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Digitized from Box 4 of the James M. Cannon
Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
DATE: 8.3.76
TO:
Jun Juis Cannon Cammon
FROM: Max L. Friedersdorf
Please handle
Please see me
For your information
Other
FORD i LIBRARY 077839
CC: Hope
THE WHITE HOUSE
WASHINGTON
August 2, 1976
MEMORANDUM FOR:
MAX FRIEDERSDORF
FROM:
CHARLES LEPPERT, JR. CLp.
SUBJECT:
Rep. James Cleveland (R. - N. H.)
Rep. Jim Cleveland suggests that the President act Presidential
on the airline pilots slowdown and issue a statement.
file
THE WHITE HOUSE
WASHINGTON
September 3, 1976
MEMORANDUM FOR:
BILL SEIDMAN
FROM:
JIM CANNON Allen Rown
SUBJECT:
U.S. International Aviation Policy
Statement
I support the policy statement. I also approve of
immediate issuance.
FORD CLEANE
THE WHITE HOUSE
WASHINGTON
September 3, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
PAUL LEACH Paul
SUBJECT:
U.S. International Aviation
Policy Statement
On the two matters on which comments and recommendations
are requested, I would suggest:
(1) no objection to the new policy statement and
(2) approval of issuance if the contents of the statement
are supported with unanimity within the Administration
(i.e., by the Senior Staff and EPB members).
976 SEP 3 PM 12 54
090310
THE WHITE HOUSE
WASHINGTON
September 1, 1976
MEMORANDUM FOR PHILIP BUCHEN
JAMES M. CANNON
JOHN O. MARSH
MAX FRIEDERSDORF
BRENT SCOWCROFT
ROBERT T. HARTMANN
FROM:
L. WILLIAM SEIDMAN Lws
SUBJECT:
U.S. International Aviation Policy Statement
A draft memorandum for the President on adopting and issuing
a new U.S. International Aviation Policy Statement is attached.
The Economic Policy Board has approved the proposed statement
and unanimously recommends that the President adopt and issue
the new policy statement the week of September 7. The Chairman
of the CAB has submitted some thoughts on the timing of a U.S.
International Aviation Policy Statement, which are also attach-
ed, suggesting several reasons why issuing a statement should
be deferred.
I would appreciate your comments and recommendations on: (1)
whether you approve of the new policy statement and (2) whe-
ther you recommend issuing a new policy statement at this time
or deferring issuing a statement.
For the reasons stated in the memorandum, the Departments of
Transportation and State are anxious for a decision on this
issue as soon as possible. I would appreciate your comments
no later than Noon, Friday, September 3, 1976 in order that
this paper may go forward to the President.
Attachment
FORD & LIBRARY GERALD
DRAFT
THE WHITE HOUSE
WASHINGTON
September 1, 1976
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
SUBJECT:
U.S. International Aviation Policy Statement
In 1963 and in 1970 the White House issued international avia-
tion policy statements designed to serve as policy guidance
for government officials in dealing with international aviation
matters. Changed circumstances have given rise to problems
that were either nonexistent or considered negligible when the
most recent statement was issued in 1970 including significant
excess capacity, a noncompensatory and discriminatory fare
structure, an ambiguous relationship between scheduled and
charter services, and the difficulty of expanding gateways
and other new services while maintaining the economic viabil-
ity of existing services.
Early last year, the Economic Policy Board established a Steer-
ing Group, chaired by the Departments of Transportation and
State, to review U.S. international aviation policy with a
view to preparing a new policy statement. The Steering Group,
which devoted extensive time and energy to the task and bene-
fitted from the views of an array of interested nongovernmen-
tal parties, has now completed its review. The Economic Policy
Board, after considerable discussion and deliberation, has
approved the policy statement which, along with a summary, is
attached at Tab A.
The Economic Policy Board unanimously recommends that you adopt
and issue the new policy statement. The Departments of Defense
and Justice, who also participated as members of the Steering
Group, recommend that you approve and issue the statement.
U.S. goals in international aviation differ substantially from
those of most other nations. The policy statement reaffirms
our preference for the play of competitive forces in, rather
than government control of, the international aviation market-
place.
The Aviation Act of 1975, which you proposed to the Congress
last October, focuses on domestic air transportation policy
matters. While recognizing the differences between the
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domestic and international aviation environments and the need
to cooperate with foreign governments, the new policy state-
ment stresses the need to reform regulatory policies that in-
hibit realization of improved lower-cost scheduled and charter-
type services and enhanced economic viability of international
operations.
The Departments of Transportation and State are anxious that
the statement be issued prior to the September 9 air services
negotiations with the United Kingdom. On June 22, 1976, the
United Kingdom renounced the U.S.-U.K. air services bilateral
agreement (commonly called the "Bermuda Agreement"), stating
that, because its share of benefits is only half of ours, a
new agreement is needed to assure equal benefits for each side.
Japan and Italy have similar concerns. The State Department
feels that a clear and forward-looking policy statement will
strengthen the U.S. negotiating posture vis-a-vis these nations.
The Economic Policy Board members unanimously recommend that you
adopt and issue the new policy statement the week of September 7.
John Robson, the Chairman of the Civil Aeronautics Board, has
submitted some thoughts on the timing of issuing a new policy
statement which are in a paper attached at Tab B. He argues
that the resolution of various pending "real world" matters
such as the U.K. negotiations and the development of a policy
statement should be carried forward in tandem.
A
SUMMARY OF THE POLICY STATEMENT
Four fundamental concerns are addressed throughout the
Statement:
The public interest in obtaining low cost, readily
available air transportation - both scheduled and
charter-type services.
The industry's need to achieve a financially viable
international aviation system, and the need for
private enterprise U.S. carriers to enjoy fair and
equal competitive opportunity in foreign markets.
The need to reform regulatory policies that inhibit
meeting these two concerns, and the need for the system
to have sufficient flexibility to meet changing market
conditions.
Recognition of the role that foreign carriers play in
the international system.
Routes
The key points related to the U.S. flag international route
system are:
A system of routes, as extensive as can be economically
sustained, with regular, scheduled services by U.S. carriers
is encouraged.
The basic consideration in determining whether a U.S.
carrier should schedule service on a new or an existing route
is the commercial viability of the route and its impact on
the international route system.
U.S. interests are not served when foreign carriers can
seek a valuable traffic right in exchange for our operating
an uneconomic route.
Services to Canada, Mexico, and the Caribbean should be
extensions of the domestic route system.
U.S. international carriers should be permitted (1) to
carry local traffic on flight segments between U.S. points,
and (2) to have domestic authority to feed traffic to their
international operations.
BERALD LIBRANY FORD
Competition
The Statement underscores the point that a basic tenet of
U.S. economic philosophy is that market-place competition
results in improved service and lower total costs to the
consumer. Competition within a region is recognized as an
important characteristic in international air transportation,
as well as the head-to-head competition among carriers.
As foreign flag competition must be taken into account, it
may be counter-productive to have multiple U.S. carriers on
the same routes.
Regarding the international competitive environment, the
Statement says:
The U.S. opposes unfair, discriminatory, or restrictive
practices by foreign countries that limit the competitive
capability of U.S. flag carriers. The U.S. also opposes
discriminatory or inequitable, charges imposed on U.S. flag
carriers, for the use of airway and airport properties.
Role of Scheduled and Charter Services
The Statement is explicit than the 1970 Statement in addressing
the more relative roles of scheduled and charter passenger
operations. The discussion focuses on market requirements
for scheduled and charter services; in the past the principal
focus has been on regulatory distinctions.
Government has the responsibility to assure that essential
levels of scheduled service can be economically maintained;
restraints on charter services should be the minimum,
consistent with this need.
There is a substantial public need for charter-type
passenger operations in international markets.
As in 1970, the value of competitive, yet complementary,
scheduled and charter passenger services is recognized.
Consideration of economic efficiency, service innovation,
responsiveness, and profitability should be foremost as the
relative roles of scheduled and charter operations are
assessed.
Governmental regulatory regimes should not stifle the
flexibility of the industry to respond to market demand, nor
remove incentives to keep costs low.
The U.S. opposes foreign government restrictions on the
competitiveness of U.S. charter operations.
Administrative regulations constraining the availability
and operation of charter services should be modified to make
more low-cost services available. As in the Aviation Act of
1975, one-stop-inclusive-tour charter and advance booking
charter programs are explicitly endorsed.
While the number of carriers is not an index of the
quality of the competitive stimulus provided by the
supplemental industry, the ranks of the supplementals should
be opened to new entrants where there are opportunities for
additional carriers to initiate economically viable operations.
Air Freight
Freight and passenger service characteristics differ in
important areas; where they do, freight issues merit
separate consideration.
All cargo and intermodal services should be encouraged
where economically justified. The need routing and scheduling
flexibility is recognized.
To stimulate competition for entry into new air freight
markets, there should be separate certificates for combination
passenger/cargo authority and for freighter authority.
Capacity
The Statement makes explicit the U.S. view that capacity
levels should be set individually by carriers, although
because of the importance of economically viable operations,
we would support temporary carrier agreements in certain
cases.
The preservation of the underlying competitive concept
in our service bilaterals is vital, because systems under
which carriers or governments predetermine capacity for
market share reasons can introduce artificial restraints
unrelated to carrier efficiency or traffic demands.
The U.S. will seek bilateral review of foreign carrier
operations considered to be in violation of our bilateral
air transport agreements and will attach high priority to
resolution of this matter.
Fares and Rates
International fares and rates should to the maximum degree
feasible be cost-related, responsive to consumer demand,
and established on the basis of competitive market forces.
Tariffs should be greatly simplified compared with the
present proliferation of discount arrangements, yet
sufficiently flexible to provide genuine price/service
options.
As most other governments are unwilling to accept a
system in which fares are established by carriers uni-
laterally, the U.S. at present intends to continue to
accept IATA as the principal vehicle for intercarrier
negotiation of scheduled tariffs. At the same time IATA
and its member carriers should revise their tariff-setting
structure, so that it can be more responsive to market
forces and innovative fare programs, including greater
flexibility for rate setting by individual carriers.
Peak/off-peak pricing and charter groups on scheduled
service should enable carriers to lower the regular fares
by attracting additional traffic to utilize otherwise
unused capacity.
To encourage the long-term growth of the air freight
industry, general commodity rates should be established
at reasonable levels.
The U.S. will continue to support the International
Civil Aviation Organization (ICAO) and its efforts to
adopt and implement international standards.
We will continue the present U.S. policies concerning
safety, security, the environment, and fuel availability.
We will seek reduced aircraft noise level standards.
There has been substantial improvement in security
measures throughout the world since 1970 resulting in
increased protection of civil aviation and its users from
criminal acts that threaten their safety. Nevertheless,
the U.S. supports and seeks adoption by ICAO of even
stronger security standards and recommended practices.
STATEMENT OF INTERNATIONAL
AIR TRANSPORTATION POLICY
OF THE UNITED STATES
Prepared for the President's Review
August 30, 1976
THE WHITE HOUSE
WASHINGTON
International aviation reflects the extent to which the nations of the world
are economically interdependent. Historically, the United States has had a
leadership role in the development of international air transportation and
intends to continue that role.
Aviation is an essential part of the foreign commerce of the United States.
It is required for mail, high priority cargo, government and business travel,
and urgent personal travel. A desirable low-cost means of international
pleasure travel, it has played an important role in bringing peoples of
many cultures and nationalities to a greater sense of friendship and mutual
understanding.
The United States seeks an international economic environment and air trans-
portation structure conducive to healthy competition among all air carriers.
We shall rely upon competitive market forces to the greatest extent feasible,
for it is a basic tenet of our economic philosophy that marketplace com-
petition provides improved services and lower total costs. At the same
time we recognize that other States may differ in their views as to how
such transportation should be organized and operated. We shall work
through appropriate bilateral and multilateral forums to bring about con-
structive change for the benefit of air travelers, shippers, and carriers
of all nations.
The international air carrier industry should continue to have the primary
responsibility for adapting its air transport product to public demand.
Regulatory regimes imposed by governments should not stifle the industry's
flexibility to respond to this demand, nor should they remove incentives
to keep costs low.
The Secretaries of State and Transportation, with the assistance of all the
members of the task force that studied the current and prospective problems
in international aviation, have produced a comprehensive statement of
United States policy. The statement sets forth the objectives the United
States will seek in forthcoming negotiations with other States. It calls
for balanced revisions of certain regulatory policies of the Civil Aero-
nautics Board. I invite interested parties to make their views on these
revisions known to the Department of Transportation, which shall have the
principal responsibility for seeking implementation by the Board of the
regulatory reforms called for here.
I am approving this statement of international air transportation policy to
supersede the one issued June 22, 1970, and am directing that this new state-
ment of policy guidance be used henceforth by responsible officials of the
Government in dealing with international aviation matters.
Gerald R. Ford
September 8, 1976
STATEMENT OF INTERNATIONAL
AIR TRANSPORTATION POLICY
OF THE UNITED STATES
TABLE OF CONTENTS
Page
I. Introduction
Overview
Structure of International Air Service
Principal Objectives
II. Public Service Considerations
Goals
Policy
U.S. Flag International Route System
Extent of Route System
Emphasis on Major Trunk Routes
Relationship to Domestic System
Competition
Relative Roles of Scheduled and Charter
Passenger Operations
Charter Services
Regulations
Landing Rights
Authority for Charter Services
Expansion of Supplemental Carriers
Cargo Services
Route Authority
Service Considerations
Split Charters
III. Viability of the U.S. International Air
Transportation System
Goals
Policy
Capacity
Excess Capacity
Market Share
Sixth Freedom Capacity
Cooperative Agreements
Fares and Rates
Role of IATA
Role of the Civil Aeronautics Board
Passenger Fares
Charter Rates
Cargo Rates
Mail Rates
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Page
Tariff Integrity
Role, Compensation and Regulation of
Middlemen
Government Procurements
The International Competitive Environment
IV. Safety, Environmental, and Other Considerations
Goals
Policy
International Organizations
Certification and Operation of Aircraft
Safety.
Avilability, Allocation, and
Cost of Fuel
Environmental Objectives and Their
Impact.
Security Objectives and Their Impact.
I. INTRODUCTION
Overview
The decade of the 1970's has been characterized by grow-
ing recognition of the extent to which the nations of
the world are economically interdependent. International
aviation is no exception. The airlines of many countries
now provide safe, fast, and efficient international
air service; U.S. citizens benefit from these services
as they do from their own. Historically, the United
States has had a leadership role in the development
of international air transportation. Our continued
effective participation is important to the national
interest.
Consistent with the longstanding recognition by the United
States that privately owned and managed companies provide
the most efficient and consumer responsive services,
the private sector will continue to have the responsibility
for operating the U.S. international air transportation
system, consistent with the policies set forth here.
We look forward to an era in which private American air
carriers can operate effectively in the international
economic environment without the need for Government
subsidy and without being placed at an unfair competitive
disadvantage. We will work to reform and modernize the
international aviation structure in order to enable well-
managed U.S. carriers to serve the public interest by
providing economic air travel, to compete successfully
with foreign air carriers, and to earn a reasonable rate
of return on investment.
The international aviation policy of the United States
should be consistent with and contribute to our objectives
in national defense, foreign policy, and international
commerce. We recognize that our international aviation
policy objectives can be achieved most effectively in
cooperation with other governments, working through
bilateral and multilateral channels.
The Structure of International Air Service
There are three major considerations in the development
of international air service: route patterns, which
define the markets to be served; capacity, meaning the
number of flights and types of aircraft flying in these
markets; and the fares charged for different kinds of
services and consumers. All three are integrally related
economic issues. As we attempt to introduce greater
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rationality into the international aviation structure,
we will take pragmatic steps to bring about more rational
pricing policies that reflect actual costs and are respon-
sive to consumer demand, to relate capacity to demand,
and to select routes that closely reflect natural traffic
patterns and are economically viable. As a result of
these steps, U.S. carriers should be able to operate
profitably, and the users of air transport services
will be well-served.
The United States cannot impose its economic philosophy
on the rest of the world, but as a significant participant
in the international aviation community we can work
through bilateral and multilateral forums to bring about
constructive change for the benefit of the air travelers,
shippers, and carriers of all nations. We recognize that
international transportation presents special challenges
-- the most obvious being the need to cooperate with
other sovereign nations. While the governments of other
nations may share our objective of efficient transportation
service, many differ sharply in their views as to how
such transportation should be organized, financed, regulated,
and promoted. Thus, the means by which we pursue our
international policy goals often cannot be the same
as those by which we conduct our domestic transportation
system.
While this Policy Statement calls for a large measure
of regulatory reform, consistent with our domestic aviation
policy, differences between the approaches taken here and
those in the proposed Aviation Act of 1975 reflect awareness
of the substantial differences that exist between the
international and domestic operating environments:
Private U.S. companies must compete with state enter-
prises in most markets; competition in international
air transportation is limited by government policy
in almost all other countries. In some instances
restraints are imposed against efficient competitive
practices.
Some foreign states underwrite their national carrier's
losses in order to maintain large capacity to the
United States for a number of reasons (e.g., tourist
revenues). Similarly, foreign carriers sometimes seek
below-cost cargo rates as a means of promoting their
nation's exports.
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The problem of tailoring supply to meet demand is more
difficult on international routes than on usually denser
domestic routes; the ratio of daily flights to the
number of competing carriers is generally much lower
than domestically; international aircraft are larger
on average; and carriers have less flexibility in
arranging intercontinental schedules.
Principal Objectives
In addition to promotion of an international economic environ-
ment and aviation structure conducive to healthy competition
among air carriers, five principal objectives will guide
U.S. international air transportation policy for the future.
First, reliance on competitive market forces to
the greatest extent feasible, recognizing that the
views of other nations may differ and that our policies
must be modified in some instances in order to reach
bilateral and multilateral accommodations.
Second, provision for the transportation of people,
mail, and goods, wherever a substantial need exists,
at as low a price as is economically justified.
Third, support of a private U.S. international air
transportation industry that is economically viable
and efficient, and that will generate sufficient
earnings to attract private capital and provide
job opportunities.
Fourth, consistency with and contribution toward
U.S. national objectives in defense and security,
foreign policy, and international commerce.
Fifth, encouragement of a safe and efficient system
of airports and airways and protection of the U.S.
environment.
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In pursuing these objectives, the United States is con-
cerned with the public interest in both low-cost, readily
available air transportation and a financially viable
international aviation system. We recognize the fundamental
importance of maintaining a scheduled U.S. flag system
to meet the public need for regular and frequent air
services on an economically sound basis. We also recognize
the growing demand for low-cost services and the inherent
efficiencies of full plane operations generally character-
ized by charter-type services. Most importantly, we
recognize the need to have governmental policies that
will accommodate the competitive interrelationships between
these two types of services.
This Policy Statement identifies ways in which the private
enterprise U.S. international aviation industry and concerned
U.S. Government agencies can move toward the stated objectives.
