riage of airmail was the primary function of the civil air carriers. But that day has passed. At the present stage of aviation development, with airmail representing only a small part of total airline traffic, there is no logic whatsoever in preserving this outmoded method of providing subsidies.

In 1949, the separation of subsidy from mail payments was recommended by the Commission on Organization of the Executive Branch, headed by former President Hoover. Such separation has been repeatedly endorsed by a number of congressional committees, by all interested executive agencies, and by various public organizations. In fact, there has been virtually no objection to the underlying principle of subsidy separation even by those who have opposed the bills thus far introduced for its accomplishment. The opposition has centered almost entirely on other features of the legislation which are not involved in this reorganization plan.

The transfer of subsidy payment effected by this reorganization plan will have several advantages. The first and most fundamental is that it will make a clear separation between subsidy and compensation for mail-transportation service and bring the airline-subsidy program directly into the open. The present lumping of the two as a single payment from appropriations for transporting the mail inevitably obscures and confuses the situation, in spite of the analyses now made by the Civil Aeronautics Board to break mail payments into their component elements. By bringing the subsidy program into the open, where it will have to be financed from a separate appropriation, the plan will make possible more adequate review and more effective control by the Congress and the President.

Another advantage is that the transfer will fix responsibility for preparing and defending the subsidy budget on the agency which awards the subsidies. At present, the agency determining the subsidies has no responsibility for obtaining the funds for paying them. Such an arrangement is administratively unsound, and does not make for economy in Government.

A third advantage is that the transfer will relieve the Post Office Department of a heavy charge-$80 million annually-which is not properly a part of the cost of postal service. The present situation inflates the expenditures of the Post Office Department and gives a distorted picture of the overall postal deficit.

The effectuation of the plan will be considerably simplified and expedited by the fact that in recent years the Civil Aeronautics Board has accompanied its mail-rate determinations with a statement of what it considers to be the compensatory rate for mail-transportation service, and has annually calculated the division of total mail payments between subsidy and compensation for transportation service. The Board has issued several reports setting forth this information. Under the interim provisions of the plan, the Board will be able to use these analyses and reports as the basis for establishing the initial compensatory rates to be paid by the Post Office Department for the transportation of airmail. Thereafter, these determinations will be made by the Board after notice and hearing as in the case of the present combined rates.

It should be clearly understood that this plan cannot and does not alter any basic policies of the Civil Aeronautics Act. The authority for determining both the compensatory and the subsidy elements of

the total payments to air carriers will remain with the Civil Aeronautics Board, and its determinations will be governed by the existing statutory standards of the act.

Some of the legislation that has been considered on this subject in the past has gone beyond a simple transfer of the subsidy function and has included provisions which would change existing substantive law. As pointed out by the President in his message, the adoption of Reorganization Plan No. 10 will not preclude the consideration by the Congress of legislation to improve the basic law in this field. In the meantime, however, the plan can accomplish immediately the fundamental objective of subsidy separation by transferring the responsibility for subsidy payment to the agency which logically should have that responsibility.

I urge the committee to support the effectuation of this reorganization plan.

Mrs. CHURCH. Mr. Hughes, the statement is so convincing that it is too bad that we did not need to be convinced..

Have you any question, Mrs. St. George?

Mrs. ST. GEORGE. No; I feel exactly as the chairman does. I think that answers a great many questions.

Mrs. CHURCH. Mr. McCormack?

Mr. McCORMACK. Just for the record, a few questions.

What is your view of the CAB hearing evidence on subsidy and then being the agency to make the payments?

Mr. HUGHES. I do not quite understand. You mean in connection with the hearings?

Mr. MCCCRMACK. Yes.

Mr. HUGHES. Well, that, of course, is the provision of the present law.

Mr. McCORMACK. I know that. Under the present law, of course, that is changed. They conduct the hearings and determine what rates of compensation, fair and reasonable rates of compensation, shall be, but they do not make the payments.

Mr. HUGHES. Well, I do not think the ministerial act of making the payment affects the operation particularly.

It will all be subject to regular audit and review and all that type of control that it has now in the Post Office Department.

