Mr. O'HARA. I have just one more question. I do not want you to think, Mr. Pogue, that when I mention these matters that I am not fully aware of the tremendous powers that are going to be exercised by this Board; neither do I want to contend that I have heard any matters derogatory or anything said which is derogatory of the Board either. I want you to know that I have not. Maybe I will. So far I do not want you to think that my questions, or my last question in any way reflects upon the Board.

Mr. POGUE. No; I understand that. It is a very far-reaching and important question. Of course, I am naturally of the opinion that there is hardly another activity that deserves more careful consideration than aviation.

Mr. O'HARA. Let me say to you that I did not realize the tremendous powers this Board had until yesterday when I sat in on the hearings.

Mr. POGUE. Do you care to have me say anything further on that economic question?

Mr. O'HARA. Yes; but I would just like to ask one question, if you will pardon me further, and that is, that I wonder how many appeals have been taken from orders of the Board in the last few years or since its organization, to the district courts?

Mr. POGUE. I am glad you mentioned that.. The appeals are directly to the circuit courts of appeal.

Mr. O'HARA. I mean circuit courts of appeal.

Mr. POGUE. In 'the safety field we have had three appeals.

Mr. O'HARA. Since 1938.

Mr. POGUE. In the safety field since 1938, and in the economic field, I am not really sure.

Mr. O'HARA. You can supply that later?

Mr. POGUE. Yes; we have had three or four in the economic field. Mr. O'HARA. Three or four?

Mr. POGUE. Yes; three or four.
Mr. O'HARA. Thank you.
Mr. HALL. Mr. Chairman.

The CHAIRMAN. Mr. Hall.

Mr. HALL. Mr. Pogue, as I recall, yesterday you stated that you were going to offer an amendment to this bill which would provide for control over the issuance of securities by airplane companies. Did I understand you correctly?

Mr. POGUE. Yes; that is right.

We recommended in our annual report that some control over issuance of certificates be vested in the Board.

Mr. HALL. Well, now, did you have in mind that control would be in conjunction with the control now exercised by the S. E. C. or do you want exclusive jurisdiction so far as airplane companies are concerned?

Mr. POGUE. No; they cover, I believe, entirely different fields, as I understand it.

I used to have to deal somewhat with the Securities Act, and as I understand it the purpose of that act is to require adequate disclosure of facts which the public buying the securities ought to know before they invest their money. When those disclosures are once made the S. E. C.'s jurisdiction ends. They have nothing to say about whether the securities should be bonds or equipment trust

certificates or preferred stock, or common stock, or this, that, or the other. They do not have anything to say as to whether or not the capital structure is being built up in a sound manner from the public point of view. All they can do is say, "Tell the facts fully so the investing public can know what they are doing."

Now, our suggestion here is on the substantive side. It is that of following the example that the Congress has established in many other public utility fields, that there be some control over the development of the capital structure. Up to now, as indicated by inference yesterday, the capital structure of the air lines of this country is remarkably simple and singularly free from complications and evils that have been thought bad in other lines of activity. Most of the capital represented in the industry is common stock-equity capital-and it was our thought that in order to be forehanded and prevent any development such as has been known in other fields that it is essential to vest some control in that direction in our Board.

Now, there is some responsibility along this line already vested in the Board by the Congress in the Civil Aeronautics Act, because in the fixing of mail rates where the carrier is still requiring some governmental support, honest, economic, and efficient management is the standard under which we act; but we did not think any such indirect approach in as important a problem as this should be used.

Mr. HALL. I was just wondering about it from this standpoint. I hold no brief for all of the activities of the S. E. C., but at the same time, it would appear to me that in the matter of stock promotions the S. E. C. is pretty tough.

Mr. POGUE. Yes; that is right.

Mr. HALL. And if they get by the S. E. C., I do not see why, from the standpoint of the protection of the public that they should go before another governmental body and get an approval.