To avoid undue disruption, there should be an equitable
phasing of the elimination or relaxation of the regulatory
restrictions called for here.
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II. PUBLIC SERVICE CONSIDERATIONS
The United States seeks to meet the needs of the consumer
by providing for the safe and efficient transportation
of people, mail, and goods. The international air trans-
port system should have a favorable impact on the economic
growth and foreign commerce of the United States and
of our trading partners.
In pursuit of this objective, the United States seeks
an international air transport system that provides the
capability and flexibility to respond efficiently to
changing market conditions and requirements, wherever
a substantial need for air transportation exists.
GOALS
To this end, the United States will pursue the following
goals:
Regularly scheduled international air transportation
of people, mail, and goods at as low a cost as
is economically justified.
International air charter transportation of people
and goods by charter specialists and scheduled
carriers operating charter flights, at as low a
cost as is economically justified, recognizing that
essential levels of scheduled service must be main-
tained.
Effective competition among carriers and among
the classes of service offered, including a fair
and equal competitive opportunity for the private
enterprise air carriers of the United States.
POLICY
U.S. Flag International Route System
Air transportation is an essential part of the foreign
commerce and international trade of the United States;
it is required for mail, high priority cargo, government
and business travel, and urgent personal travel. It
is a desirable, low-cost means of international pleasure
travel.
International air transportation operates in a complex
and changing regime of law and politics involving a few
multilateral treaties, many bilateral arrangements, and
a wide collection of national laws, regulations, and policies.
Continuation of a U.S. flag air transportation system will
require continuing negotiations between the United States
and other nations to arrange equitable operating rights
and privileges.
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Air transport interests are best assured for Americans
by the presence of a strong, viable, privately owned
U.S. flag international air fleet. Such a fleet is
also an important reserve asset to meet U.S. military
requirements and non-military emergency situations.
Extent of Route System. Because most business travelers,
many other international travelers, and most air freight
shippers rely on the regular availability of air service
on relatively short notice that is characteristic of
scheduled services, the U.S. Government should encourage
a system of routes, as extensive as can be economically
sustained, with regular, scheduled service by U.S. flag
air carriers.
The basic consideration in determining whether a U.S.
carrier should be authorized to schedule service on
a new or an existing route is the commercial viability
of the service on that route and its impact on the inter-
national route system. The U.S. Government should support
fully actions by U.S. flag carriers to rationalize their
route structures: to drop uneconomic routes, to identify
new markets that are economically viable, and to seek
an overall route structure that is responsive to consumer
demand and profitable to operate. There may be a few
extremely rare instances where a specific and clearly
defined national defense or foreign policy interest
may require service by a U.S. carrier on a route that
is not economically viable. For these exceptional
circumstances direct Federal subsidy would be preferable
to a policy of indirect subsidy or cross-subsidization
from profitable routes.
New international route authority is awarded to U.S.
carriers in the context of the bilateral framework within
which international air transportation operates. Thus
decisions on entry raise issues that must be negotiated
between governments. It does not serve the interest
of the United States to be put in a position where foreign
governments can seek valuable rights for their carriers
as a consequence of our granting uneconomic routes for
our carriers. Consistent with the policy that interna-
tional routes should be economically viable, where the
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United States has paid in bilateral route concessions
for the traffic rights which could be implemented in
a given route award proceeding, an important decisional
criterion in carrier selection is the ability to compete
effectively with foreign flag carriers in the market
at issue.
U.S. policy continues to be that negotiations should lead
to an equitable exchange of route rights for both scheduled
and charter services. Our primary and overriding objective
is to achieve an international environment in which privately
owned and operated U.S. air carriers have a fair and equal
opportunity to compete for benefits at least as great as
those available to foreign carriers.
The United States will continue to endorse the exchange
of air transport rights and privileges through a system
of bilateral air transport agreements. We have considered
multilateral agreements and other alternatives to the
bilateral system, but are not convinced that another system
would work more effectively. While particular problems,
such as fare and rate regulation, may require multilateral
discussion, we can work within the basic structure of
bilateral agreements, which provides sufficient flexibility
to accommodate most circumstances.
Emphasis on Major Trunk Routes. Major traffic flow
patterns and trunk routes between the United States
and four principal areas of the world--Europe, Africa,
Central/South America, and Asia/Oceania--are clearly
discernible. U.S. carrier operations over these trunk
routes form the backbone of our intercontinental air
transport system. U.S. carrier participation on these
routes is essential to the maintenance of a U.S. flag
system. Major trunk routes and markets should be identified
by the U.S. air carriers and given priority negotiating
attention by the U.S. Government. Reciprocal operations
provided by foreign carriers with supporting secondary
traffic should be expected on such routes. As the quality
and quantity of foreign flag air service between foreign
air traffic hubs improves, U.S. flag carriers should
emphasize third- and fourth-freedom scheduled services,
even while recognizing that fifth-freedom traffic is
important for their economic viability.
Viable airline routes, particularly long-haul trunk routes,
draw upon a variety of traffic flows for support. Many
cities in foreign countries are situated ideally to serve
as gateways, or conduits, through which foreign carriers
have attracted traffic flows and thus have improved their
FORD
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competitive position relative to U.S. carriers. In negoti-
ating international route patterns for U.S. carriers, the
U.S. Government should structure routes in a way that enables
our carriers to draw upon natural traffic flows and, thereby,
compete effectively with foreign carriers.
Relationship to Domestic System. The U.S. international
route system is not and should not be viewed as completely
separate from the domestic system, although we must
recognize the differences between domestic and international
air transportation. The growing volume of international
traffic, both passenger and freight, has resulted in
expansion of direct international scheduled services
at many American cities. A number of cities are seeking
new direct and nonstop services to points in Europe,
Asia, and South America. The United States-Canada routes
already are natural extensions of the domestic networks
in both counties; the United States-Mexico routes
increasingly are becoming extensions of domestic route
systems.
Closer integration of international and domestic route
systems is in the public interest, in part because exces-
sive channeling of passengers and freight through a
limited number of gateway points inconveniences passengers
and shippers and ignores, in some instances, natural
traffic flows, market requirements, and the economics
of modern aircraft. The following actions will lessen
the artificial regulatory distinctions between domestic
and international traffic categories and will result in greater
convenience for the public and operating efficiency
and competitive opportunity for the carriers.
Services to Canada, Mexico, and the Caribbean should
be extensions of the domestic route system.
Authority to carry local traffic on domestic
segments of international flights, both passenger
and freight, should be granted, because regulatory
restrictions on the local traffic authority of U.S.
international air carriers no longer serve the
public interest. Such authority will increase the
economic viability of domestic extensions of
international flights, thereby supporting more direct
services for the shipping and traveling public.
Blocked space agreements on domestic segments of
international flights and equipment interchange
agreements should be considered by the carriers and
the Civil Aeronautics Board as means to increase
the economic viability of behind-the-gateway route
segments, and hence to benefit the public with
more direct service at more American cities.
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All U.S. international carriers should be permitted
to have domestic traffic systems to feed traffic
to their international operations.
In the interest of obtaining better services for the
consumer, consideration also should be given (1) to
the competitive and public service benefits that might
be achieved in major international markets by authorizing
different U.S. carriers to serve a foreign point or area
from different cities or regions of the United States,
and (2) to lessening the emphasis on the traditional
intercontinental gateways, by granting direct service
authority at more domestic points. The need to gather
traffic at "gateways" in order to have the high load
factors in widebodied equipment that permit low fares
and fuel savings, however, must be taken into account.
Competition
A basic tenet of U.S. economic philosophy is that market-
place competition produces improved service and lower
total costs for the consumer. This is as true in aviation
as it is in other areas of commercial activity. However,
it does not follow that there must be multiple U.S. flag
carriers on all international routes. Foreign carriers
are sophisticated competitors for U.S. carriers in most
markets; their competition needs to be taken into account
as we determine whether more than one U.S. carrier should
be designated for a particular route or market area.
Too many carriers on some routes may undercut the economic
viability of service without benefiting the public.
A primary consideration in authorizing an additional
U.S. flag carrier on a route already served by one or
more flag carriers is the quality of service (availability
and price) provided the public. Accordingly, U.S.
carriers should recognize that award of a route carries
with it the responsibility for adequate service and
performance. Poor performance by an incumbent carrier,
which is not due to factors over which it has no control,
may be grounds for replacement.
In addition to route competition between carriers, area
competition is a fundamental characteristic of international
air transportation. Such competition among carriers
should be recognized in designating U.S. carriers for
international routes, because unlike domestic travelers,
tourists who are flexible in their choice of overseas
destinations constitute a large share of the intercontinental
air passenger market. Beach resorts around the world
(and the carriers serving them) often compete, for example,
for the same tourists. The Alps and the Rockies may
compete as destinations for skiers. Within Europe,
-9(a)-
Amsterdam, Brussels, Copenhagen, and Luxembourg compete
with Frankfurt, London, Paris, and Rome as the starting
points for European holidays. The air carriers serving
these points, both charter and scheduled, compete in
arranging and offering tourist opportunities, both group
and individual, to the destinations they serve.
-10-
Furthermore, the service benefits, stimulated by U.S.
carrier competition on an area basis for the destination-
flexible tourist traffic, are of course often available to
the destination-inflexible traveler.
If the U.S. Government authorizes more air carriers than
a particular market will support, predatory pricing or
market restrictions by other governments may result.
The United States should authorize more than one U.S.
flag airline in scheduled international markets only
if they can operate profitably, taking into consideration
the presence of competition from foreign scheduled airlines
and from domestic and foreign charter airlines.
Relative Roles of Scheduled and Charter Passenger Operations
There are generally two kinds of international air pass-
engers: those who are departure time-sensitive and relatively
insensitive to price, and those who are price-sensitive
and relatively insensitive to departure time. In most
cases, time-sensitive travelers have fixed engagements
at foreign points; they rely primarily upon scheduled
air service available on short notice. For the benefit
of these passengers, the Government has the responsibility
to assure that essential levels of regularly scheduled
service can be economically maintained. Restraints on
charter services should not go beyond what is needed
for this purpose.
Travelers who are primarily concerned with price generally
are willing and able to accept advance purchase require-
ments. Since many of these passengers have considerable
flexibility in the day and time of their travel, they
usually can adjust their schedules to fit efficient patterns
of capacity. Therefore, they should enjoy the benefits
of lower prices that result from the inherent efficiency
of high load factor or planeload movements and the flexibility
realized by the carriers in scheduling capacity for maximum
utilization. Bringing the benefits of such efficiencies
to the traveling public offers the best opportunity for
increasing traffic in the price-elastic sectors of the
market. Thus, there is a substantial public need for
charter-type passenger operations in international markets.
The 1970 Statement of International Aviation Policy recog-
nized the value of competitive, yet complementary, scheduled
and charter passenger services. The basic policies articu-
lated there will be continued. However, the regulatory
structure at the Civil Aeronautics Board and within the
International Air Transport Association (IATA), as it affects
-11-
scheduled and charter services, requires substantial
alteration to improve the efficient utilization of equipment
and energy resources, thereby assuring the lowest possible
fares over the long term. Considerations of economic
efficiency, service innovation, responsiveness to market
factors, competitiveness, and profitability should be
foremost as the relative roles of scheduled and charter
passenger operations are assessed.
The industry should continue to have the primary responsi-
bility for adapting its air transport product to public
demand. Regulatory regimes imposed by governments should
not stifle the flexibility of the international air carrier
industry to respond to this demand, nor should they remove
incentives to keep costs low. This is particularly true
in the area of charter transportation where regulatory
structures traditionally have been restrictive. In particular,
the United States will use all appropriate means to prevent
restrictions by foreign governments on the competitiveness
of passenger charter operations by all U.S. carriers.
Charter Services
Regulations. Consistent with the foregoing principles,
the administrative regulations constraining the availability
and operation of charter services should be modified
to make available more low-cost services to the traveling
public. This government is presently developing new
charter program types to replace some existing types
that have not served the public well, because they have
been either discriminatory or overly restrictive. Our
objective is to reduce the multiplicity of charter types
to a smaller number, to simplify the regulations, and
to facilitate the use of charters by the public and the
travel industry. Furthermore, we request other governments
to accept U.S.-origin charters of these basic types.
A year ago the Civil Aeronautics Board took an important
step in broadening the availability of low cost travel
opportunities by announcing the One-Stop Tour Charter
(OTC) programs. It also has proposed regulations for
a charter type new to the United States--the Advance
Booking Charter (ABC). Final ABC regulations should
be promulgated at the earliest opportunity, with conditions
that will assure their viability in the market place.
Charter regulations that impose requirements not related
to cost or quality of service, such as prior-affinity
requirements or three-stop requirements, should be elimin-
ated as soon as viable alternatives are in place.
Overly restrictive Travel Group Charters should be eliminated.
-12-
Although empty seats are an inevitable product of any
on-demand, scheduled transportation service, they represent
an inefficient and wasteful use of resources, if some
of the seats might be filled without turning away on-demand
traffic. The scheduled carriers should have the flexibility
of carrying advance-purchase charter groups on either
their regularly scheduled flights or on flights dedicated
to charter movements, provided that neither the financial
soundness of the scheduled carriers, nor the operations
of the supplemental carriers, are unduly harmed by this
new authority.
In the long term it would be desirable to achieve as much
commonality among nations as possible on the regulatory
principles governing charter traffic. However, because
the specifics of charter regulations must be adapted to
the particular economic and marketing circumstances of
the country in which the traffic is organized, it cannot
be expected that complete international commonality can
be achieved. Accordingly, the United States will continue
to advocate the "country of origin" concept, enabling each
country to adopt those requirements that meet its unique
needs.
Landing Rights. The United States will continue to pursue
landing rights for charter services that are as free from
restrictions as possible, and will seek the negotiation of
agreements wherever appropriate. At issue in such negotia-
tions will be the continuation of charter rights held
by foreign carriers, and the nature of such rights.
While charter service landing rights should be negotiated
on their own merits, we must be sufficiently flexible
to take into account the present and future realities
of the marketplace, including the relationship between
scheduled and charter operations. The United States
will continue to insist that, in the provision of charter
services, U.S. scheduled and supplemental carriers be
treated equally.
Authority for Charter Services. While they may have had
some regulatory value in the past, distinctions between
on-route and off-route charters for scheduled carriers
and geographic restrictions on the charter authority of
supplemental carriers reduce competitive flexibility and
the availability of charter services. In place of the present
on-route/off-route distinctions for international charters
by scheduled carriers, U.S. international carriers should
have unrestricted charter authority within the regions where
they provide scheduled services. The supplemental carriers
-13-
already have authority on a regional basis. Both inter-
national scheduled and supplemental carriers should have
expanded opportunities to operate charter flights outside
their authorized regions.
Expansion of Supplemental Carriers
The fact that a carrier was initially certificated as
a supplemental should not bar it, as a matter either
of law or of regulation, from acquiring a scheduled cer-
tificate, so long as it meets the same requirements that
a scheduled carrier must meet.
Since 1963, mergers, bankruptcies, and other adjustments
have caused a substantial reduction in the number of
supplemental air carriers. Of the thirteen U.S. carriers
originally granted supplemental certificates, only six
are currently active operators of charter authority.
In the past decade the supplemental carriers have been
an effective, valuable competitive spur. They have fostered
market development and introduction of new price/quality
options that have benefited the traveling public and
the tourist industry here and abroad. While the number
of supplemental carriers is not an index of the quality
of the competition provided by this important segment
of the air transport industry, there now may be opport-
unities for additional supplemental carriers to initiate
economically viable operations, in which case the ranks
of the supplementals should be opened to new entrants.
Cargo Services
Freight and passenger service characteristics differ
in important areas; where they do, freight issues merit
separate consideration. International air cargo operations
should respond to the need of commerce and the shipping
public for fast, reliable transport of relatively high-value
or short-life goods. The 1970 Policy Statement recognized
the impact of wide-bodied aircraft on passenger services.
Now U.S. policy must be cognizant of their impact on
freight service and development.
Because of the inherent cost advantage and energy efficiency
of surface transportation, air freight is and always
will be a premium transportation service, although for
international passenger service, air travel is the low
cost option. While surface transport provides for the
regular flow of most goods, air freight is and must be
available for urgent shipments to respond to peak require-
ments, to compensate for underestimates of product demand,
and to remedy untimely shipping delays.
-14-
Air freight must be viewed as a part of the total freight
transportation system, inevitably involving truck transport,
and often rail or water movement as well. Air transport
is an essential component of an expedited intermodal
freight delivery system. The air carriers should seek
to improve the quality of the total transport service
by effectively integrating the ground and air transport
segments, in order to lessen total transit time, improve
shipment security, and lower transport costs.
Route Authority. All-cargo and intermodal services provide
a distinct benefit to shippers; their expansion should
be encouraged where economically justified. In granting
authority for all-cargo operations, recognition should
be given to the need for routing and scheduling flexibility,
which may differ considerably from passenger routing
and scheduling patterns.
At present, if an all-cargo carrier wishes to obtain route
authority, it must make a public convenience and necessity
(PC&N) argument based on freight operations alone. A passenger
carrier, however, can make its PC&N argument based on passenger
traffic only or on a combination of passenger and freight
traffic, initiate passenger (and combination freight) service,
and then, at its option, initiate freighter service as the
air freight market develops without any regulatory PC&N require-
ment or hearing before the Civil Aeronautics Board. In such
a regulatory cycle the cargo specialists, whose innovations
and efficiencies have spurred the growth of international
air cargo service, have little opportunity to compete for
new markets and to speed freight market development. Thus
to stimulate competition for entry into new air freight markets,
the Board should make separate determinations to grant separate
certificates for combination passenger/cargo authority and
for freighter-only authority.
As a further step in stimulating competition in the development
and service of air freight markets, the Board should consider
granting the U.S. all-cargo carriers authority for inter-
national scheduled freighter services on a regional basis.
Such authority would enable the all-cargo carriers to institute
new scheduled freighter services in their service region at
their option without the need for and the delays inherent
-15-
in successive regulatory "PC&N" investigations. The
authority for the combination carriers to institute freighter
services on any of their routes which now serve passengers
predominantly would remain unchanged.
Rights for all-cargo routes should be incorporated into
existing bilateral agreements, rather than being made
the subject of separate agreements.
Service Considerations. Because shippers place a high
value on the availability and timeliness of delivery,
the primary service considerations for the international
freight shipper are departure time and arrival time.
Freight shippers generally seek the on-demand availability
characteristic of scheduled service. Indeed, small shippers
do not even have access to charter services. Consequently,
the development of air freight service should provide
for substantial service improvements for those shippers,
large and small, who desire or require the premium transporta-
tion service offered by reliable, frequent, extensive
schedules of freighter aircraft. The greater the volume
moving on scheduled services the more extensive can be
the scheduled route network and, by increasing the load
factor, the lower the cost to the shipper. The availability
of charter services is especially important for off-route
freight shipments and for freight requiring peculiar
handling or security arrangements.