Mr. McCORMACK. I wish I could be as sure as you are. Being a human being myself

Mr. HUGHES. Well, as a matter of fact, the exact method of controlling and doing that has not been fully worked out, but you may be assured that we have those features very definitely in mind.

Mr. McCORMACK. They are sitting in a sense as judges hearing evidence to determine the rates of compensation, what the actual cost is and what the subsidy is, and then they have to come up to Congress and ask for the appropriations for the subsidy.

Mr. HUGHES. We think that is a better placing of responsibility because they should be able to justify it and take the responsibility for presenting their case to the Congress, rather than merely acting as a second and less directly responsible agency as they do now.

Mr. McCORMACK. Well, that is a very good answer, but then the thought comes to my mind, if I am a member of the Board, I am sitting hearing evidence on subsidies, which of course was part of our organic law and has definite reasons for it, and then when I appear

before Congress, whether or not I will get the appropriations to carry out the decisions of the Board is

Mr. HUGHES. Well, I think that is the right place.

Mr. McCORMACK. Of course that would exist in relation to anybody, but the effect of my sitting as a judge and the fact that I have to come up and make this case-what effect it might have on my evaluation of the evidence in determining what would be reasonable rates of compensation, not to make it so high so I could make a good case to Congress-what effect that has to me sitting as a judge is questionable.

Mr. HUGHES. Well, I do not know as it would have any-they still have that same responsibility now. I mean, they have to satisfy themselves as to the basis for the justification, whatever it may be, and the basis is not built on-what will I say?-some arbitrary determination. It is built on certain facts, fiscal facts, which have to be worked up. Mr. McCORMACK. Sometimes appropriations are based on somewhat arbitrary determinations.

Mr. HUGHES. That may be, but the fixing of this rate

Mr. McCORMACK. You have found that to be so, have you not? Mr. HUGHES. The fixing of the rates by the Civil Aeronautics Board has to be done under these standards of the act, and I do not believe there is any change in that under this-—

Mr. McCORMACK. I am in favor of the plan; so, we start out with that. I think the Post Office Department has thought for a long while that it should be divested of it, and it should not be charged up to them. So, we are only just exploring. I was just wondering what your views were as to a man sitting as a judge and then having the duty of administering, administering as to the money and getting the money to pay the results of his decision, as to what effect the latter might have upon a decision and what effect that would have on the different airplane companies in the presentation of their case.

He does occupy two different positions.

Mr. HUGHES. That is right, but it is all the subject of a hearing in which all that evidence is brought out, whatever is needed and is necessary. It is also, you might say, quite general in a good many other functions of Government, where for example, housing administrators and people of that nature have to present their case to Congress and still at the same time make certain decisions which relate to payments. Mr. McCORMACK. I assume these hearings are under oath, are they not?

Mr. HUGHES. Oh, I imagine so. You have to ask the Board on that. I am not certain.

Mr. McCORMACK. I won't press it. We run into that along the line, but I like to see one who is sitting in the position of a judge being an independent, making a decision on the facts, without any other influences that might interfere with his decision on the judicial or quasijudicial aspects of his duties.

Mr. HUGHES. Well, this would not obviate in any way any changes which you feel should be made in the law to make that a little more effective. However, the reorganization plan makes a change now which we think is a forward step.

Mr. McCORMACK. I agree with that. There is no question in my mind that the change should be made. The question is where it should

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go, and I do not know of any other place in the CAB now, but I just was exploring to get your reaction.

Mr. HUGHES. You raise an interesting question, and we shall think about that.

Mr. McCORMACK. It is an interesting question that will only develop in the future, but it might be well for the record that, if it does develop, the subcommittee did have it in mind.

Mr. HUGHES. Not only that, but we will consider it, too.

Mrs. CHURCH. I see that another member of the subcommittee has come in. Do you have any questions?

Mr. BROOKS. No, Madam Chairman, I just came to listen for a few

moments.

Mrs. CHURCH. Mr. Heselton, do you wish to ask any questions? Are

you here to testify?

Mr. HESELTON. No, thank you; I don't anticipate I will.

Mrs. CHURCH. If at any time you do feel you want to ask a question, I hope that you feel at liberty to do so.

Mr. McCORMACK. I suggest Mr. Heselton be invited to join the committee.

