There are also a few proposals in these bills which we regard as undesirable. On the whole, however, we believe that these bills provide a generally sound approach toward modernizing the present statute.

It is evident that the development of these legislative proposals has benefited from the extensive hearings held by this committee last year on S. 2647. Careful attention seems to have been given to the varying opinions expressed in those hearings by the several segments of the industry and by the Government. As a result of this previous effort the present bills provide a considerably advanced point of departure for the deliberations of the committee in the present Congress.

In the interest of brevity, we are limiting comments in this statement to the more basic policy issues contained in this legislation. In addition, with your permission we should like to submit separately, for your consideration, written comments discussing in greater detail the specific provisions of the two bills.

Senator MONRONEY. We appreciate that and we will just file those for the record at the end of your statement.

Mr. ROTHSCHILD. All right, sir.

Subsidy provisions: S. 308 and S. 1119 propose important changes in the subsidy provisions of the present act. Although differing in detail, both bills would effect a statutory separation of subsidy from service mail payments, and would thereby make more complete the administrative separation already accomplished by Reorganization Plan No. 10 of 1953. We believe that such statutory separation of subsidy is desirable. Reorganization Plan No. 10 represented a major improvement in the administration of this program, but it was recognized from the start that this was not a complete substitute for a full legislative subsidy separation.

Both bills would also make other changes in present subsidy arrangements. They would, for example, authorize the Civil Aeronautics Board to enter into multiyear contracts for the payment of subsidy. We favor, in general, the concept of subsidy contracts in this field. We believe that, under suitable circumstances, such contracts can permit more orderly future planning for both the carriers and the Government.

While we therefore agree with the basic intent of the subsidy sections of these bills, we believe that both require some modification of their specific provisions. We should like to submit our suggestions for this purpose in our supplemental statement.

More generally, it is our view that these omnibus aviation bills provide a timely opportunity for considering additional changes in the subsidy concepts of the Civil Aeronautics Act, to bring this program into proper relationship to the industry's present stage of development. By way of background, we should like to make clear the Department's views regarding the desirable approach toward subsidy in this field.

We do not believe that subsidy in itself is necessarily undesirable. There are times and circumstances which justify Federal financial aid as the only way of assuring the realization of important national objectives. The Federal funds thus far spent for airline support have helped to make possible the industry's spectacular development, with its consequent benefits to our economy and defense.

However, it must also be recognized that subsidy, in its very nature, represents a governmental intervention into the normal workings of

our competitive economy. While such intervention may be necessary under appropriate conditions, it is obviously desirable that the Government minimize its assistance just as promptly as the industry's development will permit.

In our opinion, the subsidy provisions of the present act are too broad, particularly in that they leave mail-carrying airlines eligible for such aid regardless of their degree of development. Both S. 308 and S. 1119 propose to make clear that the existence of a route certificate does not in itself obligate the Government to provide subsidy indefinitely. We regard this as a desirable clarification of the existing powers of the Board, but feel that the bills should go one step further. These clarifying provisions deal only with the question of whether the Government has an obligation to furnish subsidy to a carrier that is eligible for such assistance. We believe this legislation should in addition provide for removing even the eligibility for subsidy, where this is in the public interest. For example, the domestic trunklines have reached a stage of development where consideration should be given to their complete removal from subsidy eligibility at some reasonably early date.

With the favorable trend toward increased self-sufficiency, we may also hope that similar action may be suitable for various other segments of the industry in the not too distant future. We would be pleased to submit to the committee suggested language to authorize such action, together with our other suggestions for modifying the subsidy provisions of these bills.

Senator MONRONEY. We would like to have that submitted, please. Mr. ROTHSCHILD. We will be glad to do it, sir.

THIRTY-FOURTH LEGISLATIVE ASSEMBLY, STATE OF NORTH DAKOTA, BEGUN AND HELD AT THE CAPITOL IN THE CITY OF BISMARCK, ON TUESDAY, JANUARY 4, 1955

SENATE CONCURRENT RESOLUTION (X)

Krenz, Luick, and Dolan

A CONCURRENT RESOLUTION Memorializing the Congress of the United States to enact legislation which would create an agricultural rating for pilots engaged in the aerial application of agricultural chemicals

Whereas the need for pilots and airplanes for aerial application of agricultural chemicals in the state of North Dakota and many other midwest farm states is increasing more rapidly than the available commercially licensed pilots; and

Whereas in North Dakota during the year of 1954, over 200 airplanes and pilots were licensed by the State aeronautics commission to engage in aerial crop spraying and dusting, and as newer chemicals are developed for the control of insects and plant diseases, the needs of the farmers of this State may require as many as three or four hundred agricultural planes and pilots; and

Whereas in the State of North Dakota and other agricultural States there is a large reserve of privately licensed pilots and flying farmers, some of whom could qualify for a Federal agricultural rating, if the rating were based on flying ability, flight hours, and knowledge of agricultural chemicals, which would greatly relieve the present and future shortage of pilots qualified to engage in agricultural flying: Now, therefore, be it

Resolved by the Senate of the State of North Dakota (the House of Representatives concurring therein,) That the Congress of the United States is hereby memorialized and respectfully petitioned to enact such legislation as may be necessary to create an agricultural pilot rating for aerial crop spraying and dusting activities in the United States; and be it further

Resolved, That copies of this resolution, properly authenticated, be sent by the secretary of state to the Civil Aeronautics Administration, Washington,

D. C.; to the chairmen of the House and Senate Interstate and Foreign Commerce Committees of the Congress of the United States; and to each Member of the North Dakota congressional delegation.

C. R. DAHL,

President of the Senate. EDWARD LEWIS,

Secretary of the Senate. A. A. FITCH,

Speaker of the House. KENNETH L. MORGAN,

Chief Clerk of the House.

Mr. ROTHSCHILD. At this point, I should like to comment on amend ment E to S. 1119, introduced on March 23. We see no merit to the subsidy arrangement proposed in that amendment.

Senator MONRONEY. That is the Subsidy Administrator?

Mr. ROTHSCHILD. Yes, sir.

Presumably the concept of a Subsidy Administrator is intended to expedite subsidy actions by placing responsibility in a single individual. In our opinion, however, this proposal would actually create confusion, duplication of effort, and delay.

At present, an airline looks to a single agency-the Civil Aeronautics Board-for the determination of both service mail rates and subsidy rates. Under the proposed procedure, the carriers would have to go to the Subsidy Administrator for certain determinations, and to the Board for others. Moreover, the findings of the Administrator could be reviewed and overruled by the Board. We believe the existing organization provides a more direct and expeditious method for handling this program than does the proposed new arrangement.

This amendment would also create a division of responsibility under which it would be impossible to assign full accountability for the program to any one individual or agency. The Administrator would have part of this responsibility. The Chairman of the Board would have an additional part, since he would establish the policy standards to guide the Administrator. And the full Board would have still another part of the responsibility, since it would have an appellate and review function in relation to the Administrator. This arrangement inevitably would create confusion and uncertainty.

For these and other reasons, we recommend against adoption of this amendment.

Economic regulation of contract carriers: S. 308 and S. 1119 contain similar proposals to bring air contract carriers within the CAB's economic regulatory jurisdiction. We believe these proposals are sound in their basic intent, and would close a significant gap in the Board's present jurisdiction.

The line of demarcation between common and contract carriage often is not a sharp one, and there are many operations which might be regarded as falling under either heading. Accordingly, if contract carriers remain outside the Board's jurisdiction, this is bound to render more difficult the Board's problem in regulating common carriers. In our opinion, it would be desirable to give the Board authority to regulate contract carriers, so that reasonably consistent regulatory treatment can be applied throughout the air transport industry.

In supporting contract carrier regulation, the Department wishes to stress the early stage of development of this branch of aviation, and the consequent need for regulating it in a manner which will most

effectively promote its sound growth. The Board should have enough flexibility so that it can grant the type of operating authority which will best be suited to the character of the servive involved.

Relaxation of standards for granting certificates of convenience and necessity: Proposed amendment C to S. 1119, introduced on March 23, would substantially relax the existing statutory standards governing the issuance of route certificates. The statement of policy of the Civil Aeronautics Act would be changed so as to place greater stress on the authorization of increased competition.

