Aeronautics Act of 1938. That act provided civil aviation for the first time with a code of law which recognized its capacity to play a major roll in the Nation's commerce and defense. It constituted an exercise of Federal regulatory powers beyond any previously attempted with respect to air transportation.

When the act first became effective, the Civil Aeronautics Authority, the agency then charged with the administration of the act, found the American air transport industry in a state described by this committee as "chaotic." Half of the private capital which had been invested in the industry had been irretrievably lost. The result of shaken faith on the part of the investing public in the financial stability of the air lines was preventing the flow of greatly needed funds into the industry.

The act established a new and comprehensive plan for the unified and systematic regulation of civil aeronautics for the declared purpose of promoting the development of an air transportation system properly adapted to the present and future needs of the foreign and domestic commerce of the United States, of the Postal Service, and of the national defense, and of fostering sound, economic conditions therein.

By the provisions of the act, American air carriers and the public for the first time were safeguarded against uneconomic, destructive competition, and wasteful duplication of services; for the first time the Government compensation to airlines for carrying the mails was determined by judicial procedure on the basis of sound economic considerations instead of competitive contract bidding; and for the first time the airlines and the traveling public were protected against unreasonable and discriminatory passenger and express rates and unfair trade practices.

The provisions of the Civil Aeronautics Act may be divided into two categories: Functions relating to the development and economic stability of airlines and functions relating to the safety of civil aircraft operations generally in the whole field of civil aviation.

A. ECONOMIC CERTIFICATES AND PERMITS

In the economic field the act controls the institution of new operations by prohibiting any person from engaging in air transportation without a certificate of public convenience and necessity, or, in the case of foreign air carriers, a permit. Such certificates and permits are to be issued only if it is found that the service is required in the public interest, after notice and hearing, and that the applicant is fit, willing, and able to perform the service properly. This control of entry into the air transport business is also extended by the act to the field of international air transportation whether by domestic or foreign carriers.

A large number of applications for certificates and permits has been filed since the enactment of the act.

On August 22, 1938-that was the effective date of the act-the domestic air transportation system was composed of 38,564 routemiles serving 237 separate cities in the United States. By the issuance of certificates for new services the route mile miles in the domestic air transportation system have been increased to approximately 46,000 and around 350 individual places are now named as

certificated points. Also, 67 new services have been added to 48 cities which already had air service at the time of the passage of

the act.

I will have more to say later on about the improvement of air transportation under the Civil Aeronautics Act.

In the field of international air transportation the systems operated by American flag carriers have increased from 30,781 route-miles on August 22, 1938, to 84,928 route-miles, an increase of 54,147. It was under the provision of the Civil Aeronautics Act that transAtlantic air services were established between the United States and Europe, and trans-Pacific services between Hawaii and New Zealand.

B. RATES

The act provides for the fixing of fair and reasonable rates of compensation to be paid the airlines for the transportation of mail. It expressly defines broad objectives to be accomplished through the medium of mail payments by directing that mail rates be fixed which will be sufficient "together with all other revenue of an air carrier, to enable the carrier under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense." It is apparent that this general objective contemplates that, so long as a carrier's revenues from commercial sources are not sufficient to enable it to operate at a reasonable profit, the deficiency shall be made up through mail payments to the extent that this is in the interest of the development of a sound air transport system. The act, therefore, provides for the extension to the airlines of Government financial aid through the medium of payments for the transportation of mail where necessary.

With respect to rates for the transportation of passengers and cargo, other than mail, the act requires every airline to file tariffs setting forth its rates and to adhere to tariffs so filed. A statutory duty is imposed upon the carriers to charge fair and reasonable rates without unreasonable discrimination or preference, and the agency vested with jurisdiction under the act is authorized to prescribe passenger and property rates if it finds that existing rates or new rates proposed by the carriers are unreasonable or discriminatory.

Up to this time, interest and activity in the air transport rate field has been concentrated upon mail rates. For example, the Board's rate proceedings, with one exception which involved a question of discrimination, have been confined to the fixing of mail rates.

Mail rates have been fixed under the act for all carriers at least once, and in the case of most carriers mail rates have been fixed on more than one occasion since 1938.

Until 6 months ago, the Board's mail rate fixing problems were confined entirely to carriers who were experiencing substantial operating deficits before mail pay. Under these circumstances, the Board in its decision in each case has been concened primarily with two things: Determining the amount of the carrier's legitimate deficit which should be covered by mail payments, and deciding upon the amount of profit above the break-even level to be provided in the

mail payments. In considering the amount of mail payments necessary, the Board, of course, considers the reasonableness of the carrier's expenses and upon the basis of its consideration excludes unreasonable expenditures from its calculations. This latter process is a necessary result of the statutory direction that the need of a carrier for mail pay is to be determined on the basis of "honest, economical, and efficient management."

In recent months, a rather substantial change has occurred in ratefixing problems. Due to emergency conditions, a substantially higher proportion of available space on commercial planes is now being occupied than normally has been true. I will expand on the reasons for that when I come to another phase of what I have to say. In July 1942, the airlines also eliminated certain passenger discounts with a resulting increase in the level of passenger revenues. The increased profitableness of operations to which these factors have contributed has presented for the first time cases in which carriers did not need mail payments to meet operating deficits. These circumstances may make it necessary to invoke the provision of the act authorizing the fixing of passenger and property rates.

