificated all-cargo carriers and one of the leaders 

in the development of this service. During the period 1940-57, Slick transjiorted 

close to one-half billion ton-miles of airfreight, nearly one-fifth the total air ­

freight carried by the entire domestic industry during tha t i>eriod. Despite severe losses, borne entirely by its stockholders, Slick continuously strove to promote all-cargo transportation on an efficient, economical basis. However, the 

unavailability of proper equipment for all-cargo operations proved a serious 

handicap in those efforts.

Slick Airways temporarily suspended common carrier airfreight service in 

1958, but now has definite plans to resume tha t service later this year. Since 

our suspension, we have been involved in extensive contract airfreight oj>erations for the Defense Department, both domestically and internationally. On 

May 4, 1962, the Civil Aeronautics Board announced its final decision and order 

to grant Slick a i>ermanent certificate covering essentially the same route we 

served for many years. Pursuant to this decision, we intend to resume common 

carrier operations by October 1, 1962. This service will include certain novel 

features, notably a combined military contract and common carriage service over 

certain U.S. Navy quicktrans routes. Such a service should afford considerable 

benefits to both the military and commercial shippers, as well as being economic 

in nature.

Although Slick has already achieved part of its programed fleet modernization through the acquisition of the Canadian-manufactured CL-^14D, further 

modernization is planned and is necessary for the contribution Slick expects to 

make in airfreigh t service. This additional modernization is necessarily contingent upon obtaining adequate financing, and guaranteed loan legislation is 

thus an important step in assuring the success of Slick’s plans.

We feel that all those who are truly interested in the prompt and reasonable 

development of all-cargo transportation will support guaranteed loan legislation 

covering all-cargo equipment. In the past the all-cargo industry has been com-
108 GUARANTEED LOANS TO AIRL INES

pel le d to ac ce pt fo r th e m os t p a rt ha nd -m e-do wn eq ui pm en t de sign ed pri m ari ly 

fo r pa ss en ge r se rv ice ra th er th an fr ei ght service . T he us e of th is in fe ri or eq ui pm ent in all-c argo ope ra tions re su lted in high ra te s a nd a co ns eq ue nt s low gr ow th 

of air fr eig h t traffic. A ir carr ie rs were una bl e to ta p th e v ast quanti ti es of 

fr eig h t mov ing by su rf ace m ea ns be ca us e to do so wou ld re quir e ra te s fa r below 

dir ect an d in dir ec t oper at in g co sts of th e ob solet e eq ui pm en t th e in dust ry u ti ­

liz ed . As a consequence, th e air li nes were un ab le to co ntr ib ute mod er n lon gra nge ca rg o a ir c ra ft to th e ci vil re se rv e a ir fleet pr og ra m.

Now, w ith th e perm an en t sta tu s ac co rd ed th e in dust ry by th e Ci vil A er onau ­

ti cs B oa rd and w ith m od er n ca rg o a ir c ra ft fin all y be comi ng av ai la bl e, th e in ­

d u st ry h as th e firs t re al opport unity in its his to ry to mo ve fo rw ard and ac hi ev e 

it s tr u e plac e in th e N at io n’s tr an sp o rt ati o n pic tu re . Now is cl ea rly an ex ce lle n t tim e fo r pa ss ag e of g uara nte ed lo an legi slatio n, fo r th e in dust ry is we ll ab le 

to resp on d to th e m od er ni za tion st im ul us su ch le gi sl at io n wou ld aff ord. Co nve rsely, th e ab senc e of su ch le gis la tion m ig ht we ll fr u str a te th is opport unity fo r 

pr og re ss which is now a t ha nd , sin ce, as yo u know , th es e mod ren ca rg o a ir c ra ft 

a re ve ry ex pe nsive, an d th eir fin an cing is a dif fic ult jo b ev en fo r la rg e carr ie rs , 

le t alon e re la tivel y sm al l c arr ie rs su ch as Slick an d th e oth er al l-ca rg o ai rl in es .

NE ED FOB F IN A N C IA L ST A BIL IT Y

Sl ick's pl an ne d fle et of CL—141) pr op je ts an d th e la te st tu rb ofa n je ts h as an d 

w ill re quir e a su bst anti al ex pe nditure . To dat e, th is m od er ni za tion pro gr am 

h as co st Slick in ex ce ss of $11 mill ion, and th e to ta l expen diture , in cl ud in g mo der n gr ou nd eq uipm en t, will pr ob ab ly ultim ate ly ru n se ver al tim es th a t fig ure . 

O th er all-ca rg o carr ie rs , who, w ith Sli ck, ha ve pion ee re d th e us e of mod ern 

tu rb in e- po w er ed a ir carg o eq uipm en t, are fa ci ng si m il ar ex i>endit ures.

In view of th is trem en do us cost, in co n tr ast w ith th e re la ti vely sm all size of 

th e c arr ie rs inv olved, th e ne ed f or g uara nte ed l oa n le gi sl at io n is r ea dily a ppara nt. 

