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HELICOPTER AIR SERVICE PROGRAM      53

Since the Board is required to determine subsidy in formal proceedings after notice and opportunity for hearing, the estimates in this report, as in all prior reports, are made solely for administrative purposes and do not, of course, represent a Board determination of issues pending in any current or future proceeding. For the information of the public at large, however, there are summarized below the general principles and procedures applicable to the formal determination of subsidy. 

Section 406(a) of the Federal Aviation Act provides that the Board shall fix fair and reasonable rates of compensation for the transportation of mail by aircraft. Section 406(c) further provides that the compensatory (or service mail) portion of such compensation shall be paid by the Postmaster General in the basis of rates established by the Board for that purpose; and secretion 406(b) provides that the reminder of the total mail compensation—i.e., the subsidy portion—shall be paid by the Board in order to further and promote the development of air transportation to the extent and of the quality required for the commerce of the United States, the postal service, and the national, defense. The subsidy rate for each carrier is determined pursuant to the act only after notice and opportunity for hearing, and is subject to judicial review. Most subsidy cases are processed by informal conference procedures with representatives of the carriers and the Board, although at any given time cases of varying importance are being tried formally before the Board and its Hearing Examiners. The conference procedure, which is detailed in the Board’s published rules of practice, has proven to be an efficient method of narrowing areas of conflict and expediting the necessary Board determinations. Whether the informal conference procedure or the formal hearing procedure is utilized, no subsidy rate is finalized without opportunity for objection by interested parties, including the Postmaster General, and the observance of all statutory procedural and substantive requirements. 

Once a U.S. carrier has been certificates for carriage of U.S. mail, provision of mail pay, including subsidy in those situations where the carrier demonstrates a statutory need for subsidy, is provided for by the act for the duration of the carrier’s operations under its certificate for those service requires in the public interest. In essence, the dollars of subsidy in each case consist of an amount to cover the carrier’s operating loss incurred under honest, economic and efficient management and to provide it an opportunity to earn a fair return (after taxes) on the investment used and useful in its air transportation services. 

Subsidy cases are initiated on a prospective basis by formal documents, normally the own initiative. The amount of subsidy determined in each case is normally the sum of (1) the carrier’s break-even need for a forecast 12-month period (i.e., the excess of expenses over revenues): (2) the capital cost for fair return; and (3) income taxes. In reaching its subsidy decisions the Board makes independent determinations as to (1) the prudence of the expenses to be incurred by the carrier; (2) the volume of service requires in the national interest; and (3) the fleet, plant, and capital to be devoted to air service. Subsidy is paid by the Board on a monthly basis as prescribed in the rate formula in each case, and normally equivalent to one-twelfth of the annual subsidy.

Neither the act nor the Board guarantees that each carrier will earn a profit at the prescribed subsidy rate, but rates are established so as to provide reasonable opportunity to do so under conditions of honest, economic, and efficient management. In other words, the Board has adhered to the public utility rate regulatory pattern, under which loses incurred by carriers in last years while on closed rates cannot be made up with subsidy in fixing future rates; and at the same time, rates, once established, remain final and closed until reopened. Pursuant to the Board’s power to reopen rates prospectively on its own initiative, the Board maintains a continuing review of all establish subsidy rates, and has reopened numerous rates for reduction. In this manner, the Government ultimately reals the benefit, through decreased subsidy payments, of the economies effected by carriers—economies which management has maximum incentive to develop because while operating under a closed rate the carrier bears the risk of losses by at the same time has the benefit of bettered earning resulting from improvements in operations.

Since the total of the subsidy in any given case depends upon the volume of service and extent to which the revenues of the carrier from all commercial