Slipstream: the autobiography of an air craftsman

by Eugene E. Wilson

In the face of such fuzzy accounting the figure is interesting chiefly because of its small size. The Postmaster General, after referring to statistical exhibits, reported the total deficit incurred from the inauguration of the first air-mail service in 1918 up to 1948 as a little over three and one-half million dollars per year for the thirty-year period and added, “Probably no investment made by this government ever returned greater national benefits in commercial and cultural progress, and national security. The over-all value of air transportation system to the nation, particularly as an arm of defense, has been incalculable.”

It is interesting in passing to compare the air-mail deficit with others submitted by the Postmaster General: penny postcards, $57,000,000; fourth-class mail, $82,000,000; third-class mail, $139,000,000; and second-class mail, $237,000,000—a total of $515,000,000. And so the air-mail deficit is but one of many and the least of them all. On the basis of such approximations as have been presented by government agencies, the airlines might have argued that by absorbing a portion of the vast overhead of the Post Office Department they were actually “subsidizing” other types of mail service.

In light of the dearth of figures that would indicate an approximation to the true air-mail subsidy, if any, Carleton Putnam, of Chicago and Southern, made an exhaustive analysis of government cost records, during which he checked his assumptions with responsible persons in the government. This indicated that from the inception of the air mail down to the year 1948, the postal revenues had exceeded the added costs of air mail to the Post Office by some $54,000,000. Summing up for the Committee, in a statement which was not challenged by the government, he testified, “Hence the American taxpayer has not only gained the greatest air transportation system on earth ... plus an adjunct to the national defense which would otherwise have cost him untold millions to provide—he is $54,000,000 ahead in cash as well.”

And after charging the airlines for their share of the cost of building and maintaining the nation’s airways and airports, an expenditure which would in any case have had to be made for the Army and Navy, the airlines would still owe the taxpayer but $61,000,000, all of which relates to maintaining the national airways system. Furthermore this clear demonstration that the air mail has not been subsidized comes in the face of grievous blunders by the Civil Aeronautics Board in certifying uneconomic competing services at extravagant mail rates.

One of the most extreme cases of this kind was reported by Captain Eddie Rickenbacker. The Civil Aeronautics Board had in the past two years certified twenty-one “feeder lines,” some of which had been authorized to divert mail poundage from some stations which Eastern had served for twenty years without subsidy, and to charge ten times as much to transport the same mail between the same points. In other words, the Civil Aeronautics Board, impelled by some sense of political necessity to provide competition for the major airlines, had in effect forced them to subsidize competition for themselves. Meanwhile the government had paid such niggardly rates to others that the stockholders of the enterprises had been forced to subsidize the United States.

Such “reasonable” regulation had reduced the airlines from their once proud state of self-sufficiency to a critical status, and at the very moment when their futures should have looked the brightest.

“There can be little doubt,” stated the chairman of the Civil Aeronautics Board, “that if our airline system were today the same size as it was in 1941 in terms of routes, points served, and service provided, it would be completely independent of government support.” It was certain additions to the service, he further pointed out, and the fixing of certain “fair” compensations by the Board that slowed all airlines save Eastern down to stalling speed and all but put them into a flat spin. He shared his responsibility with the appropriation committees of Congress and thought that if funds were provided for an adequate staff the Board might do a competent job. However the fact that the Civil Aeronautics Authority and Civil Aeronautics Board already had 18,000 employees as compared with approximately 80,000 employees for all domestic and overseas scheduled airlines rather discounted this opinion.

That the damage did not end with heavy losses imposed by arbitrary rates but was multiplied by the award of retroactive payments is evidenced in the testimony of Roger F. Murray, vice-president of the Bankers Trust Company of New York.

“The Board’s thinking,” he said, “has apparently been that rates should be set so that each carrier will break even and perhaps earn some so-called ‘fair’ rate of return on it’s ‘used and useful investment.’ Under these circumstances, enlarged payments have been made to rescue some airlines in difficulties or keep others going on a subsistence basis. While this may be reassuring to creditors of the airlines, it is the poorest kind of an appeal to potential purchasers of equity securities.”

Translating this into lay language, the private investor or his agents just cannot be interested in buying stock in enterprises which are suffering economic regulation by political agencies. And once an enterprise is denied access to the highly competitive markets for risk capital, it is indeed on the verge of bankruptcy or about to crash into the abyss of nationalization. And if the government, after having reduced the market value of the airlines by its own mismanagement, then takes possession of them, it becomes guilty of expropriating the capital of private investors, some of whom had risked their savings in an enterprise they deemed secure because it was government regulated.