The CL—44D purc has e by Sli ck w as fa cil it ate d by exis ting C anad ia n Gov er nm en t 

a ir c ra ft purc has e lo an le gi sl at io n ve ry si m il ar to th e le gis la tion here under c on ­

si der at io n, b u t co m pa ra bl e ass is ta nce is not avai la ble f o r purc has es fro m dome stic m anufa ctu re rs , fo rc in g th e c arr ie rs to mee t so m ew ha t h ars h re quir em en ts f or 

fin an cing . In th e pas t, Slick h as been co mpe lle d to pa y in te re st ra te s of up to 

15 per ce nt on ne w ca pital . Su ch fin an cing co sts ob viou sly re pre se nt a vir tu all y 

in su rm ounta ble b a rr ie r to ex pa ns io n pl an s. Fin an ci ng sh ou ld be av ai la ble a t a 

co st of not ov er 6 pe rc en t, on a re as on ab ly long te rm ba sis, if th e al l-ca rg o in ­

d u st ry is to de ve lop pr op er ly . Sl ick be lie ve s th a t G ov er nm en t g uara nte e o f l oa ns 

fo r th e purc has e of m od er n ca rg o a ir c ra ft wou ld b e a m ajo r co nt ri bution to w ard 

obta in in g th is k ind of financin g. Su ch le gi slat io n wo uld st im ula te re ne wed le nd er 

confiden ce in th e fu tu re of th e a ir fr e ig h t in dus try, as it has do ne in th e ca se of 

th e lo ca l se rv ice in dust ry , and w ou ld bring f o rt h i nv es tm en t fu nds on mu ch mor e 

re as onab le ter m s th an a re p re se ntly a va ilab le .

TY PE OF LE GIS LA TI ON RE QU IRED

Leg is la tion re ne w in g th e go ver nm en ta l guara nte e w ith re sp ec t to loca l se rv ice 

carr ie rs aff or ds an e xc el le nt v eh icle fo r a ffor di ng sim il ar n ee de d fina nc ial st re ngth 

to th e air fr eig h t in dust ry . W e su pport bo th re ne w al of th e ex is ting legi slatio n, 

as prop os ed by S. 2815, and it s am en dm en t to in clud e al l-ca rg o serv ice , as pr opo sed by Sen at or Sm at her s. As in th e ca se o f loca l se rv ic e carr ie rs , th e air carg o 

in d u str y urg en tly re quir es fina nc ia l st abil it y to a tt ra c t th e cap it al to fin an ce 

m od er ni za tion an d ex pa ns io n of serv ice. Su rely, th e de ve lopm en t of a so un d 

ai rc arg o in du st ry in th is co un try, re sp on sive to bo th co mm ercial an d m il it ary 

sh ip pi ng needs, is as muc h in th e national in te re st as th e co ns id er at io ns which 

su pport ed t he pa ss ag e an d w hi ch s upport th e re ne w al of loc al s er vi ce g uar ante ed 

lo an legislation.

More over, th e lo ca l se rv ice le gis la tion dem ons trat es th a t th e co nc ep t of Gover nm en t g uar ante e o f s uc h lo an s is soun d, mee ts th e ne ed s of the carr ie rs , an d ca n 

be carr ie d ou t w ithout co st to th e Gov ernm en t. As of la st mon th, a to ta l of 16 

lo an s ha d been mad e under Publ ic Law 85-307. w ithout any co st to th e Gov ernm en t w ha te ve r. Th es e lo an s am ou nt ed to a bo ut $40 mi llion , w ith th e g uar ante ed 

am oun t be ing ab ou t $36 mill ion, and th ey en ab led th e ca rr ie rs invo lved to p u rch as e som e $46,500,000 w or th of ne w eq uipm en t. Thr ee oth er loan ap plica tions 

are now pe nd ing be fo re th e B oa rd . The guar an te ed lo an pro gr am has wor ke d 

well w ith th e loc al se rv ice in dust ry , and it sh ou ld wor k eq ua lly we ll w ith th e a ll ­

car go in du str y.
GUARANTEED LOANS TO AIRLINES 109

It sh ou ld be no te d th a t th is ty pe of en co ur ag em en t fo r all-ca rg o a ir se rv ice 

is re all y quite lim ited in n atu re , whe n co mpa re d, fo r ex am pl e, w ith th e m ultitu de of le gis la tive pr ov isio ns de sign ed to en co ur ag e an d pro te ct th is countr y’s 

m er ch an t m ar in e, des pite th e f act th a t mod er n ca rg o a ir li ft has a t le ast a n eq ual 

sign ifi ca nc e in th e N ation’s de fe ns e an d ove ra ll tr an sp o rt ati o n pic tu re . In 

fa ct , Sec re ta ry M cN am ar a re ce nt ly testified be fo re th e Hou se M er ch an t M ar in e 

Su bc om mitt ee th a t th e D epart m ent of D efen se n ow, in m an y in st an ce s, co ns id er s 

ca rg o an d pas se nge r a ir li ft , w her e av ai la bl e, as less ex pe ns iv e an d of co nsi der ­

ab ly g re ate r nati onal de fe ns e va lu e th an se ali ft . “H ea rings on Rev iew of M erchant M ar in e Po licy Bef or e th e Su bc om m itt ee on M er ch an t M ar ine, H ou se Comm itte e on M er ch an t M ar in e an d Fis her ie s. A pr il 18, 1962” (t ra n sc ri p t, p. 13 5). 

r

F or years Con gres s has fo un d it in th e be st in te re st s of nati onal de fe ns e to

pr ov id e th e m er chant m ari ne w ith not only a fo rm of guara nte ed lo an le gi sl ation but also w ith a la rg e vari ety of su bs id y- ty pe be ne fit s an d oth er Gov er nm en t 

as si st an ce . Su re ly , it is eq ua lly in th e in te re st of nat io nal de fe ns e to pr ov id e 

guara nte ed loan ass is ta nce to t he u ns ub si di ze d all-ca rg o c arr ie rs to f u rth e r th eir

* ef fo rts to ac hiev e vit all y ne ed ed ex pa ns io n of th e N at io n’s ca rg o air li ft reso ur ce s.

In th is co nn ec tio n, I wou ld like to su ppo rt th e reco m m en da tio n of th e Civil 

A er on au tics B oar d th a t lo an guara nte es fo r ca rg o a ir c ra ft be mad e on ly fo r th e 

pu rc has e of tu rb in e- po w er ed eq ui pm en t which wou ld be m ad e avail able to th e 

D ep art m ent of D ef en se in tim e of nati onal em erge nc y. T his ty pe of am en dm en t will max im iz e th e nati onal de fe ns e val ue of th e prop os ed legi slat io n, 

w hi le a t th e sa m e tim e se rv in g to und er sc or e th e si gn ific an t nati onal de fe ns e 

ro le pl ay ed by ca rg o a ir li ft and th e N ation’s all-ca rg o carr ie rs . Moreo ve r, it 

sh ou ld be m ad e cle ar in th e le gi sl at io n th a t th e mod er n ca rg o a ir li ft co ve re d by 

guara nte ed l oan s ca n be m ad e avai la ble a t al l tim es fo r in te rn ati onal and d om estic m il it ary re qui re m en ts , as we ll as fo r co mmercial sc he du led se rv ice. The 

us e of th is eq ui pm en t by th e m il it ary ob viou sly sh ou ld no t be lim ited solely to 

em erge nc ies . A t th e sa m e tim e, th e all-ca rg o c arr ie rs sh ou ld be a ffor de d ne ed ed 

flex ib ili ty in m ee ting bo th th e ir m il it ary an d co m m er ci al ca rg o se rv ic e co mm itm en ts w ith th e m os t m od er n ca rg o li ft av ai la ble . I wou ld su gg es t th a t th is 

po lic y be sp elled out in th e in it ia l po lic y se ct io n of th e rene w ed legi slat io n, 

ch an gi ng th e la st s en te nc e th ere of to r ea d a s fo ll o w s:

“I n fu rt h era n ce of th is po lic y it is de em ed ne ce ss ar y and des ir ab le th a t 

pr ov ision be m ad e to assis t cert ain a ir carr ie rs en ga ge d in su ch a ir tr a n sp o rt a ­

ti on by pr ov id in g go ver nm en ta l guara nte es of lo an s to en ab le them to pur ch as e 

a ir c ra ft su it able fo r su ch tr an sp o rt ati o n an d fo r m il it a ry ca rg o a ir lif t oper ati o n s on re as on ab le t erm s. ”

The phra se ad ded to th is se nt en ce is ital ic iz ed . Thi s ch an ge sh ou ld m ak e 

it cle ar th a t th e m od er n ca rg o eq ui pm en t c ov ered by t he leg isla tion can lie ut iliz ed 

in pr ov id in g bot h ro uti ne an d em er ge nc y se rv ic e fo r th e D ef en se D ep ar tm en t, 

a s we ll as i n m ee ting comm on c a rr ie r ob lig atio ns .

Thre e ad dit io nal ch an ge s in th e loca l se rv ice guar an te ed loan law appear to 

be ne ce ss ar y to ac co m m od ate it to th e di ff er en t chara cte ri st ic s of th e air fr eig h t 

field. H er e th e a ir c ra ft a re muc h la rg er an d muc h mor e ex pe nsive. Eac h one

4 co sts in ex ce ss of .$5 mill ion, and th e fle et ne ed ed ad eq uat el y to se rv e a nati onw ide al l-ca rg o ro ut e, as well as to pr ov id e th e a ir li ft re se rv e ne ed ed fo r nati onal 

em erge nc ies, co uld ea si ly re quir e a t le ast $25 mill ion in fin ancin g. Ac co rdingly, 

we reco mmen d th at, in so fa r as th e al l-ca rg o in dust ry is co nc erne d, a li m it of 

s $25 m ill ion be im po sed on th e to ta l am oun t of guara nte ed lo an s outs ta ndin g to

an y on e carr ie r. W e be lie ve th is is a re as on ab le ce ili ng which sh ou ld m ee t th e 

ne ed s of th e c a rr ie rs co nc erne d, w hi le a t th e sa m e tim e af fo rd in g th e Gov er nm en t pr ot ec tion again st ov er ex te ns io n by in div id ual carr ie rs . In as m uc h as 

th ere a re on ly a few ce rtific at ed all-ca rg o carr ie rs , th e perm itte d to ta l wou ld

st il l no t be v er y larg e.

