American Overseas Airlines v. Civil Aeronautics Bd., 12579.

• Decision Date: 23 January 1958
• Docket Number: No. 12579.,12579.
• Citation: 254 F.2d 744
• Parties: AMERICAN OVERSEAS AIRLINES, Inc., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

254 F.2d 744 (1958)

AMERICAN OVERSEAS AIRLINES, Inc., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.

No. 12579.

United States Court of Appeals District of Columbia Circuit.

Argued September 11, 1957.

Decided January 23, 1958.

COPYRIGHT MATERIAL OMITTED

Mr. Elihu Schott, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of Court, with whom Messrs. Henry J. Friendly, New York City, and Robert C. Barnard, Washington, D. C., were on the brief, for petitioner. Messrs. Leon Lipson and J. W. Lamberton, Washington, D. C., also entered appearances for petitioner.

Mr. Robert L. Park, Atty., Civil Aeronautics Board, with whom Mr. Franklin M. Stone, General Counsel, Civil Aeronautics Board, Messrs. John H. Wanner and O. D. Ozment, Associate General Counsel, Civil Aeronautics Board, and Mr. Daniel M. Friedman, Atty., Department of Justice, were on the brief, for respondent. Mr. Charles H. Weston, Atty., Department of Justice, also entered an appearance for respondent.

Before PRETTYMAN, WILBUR K. MILLER, and BURGER, Circuit Judges.

PRETTYMAN, Circuit Judge.

This is a mail pay case. The Civil Aeronautics Board, pursuant to Section 406 of the Civil Aeronautics Act of 1938,¹ established the amount of compensation to be paid American Overseas Airlines, Inc., for carrying mail for the period January 1, 1946, through September 25, 1950. On this latter date American Overseas was purchased by Pan American World Airways, Inc., and ceased operations. The points presented by the petition for review before us revolve about a pilots' strike in 1947, which grounded the company's planes for eighteen days. Counsel for the Bureau of Air Operations of the Board found the losses or costs due to this strike to be $598,000 and disallowed this amount from the total mail pay claimed by the company. After hearing, the examiner concluded that strike losses were a proper business expense but that return on investment during the strike period should be denied and depreciation and amortization of capitalized interest should be suspended during that period. The Board sustained the position of its Bureau counsel, with the exception of one minor item of $8,000. This adjustment reduced the computed strike loss to $590,000, and the Board disallowed this amount.

The proceeding to fix these mail rates was instituted before the Board in July, 1946. Temporary rates were established, subject to retroactive adjustment when final rates were fixed. This final order was issued December 20, 1954,² and amended August 30, 1955.³ Thus the final determination was prospective in form although retrospective in fact. This procedure is valid.

The pertinent part of the statute is:

"(a) The Board is empowered and directed * * * to fix and determine from time to time * * * the fair and reasonable rates of compensation for the transportation of mail by aircraft * * *.

"(b) * * * In determining the rate in each case, the Board shall take into consideration, among other factors, * * * the need of each such air carrier for compensation for the transportation of mail sufficient to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense."⁴

The company suffered a deficit in that its actual expenses exceeded its revenues for the period 1946-1947. It claimed as mail pay an amount which represented its "break-even need" — the amount needed to make revenue equal expenses, — and it claimed a return on its investment.

The Board made the disallowance on the ground "that sound public policy requires that we refuse to underwrite losses attributable to a labor controversy without regard to responsibility therefor." The Board says that to allow need pay upon the actual operation in this case would be to underwrite losses occasioned by a labor dispute and that to do this would tip the scales heavily in favor of the company in labor disputes, a function not vouchsafed to the Board by the statute; that losses from such risks are chargeable to capital (that is, against the 7 per cent return allowed the company upon its investment) rather than against operating revenues; that it is not customary public utility rate practice to allow strike losses; that the statute requires need pay to be based upon developmental requirements and strike losses are not developmental in character; and that the company's computation of break-even need would require the Government to pay for mail service not rendered.

