you're operating. During the first 18 months we paid a substantial amount of money.

Senator GOLDWATER. Do you have any idea how much per passenger that surveillance cost you?

Mr. BUTLER. About $1.25 a passenger on our system. We received I think in security $.59 per person and we spent $1.25 per person to screen passengers.

Senator GOLDWATER. Do we have a record of that in the testimony of the cost of surveillance per passenger by airlines?

Senator CANNON. We don't have anything in the record here at the present time, but I think the U.S. average is about 44¢, if I remember correctly, somewhere in that range. But, of course, with their low average ticket price, they are paying on an average 5 percent of the ticket price for surveillance.

Mr. BUTLER. Right. That's our experience, Senator. The rate of what you can build into your fare base is an industry average, but because of the low utilization in some of our points we don't board that many people at a given point, but we still have to pay a policeman to be there a minimum of 4 hours even though we may use him only for one flight: That's the only contract you can reach with the local authorities.

Senator GOLDWATER. Thank you. Those who oppose certification for small community service argue that the certification process at the CAB poses a major financial barrier to industry. The Air New England experience has shown that FAA safety compliance regulations, parts 121 and 135 regulations, pose a major financial burden after certification. Would you agree with that?"

Mr. BUTLER. Part 121, Senator, is the major cost factor item as far as we're concerned, but you must remember that you don't have to be certificated to come under part 121. All you have to do is operate an aircraft that's larger than 12,500 pounds, and if you operate that large an aircraft, whether you have a certificate from the CAB or not, you're going to have to absorb the additional costs involved in complying with part 121. The CAB certificate is unrelated to part

121.

When we became an air carrier some interesting things happened to us. We were going to be then supervised by a different office in the FAA. Instead of the commuter air carrier office, we were supervised by the air carrier office which regulates the Easterns, the Americans, the Deltas. An interesting thing is that we operated DC-3s before we were certificated. We had manuals and they complied with part 135.2. The FAA was satisfied with those manuals. When we became an air carrier we fell under another office in the FAA and we had to rewrite all those manuals. That is, operating the same airplane, same people flying them, same company flying them-but a different office in the FAA-rewrite the manuals. It takes people, time, and money to rewrite manuals. There's no way of getting around it.

Senator GOLDWATER. Now, this is a question that will not be as applicable to you, as a smaller airline, as it will be to the larger ones, but I intend to ask it and your attorney can give his opinion. It first came to my attention when the question was asked the other day about the willingness of airlines to get together on the project of

having one class instead of two class traffic. Somebody made the statement that if they attempted this it would be against the antitrust laws.

So over the weekend I thought of the baggage agreement, that if I left one of your served communities and checked my baggage through to Phoenix, Ariz. on any line serving that city, if we passed this legislation, would the agreement existing between your airline and the airline I refer to in the latter service be restricted to handling baggage under a mutual agreement? Would that be restricted by the antitrust laws?

Mr. STRAUS. Senator Goldwater, I think that this question may be a little bit misunderstood as far as other carriers' presentations are concerned. What they are talking about is if the new legislation removes the antitrust immunity, then various agreements will no longer have antitrust immunity. It doesn't mean that you can't enter into the agreements. What it means is that the CAB when it approves these agreements will no longer say they are exempt from antitrust prosecution by the Justice Department. It doesn't really mean that the Justice Department is going to pay any attention to them. I think that it is much more beneficial to have under the Federal Aviation Act the antitrust immunity because then you can have interline baggage agreements, interline ticketing agreements, ground service agreements, common agreements, where there's no antitrust problem, and you don't have to look over your shoulder to wonder if the antitrust division of the Justice Department is going to do something about it. That's the way we do it today.

If that section is removed, it makes it more of a problem. I personally don't think that overnight you're going to lose interline baggage and ticketing agreements. I just think it's going to make it a harder system to run and why make it a harder system to run?

Senator GOLDWATER. Well, I think the question is more directed to, can it happen? I think, for example, of ticketing where I can buy a ticket through you or any other airline and it's good anyplace in the world. Now let's say that the ticket manufacturer decides that that would be in violation of the antitrust law because one ticket printer was doing the business. Couldn't he bring suit under the antitrust laws?