In vie w of th e muc h g re ate r co st an d lo ng er life of tu rb in e- po w er ed ca rg o 

air c ra ft , we wou ld also reco mmen d, in so fa r as th e all-ca rg o in d u str y is co nce rn ed , a minim um te rm of 10 years fo r lo an re pa ym en t, as dis tinguis hed from 

th e m ax im um te rm o f 10 yea rs con ta in ed in th e p re se nt law .

Fin al ly , we reco mmen d th a t guara nte ed lo an le gis la tion fo r all-ca rg o se rv ic e 

in cl ud e th e guara nte e of lo an s fo r th e purc has e of sp ec ializ ed co m po ne nt s of 

a ca rg o a ir li ft sy stem . M od em ca rg o gro un d han dli ng an d re la te d eq ui pm en t 

is vit all y ne ed ed to co m pr ise a co mplete al l-ca rg o se rv ic e w ith m od em flight 

eq uipm en t. T his gro un d eq ui pm en t is hi gh ly ex pe ns iv e, an d muc h of i t is st il l 

in the dev elop m en t stag e. Y et w ithout it, th e re duc tion in co sts and ra te s n ee de d 

in th is in dust ry ca nno t be ac hiev ed . The se ne w la rg e tu rb in e- [low er ed a ir c ra ft
n o GUARANTEED LOANS TO AIRLINES

must be loaded quickly, by mechanized means, in order to achieve the maximum 

utilization and maximum economy of which they are capable. Accordingly, 

specialized components of a cargo airlift system are just as essential to the 

industry as the flight equipment itself. This interrelationship was recognized 

in previous all-cargo guaranteed loan legislation proposals and should be recognized in current legislation. In speaking of previous legislation, I am, of 

course, referring to S. 2774, introduced by Senator Monroney in the 2d session of 

the 86th Congress. This was a very fine bill which we wholeheartedly supported, 

and which should provide an excellent reference point for this committee’s 

evaluation of the type of legislation needed

CONCLUSION

The all-cargo industry needs immediate assurance of financial stability if it 

is to achieve its proper grow’th through modernization and expansion of service. 

This industry is not subsidized and the all-cargo carriers do not even possess 

subsidy eligibility. The past and present plight of the industry is attributable 

in large part to inability to obtain capital on reasonable terms to finance modernization programs such as tha t of Slick Airways which I have described. We 

accordingly strongly urge the inclusion of all-cargo service in renewed guaranteed loan legislation. We support the amendment proposed by Senator Smathers, 

with the several modifications I have discussed.

Statement op Joseph P. Adams, General Counsel, Association of Local

Transport Airlines

Chairman Williams and distinguished members of the Transportation and 

Aeronautics Subcommittee of the House Interstate and Foreign Commerce Committee, it is a great pleasure and a privilege to appear before you advocating 

the extension and increased loan limits of the act of September 7, 1957, being 

Public Law 85-307.

It is appropriate to pause here and extend the heartiest congratulations and 

appreciation of the members of the Association of Local Transport Airlin es1

 for the wonders you gentlemen wrought jus t 5 years ago when you actively participated in the enactment of H.R. 7993, introduced by your distinguished chairman 

of the House In ters tate and Foreign Commerce Committee, the Honorable Oren 

Harris. The legislation approved by your subcommittee 5 years ago has been a 

triumphant success. It has brought financial stability to the oi>erations of the 

short-haul air transport industry, and it has made it possible for the industry 

to mark up giant strides in revenue-passenger-miles each year since the passage of the legislation while the trunkline industry has been marking time in 

the same statistical field of passenger service.

Your foresight and aviation transportation expertise has made it possible 

for the member carriers of ALTA alone, to purchase 33 postwar turbopowered 

airplanes, 19 postwar piston-powered aircra ft and all with Governmentguaranteed loans of some $35 million. Not one cent of this loan amount is in 

default.