Section 401 of the act, which provides for the issuance of route certificates, would be completely changed in its emphasis. At present, the Board can issue a certificate only upon an affirmative finding that the service is required by the public convenience and necessity. Under the proposed amendment, a certificate would have to be issued, unless the Board makes the negative finding that the public convenience and necessity would not be served by such issuance. In effect, applicants for certificates would be relieved of the burden of proving that their proposed services are actually justified.

This proposal goes to the very heart of the regulatory concepts which now underlie the Civil Aeronautics Act. This act provides a regulatory framework within which the public convenience and necessity is the standard for determining whether new applicants should be authorized to engage in air transportation. A primary reason for the enactment of this statute was the experience of the industry prior to 1938, when freedom of entry into air service had generated a situation of excessive competition and financial insecurity. There was widespread agreement that regulatory controls over entry into air service, comparable to those which existed in other forms of transportation, were needed for sound airline development.

We believe there are sound reasons for retaining the regulatory pattern now established for this industry. Air transportation possesses many of the same characteristics which exist in other forms of common carrier transportation, and which have led in those fields to the establishment of a pattern of controlled entry. Like other common carriers, airlines must adhere to the basic public utility concept of providing service to all authorized points, even though some may be unprofitable. This obligation to serve weak as well as strong points can be enforced only if the carriers have some protection against excessive competition on their more favorable route segments.

The issue raised by the present proposal is not whether competition is desirable in air transport. This Department fully believes in the benefits of competition, in air transportation as well as in the economy at large. However, the present statute already gives the Board ample authority to authorize as much competition as the economic characteristics of the industry will soundly permit. Under these existing standards, substantial competition has in fact developed. The real issue in the present proposal is whether there should be a major weakening of the statutory tests for determining the amount and character of competition that should be authorized.

The present standards for issuing route certificates are important for the sound development, not only of the larger and more firmly established airlines, but also of the newer and smaller lines. A case in point can be found in the local service segment of the industry.

The original local service proceedings usually involved several applicants for each proposed route. Few would argue that the traffic potential over these routes is adequate to support duplicating service; the existing carriers have had difficult economic problems even without dilution of their revenues.

Under the act's present standards, it was possible for the Board to authorize only one carrier over each local service route. It is not clear that, under the revised standard now proposed, the Board would have felt free to take such action. The result might well have been a quantity of service far in excess of the traffic potential, with consequent intensification of the local carriers' problem."

For these reasons, the Department of Commerce opposes this amendment to S. 1119.

Supplemental services.-These bills also contain several provisions relating to the so-called nonscheduled air carrier problem. They propose, first, to amend section 416(b) of the present act, so as to limit the Board's authority to exempt common carriers from the normal requirement of a route certificate. The Board would be permitted to exempt a carrier from this requirement only if the carrier operated small aircraft, or if it already holds a certificate and merely seeks temporary exemption to supplement its authorized service.

In addition, these bills would give the Board authority to specify the type and character of service intended to be authorized by certificates of convenience and necessity. At present, the Board is prohibited from including in such certificates any conditions regarding quantity of service or type of equipment to be used. In practical effect, therefore, the Board is now limited in its ability to issue specialized certificates for nonscheduled or other types of supplemental service. These bills would enable the Board to issue such specialized certificates, and would thereby provide a more orderly basis for authorizing these services.

We believe that the proposed limitation on the Board's exemption authority is too severe, and might prevent the expeditious inauguration of urgently needed service. The Board should have enough latitude to grant exemptions to operators of large aircraft, where such action is in the public interest, and would not result in mere duplication of services already authorized.

I would like to emphasize here our view, Mr. Chairman, that such exemption authority should only be granted for temporary periods. and in exceptional circumstances. We do not feel it should be used to authorize continuing and large-scale departures from the normal requirement for certification. With this qualification we support the proposals in these bills, and believe they provide a sound method for regulating nonscheduled air services. We note that amendment C to S. 1119, introduced on February 18, 1955, incorporates suggestions made last year by the Civil Aeronautics Board, and we suggest its favorable consideration.

Limitation on President's authority to review international and overseas air route decisions: Section 27 of S.1119 would amend section 801 of the present act so as to limit the President's existing authority to review air route decisions involving foreign, overseas, and territorial air transportation. Specifically, this bill would make such decisions subject to the President's approval only in cases which he determines may affect the national defense or foreign policy of the United States.