Split Charters. Passenger charter operators are permitted
to carry separate charter groups on the same flight,
but currently are prohibited from carrying passenger
and cargo charter traffic on the same flight; this may
result in inefficient aircraft utilization. The economic
efficiency of charter operations would be enhanced by
removing this prohibition, and permitting separate cargo
charters to be carried on passenger charter flights.
-16-
III. VIABILITY OF THE U.S. INTERNATIONAL
AIR TRANSPORTATION SYSTEM
The air transport interests of the United States are
best assured by a private U.S. international air trans-
portation industry that is viable, efficient, and capable
of generating sufficient earnings to attract private
capital and provide job opportunities.
GOALS
In pursuit of this objective, the United States will
support vigorously:
A strong, viable system of international routes.
A modernized regulatory structure within which
carriers can respond to changing market conditions.
Fare structures that respond to consumer demand,
offer price and quality-of-service alternatives,
enable long-term market growth, and permit
profitable operations by efficient carriers.
Innovation in developing services that expand markets
and attract passengers and cargo shipments.
Efficient use of fuel and other resources.
Prevention of predatory and monopolistic practices.
POLICY
Capacity
Because international routes are determined by government
agreements and tariff structures are determined within
the International Air Transport Association forum,
capacity has been the principal competitive medium.
However, in recent years excess capacity, caused by commit-
ment to too many aircraft and by declining traffic, has
been a severe economic burden to the industry.
Many carriers have chosen to compete through illegal
fare discounting or excessive payments to middlemen rather
than risk the loss of market share by reducing capacity.
Although perceptions may differ, many industry managers
appear to attach significant value to market share.
Of particular relevance to government policy is the fact
that many foreign governments are willing to underwrite
the costs of excess capacity in order to preserve or
improve the market share of their national carriers or
to generate additional foreign exchange earnings.
-17-
In adjusting capacity to changes in traffic, scheduled carriers
must contend with the relatively low frequency of long-haul
international flights, the number of carriers in any given
market, and the size of efficient modern long-range aircraft,
all of which impede scheduling flexibility and aggravate
attempts to rationalize capacity. Carriers on only four
or five intercontinental routes operate more than once-daily
service. In many international markets, direct services
are operated only two or three times a week. Bilateral
exchanges have led to the authorization of at least two
air carriers on most international routes even though
the optimum number of daily flights is much lower on
many international routes than on domestic routes. Long
route segments, multiple time zone changes, and airport
curfews inhibit carrier flexibility in arranging intercon-
tinental schedules.
Three principal international capacity issues that require
attention are excess capacity, market share, and sixth
freedom capacity.
Excess Capacity. Even under circumstances of extreme
financial distress, the preferred approach to excess
capacity is unilateral reductions by the carriers. However,
in the recent past, in a marked departure from fundamental
U.S. policy, limited and temporary carrier agreements
on capacity have been permitted. This exception was
made because of the serious level of excess capacity
(i.e., capacity in excess of traffic demand at a reasonable
load factor) in the international aviation system and
the resulting financial distress of the U.S. carriers.
Most of this excess capacity resulted from the purchase
of equipment in anticipation of continued traffic growth
which failed to occur during the fuel crisis and worldwide
recession. As the economic recovery continues and demand
catches up with capacity, such agreements would no longer
be necessary. The recovery of the world economy should
absorb the present excess over the next several years,
and market-based decisions should again be adequate to
establish rational levels. Nevertheless, in the short
run, because of the importance of economically viable
operations, we should support approval by the Civil Aeron-
autics Board of temporary carrier agreements if the
following standards apply:
-18-
Excess capacity is having a serious, adverse impact
on the viability of operations on the route system
in question.
The public interest is served by assuring adequate
scheduled service on the route by a U.S. carrier.
Unilateral reductions, or other less anticompetitive
alternatives, are shown by clear and convincing
evidence of past practice to be infeasible, and,
if undertaken in the current context, would put
the carrier making them at a significant competitive
disadvantage with respect to other carriers on that
route.
Carrier agreements should be temporary and subject to
approval, monitoring, and evaluation by the Civil Aero-
nautics Board. Any renewal of such agreements should
be subject to the foregoing standards.
Capacity agreements arrived at between governments generally
do not have the benefit of exposure to public reaction
and response that carrier agreements do. Government
intervention should be used only where there is a clear
need for capacity reduction, as defined above, and attempts
at unilateral cutbacks and carrier agreements have been
ineffective.
Market Share. The second capacity issue is market share.
The United States has traditionally espoused the Bermuda
system, under which each carrier determines for itself
the level of capacity it believes is warranted, subject
only to ex post facto review by governments. The United
States is faced with increasing criticism of the Bermuda
system by foreign governments whose perceptions of competi-
tive principles differ from our own. The preservation
of the competitive concept underlying the Bermuda system
is vital, because systems under which carriers or govern-
ments predetermine capacity for market share reasons
can introduce artificial restraints unrelated to carrier
efficiency or traffic demand. When capacity disputes
arise, the United States must must weigh carefully each
situation to determine overall U.S. interests. Special
procedures to deal with capacity disputes may be appro-
priate in some instances. When other countries advocate
less flexibility in capacity competition, we may insist,
as a quid pro quo, on greater flexibility in pricing
competition, SO long as forecast load factors are well
below full utilization load factors.
Sixth Freedom Capacity. The third capacity issue arises
from situations where carriers rely excessively on traffic
having its origin or destination behind the homeland of
the carrier. Such reliance is contrary to the provisions
-19-
of our bilateral air transport agreements; these operations
have severely distorted traffic levels and distribution
in certain markets. The United States will seek bilateral
review of foreign carrier operations considered to be
in violation of such provisions and will attach high
priority to resolution of this matter.
Cooperative Agreements
The United States will continue to have a flexible policy
with respect to operating arrangements, such as interline
agreements, equipment interchanges, and blocked space
agreements. Arrangements of these kinds can help to promote
efficiency and improve service. They may also allow
economically viable operations in markets that might
otherwise go unserved and may meet other international
aviation policy objectives as well. Such arrangements
may be permitted and even encouraged in cases where their
service benefits clearly are more substantial than their
anticompetitive impact. On the other hand, economic
agreements such as revenue or traffic pools generally
are contrary to the public interest and will be dis-
couraged. Pooling proposals should be disapproved unless
there is clear and convincing evidence that the pool
would achieve significant U.S. policy objectives and
more competitive alternatives are not available. Strict
reporting and tariff conditions must be integral to
such agreements to assure that they are not contrary
to the public interest.
Fares and Rates
The preferred means of assuring economic efficiency is
through the operation of free-market forces. However,
fundamental restraints limit the operation of free com-
petition in international air services. In support of an
economically sound and efficient air carrier industry,
therefore, the United States will continue a system of
government oversight of international passenger fares
and cargo rates.
International fares and rates should, to the maximum degree
feasible, be cost-related, responsive to consumer demand,
and established on the basis of competitive market forces.
The tariff structure, based on these principles, should
substantially benefit passengers, shippers, and carriers
alike. Within such a structure we would expect to achieve
fares and rates that are:
Set by individual carriers at the lowest levels
that permit an efficient carrier to earn a reasonable
return.
Greatly simplified compared with the present prolif-
eration of discount arrangements, yet sufficiently
flexible to provide genuine price/service options.
-20-
A more simplified fare structure, including simplified
construction rules, stopover provisions, and circuity allow-
ances, would facilitate adherence to and enforcement of
the agreed fares.
The compulsion of some carriers to pursue traffic at
any cost on a total market share basis, whether to maintain
market share or to support unneeded capacity, has resulted
in special, low unprofitable fares. It also has led to
unlawful discounting. Such practices obviously have
aggravated the carriers' financial difficulties in the
past. In the last analysis, however, carriers cannot
expect to achieve profitable operations unless capacity
is related to demand.
Role of IATA. Most other governments are unwilling to
accept a system in which fares are established by carriers
unilaterally. The alternative of establishing fares
by intergovernmental agreement, whether bilaterally or
multilaterally, would be complex and unwieldy. Moreover,
it is not a desirable alternative because governments
should not be involved in fixing international fares
as a general practice. Therefore, the United States
at present intends to continue to accept the International
Air Transport Association as the principal vehicle for
intercarrier negotiation of scheduled tariffs. At the
same time IATA and its member carriers should revise
their tariff-setting structure, so that it can be more
responsive to market forces and innovative fare programs,
including greater flexibility for rate setting by individual
carriers.
Role of the Civil Aeronautics Board. In reviewing both
agreements and individual tariffs, the Board should provide
a meaningful opportunity for public hearings or other
public review. Board action on IATA agreements should
be taken in a timely fashion, so that the member carriers
of IATA can give reasonable public notice of new tariff
schedules prior to their implementation.
-21-
To assist in achieving a cost-based tariff structure
and maximum pricing efficiency, the Board should identify
the types of costs that it will apply in determining
whether to approve rate agreements or individual tariff
filings. Generally, the cost levels should be those
of the most efficient carrier. The Board should publish
its cost data well in advance of IATA traffic conferences
or the likely dates of significant new individual tariff
filings.
Passenger Fares. The present international fare structure
contains fares that are largely unrelated to the costs
of providing the service. Because of its unwarranted
complexity, the present fare structure also is unfair
to the traveling public, as it results in frequent mis-
quotation and misconstruction of fares.
The United States has serious reservations about the
practice of charging normal-fare passengers fares that
are unreasonably in excess of fully allocated costs,
in an attempt to subsidize the carriage of other passengers
at fares unreasonably below cost. For example, since
today only about twenty percent of North Atlantic travel
is at undiscounted fares, the point of departure for
rationalization of the fare structure would seem to lie
with the promotional fares and with bringing published
tariffs into line with actual costs. Across-the-board
percentage fare increases will not solve this fundamental
problem. The United States supports a narrowing of the
gap between normal economy fares and promotional fares
and the rationalization of the present charter-competitive
fares on a cost-related basis. These fares, as well
as any new promotional fares, must be justified on their
respective economic merits. In evaluating new proposals
for promotional fares, the Civil Aeronautics Board should
take into account the relationship to scheduled service
costs. Further, the entire question of the validity
of the present highly differentiated North Atlantic passenger
fare structure should be explored in depth in the North
Atlantic Fares Investigation, presently before the Board.
A more rational relationship between normal and promotional
fares is not inconsistent with the use of pricing flexibility
as a means of achieving a satisfactory balance between
traffic and capacity levels. As noted earlier, the
nature of long-haul international markets inhibits
FORD
-22-
the carriers' ability to adjust capacity to meet daily
and seasonal fluctuations in demand. Pricing policy
can be an important tool for lessening these fluctuations
by encouraging traffic to adjust to efficient levels
of capacity. Increased efficiency in capacity utilization
means higher average load factors, which can then permit
lower fares for scheduled flights, stimulating still
more traffic. Much of the international air travel market
is composed of price-sensitive, destination-flexible
vacation travelers; therefore, the traffic stimulus of
lower fares can be large, as has been demonstrated in
the transatlantic market in the past decade with the
major expansion of charter services. Such traffic expansion
can result in greater revenues for the carriers and in
greater tourism receipts for the destination countries.
The carriers, however, should exercise restraint in their
pricing practices. In seeking charter-competitive fares,
scheduled carriers have paid insufficient attention to
demand peaking, incurred major losses, and attempted
to offset these losses by increasing the regular fares.
Peak/off-peak pricing and charter groups on scheduled
service should, to the contrary, enable carriers to lower
the regular fares by attracting additional traffic to
utilize otherwise unused capacity. While some carriers
may argue that the result is to dilute yield -- i.e.,
revenue per revenue-passenger-mile -- the more meaningful
result is to increase total flight revenue, meaning that
the regular fare passenger has a lower expense burden
per aircraft mile. Governments, however, must prevent
predatory price competition.
Charter Rates. Charter rates, for both passengers and
freight, should be subject to the same criteria and policies
as fares for scheduled air services, particularly their
relationship to costs. The Civil Aeronautics Board proposed
several years ago a system of minimum passenger charter
rates related to costs. While the courts held that this
proposal exceeded the Board's powers, the Board can and
should publish its cost data against which particular
charter rates are to be judged, as is recommended above
for scheduled service fares.
Cargo Rates. Cargo rates should be responsive to shipper
demand and related to actual costs. The Civil Aeronautics
Board should prevent the use of scheduled cargo rates
below the costs of the most efficient all-cargo carrier,
whether the rates are offered by all-cargo or combination
carriers.
-23-
With the further introduction of wide-bodied all-cargo
aircraft, appropriate weight breaks reflecting large
volume cost savings should be permitted.
The present structure of specific commodity rates (SCRs)
is, as the Civil Aeronautics Board has stated, unfair both
to the shipper (and hence, the consumer) and to the carrier.
Rate differences among commodities do not reflect inherent
carrier cost differences, and SO result in cross-
subsidization: one commodity paying, in part, for the
transport of another. Unduly low SCRs invite misclassifica-
tion of commodities, thereby sapping carrier revenues or
posing a burdensome tariff enforcement requirement.
Continued reliance on moving two-thirds to three-quarters
of the tonnage at promotional specific commodity rates
based on marginal costs is incompatible with developing
a sound economic structure for air freight service.
To encourage the long-term growth of the air freight
industry, general commodity rates should be established
at reasonable levels related to costs. When this has
been accomplished, it should be possible to abandon the
specific commodity rates as they exist today. The intro-
duction or maintenance of a limited number of specific
commodity rates, where considered essential to attract
new traffic, would be desirable. These rates should not
remain in the structure indefinitely, but should be in-
creased over a period of time to the general commodity
levels. Special commodity rates may also continue to
be appropriate for commodities that have special handling
or shipping requirements.
-24-
Mail Rates. The Civil Aeronautics Board should act expedi-
tiously on proposed changes in rates for the international
air transportation of mail. It should provide for temporary
rates, which cover the costs of U.S. carriers, until
final Board resolution of the issue and, as provided
by the International Air Transportation Fair Competitive
Practices Act of 1974, should give proper consideration
to the cost-related elements of the Universal Postal
Union (UPU) rates. In addition, the Congress has directed
that the Board consider the competitive disadvantage
of U.S. flag carriers resulting from their foreign com-
petitors' receiving the UPU rates for carriage of foreign
mail.
Tariff Integrity
The existence of a tariff structure is of little value
if there is widespread deviation from the published tariffs.
In the past few years, the practice of undercutting published
tariffs has become common in international operations,
and is now of considerable economic significance. We
are concerned about this erosion of tariff integrity
and the harmful discrimination that results from it.
The general public suffers from higher fares, and the
carriers from reduced net revenues. A basic consideration
in this area is the need to relate fares more closely
with costs and to eliminate the excess capacity which
encourages undercutting.
Role, Compensation, and Regulation of Middlemen
Transportation middlemen-- travel agents, tour operators,
air freight forwarders, cargo agents and others -- perform
a valuable service for the traveling and shipping public.
The major part of international traffic is handled through
the thousands of businesses that compete in arranging
not only air transportation services, but the ancillary
services that faciliate the efficient flow of passengers
and goods.
-25-
Since middlemen are an integral part of the international
air transport system, it is essential that reasonable
standards for consumer protection be observed. Federal
licensing or certification of middlemen should be con-
sidered only to the extent necessary to ensure minimum
consumer protection standards. Those middlemen that
operate as indirect air carriers (air freight forwarders,
inclusive tour charter operators, and military charter
operators) should continue to be regulated by the Civil
Aeronautics Board only to the extent necessary to protect
the consumer. Self-regulation should be considered for
the remainder of the industry which could establish
standards and conditions of operation, subject to Govern-
ment review.
The compensation of travel agents by commissions has
become a subject of considerable controversy. Rather
than having IATA involved in the establishment of commis-
sion levels, we recommend that each carrier establish
its commission structure independently. This will promote
additional competition and allow each carrier to tailor
its approach to commission structure independently.
It would also permit each carrier to relate the level
of commissions to the value of the middlemen's services.
To help ensure consumer awareness and to permit the Civil
Aeronautics Board to take commission costs into account
in determining total carrier costs as a basis for fare
decisions, carrier commission structures should be filed
for public inspection at the Board. However, the Board
should not regulate the level of commission rates. As
long as travel agent commissions are a part of the air
ticket price, the public should be informed as to the
arrangement between the carrier and the middlemen. This
will guard against undue preference or advantage being
given to any particular agency or individual.
Government Procurements
U.S. Government procurement of foreign and overseas air
transportation services from U.S. flag carriers helps
to sustain the U.S. international route system, and there-
by to assure the continuing availability of U.S. flag
service for the transport of U.S. mail, U.S. Government
personnel, and U.S. citizens.
-26-
We should make better use of civil capacity to meet Depart-
ment of Defense and other Government air transportation
needs. Specifically, we should minimize the economic
impact on commercial air carriers of large scale operations
by the Military Airlift Command (MAC) fleet by utilizing
civil capacity rather than MAC capacity to the extent
practicable in peacetime. However, this policy recognizes
the need to maintain an effective MAC capability and
to use efficiently the MAC airlift capacity resulting
as a by-product of essential training.
U.S. carriers are encouraged to continue participation
in the Civil Reserve Air Fleet (CRAF) program. The airlift
capability, maintained by normal civil air carrier operations
and therefore available for national emergency use, is
a major contribution to the preparedness of the United
States and makes military duplication of that capacity
unnecessary. A viable U.S. flag industry is essential
to make the program effective; any diminution of U.S.
flag capability would reduce the effectiveness of the
CRAF program.
As set forth in the International Air Transportation
Fair Competitive Practices Act of 1974, U.S. Government-
financed air transportation must be performed on U.S.
flag carriers to the extent such services are available.
The Government should pay the same tariff rates as the
general public for all its procurements of air transport
service except where a separate rate is established on
the basis of costs incurred by the airlines in providing
specific services to the U.S. Government.
In the event that U.S flag scheduled flights are not
available for the timely transport of U.S. mail, the
Postal Service should attempt to transport the mail on
charter flights of U.S. carriers, route or supplemental.
To the extent that the Board-determined international mail
rates are below UPU rates, this practice would offer
cost savings to the Postal Service.
The International Competitive Environment
The United States opposes unfair, discriminatory, or
restrictive practices by foreign countries that limit
the competitive capability of U.S. flag carriers. Section
2 of the International Air Transportation Fair Competitive
Practices Act of 1974 specifically directs Departments
and Agencies of this Government to seek elimination of
these practices. This policy will be pursued vigorously.
YORD
Jovagia
-27-
The United States also opposes discriminatory or inequitable
charges imposed on U.S. flag carriers for the use of
airway and airport properties, and we will utilize to
the maximum extent feasible Section 3 of the International
Air Transportation Fair Competitive Practices Act of
1974, or Section 301 of the Trade Act of 1974, to correct
inequities. This Government clearly recognizes the need
to recover from users the costs of the services provided.
