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THE CAB AND LOCAL SERVICE LINES

The Civil Aeronautics Act puts all certificated air carriers under the regulation of the Civil Aeronautics Board. Those receiving subsidy are under especially close scrutiny.

The law provides the CAB with authority over almost every phase of local service airline operation: tariffs, administrative practices, executive compensation, accounting procedures, and, of course, the routes to be served and the schedules to be operated. But most important of all is the determination of mail pay, which is a CAB prerogative. In many instances mail pay is the major source of income for the local service carriers. (See "Mail Revenue Received as % of Total Operating Revenues" in Exhibit D.)

Mail pay goes far beyond the mere payment for the transportation of mail. On March 12, 1952, in a proceeding concerning American Airlines, 2 the Board declared:

"The 'compensation' to be paid to the air carrier in the air mail rate is not merely compensation for the transportation of mail. The use of the mail payments is a statutory device for the accomplishment of national objectives that transcend the interests of the postal service. Those objectives, expressly stated in the Act, encompass the maintenance and continued development of 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 'compensation' which the carrier receives thus becomes compensation not only for carrying the mail but for the building up of a system of air transportation which will serve the nation's commerce and security as well."

The thread of this argument is further supported in remarks of a former CAB chairman in a statement before a Congressional Committee. CAB Chairman Joseph P. O'Connell testified before the House Subcommittee on Transportation on February 15, 1950, as follows:

"Although paid to the carriers, this subsidy is not intended to aggrandize their profits; rather, it is paid to them so that they will be financially able to provide service to communities and localities which might not be able commercially, at least at the outset, to support such service or to operate a volume of service which initially may be in excess of the commercial demand for air transportation."

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