Mrs. CHURCH. Mr. Oswald Ryan.

Will you be good enough to identify yourself for the record?

STATEMENT OF OSWALD RYAN, CHAIRMAN, CIVIL
AERONAUTICS BOARD

Mr. RYAN. I am Oswald Ryan, Chairman of the Civil Aeronautics Board.

If I depart from the mimeographed sheet, Madam Chairman, in 1 or 2 instances, I hope I will be forgiven for it because I think it will not be a change of substance, but perhaps of language in 1 or 2 places.

Mrs. CHURCH. We will be very glad to have you present it in your

own way.

Mr. RYAN. The Civil Aeronautics Board appreciates the invitation to appear before you and comment on Reorganization Plan No. 10. The Board endorses the plan and urges its approval.

For the past several years the Board has actively supported before Congress proposed legislation designed to accomplish the separation of subsidy from the total compensation which the Government pays the airlines for carrying the mail pursuant to the provisions of the Civil Aeronautics Act. It has been our belief that bringing the subsidy completely into the open, as Mr. Hughes described it a few moments ago, would be of substantial benefit to the Government, the public, and the industry, in that it would permit a better evaluation of the air-transportation program which the Board is charged with developing and administering and would have the effect of spurring the industry to yet greater efforts to free itself of any need for or reliance upon financial aid from the Government. Obviously a reorganization plan cannot, and this plan does not purport to, accomplish basic substantive changes in the Civil Aeronautics Act.

However, this plan effectively provides for a formal determination and separation of any subsidy element in the mail pay of air carriers and it relieves the Post Office Department of any budgetary respon

sibility for subsidy payments, transferring that responsibility to the Board. The plan thus represents, we think, a constructive and progressive step forward which, because of its simplicity and less controversial features, stands a good chance of being acceptable to all interested parties involved in the affair and of being put into effect within a reasonably short time.

I believe that it may be of some assistance to the committee in. understanding what Reorganization Plan No. 10 seeks to accomplish if we take a brief glance at the mail-rate situation which exists under the present law. Section 408 of the Civil Aeronautics Act directs the Board to fix "fair and reasonable" rates of compensation for the transportation of mail by air.

With one notable exception, the factors that the Board must take into consideration in fixing mail rates are of the same basic character as those that must be considered by other quasi-judicial regulatory bodies that are charged with fixing of fair and reasonable rates for other public-utility companies. I say "with one notable exception," and this exception is that the Board, in fixing rates for the carriage of mail-in addition to the usual public-utility ratemaking factors for determining reasonable compensation-must consider the need for an additional amount of money to enable the carrier under honest, economical, and efficient management to maintain and continue the development of air transportation that we are directed must be adequate to the needs of our national defense, our commercial, and our postal service.

I might say, in passing, this is the so-called "need" or subsidy provision of the Civil Aeronautics Act which does not appear, as you readily recognize, in the usual public-utility regulatory act. Thus the Board in each mail-rate case that comes before it determines whether the air carrier concerned has any need for revenues in the form of mail pay in addition to the compensation to which it is entitled for the carriage of the mail; in other words, whether it has any need for Government subsidy.

In some cases, it has been found that no need for any mail pay other than compensation for the carriage of mail existed; and in such cases the Board has fixed a mail rate designed solely to compensate the carrier for the costs reasonably incurred in providing the mail service. No subsidy need is included in such rates.

In those cases where subsidy need exists, the Board, under the present statutory procedure, determines the carrier's overall financial requirements under honest, economical, and efficient management, to enable it to conduct the operations which are required by the national interest, and then it fixes a rate which will provide an amount adequate to meet such need.

As a practical matter, in fixing these mail rates that involve subsidy elements, what the Board does is to examine the total operating results of the carrier, determine its allowable expenses for all of its servicespassenger, cargo, and mail-and then deducts therefrom the commercial nonmail revenues realized by the carrier. The resulting deficit is designated as the carrier's break-even need.

To this break-even need then is added an amount necessary to provide the carrier with a reasonable return after taxes on its proper investment. Then the Board formally fixes an airmail rate which will provide the carrier with a total amount of its break-even need plus a