Your responsiveness to the public conveniences and necessity needs of the 

smaller communities represented in your constituencies has resulted in literally 

millions of these passengers receiving service in postwar, pressurized, larger 

and more comfortable riding equipment. This new and improved service to 

the public has been made possible in 295 communities in 31 States.2

Not one of these cities or States could reasonably have expected to have received this improved air service without the benefits and the enactment of the 

Guaranteed Loan Act of 1957. This flat statement is unequivocally supported by 

reason of your wisdom in writing section 4 of the act of 1957, which reads—

“Sec. 4. No guaranty shall be made—

* * * * * * *

1

 A la sk a Airlin es , Ala sk a C oa st al -E llis Airlin es , Alle gh en y A irlin es , Alo ha Airlin es , 

B ona nza A ir Lines , C en tr al A irlin es , Cor do va Airlin es , La ke C entr al Airlin es , N ort h Ce ntr a l A irlin es , N ort her n Con so lida ted A irlin es , O za rk A ir Lines , Pac ific A irlin es , Pie dm on t 

A ir lin es , Re eve A le utian A irway s, S outh er n Airw ay s, W es t C oa st A ir line s, W ien Alask a 

Airlin es .

2

 A la sk a, Ariz on a, Cal ifor ni a, Co lorado , Ge orgia, H aw ai i, Id ah o, Il linois , In dia na, Io wa, 

K an sa s, K en tu ck y, M ichiga n, M in ne so ta , M isso ur i, M on ta na , N eb ra sk a, Nev ad a, New 

Me xico, N ort h Car ol in a, N ort h D ak ot a, Ohio, Or egon , Sout h C ar ol in a, Sou th D ak ota, 

Ten ne ss ee , U ta h, V irgi ni a, W es t V ir gi nia , W isco ns in, W yo ming, an d th e D is tr ic t of 

Colum bia.
GUARANTEED LOANS TO AIRLINES 111

“ (e) Unless the Board finds tha t, withou t such gua ranty, in the amount 

thereof, the ai r carri er would be unable to obtain necessary funds for the pu rchase of needed airc ra ft on reasonable term s.”

The Civil Aeronautics Boa rd in adm inistering the act and carrying out 

the “intent of Congress” prepared form CAB-411A for the application for 

loan guara ntee and question 8 re ad s: “Would lender grant this loan, or a 

com parable loan, without guara ntee by the Civil Aeronautics Board?”

No more specific or even legal evidence need be introduced to support the 

position th at these millions of “Americans with a suitcase” were and are 

completely depe ndent on you distinguished members of this subcommittee and 

of course your colleagues for the ir ever-increasing aviatio n transporta tio n needs 

and requirements.

The unqualified success of this public int ere st legislation marks a historic 

example of the “arm of Congress” concept, as applied to adm inistrative agencies of the Government. This legislation was originally sponsored by the Civil 

Aero nautics Board, an arm of Congress, and then studied, amended, and passed 

by Congress.

The purpose of the legislation in 1957 was to enable t he feeder and short-haultype carri er to purchase equipment th at would res ult in an economical and 

profitable operation , th at would provide pressurized airc ra ft for passenger 

comfort, improve the attrac tiveness of the service to the public and to generate 

increase d traffic.

That these objectives have been attain ed in the fullest sense is beyond dispute.

The purpose of the legislation proposed in 1962 (H.R. 10129) is the same as 

th at of 1957, and the re is every reason to believe th at its success when extended 

will matc h tha t of the past 5 years.

The Civil Aero nautics Board has made availab le to this committee a twopage deta iled “Schedule of Guaranteed Loans,” dated April 5, 1962, which 

is a complete up-to-date rep ort of each loan made since the passage of the act 

in 1957. It would be rep etitious to reoffer thi s document on behalf of ALTA 

although it is relie d on to support most refe rences to the success of the program 

made earlier in this statem ent or to follow.

Renew al of the act thro ugh its extension is necessary because the new equipment procured only through the operatio n of the act has been a major factor 

in enabling local service carriers to realiz e sub stantial traffic growth in a 

5-year period when air traffic generally was realizing only restric tive growth. 

Between 1957 a nd the yea r ended Jun e 30, 1961, local service commercial revenues doubled. The ability to acquire new’ equipment under the Guarantee d 

Loan Act was a significant if not the most impor tant fea ture in thi s unu sual 

grow th record.

The committee rep ort of 1957 stressed as one purpose of the legislation the 

necessity of m aking it possible for a carri er to obtain the funds for the purchase 

of air cr af t on reasonable terms.

The words “on reasonab le terms” a re as significant today as they were 5 y ears 

ago. An example of the assistance given carriers in realizing such term s is best 

illustra ted by the example of Bonanza Air Lines, an ALTA member car rier.

Bonanza Air Lines financed its original acquisitio n of F-27 turboprop equipment on a 10-year basis with int ere st rat es of 5*4 and 6 percent. Having 

exhausted the $5 million guara nte e available und er the Guaran teed Loan Act 

of 1957 by reason of the $5 million ceiling, the airline was required in 1961 to 

finance its nin th F-27 withou t the benefit of the act. In so doing, it was required to write off this lat est loan in 5 y ears at a 6%-percent rate. While an 

airline may be able to finance one-ninth of its equipment on a short-term basis 

with high int ere st rate s, it cannot conduct an overall fleet mod ernization program on such unsatisfactory financial terms.