We believe that, in imposing such charges, care
should be taken to ensure that they are not discriminatory
and that the level of the charge is related to cost.
On both of these issues, the United States will seek change
through negotiation. As a last resort, however, unilateral
action may be taken to correct the problem.
-28-
IV. SAFETY, ENVIRONMENTAL, AND
OTHER CONSIDERATIONS
It is the objective of the United States to achieve an
advanced, safe, and efficient system of airports and
airways to support international air transport.
GOALS
In support of the foregoing objective, the United States
will pursue:
Full and fair allocation among users of the costs
of operating airports and airway systems.
Prevention of hijacking, air piracy, and
terrorism.
Maintenance and development of high quality
aircraft, airports, and navigational systems
and development and implementation of
technological improvements that enhance
energy and economic efficiency in air
transportation.
Enforcement of regulations to protect the U.S.
environment.
POLICY
International Organizations
The United States will continue to support the International
Civil Aviation Organization (ICAO) and its efforts to
adopt and implement international standards. A fundamental
policy principle is to promote, through ICAO, common
requirements and practices regarding technical, facilitation,
and legal matters affecting international civil aviation.
In this respect, the United States believes that ICAO
should continue to direct its activities towards those
issues where solutions customarily have been sought through
multilateral governmental action.
FORD
-29-
A basic strength of ICAO has been its ability to focus
on the technical aspects of international aviation and
the willingness of its members to minimize political
influences on the work of the organization. The United
States will resist the injection of non-aviation issues
into ICAO proceedings; we urge other governments to adopt
a similar position.
Certification and Operation of Aircraft
We will continue the present U.S. policies concerning
safety, security, the environment, and fuel availability.
Safety. With respect to safety (including the air movement
of hazardous materials), the United States supports the
development of uniform international regulations governing
flight safety, airspace systems, operations, and airworthi-
ness. To advance this objective, the United States has
embarked upon a program of comprehensive biennial reviews
of its safety regulations to ensure that its aircraft
are produced and operated safely as air navigation and
aeronautical technology advance. These reviews are being
conducted in cooperation with other nations with the
intention of achieving more general agreement on common
standards.
Availability, Allocation, and Cost of Fuel. Nations
should treat their own carriers and foreign carriers
the same in any system of fuel allocation and pricing
for international air transport. The United States intends
to adhere to this principle and expects other countries
to do likewise.
Environmental Objectives and Their Impact. The United
States encourages agreement on international environmental
issues through the ICAO forum. This should promote equal
treatment for foreign and domestic carriers through inter-
national regulations and preclude any unwarranted economic
advantages or disadvantages for competing carriers which
would otherwise have to satisy diverse national requirements.
While the environmental needs and resources of the United
States may differ from those of other nations, every
effort will be made to obtain international acceptance
of U.S. requirements. The actions taken by the U.S.
Government must be responsive to the legislative mandates
that seek to protect the public health and welfare of
American citizens. We will seek an ICAO agreement on
application of noise standards for existing aircraft
in international operations. If it proves impossible
to obtain international agreement on environmental problems
such as noise and engine emissions, the United States
FORD
may then find it necessary to develop U.S. national standards
more stringent than those which can be developed through
ICAO, in order to protect human health and environmental
LIBRARY
quality.
-30-
Security Objectives and Their Impact. Travel on all
air carriers must be safe and secure from unlawful acts.
The Anti-Hijacking Act of 1974 and the Air Transportation
Security Act of 1974 strengthened the U.S. domestic and
international civil aviation security program, which
is based upon the sharing of responsibilities among air
carriers, airports, local law enforcement groups, and
the Federal Government. The basic objective of these
Acts is to prevent the carriage of weapons, explosives,
and incendiary devices on board U.S. carrier aircraft,
and unauthorized access to aircraft on the ground. Security
responsibilities are clearly delineated in the Acts.
Airport operators and air carriers are required to develop
and implement acceptable security programs. The Federal
Aviation Administration provides advisory technical assist-
ance to operators of U.S. air carriers and airports,
enforces Federal security regulations, and evaluates
the program to assure effectiveness.
There has been substantial improvement in security measures
throughout the world since 1970 resulting in increased
protection of civil aviation and its users from criminal
acts that threaten their safety. Nevertheless, the United
States supports and seeks adoption by ICAO of even stronger
security standards and recommended practices. We
also shall continue bilateral programs to provide technical
assistance to, and to exchange information with, foreign
nations to improve security at foreign airports having
a direct impact on the safety of U.S. citizens abroad.
B
SOME THOUGHTS ON TIMING
OF A
U. S. INTERNATIONAL AVIATION POLICY STATEMENT
For a number of months the Executive Branch has had under
consideration the issuance of a new international aviation policy
statement. It is the purpose of this memorandum to set forth certain
factors which you may wish to consider relating to the timing of such
a statement.
At the outset I should make clear that I do not oppose inter-
national aviation policy statements in general. Our government
should enunciate its international aviation policy. Moreover, because
of the CAB's rather peripheral involvement in the policy review during
the past several months, I am not sufficiently familiar with the specific
content of the currently proposed statement to endorse or criticize its
substance.
The matters here discussed are intended solely in connection
with the timing of the statement.
Presumably it is the objective of the policy statement to articu-
late the U. S. Government's international aviation policy so as to
provide a basic and specific guide for the negotiation of bilateral
aviation agreements, Executive review of international aviation cases
and in the resolution of many "brush fires" that regularly erupt in
relations with our international aviation partners. To be meaningful,
then, the statement should concretely address the important issues
confronting the international aviation community.
At present there are pending before the President, or to be
submitted to him in the near future, a number of international air
cases which present many of the basic issues that a comprehensive
international aviation policy statement should address.
In addition, the U. S. Government is currently negotiating
bilateral aviation agreements, among others, with the United Kingdom
and Japan -- our largest aviation partners in the Atlantic and the Pacific.
In the case of the U. K., we are negotiating in the context of the U. K. 's
LIBRARY
- 2 -
termination of the so-called "Bermuda Agreement" which for 30 years
has served as the cornerstone and basic model for the principles of
U. S. aviation relationships around the world.
One can argue persuasively that it would be the most rational to
negotiate these important relationships and decide these international
aviation cases against the backdrop of a clear declaration of U. S.
policy on the fundamental issues that are involved. However, the fact
is that the U. S. is presently in the process of formulating its negoti-
ating positions and, in that process, will be considering various
alternatives which are inextricably linked to broader international
aviation policy matters.
The point is that there exists a fundamental and visible relation-
ship between a new U. S. international aviation policy statement and
the resolution of these various pending "real world" matters. And it
may be, that time and events have brought us to a. point where this
interdependence requires that the policy pronouncement and the
determination of these matters be carried forward in tandem.
It would seem futile to issue a policy statement SO elastic that
any resolution of these particular matters would be consistent with the
statement of U. S. policy. On the other hand, to promulgate a policy
statement of adequate specificity and then face the circumstances in
these proceedings or negotiations which required a departure from its
dictates, would erode the durability and credibility of the policy.
There remains a final consideration. Whatever international
aviation policy is ultimately promulgated, it will be most difficult to
attain the stated objectives until our governmental mechanisms are
organized to better assure that our policies can be implemented. In
my judgment this requires a central focus and a regularized and
sufficiently high-level process for addressing international aviation
matters and more effective coordination of the presently fragmented
responsibility in the Executive Branch. In my view the occasion of a
new U. S. policy statement should be seized to deal with at least the
most pressing organizational matters for handling international
aviation.
- 3 -
I recognize that there are arguments both for issuance now
and for deferral. And it is understandable that those principally
involved in this worthy undertaking of many months desire to
conclude the task.
However, I hope that these thoughts on the timing question
will be received, as they are offered, in the spirit of constructive
contribution to the Executive Branch deliberations on this matter
as well as broader issues of international aviation strategy.
John E. Robson
Chairman
FORD LIBRARY
file airter
THE WHITE HOUSE
WASHINGTON
September 8, 1976
MEMORANDUM FOR:
JIM CANNON
ART QUERN
FROM:
STEVE McCONAHEY senh
We should encourage Coleman to stay out of this issue.
This is a local issue and there is no need for us to
get trapped in another no-win position.
Attachment
Call
Is S6M will Sounds needed to
Coleman is. - he
in
FORD & LIBRARY GERALD
090415
The New Uo
ANDING OF CONCORDE
IN NEW YORK IS SEEN
Support Is Indicated
Dr. McLucas, in his statements today,
WITHIN 2 OR 3 MONTHS
?
seemed to Concorde supporters to have
gone further than any American official
before him in holding out the possibility
of Federal support in the British-French
ban airline suit to lift the Kennedy airport
Head of F.A.A. Says Agency May
n-
And while spokesmen in Washington,
it:
Join in Court Moves to Aid in
re
tion, Department position had
and later here, stressed the Transporta
ty
changed it was enough for the British not
Lifting Barriers at Kennedy
Federal aviation. official had spoken so
and French that, once again, a high
helpfully about the plane.
th
Arguing that the Constitution gave the
By RICHARD WITKIN
in-
Special to The New York Times
but
late air commerce, Dr. McLucas said he
Federal Government the power to regu-
FARNBOROUGH, England, Sept: 7 -
nt,
thought the courts would recognize these
Approval for the Concorde supersonic air-
en
liner to land in New York is likely in
An:
corde case.
"as the ultimate authority" in the Con-
the next two or three months, the head
re-
in Federal District Court in Manhattan
The issue had been due to come up
of the Federal Aviation Administration
said here. today.
all
sides.: the
next Monday. But, by agreement. of both
John.
THE WHITE HOUSE
WASHINGTON
September 29, 1976
TO:
JIM CANNON
I
FROM: PAUL LEACH
You might be interested in the
attached announcement of Pan Am's
successful $75 million convertible
debt issue. This was an increase
of a plan of $50 million and was
apparently sold out on the first
day.
This announcement is neither an offer to sell nor a solicitation of an offer to buy these securities.
The offer is made only by the Prospectus.
avint
it
$75,000,000
none
PAN
AM
Pan American World Airways, Inc.
10½ Convertible Subordinated Debentures
due October 1, 2001
Convertible into Capital Stock at $53/4 per Share
Price 100%
Plus accrued interest from October1, 1976
Copies of the Prospectus may be obtained in any State only from such of the several
Underwriters, including the undersigned, as may lawfully offer the securities in such State.
Pan Am's 1$75 Millions
Of Convertible Debt
Is Sold Out Quickly
Lehman Brothers
Incorporated
By a WALL STREET JOURNAL Staff Reporter
NEW YORK-Pan American World Air-
ways' $73 million public offering of 104/2%
convertible debentures sold out quickly yes-
terday after reaching: the market at a price
of 100. a spokesman said.
The 25-year securities, which are rated
triple-C by Standard & Poor's, can be con-
verted into the carrier's common stock at a
SEPT. 29, 1976
THE WHITE HOUSE
WASHINGTON
October 1, 1976
TO: JIM CANNON
FROM: PAUL LEACH Paul
Attached are three recent notices
of airline financing and airplane
purchases which may be of interest.
Paul
Thank Jan
/ 10/16
Aventin
38
New Issue / September 30, 1976
$60,000,000
FLYING
TIGERS
The Flying Tiger Line Inc.
9% Equipment Trust Certificates Due October 1, 1991
Interest payable April 1 and October 1
Price 100% and accrued interest, if any, from October 6, 1976
The day's other new taxable sale, a $80-1
míllion offer of Flying Tiger Line equipment.
trust certificates, also fared well. Only 'tag
Copies of the Prospectus may be obtained in any State in which this announcement is circulated
were unsold by late yesterday, Salo-
only from such of the undersigned as may legally offer these securities in such State.
Salomon Brothers
Bache Halsey Stuart Inc.
The First Boston Corporation
Blyth Eastman Dillon & Co.
Incorporated
Dillon, Read & Co. Inc.
Dominick & Dominick,
Drexel Burnham & Co.
Incorporated
Incorporated
Goldman, Sachs & Co.
Hornblower & Weeks-Hemphill, Noyes
Incorporated
E.F. Hutton & Company Inc.
Kidder, Peabody & Co.
Kuhn, Loeb & Co.
Incorporated
Lazard Frères & Co.
Lehman Brothers
Loeb, Rhoades & Co.
Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Paine, Webber, Jackson & Curtis
Incorporated
Incorporated
Reynolds Securities Inc.
Smith Barney, Harris Upham & Co.
Wertheim & Co., Inc.
Incorporated
White, Weld & Co.
Dean Witter & Co.
Warburg Paribas Becker Inc.
Incorporated
Incorporated
Bear, Stearns & Co.
L.F. Rothschild & Co.
Shearson Hayden Stone Inc.
Shields Model Roland Securities
Weeden & Co.
Incorporated
Incorporated
Johnston, Lemon & Co.
Moore, Leonard & Lynch,
Craigie Incorporated
Incorporated
Incorporated
GERALD FORD LIBRARY
October 1, 1976
461,242 Shares
Southwest Airlines Co.
Common Stock
Southwest Air. Combination Offer
NEW Y ORK A combination offering of
461,242 common shares of Southwest Airlines
reached. the public market at $17.50 each
late yesterday.
The existing shares had closed at $18.125,
Price $17.50 Per Share
Copies of the Prospectus may be obtained in any State in
which this announcement is circulated only from such of the
undersigned as may legally offer these securities in such State.
E.F. Hutton & Company Inc.
Bache Halsey Stuart Inc.
Blyth Eastman Dillon & Co.
Drexel Burnham & Co.
Incorporated
Incorporated
Hornbtower a Weeks-Hemphill, Noyes
Kidder, Peabody & Co.
Lehman Brothers
Insurporated
Incorporated
Incorporated
Loeb, Rhoades & Co.
Paine, Webber, Jackson & Curtis
Reynolds Securities Inc.
Incorporated
Smith Barney, Harris Upham & Co.
Wertheim & Co., Inc.
White, Weld & Co.
Interporated
Incorporated
Dean Witter & Co.
Shearson Hayden Stone Inc.
Incorporated
Interstate Securities Corporation
Wheat, First Securities, Inc.
Arthurs, Lestrange & Short
Baker, Watts & Co.
FORD is LIBRARY GERALD
10/1/76
UAL's United Air Gets
A major decision facing United in the
1980s will be the purchase of a new-genera-
Clearance to Buy 727s
tion plane, seating 175 to 200 people and re-
placing the last of the DC8s and United's 122
727-100s, which seat 96. Last year, United
At Cost of $350 Million
abandoned a proposal to spend $600 million
for 50 of a stretched-version 727 known as
the 727-300. The new-generation craft under
study are Boeing's 7X7, which would seat
By a WALL STREET JOURNAL Staff Reporter
180 to 200, and McDonnell Douglas's pro-
CHICAGO-Directors of United Airlines
posed DCX.
