Hughes Air Corporation v. CAB, 72-1853

• Decision Date: 05 December 1973
• Docket Number: 72-1863.,72-1965,No. 72-1853,72-1853
• Citation: 492 F.2d 567
• Parties: HUGHES AIR CORPORATION and North Central Airlines, Inc., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent. AIR LINE PILOTS ASSOCIATION, INTERNATIONAL, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

492 F.2d 567 (1973)

HUGHES AIR CORPORATION and North Central Airlines, Inc., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent.

AIR LINE PILOTS ASSOCIATION, INTERNATIONAL, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.

Nos. 72-1853, 72-1965, 72-1863.

United States Court of Appeals, District of Columbia Circuit.

Argued June 4, 1973.

Decided December 5, 1973.

As Amended December 27, 1973.

Raymond J. Rasenberger, with whom James L. Devall, Washington, D.C., was on the brief, for petitioners in Nos. 72-1853 and 72-1965.

Gary Green, Washington, D.C., for petitioner in No. 72-1863.

O. D. Ozment, Deputy Gen. Counsel, Civ. Aeronautics Bd., with whom R. Tenny Johnson, Gen. Counsel, Warren L. Sharfman, Associate Gen. Counsel, Litigation and Research. Ivars V. Mellups, Atty., Civ. Aeronautics Bd., and Howard E. Shapiro, Atty., Dept. of Justice, were on the brief, for respondent. Robert L. Toomey, Atty., Civ. Aeronautics Bd., also entered an appearance for respondent.

Theodore I. Seamon, Washington, D. C., filed a brief on behalf of The National Air Transportation Conferences, Inc., as amicus curiae.

Before MILLER, Senior Circuit Judge, McGOWAN, Circuit Judge, and KAUFMAN^*, U.S. District Judge for the District of Maryland.

McGOWAN, Circuit Judge:

Petitioners Hughes Air Corporation (Air West) and North Central Airlines, Inc., and the Air Line Pilots Association, seek review of a Civil Aeronautics Board regulation exempting certain air taxi operations from many of the statutory requirements imposed on other carriers, including principally the requirement of certification.¹ The regulation in question, which exempts the operation of aircraft with a maximum passenger capacity of 30 and a maximum payload capacity of 7,500 pounds, amends a regulation, promulgated in 1952, that exempted the operation of aircraft with a take-off weight of 12,500 pounds or less. The effect of the new criteria is to increase the size of aircraft that can be operated under the exemption, to the competitive detriment, so it is claimed, of the non-exempt airline petitioners.²

Petitioners attack the legal sufficiency of the record, in light of what are asserted to be present conditions in the airline industry, to support the findings on which the regulation must, by statute, be based. We hold that the findings on each statutory issue are supported by substantial evidence, and are, therefore, conclusive.

I

Since its inception in 1938, the federal regulatory scheme administered by the Board has always contemplated the co-existence of certificated and non-certificated sectors of the air carrier industry, the latter being exempt from most regulatory requirements and, concomitantly, unprotected against competition. Originally, all nonscheduled carriers were exempt, but in 1947, when larger aircraft were introduced into nonscheduled service, the Board first differentiated exempt operations on the basis of aircraft size. The 1947 maximum gross take-off weight for exempt aircraft, 10,000 pounds, was adopted to consist with a distinction drawn in FAA safety regulations, and when the FAA later adopted a 12,500 pound demarcation between large and small craft, the limit for Board exemption was correspondingly increased.

In 1952, the Board redesignated small irregular carriers as "air taxis," and authorized them to conduct scheduled and demand operations exempt from the requirement of certification.³ In the more than twenty years that have elapsed since regular service was first authorized on an exempted basis, certain regulatory requirements have been reimposed, but the equipment limitations established in 1949 had never been revised until the rule presently under challenge was promulgated in 1972.⁴

During that twenty-year period, however, the size and role of the air industry changed dramatically. A class of airlines certificated in the years immediately following World War II as part of a "local service experiment" grew from carrying 25,000 passengers in 1946 to two and one-half million passengers in 1954, when their status was made permanent,⁵ and over twenty-six million passengers in 1970.⁶ The local service lines, which include both petitioner airlines here, have meanwhile consolidated their operations by deleting short-haul, low-density markets from their routes and concentrating their efforts in the longer-haul, higher-density markets they can more efficiently serve with the large jet and turboprop fleets they have acquired. Air taxis have expanded to fill the service gap created by the withdrawal or absence of certificated local service from hundreds of markets; indeed, in the "overwhelming majority" of the 300 cities and 1,300 markets they served in 1971, commuter air taxis provided the only scheduled service.

