SUBMITTED BY MR. WOLVERTON, CHAIRMAN MARCH 25, 1948.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON: 1948

80TH CONGRESS HOUSE OF REPRESENTATIVES 2d Session

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REPORT No. 1612

PUBLIC AID TO AIR TRANSPORTATION

MARCH 25, 1948.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. WOLVERTON, from the Committee on Interstate and Foreign Commerce, submitted the following

REPORT

During the past 25 years development of transportation by road, water, and air has become a tremendous activity of government. Thousands of miles of new highways have been constructed; millions of dollars have been spent in river and harbor improvements. Airways and airports have been expanded at an ever-increasing rate, particularly during the past few years. General taxation has largely provided the funds. The purposes have varied. Primarily highways have been built for use of the private automobile, but are thus made available for carriers of property and persons for hire. Waterways have been built because of a belief that they provide inherently cheaper transportation than other forms of transport and because of a need for additional facilities following the strain on the railroads during World War I. Airways and airports were promoted to encourage air transportation, so important to our national defense, and for the purpose of developing an air transportation system properly adapted to the future needs of our foreign and domestic commerce.

It appears to be the view of shippers, carriers, and others that, whatever may have been the purpose of previous Government aid to transportation, there is great danger of an overexpanded transportation system unless some different policy is established to determine not only the need for such additional facilities but their over-all economic justification. This is particularly true of public aid to air transportation at the present time in view of the recent recommendations of the President's Air Policy Commission and the Congressional Aviation Policy Board.

EXTENT OF PUBLIC AIDS TO AIR TRANSPORTATION

Much confusion exists in regard to the use of the word "subsidy" in connection with public aid to air transportation, chiefly because the average person does not analyze what the term includes. Up until

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the present moment, there has been some form of Government subsidization in every air-transport-operating country. The most common forms of such subsidization have been:

1. Direct financial payments;

2. Air-mail payments exceeding the economic rate for the work done:

3. The provision of airways and other navigational facilities; 4. The provision of airport facilities;

5. The provision of aircraft;

6. Taxation concessions;

7. The financing of aeronautical research and development. In the past, at least in some countries, government subsidies, especially "hidden" subsidies, have been granted frequently for purposes other than the direct advancement of air transport; for example, enhancement of national prestige, military training, to obtain a monopoly of certain traffic, and the like.

It is generally agreed that there is ample economic and social justification for a measure of Government assistance in the early stages of the development of any transportation agency. In the early stages the normal process of economic growth, in which lower costs permit lower rates and fares, which generate a greater demand leading to a further lowering of costs, and so on, has little momentum. Costs are high in any new agency of transportation, and this has been particularly true of air transportation, because:

1. Equipment is undeveloped and relatively inefficient;

2. Demand for the service rendered at economic prices is limited.

Demand is usually small at first for the services of any new agency of transportation because:

1. Acceptance of the new mode of transportation is slow;
2. Costs are high;

3. Collective demand from the shipping and traveling public is usually latent and inarticulate.

Under such demand conditions the growth cycle of any agency of transportation, if not given outside impetus, might tend to be a vicious circle of stagnation.

As far as air transportation has been concerned subsidies have been justified and may still be justified for limited periods because of the need for:

1. The initial development of new routes;

2. The introduction of new equipment into service for the advancement of operating speeds, etc., ahead of what is immediately practical on an economic basis.

In general, governments have recognized the potential benefits of civil air transportation and have also recognized that the general economic and social welfare is secured by speeding up the process of development. From that standpoint and acting on behalf of the community, they have applied public funds to this end. In various ways this assistance has lowered costs and rates, thereby increasing demand and effectively stimulating the growth process. In addition to justification as a temporary aid to development, which should be discontinued as the industry gets properly under way, there is a case for Government assistance in two other connections:

1. To provide services on social or international grounds, for which there may be no commercial demand even in the full maturity of the industry;

2. In the provision of facilities and services such as navigational, meteorological, air-traffic control and search and rescue services, which are required also for aviation generally similarly to the provisions of roads, bridges, road-lighting and trafficregulating systems for highways and marine channels, lighthouses and other aids to shipping.

While a healthy and fully matured air-transport industry may only require a minimum of assistance in the second connection, mentioned above, such a minimum would be analagous to that provided on justifiable economic and social grounds to other public utilities, and should not be regarded as abnormal or indicative of the inability of the industry to be self-supporting, provided, of course, that any aid is in line with the general benefits accruing.

A transportation industry may be termed "self-supporting" when the assistance given justifiably as an aid to early development, as well as any excessive and possibly misdirected assistance given from undue consideration of national economic rivalry, prestige, and strategy have been eliminated.

Subsidization of air transportation by the United States has taken the following forms:

1. Air-mail payments exceeding a so-called service rate;

2. The provision of airways and other navigational facilities; 3. The provision of airport facilities;

4. Taxation concessions;

5. The financing of aeronautical research and development. Insofar as any or all of the forms of subsidization are provided at less than a fair and economic rate for the service rendered, to that extent must the air transportation industry be regarded as Government supported.

It must be borne in mind, however, in attempting to assess the progress made so far toward self-support and the future prospects of attaining the desired end, that civil air transportation as a whole covers a wide range of operations varying widely in their economic characteristics and potential profitability, under the influence of a large number of factors of technical, geographical, meteorological, and economic importance; and that at any stage of development of the industry, individual operations or groups of operations may range from the highly profitable to the highly unprofitable. The effect of technical and economic development is to shift the whole universe of operations generally up the scale of profitability, though not necessarily preserving their relative order.

It is practically impossible to state at any given time what amount of direct and indirect assistance is being given by a particular government to air transportation. This is particularly true of international air transport. For example, in the United States, American-flag international air transport may receive Government support through air-mail payments to be paid in an amount or at a rate fixed by the Civil Aeronautics Board. This rate has always been fixed without formal differentiation between the amount which should be paid to the air carrier as just compensation for the carriage of air mail and the