Renew’al and extension of the term s of the Guaran teed Loan Act of 1957 

is vita lly important to provide the additio nal equipment th at will be needed 

to carry the passenge rs now in sight. Aloha Airlines, Inc., an ALTA member 

ca rrier operating in the Sta te of Hawaii, has prepared a stud y of its airc ra ft 

needs to include 1965 and it is indicative of the growing require ments of this 

■dynamic in dustry.

Aloha has determined th at the available seat-miles required by the ca rrier 

in 1965 will be approx imately 143,200,000. The existin g fleet of six F-27 airc ra ft 

can produce a capacity of 86,580,000 seat-miles, leaving an apparen t deficiency 

of approxim ately 56,620,000 seat-miles. These are conservative figures and 

based on 6 airc ra ft w ith curre nt u tilization of 1,850 annu al hours, cu rre nt speed 

of 195 miles per hou r and 40 available seats. The f ac t th at Aloha Airlines had
112 GUARANTEED LOANS TO AI RL INES

'a sy stem lo ad fa cto r of 64 pe rc en t in 1961, th e hig hes t lo ad fa cto r ac hiev ed 

by an y sc he du led ce rtif ic at ed U.S . air line, lend s cr ed en ce to th e ac cu ra cy of th e 

c a rr ie r’s pr ed ic tion s.

Aloha A irline s’ st udy could be dup lica te d an d su pport ed by th e gro w th re ­

quir em ents re as on ab ly to be anti ic pate d by th e 10 lo ca l se rv ic e AL TA m em be rs 

an d th e 6 A lask an c a rr ie r mem be rs.

The se at -m iles re quir ed by Aloha A irline s in th e im m ed ia te 5- ye ar per io d 

ca nno t be pr ov id ed w ithout th e ex te ns io n an d re ne w al of th e G uara nte ed Loa n 

A ct of 1957.

T he Assoc iatio n of Lo ca l T ra n sp o rt A irline s ta kes th is opport unity to not 

on ly un qu alifiedly reco mmen d th e re ne w al an d ex te ns io n of t h e G uar an te ed Lo an 

Act th ro ugh th e pa ss ag e of II .I t. 10129, but re sp ec tful ly re ques ts th a t Pub lic 

Law 85-307 se ction 4 (d ) be am en de d to in cr ea se th e pre se nt lo an li m it ati on 

ce ilin g f ro m $5 mill io n to .$10 m illion.

Exte nsi on of t he act w ith a doll ar lim it sufficie nt to e m br ac e fu tu re tech no lo gi ­

ca l im pr ov em en ts, w ill in su re th e ab ility of th is in dust ry to obta in th e am ount 

and ty pe of eq ui pm en t ne ed ed to mee t it s pu blic se rv ice re quir em en ts on re aso nab le te rm s.

The follo wing st ati sti cs de sc ri ptive of al l ph as es of sh ort -h aul a ir tr an sp o rt 

oper at io ns which d ic ta te a ir c ra ft ne ed s of th e l oc al-service c a rr ie rs are p ur po se ­

fu ll y offered fo r th e ex act 5- ye ar pe rio d duri ng which th e G uar ante ed Loa n Act 

of 1957 has been in f ull fo rc e an d eff ect.

E x h ib it A.—Local carrier operating data indexes

3d q u art er, 

1957

3d q u art er, 

1961

R ati o

(19 57=1 )

R ev enue- m iles ____________ _____ . _______________ ______ 18,492 ,000 27,57 1,0 00 1.49

E n p la n ed pa ss en ge rs ... __ _____ _____ ___ _______ ________ 1,196, 813 1,849,86 4 1.55

R ev enue pa ss en ger -m ile____________________________________ 216 ,38 8,0 00 364 ,72 9,0 00 1.6 9

R ev en u e t o n - m ile ..____ ______ _____________________________ 22,12 8,0 00 38,00 4,0 00 1.7 2

A vai la ble to n-m il es_____ ______ _____________________________ 50,20 0,0 00 87,682 ,00 0 1.7 5

A vai la ble se at -m iles . ________ . . _____ _________________ 457 ,230,0 00 869 ,102,0 00 1.9 0

N u m b e r o f e m pl oy ee s_______________________________________ 8,5 07 13,403 1.5 8

E x h ib it B.— Local carrier revenue and expense indexes

3d q u art er, 

1957

3d q u art er, 

1961

R ati o

(1957= 1)

T o ta l pa ss en ee r r ev en u e___________ . . . __________ ______ $13,476,97 0 $27,750,21 1 2. 06

T o ta l nonm ail r ev en u e____________________ ________________ 14,523,617 29,86 4,9 07 2.06

T o ta l opera ti ng e x p en se .. ____ _______________________________ 21,398. 942 43,1 34, 829 2.0 1

B re ak -e ve n n e e d _______________________________ . _________ 6,875,32 6 13,269 ,922 1.9 3

E x h ib it C.—Local carrier fleet cost indexes

3d q u art er, 

1957

3d q u art er, 

1961

R ati o

(19 57=1 )

