Summerfield, Postmaster General v. Civil Aeronautics Board

PROCTOR, Circuit Judge.

This case is before us to review an order of the Civil Aeronautics Board fixing mail pay rates for Chicago and Southern Air Lines’ Latin American routes.¹

In July, 1948, the Board fixed final rates for the carrier’s domestic routes. These included a prospective rate commencing January 1, 1948, estimated to yield a net return, after taxes, of 7.4% on the carrier’s investment allocable to domestic operations. Actually the average yield for the years 1948 through 1950 was 12.51%, or $654,000 more than estimated.

Later, October 18, 1951, the Board ordered final mail rates for the carrier’s Latin American routes, retroactively from November 1, 1946 to December 15, 1950, and prospectively from December 16, 1950. These rates were estimated to yield a net return of 7% for the past period and 10% for the future. In determining the same the Board refused, for what it termed “sound reasons * * * of economic policy,” (J. A. 54), to offset the carrier’s excess profits of $654,000 from its domestic routes against “need” or subsidy requirements for the international operations (J. A. 53). The refusal to make the offset forms the basis of this appeal.

Although the brief filed in behalf of the Board carries an intimation (p. 12) that refusal to offset the carrier’s excess domestic profits may be supported under § 406(b) permitting “different rates for * * * different classes of service”, findings and conclusions of the Board reveal no such reason. Their action is explained in these words:

“The public interest in maintaining and furthering the incentive to carriers generated under forward final rates leads us to the conclusion that at this time, without review of any question of power but simply as a matter of policy, we should not offset the profits of the domestic division of C & S earned under the closed rate in establishing the mail rate for the international operation.” [Emphasis added.]

(J. A. 21. See also J. A. 53.)

Thus it appears that the Board was initiating a new “incentive” policy without consideration of its authority under the Act to adopt a plan which omitted an offset of the excess profits arising from domestic operations.

The Postmaster General does not question the Board’s authority to fix rates separately for different operating divisions of the carrier, but he does insist that the end result of fixing rates for a carrier must not go beyond that point where the total subsidy exceeds the need of the carrier as a whole. We agree with this contention.

In our opinion failure of the Board to make the offset is at variance with the plain meaning of § 406(b). That section speaks in terms of a carrier as a single entity; not as divisible units conducting separate operations. This meaning is clearly reflected in the requirement that “In determining the rate [of mail pay] in each case, the Board shall take into consideration * * * the need of each such air carrier for compensation * * to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier”² to meet the declared objectives of the Act. Accordingly, in determining the “need” requirements of Chicago and Southern Air Lines for its Latin American routes the Board must consider “all other revenue of the air carrier”. Admittedly the excess profit of $654,000 derived from domestic operations is part of that revenue, so refusal of the Board to “take” the item “into consideration” in determining a rate for the Latin American routes results in allowing the carrier $654,000 more than its actual need, in disregard of the statutory requirement to keep subsidy allowances within those bounds.

Heretofore the Board has treated an air carrier as “the primary unit around which the national air transportation system was to be developed through the instrumentality of air mail compensation,” and the “need” as “that of the air carrier as a whole and not that of any particular geographical division of its operations.” Chicago and Sou. A. L., Mail Rates — Route Nos. 8 and 53, 3 C.A.B. 161, 190 (1941). This principle was reaffirmed in Pan Am. Airways, Inc., Alaska Mail Rates, 6 C.A.B. 61, 67 (1944), wherein the Board denied subsidy mail pay on the Airways’ Alaska division because excess earnings from its" more profitable divisions greatly exceed-' ed the Alaska division’s requirements. Thus we have an established construction of the Act by the Board which should be given weight. Federal Power Comm. v. Panhandle Eastern Pipe Line Co., 1949, 337 U.S. 498, 513, 69 S.Ct. 1251, 93 L.Ed. 1499, 1509; United States v. Amer. Trucking Ass’ns, 1940, 310 U.S. 534, 549, 60 S.Ct. 1059, 84 L.Ed. 1345, 1354.

We agree with those pronouncements-of the Board. We think they correctly indicate the duty of the Board in fixing’ “fair and reasonable rates of compensation” under § 406(b) in each case to “take into consideration, among other factors * * * all other revenue of the air carrier”.

Attention is called to our decision in Summerfield, Postmaster General v. Civil Aeronautics Board, 92 U.S.App.D.C. 248, 207 F.2d 200. There, in an opinion by Judge Prettyman, we hold that profits derived by Western Airlines, Inc., from sale of an air route certificate with operating equipment cannot be excluded from revenue for the purpose of providing an industry incentive. We see no essential difference between that case and this.

The order of the Board of October 18, 1951, fixing mail pay for Chicago and Southern Airlines’ Latin American operations is set aside and the case remanded with directions to determine and fix the rate in accordance with this opinion.

Reversed.

1 . The pertinent parts of the Civil Aeronautics Act of 1938, §§ 406(a) and (b), 52 Stat. 998, Reorg. Plan No. IV of 1940, 54 Stat. 1235 (1940), 49 U.S.C.A. § 486, provide as follows:

“Sec. 406. (a) 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 ti-ansportation of mail by aircraft * * * and the rates so fixed and determined shall be paid by the Postmaster General from appropriations for the transportation of mail by aircraft.

“(b) 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 transp oration [sic] 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.”

2 . Emphasis added.