and its parent, UAL Inc., voted, as ex-
Mr. Ferris said last week that
Fi-
pected, to purchase 28 of Boeing Co.'s 727-
nancing our needs through 1980 doesn't pres-
200 planes. The total $350 million outlay by
ent a problem; indeed, we could cover these
United the country's largest airline. will in-
outlavs with generated funds. The
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"ocrText": "The original documents are located in Box 4, folder \"Aviation (2)\" of the James M. Cannon\nFiles at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nSome items in this folder were not digitized because it contains copyrighted\nmaterials. Please contact the Gerald R. Ford Presidential Library for access to\nthese materials.\nDigitized from Box 4 of the James M. Cannon\nFiles at the Gerald R. Ford Presidential Library\nTHE WHITE HOUSE\nWASHINGTON\nDATE: 8.3.76\nTO:\nJun Juis Cannon Cammon\nFROM: Max L. Friedersdorf\nPlease handle\nPlease see me\nFor your information\nOther\nFORD i LIBRARY 077839\nCC: Hope\nTHE WHITE HOUSE\nWASHINGTON\nAugust 2, 1976\nMEMORANDUM FOR:\nMAX FRIEDERSDORF\nFROM:\nCHARLES LEPPERT, JR. CLp.\nSUBJECT:\nRep. James Cleveland (R. - N. H.)\nRep. Jim Cleveland suggests that the President act Presidential\non the airline pilots slowdown and issue a statement.\nfile\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 3, 1976\nMEMORANDUM FOR:\nBILL SEIDMAN\nFROM:\nJIM CANNON Allen Rown\nSUBJECT:\nU.S. International Aviation Policy\nStatement\nI support the policy statement. I also approve of\nimmediate issuance.\nFORD CLEANE\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 3, 1976\nMEMORANDUM FOR:\nJIM CANNON\nFROM:\nPAUL LEACH Paul\nSUBJECT:\nU.S. International Aviation\nPolicy Statement\nOn the two matters on which comments and recommendations\nare requested, I would suggest:\n(1) no objection to the new policy statement and\n(2) approval of issuance if the contents of the statement\nare supported with unanimity within the Administration\n(i.e., by the Senior Staff and EPB members).\n976 SEP 3 PM 12 54\n090310\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 1, 1976\nMEMORANDUM FOR PHILIP BUCHEN\nJAMES M. CANNON\nJOHN O. MARSH\nMAX FRIEDERSDORF\nBRENT SCOWCROFT\nROBERT T. HARTMANN\nFROM:\nL. WILLIAM SEIDMAN Lws\nSUBJECT:\nU.S. International Aviation Policy Statement\nA draft memorandum for the President on adopting and issuing\na new U.S. International Aviation Policy Statement is attached.\nThe Economic Policy Board has approved the proposed statement\nand unanimously recommends that the President adopt and issue\nthe new policy statement the week of September 7. The Chairman\nof the CAB has submitted some thoughts on the timing of a U.S.\nInternational Aviation Policy Statement, which are also attach-\ned, suggesting several reasons why issuing a statement should\nbe deferred.\nI would appreciate your comments and recommendations on: (1)\nwhether you approve of the new policy statement and (2) whe-\nther you recommend issuing a new policy statement at this time\nor deferring issuing a statement.\nFor the reasons stated in the memorandum, the Departments of\nTransportation and State are anxious for a decision on this\nissue as soon as possible. I would appreciate your comments\nno later than Noon, Friday, September 3, 1976 in order that\nthis paper may go forward to the President.\nAttachment\nFORD & LIBRARY GERALD\nDRAFT\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 1, 1976\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nL. WILLIAM SEIDMAN\nSUBJECT:\nU.S. International Aviation Policy Statement\nIn 1963 and in 1970 the White House issued international avia-\ntion policy statements designed to serve as policy guidance\nfor government officials in dealing with international aviation\nmatters. Changed circumstances have given rise to problems\nthat were either nonexistent or considered negligible when the\nmost recent statement was issued in 1970 including significant\nexcess capacity, a noncompensatory and discriminatory fare\nstructure, an ambiguous relationship between scheduled and\ncharter services, and the difficulty of expanding gateways\nand other new services while maintaining the economic viabil-\nity of existing services.\nEarly last year, the Economic Policy Board established a Steer-\ning Group, chaired by the Departments of Transportation and\nState, to review U.S. international aviation policy with a\nview to preparing a new policy statement. The Steering Group,\nwhich devoted extensive time and energy to the task and bene-\nfitted from the views of an array of interested nongovernmen-\ntal parties, has now completed its review. The Economic Policy\nBoard, after considerable discussion and deliberation, has\napproved the policy statement which, along with a summary, is\nattached at Tab A.\nThe Economic Policy Board unanimously recommends that you adopt\nand issue the new policy statement. The Departments of Defense\nand Justice, who also participated as members of the Steering\nGroup, recommend that you approve and issue the statement.\nU.S. goals in international aviation differ substantially from\nthose of most other nations. The policy statement reaffirms\nour preference for the play of competitive forces in, rather\nthan government control of, the international aviation market-\nplace.\nThe Aviation Act of 1975, which you proposed to the Congress\nlast October, focuses on domestic air transportation policy\nmatters. While recognizing the differences between the\n-2-\ndomestic and international aviation environments and the need\nto cooperate with foreign governments, the new policy state-\nment stresses the need to reform regulatory policies that in-\nhibit realization of improved lower-cost scheduled and charter-\ntype services and enhanced economic viability of international\noperations.\nThe Departments of Transportation and State are anxious that\nthe statement be issued prior to the September 9 air services\nnegotiations with the United Kingdom. On June 22, 1976, the\nUnited Kingdom renounced the U.S.-U.K. air services bilateral\nagreement (commonly called the \"Bermuda Agreement\"), stating\nthat, because its share of benefits is only half of ours, a\nnew agreement is needed to assure equal benefits for each side.\nJapan and Italy have similar concerns. The State Department\nfeels that a clear and forward-looking policy statement will\nstrengthen the U.S. negotiating posture vis-a-vis these nations.\nThe Economic Policy Board members unanimously recommend that you\nadopt and issue the new policy statement the week of September 7.\nJohn Robson, the Chairman of the Civil Aeronautics Board, has\nsubmitted some thoughts on the timing of issuing a new policy\nstatement which are in a paper attached at Tab B. He argues\nthat the resolution of various pending \"real world\" matters\nsuch as the U.K. negotiations and the development of a policy\nstatement should be carried forward in tandem.\nA\nSUMMARY OF THE POLICY STATEMENT\nFour fundamental concerns are addressed throughout the\nStatement:\nThe public interest in obtaining low cost, readily\navailable air transportation - both scheduled and\ncharter-type services.\nThe industry's need to achieve a financially viable\ninternational aviation system, and the need for\nprivate enterprise U.S. carriers to enjoy fair and\nequal competitive opportunity in foreign markets.\nThe need to reform regulatory policies that inhibit\nmeeting these two concerns, and the need for the system\nto have sufficient flexibility to meet changing market\nconditions.\nRecognition of the role that foreign carriers play in\nthe international system.\nRoutes\nThe key points related to the U.S. flag international route\nsystem are:\nA system of routes, as extensive as can be economically\nsustained, with regular, scheduled services by U.S. carriers\nis encouraged.\nThe basic consideration in determining whether a U.S.\ncarrier should schedule service on a new or an existing route\nis the commercial viability of the route and its impact on\nthe international route system.\nU.S. interests are not served when foreign carriers can\nseek a valuable traffic right in exchange for our operating\nan uneconomic route.\nServices to Canada, Mexico, and the Caribbean should be\nextensions of the domestic route system.\nU.S. international carriers should be permitted (1) to\ncarry local traffic on flight segments between U.S. points,\nand (2) to have domestic authority to feed traffic to their\ninternational operations.\nBERALD LIBRANY FORD\nCompetition\nThe Statement underscores the point that a basic tenet of\nU.S. economic philosophy is that market-place competition\nresults in improved service and lower total costs to the\nconsumer. Competition within a region is recognized as an\nimportant characteristic in international air transportation,\nas well as the head-to-head competition among carriers.\nAs foreign flag competition must be taken into account, it\nmay be counter-productive to have multiple U.S. carriers on\nthe same routes.\nRegarding the international competitive environment, the\nStatement says:\nThe U.S. opposes unfair, discriminatory, or restrictive\npractices by foreign countries that limit the competitive\ncapability of U.S. flag carriers. The U.S. also opposes\ndiscriminatory or inequitable, charges imposed on U.S. flag\ncarriers, for the use of airway and airport properties.\nRole of Scheduled and Charter Services\nThe Statement is explicit than the 1970 Statement in addressing\nthe more relative roles of scheduled and charter passenger\noperations. The discussion focuses on market requirements\nfor scheduled and charter services; in the past the principal\nfocus has been on regulatory distinctions.\nGovernment has the responsibility to assure that essential\nlevels of scheduled service can be economically maintained;\nrestraints on charter services should be the minimum,\nconsistent with this need.\nThere is a substantial public need for charter-type\npassenger operations in international markets.\nAs in 1970, the value of competitive, yet complementary,\nscheduled and charter passenger services is recognized.\nConsideration of economic efficiency, service innovation,\nresponsiveness, and profitability should be foremost as the\nrelative roles of scheduled and charter operations are\nassessed.\nGovernmental regulatory regimes should not stifle the\nflexibility of the industry to respond to market demand, nor\nremove incentives to keep costs low.\nThe U.S. opposes foreign government restrictions on the\ncompetitiveness of U.S. charter operations.\nAdministrative regulations constraining the availability\nand operation of charter services should be modified to make\nmore low-cost services available. As in the Aviation Act of\n1975, one-stop-inclusive-tour charter and advance booking\ncharter programs are explicitly endorsed.\nWhile the number of carriers is not an index of the\nquality of the competitive stimulus provided by the\nsupplemental industry, the ranks of the supplementals should\nbe opened to new entrants where there are opportunities for\nadditional carriers to initiate economically viable operations.\nAir Freight\nFreight and passenger service characteristics differ in\nimportant areas; where they do, freight issues merit\nseparate consideration.\nAll cargo and intermodal services should be encouraged\nwhere economically justified. The need routing and scheduling\nflexibility is recognized.\nTo stimulate competition for entry into new air freight\nmarkets, there should be separate certificates for combination\npassenger/cargo authority and for freighter authority.\nCapacity\nThe Statement makes explicit the U.S. view that capacity\nlevels should be set individually by carriers, although\nbecause of the importance of economically viable operations,\nwe would support temporary carrier agreements in certain\ncases.\nThe preservation of the underlying competitive concept\nin our service bilaterals is vital, because systems under\nwhich carriers or governments predetermine capacity for\nmarket share reasons can introduce artificial restraints\nunrelated to carrier efficiency or traffic demands.\nThe U.S. will seek bilateral review of foreign carrier\noperations considered to be in violation of our bilateral\nair transport agreements and will attach high priority to\nresolution of this matter.\nFares and Rates\nInternational fares and rates should to the maximum degree\nfeasible be cost-related, responsive to consumer demand,\nand established on the basis of competitive market forces.\nTariffs should be greatly simplified compared with the\npresent proliferation of discount arrangements, yet\nsufficiently flexible to provide genuine price/service\noptions.\nAs most other governments are unwilling to accept a\nsystem in which fares are established by carriers uni-\nlaterally, the U.S. at present intends to continue to\naccept IATA as the principal vehicle for intercarrier\nnegotiation of scheduled tariffs. At the same time IATA\nand its member carriers should revise their tariff-setting\nstructure, so that it can be more responsive to market\nforces and innovative fare programs, including greater\nflexibility for rate setting by individual carriers.\nPeak/off-peak pricing and charter groups on scheduled\nservice should enable carriers to lower the regular fares\nby attracting additional traffic to utilize otherwise\nunused capacity.\nTo encourage the long-term growth of the air freight\nindustry, general commodity rates should be established\nat reasonable levels.\nThe U.S. will continue to support the International\nCivil Aviation Organization (ICAO) and its efforts to\nadopt and implement international standards.\nWe will continue the present U.S. policies concerning\nsafety, security, the environment, and fuel availability.\nWe will seek reduced aircraft noise level standards.\nThere has been substantial improvement in security\nmeasures throughout the world since 1970 resulting in\nincreased protection of civil aviation and its users from\ncriminal acts that threaten their safety. Nevertheless,\nthe U.S. supports and seeks adoption by ICAO of even\nstronger security standards and recommended practices.\nSTATEMENT OF INTERNATIONAL\nAIR TRANSPORTATION POLICY\nOF THE UNITED STATES\nPrepared for the President's Review\nAugust 30, 1976\nTHE WHITE HOUSE\nWASHINGTON\nInternational aviation reflects the extent to which the nations of the world\nare economically interdependent. Historically, the United States has had a\nleadership role in the development of international air transportation and\nintends to continue that role.\nAviation is an essential part of the foreign commerce of the United States.\nIt is required for mail, high priority cargo, government and business travel,\nand urgent personal travel. A desirable low-cost means of international\npleasure travel, it has played an important role in bringing peoples of\nmany cultures and nationalities to a greater sense of friendship and mutual\nunderstanding.\nThe United States seeks an international economic environment and air trans-\nportation structure conducive to healthy competition among all air carriers.\nWe shall rely upon competitive market forces to the greatest extent feasible,\nfor it is a basic tenet of our economic philosophy that marketplace com-\npetition provides improved services and lower total costs. At the same\ntime we recognize that other States may differ in their views as to how\nsuch transportation should be organized and operated. We shall work\nthrough appropriate bilateral and multilateral forums to bring about con-\nstructive change for the benefit of air travelers, shippers, and carriers\nof all nations.\nThe international air carrier industry should continue to have the primary\nresponsibility for adapting its air transport product to public demand.\nRegulatory regimes imposed by governments should not stifle the industry's\nflexibility to respond to this demand, nor should they remove incentives\nto keep costs low.\nThe Secretaries of State and Transportation, with the assistance of all the\nmembers of the task force that studied the current and prospective problems\nin international aviation, have produced a comprehensive statement of\nUnited States policy. The statement sets forth the objectives the United\nStates will seek in forthcoming negotiations with other States. It calls\nfor balanced revisions of certain regulatory policies of the Civil Aero-\nnautics Board. I invite interested parties to make their views on these\nrevisions known to the Department of Transportation, which shall have the\nprincipal responsibility for seeking implementation by the Board of the\nregulatory reforms called for here.\nI am approving this statement of international air transportation policy to\nsupersede the one issued June 22, 1970, and am directing that this new state-\nment of policy guidance be used henceforth by responsible officials of the\nGovernment in dealing with international aviation matters.\nGerald R. Ford\nSeptember 8, 1976\nSTATEMENT OF INTERNATIONAL\nAIR TRANSPORTATION POLICY\nOF THE UNITED STATES\nTABLE OF CONTENTS\nPage\nI. Introduction\nOverview\nStructure of International Air Service\nPrincipal Objectives\nII. Public Service Considerations\nGoals\nPolicy\nU.S. Flag International Route System\nExtent of Route System\nEmphasis on Major Trunk Routes\nRelationship to Domestic System\nCompetition\nRelative Roles of Scheduled and Charter\nPassenger Operations\nCharter Services\nRegulations\nLanding Rights\nAuthority for Charter Services\nExpansion of Supplemental Carriers\nCargo Services\nRoute Authority\nService Considerations\nSplit Charters\nIII. Viability of the U.S. International Air\nTransportation System\nGoals\nPolicy\nCapacity\nExcess Capacity\nMarket Share\nSixth Freedom Capacity\nCooperative Agreements\nFares and Rates\nRole of IATA\nRole of the Civil Aeronautics Board\nPassenger Fares\nCharter Rates\nCargo Rates\nMail Rates\n-ii-\nPage\nTariff Integrity\nRole, Compensation and Regulation of\nMiddlemen\nGovernment Procurements\nThe International Competitive Environment\nIV. Safety, Environmental, and Other Considerations\nGoals\nPolicy\nInternational Organizations\nCertification and Operation of Aircraft\nSafety.\nAvilability, Allocation, and\nCost of Fuel\nEnvironmental Objectives and Their\nImpact.\nSecurity Objectives and Their Impact.\nI. INTRODUCTION\nOverview\nThe decade of the 1970's has been characterized by grow-\ning recognition of the extent to which the nations of\nthe world are economically interdependent. International\naviation is no exception. The airlines of many countries\nnow provide safe, fast, and efficient international\nair service; U.S. citizens benefit from these services\nas they do from their own. Historically, the United\nStates has had a leadership role in the development\nof international air transportation. Our continued\neffective participation is important to the national\ninterest.\nConsistent with the longstanding recognition by the United\nStates that privately owned and managed companies provide\nthe most efficient and consumer responsive services,\nthe private sector will continue to have the responsibility\nfor operating the U.S. international air transportation\nsystem, consistent with the policies set forth here.\nWe look forward to an era in which private American air\ncarriers can operate effectively in the international\neconomic environment without the need for Government\nsubsidy and without being placed at an unfair competitive\ndisadvantage. We will work to reform and modernize the\ninternational aviation structure in order to enable well-\nmanaged U.S. carriers to serve the public interest by\nproviding economic air travel, to compete successfully\nwith foreign air carriers, and to earn a reasonable rate\nof return on investment.\nThe international aviation policy of the United States\nshould be consistent with and contribute to our objectives\nin national defense, foreign policy, and international\ncommerce. We recognize that our international aviation\npolicy objectives can be achieved most effectively in\ncooperation with other governments, working through\nbilateral and multilateral channels.\nThe Structure of International Air Service\nThere are three major considerations in the development\nof international air service: route patterns, which\ndefine the markets to be served; capacity, meaning the\nnumber of flights and types of aircraft flying in these\nmarkets; and the fares charged for different kinds of\nservices and consumers. All three are integrally related\neconomic issues. As we attempt to introduce greater\n-2-\nrationality into the international aviation structure,\nwe will take pragmatic steps to bring about more rational\npricing policies that reflect actual costs and are respon-\nsive to consumer demand, to relate capacity to demand,\nand to select routes that closely reflect natural traffic\npatterns and are economically viable. As a result of\nthese steps, U.S. carriers should be able to operate\nprofitably, and the users of air transport services\nwill be well-served.\nThe United States cannot impose its economic philosophy\non the rest of the world, but as a significant participant\nin the international aviation community we can work\nthrough bilateral and multilateral forums to bring about\nconstructive change for the benefit of the air travelers,\nshippers, and carriers of all nations. We recognize that\ninternational transportation presents special challenges\n-- the most obvious being the need to cooperate with\nother sovereign nations. While the governments of other\nnations may share our objective of efficient transportation\nservice, many differ sharply in their views as to how\nsuch transportation should be organized, financed, regulated,\nand promoted. Thus, the means by which we pursue our\ninternational policy goals often cannot be the same\nas those by which we conduct our domestic transportation\nsystem.\nWhile this Policy Statement calls for a large measure\nof regulatory reform, consistent with our domestic aviation\npolicy, differences between the approaches taken here and\nthose in the proposed Aviation Act of 1975 reflect awareness\nof the substantial differences that exist between the\ninternational and domestic operating environments:\nPrivate U.S. companies must compete with state enter-\nprises in most markets; competition in international\nair transportation is limited by government policy\nin almost all other countries. In some instances\nrestraints are imposed against efficient competitive\npractices.\nSome foreign states underwrite their national carrier's\nlosses in order to maintain large capacity to the\nUnited States for a number of reasons (e.g., tourist\nrevenues). Similarly, foreign carriers sometimes seek\nbelow-cost cargo rates as a means of promoting their\nnation's exports.\n-3-\nThe problem of tailoring supply to meet demand is more\ndifficult on international routes than on usually denser\ndomestic routes; the ratio of daily flights to the\nnumber of competing carriers is generally much lower\nthan domestically; international aircraft are larger\non average; and carriers have less flexibility in\narranging intercontinental schedules.\nPrincipal Objectives\nIn addition to promotion of an international economic environ-\nment and aviation structure conducive to healthy competition\namong air carriers, five principal objectives will guide\nU.S. international air transportation policy for the future.