N u m b er of air cra ft _______________ 223 338 1.5 2

T o ta l fle et c os ts ____ ____ ____________________________________ $31 ,780,000 $91 ,793,000 2.89

D ep re ci at ed v alu e_______________ $15,668 ,000 $62 ,330,0 00 3.98

T o ta l gro und e q u ip m en t co st s________ . . . . . . $6,356 ,00 0 $13 ,012,0 00 2.05

D epre cia te d v alu e____ ______ ____________ $2,89 9,0 00 $6,37 1,0 00 2.20

T he i nd iv id ua l m an ag em en ts o f th e AL TA mem be r carr ie rs believe, an d I sta te 

to yo u w ith my fu ll est fa it h in th e ir po sitio n, th a t th is re qu es te d in cr ea se in th e 

lo an ce ili ng is a de ve lopm en t in her en t in th e co nt in ue d su cc es sful op er at io n of 

th e G uara nty Lo an Act. The fig ures pr ov id ed in th e fo re go in g exhib it s all 

in dic at e th a t in th e 5-ye ar pe riod sin ce th e pa ss ag e of th e ac t, th e re quir em en t 

of th e pu blic fo r se ats has doub led , ne ed ing m or e a ir c ra ft a t al m ost tr ip le d 

fle et co sts .

AL TA re qu es ts yo ur su pp or t fo r ex tend ed guar ante ed lo an le gi sl at io n th a t will 

se rv e th e sa m e pu rp os e as th e 1957 ac t, oper at e in th e sa m e efficient m an ner as
GUARANTEED LOANS TO AIRLINES 113

th e 1957 ac t, and pr ov id e th e m ill ions of sh ort -h au l tr a n sp o rt pas se nge rs th e 

sa m e im pr ov em en t in se rv ic e as mad e po ssible under th e 1957 ac t. To ac co mplish th is sa m e co nt in ue d pu blic benefit, th e a c t ne ed be am en de d on ly in th e 

m a tt e r of th e doll ar am ount of th e lo an ceiling , w ith no addit io nal co st to th e 

U.S. Gov ernm en t.

T he Ci vil A er on au tics B oar d in te st if yin g in su pport of th e G uara nty Lo an 

A ct o f 1957 est im at ed th a t on th e ba sis of .$60 mill ion of guara nte ed lo an s am ortiz ed ov er a 10 -yea r i>eriod, it s ex pe ns es wou ld be $450 ,000 as ag ain st inco me 

fr om fe es of $1,500,000, a net re tu rn to th e G ov er nm en t of appro xim at el y $1 

mi llion .

F u rt h er, a fa il u re to am en d th e 1957 act to in cr ea se th e lo an ce ilin g wou ld 

find m os t of th e pre se ntly qu alifi ed carr ie rs under th e G uara nty Lo an A ct of 

1957 ineligib le to rece iv e a lo an unde r th e e xt en de d act duri ng it s life tim e. T his 

unsa ti sf acto ry si tu ati on is de te rm in ed by an analy si s of th e cu rr en t CAB lo an 

sc he du le which in dic at es th a t 10 of th e lo an s a re pre se ntly fo r 10 ye ar s, 5 are 

fo r 7 ye ar s, an d 1 of 5 ye ar s. App lying th is lo an sche du le to an ex te nsi on of 

th e a ct fo r 5 years a t th e pre se nt $5 m ill ion ce ili ng wou ld m ak e it im po ssib le 

fo r th e m ajo ri ty of th e c a rr ie rs pre se ntly in cl ud ed in th e le gi sl at io n to contr act 

fo r a loan in ad ditio n to th e ir pre se nt co mm itm en t, re gar dle ss of th e pa ss en ger s 

who may be w aitin g a t th e gat es a t se ver al hundre d sm all ci ty air port s.

T he G uara nty Lo an A ct of 1957 has prov en an un qu alified suc cess.

The Assoc iatio n of Lo ca l T ra n sp o rt A irline s re sp ec tfully re quest s it s exte nsio n by th e pas sa ge of II.R . 10129, am en de d to in cr ea se th e deb t ce ili ng fr om 

$5 to $10 mill io n fo r th e re as ons offered a t th is he ar in g. The opport unit y to 

p art ic ip ate i n th is h eari ng is sinc er el y ap pr ec ia te d.

Stateme nt of Gerald P. O’Grady, Genera l Cou ns el, P ac ific Nort her n

Air lin es, I nc.

My na m e is G er al d P. O’Gra dy . I am gen er al co un se l of Pa cific N ort hern 

A irline s, Inc., a ce rt if ic at ed air li n e opera ti ng be tw ee n poi nts w ithin th e S ta te 

o f A la sk a and be tw ee n poin ts in th e S ta te of A la sk a and Port la nd, Oreg., an d 

Se attle -T ac om o, W as h.