Mr. POGUE. You are quite right, and one of the things about the proposal is that it does require another action; that is, getting clearance in another place and business is troubled enough to operate without any more clearances than are necessary; but the distinction is that the S. E. C. provisions provide a safeguard and takes care of the fellow buying the stock; but it does not mean that an air-line company or air-line companies might not issue a particular kind of very attractive security which, with all of the information furnished to the S. E. C. under the provisions of their act, the investing public would love to buy, which would be very bad for the development of the air line. There is not any prospect of this that I know of, but if they should begin to develop a heavy debt structure or something of that sort which was not necessary, it would be bad for the industry, the company, and therefore the country. That was the idea.

Mr. HALL. Is not that question, or are not all questions like that covered by the S. E. C. before they allow any issue of securities? Mr. POGUE. No.

Mr. HALL. The issuance of new stock or new bonds?

Mr. POGUE. No, Congressman. They may look at those things, but the only thing that they can do is to require the pertinent facts to be brought to the attention of the public in a prospectus. They have no control over the type of issue.

Mr. HALL. That is right; but now to hold governmental regulation in check as much as we can, why should not we-I am just throwing this out as a question-why would it not be better to amend the S. E. C. Act and give them full control, so that a corporation would not have to come first to the S. E. C. and then to you? Why should we not put full control in one place?

Mr. POGUE. I assume if that were done you would transfer all of this type of function to the S. E. C. and that would have an effect upon the Interstate Commerce Commission and the power that you have given them in the control of railroad security issues; bus security issues, and I assume that it would have a similar impact on a great many other public-utility features, where the control over security issues are already lodged somewhere.

That does not answer your question, but it is a related thought. Mr. HALL. That is all, Mr. Chairman.

The CHAIRMAN. I would like to ask this question in connection with that. What would you think if this were to be done. In the opinion of the Board would it not be better to take the securities out of the Securities and Exchange Commission and give your Board complete jurisdiction over the securities of the carriers? I am not advocating that, but would not that be one way to do it, instead of dividing jurisdiction up between two commissions?

Mr. POGUE. That would be possible, Congressman. This response to your question, of course, is immediate, so I have not thought about it carefully-and this is a personal observation-the technique and procedures for the investing public to learn about securities that they are asked to buy have now been so well established through the use of registration statements filed with the S. E. C. and a prospectus based thereon, which is made available to anybody who wants to buy the securities, that there might be some dislocation in the method of doing business if they did not get information about air-line securities in the same place.

I just offer that as the first thing that comes to my mind.

There may be back of your suggestion some meritorious reason that would overcome that one.

The CHAIRMAN. Of course, I think-not advocating it one way or the other-I think that the question of the control of securities is wrapped up with the important question of the immediate future in reference to the development of aviation and if we enacted legislation that would throw a new scheme of control of securities into the situation, it might have the effect of handicapping investments in aviation that are going to be very important in the future.

Aviation depends on financing for its success. We do not want to forget that. And, there is a possibility that a market for their securities might be jeopardized by placing a new economic control over their securities.

Of course we have this situation that up to date, practically, with some notable exceptions, aviation, civil aviation, commercial aviation has existed on account of subsidies. There was not a stabilized economic basis for aviation that there was for other transportation agencies of the country.

Mr. POGUE. That is true.

The CHAIRMAN. So there is the element of speculation there, where any industry is dependent upon a subsidy for its existence and prosperity, there is a speculative feature, and if we gave a Government board control over the economic phases of that investment, it might handicap the industry. That is a possibility.

Mr. POGUE. Yes.

The CHAIRMAN. So it might be eventually that this regulatory power should be exercised; but I think we should not act upon it now, without a consciousness of its importance, because fundamentally aviation is still a speculative investment and it is the man who is willing to take a chance who is going to finance these enterprises.

I just wanted to call that to your attention. It seems to me that is a patent phase of the situation that we must regard.

Mr. BOREN. Mr. Chairman.

The CHAIRMAN. Mr. Boren.

Mr. BOREN. Is it not true also that all of the normal elements involved in the public welfare, from the investor's standpoint, is taken care of in our general legislation on securities?

