SUPPLEMENTAL AIR SERVICE

FRIDAY, APRIL 5, 1957

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

SUBCOMMITTEE ON AVIATION,

Washington, D. C.

The subcommittee met, at 10: 10 a. m., in room F-39, United States Capitol, Hon. A. S. Mike Monroney presiding.

Present: Senators Monroney (chairman of the subcommittee), Smathers, and Schoeppel.

Senator MONRONEY. The Subcommittee on Aviation of the Interstate and Foreign Commerce will resume its hearings.

We are meeting with regard to the recommendation of the Civil Aeronautics Board relating to supplemental service which is contained in their annual report.

We have several witnesses today, some representing the Aircoach Transport Association, other lines, as well as Mr. Stuart Tipton, president of the Air Transport Association of America.

In order to accommodate Mr. Sam Solomon, president of California Eastern Aviation, so that he might leave, we will be glad to have him come forward and give his statement now.

You may proceed in your own way.

STATEMENT OF SAMUEL J. SOLOMON, PRESIDENT OF CALIFORNIA EASTERN AVIATION, INC.

Mr. SOLOMON. Mr. Chairman, Senator Schoeppel, my name is Samuel J. Solomon; I am president of California Eastern Aviation, Inc. I might explain that California Eastern is a contract carrier, it is not an irregular or supplemental or certificated in any way. We are not a common carrier. We sell no tickets. In addition to training activities for the Air Force in techniques we conduct military service across the Pacific for the Military Air Transport Service and across the United States for the Navy.

I am appearing in support of an amendment to the Civil Aeronautics Act, which has been proposed by the Civil Aeronautics Board. This amendment to section 401 of the act would permit the issuance of a certificate of public convenience and necessity, limited in nature, to the supplemental air carriers.

Our interest in the proposal stems from the fact that CEA is an applicant for supplemental air-carrier authority in the Large Irregular Air Carrier Investigation, Docket No. 5132, and others, now pending before the Civil Aeronautics Board.

Both the Board's staff, and the examiners in their initial decision of January 10, 1957, have recommended that CEA be authorized as a supplemental carrier. The examiner's findings of fact with respect to CEA are attached to my statement as appendix A. I would like to call the committee's attention to the following, which indicate that ours is a substantial company, well qualified to conduct supplemental air service:

1. CEA is one of the oldest and most experienced of the noncertificated operators of large aircraft.

2. California Eastern is staffed with officers and executives of substantial experience.

3. Net worth appears at $3,841,129.

4. No significant derogatory matter in the nature of violations of law has been shown with respect to California Eastern.

5. This applicant has been one of the principal noncertificated carrier participants in the military airlift in the postwar period.

We have been engaged in that, for the record, since August 5, 1950, and we have currently purchased Constellation aircraft, new ones, at an investment of over $62 million, the first of which will be delivered this month.

The application CEA is now prosecuting for supplemental authority was first considered in the Transcontinental Coach-Type Service case, where action was deferred and the application was subsequently consolidated in the Large Irregular case. This application was filed on April 8, 1949; the deferral of decision was issued on November 7, 1951. We have waited 8 years for a final decision. In view of the history I am certain you can understand our concern that the award of operating authority not be frustrated, or even delayed, by what we think are technicalities.

It is in this factual background that I should like to suggest to this committee the reasons why I think the proposed amendment to the Civil Aeronautics Act should be adopted.

1. The Board has found, after an extensive investigation, that supplemental air service is required by the public interest. Yet it has encountered legal difficulties when it has attempted to carry out its policy determinations. At the very least, further litigation appears inevitable; at the worst the policy of the Board might be frustrated. I do not think that this committee should be the forum for rearguing the question of whether supplemental air carriers should or should not be granted some kind of operating authority. The important thing is that Congress give to the Civil Aeronautics Board the necessary power to carry into effect the mandates of section 2 of the Civil Aeronautics Act. The proposed amendment will give the Board increased flexibility in dealing with this very important question.

2. From the point of view of the carrier, authority to provide supplemental air service pursuant to a certificate instead of an exemp tion is highly important. There has been public acceptance of certif icated air carriers. CEA has a perfect safety record, it has never been cited for a violation of the civil air regulations, it has demonstrated its ability to operate efficiently; but it will not enjoy the same degree of public acceptance if we must operate pursuant to exemption instead of certificate authority. In essence, this is a matter of public relations. But, nevertheless, it is a practical business fact. The

Board can help the supplemental carriers do a better job by granting them certificates of public convenience and necessity.

3. Furthermore, I suggest that certificate holders will by reason of that fact have a much easier job of financing their supplemental air carrier activities than would exemption holders.

Again this may be simply a matter of prejudice, but to the layman-in this case the banker-a certificate holder would appear to be much more of a fixture in the air transportation system than an exemption holder-the very word almost connotes authority by suffer

ance.

For all of these reasons I urge you to amend the Civil Aeronautics Act to make possible, should the Civil Aeronautics Board determine it is desirable to do so, the certification of supplemental air carriers. Thank you very much, sir.

