After developing the principles under which public utilities are regulated and financed and suggesting that Congress should make up its mind as to whether or not they want to return the airline industry to its intended status as a regulated airline industry, Juan, like “C.R.,” mentioned the alternative of eliminating the relative provisions of the Civil Aeronautics Act and exposing the airlines to the full competitive force which exists and should exist in ordinary commerce.
“There will be no real progress in the solution of the airline problems,” he summed up, “until this issue is met squarely. An airline can’t be a regulated public utility and a free enterprise at the same time.”
However, the witness did not waste further time on this alternative but, acting on the assumption that the doctrine of regulating the airlines as a public utility would be preserved, went on to develop his own case with all the unique persuasiveness that had helped him pioneer Pan American in one of the most impressive displays of self-reliance, individual initiative, and private enterprise of modern times. His discussion led up naturally to the merger of Pan American with American Overseas Airlines which he and “C.R.” had earlier submitted to the Civil Aeronautics Board. In justifying this, Juan expounded his well-known thesis of the “chosen instrument” advocating a government policy of maintaining one American-flag system—Pan American Airways—in the international field, supported with frank outright subsidies such as those paid under the Merchant Marine Act of 1936. He justified his position by citing its benefits to the stockholders of the company and argued that the higher wages thus made available to American workmen employed in international aviation would constitute a subsidy to them.
With the major certificated airlines mobilized solidly in support of the “chosen instrument” policy, the Committee received a clear statement of the opposing point of view from Raymond A. Norden, president of Seaboard and Western Airlines, Inc. One of the independents who had been characterized by Captain Eddie Rickenbacker as “irregulars,” “latecomers,” “interlopers,” “pretenders,” and so forth, Mr. Norden undertook to support Eddie’s contention that the airlines were suffering from too much coddling. In perhaps the outstanding statement to be made to the Committee, he put his finger on the crux of the airline controversy.
“The Civil Aeronautics Act of 1938,” he said, “is unusual among regulatory statutes in one very important respect. Other forms of transportation have not customarily been subjected to comprehensive regulation until the pattern of growth has been assured and until the industry has become so highly developed competitively that there is need for rigid controls and restraints in order to prevent destructive practices.” Out of the background of the airplane story to date, one might argue the other way around, namely that once the rigid controls and restraints are imposed, the growth pattern becomes stabilized. Mr. Norden went on to argue with persuasion:
“Aviation is relatively a new business. Air freight, as distinguished from other forms of aviation business, is in its infancy. Yet the entire aviation industry is hedged about with red tape, the like of which has never been encountered in any other form of American industry. One has merely to look at legal payments made by some of the certificated carriers. TWA, for example, in 1948 alone, paid a single law firm the sum of $340,000. My own small company spent in excess of $50,000 in legal expense. Sometimes I feel as though I had more lawyers than pilots.”
When the Russians blockaded Berlin in June, 1948, according to the witness, the Air Force, lacking reserve planes, called upon three certificated, subsidized North Atlantic carriers, Pan American, TWA, and American Overseas Airlines, to lift essential material between this country and Germany. Those carriers failed miserably; of the three irregular international carriers called upon to assist, Seaboard and Western lifted more than twice as much tonnage over the North Atlantic in the next six months as Pan American, TWA, and American Overseas combined. Yet under pressure from the certificated carriers, the Civil Aeronautics Board revoked Seaboard’s authority to fly under its Letter of Registration, as of May 20, 1949, along with all other large irregular airlines in this country. In his indictment of the certificated carriers the witness said, “In their zeal to keep the air transportation field to themselves and to obviate the chance that a measurement will be set up against their operational efficiency, the North Atlantic carriers are doing a great disservice to the country. To put it bluntly, they are sabotaging the development of airlift which is vital to national security.”
Mr. Norden then went on to quote from an article by J. A. Durham and M. J. Feldstein in the Virginia Law Review entitled “Regulation as a Tool in the Development of the Air Freight Industry”:
“But where an agency is charged with creating new national wealth by developing an infant industry, the consequence of permitting established interests to employ the forms of justice to obstruct the attainment of statutory objectives may well destroy the value of the administrative process.”
A less reasoned but even more revealing statement was that of Charles F. Willis, Jr., president of Willis Air Service, Inc., one of the “irregulars”: