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SUMMARY AND RECOMMENDATIONS         33
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stability, in order to finance the new aircraft which will become available in the early 1970's.

Local Service Airlines

Local service airlines remain heavily subsidized. Subsidy in the form of mail pay continues as a major source of revenue, although at a declining rate.

Subsidy payments to the local-service carriers are estimated to continue to increase in total over the next few fiscal years in view of the continuing expansion of operations over additional routes and the attendant support indicated through the "class rate" approval now being applied by the CAB.

The new "class rate" system for the local-service airlines, effective January 1, 1961, marks a significant change in the method of determining subsidy payments to the 13 local-service airlines.

The new class rate is expected to provide a stronger incentive for more economical operations for the local-service airlines. Among other things, the new system will afford management with a definite advance indication of the amount of subsidy support it may anticipate. This should permit management to plan operations more efficiently and thereby obtain maximum utilization of the subsidy support. Moreover, it should give management greater flexibility in scheduling its operations.

Nevertheless, the financial position of the local-service airlines, as a group, is not currently strong.

The local-service carriers now have to augment their operations through additional equipment acquisitions. This will create further strain on their financial position.

Past lack of profitability has made it difficult for the local-service airlines to finance their equipment acquisition programs, despite the availability of Government-guaranteed loans

As a result of their methods of financing, the local-service group is heavily debt-laden. This condition has been due largely to lack of