Senator MONRONEY. Thank you very much, Mr. Solomon.

Do you want this appendix incorporated in the record giving some of the statistics and figures on the California Eastern Aviation? Mr. SOLOMON. Yes, sir; that is from the examiners' report, sir. Senator MONRONEY. It will be so incorporated into the record at this point.

(The matter referred to is as follows:)

APPENDIX A

CALIFORNIA EASTERN AVIATION, INC.

California Eastern Aviation, Inc.,' a corporation organized under the laws of the State of Delaware on January 14, 1946, has 1,764,863 shares of stock outstanding.

The officers and directors of California Eastern are Mr. Jorge Carnicero, chairman of the board; Mr. S. J. Solomon, president and director; Mr. M. W. Brinckerhoff, vice president and director; Mr. J. W. M. Haight, vice president and director; Mr. E. N. Townsend, vice president; Mr. N. B. Berboth, vice president; Mr. T. O. English, treasurer and secretary; Mr. H. Paul Smith, assistant secretary and assistant treasurer; Mr. A. S. Clark, Jr., director; Mr. E. A. Kerbs, director; and Mr. W. E. Cunningham, director. All of the officers and directors are citizens, and more than 95 percent of the total of 1,764,863 shares of common stock is registered in the names of persons whose addresses are located in the United States or its possessions. It is found that California Eastern is a citizen within the meaning of the act.

This company is not now an air carrier within the meaning of the Civil Aeronautics Act, inasmuch as it has in recent years limited its transport operations to non-common-carrier activities and it does not conduct operations as a common carrier. However, it formerly conducted common-carrier operations and it is one of the oldest and most experienced of the noncertificated operators of large aircraft. Its first operations covered a period between 1946 and 1948 in which it was one of the largest domestic airfreight carriers and was the first to begin such operations with four-engine aircraft. During this period, a total of 18,291 revenue hours were flown, accounting for 3,515,551 revenue miles and 19,143,553 revenue ton-miles. These operations were conducted between San Francisco/Oakland and Los Angeles, on the one hand, and New York/Newark, on the other hand, via various intermediate points. The company's airfreight operations resulted in a substantial loss and were suspended on May 15, 1948, after the company had filed a petition for reorganization under chapter 11 of the Bankruptcy Act on May 12, 1948. The company was reorganized in April 1949. Its aircraft were refitted with high-density seating and leased to various irregular air carriers. Profits from the leasing activities enabled liquidation of the company's indebtedness to its creditors and dismissal of the chapter 11 proceedings on December 11, 1950.

A copy of California Eastern's application, as amended, was sent to the President prior to hearing, in accordance with sec. 801 of the act.

California Eastern conducted a substantial volume of operations in the Pacific airlift beginning in August 1950 and continuing until October 1953. During this period it operated a total of 12,689,377 revenue miles for the military, representing 85,653,295 revenue ton-miles, including cargo and passenger, and 324,964,000 passenger-miles. A total of 49,994 passengers were carried. An average of five DC-4 aircraft were operated. Operations were suspended between October 1953 and February 1954. Between February and May 1954, transpacific operations between California and Tokyo were conducted for the Military Air Transport Service. Between May and August 1954, operations were conducted to the Philippines, French Indochina, and Japan. For the remainder of the year 1954, the company's aircraft were operated in the domestic civil air movement for the military services between military stations within the United States. During 1954, California Eastern flew a total of 2,069,851 revenue miles, 15,523,882 revenue ton-miles, including cargo and passenger, and 47,003,000 passenger-miles. It operated an average of 3.3 aircraft. During 1955, California Eastern conducted extensive transpacific operations for the military and for 2 months conducted flights to the Northwest Territories and northern Canada in connection with the radar network being established there and known as the DEW line. Limited flight operations were also conducted in domestic civil air movements. On July 1, 1955, California Eastern was awarded a 1-year contract by the United States Navy for the conduct of transcontinental Air Force operations on a five-scheduled-round-trips-perweek basis between Oakland, Calif., and Boston, Mass., via a number of intermediate points. During 1955, the company's operations accounted for 3,021,947 revenue miles flown, 23,019,753 revenue ton-miles, including cargo and passenger, and 80,551,130 passenger-miles flown. An average of five aircraft were operated. The company continued during 1956 to engage in extensive operations for the military. California Eastern obtained flight-operations revenue for the 10 years between January 1946 and December 1955 of—

California Eastern has 2 operating divisions-California Eastern Airways division and a flight-training division-and 2 wholly owned subsidiaries— Land Air, Inc., and Air Carrier Service Corp. The flight and maintenance operations are conducted by the airways division, which at the time of the hearing in May 1956 had a total of approximately 650 employees, of whom 400 were in the production and maintenance department, 200 in the flight and ground operations department, and the remainder in an administrative capacity, such as accounting, personnel, sales, etc. The company's personnel include 90 pilots and copilots, 18 flight navigators, 12 stewardesses, and 63 station personnel located at 16 stations between the east and west coasts of the United States and in Tokyo, Wake, Honolulu, Travis, and Alameda, in the Pacific. Approximately 45 percent of the personnel in the operations department have been employed an excess of 5 years with California Eastern.

