Well, when that happens, the Post Office Department is forced to make other arrangements immediately. Obviously, there are only 2 places, 2 ways to go: One, to put the mail in the air, or put the mail on the already congested highways. So that is our problem.

We have carried our discussions to the trucking concerns in the country for further exploration with them for the development program and possibly pilot operations. We have also done that with the railroads. We conceive our responsibility to be to bring about a more rapid and satisfactory distribution of the mail from point A to point B at the most economical cost. We are exploring all of those areas. I believe that a Post Office Department should have some of the responsibility and the opportunity of negotiating with the airlines on the rates that we pay or are to pay for the transportation of mail, rather than have it in a department that has no responsibility to the Congress and to the people of this country for the delivery of mail.

Mrs. CHURCH. Thank you.

Mr. McCORMACK. Involved in that, General, isn't there one of the basic theories of grants or subsidies to the airlines as the other important problem of defense, the having of available trained pilots, the experienced companies that can be called upon which would be rather difficult for the Post Office Department itself to go into? You are naturally and properly concerned with essentially, not wholly, the business aspects of it, whereas the reason we pay grants, subsidieswhether correct or not-is because of the other important considerations involved.

Mr. SUMMERFIELD. I agree with you completely.

Mr. McCORMACK. I see your point, and I am not challenging it, but the other consideration is of primary importance, has been in the past-to Congress-is now and will be, I suppose, for some time, in connection with keeping alive as good an air system or systems, as we can because of the benefits that flow to our country in case of emergency or war, and in that case those benefits in peacetime become primary benefits in time of war in that we have the trained personnel; we have the experience, like the hump during World War II, when the Government took planes to transport material to Nationalist China when the Japs had taken the Burma Road and the main line of transportation, so in a broad way those considerations and others in addition enter into the theory or policy of subsidy payments.

Mr. SUMMERFIELD. As I said earlier, I agree with you completely. That was one of the reasons that we requested this type of legislation. Subsidies are distinct and separate items and should not be the responsibility of the Postal Department. Therefore, let the Civil Aeronautics Board or whatever department or commission or organization the Congress may decide in the future is to take the responsibility for the matter of subsidy

Mr. McCORMACK. But the actual amount they receive for the transportation of mail

Mr. SUMMERFIELD. That is a problem of the Post Office Department. Mr. McCORMACK. Yes. In other words, what they receive for the transportation of mail, of course, is a problem, primary problem, of your Department.

You talk about the problems that arise when cars are taken off of railroads, and I can see that, and I can understand it, and that is

multiplied because that brings problems to the airlines; it brings problems to the trucking companies, and they are all problems, too, so it is not only the problem of the Department itself, the immediate problem, but there is the overall problem of the trucking concern and of the airlines, and their capacity to pick up and carry, and particularly in the trucking field, because that is more or less of an experimental thing now, is it not?

Mr. SUMMERFIELD. Yes; but we are getting very satisfactory results. Mr. McCORMACK. I won't say "experimental" still in the pioneer stage.

Mr. SUMMERFIELD. Yes; but it has progressed sufficiently so that we know there are great savings to the Post Office Department.

Mr. McCORMACK. Yes, that is true, I know that; but when I say "pioneer stage," it is of recent origin.

Mr. SUMMERFIELD. That is correct.

Mr. McCORMACK. That is what I mean. Valuable experience is cbtained and much more valuable experience is to be obtained in that field.

Mr. SUMMERFIELD. We try to avoid waiting until the boom drops on us in the Post Office Department. We are trying to anticipate that which is so clearly evident to us in the situations and problems we are going to be confronted with tomorrow and the tomorrows, if not today.

For instance, one day last week there were 4 trains removed in one day.

Mrs. ST. GEORGE. General, is it not also very possible in the foreseeable future that as you go more and more to the air to transport the mail, that the airlines and the Government thereby will get a great deal of benefit because the Air Force or the airlines will be so expanded by this that we will get the benefit of it in time of war or emergency? I should think that it would be bound to happen because you certainly will have to use many more lines, and you will have to use many more planes than at present.

Mr. SUMMERFIELD. There just is not any question about it. There is a wonderful opportunity here for the air industry, and together with it, of course, our whole national defense system. I have pointed out and I think clearly and convincingly to the airlines the absolute necessity of their getting together and taking a new look at the problem and the opportunity that there is, and I am sure they are doing it.

Mrs. CHURCH. Thank you, General. I appreciate your coming in. Mr. SUMMERFIELD. Thank you very much.

Mrs. CHURCH. I think that I might ask permission at this time to include in the record certain correspondence. One is a letter from the Government Employees Council signed by Mr. Thomas G. Waters. Would you read it, Mr. Smith?

Mr. SMITH. It is dated June 10, 1953, addressed to the committee: Yesterday the Government Employees Council unanimously adopted a resolution approving the intent of Reorganization Plan No. 10 of 1953. The Government Employees Council has never opposed the philosophy that has prompted subsidies, but we do feel that these subsidies should not be officially charged against the Post Office Department.