\nFirst, reliance on competitive market forces to\nthe greatest extent feasible, recognizing that the\nviews of other nations may differ and that our policies\nmust be modified in some instances in order to reach\nbilateral and multilateral accommodations.\nSecond, provision for the transportation of people,\nmail, and goods, wherever a substantial need exists,\nat as low a price as is economically justified.\nThird, support of a private U.S. international air\ntransportation industry that is economically viable\nand efficient, and that will generate sufficient\nearnings to attract private capital and provide\njob opportunities.\nFourth, consistency with and contribution toward\nU.S. national objectives in defense and security,\nforeign policy, and international commerce.\nFifth, encouragement of a safe and efficient system\nof airports and airways and protection of the U.S.\nenvironment.\n-4-\nIn pursuing these objectives, the United States is con-\ncerned with the public interest in both low-cost, readily\navailable air transportation and a financially viable\ninternational aviation system. We recognize the fundamental\nimportance of maintaining a scheduled U.S. flag system\nto meet the public need for regular and frequent air\nservices on an economically sound basis. We also recognize\nthe growing demand for low-cost services and the inherent\nefficiencies of full plane operations generally character-\nized by charter-type services. Most importantly, we\nrecognize the need to have governmental policies that\nwill accommodate the competitive interrelationships between\nthese two types of services.\nThis Policy Statement identifies ways in which the private\nenterprise U.S. international aviation industry and concerned\nU.S. Government agencies can move toward the stated objectives.\nTo avoid undue disruption, there should be an equitable\nphasing of the elimination or relaxation of the regulatory\nrestrictions called for here.\n-5-\nII. PUBLIC SERVICE CONSIDERATIONS\nThe United States seeks to meet the needs of the consumer\nby providing for the safe and efficient transportation\nof people, mail, and goods. The international air trans-\nport system should have a favorable impact on the economic\ngrowth and foreign commerce of the United States and\nof our trading partners.\nIn pursuit of this objective, the United States seeks\nan international air transport system that provides the\ncapability and flexibility to respond efficiently to\nchanging market conditions and requirements, wherever\na substantial need for air transportation exists.\nGOALS\nTo this end, the United States will pursue the following\ngoals:\nRegularly scheduled international air transportation\nof people, mail, and goods at as low a cost as\nis economically justified.\nInternational air charter transportation of people\nand goods by charter specialists and scheduled\ncarriers operating charter flights, at as low a\ncost as is economically justified, recognizing that\nessential levels of scheduled service must be main-\ntained.\nEffective competition among carriers and among\nthe classes of service offered, including a fair\nand equal competitive opportunity for the private\nenterprise air carriers of the United States.\nPOLICY\nU.S. Flag International Route System\nAir transportation is an essential part of the foreign\ncommerce and international trade of the United States;\nit is required for mail, high priority cargo, government\nand business travel, and urgent personal travel. It\nis a desirable, low-cost means of international pleasure\ntravel.\nInternational air transportation operates in a complex\nand changing regime of law and politics involving a few\nmultilateral treaties, many bilateral arrangements, and\na wide collection of national laws, regulations, and policies.\nContinuation of a U.S. flag air transportation system will\nrequire continuing negotiations between the United States\nand other nations to arrange equitable operating rights\nand privileges.\n-6-\nAir transport interests are best assured for Americans\nby the presence of a strong, viable, privately owned\nU.S. flag international air fleet. Such a fleet is\nalso an important reserve asset to meet U.S. military\nrequirements and non-military emergency situations.\nExtent of Route System. Because most business travelers,\nmany other international travelers, and most air freight\nshippers rely on the regular availability of air service\non relatively short notice that is characteristic of\nscheduled services, the U.S. Government should encourage\na system of routes, as extensive as can be economically\nsustained, with regular, scheduled service by U.S. flag\nair carriers.\nThe basic consideration in determining whether a U.S.\ncarrier should be authorized to schedule service on\na new or an existing route is the commercial viability\nof the service on that route and its impact on the inter-\nnational route system. The U.S. Government should support\nfully actions by U.S. flag carriers to rationalize their\nroute structures: to drop uneconomic routes, to identify\nnew markets that are economically viable, and to seek\nan overall route structure that is responsive to consumer\ndemand and profitable to operate. There may be a few\nextremely rare instances where a specific and clearly\ndefined national defense or foreign policy interest\nmay require service by a U.S. carrier on a route that\nis not economically viable. For these exceptional\ncircumstances direct Federal subsidy would be preferable\nto a policy of indirect subsidy or cross-subsidization\nfrom profitable routes.\nNew international route authority is awarded to U.S.\ncarriers in the context of the bilateral framework within\nwhich international air transportation operates. Thus\ndecisions on entry raise issues that must be negotiated\nbetween governments. It does not serve the interest\nof the United States to be put in a position where foreign\ngovernments can seek valuable rights for their carriers\nas a consequence of our granting uneconomic routes for\nour carriers. Consistent with the policy that interna-\ntional routes should be economically viable, where the\n-7-\nUnited States has paid in bilateral route concessions\nfor the traffic rights which could be implemented in\na given route award proceeding, an important decisional\ncriterion in carrier selection is the ability to compete\neffectively with foreign flag carriers in the market\nat issue.\nU.S. policy continues to be that negotiations should lead\nto an equitable exchange of route rights for both scheduled\nand charter services. Our primary and overriding objective\nis to achieve an international environment in which privately\nowned and operated U.S. air carriers have a fair and equal\nopportunity to compete for benefits at least as great as\nthose available to foreign carriers.\nThe United States will continue to endorse the exchange\nof air transport rights and privileges through a system\nof bilateral air transport agreements. We have considered\nmultilateral agreements and other alternatives to the\nbilateral system, but are not convinced that another system\nwould work more effectively. While particular problems,\nsuch as fare and rate regulation, may require multilateral\ndiscussion, we can work within the basic structure of\nbilateral agreements, which provides sufficient flexibility\nto accommodate most circumstances.\nEmphasis on Major Trunk Routes. Major traffic flow\npatterns and trunk routes between the United States\nand four principal areas of the world--Europe, Africa,\nCentral/South America, and Asia/Oceania--are clearly\ndiscernible. U.S. carrier operations over these trunk\nroutes form the backbone of our intercontinental air\ntransport system. U.S. carrier participation on these\nroutes is essential to the maintenance of a U.S. flag\nsystem. Major trunk routes and markets should be identified\nby the U.S. air carriers and given priority negotiating\nattention by the U.S. Government. Reciprocal operations\nprovided by foreign carriers with supporting secondary\ntraffic should be expected on such routes. As the quality\nand quantity of foreign flag air service between foreign\nair traffic hubs improves, U.S. flag carriers should\nemphasize third- and fourth-freedom scheduled services,\neven while recognizing that fifth-freedom traffic is\nimportant for their economic viability.\nViable airline routes, particularly long-haul trunk routes,\ndraw upon a variety of traffic flows for support. Many\ncities in foreign countries are situated ideally to serve\nas gateways, or conduits, through which foreign carriers\nhave attracted traffic flows and thus have improved their\nFORD\n-8-\ncompetitive position relative to U.S. carriers. In negoti-\nating international route patterns for U.S. carriers, the\nU.S. Government should structure routes in a way that enables\nour carriers to draw upon natural traffic flows and, thereby,\ncompete effectively with foreign carriers.\nRelationship to Domestic System. The U.S. international\nroute system is not and should not be viewed as completely\nseparate from the domestic system, although we must\nrecognize the differences between domestic and international\nair transportation. The growing volume of international\ntraffic, both passenger and freight, has resulted in\nexpansion of direct international scheduled services\nat many American cities. A number of cities are seeking\nnew direct and nonstop services to points in Europe,\nAsia, and South America. The United States-Canada routes\nalready are natural extensions of the domestic networks\nin both counties; the United States-Mexico routes\nincreasingly are becoming extensions of domestic route\nsystems.\nCloser integration of international and domestic route\nsystems is in the public interest, in part because exces-\nsive channeling of passengers and freight through a\nlimited number of gateway points inconveniences passengers\nand shippers and ignores, in some instances, natural\ntraffic flows, market requirements, and the economics\nof modern aircraft. The following actions will lessen\nthe artificial regulatory distinctions between domestic\nand international traffic categories and will result in greater\nconvenience for the public and operating efficiency\nand competitive opportunity for the carriers.\nServices to Canada, Mexico, and the Caribbean should\nbe extensions of the domestic route system.\nAuthority to carry local traffic on domestic\nsegments of international flights, both passenger\nand freight, should be granted, because regulatory\nrestrictions on the local traffic authority of U.S.\ninternational air carriers no longer serve the\npublic interest. Such authority will increase the\neconomic viability of domestic extensions of\ninternational flights, thereby supporting more direct\nservices for the shipping and traveling public.\nBlocked space agreements on domestic segments of\ninternational flights and equipment interchange\nagreements should be considered by the carriers and\nthe Civil Aeronautics Board as means to increase\nthe economic viability of behind-the-gateway route\nsegments, and hence to benefit the public with\nmore direct service at more American cities.\n-9-\nAll U.S. international carriers should be permitted\nto have domestic traffic systems to feed traffic\nto their international operations.\nIn the interest of obtaining better services for the\nconsumer, consideration also should be given (1) to\nthe competitive and public service benefits that might\nbe achieved in major international markets by authorizing\ndifferent U.S. carriers to serve a foreign point or area\nfrom different cities or regions of the United States,\nand (2) to lessening the emphasis on the traditional\nintercontinental gateways, by granting direct service\nauthority at more domestic points. The need to gather\ntraffic at \"gateways\" in order to have the high load\nfactors in widebodied equipment that permit low fares\nand fuel savings, however, must be taken into account.\nCompetition\nA basic tenet of U.S. economic philosophy is that market-\nplace competition produces improved service and lower\ntotal costs for the consumer. This is as true in aviation\nas it is in other areas of commercial activity. However,\nit does not follow that there must be multiple U.S. flag\ncarriers on all international routes. Foreign carriers\nare sophisticated competitors for U.S. carriers in most\nmarkets; their competition needs to be taken into account\nas we determine whether more than one U.S. carrier should\nbe designated for a particular route or market area.\nToo many carriers on some routes may undercut the economic\nviability of service without benefiting the public.\nA primary consideration in authorizing an additional\nU.S. flag carrier on a route already served by one or\nmore flag carriers is the quality of service (availability\nand price) provided the public. Accordingly, U.S.\ncarriers should recognize that award of a route carries\nwith it the responsibility for adequate service and\nperformance. Poor performance by an incumbent carrier,\nwhich is not due to factors over which it has no control,\nmay be grounds for replacement.\nIn addition to route competition between carriers, area\ncompetition is a fundamental characteristic of international\nair transportation. Such competition among carriers\nshould be recognized in designating U.S. carriers for\ninternational routes, because unlike domestic travelers,\ntourists who are flexible in their choice of overseas\ndestinations constitute a large share of the intercontinental\nair passenger market. Beach resorts around the world\n(and the carriers serving them) often compete, for example,\nfor the same tourists. The Alps and the Rockies may\ncompete as destinations for skiers. Within Europe,\n-9(a)-\nAmsterdam, Brussels, Copenhagen, and Luxembourg compete\nwith Frankfurt, London, Paris, and Rome as the starting\npoints for European holidays. The air carriers serving\nthese points, both charter and scheduled, compete in\narranging and offering tourist opportunities, both group\nand individual, to the destinations they serve.\n-10-\nFurthermore, the service benefits, stimulated by U.S.\ncarrier competition on an area basis for the destination-\nflexible tourist traffic, are of course often available to\nthe destination-inflexible traveler.\nIf the U.S. Government authorizes more air carriers than\na particular market will support, predatory pricing or\nmarket restrictions by other governments may result.\nThe United States should authorize more than one U.S.\nflag airline in scheduled international markets only\nif they can operate profitably, taking into consideration\nthe presence of competition from foreign scheduled airlines\nand from domestic and foreign charter airlines.\nRelative Roles of Scheduled and Charter Passenger Operations\nThere are generally two kinds of international air pass-\nengers: those who are departure time-sensitive and relatively\ninsensitive to price, and those who are price-sensitive\nand relatively insensitive to departure time. In most\ncases, time-sensitive travelers have fixed engagements\nat foreign points; they rely primarily upon scheduled\nair service available on short notice. For the benefit\nof these passengers, the Government has the responsibility\nto assure that essential levels of regularly scheduled\nservice can be economically maintained. Restraints on\ncharter services should not go beyond what is needed\nfor this purpose.\nTravelers who are primarily concerned with price generally\nare willing and able to accept advance purchase require-\nments. Since many of these passengers have considerable\nflexibility in the day and time of their travel, they\nusually can adjust their schedules to fit efficient patterns\nof capacity. Therefore, they should enjoy the benefits\nof lower prices that result from the inherent efficiency\nof high load factor or planeload movements and the flexibility\nrealized by the carriers in scheduling capacity for maximum\nutilization. Bringing the benefits of such efficiencies\nto the traveling public offers the best opportunity for\nincreasing traffic in the price-elastic sectors of the\nmarket. Thus, there is a substantial public need for\ncharter-type passenger operations in international markets.\nThe 1970 Statement of International Aviation Policy recog-\nnized the value of competitive, yet complementary, scheduled\nand charter passenger services. The basic policies articu-\nlated there will be continued. However, the regulatory\nstructure at the Civil Aeronautics Board and within the\nInternational Air Transport Association (IATA), as it affects\n-11-\nscheduled and charter services, requires substantial\nalteration to improve the efficient utilization of equipment\nand energy resources, thereby assuring the lowest possible\nfares over the long term. Considerations of economic\nefficiency, service innovation, responsiveness to market\nfactors, competitiveness, and profitability should be\nforemost as the relative roles of scheduled and charter\npassenger operations are assessed.\nThe industry should continue to have the primary responsi-\nbility for adapting its air transport product to public\ndemand. Regulatory regimes imposed by governments should\nnot stifle the flexibility of the international air carrier\nindustry to respond to this demand, nor should they remove\nincentives to keep costs low. This is particularly true\nin the area of charter transportation where regulatory\nstructures traditionally have been restrictive. In particular,\nthe United States will use all appropriate means to prevent\nrestrictions by foreign governments on the competitiveness\nof passenger charter operations by all U.S. carriers.\nCharter Services\nRegulations. Consistent with the foregoing principles,\nthe administrative regulations constraining the availability\nand operation of charter services should be modified\nto make available more low-cost services to the traveling\npublic. This government is presently developing new\ncharter program types to replace some existing types\nthat have not served the public well, because they have\nbeen either discriminatory or overly restrictive. Our\nobjective is to reduce the multiplicity of charter types\nto a smaller number, to simplify the regulations, and\nto facilitate the use of charters by the public and the\ntravel industry. Furthermore, we request other governments\nto accept U.S.-origin charters of these basic types.\nA year ago the Civil Aeronautics Board took an important\nstep in broadening the availability of low cost travel\nopportunities by announcing the One-Stop Tour Charter\n(OTC) programs. It also has proposed regulations for\na charter type new to the United States--the Advance\nBooking Charter (ABC). Final ABC regulations should\nbe promulgated at the earliest opportunity, with conditions\nthat will assure their viability in the market place.\nCharter regulations that impose requirements not related\nto cost or quality of service, such as prior-affinity\nrequirements or three-stop requirements, should be elimin-\nated as soon as viable alternatives are in place.\nOverly restrictive Travel Group Charters should be eliminated.\n-12-\nAlthough empty seats are an inevitable product of any\non-demand, scheduled transportation service, they represent\nan inefficient and wasteful use of resources, if some\nof the seats might be filled without turning away on-demand\ntraffic. The scheduled carriers should have the flexibility\nof carrying advance-purchase charter groups on either\ntheir regularly scheduled flights or on flights dedicated\nto charter movements, provided that neither the financial\nsoundness of the scheduled carriers, nor the operations\nof the supplemental carriers, are unduly harmed by this\nnew authority.\nIn the long term it would be desirable to achieve as much\ncommonality among nations as possible on the regulatory\nprinciples governing charter traffic. However, because\nthe specifics of charter regulations must be adapted to\nthe particular economic and marketing circumstances of\nthe country in which the traffic is organized, it cannot\nbe expected that complete international commonality can\nbe achieved. Accordingly, the United States will continue\nto advocate the \"country of origin\" concept, enabling each\ncountry to adopt those requirements that meet its unique\nneeds.\nLanding Rights. The United States will continue to pursue\nlanding rights for charter services that are as free from\nrestrictions as possible, and will seek the negotiation of\nagreements wherever appropriate. At issue in such negotia-\ntions will be the continuation of charter rights held\nby foreign carriers, and the nature of such rights.\nWhile charter service landing rights should be negotiated\non their own merits, we must be sufficiently flexible\nto take into account the present and future realities\nof the marketplace, including the relationship between\nscheduled and charter operations. The United States\nwill continue to insist that, in the provision of charter\nservices, U.S. scheduled and supplemental carriers be\ntreated equally.\nAuthority for Charter Services. While they may have had\nsome regulatory value in the past, distinctions between\non-route and off-route charters for scheduled carriers\nand geographic restrictions on the charter authority of\nsupplemental carriers reduce competitive flexibility and\nthe availability of charter services. In place of the present\non-route/off-route distinctions for international charters\nby scheduled carriers, U.S. international carriers should\nhave unrestricted charter authority within the regions where\nthey provide scheduled services. The supplemental carriers\n-13-\nalready have authority on a regional basis. Both inter-\nnational scheduled and supplemental carriers should have\nexpanded opportunities to operate charter flights outside\ntheir authorized regions.\nExpansion of Supplemental Carriers\nThe fact that a carrier was initially certificated as\na supplemental should not bar it, as a matter either\nof law or of regulation, from acquiring a scheduled cer-\ntificate, so long as it meets the same requirements that\na scheduled carrier must meet.\nSince 1963, mergers, bankruptcies, and other adjustments\nhave caused a substantial reduction in the number of\nsupplemental air carriers. Of the thirteen U.S. carriers\noriginally granted supplemental certificates, only six\nare currently active operators of charter authority.\nIn the past decade the supplemental carriers have been\nan effective, valuable competitive spur. They have fostered\nmarket development and introduction of new price/quality\noptions that have benefited the traveling public and\nthe tourist industry here and abroad. While the number\nof supplemental carriers is not an index of the quality\nof the competition provided by this important segment\nof the air transport industry, there now may be opport-\nunities for additional supplemental carriers to initiate\neconomically viable operations, in which case the ranks\nof the supplementals should be opened to new entrants.\nCargo Services\nFreight and passenger service characteristics differ\nin important areas; where they do, freight issues merit\nseparate consideration. International air cargo operations\nshould respond to the need of commerce and the shipping\npublic for fast, reliable transport of relatively high-value\nor short-life goods. The 1970 Policy Statement recognized\nthe impact of wide-bodied aircraft on passenger services.