Mr. STRAUS. Senator, the absolutely quick answer to that is that potential does definitely exist. Whether it will happen or not, you could flip a coin.

Senator CANNON. Would the Senator yield?

Senator GOLDWATER. Yes.

Senator CANNON. If we decided to change the antitrust provision and take the authority away from the Board, I think it would be possible for the committee to spell out in the legislation that certain types of agreements were not under the antitrust jurisdiction and were excluded.

Mr. STRAUS. You could very definitely do that, Senator, and possibly in coordination with carriers in the industry you could find which sections would need to be specifically set in, but you also have to provide for future types of agreements. You can't just cover the ones that exist now.

88-737 77 pt. 2 15

Senator GOLDWATER. I'm sure we can. I'm merely trying to build a case that we have to before we finish writing this legislation, if we intend to help the airline industry.

Now one more question. Air New England is subsidy eligible and the commuters are not. Is Air New England receiving subsidy now for its services?

Mr. BUTLER. Yes, sir.

Senator GOLDWATER. Could you exist without it?

Mr. BUTLER. Not in the current structure we're in. The route descriptions would change for example. One of the things that I think about when I have nothing else to think about it what would we look like should that subsidy support be withdrawn. There would have to be rather radical surgery in the company. There would be very radical surgery on the type of air service that could be available in New England in the 14 cities and towns that we serve. Probably a number of them would lose service.

Second: A number of them would have service only in seasonal summer months. They would have no winter service to the islands of Nantucket and Martha's Vineyard.

Senator GOLDWATER. I gather generally you don't like this legislation.

Mr. BUTLER. There are some parts of it that are helpful.
Senator GOLDWATER. I mean the legislation.

Mr. BUTLER. The CAB proposals we don't like. I think it would be so cumbersome. The year following enactment we would have to be back up here to rewrite the law on service to small communities.

Senator GOLDWATER. That's all I have, Mr. Chairman.

Senator CANNON. Most of your testimony, though, was directed at the Board's proposal and not toward either of the bills that came out of this committee?

Mr. BUTLER. Well, the only response that I would have to that is. on S. 292. It did have some specific proposals on service to small communities and limited certification. The other bill I didn't address because I thought I should confine my discussion to service to small communities and the other issues that are being discussed in the regulatory reform act.

Senator CANNON. Senator Packwood?

Senator PACKWOOD. No questions, Mr. Chairman.

Senator CANNON. Thank you very much. We appreciate your being here with us this morning.

The next witness is Lewis C. Burwell, Jr., chairman, Pinehurst Airlines, Inc., Pinehurst, N.C.

STATEMENT OF LEWIS C. BURWELL, JR., CHAIRMAN, PINEHURST

AIRLINES

Mr. BURWELL. Mr. Chairman and distinguished committee members, my name is Lewis Burwell. I am chairman of Pinehurst Airlines, a small company operating entirely in the carriage of air cargo. I am grateful for this opportunity to present my views. This is something of a homecoming for me.

I last testified, as president of Resort Airlines, before the Senate Interstate and Foreign Committee of July 2, 1951, when Senator Johnson of Colorado was chairman. I urged the committee, with a hopeful ricochet to the CAB, to abandon the old railroad concept and the concept of the aviation founding fathers and to certificate airline service that is responsive to markets rather than to geography. Resort was the first airline dedicated to the proposition of providing all expense tours by that purpose. During these intervening 36 years, much has happened in the crowded house of aviation. Charters, and all expense air cruises, have become a way of life for many airlines and for millions of middle-class Americans. This magic carpet vacation has been, and is, even more popular in Europe.

I've always like the quotation "greater than the tread of mighty armies is an idea whose hour has come." Resort was ahead of its time, but following this I spent 7 years as vice president of the Flying Tiger Line; 4 years as board chairman of Overseas National Airways and 13 years as a director of Airlift International.