That is signed by Thomas G. Waters, operations director, American Federation of Labor.

Mrs. CHURCH. Mr. Waters was asked to testify in person and is the seventh witness, so the letter will be substituted in his place.

I also have a letter from the Acting Comptroller General, Mr. E. L. Fisher.

Do I understand that this is in lieu of a personal appearance?
Mr. SMITH. I understand he is not going to appear.

Mrs. CHURCH. Would the subcommittee like to have the letter read, or shall we just insert it?

Mr. McCORMACK. Yes.

Mrs. CHURCH. I think we will insert it at this point, then.
(The letter referred to is as follows:)

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington 25, D. C., July 16, 1953.

Hon. MARGUERITE STITT CHURCH,

Subcommittee on Plan No. 10, Committee on Government Operations,

House of Representatives.

MY DEAR MADAM CHAIRMAN: Reference is made to your letter of July 9, 1953, advising that hearings have been scheduled on Reorganization Plan No. 10 to begin on Friday, July 17, 1953, and that the subcommittee would be glad to hear representatives of the General Accounting Office.

It is not believed necessary for our representatives to appear before your subcommittee. However, I do want the subcommittee to know that the General Accounting Office favors the objectives sought to be accomplished by Reorgaňization Plan No. 10.

The plan would transfer to the Civil Aeronautics Board the functions of the Postmaster General with respect to paying to each air carrier so much of the compensation fixed and determined by the Board under section 406 of the Civil Aeronautics Act of 1938, as amended, as in excess of the amount payable for the transportation of mail by aircraft, the aircraft facilities used, and useful therefor, and the services connected therewith at fair and reasonable rates to be fixed by the Board. Such rates would be fixed without regard to that part of subsection (b) of section 406 reading “*** the need of each such air carrier for compensation for the transportation of mail sufficient to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management to maintain and continue the development of an 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."

The effect of the plan would be to fix the fiscal responsibility for the airline subsidy program in the Civil Aeronautics Board, and would tend to bring out into the open the cost of such program. The General Accounting Office has always favored the principle of separating payments of subsidies from payments by the Government for services rendered or goods received. Such separation of payments is the only real means of providing full disclosure to the President, to the Congress, and to the public, as to the extent of Federal subsidization and the actual cost to the taxpayer. Also, the adoption of the principle of separating payments provides a basis for curbing any overgenerous administrators who might feel that it is their job to promote and protect subsidized industries at the expense of the Government.

As pointed out by the President in his message of June 1, 1953, transmitting Reorganization Plan No. 10 to the Congress, the plan does not alter the basic national policy of promoting the sound development of air transportation through Federal aid, nor will the plan in itself change the aggregate amount of revenue for which any airline is eligible. However, the plan does not preclude the consideration by the Congress of legislation to effect refinements and modifications in the basic law in this field.

Sincerely yours,

E. L. FISHER,

Acting Comptroller General of the United States.

Mrs. CHURCH. There was one other letter from Mr. S. G. Tipton, general counsel, Air Transport Association. [Reading:]

The Air Transport Association has for many years favored subsidies separation. The association is opposed to House Joint Resolution 264, which would, if adopted, prevent Reorganization Plan No. 10 from becoming effective. We have no desire to consume the time of your committee by testifying on the resolution. He is enclosing copies of a memorandum on Reorganization Plan No. 10.

(The memorandum on Reorganization Plan No. 10 referred to is as follows:)

MEMORANDUM ON REORGANIZATION PLAN NO. 10-STATEMENT OF S. G. TIPTON, GENERAL COUNSEL, AIR TRANSPORT ASSOCIATION OF AMERICA

When subsidy separation was first proposed several years ago, the proposal was a simple one. Two things were to be done. Any subsidy which was included in the payments made to the airlines for the transportation of mail was to be stated separately so that the existence, and the amount, of the subsidy would be known. In addition, responsibility for paying the subsidy, and securing the appropriations for it, was to be transferred from the Post Office Department to the Civil Aeronautics Board.

Soon, however, various groups began to tack a variety of conditions and riders onto the proposal. It was not long before the basic proposal, which everyone favored, was virtually buried under an accumulation of complicated and controversial provisions, none of which was essential, and many of which were only remotely related, to subsidy separation. It was the controversy concerning these fringe provisions which delayed and defeated efforts to enact subsidy separation legislation.

Reorganization Plan No. 10 has the great merit of reducing the problem once agan to fundamentals. It cuts through all of the conditions and riders which have been added to the proposal over a period of time, and adopts, instead, the original and basic proposal. It requires the Civil Aeronautics Board to separate subsidy from mail pay, and it transfers the responsibility of paying the subsidy from the Post Office Department to the Board. All of the fringe provisions have been cut loose and dropped.

