Act of 1938, as amended, would retain without change the fourth sentence of the subsection. That sentence provides that a certificate may not restrict the right of an air carrier "to add to or change schedules * * * as the development of the business and the demands of the public shall require."

This provision was included in the act before the United States had much experience in international operations. Subsequent experience, especially in cases where United States carriers are competing with other United States as well as foreign carriers for the same traffic, has shown that the competitive desires of the carriers and the national interest of the United States are not always the same. The committee may wish to consider whether this subsection should be further amended to require that each carrier take into account the manner in which its increases in service will affect not only the particular service in which that carrier is interested at the time, but also the welfare of the transportation system of the United States as a whole.

A broad understanding of the services being offered by United States air carriers, and by foreign air carriers, and of the effect that might result from changes in that service is necessary to prevent actions which may actually retard the United States air carriers by reason of creating or intensifying restrictive tendencies on the part of foreign governments.

Section 19 of S. 308 (sec. 16 of S. 1119) retains without change (as 401 (h) (1)) section 401 (h), "Authority to modify, suspend, or revoke," of the Civil Aeronautics Act of 1938, as amended.

It is suggested that the words "or the national interest" be inserted after the word "necessity" in the first sentence of the subsection. This addition would enable the Board to alter, amend, modify, or suspend the whole or part of any certificate authorizing an air carrier to engage in foreign air transportation, upon a finding that such action is required in the national interest.

Section 19 of S. 308 (sec. 16 of S. 1119) includes a provision for a new subsection (401 (h) (3)) empowering the Board, under specified conditions, to order an air carrier to make reasonable extension of its existing service (including foreign air transportation), provided such extension is required "*** for the maintenance of cooperative relationships between the United States and any foreign country or otherwise to further national policy; ****

In supporting the proposal, the Department suggests that an appropriate provision be added which would empower the Board to order cancellation of such extension, if required, should the basis for the original order cease to exist.

An amendment to S. 1119 introduced on March 23, 1955, provides for an amendment to section 403 (b) of the Civil Aeronautics Act of 1938, as amended, to permit free and reduced rate transportation of ministers of religion. This provision is not contained in S. 308.

If enacted, the proposed legislation would specify that both United States and foreign air carriers could, under terms and conditions prescribed by the Civil Aeronautics Board, carry ministers of religion free of charge or at reduced rates. This would be equally applicable to transportation performed in the United States by United States carriers and to international transportation performed by both United States and foreign carriers. The interest of this Department is confined to the application of the legislation to international transportation.

Under the existing provision of the Civil Aeronautics Act, as amended, the carriers may provide free or reduced-fare transportation in overseas or foreign air transportation to the persons now specified in section 403 (b) and "to such other persons and under such other circumstances as the Authority (Board) may by regulation prescribe." In order to prevent impairing the economic position of the carriers through dilution of revenue, it is desirable to keep the classes of persons for whom free and reduced-fare transportation is provided to the minimum consistent with utilization of aircraft in the nublic good or to relieve hardship. The Department understands that section 403 (b) does not now preclude the Civil Aeronautics Board from approving individual applications of United States and foreign air carriers for permission to provide free or reducedrate overseas and foreign air transportation for ministers of religion. Therefore, the proposed amendment would change the situation by making it clear that ministers of religion as a class may be given this advantage rather than leaving the matter to the discretion of the Civil Aeronautics Board, and by making it clear that the privilege also extended to interstate air transportation. Since there have been no representations made to this Department concerning the desirability of such a practice, there is no reason to believe that the enactment

of the legislation will satisfy any outstanding need involving foreign air transportation. However, the Department would not interpose any objection to the enactment of the proposed legislation.

An amendment to S. 1119 introduced on March 23, 1955, provides (among other things) for the insertion of a new section (19A) to S. 1119 to amend the Civil Aeronautics Act of 1938, as amended, by inserting at the end of section 408 thereof new sections (f) and (g) regarding negotiations for control and acquisition of control of an air carrier by other persons. This provision is not contained in S. 308.

Inasmuch as the term "persons" as defined in section 1 (27) of the Civil Aeronautics Act of 1938, as amended, is not limited to persons or firms of United States nationality and in view of the provisions of the amendment to section 401 (h) (2) and new section 450 (g) (2) to the act as proposed in sections 16 and 21 of S. 1119, it is suggested that the committee amend these provisions in such a way as to make it clear that they are not intended to permit control of a United States air carrier by persons other than United States citizens.

Section 23 of S. 308 (sec. 20 of S. 1119) amends paragraph (2) of section 416 (b), "Exemptions," of the Civil Aeronautics Act of 1938, as amended. It is recommended that section 416 (b) be further amended by the addition of provisions permitting the Board to exempt foreign air carriers (as well as United States air carriers) from the requirements of title IV, where such exemption of foreign air carriers is in the national interest.

