Section 406(b) of the Civil Aeronautics Act, as amended,
requires the Civil Aeronautics Board, in fixing mail-pay subsidy
for air carriers, to
"take into consideration . . . the need of each such air carrier
for compensation . . . sufficient . . . together with all other
revenue of the air carrier, to enable such air carrier . . . to
maintain and continue the development"
of a national air transportation system.
Held: in fixing mail-pay subsidy for the air carrier in
this case, the Board was required to take into consideration the
carrier's profits derived from (1) the operation of restaurants and
other concessions at airports, (2) the sale of tangible assets to
another air carrier, and (3) the sale of a route to another air
carrier. Pp.
347 U. S.
68-73.
(a) The "need" of the carrier which the Board is required to
consider in fixing a subsidy rate is "the need" of the carrier as a
whole. P.
347 U. S.
71.
(b) The "all other revenue" which the Board is required to
consider includes nonflight income from incidental carrier
activities, not transportation revenue alone. P.
347 U. S.
71.
(c) The profit derived by a carrier from the sale of a route to
another carrier is also "other revenue" within the meaning of §
406(b). Pp.
347 U. S.
71-72.
(d) The standard prescribed by Congress to guide the Board in
fixing mail-pay subsidy is "the need" of the carrier, and the Board
was not justified, on the record in this case, in disregarding
profits derived from the sale of a route to another carrier in
order "to safeguard the incentive for voluntary route transfers."
Pp.
347 U. S.
72-73.
92 U.S.App.D.C. 248, 207 F.2d 200, affirmed.
Page 347 U. S. 68
The Civil Aeronautics Board issued an order fixing mail-pay
subsidy for an air carrier. 14 C.A.B. 201. Both the Postmaster
General and the carrier sought review of the Board's order in the
Court of Appeals, which sustained the order in part and reversed it
is part. 92 U.S.App.D.C. 248, 207 F.2d 200. This Court granted
certiorari. 346 U.S. 811.
Affirmed, p.
347 U. S.
73.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
These cases, here on writs of certiorari to the Court of Appeals
for the District of Columbia, present an important question in the
construction of § 406(b) of the Civil Aeronautics Act of 1938, 52
Stat. 973, as amended, 49 U.S.C. § 401
et seq. Section
406(a) authorizes the Civil Aeronautics Board to fix "fair and
reasonable rates of compensation for the transportation of mail by
aircraft." [
Footnote 1] Section
406(b) requires the Board to take into
Page 347 U. S. 69
consideration,
inter alia,
"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. [
Footnote
2]"
The controversy
Page 347 U. S. 70
in the present cases turns on the meaning of the words "the need
of each such air carrier" and "all other revenue of the air
carrier."
Western Air Lines filed a petition for a rate order April 26,
1944. In 1951, the Board finally determined the rate applicable
between May 1, 1944, and December 31, 1948. During this open-rate
period, Western realized some $88,000 in profits from the operation
of restaurants and other concessions at airport terminals. The
Board determined that this income was "other revenue" available to
reduce mail pay. During the open-rate period, Western, with
approval of the Board, [
Footnote
3] sold to United Air Lines its certificate and properties for
air operations (Route 68) between Los Angeles and Denver at a
profit in excess of $1,000,000. The Board treated the profit
derived from the sale of the tangible assets (approximately
$650,000) as "other revenue," and reduced the mail compensation by
that amount. But it declined to reduce the mail pay allowance by
the profit realized from the sale of the "intangible value" of the
route. The Board concluded that that amount should not be used in
offset, because it wanted "to encourage improvement of the air
route pattern through voluntary route transfers by other air
carriers." 14 C.A.B. 246.
On review, Western challenged the inclusion in "other revenue"
of the amounts received from the concessions and the profit from
the sale of the tangible assets. The Postmaster General [
Footnote 4] challenged the exclusion
from the
Page 347 U. S. 71
offsets of the profit Western made on the sale of the
intangibles. The Court of Appeals sustained the Board in Western's
petition and reversed it in the other petition and remanded the
case to the Board for the fixing of a new rate after deducting the
entire profit from the sale of Western's Route 68. 92 U.S.App.D.C.
248, 207 F.2d 200.
Some air mail rates are service rates, based on mail-miles
flown; [
Footnote 5] others are
subsidy rates based on "need." We are here concerned with a subsidy
rate which, in Western's case, was fixed so as to produce a 7
percent return on investment after taxes for the period in
question. In other words, the end problem concerns not the amount
of money provided for operation and development, but the amount of
profit over and above all such sums.
We read the Act as meaning that "the need" of the carrier which
Congress has directed the Board to consider in fixing a subsidy
rate is "the need" of the carrier as a whole. The need specified in
§ 406(b) is measured by
"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"
it to develop air transportation, etc. The "compensation for the
transportation of mail" is flight income. It seems too clear for
argument that "all other revenue" would include nonflight income
from incidental air carrier activities. We have found nothing
persuasive as indicating that "all other revenue" means
transportation revenue. The inclusive nature of the category
precludes a narrow reading. If the carrier's treasury is lush, "the
need" for subsidy decreases, whether the opulence is due to
transportation activities or to activities incidental thereto.