California Eastern is staffed with officers and executives of substantial experience. Mr. S. J. Solomon, president, has been engaged in various phases of aviation since 1933, which include, among others, the president of Northeast Airlines, Inc., and vice president of the National Airport Corp. in Washington, D. C. Mr. Edward N. Townsend, vice president, has been a pilot since 1940, and has been employed since that time in aviation activities with commercial companies and with the Royal Air Force, in which he served as a wing commander. Mr. Neil Berboth, vice president and general manager of the airways division, has been with the company for 7 years, and has been in various aviation activities since 1940, when he was with American Airlines, Inc.

California Eastern plans to continue to concentrate its primary activities in operations for the Defense Department and to use the authority requested as a supplemental air carrier for the purpose of supplementing the military-contract work in which it would be primarily concerned. It points out that the operations for the Defense Department are subject to major fluctuations in operating volume and revenues from month to month. For example, it presents a table setting forth the revenue-miles which it flew in military charter and contract

operations during each month of 1954, 1955, and the first quarter of 1956. These varied from a low of 60,457 in March 1955 to a high of 380,588 in January 1956. It points out that Defense Department contracts are of three kinds; i. e., for specific flights between named points, for a series of flights between named points, and for an operation between fixed points for a number of months. In bidding on the first two types of flights, it points out that it is important to know whether it is possible to obtain a return load or a load to a point at which another contract flight could be obtained. It presents an analysis of CAM flights in September 1954 showing that approximately 30 percent of the total layover time might have been utilized for commercial flights had California Eastern held authority as a supplemental air carrier and, in addition, that approximately 50 percent of ferry flights could have been utilized for commercial operation, thereby reducing the cost of CAM operations to the Government.

The applicant presented an analysis of its CAM operations in September 1954 and an estimate of the added profit that it could have obtained with supplemental air-carrier authority. Three aircraft were used, with a utilization of 6.2 hours per day. The applicant estimates that, with supplemental authority, it could have obtained added utilization of 5.2 hours daily for a total of 11.4 per day. The applicant concludes that it could have reduced ferry-mileage charges to the Government by $8,051 and, at the same time, have obtained added profit to the carrier of $16,922. California Eastern asserts that it does not plan on activity as a supplemental carrier except in the area of supplementing its militarycontract work with business which it could transact as a common carrier during layover periods and on ferry flights.

California Eastern's balance sheet as of December 31, 1955, shows current assets, $7,487,721; noncurrent receivables and deposits, $398,835; property and equipment, $3,695,360 (flight equipment, $3,614,632; improvements to leased equipment, $144,622; plant machinery and equipment, $1,053,587; and leasehold improvements, $17,941; less accumulated depreciation of $1,135,422); with total assets $11,581,916. Current liabilities are listed at $6,606,797; fees received in advance, $86,887; and long-term liabilities, $868,815. Operating reserves are shown at $172,288. Net worth appears as $3,847,129.

No significant derogatory matter in the nature of violations of law has been shown with respect to California Eastern.

The evidence of present status, plans for the future, and past operations of California Eastern shows that it has personnel, equipment, plans, and financial resources which enable it to engage in supplemental air transportation, and it is found that California Eastern Aviation, Inc., is qualified for exemption authorization as a supplemental air carrier.

California Eastern's application was not consolidated in this proceeding until after the Board's decision on the public-interest issues. Accordingly, as to this applicant, a decision must now be made, both as to its qualifications and as to whether the public interest requires transportation by it as a supplemental air carrier and whether there is an undue burden requiring exemption.

This applicant has been one of the principal noncertificated carrier participants in the military airlift in the postwar period. For example, it was 1 of the 5 noncertificated carriers that participated in the Pacific airlift in 1952, carrying 328 tons of cargo and 6,294 passengers out of a total of 4,912 tons of cargo and 14,054 passengers carried by noncertificated carriers. In 1953, it carried 887 tons of cargo and 12,489 passengers on the Pacific airlift out of a total of 8,252 tons of cargo and 37,078 passengers carried by noncertificated carriers. The importance of this airlift to the Nation is apparent. It is concluded that it is in the public interest to strengthen this carrier and facilitate the continuance and improvement of its important contribution to the national defense by including it in the class of supplemental air carriers.2

3

For the reasons set forth in the initial decision served March 29, 1955, supplemental air transportation is not, from the standpoint of either law or policy, appropriate for authorization by a certificate of public convenience and necessity. It would be impracticable for California Eastern to go through the procedure of obtaining a certificate with respect to each of the many points between which its service will be needed from time to time. Accordingly, it is

2 The extent of operations authorized for members of the class was determined by the Board, and is not at issue here as to California Eastern.

The Board has decided that the transportation which it has determined to authorize for the class is supplemental air transportation within the issues of this proceeding.