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HELICOPTER AIR SERVICE PROGRAM       55

a single rate, the Board established the first class subsidy rate for all 13 carriers effective January 1, 1961.  This class rate was based upon the carriers' operating results for the year ended June 30, 1960, adjusted to exclude costs not recognizable under established Board policy.  In the computation of the subside need the average costs of the group were used, placing a premium on efficient operations.  The elements in investment were treated in accordance with customary standards and the return on investment was based on the Board decision in the Rate of Return, Local Service Carriers Investigation, 31 CAB 685 (1960).  Income taxes were computed in the customary manner on the Board's "actual tax" basis and provision was made in the rate for recapture of excess earnings or profit sharing.  The dual purpose of this profit-sharing provision was to guard against individual carriers realizing excess profits, since a spread in earnings was anticipated, and to obviate the need for frequent reopening of the rate.  The class rate formula was so designed as to permit fluctuations in the monthly subsidy payment to each carrier, within specified limits, as the character of the various carriers' routes and services were revised.  This fluctuation, a basic feature of the class rate which is not contained in individual rates, is critical since it enables the carriers to increase or decrease service, to institute new services, and suspend services the need for which no longer exists, without disturbing the finality of the class rate.
  
The introduction of the class subsidy rate technique, a new approach in ratemaking for the local service carrier group, was necessarily experimental and the Board was aware that modifications and revisions would be required as experience under that rate was accumulated.  Therefore, this area was kept under close study and a revised rate was established as of January 1, 1963.  Further revisions, representing improvements and changes dictated by past experience were found necessary early in 1964, and a revised rate was established as of July 1, 1964.  Undoubtedly additional modifications will be found warranted in succeeding fiscal years, and studies are continuing for that purpose.  With over 23 years' experience under class rates for this group of carriers, it appears clear that the class rate technique has been successful from the standpoint of the public, the carriers, and the Government.  It has, thus far, engendered sounder long range carrier planning, improved and stabilized the carriers' financial status, provided better incentives for continuing improvements in service to the public, and is meeting the goal of maximum service for each subsidy dollar.  At this time, it appears that the local service class subsidy rate will be a continuing technique in the Board's subsidy processes.  

Service mail payments

In addition to establishing subsidy rates, the Board also determines the rates for the carriage of mail and payment to the carriers for such service (service mail payments) is made by the Post Office Department.  These service mail payments represent a source of revenue which, along with all other commercial revenues of the subsidized carriers, serve to reduce their subsidy support. 

The following information concerning service mail payments and the volume of mail transported is based upon data provided by the Post Office Department. 
 
The Department has estimated service mail pay for all carriers to be $150 million for fiscal year 1965.  Of this total, $141 million is projected for the non-subsidized trunklines and the nonsubsidized international carriers which transport the bulk of the mail, as has been the experience in the past.  The remaining estimated service mail pay of $9 million is projected for the subsidized carriers and, in the case of such carriers, these payments serve to reduce their subsidy requirements. 
 
The above estimates for 1965 include $21 million service mail pay for the transportation of nonpriority mail, approximately the same amount the carriers received in 1964 for the transportation of this type of mail transported by the larger international carriers and the Department estimates approximately the same percent for the projected year. 

BASES OF REPORT

The basic techniques utilized in this report in calculating the various amounts for all fiscal years are those utilized in prior reports.  Consistent with these reports the subsidy data are presented on an accrual basis, and do not ordinarily correspond with the cash disbursements for each fiscal year.