By the same reasoning, the profit made by Western on the sale of
Route 68 is also "other revenue" within the
Page 347 U. S. 72
meaning of § 406(b). The Board agrees, but it goes on to say
that that is not the end of the matter, since the reduction of the
subsidy by the entire amount of the profit is not mandatory. The
Act, it is true, merely says that the Board, in determining the
rate, "shall take into consideration" various factors, including
"the need" of the carrier, § 406(b); and the "need," as we have
noted, is not merely for compensation to insure the transportation
of mail, but compensation for "the development of air
transportation" under the prescribed standards. By that standard,
the "need" in a given case may be so great that profits from other
transactions should be allowed in addition to the normal rate. Or,
on the other hand, the total revenues of the carrier as against its
operating costs and developmental program may be so great that "the
need" for subsidy disappears, and the carrier is transferred to the
service rate for mail pay. The difficulty here 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. The Board wanted "to safeguard the
incentive for voluntary route transfers." It thought it could not
keep this incentive alive in the industry unless the profit were
allowed in addition to the subsidy. The Board thought it important
to keep that incentive alive in order to promote route transfers
and mergers which the Board could not compel. The Board therefore
argues that allowance of the profit over and above a subsidy
enables Western "to maintain and continue the development of air
transportation" within the meaning of § 406(b), since the sale of
Route 68 was consistent with the development program which the
Board deemed desirable.
The Act, however, speaks of "the need" of the carrier for the
subsidy, not the effect of a policy on carriers in general. This is
not a case of recapture of earnings. Western keeps the entire
amount of the profit. The issue
Page 347 U. S. 73
is how much additional money Western is to receive in the form
of a subsidy. Western's "need" is the measure of the amount
authorized by Congress. No finding was made that there was "need"
for the additional subsidy, in the sense that, otherwise, Western
would not have been willing or able to make the transfer of Route
68 in accordance with the development program which the Board deems
advisable. Whether such a finding would have satisfied the
statutory requirement is a question we do not reach, since the
opinion of the Board makes plain that other considerations were
controlling:
". . . our decision not to include the net profit from the sale
of intangibles was reached solely because we are thus seeking to
encourage improvement of the air route pattern through voluntary
route transfers by other air carriers."
14 C.A.B. 246.
The standard prescribed by Congress, however, is "the need" of
the air carrier whose subsidy rates are being fixed.
Affirmed.
* Together with No. 224,
Civil Aeronautics Board v.
Summerfield, Postmaster General, et al., also on certiorari to
the same court.
[
Footnote 1]
"The Board is empowered and directed, upon its own initiative or
upon petition of the Postmaster General or an air carrier, (1) to
fix and determine from time to time, after notice and hearing, the
fair and reasonable rates of compensation for the transportation of
mail by aircraft, the facilities used and useful therefor, and the
services connected therewith (including the transportation of mail
by an air carrier by other means than aircraft whenever such
transportation is incidental to the transportation of mail by
aircraft or is made necessary by conditions of emergency arising
from aircraft operation), by each holder of a certificate
authorizing the transportation of mail by aircraft, and to make
such rates effective from such date as it shall determine to be
proper; (2) to prescribe the method or methods, by aircraft-mile,
pound-mile, weight, space, or any combination thereof, or
otherwise, for ascertaining such rates of compensation for each air
carrier or class of air carriers; and (3) to publish the same; and
the rates so fixed and determined shall be paid by the Postmaster
General from appropriations for the transportation of mail by
aircraft."
[
Footnote 2]
"In fixing and determining fair and reasonable rates of
compensation under this section, the Board, considering the
conditions peculiar to transportation by aircraft and to the
particular air carrier or class of air carriers, may fix different
rates for different air carriers or classes of air carriers, and
different classes of service. In determining the rate in each case,
the Board shall take into consideration, among other factors, the
condition that such air carriers may hold and operate under
certificates authorizing the carriage of mail only by providing
necessary and adequate facilities and service for the
transportation of mail; such standards respecting the character and
quality of service to be rendered by air carriers as may be
prescribed by or pursuant to law; and 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."
[
Footnote 3]
United-Western, Acquisition of Air Carrier Property, 8
C.A.B. 298 (1947).
[
Footnote 4]
The Postmaster General has not only the duty to pay the mail
rates from appropriations for the transportation of mail by
aircraft, but also is given standing by § 406(a) to petition the
Board to fix and determine the rates. A change in the function of
the Postmaster General was made by Reorganization Plan No. 10 of
1953, effective October 1, 1953, 67 Stat. 644.
[
Footnote 5]
See, for example, Eastern Air Lines, Mail Rates, 3
C.A.B. 733 (1942).