Between times, my company, Plans, Inc., did a lot of consulting in the field of air transportation and logistics. So I have seen both sides of the street. I like the relatively open skies police implicit in this bill, S. 689.

Mostly, Pinehurst Airlines is a bunch of old men flying a bunch of old airplanes and making a profit. It is run by my 35-year-old son who is an Air Force Vietnam veteran and a good executive.

One 40-year-old DC-3 flown by a 55-year-old captain can deliver 7,500 pounds of cargo 500 to 600 miles between the time-sensitive hours of 11 p.m. and 6 a.m. as well as can a DC-8, and far more economically. As John Emery wisely observe several years ago, “Air Freight is a nighttime animal."

In American business, the name of the game is return on investment and when a $100,000 aircraft can serve this limited market as well as one costing 20, up to 30 times as much, the point is obvious: This is a prime example of gearing air service to markets rather than to geography.

S. 689 is constructively conceived and well articulated. I like the language "competitive market forces," "encouragement of new carriers," and "a variety of adequate and low-cost services."

"The Promotion of Safety in Air Commerce" is a shibboleth in this business and should never be compromised by either legislation or regulation.

Whether a carrier or industry operates under a certificate or under exemption matter little except for the fact that a certificate represents, to the public, a property right and facilitates financing. Freedom of entry and opportunity is the American way and S. 689 underscores this philosophy.

The new procedural constraints imposed on the CAB are a good thing. Many a promising idea has withered and died for lack of money to survive the former due process delays.

The bill lays the ghost of traffic diversion. This too is a good thing, because it recognizes the principle that the forces of competition and innovation will be self-adjusting. I think we all believe in the proposition that if we all play by the same rules, let the best man win.

The idea of restricting a point to point carrier to 3 percent, or any percentage, of route miles for off-route charters seem inconsistent with the underlying philosophy of the bill and the premise which underlies the supplemental certificates. If my operational integrity, my price and my marketing are good enough to make business grow where none grew before, I should be permitted to fly it wherever it starts and wherever it goes.

Air should not be in competion with air. It prospers on the propositions of lower inventories, less warehousing, and shortened pipelines. Velocity is the major third force that together with capital and labor underlies and strengthens our national economy. Air transport and electronic communications are the hand maidens of velocity.

I do not believe in paternalistic government but as long as all manner of handouts are availalbe from the various governments. I think the Federal subsidy program has a place.

However, the bill should be specific as to the criteria on which finding for, or against, subsidy should be based and specifically fix this responsibility in the CAB and provide more precise guidelines for the administration of the program.

Finally, on mergers and acquisitions, I think the Attorney General belongs in the act, with the CAB as his expert edvisor, but Justice alone should have the executive authority-and please substitutee something for "any person engaged in a phase of aeronautics." Literally interpreted, this could apply to a butterfly catcher. It is incapable of precise definition and has been the cause of more inconclusive meditation by lawyers and bureaucrats than any other language in our prior aviation legislation. Try perhaps, "any phase of airline operations."

Thank you again for this opportunity to appear before you.

Senator CANNON. Well, thank you very much for your statement. On your restriction on the 3 percent limit, do you think that that should be removed entirely or do you think there ought to be some kind of a protective provision which really protects the current route structure to a degree?

Mr. BURWELL. No, I disagree, sir, that there should be any protection because I think if a guy is in the marketplace and if he hasn't got the reputation and the expertise and the ingenuity to get business, then he doesn't deserve to fly it.

Senator CANNON. Where do you operate your principal operations?

Mr. BURWELL. They are from Boston to New York to Pittsburgh to Dayton, Ohio, from Charlotte to Indianapolis to Chicago, all on a return basis.

Senator CANNON. Now how do you generate your business? Where does your business come from?

Mr. BURWELL. From Emery Air Freight, Inc. We operate for Emery.

Senator CANNON. Just a contract carrier for Emery?

Mr. BURWELL. Not literally a contract carrier. We are a common carrier but we operate through a letter of intent with Emery and they are really our sole customers. We occasionally have another forwarder on board.