The company urged before the examiner and before the Board, and urges here, that a strike cost is like any other cost and is part of the carrier's "need" which must be considered in fixing mail rates, subject only to the statutory standard of "honest, economical, and efficient management". The company says it proved that the strike occurred through no fault on its part. It says its need pay must be measured by the standards of "honest, economical, and efficient management," as the statute prescribes; that the record shows it was in no way responsible for the strike and kept the costs of the strike at a minimum; and that the Board's method would tip the scales heavily in favor of a union in any labor dispute.

Obviously resolution of the issue will be a factor in labor disputes in the air transport industry, no matter which way it is decided, so long as the Board must make its computations for past periods. If it be decided that final mail pay will be based on need shown by actual results of operation over the period of a strike, management will have a defensive cushion against damage from the strike. Its strike losses would be recouped, in part at least, by mail pay. On the other hand, if it be decided that final mail pay over a strike period will be based upon a theoretical computation of net revenues assuming no strike, labor will have an offensive weapon in a dispute with management. A strike would cost the company its strike losses without "need" mail pay as possible recoupment. So, one way or the other, there is no way to avoid an impact of the decision upon labor disputes in the industry, as long as the mail pay question is open for recomputation over the period of strikes.

But the statute does not permit mail pay to be determined according to the side of a labor dispute the Government agency may favor. It does not permit mail pay to depend upon Government policies in labor disputes. The Board says the statute does not permit it to tip the scales in favor of management. The statute does not permit it to tip the scales consciously or purposefully either way. The Board should not consider the impact of its determination in these terms.

The Board has twice urged upon the Supreme Court considerations of policy dehors the statute. In the Western Air Lines case,⁵ the Board did not include in its computation of "other revenue" a net profit achieved by the company upon the sale of intangible assets, solely because it (the Board) sought to encourage improvement of the national air route pattern through voluntary route transfers. We discussed the subject when the case was here,⁶ pointing out that the statute contained no provision for the application of industry-wide policies. The Supreme Court affirmed, saying,⁷ "The Act, however, speaks of `the need' of the carrier for the subsidy, not the effect of a policy on carriers in general" and emphasizing that the standard of the statute is the "need" of the carrier. "The difficulty here," said the Court, "is that the Board, in concluding that a part of the profits from the sale to United should not be used as an offset, forsook the standard of `need' and adopted a different one."⁸

In Summerfield v. Civil Aeronautics Board⁹ the Board explained its action "simply as a matter of policy" and "without review of any question of power". This court rejected the Board's contention, saying: "In our opinion failure of the Board to make the offset is at variance with the plain meaning of § 406 (b)." The Supreme Court affirmed.¹⁰ In that Court the Board made "an extended argument of policy" in support of its position. It urged that maximum operating efficiency and the development of air transportation would be better served by setting subsidy rates on a divisional rather than a system basis. The Court said: "This may be so. But that is a matter of policy for Congress to decide."¹¹

Thus the Supreme Court has twice held that matters of general policy, apart from the terms of this statute, are not to be used as guides for decision. The same rule applies here. A general policy as to labor disputes is not a factor to be considered in the determination of mail pay under this statute.

We look at the statute very carefully. We have quoted the pertinent portion. The basic, controlling provision is in the words beginning "to maintain and continue the development". The objective of the Congress is plain. It is the maintenance and continued development of air transportation to the extent and of the quality required for the national commerce, postal service, and defense. The objective is on a grand scale. It is for the public interest. It is vital. The words used are important, because they depict with clarity a congressional policy. Moreover the payment is "to enable such air carrier". Congress did not put the responsibility for development of an air transportation system wholly upon Government agencies. In this statute the Congress sought to utilize the abilities and the capacities of the private air carriers. The purpose of the compensation is to enable the carriers "to maintain and continue the development". Maintenance of an adequate air transportation system is one purpose. Continued development is the other —...