C. CONSOLIDATIONS AND MERGERS

The act provides that consolidations, mergers, and acquisitions of control involving air carriers are unlawful unless it is found that they will not be inconsistent with the public interest. It is expressly provided, however, that no approval of any such transaction shall be given if it would result in creating a monopoly and thereby restrain. competition. Special restrictions are also prescribed with respect to mergers or consolidations between air carriers and carriers engaged in surface transportation. In this respect the act directs that no such merger, consolidation, or acquisition of control shall be approved unless it "will promote the public interest by enabling [the surface carrier] to use aircraft to public advantage in its operation and will not restrain competition." This clause is a very important one, particularly at this time, because of the interest which has been aroused by a case to which I will refer. A related provision of the act requires approval of interlocking relationships in the form of common officers and directors between air carriers and between air carriers and other common carriers and companies engaged in aeronautics.

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Five cases involving mergers or acquisitions of control have been decided under the act. One of these involved an application by United Air Lines for approval of its acquisition of control of Western Air Lines. United operates a transcontinental route between New York and San Francisco by way of Chicago, Denver, and Salt Lake City; a route between Salt Lake and Seattle, and a route between Los Angeles, San Francisco, and Seattle. Western operates a route between San Diego, Los Angeles, and Salt Lake City, and one from Salt Lake City north to Lethbridge, Canada. This transaction was not approved,. although an agreement between the same parties providing for the interchange of planes of the two companies at Salt Lake City in a transcontinental operation was approved. In another case, the purchase of Marquette Airlines by Transcontinental & Western Air, Inc., was approved-on reconsideration of an earlier opinion in the same

case in which the transaction had been disapproved because of the excessiveness of the purchase price-the price having been reduced by the parties in the interim. The remaining important case decided under the merger section involved the acquisition of control of American Export Airlines by American Export Lines, a steamship company. This acquisition was disapproved on the theory that, in inserting in section 408 the requirement to the effect that the acquisition (where it involves a surface carrier) must promote the public interest by enabling the steamship company to use aircraft to public advantage in its operations, it was the intention of Congress to carefully restrict the participation of surface carriers in the air transport field. The requirement was construed to mean that aircraft must be used in a manner which would be auxiliary and supplementary to the surface transportation of the acquiring company. In the American Export case, it was concluded that there was no evidence as to any proposed coordinated air-water service nor any showing that traffic on the airline would involve a prior or subsequent movement on the steamship service. It is apparent that this construction of the act is an important one.

The act sets out machinery whereby complaints of unfair practices or unfair methods of competition in air transportation may be adjudicated.

E. AIR CARRIER AGREEMENTS

The act requires that there shall be filed with the Board all agreements affecting air transportation between an air carrier and any other carrier if the agreement provides for cooperative working arrangements. Agreements filed with the Board under section 412 of the act may be broadly classified in two categories-those between individual carriers and those in the form of general resolutions of the Air Traffic Conference, a division of the Air Transport Association of America, which embraces all carriers. The resolutions of the Air Traffic Conference, in effect, represent action of the industry in self-regulation and cover a great variety of matters. Agreements between individual carriers generally relate to operating problems of those carriers, frequently covering such matters as exchange of services or facilities, or joint use of facilities. Because the language of the act describing the agreements to be filed is so broad, the agreements provision represents a catch-all under which a great variety of management actions are presented for approval. Most of the agreements which have been filed are comparatively simple. However, several agreements of unusual importance have been presented. In one, United Air Lines, Eastern Air Lines, American Airlines, and TWA agreed to organize Air Cargo, Inc., for the purpose, among others, of engaging in research to formulate a long-range program for the sound development of air transportation of cargo. This agreement was approved. Two agreements have been disapproved, both of which involved arrangements between an air carrier and a steamship company, which appeared to be restraints upon competition. I will not go into the many other agreements which we have passed on.

F. LABOR PROVISIONS

Finally, the act regulates the minimum wages, maximum working hours and other working conditions and relations of pilots and copilots employed in air transportation in acordance with the provisions of Decision No. 83 of the National Labor Board and of title 2 of the Railway Labor Act.

G. SAFETY REGULATION-GENERAL

One of the fundamental objectives of the Civil Aeronautics Act is to provide for the establishment and enforcement of policies and regulations for the attainment of a maximum degree of safety in the operation of civil aircraft. The act seeks to accomplish this objective by providing for the exercise of control over the competency of pilots, the airworthiness of aircraft and the operation of air carriers, and for promulgation and enforcement of general rules designed to promote safety. I will discuss these major subdivisions of the act in the order in which I have mentioned them.

H. PILOT CERTIFICATES

With respect to the competency of pilots, the act requires that any one who operates aircraft in air commerce shall hold a certificate of competency and provides for the issuance of such certificates only after a finding that the applicant is properly qualified and physically able to operate aircraft safely. In order to accomplish the objectives to which this provision is directed and to permit pilots to secure increased privileges with a corresponding increase in their skill and experience, pilot certificates have been divided into four classes, student, private, commercial, and air-line transport.

Physical fitness must be shown before any of these certificates may be issued. It constitutes the principal requirement for a student certificate. The private, commercial, and air line transport certificates are given only after the applicant has secured extended solo flight experience, which increases with the ascending classes, and has completed written examinations and flight tests which become increasingly difficult as the pilot progresses. As a pilot proceeds from one class to a higher one and thus demonstrates increased capability, his privileges increase. For example, a private pilot may carry passengers but without compensation, while a commercial pilot may carry passengers and goods for hire but may not act as first pilot in air-carrier operation. Only air line transport pilots can do this. In addition to these classifications of pilot certificates, instru ment and instructor ratings are issued. The instrument rating, which is secured only after passing a rigid flight test designed to determine a pilot's ability to fly by reference solely to instruments, authorizes him to operate under weather conditions where the use of instruments is required. The instructor rating and the corresponding regulatory requirement that no person may give flight instruction unless he possesses one were established for an entirely different purpose than the classification of pilot certificates and the ratings which I have discussed. They were created in order the keep the pilot from be

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