Viewing page 1 of 16

This transcription has been completed. Contact us with corrections.

CAB REVERSES SELF ON PAY TO AIRLINES 

Favors Separating Air Mail and Subsidy Funds, Johnson Says at Senate Hearing

By CHARLES HURD
Special to The New York Times, 
WASHINGTON, May 17 - The Civil Aeronautics Board now favors segregating, and not lumping, air mail service payments and subsidies to the certificated airlines, it was disclosed today. This reverses a position held by the board for ten years. 

The announcement of the change was made by Senator Edwin C. Johnson, Democrat, of Colorado. Mr. Johnson is chairman of the Senate Interstate Commerce Committee, and heads a subcommittee investigating why most airlines have been losing money in a period of active business. More than $100,000,000 was paid to the certificated carriers in air mail compensation last year, and official estimates place 1949 payments at $125,000,000. 

As recently as a few weeks ago, John J. O'Connell, chairman of the CAB, stated before Senator Johnson's subcommittee that the CAB did not think the time had arrived when segregation of service payments and subsidies was practical. 

Today, however, Chairman Johnson interrupted his subcommittee's session to remark to a witness, Ear Slick, president of Slick Airlines, Inc., that the CAB had reversed its position. 

Senator Johnson's comment came in the midst of testimony by Mr. Slick that the certificated airlines - the regularly scheduled major companies - had spent untold sums of money to conduct "cut-throat" competition with the post-war freight lines and had charged their losses against operating expenses. Thus airmail subsidies - given to cover operating losses of the certificated lines - actually paid for this form of competition, he asserted. Senator Johnson agreed that this was possible. 

Today's hearing served to point up a complicated situation that spokesmen for the certificated and the non-certificated carriers have been describing during the studies. 

The certificated airlines are the major ones established in 1938. They carry passengers, mail and express on standard routes and at scheduled times. Soon after the war a large number of small companies, mainly organized by war veterans using surplus Air Force transports, went into the air-freight business on a contract basis. Two years ago the CAB granted an "exemption" under which these lines might try their luck at hauling cargo on an unsubsidized scheduled basis. 

This month the CAB canceled the "exemption" and granted certificates for regular freight haulage to three of the larger companies and one small one, to operate for fives years, with the specific stipulation that they should not carry mail or passengers or receive Government subsidies. 

Mr. Slick spoke for one of the companies. His company is certified to fly inter-coastal services and serve the Southwest. The Flying Tiger Line, Inc., will compete in the inter-coastal business with regional services in the Northwest. A third line, United States Airways, Inc., was certified for north-south services east of the Mississippi River. 

The problem these companies face, Mr. Slick reiterated, is not solved alone by certification or the establishment of fair minimum rates, which he conceded the CAB had done. 

"We might as well not fly as fight carefree costs by our competitors," he said. "Minimum rates don't mean a thing if we operate at 13 cents a ton-mile, but have to buck competition which spends up to 44 cents a ton-mile to take air freight from us and can charge the losses off against its subsidy payments." 

The subcommittee also heard Fred V. Gardner of Milwaukee, an industrial engineer without direct aviation connections, advise that the only answer to the problems of the airlines rested in "a hard-boiled impartial solution to the problem of merging and integrating our domestic airline system."