Mr. TRIPPE. The first chart, Mr. Chairman, sets forth Pan American's return to stockholders on invested capital over the years.

The heavy line shows the amount of the capital invested in the business.

The chart illustrates that as of the end of 1959, funds in the business amounted to some $300 million-just under $350 million.

The return to our stockholders over the years, as a regulated public utility, you will note, averages a little over 5 percent.

This return the chart covers the years 1951 through 1959-is after taxes but before interest expense. We borrow, as the committee well knowns, large sums of money from insurance companies and the commercial banks. The chart is in line with the way the CAB requires us to keep our books. We have shown the chart in that form.

If we showed net return to stockholders after interest charges, of course, the figure would be lower.

Over the years, as I will point out later, we have received some $220 million from the Government in subsidies. We have not, however, requested or received subsidies when I say "subsidies," I mean payments from the Federal Government, over and above the cost of moving the mail, as computed by the Civil Aeronautics Board, for the past several years. Later in my statement I will attempt to show the committee why it has been possible to achieve this subsidy-free

status.

Unlike Pan American and the other scheduled oversea airlines the supplemental, or nonscheduled airlines, are not regulated public utilities. They are free to operate or not as they choose. They can suspend service, sell their assets, even go out of business, any time they wish. Like any other free enterprise, their operations are not regulated. They have no continued responsibilities to Government or the public and, conversely, they are not qualified as airlines to receive Federal subsidy.

The Congress decided, in 1938, that the air transport industry, like the railroad industry, the light and power industry, and the telephone industry, could not properly serve the public as free enterprise. That year, the Civil Aeronautics Act transferred the air transport industry to the status of a regulated industry. Bidding for mail contracts or routes was a thing of the past. The act authorized the Civil Aeronautics Board, as the regulatory agency, to permit public bidding for air transport service only under special exemption orders of the Board-these exemption orders to issue only in emergency or other special circumstances.

We hope the Department of Defense and the CAB will review the circumstances under which bidding for transport lift was thus permitted, to oversea areas which the civil airlines are required to serve under certificates issued by the Board and the President. The special annual exemption which was allowed the Department of Defense to secure airlift by public bidding was first issued, I understand, some 12 years after the act was enacted, and only because of the Korean emer

gency. It has been extended by exemption order of the Board each year even though the Korean emergency was over.

The certificated airlines supported these emergency exemptions during the Korean conflict. The Korean emergency developed so soon after V-J Day they had not had time to reequip their own fleet of aircraft. They then had welcomed assistance from the noncertificated airlines.

The emergency which existed during the Korean war, however, no longer exists. Our oversea-flag airlines now have ample transport capacity and personnel, to carry Government traffic to their designated areas without dividing available traffic they are certified to carry with nonregulated carriers, through public bidding. In fact, as the result of the technological impact of the efficient passenger jet, thousands of their skilled personnel will be displaced, if Government traffic to their designated areas is thus siphoned away.

Mr. Chairman, our own company alone expects to have to release some 300 pilots during the next 6 months, if traffic-other than normal civil traffic-doesn't become available to the scheduled airlines; that is-Government traffic destined to areas we are required to serve. This is true, of course, with TWA, Northwest, and Seaboard, as well as domestic carriers making transition to the efficient passenger jet from piston-engine equipment.

Other departments and agencies of the Government move their personnel, dependents, and cargo in large quantities at public tariffs which have been approved by the CAB as in the public interest. No requests to move such traffic by exemption order, to permit the departments concerned to resort to public bidding procedure, has been made to the CAB.

We hope this important issue will be reviewed by the Department of Defense and the CAB and that a proper and correct decision is arrived at; namely, that the emergency of Korea no longer exists and consequently no legal basis for the continuance of public bidding for airlift, to areas served by the certificated airlines, exists. Any public bidding for civil airlift should, we believe, be concentrated to areas not served by the certificated airlines. Such a supplemental airlift, by public bidding and exemption order, to areas served by the certificated oversea airlines should be resorted to only during an emergency, when they may be temporarily unable to provide the service required of them under their certificates.

The U.S.-flag oversea airlines, for many years, have been subject to keen competition on the part of foreign-flag state monopoliesusually government-owned and subsidized. On the Atlantic, the three U.S.-flag lines-TWA, Seaboard, and Pan Am-are competing with 12 such foreign-flag monopolies, all of which have labor costs less than half of the American carriers. Everywhere else abroad also, stiff foreign-flag competition of this type exists.

Mr. Chairman, I have two charts here which I would like to submit.

70

60

1950

'56

'57

'58

'59

Doshed lines include 12 months TWA military contract

One illustrates wages paid by the U.S. international carriers compared to wages paid by their foreign-flag competitors.

You will note, Mr. Chairman, that wages paid by the U.S. international air carriers are more than double those paid by their major foreign-flag competitors.

May I say, Mr. Chairman, in comment, that the foreign-flag wage level illustrated is the wage level nearest approaching the American labor scale. Many of our competitors pay wages only a third of ours. This is the type of competition American-flag international carriers have to meet all over the world. Of course, it has been tough and will continue to be tough.

Mr. SMART. Mr. Trippe-Mr. Chairman, may I make one inquiry here?

Mr. RIVERS. Yes.

Mr. SMART. Do you have similar but smaller charts of this nature that could be made a part of the record, so that your testimony would be more meaningful when the transcript is printed?

Mr. TRIPPE. Yes.

Mr. Smart, if it is agreeable to the committee and yourself, we could go, after the meeting, and have smaller charts made of these, that you feel would be appropriate and proper to have inserted in the record.

Mr. SMART. I would make the suggestion, Mr. Trippe, that when you get the transcript of today's record, which will be available tomorrow, that during your editing of that transcript you insert at the appropriate place charts reduced to appropriate size, so that this will be meaningful.

Mr. TRIPPE. We will be glad to, sir.

Mr. RIVERS. Go ahead, sir.

Mr. TRIPPE. Our certificated U.S. oversea airlines, over the years, have, as a result of this stiff foreign-flag competition received Federal subsidies in large amounts as provided in the Civil Aeronautics Act. Our own company alone, in past years, has received subsidy in the amount of $220 million. However, we have not requested nor received subsidy during the past 2 years, as a result of volume business and cost reduction made possible with modern, high-speed, longrange equipment, which we were first to order and place in service. Fees received from the Department of Defense on military contracts, such as the operation of the Cape Canaveral Missile Range and other nonairline revenues, have also helped us achieve this status.

Soon, however, the U.S. oversea flag lines will face even greater competition. In a few months, Air Union will begin operations as a combine of Air France, Lufthansa, Alitalia, Sabena, and probably KLM. The British Empire carriers, BOAC, Qantas, Trans-Canada, Air India International, are also coordinating their schedules and sales and pool revenues. This, in effect, makes them all partners on common routes. Aeroflot, the Soviet transport monopoly, with more jets already in service than any other airline, including the huge TU-114's, is rapidly extending its routes abroad; 15 foreign capitals are already served by them. Pan American will be confronted with Aeroflot competition on the 5,000-mile route linking Moscow and New York, inasmuch as we are certificated to operate the route at such time as intergovernment formalities are completed.