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The original documents are located in Box 4, folder "Aviation (2)" of the James M. Cannon
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
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
-2-
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
-ii-
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
-2-
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.
-3-
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.
-4-
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.
-5-
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.
-6-
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
-7-
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
-8-
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.
-9-
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