\nNow U.S. policy must be cognizant of their impact on\nfreight service and development.\nBecause of the inherent cost advantage and energy efficiency\nof surface transportation, air freight is and always\nwill be a premium transportation service, although for\ninternational passenger service, air travel is the low\ncost option. While surface transport provides for the\nregular flow of most goods, air freight is and must be\navailable for urgent shipments to respond to peak require-\nments, to compensate for underestimates of product demand,\nand to remedy untimely shipping delays.\n-14-\nAir freight must be viewed as a part of the total freight\ntransportation system, inevitably involving truck transport,\nand often rail or water movement as well. Air transport\nis an essential component of an expedited intermodal\nfreight delivery system. The air carriers should seek\nto improve the quality of the total transport service\nby effectively integrating the ground and air transport\nsegments, in order to lessen total transit time, improve\nshipment security, and lower transport costs.\nRoute Authority. All-cargo and intermodal services provide\na distinct benefit to shippers; their expansion should\nbe encouraged where economically justified. In granting\nauthority for all-cargo operations, recognition should\nbe given to the need for routing and scheduling flexibility,\nwhich may differ considerably from passenger routing\nand scheduling patterns.\nAt present, if an all-cargo carrier wishes to obtain route\nauthority, it must make a public convenience and necessity\n(PC&N) argument based on freight operations alone. A passenger\ncarrier, however, can make its PC&N argument based on passenger\ntraffic only or on a combination of passenger and freight\ntraffic, initiate passenger (and combination freight) service,\nand then, at its option, initiate freighter service as the\nair freight market develops without any regulatory PC&N require-\nment or hearing before the Civil Aeronautics Board. In such\na regulatory cycle the cargo specialists, whose innovations\nand efficiencies have spurred the growth of international\nair cargo service, have little opportunity to compete for\nnew markets and to speed freight market development. Thus\nto stimulate competition for entry into new air freight markets,\nthe Board should make separate determinations to grant separate\ncertificates for combination passenger/cargo authority and\nfor freighter-only authority.\nAs a further step in stimulating competition in the development\nand service of air freight markets, the Board should consider\ngranting the U.S. all-cargo carriers authority for inter-\nnational scheduled freighter services on a regional basis.\nSuch authority would enable the all-cargo carriers to institute\nnew scheduled freighter services in their service region at\ntheir option without the need for and the delays inherent\n-15-\nin successive regulatory \"PC&N\" investigations. The\nauthority for the combination carriers to institute freighter\nservices on any of their routes which now serve passengers\npredominantly would remain unchanged.\nRights for all-cargo routes should be incorporated into\nexisting bilateral agreements, rather than being made\nthe subject of separate agreements.\nService Considerations. Because shippers place a high\nvalue on the availability and timeliness of delivery,\nthe primary service considerations for the international\nfreight shipper are departure time and arrival time.\nFreight shippers generally seek the on-demand availability\ncharacteristic of scheduled service. Indeed, small shippers\ndo not even have access to charter services. Consequently,\nthe development of air freight service should provide\nfor substantial service improvements for those shippers,\nlarge and small, who desire or require the premium transporta-\ntion service offered by reliable, frequent, extensive\nschedules of freighter aircraft. The greater the volume\nmoving on scheduled services the more extensive can be\nthe scheduled route network and, by increasing the load\nfactor, the lower the cost to the shipper. The availability\nof charter services is especially important for off-route\nfreight shipments and for freight requiring peculiar\nhandling or security arrangements.\nSplit Charters. Passenger charter operators are permitted\nto carry separate charter groups on the same flight,\nbut currently are prohibited from carrying passenger\nand cargo charter traffic on the same flight; this may\nresult in inefficient aircraft utilization. The economic\nefficiency of charter operations would be enhanced by\nremoving this prohibition, and permitting separate cargo\ncharters to be carried on passenger charter flights.\n-16-\nIII. VIABILITY OF THE U.S. INTERNATIONAL\nAIR TRANSPORTATION SYSTEM\nThe air transport interests of the United States are\nbest assured by a private U.S. international air trans-\nportation industry that is viable, efficient, and capable\nof generating sufficient earnings to attract private\ncapital and provide job opportunities.\nGOALS\nIn pursuit of this objective, the United States will\nsupport vigorously:\nA strong, viable system of international routes.\nA modernized regulatory structure within which\ncarriers can respond to changing market conditions.\nFare structures that respond to consumer demand,\noffer price and quality-of-service alternatives,\nenable long-term market growth, and permit\nprofitable operations by efficient carriers.\nInnovation in developing services that expand markets\nand attract passengers and cargo shipments.\nEfficient use of fuel and other resources.\nPrevention of predatory and monopolistic practices.\nPOLICY\nCapacity\nBecause international routes are determined by government\nagreements and tariff structures are determined within\nthe International Air Transport Association forum,\ncapacity has been the principal competitive medium.\nHowever, in recent years excess capacity, caused by commit-\nment to too many aircraft and by declining traffic, has\nbeen a severe economic burden to the industry.\nMany carriers have chosen to compete through illegal\nfare discounting or excessive payments to middlemen rather\nthan risk the loss of market share by reducing capacity.\nAlthough perceptions may differ, many industry managers\nappear to attach significant value to market share.\nOf particular relevance to government policy is the fact\nthat many foreign governments are willing to underwrite\nthe costs of excess capacity in order to preserve or\nimprove the market share of their national carriers or\nto generate additional foreign exchange earnings.\n-17-\nIn adjusting capacity to changes in traffic, scheduled carriers\nmust contend with the relatively low frequency of long-haul\ninternational flights, the number of carriers in any given\nmarket, and the size of efficient modern long-range aircraft,\nall of which impede scheduling flexibility and aggravate\nattempts to rationalize capacity. Carriers on only four\nor five intercontinental routes operate more than once-daily\nservice. In many international markets, direct services\nare operated only two or three times a week. Bilateral\nexchanges have led to the authorization of at least two\nair carriers on most international routes even though\nthe optimum number of daily flights is much lower on\nmany international routes than on domestic routes. Long\nroute segments, multiple time zone changes, and airport\ncurfews inhibit carrier flexibility in arranging intercon-\ntinental schedules.\nThree principal international capacity issues that require\nattention are excess capacity, market share, and sixth\nfreedom capacity.\nExcess Capacity. Even under circumstances of extreme\nfinancial distress, the preferred approach to excess\ncapacity is unilateral reductions by the carriers. However,\nin the recent past, in a marked departure from fundamental\nU.S. policy, limited and temporary carrier agreements\non capacity have been permitted. This exception was\nmade because of the serious level of excess capacity\n(i.e., capacity in excess of traffic demand at a reasonable\nload factor) in the international aviation system and\nthe resulting financial distress of the U.S. carriers.\nMost of this excess capacity resulted from the purchase\nof equipment in anticipation of continued traffic growth\nwhich failed to occur during the fuel crisis and worldwide\nrecession. As the economic recovery continues and demand\ncatches up with capacity, such agreements would no longer\nbe necessary. The recovery of the world economy should\nabsorb the present excess over the next several years,\nand market-based decisions should again be adequate to\nestablish rational levels. Nevertheless, in the short\nrun, because of the importance of economically viable\noperations, we should support approval by the Civil Aeron-\nautics Board of temporary carrier agreements if the\nfollowing standards apply:\n-18-\nExcess capacity is having a serious, adverse impact\non the viability of operations on the route system\nin question.\nThe public interest is served by assuring adequate\nscheduled service on the route by a U.S. carrier.\nUnilateral reductions, or other less anticompetitive\nalternatives, are shown by clear and convincing\nevidence of past practice to be infeasible, and,\nif undertaken in the current context, would put\nthe carrier making them at a significant competitive\ndisadvantage with respect to other carriers on that\nroute.\nCarrier agreements should be temporary and subject to\napproval, monitoring, and evaluation by the Civil Aero-\nnautics Board. Any renewal of such agreements should\nbe subject to the foregoing standards.\nCapacity agreements arrived at between governments generally\ndo not have the benefit of exposure to public reaction\nand response that carrier agreements do. Government\nintervention should be used only where there is a clear\nneed for capacity reduction, as defined above, and attempts\nat unilateral cutbacks and carrier agreements have been\nineffective.\nMarket Share. The second capacity issue is market share.\nThe United States has traditionally espoused the Bermuda\nsystem, under which each carrier determines for itself\nthe level of capacity it believes is warranted, subject\nonly to ex post facto review by governments. The United\nStates is faced with increasing criticism of the Bermuda\nsystem by foreign governments whose perceptions of competi-\ntive principles differ from our own. The preservation\nof the competitive concept underlying the Bermuda system\nis vital, because systems under which carriers or govern-\nments predetermine capacity for market share reasons\ncan introduce artificial restraints unrelated to carrier\nefficiency or traffic demand. When capacity disputes\narise, the United States must must weigh carefully each\nsituation to determine overall U.S. interests. Special\nprocedures to deal with capacity disputes may be appro-\npriate in some instances. When other countries advocate\nless flexibility in capacity competition, we may insist,\nas a quid pro quo, on greater flexibility in pricing\ncompetition, SO long as forecast load factors are well\nbelow full utilization load factors.\nSixth Freedom Capacity. The third capacity issue arises\nfrom situations where carriers rely excessively on traffic\nhaving its origin or destination behind the homeland of\nthe carrier. Such reliance is contrary to the provisions\n-19-\nof our bilateral air transport agreements; these operations\nhave severely distorted traffic levels and distribution\nin certain markets. The United States will seek bilateral\nreview of foreign carrier operations considered to be\nin violation of such provisions and will attach high\npriority to resolution of this matter.\nCooperative Agreements\nThe United States will continue to have a flexible policy\nwith respect to operating arrangements, such as interline\nagreements, equipment interchanges, and blocked space\nagreements. Arrangements of these kinds can help to promote\nefficiency and improve service. They may also allow\neconomically viable operations in markets that might\notherwise go unserved and may meet other international\naviation policy objectives as well. Such arrangements\nmay be permitted and even encouraged in cases where their\nservice benefits clearly are more substantial than their\nanticompetitive impact. On the other hand, economic\nagreements such as revenue or traffic pools generally\nare contrary to the public interest and will be dis-\ncouraged. Pooling proposals should be disapproved unless\nthere is clear and convincing evidence that the pool\nwould achieve significant U.S. policy objectives and\nmore competitive alternatives are not available. Strict\nreporting and tariff conditions must be integral to\nsuch agreements to assure that they are not contrary\nto the public interest.\nFares and Rates\nThe preferred means of assuring economic efficiency is\nthrough the operation of free-market forces. However,\nfundamental restraints limit the operation of free com-\npetition in international air services. In support of an\neconomically sound and efficient air carrier industry,\ntherefore, the United States will continue a system of\ngovernment oversight of international passenger fares\nand cargo rates.\nInternational fares and rates should, to the maximum degree\nfeasible, be cost-related, responsive to consumer demand,\nand established on the basis of competitive market forces.\nThe tariff structure, based on these principles, should\nsubstantially benefit passengers, shippers, and carriers\nalike. Within such a structure we would expect to achieve\nfares and rates that are:\nSet by individual carriers at the lowest levels\nthat permit an efficient carrier to earn a reasonable\nreturn.\nGreatly simplified compared with the present prolif-\neration of discount arrangements, yet sufficiently\nflexible to provide genuine price/service options.\n-20-\nA more simplified fare structure, including simplified\nconstruction rules, stopover provisions, and circuity allow-\nances, would facilitate adherence to and enforcement of\nthe agreed fares.\nThe compulsion of some carriers to pursue traffic at\nany cost on a total market share basis, whether to maintain\nmarket share or to support unneeded capacity, has resulted\nin special, low unprofitable fares. It also has led to\nunlawful discounting. Such practices obviously have\naggravated the carriers' financial difficulties in the\npast. In the last analysis, however, carriers cannot\nexpect to achieve profitable operations unless capacity\nis related to demand.\nRole of IATA. Most other governments are unwilling to\naccept a system in which fares are established by carriers\nunilaterally. The alternative of establishing fares\nby intergovernmental agreement, whether bilaterally or\nmultilaterally, would be complex and unwieldy. Moreover,\nit is not a desirable alternative because governments\nshould not be involved in fixing international fares\nas a general practice. Therefore, the United States\nat present intends to continue to accept the International\nAir Transport Association as the principal vehicle for\nintercarrier negotiation of scheduled tariffs. At the\nsame time IATA and its member carriers should revise\ntheir tariff-setting structure, so that it can be more\nresponsive to market forces and innovative fare programs,\nincluding greater flexibility for rate setting by individual\ncarriers.\nRole of the Civil Aeronautics Board. In reviewing both\nagreements and individual tariffs, the Board should provide\na meaningful opportunity for public hearings or other\npublic review. Board action on IATA agreements should\nbe taken in a timely fashion, so that the member carriers\nof IATA can give reasonable public notice of new tariff\nschedules prior to their implementation.\n-21-\nTo assist in achieving a cost-based tariff structure\nand maximum pricing efficiency, the Board should identify\nthe types of costs that it will apply in determining\nwhether to approve rate agreements or individual tariff\nfilings. Generally, the cost levels should be those\nof the most efficient carrier. The Board should publish\nits cost data well in advance of IATA traffic conferences\nor the likely dates of significant new individual tariff\nfilings.\nPassenger Fares. The present international fare structure\ncontains fares that are largely unrelated to the costs\nof providing the service. Because of its unwarranted\ncomplexity, the present fare structure also is unfair\nto the traveling public, as it results in frequent mis-\nquotation and misconstruction of fares.\nThe United States has serious reservations about the\npractice of charging normal-fare passengers fares that\nare unreasonably in excess of fully allocated costs,\nin an attempt to subsidize the carriage of other passengers\nat fares unreasonably below cost. For example, since\ntoday only about twenty percent of North Atlantic travel\nis at undiscounted fares, the point of departure for\nrationalization of the fare structure would seem to lie\nwith the promotional fares and with bringing published\ntariffs into line with actual costs. Across-the-board\npercentage fare increases will not solve this fundamental\nproblem. The United States supports a narrowing of the\ngap between normal economy fares and promotional fares\nand the rationalization of the present charter-competitive\nfares on a cost-related basis. These fares, as well\nas any new promotional fares, must be justified on their\nrespective economic merits. In evaluating new proposals\nfor promotional fares, the Civil Aeronautics Board should\ntake into account the relationship to scheduled service\ncosts. Further, the entire question of the validity\nof the present highly differentiated North Atlantic passenger\nfare structure should be explored in depth in the North\nAtlantic Fares Investigation, presently before the Board.\nA more rational relationship between normal and promotional\nfares is not inconsistent with the use of pricing flexibility\nas a means of achieving a satisfactory balance between\ntraffic and capacity levels. As noted earlier, the\nnature of long-haul international markets inhibits\nFORD\n-22-\nthe carriers' ability to adjust capacity to meet daily\nand seasonal fluctuations in demand. Pricing policy\ncan be an important tool for lessening these fluctuations\nby encouraging traffic to adjust to efficient levels\nof capacity. Increased efficiency in capacity utilization\nmeans higher average load factors, which can then permit\nlower fares for scheduled flights, stimulating still\nmore traffic. Much of the international air travel market\nis composed of price-sensitive, destination-flexible\nvacation travelers; therefore, the traffic stimulus of\nlower fares can be large, as has been demonstrated in\nthe transatlantic market in the past decade with the\nmajor expansion of charter services. Such traffic expansion\ncan result in greater revenues for the carriers and in\ngreater tourism receipts for the destination countries.\nThe carriers, however, should exercise restraint in their\npricing practices. In seeking charter-competitive fares,\nscheduled carriers have paid insufficient attention to\ndemand peaking, incurred major losses, and attempted\nto offset these losses by increasing the regular fares.\nPeak/off-peak pricing and charter groups on scheduled\nservice should, to the contrary, enable carriers to lower\nthe regular fares by attracting additional traffic to\nutilize otherwise unused capacity. While some carriers\nmay argue that the result is to dilute yield -- i.e.,\nrevenue per revenue-passenger-mile -- the more meaningful\nresult is to increase total flight revenue, meaning that\nthe regular fare passenger has a lower expense burden\nper aircraft mile. Governments, however, must prevent\npredatory price competition.\nCharter Rates. Charter rates, for both passengers and\nfreight, should be subject to the same criteria and policies\nas fares for scheduled air services, particularly their\nrelationship to costs. The Civil Aeronautics Board proposed\nseveral years ago a system of minimum passenger charter\nrates related to costs. While the courts held that this\nproposal exceeded the Board's powers, the Board can and\nshould publish its cost data against which particular\ncharter rates are to be judged, as is recommended above\nfor scheduled service fares.\nCargo Rates. Cargo rates should be responsive to shipper\ndemand and related to actual costs. The Civil Aeronautics\nBoard should prevent the use of scheduled cargo rates\nbelow the costs of the most efficient all-cargo carrier,\nwhether the rates are offered by all-cargo or combination\ncarriers.\n-23-\nWith the further introduction of wide-bodied all-cargo\naircraft, appropriate weight breaks reflecting large\nvolume cost savings should be permitted.\nThe present structure of specific commodity rates (SCRs)\nis, as the Civil Aeronautics Board has stated, unfair both\nto the shipper (and hence, the consumer) and to the carrier.\nRate differences among commodities do not reflect inherent\ncarrier cost differences, and SO result in cross-\nsubsidization: one commodity paying, in part, for the\ntransport of another. Unduly low SCRs invite misclassifica-\ntion of commodities, thereby sapping carrier revenues or\nposing a burdensome tariff enforcement requirement.\nContinued reliance on moving two-thirds to three-quarters\nof the tonnage at promotional specific commodity rates\nbased on marginal costs is incompatible with developing\na sound economic structure for air freight service.\nTo encourage the long-term growth of the air freight\nindustry, general commodity rates should be established\nat reasonable levels related to costs. When this has\nbeen accomplished, it should be possible to abandon the\nspecific commodity rates as they exist today. The intro-\nduction or maintenance of a limited number of specific\ncommodity rates, where considered essential to attract\nnew traffic, would be desirable. These rates should not\nremain in the structure indefinitely, but should be in-\ncreased over a period of time to the general commodity\nlevels. Special commodity rates may also continue to\nbe appropriate for commodities that have special handling\nor shipping requirements.\n-24-\nMail Rates. The Civil Aeronautics Board should act expedi-\ntiously on proposed changes in rates for the international\nair transportation of mail. It should provide for temporary\nrates, which cover the costs of U.S. carriers, until\nfinal Board resolution of the issue and, as provided\nby the International Air Transportation Fair Competitive\nPractices Act of 1974, should give proper consideration\nto the cost-related elements of the Universal Postal\nUnion (UPU) rates. In addition, the Congress has directed\nthat the Board consider the competitive disadvantage\nof U.S. flag carriers resulting from their foreign com-\npetitors' receiving the UPU rates for carriage of foreign\nmail.\nTariff Integrity\nThe existence of a tariff structure is of little value\nif there is widespread deviation from the published tariffs.\nIn the past few years, the practice of undercutting published\ntariffs has become common in international operations,\nand is now of considerable economic significance. We\nare concerned about this erosion of tariff integrity\nand the harmful discrimination that results from it.