TITLE IV-A—AIR CONTRACT SERVICE REGULATION

Subsections 450 (b), 450 (c), and 452 (b) appear to indicate that air contract service is limited to the carriage of commodities only, whereas the term as defined in section 6 of S. 308 (sec. 5 of S. 1119) expressly refers to the carriage of persons. It is suggested that appropriate amendments be made to reflect the intent of the committee.

Subsections 450 (b) and 452 (b) require that copies of contracts for air contract service be filed with the Civil Aeronautics Board.

While it is recognized that the drafters of the bill probably did not wish to give more favorable treatment to foreign air contractors than to United States air contractors, the committee is requested to take into account the undesirable consequences of requiring foreign air contractors to file copies of their contracts. Particularly in cases where citizens of one country are applying to the government of another country for authorization to do business, the contracts entered into by such citizens are considered as of such competitive business significance that a requirement that they be filed with the regulatory authorities of the other government would be considered as competitively untenable. Therefore, it is recommended that the United States should not establish a requirement which could induce foreign governments to establish retaliatory measures which United States citizens engaging in business of the nature of air contractors would find detrimental to their business.

Section 454 (b) (1) and (2) authorizes the Civil Aeronautics Board to grant certain exemptions to United States air contractors.

It is recommended that section 454 (b) (1) and (2) be expanded to permit the Board to exempt foreign air contractors as well as United States air contractors from the requirements of title IV-A, wherever such exemption of foreign air contractors is in the national interest.

In addition to the specific amendments to the Civil Aeronautics Act of 1938, as amended, which have been proposed in S. 308 and S. 1119, the Department recommends that the committee consider further amendments to the act, as follows:

Section 402 (b) empowers the Civil Aeronautics Board to issue a permit to a foreign air carrier if it finds that such carrier is “fit, willing, and able properly to perform such air transportation and to conform to the provisions of this act and the rules, regulations and requirements of the Authority (Board) hereunder, and that such transportation will be in the public interest.”

The Department recommends that the text of section 402 (b) be deleted and the following substituted therefor: “(b) The Board is empowered to issue such a permit (1) if it finds that such carrier is fit, willing, and able properly to perform such air transportation and to conform to the provisions of this Act and the rules, regulations, and requirements of the Board hereunder, and that such transportation will be in the public interest, or (2) if such air transportation is covered by an agreement between the Government of the United States and the

government of the foreign nation in which such a carrier is organized, and if such carrier has been designated by the government of such foreign nation for the operation of the service agreed upon."

The above-suggested revision would empower the Board to issue a permit if either of the two alternatives are met.

It is suggested that a provision be added to section 501 (c), requiring that eligibility for registration must be established to the satisfaction of the Civil Aeronautics Administration, and in accordance with regulations established by the Administration particularly when the aircraft previously was registered in a foreign country.

It is also suggested that section 501 (e) "Suspension or revocation" should authorize Administration action not only for any cause which renders the aircraft ineligible for registration (the requirements of which are specified in section 501 (b)), but also when the aircraft has been used in a manner detrimental to the national interest. Such authority would enable the United States to take appropriate action to prevent the continued operation of an aircraft which might be used by its United States citizen owner, or by a charterer or lessees, in activities of an illegal nature or of a nature contrary to the international commitments of the United States.

Senator BIBLE. Thank you very much for your appearance before the committee.

I think our next witness is Mr. Keller, Assistant to the Comptroller General. We are happy to have you with us, Mr. Keller, and have the benefit of your views on these aviation bills.

STATEMENT OF R. F. KELLER, ASSISTANT TO THE COMPTROLLER GENERAL, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY WILLIAM A. NEWMAN, ASSOCIATE DIRECTOR OF AUDITS, GENERAL ACCOUNTING OFFICE

Mr. KELLER. Thank you very much, Mr. Chairman. Yesterday, the Comptroller General submitted a rather lengthy report to the committee with his views on this legislation which is before your committee.

I have a statement this morning which consolidates those views, and I believe points up the very important things.

Senator BIBLE. Proceed, Mr. Keller.

Mr. KELLER. Representatives of the General Accounting Office, Mr. Chairman, have been making a comprehensive audit of the Civil Aeronautics Board since July 1954, and, up to the present time, our work has covered some of the areas dealing specifically with many of the matters encompassed in the proposed legislation. A complete report embodying our audit findings will be made at a later date.

Since one of the functions of the General Accounting Office, as an agency of the Congress, is to review the financial transactions of the Government and to assist the Congress on matters relating to public expenditures, we appreciate the opportunity at this time of presenting our views to your committee.

Section 13 of Senate bill 308 proposed to amend section 2 of the Civil Aeronautics Act by incorporating general regulatory policies with respect to air contract service, and by directing the Board to consider as being in the public interest "the maintenance by the United States of the greatest possible influence at all times in world aviation." In this connection it is deemed advisable to suggest the inclusion of additional legislative policies, particularly with regard to the duration of the subsidy to be afforded the aviation industry.

At this point, attention is invited to the President's Air Coordinating Committee report entitled "Civil Air Policy,” issued during May 1954, which contains many constructive recommendations, which we believe warrant consideration in the adoption of basic policies designed to lessen the Nation's airline subsidy expenditures.