Again, however, there are proposals that the fringe provisions be tacked back on. Senator Kennedy has released a statement in which he says that the plan will not "accomplish an effective separation" of subsidy from mail pay and that legislation is required to accomplish "true" separation. He then argues for two of the fringe provisions-one which would limit mail compensation to the cost of the service rendered, and another which would provide for an annual congressional determination of the amount of subsidy to be paid. On the other side of the Capitol, Representative Heselton, who supports the reorganization plan, urges that supplemental legislation be adopted to pick up several of the fringe provisions. An examples, he mentions the cost provision, revision of the accounting system maintained by the air carriers, extension of eligibility for subsidy to additional air carriers, and provision for detailed annual reports to Congress. Thus, once again efforts are being made to encumber subsidy separation with controversial fringe provisions, and the propposal comes both from an opponent and a proponent of the reorganization plan.

The fringe provisions have been debated so thoroughly and at such length, and have been so frequently rejected, that the debate should not be revived, certainly if the controversy thus provoked would endanger the success of Reorganization Plan No. 10. A brief statement of the position of the air carriers on each of the provisions mentioned may be in order.

1. ANNUAL CONGRESSIONAL REVIEW OF SUBSIDY

Senator Kennedy's proposal on this point would have a crippling effect on those carriers which are dependent upon subsidy. At the present time, a very high percentage of the subsidy paid to the airlines goes to two groups of carriers; first, the local-service carriers, who serve the small communities throughout the country and operate over short-haul, low-volume routes which could not be served without Government assistance. The other group is the international carriers, who face foreign competition which is heavily subsidized and, in most cases, is operated by the foreign government itself.

There can be no question that if subsidy payments to these carriers become subject to annual congressional appropriations the effect upon the carriers would be disastrous. Long-range planning, adequate financing, equipment replacement, and other steps essential to the bare existence of an airline and certainly to its development-would become impossible. No company would know whether it would remain in business from 1 year to the next, and no company could survive very long in the airline business on such a basis.

The uncertainly which such a company would face is well illustrated by the present situation. The funds for subsidy would, under subsidy separation, be included in the appropriation bill for the Department of Commerce. That bill is now in conference, and the new fiscal year began 2 weeks ago. Thus, a carrier dependent upon subsidy could not know until after the beginning of the fiscal year whether it would continue in business during that fiscal year.

How, under such circumstances, could an international carrier be expected to plan for the acquisition of millions of dollars' worth of jet aircraft to meet the foreign competition? And how could it raise the money, even if it were optimistic enough to plan? The public doesn't buy the stocks or bonds of businesses with such tenuous prospects. And bankers don't loan money under such conditions.

The proposal condemns our international and local-service air carriers to mediocrity, if not oblivion. For that reason, the proposal for annual review of subsidy appropriations was rejected in the 82d Congress, both by the Senate and by the House Committee on Interstate and Foreign Commerce. It should not receive any more favorable consideration now.

2. COST PROVISION

The proposal that the Civil Aeronautics Board fix mail rates which are based upon the cost of providing the service, or do not exceed such cost, is both unprecedented and mischievous. No other Federal agency has had its ratemaking powers so drastically circumscribed, and no other form of transportation has been forced to provide service at rates tied to such a basis.

The cost provision proposes a standard which, according to the opinion of competent experts, cannot be applied except on a completely arbitrary basis. Approximately 85 percent of an airline's costs apply to two or more classes of traffic. When these hundreds of different costs are allocated on different bases to the different classes of traffic and the results added up, the results are likely to be as fantastic as a Rube Goldberg invention.

The cost provision proposes a standard which would make the ratemaking process even slower, more cumbersome, and more expensive than it is today.

Some versions of the cost provision would prohibit the classification of carriers and the establishment of uniform rates for all carriers in a class. Since no two carriers experience identical costs, and since rates would have to be geared to the costs of each individual carrier, uniform rates would be impossible.

Similarly, some versions would prohibit the fixing of prospective rates (since "actual" costs can never be known in advance) and would limit the Board to the fixing of rates for past periods only; so that neither the Government nor the . carriers would know the price of the service until long after it had been rendered. Not only would the cost provision be a source of endless proceedings before the Civil Aeronautics Board but it would provide the basis for appeals in every rate case.

Neither the Civil Aeronautics Board nor the airlines should be tied to any such arbitrary standard as is proposed in the cost provision. The standard of “fair and reasonable" rates, which would apply under the reorganization plan, is the one which Congress adopted in the Railway Mail Pay Act. It is equally adequate and fair for the airlines.

3. REVISION OF SYSTEM OF ACCOUNTS

The proposal for revising the air carriers' uniform system of accounts is closely related to the cost provision. Under the proposal, each carrier would be required to allocate all of its expenses to the classes of traffic to which they re late, and to keep its books accordingly. Thus, a joint cost, such as salaries of pilots, would have to be allocated, on some basis, among passengers, baggage, express, freight, and mail, and so recorded on the bonks. The carriers' expense accounts, which now number approximately 200, would be quadrupled, and every expense, no matter how tiny, would have to be distributed by class of traffic.