\nThe general public suffers from higher fares, and the\ncarriers from reduced net revenues. A basic consideration\nin this area is the need to relate fares more closely\nwith costs and to eliminate the excess capacity which\nencourages undercutting.\nRole, Compensation, and Regulation of Middlemen\nTransportation middlemen-- travel agents, tour operators,\nair freight forwarders, cargo agents and others -- perform\na valuable service for the traveling and shipping public.\nThe major part of international traffic is handled through\nthe thousands of businesses that compete in arranging\nnot only air transportation services, but the ancillary\nservices that faciliate the efficient flow of passengers\nand goods.\n-25-\nSince middlemen are an integral part of the international\nair transport system, it is essential that reasonable\nstandards for consumer protection be observed. Federal\nlicensing or certification of middlemen should be con-\nsidered only to the extent necessary to ensure minimum\nconsumer protection standards. Those middlemen that\noperate as indirect air carriers (air freight forwarders,\ninclusive tour charter operators, and military charter\noperators) should continue to be regulated by the Civil\nAeronautics Board only to the extent necessary to protect\nthe consumer. Self-regulation should be considered for\nthe remainder of the industry which could establish\nstandards and conditions of operation, subject to Govern-\nment review.\nThe compensation of travel agents by commissions has\nbecome a subject of considerable controversy. Rather\nthan having IATA involved in the establishment of commis-\nsion levels, we recommend that each carrier establish\nits commission structure independently. This will promote\nadditional competition and allow each carrier to tailor\nits approach to commission structure independently.\nIt would also permit each carrier to relate the level\nof commissions to the value of the middlemen's services.\nTo help ensure consumer awareness and to permit the Civil\nAeronautics Board to take commission costs into account\nin determining total carrier costs as a basis for fare\ndecisions, carrier commission structures should be filed\nfor public inspection at the Board. However, the Board\nshould not regulate the level of commission rates. As\nlong as travel agent commissions are a part of the air\nticket price, the public should be informed as to the\narrangement between the carrier and the middlemen. This\nwill guard against undue preference or advantage being\ngiven to any particular agency or individual.\nGovernment Procurements\nU.S. Government procurement of foreign and overseas air\ntransportation services from U.S. flag carriers helps\nto sustain the U.S. international route system, and there-\nby to assure the continuing availability of U.S. flag\nservice for the transport of U.S. mail, U.S. Government\npersonnel, and U.S. citizens.\n-26-\nWe should make better use of civil capacity to meet Depart-\nment of Defense and other Government air transportation\nneeds. Specifically, we should minimize the economic\nimpact on commercial air carriers of large scale operations\nby the Military Airlift Command (MAC) fleet by utilizing\ncivil capacity rather than MAC capacity to the extent\npracticable in peacetime. However, this policy recognizes\nthe need to maintain an effective MAC capability and\nto use efficiently the MAC airlift capacity resulting\nas a by-product of essential training.\nU.S. carriers are encouraged to continue participation\nin the Civil Reserve Air Fleet (CRAF) program. The airlift\ncapability, maintained by normal civil air carrier operations\nand therefore available for national emergency use, is\na major contribution to the preparedness of the United\nStates and makes military duplication of that capacity\nunnecessary. A viable U.S. flag industry is essential\nto make the program effective; any diminution of U.S.\nflag capability would reduce the effectiveness of the\nCRAF program.\nAs set forth in the International Air Transportation\nFair Competitive Practices Act of 1974, U.S. Government-\nfinanced air transportation must be performed on U.S.\nflag carriers to the extent such services are available.\nThe Government should pay the same tariff rates as the\ngeneral public for all its procurements of air transport\nservice except where a separate rate is established on\nthe basis of costs incurred by the airlines in providing\nspecific services to the U.S. Government.\nIn the event that U.S flag scheduled flights are not\navailable for the timely transport of U.S. mail, the\nPostal Service should attempt to transport the mail on\ncharter flights of U.S. carriers, route or supplemental.\nTo the extent that the Board-determined international mail\nrates are below UPU rates, this practice would offer\ncost savings to the Postal Service.\nThe International Competitive Environment\nThe United States opposes unfair, discriminatory, or\nrestrictive practices by foreign countries that limit\nthe competitive capability of U.S. flag carriers. Section\n2 of the International Air Transportation Fair Competitive\nPractices Act of 1974 specifically directs Departments\nand Agencies of this Government to seek elimination of\nthese practices. This policy will be pursued vigorously.\nYORD\nJovagia\n-27-\nThe United States also opposes discriminatory or inequitable\ncharges imposed on U.S. flag carriers for the use of\nairway and airport properties, and we will utilize to\nthe maximum extent feasible Section 3 of the International\nAir Transportation Fair Competitive Practices Act of\n1974, or Section 301 of the Trade Act of 1974, to correct\ninequities. This Government clearly recognizes the need\nto recover from users the costs of the services provided.\nWe believe that, in imposing such charges, care\nshould be taken to ensure that they are not discriminatory\nand that the level of the charge is related to cost.\nOn both of these issues, the United States will seek change\nthrough negotiation. As a last resort, however, unilateral\naction may be taken to correct the problem.\n-28-\nIV. SAFETY, ENVIRONMENTAL, AND\nOTHER CONSIDERATIONS\nIt is the objective of the United States to achieve an\nadvanced, safe, and efficient system of airports and\nairways to support international air transport.\nGOALS\nIn support of the foregoing objective, the United States\nwill pursue:\nFull and fair allocation among users of the costs\nof operating airports and airway systems.\nPrevention of hijacking, air piracy, and\nterrorism.\nMaintenance and development of high quality\naircraft, airports, and navigational systems\nand development and implementation of\ntechnological improvements that enhance\nenergy and economic efficiency in air\ntransportation.\nEnforcement of regulations to protect the U.S.\nenvironment.\nPOLICY\nInternational Organizations\nThe United States will continue to support the International\nCivil Aviation Organization (ICAO) and its efforts to\nadopt and implement international standards. A fundamental\npolicy principle is to promote, through ICAO, common\nrequirements and practices regarding technical, facilitation,\nand legal matters affecting international civil aviation.\nIn this respect, the United States believes that ICAO\nshould continue to direct its activities towards those\nissues where solutions customarily have been sought through\nmultilateral governmental action.\nFORD\n-29-\nA basic strength of ICAO has been its ability to focus\non the technical aspects of international aviation and\nthe willingness of its members to minimize political\ninfluences on the work of the organization. The United\nStates will resist the injection of non-aviation issues\ninto ICAO proceedings; we urge other governments to adopt\na similar position.\nCertification and Operation of Aircraft\nWe will continue the present U.S. policies concerning\nsafety, security, the environment, and fuel availability.\nSafety. With respect to safety (including the air movement\nof hazardous materials), the United States supports the\ndevelopment of uniform international regulations governing\nflight safety, airspace systems, operations, and airworthi-\nness. To advance this objective, the United States has\nembarked upon a program of comprehensive biennial reviews\nof its safety regulations to ensure that its aircraft\nare produced and operated safely as air navigation and\naeronautical technology advance. These reviews are being\nconducted in cooperation with other nations with the\nintention of achieving more general agreement on common\nstandards.\nAvailability, Allocation, and Cost of Fuel. Nations\nshould treat their own carriers and foreign carriers\nthe same in any system of fuel allocation and pricing\nfor international air transport. The United States intends\nto adhere to this principle and expects other countries\nto do likewise.\nEnvironmental Objectives and Their Impact. The United\nStates encourages agreement on international environmental\nissues through the ICAO forum. This should promote equal\ntreatment for foreign and domestic carriers through inter-\nnational regulations and preclude any unwarranted economic\nadvantages or disadvantages for competing carriers which\nwould otherwise have to satisy diverse national requirements.\nWhile the environmental needs and resources of the United\nStates may differ from those of other nations, every\neffort will be made to obtain international acceptance\nof U.S. requirements. The actions taken by the U.S.\nGovernment must be responsive to the legislative mandates\nthat seek to protect the public health and welfare of\nAmerican citizens. We will seek an ICAO agreement on\napplication of noise standards for existing aircraft\nin international operations. If it proves impossible\nto obtain international agreement on environmental problems\nsuch as noise and engine emissions, the United States\nFORD\nmay then find it necessary to develop U.S. national standards\nmore stringent than those which can be developed through\nICAO, in order to protect human health and environmental\nLIBRARY\nquality.\n-30-\nSecurity Objectives and Their Impact. Travel on all\nair carriers must be safe and secure from unlawful acts.\nThe Anti-Hijacking Act of 1974 and the Air Transportation\nSecurity Act of 1974 strengthened the U.S. domestic and\ninternational civil aviation security program, which\nis based upon the sharing of responsibilities among air\ncarriers, airports, local law enforcement groups, and\nthe Federal Government. The basic objective of these\nActs is to prevent the carriage of weapons, explosives,\nand incendiary devices on board U.S. carrier aircraft,\nand unauthorized access to aircraft on the ground. Security\nresponsibilities are clearly delineated in the Acts.\nAirport operators and air carriers are required to develop\nand implement acceptable security programs. The Federal\nAviation Administration provides advisory technical assist-\nance to operators of U.S. air carriers and airports,\nenforces Federal security regulations, and evaluates\nthe program to assure effectiveness.\nThere has been substantial improvement in security measures\nthroughout the world since 1970 resulting in increased\nprotection of civil aviation and its users from criminal\nacts that threaten their safety. Nevertheless, the United\nStates supports and seeks adoption by ICAO of even stronger\nsecurity standards and recommended practices. We\nalso shall continue bilateral programs to provide technical\nassistance to, and to exchange information with, foreign\nnations to improve security at foreign airports having\na direct impact on the safety of U.S. citizens abroad.\nB\nSOME THOUGHTS ON TIMING\nOF A\nU. S. INTERNATIONAL AVIATION POLICY STATEMENT\nFor a number of months the Executive Branch has had under\nconsideration the issuance of a new international aviation policy\nstatement. It is the purpose of this memorandum to set forth certain\nfactors which you may wish to consider relating to the timing of such\na statement.\nAt the outset I should make clear that I do not oppose inter-\nnational aviation policy statements in general. Our government\nshould enunciate its international aviation policy. Moreover, because\nof the CAB's rather peripheral involvement in the policy review during\nthe past several months, I am not sufficiently familiar with the specific\ncontent of the currently proposed statement to endorse or criticize its\nsubstance.\nThe matters here discussed are intended solely in connection\nwith the timing of the statement.\nPresumably it is the objective of the policy statement to articu-\nlate the U. S. Government's international aviation policy so as to\nprovide a basic and specific guide for the negotiation of bilateral\naviation agreements, Executive review of international aviation cases\nand in the resolution of many \"brush fires\" that regularly erupt in\nrelations with our international aviation partners. To be meaningful,\nthen, the statement should concretely address the important issues\nconfronting the international aviation community.\nAt present there are pending before the President, or to be\nsubmitted to him in the near future, a number of international air\ncases which present many of the basic issues that a comprehensive\ninternational aviation policy statement should address.\nIn addition, the U. S. Government is currently negotiating\nbilateral aviation agreements, among others, with the United Kingdom\nand Japan -- our largest aviation partners in the Atlantic and the Pacific.\nIn the case of the U. K., we are negotiating in the context of the U. K. 's\nLIBRARY\n- 2 -\ntermination of the so-called \"Bermuda Agreement\" which for 30 years\nhas served as the cornerstone and basic model for the principles of\nU. S. aviation relationships around the world.\nOne can argue persuasively that it would be the most rational to\nnegotiate these important relationships and decide these international\naviation cases against the backdrop of a clear declaration of U. S.\npolicy on the fundamental issues that are involved. However, the fact\nis that the U. S. is presently in the process of formulating its negoti-\nating positions and, in that process, will be considering various\nalternatives which are inextricably linked to broader international\naviation policy matters.\nThe point is that there exists a fundamental and visible relation-\nship between a new U. S. international aviation policy statement and\nthe resolution of these various pending \"real world\" matters. And it\nmay be, that time and events have brought us to a. point where this\ninterdependence requires that the policy pronouncement and the\ndetermination of these matters be carried forward in tandem.\nIt would seem futile to issue a policy statement SO elastic that\nany resolution of these particular matters would be consistent with the\nstatement of U. S. policy. On the other hand, to promulgate a policy\nstatement of adequate specificity and then face the circumstances in\nthese proceedings or negotiations which required a departure from its\ndictates, would erode the durability and credibility of the policy.\nThere remains a final consideration. Whatever international\naviation policy is ultimately promulgated, it will be most difficult to\nattain the stated objectives until our governmental mechanisms are\norganized to better assure that our policies can be implemented. In\nmy judgment this requires a central focus and a regularized and\nsufficiently high-level process for addressing international aviation\nmatters and more effective coordination of the presently fragmented\nresponsibility in the Executive Branch. In my view the occasion of a\nnew U. S. policy statement should be seized to deal with at least the\nmost pressing organizational matters for handling international\naviation.\n- 3 -\nI recognize that there are arguments both for issuance now\nand for deferral. And it is understandable that those principally\ninvolved in this worthy undertaking of many months desire to\nconclude the task.\nHowever, I hope that these thoughts on the timing question\nwill be received, as they are offered, in the spirit of constructive\ncontribution to the Executive Branch deliberations on this matter\nas well as broader issues of international aviation strategy.\nJohn E. Robson\nChairman\nFORD LIBRARY\nfile airter\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 8, 1976\nMEMORANDUM FOR:\nJIM CANNON\nART QUERN\nFROM:\nSTEVE McCONAHEY senh\nWe should encourage Coleman to stay out of this issue.\nThis is a local issue and there is no need for us to\nget trapped in another no-win position.\nAttachment\nCall\nIs S6M will Sounds needed to\nColeman is. - he\nin\nFORD & LIBRARY GERALD\n090415\nThe New Uo\nANDING OF CONCORDE\nIN NEW YORK IS SEEN\nSupport Is Indicated\nDr. McLucas, in his statements today,\nWITHIN 2 OR 3 MONTHS\n?\nseemed to Concorde supporters to have\ngone further than any American official\nbefore him in holding out the possibility\nof Federal support in the British-French\nban airline suit to lift the Kennedy airport\nHead of F.A.A. Says Agency May\nn-\nAnd while spokesmen in Washington,\nit:\nJoin in Court Moves to Aid in\nre\ntion, Department position had\nand later here, stressed the Transporta\nty\nchanged it was enough for the British not\nLifting Barriers at Kennedy\nFederal aviation. official had spoken so\nand French that, once again, a high\nhelpfully about the plane.\nth\nArguing that the Constitution gave the\nBy RICHARD WITKIN\nin-\nSpecial to The New York Times\nbut\nlate air commerce, Dr. McLucas said he\nFederal Government the power to regu-\nFARNBOROUGH, England, Sept: 7 -\nnt,\nthought the courts would recognize these\nApproval for the Concorde supersonic air-\nen\nliner to land in New York is likely in\nAn:\ncorde case.\n\"as the ultimate authority\" in the Con-\nthe next two or three months, the head\nre-\nin Federal District Court in Manhattan\nThe issue had been due to come up\nof the Federal Aviation Administration\nsaid here. today.\nall\nsides.: the\nnext Monday. But, by agreement. of both\nJohn.\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 29, 1976\nTO:\nJIM CANNON\nI\nFROM: PAUL LEACH\nYou might be interested in the\nattached announcement of Pan Am's\nsuccessful $75 million convertible\ndebt issue. This was an increase\nof a plan of $50 million and was\napparently sold out on the first\nday.\nThis announcement is neither an offer to sell nor a solicitation of an offer to buy these securities.\nThe offer is made only by the Prospectus.\navint\nit\n$75,000,000\nnone\nPAN\nAM\nPan American World Airways, Inc.\n10½ Convertible Subordinated Debentures\ndue October 1, 2001\nConvertible into Capital Stock at $53/4 per Share\nPrice 100%\nPlus accrued interest from October1, 1976\nCopies of the Prospectus may be obtained in any State only from such of the several\nUnderwriters, including the undersigned, as may lawfully offer the securities in such State.\nPan Am's 1$75 Millions\nOf Convertible Debt\nIs Sold Out Quickly\nLehman Brothers\nIncorporated\nBy a WALL STREET JOURNAL Staff Reporter\nNEW YORK-Pan American World Air-\nways' $73 million public offering of 104/2%\nconvertible debentures sold out quickly yes-\nterday after reaching: the market at a price\nof 100. a spokesman said.\nThe 25-year securities, which are rated\ntriple-C by Standard & Poor's, can be con-\nverted into the carrier's common stock at a\nSEPT. 29, 1976\nTHE WHITE HOUSE\nWASHINGTON\nOctober 1, 1976\nTO: JIM CANNON\nFROM: PAUL LEACH Paul\nAttached are three recent notices\nof airline financing and airplane\npurchases which may be of interest.\nPaul\nThank Jan\n/ 10/16\nAventin\n38\nNew Issue / September 30, 1976\n$60,000,000\nFLYING\nTIGERS\nThe Flying Tiger Line Inc.\n9% Equipment Trust Certificates Due October 1, 1991\nInterest payable April 1 and October 1\nPrice 100% and accrued interest, if any, from October 6, 1976\nThe day's other new taxable sale, a $80-1\nmíllion offer of Flying Tiger Line equipment.\ntrust certificates, also fared well. Only 'tag\nCopies of the Prospectus may be obtained in any State in which this announcement is circulated\nwere unsold by late yesterday, Salo-\nonly from such of the undersigned as may legally offer these securities in such State.\nSalomon Brothers\nBache Halsey Stuart Inc.\nThe First Boston Corporation\nBlyth Eastman Dillon & Co.\nIncorporated\nDillon, Read & Co. Inc.\nDominick & Dominick,\nDrexel Burnham & Co.\nIncorporated\nIncorporated\nGoldman, Sachs & Co.\nHornblower & Weeks-Hemphill, Noyes\nIncorporated\nE.F. Hutton & Company Inc.\nKidder, Peabody & Co.\nKuhn, Loeb & Co.\nIncorporated\nLazard Frères & Co.\nLehman Brothers\nLoeb, Rhoades & Co.\nIncorporated\nMerrill Lynch, Pierce, Fenner & Smith\nPaine, Webber, Jackson & Curtis\nIncorporated\nIncorporated\nReynolds Securities Inc.\nSmith Barney, Harris Upham & Co.\nWertheim & Co., Inc.\nIncorporated\nWhite, Weld & Co.\nDean Witter & Co.\nWarburg Paribas Becker Inc.\nIncorporated\nIncorporated\nBear, Stearns & Co.\nL.F. Rothschild & Co.\nShearson Hayden Stone Inc.\nShields Model Roland Securities\nWeeden & Co.\nIncorporated\nIncorporated\nJohnston, Lemon & Co.\nMoore, Leonard & Lynch,\nCraigie Incorporated\nIncorporated\nIncorporated\nGERALD FORD LIBRARY\nOctober 1, 1976\n461,242 Shares\nSouthwest Airlines Co.\nCommon Stock\nSouthwest Air. Combination Offer\nNEW Y ORK A combination offering of\n461,242 common shares of Southwest Airlines\nreached. the public market at $17.50 each\nlate yesterday.\nThe existing shares had closed at $18.125,\nPrice $17.50 Per Share\nCopies of the Prospectus may be obtained in any State in\nwhich this announcement is circulated only from such of the\nundersigned as may legally offer these securities in such State.\nE.F. Hutton & Company Inc.\nBache Halsey Stuart Inc.\nBlyth Eastman Dillon & Co.\nDrexel Burnham & Co.\nIncorporated\nIncorporated\nHornbtower a Weeks-Hemphill, Noyes\nKidder, Peabody & Co.\nLehman Brothers\nInsurporated\nIncorporated\nIncorporated\nLoeb, Rhoades & Co.\nPaine, Webber, Jackson & Curtis\nReynolds Securities Inc.\nIncorporated\nSmith Barney, Harris Upham & Co.\nWertheim & Co., Inc.\nWhite, Weld & Co.\nInterporated\nIncorporated\nDean Witter & Co.\nShearson Hayden Stone Inc.\nIncorporated\nInterstate Securities Corporation\nWheat, First Securities, Inc.\nArthurs, Lestrange & Short\nBaker, Watts & Co.\nFORD is LIBRARY GERALD\n10/1/76\nUAL's United Air Gets\nA major decision facing United in the\n1980s will be the purchase of a new-genera-\nClearance to Buy 727s\ntion plane, seating 175 to 200 people and re-\nplacing the last of the DC8s and United's 122\n727-100s, which seat 96. Last year, United\nAt Cost of $350 Million\nabandoned a proposal to spend $600 million\nfor 50 of a stretched-version 727 known as\nthe 727-300. The new-generation craft under\nstudy are Boeing's 7X7, which would seat\nBy a WALL STREET JOURNAL Staff Reporter\n180 to 200, and McDonnell Douglas's pro-\nCHICAGO-Directors of United Airlines\nposed DCX.\nand its parent, UAL Inc., voted, as ex-\nMr. Ferris said last week that\nFi-\npected, to purchase 28 of Boeing Co.'s 727-\nnancing our needs through 1980 doesn't pres-\n200 planes. The total $350 million outlay by\nent a problem; indeed, we could cover these\nUnited the country's largest airline. will in-\noutlavs with generated funds. The"
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