Pa cific N orther n A irline s, Inc., en do rs es th e prop os ed le gis la tion em bo died 

in H.R . 10129, w hi ch wou ld hav e th e effect of re new in g th e pr ov isio ns o f Pub lic 

Law 85-307 , auth ori zin g th e guara nte e of lo an s to cert ain air li n es fo r th e p u rch as e of m od er n a ir cra ft . Pa cific N orther n A irline s is one of th e ca rr ie rs which 

qu alifie s fo r th e b en efits of th e ex is ting an d pre su m ab ly th e pr op os ed legi slat io n. 

L ast f al l, Pa cific N ort hern A irlines w as ab le to ob ta in from th e C ivil A er on au tics 

B oa rd , p u rs u an t to th e le gis la tion th en in eff ect, a g u ara n te e of a loan ob ­

ta in ed fr om a gr oup of banks fo r th e purc hase of one Bo ein g mo del 720 je t a ir ­

cra ft , re pre se nting a to ta l in ves tm en t of ap pro xim at el y $4,250,000. At th e sa m e 

tim e, th e co mpa ny w as ab le to obta in addit io nal unguar an te ed fin an cing fo r 

th e p urc hase of a seco nd a ir c ra ft of t he s am e type . D eliv er y of th e tw o a ir c ra ft 

w as ob ta in ed in M ar ch and April, an d th e tw o a ir c ra ft are now in se rv ic e on 

th e com pa ny ’s rou te s.

I t no w appears th a t w ithin th e nex t few yea rs , Pa cific N orther n A irlines may 

well ne ed an ad dit io nal a ir c ra ft of th e sa m e type , if bu sine ss de ve lops as ex ­

pe cted . W e do not be lie ve th a t it will be po ss ible to obt ai n fin an cing fo r th e 

purc hase of a th ir d Boe ing mo del 720 a ir c ra ft w ithout th e ass is ta nce of a Govern m ent guar an te e. Yet, su ch a guara nte e wou ld not be av ai la ble un d er th e 

te rm s of Pub lic Law 85-307 , if th e sa m e wer e ex te nd ed un ch an ge d fo r a pe riod 

of 5 ye ar s, be ca us e of th e $5 mill ion li m itat io n th ere in on th e am ount of g u ara n ­

te es avai la ble fo r lo an s to a sing le carr ie r. In sh ort . Pa cific N orther n A irline s 

has alr eady us ed up th e to ta l am ou nt of th e loan g u ara n te e av ail able to it. F or 

th is re as on , Pa cific N orther n A irline s st ro ng ly en do rs es th e su gg es tio ns which 

hav e been m ad e by oth er w itn es se s th a t th e max im um li m it ati on on th e am ount 

of lo an s to a sing le ca rr ie r which may be guara nte ed by th e Civil A er ona utics 

B oa rd be su bst anti all y in cr ea se d. Alth ou gh it now appears th a t a li m it of $10 

mill ion on guara nte ed lo ans to a sing le c a rr ie r m ig ht sa ti sf y th e co m pa ny ’s re ­

qu irem en ts . Pac ific N orther n A irline s be lie ve s th a t an even* h ig her li m it wou ld 

be pr ac tica bl e. The pr ov isio ns of se ct ion 4 of th e act pr ov id e su ffici en t protect io n to th e G ov er nm en t again st th e as su m ption of unre as onab le ri sk s in is su ­

in g su ch guar an te es . W e m ust as su m e th a t th e Ci vil A er onau tics B oa rd , in ex-
114 GUARANTEED LOANS TO AIRLINES

ercising its power und er this legislation, will not guara nte e loans for the purchas e of airc ra ft which are not needed or which are unsuita ble for use by the 

ca rrier concerned. If the Board should find that a guara nte e of loans in the 

amoun t of $15 million to a single ca rrier is necessary and desirable in ord er to 

promote the development of aviation, it should have the autho rity to guara ntee 

loans in that amount.

It must be remembered th at new airc ra ft are becoming more and more 

expensive with the passage of time. At the same time, financing for the beneficiaries of the legislation in question is much more difficult to obtain tha n 

financing for the larger trunkline carriers. If these smaller carri ers are to 

continue the ir development and ultimately attain subsidy-free sta tus , they 

must have assistance from the Government in the form of the proposed legislation. In this connection, it is noteworthy th at Pacific Northe rn Airlines and 

the Civil Aeronautics Board both exjiect th at the operation of the two Boeing 

720 aircraft, one of which was purchase d with the gua ranteed loan, will enable Pacific Northern Airlines to achieve subsidy-free sta tus by 1965. The 

Board has alre ady issued an order fixing future mail rates for the company 

on a declining basis, which will result in the complete elim ination of subsidy by 

May 1965. If renewal of thi s legislation with high er limits can have such 

salutary results for Pacfic Northe rn Airlines and other affected carriers, then 

it certain ly should be continued in effect for the foreseeable future.

Mr. Williams. The committee will stand adjourned.

(Whereupon, at 3 :50 p.m., Thursday, May 10, 1962, the subcommittee adjourned.)

o

4
>I
962