We wholeheartedly concur in that part of the Air Coordinating Committee report wherein it is recommended that a policy be established for dealing with those carriers or groups of carriers who, for one reason or another, have no foreseeable opportunity to achieve self-sufficiency. Of paramount importance at this time is the advisability of expediting a program adjustment in the route structures and certificates of the various local service carriers so as to provide the maximum opportunity to improve their economic position within the general scope of their intended type of operation.

There may also be some opportunity to develop improved route systems through mergers between local carriers, or between local and trunk carriers. With such adjustments, the carriers should be required to meet a definite schedule for an orderly phased reduction and eventual elimination of subsidy support; and, in the absence of exceptional circumstances, if any local service carrier does not continue to make significant progress toward self-sufficiency, in accordance with such schedule, consideration should be given to terminating such carrier's operating authority.

Also, we agree with the conclusion reached by the President's committee that there is no sound reason why air transportation, any more than any other industry in the Nation's economy, should enjoy permanently the contingent protection against future loss afforded by an eligibility to seek resumed subsidy payment.

Such protection is not conductive to maximum vigor and economy of the industry's management and may, in fact, retard the long-term progress of the industry. Therefore, as stated in the President's report, to ease the transition to a subsidy-free status for air carriers, temporary financial relief, including loans, loan guarantees, or other interim measures may be justified in lieu of outright subsidy grants to meet situations in which these carriers face temporary financial difficulties, and are unable to obtain private credit on reasonable terms.

It is believed that a more specific declaration of congressional policy covering those areas mentioned above would serve as an invaluable guide to the Board in clarifying many of the issues which heretofore have been resolved in rate cases which may or may not have been given general application.

From our review of the Board's procedures to date, it is observed that only in individual rate cases has there been an enunciation of any established policies which might be utilized by the industry as a whole. For instance, it is believed that much confusion could be avoided were the Board to establish and announce certain definite rules of policy for the guidance of the air industry as a whole, with special emphasis upon those items which would or would not be allowed for mail ratemaking and subsidy payment purposes.

Senate bill 651, Senate bill 1081, and Senate bill 1109, proposing to amend section 401 (e) of the act by providing for the issuance of permanent certificates to local service carriers has been the subject of previous congressional hearings.

We do not consider that we are in a position to forecast with any degree of certainty the merits of whether the issuance of permanent certificates to these carriers would be in the best interest of either the carriers or the Government.

However, statistics indicate that, despite a vast increase in both mileage and revenue of local service carriers, there is no prospect of an immediate end to their need for subsidy. We feel that the subject should be a matter of congressional policy as to whether the Congress desires a continuation of such services which, as now being performed, must, of necessity, continue to be underwritten by the Government.

Then, section 22 of Senate bill 308 proposes to amend section 406 of the act and also would, in effect, repeal such section together with Reorganization Plan No. 10. We are in full agreement with the purposes of this amendment with the exception to that portion of subsection (a) which provides that the Board be directed in fixing rates for foreign air transportation of mail to take into consideration the rates paid by the United States to foreign air carriers for similar service.

Already the Board has established so-called fair and reasonable rates of compensation which yield amounts sufficient to allow the carriers their cost-plus-a-fair-return on their investment.

Such amount has been estimated to be no more than 55 cents per ton-mile for the transatlantic operation and 50 cents per ton-mile for the transpacific operation. Therefore, it is believed that the difference between these rates and the Universal Postal Union maximum rate of $1.91 per ton-mile-which rate was arrived at purely by an agreement among the countries which are members of the union-would amount to a hidden subsidy to the United States air carriers and, obviously, would defeat the separation of subsidy from mail payments which the proposed bill is designed to accomplish.

It also is recommended that the mandatory requirement for the Board to fix a minimum weight of each mail dispatch be eliminated for the reason that such a provision could in certain instances result in additional cost to the Post Office Department.

It is believed that the need of a minimum weight feature in airmail rates should be left entirely to the discretion of the Board in individual cases in establishing fair and reasonable rates.

We are in agreement with subsection (e) of section 22 of the bill, which will have the very desirable feature of completely removing the element of subsidy from the so-called service pay provision of the bill. It is observed, however, that this section empowers the Board to make an offer to a carrier holding a certificate authorizing the transportation of mail in air transportation to make payments in such amounts as are necessary to enable such air carrier under honest, economical, and efficient management properly to perform.

For reasons stated in our report that is the report which was sent up yesterday, Mr. Chairman-it is recommended that the provisions of Senate bill 308 be amended so as not to require that a carrier hold a mail certificate to become eligible for subsidy payments.

At the same time, it should be made clear that the mere issuance of any type of certificate does not carry with it a bona fide right to a claim for subsidy.

We are also in agreement with the contractual concept covering payment of subsidy as provided in both Senate bill 308 and Senate bill 1119, which provides a positive separation between mail rates and