The CHAIRMAN. Yes. Of course, as suggested by the witness, the fundamental idea of the Securities Act is to let the investor decide for himself; require information and then let him decide whether he wants to take it or not, and we do not give the Securities and Exchange Commission the right to control the economic policies involved.

The regulatory bodies in nearly every instance, if not in all regulation involves economic control. That is not involved in cotrol by the Securities and Exchange Commission.

So, the practical question here is whether aviation has reached that point where it would be advisable to give the Government regulatory bodies a higher degree of economic control. I did not intend to take so much time.

Mr. HINSHAW. Mr. Chairman.

The CHAIRMAN. Mr. Hinshaw.

Mr. HINSHAW. May I ask you, Mr. Pogue, if I understood you correctly a while ago in saying that the Board exercises no function of control over the design of aircraft.

Mr. POGUE. No. I thought the question was directed to promotional activities in the design of aircraft. It does not exercise any promotional position in the design of aircraft.

Mr. HINSHAW. But it does exercise control over the design of aircraft.

Mr. POGUE. Yes, sir.

Mr. HINSHAW. For instance, regulation No. 56.

Mr. POGUE. Yes, sir.

Mr. HINSHAW. Which controls the landing speed and take-off distances, and so forth.

Mr. POGUE. Yes.

Mr. HINSHAW. It has a definite control over the characteristics of the airplane?

Mr. POGUE. That is correct. I was answering the question on the basis I understood it to mean, "Did we have any control other than safety?" The answer to that is "No."

Mr. HINSHAW. Now, is there any disposition on the part of the Board at this time to anticipate a suitable amendment to regulation No. 56 in the light of the greatly enlarged airports that have been constructed under the airport program?

Mr. POGUE. The answer is "Yes," and there is under consideration some other phases of that and related amendments that may require further modifications in the light of the facts that we are learning from the tremendously enlarged operations for the Army and Navy. There is a veritable laboratory over there of experiments that we never had available before, because nobody ever had to do those things that they have to do every day, and we are going to be able to learn considerable from those things done under extreme necessity.

Mr. HINSHAW. As I understand you have not increased the allowable loads which these airplanes may carry.

Mr. POGUE. We have not increased them, but we have that under consideration.

Mr. HINSHAW. In other words, a DC-3 has an allowable load of 26,400 pounds and you are going to increase it to something else?

Mr. POGUE. We have under discussion a proposal to increase it above the present level where they are carrying nothing but cargo, a proposal to have some additional poundage, but we have not acted upon it.

Mr. HINSHAW. Now, in view of the fact that domestic versions of aircraft are now at least 10 or 15 percent below foreign versions insofar as the allowable load is concerned, is it not advisable to raise the domestic allowable load so that planes may be interchangeable for foreign flights and able to compete with foreign airplanes?

Mr. POGUE. Before answering your question I would have to wait until these reports are sent to us, which are in the making now by our staff and the Administrator's staff. If the objectives you speak of can be accomplished, I think you are quite right, that it should be done.

Mr. HINSHAW. You do not think that there is a possibility that the characteristics under regulation 56 may be so amended that we can interchange foreign-service planes with our domestic-service airplanes?

Mr. POGUE. Well, I hope so; I do not put it that way because I think it cannot be done. I put it that way because I have not got enough technical advice yet from our people to be justified in leading the committee to think that it is just in the offing. I do not know whether it is or not. I certainly agree with you that it is desirable if it can be done.

Mr. HINSHAW. Most of the difference in load, of course, is taken up by either passengers, cargo, or gasoline.

Mr. POGUE. Yes.

Mr. HINSHAW. It is certain that with our present domestic load factors, we cannot compete with foreign load factors with similar airplanes to those used by foreign users and that is one of the vital concerns to the manufacturers right now in their designs for the future. Mr. POGUE. Yes. That whole amendment is currently under examination by the technical staffs of the Board and the Administrator and as a matter of fact, I have been checking up lately on it, have checked

8383843-6