Slipstream: the autobiography of an air craftsman

by Eugene E. Wilson

Airline testimony before the Committee revealed some wide divisions within the transport industry itself. Captain Eddie Rickenbacker for example blamed the ills of the airlines on “too much coddling and wet nursing,” while Carleton Putnam ascribed them to “slow starvation.” The individual outlook reflected the color of the financial statement. And the airline operators, in making their “policy” recommendations, seldom came to grips with fundamentals but focused their attentions on revisions of administrative procedure. In this respect they reflected their long association with government agencies to whom policy so often means the detailed management of public affairs rather than a course of conduct. If the airline operators’ recommendations seemed slanted toward measures calculated to advance the special interests of their individual companies, the fact was entirely understandable.

To us aircraft manufacturers who, five years earlier, had covenanted to cooperate in the public interest where policy was concerned, while continuing to compete with each other in operations to our own—and likewise—the public interest, it appeared that a precarious existence under government economic regulation had blinded the operators to the broad public interest, and hence, to their own enlightened self-interest. Leaning on government for a guarantee of their economic security, they competed with each other for legislative or administrative advantage, and primarily before Congressional committees or government agencies. And if some of them made forays into politics and acted more like rusty railroad executives than like jet-propelled pioneers, it was in keeping with the principles under which they operated.

Yet out of the confusion of conflicting testimony it was possible, by keeping in mind certain fundamentals learned from the history of aviation, to arrive at certain conclusions. The airline operators for all their controversies were unanimous on at least two points: they endorsed the principle of “reasonable regulation” upon which the Civil Aeronautics Act had been founded, and they condemned the administration of the Act by the Civil Aeronautics Board.

Yet in the face of the airlines’ unanimous approval of the Act, an objective study of the testimony raises a serious question as to its soundness. Sifting out the wheat from the chaff, one could not help wondering whether Solomon himself, with the aid of all of his wives, could have administered such a document. Providing as it does for economic regulation of privately owned industries by political appointees, the Act flies in the face of the fundamental fact that politics and economics function under different basic precepts; in the one the ballot box calls the turn, in the other the cold arithmetic of an inescapable financial statement. But if the airlines’ endorsement of “reasonable regulation” proved open to question, the testimony before the Committee left no doubt that recent regulation had been, in fact, wholly unreasonable.

It developed that the Civil Aeronautics Board had cut the mail rates in 1945 to a point well below the actual cost of transporting the mail. Furthermore it had authorized widespread duplication of existing services and had subsidized these duplicating services in competition with those already established. And when this action resulted in crippling losses, the Board compounded its blunder by making retroactive increases in mail which had the effect of putting the whole rate structure on a cost-plus basis. Captain Eddie Rickenbacker, of Eastern Airlines, voiced the position of the “Big Four” when he said, “The confused state of mail rates destroys all incentive for economy and efficiency—it discourages good management and high performance. It puts a penalty on accomplishment, and rewards the wasteful and inefficient.”

Another diagnosis of the airline ills was offered by Harold A. Jones, a member of the Civil Aeronautics Board itself, when speaking before the San Francisco Advertising Club. The airlines, he thought, were ill from a “mysterious disease known as ‘subsiditis,’” which disease he ranked “somewhere between bubonic plague and leprosy.” However his shotgun diagnosis lacked clinical confirmation before the Senate Committee by his boss, Joseph J. O’Connell, Jr., chairman of the Civil Aeronautics Board.

“We are not in a position,” testified Mr. O’Connell, “to give an accurate estimate as to the amount of the total air-mail pay bill which represents fair compensation for the carriage of the mail, and that portion that represents subsidy.”

Postmaster General Donaldson agreed with the Board chairman and stated that the Post Office had long held the opinion that the mail rate, if shorn of its subsidy elements, should not in any case be greater than the passenger rate. On this basis the Post Office Department would have been credited with approximately one-half its present transportation expenditures inasmuch as passengers were paying approximately 50 cents per ton mile, while the Post Office was paying more than double that amount. This over-all figure, of course, obscured the wide variations between the compensations paid airlines thought to be self-sufficient and the much larger payments to those known to be heavily subsidized.

In the absence of even the most elementary data it is difficult to see how any regulation could be called reasonable or how the government could support any subsidy charge either against the industry as a whole or against any segment of it. The situation was further obscured by the Postmaster General’s estimate of the total domestic and foreign air-mail subsidy for this year.

Using the excess of the cost of the service to the Post Office Department over the department’s air-mail revenues, he arrived at the figure of $35,000,000. The cost to the department included of course all expenses allocated to air mail including department overhead, but it did not substantiate the reasonableness of any allocation. Under questioning by one of the senators of the Committee, this all inclusive definition of “subsidy” was discounted. Under business accounting principles the figure might have been labeled “deficit” and would have been charged against the Post Office rather than pinned on the airlines as a “subsidy.” After all, the Post Office Department overhead, an item perhaps more political than economic in character, was not subject to airline control and was therefore the responsibility of the department. A subsidy is a public grant or subvention to aid an enterprise for the public convenience and not the deficit of a government department.