The Board has found that the 1952 equipment limitation on air taxis has affected the service they are able to provide in two respects. First, it has had the intended effect of "channeling air taxi energies in service to short-haul, low density markets," thus "assuring that third-level operations, overall, complemented rather than competed with the certificated industry." Additionally, however, the 12,500 pound limitation has placed such a premium on seating capacity that the 15 to 19-passenger planes available for air taxi service often lack pressurization and air conditioning equipment, lavatories, adequate head room, seat pitch, fuel capacity, and, according to the Postmaster General, cargo space for the growing needs of the Postal Service. Peak load problems are acute, particularly for commuter lines that serve terminals where passengers connect with the flights of certificated carriers; and planes tend to be configured either for passengers or cargo but not for both.

On the basis of these undisputed facts, the Board concluded that, ceteris paribus, the public interest would be served if the air taxis were enabled to operate somewhat larger craft. Specifically, it anticipated that a capacity-based criterion allowing greater passenger and cargo space would induce aircraft manufacturers to offer more adequate planes; and that the same inducement would not be forthcoming if manufacturers had to rely on air taxis' getting individualized exemptions, since demand projections for larger craft would be more problematic, and the cost of individualized exemption proceedings would in fact prevent some air taxis from pursuing that course.⁷

The Board adopted the view of its Bureau of Operating Rights that increasing passenger capacity from the de facto limit of 15 to 19 imposed by the weight restriction to a maximum of 30, while increasing cargo capacity from the de facto limit of 5,000 pounds to a maximum of 7,500 pounds, represented the minimum change sufficient to create a "real likelihood that a revision of the Board's rule will stimulate the manufacture of new airplanes." Accordingly, it rejected, on the one hand, arguments for greater liberalization pressed by some air taxi operators, and, on the other, arguments for a maximum of 25 passengers and 6,500 pounds advanced by a number of certificated airlines.⁸

II

In order to exempt a class of carriers from any of the regulatory requirements deriving from the Federal Aviation Act, the Board must find that enforcement would be (1) "an undue burden" on the class to be exempted because of the "limited extent" of the class's operations, or because of "unusual circumstances" affecting its operations, and (2) not in the "public interest." Since exemption cannot be in the public interest unless the end that it is calculated to achieve is in the public interest, and we have already set forth the Board's purpose in exempting larger air taxi operations than heretofore, we begin with an examination of this finding.

A. The "Public Interest."

Petitioners do not take issue with the Board's judgment that improved service by air taxis to passengers and shippers will be provided as a result of the modification, at least insofar as newer and better equipment will be drawn into service. But while the public interest in certification vel non is "distinct from the public interest in having the service provided," Air Line Pilots Association v. CAB, 148 U.S.App.D. C. 24, 458 F.2d 846, 849 (1972), the two are necessarily related when the Board predicates exemption on its belief that certification will actually prevent a service in the public interest from being provided. Thus, petitioners must contend in effect that the public interest will not in fact be served, on balance, by modifying the exemption regulation. They marshal two related arguments in support of this view.

First, they argue generally that the public is better served, wherever possible, by certificated carriers, and that Congress has implicitly so concluded in its design of the regulatory scheme. Thus, any departure from the norm of plenary economic regulation must be clearly justified. Second, the airline petitioners claim that the Board underestimated the competitive impact of existing air taxi operations on certificated carriers, and thereby erred in thinking that the increased level of competition made possible by expanding their exemption would be negligible. This economic impact, it is said, goes not only to the Board's responsibility for the continued health of the certificated network, but also increases the particularity by which departures from the norm of certification must be supported.

The relevance of petitioners' first argument concerning the undoubted "presumption in favor of certification," assumed by us in Air Line Pilots, is limited in this case to the Board's administrative decision to proceed by exemptive regulation rather than by entertaining individual carriers' applications for certification, or indeed exemption, along individual routes. The Board's reasons for that decision — to remove a significant financial obstacle from the path of air taxis seeking to initiate operations in excess of 12,500 pounds; to...