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DELTA AIR LINES, INC. V. SUMMERFIELD POSTMASTER GENERAL 347 U.S. 74 


NO. 223.  ARGUED DECEMBER 9-10, 1953 - DECIDED FEBRUARY 1, 1954 - 92
U.S. APP. D.C. 256, 207 F.2D 207, AFFIRMED. 


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 THE MAIL-PAY SUBSIDY FOR THE FOREIGN OPERATIONS OF THE
CARRIER HERE INVOLVED DURING A PAST PERIOD, THE BOARD ERRED IN REFUSING
TO OFFSET AGAINST THE CARRIER'S NEED FOR FOREIGN OPERATIONS EXCESS
EARNINGS DURING THE SAME PERIOD ON ITS DOMESTIC OPERATIONS.  PP. 75
80. 

(A)  AN AIR-MAIL SUBSIDY MAY NOT EXCEED THE CARRIER'S "NEED," WHICH
IS TO BE MEASURED BY THE ENTIRETY OF THE CARRIER'S OPERATIONS, NOT BY
THE LOSSES OF ONE DIVISION OR DEPARTMENT, EVEN WHEN A RATE IS FIXED FOR
A CLASS OF SERVICE, AS AUTHORIZED BY SEC. 406(B).  PP. 78-79. 

(B)  ARGUMENTS OF POLICY AGAINST THIS CONCLUSION ARE FOR CONGRESS,
NOT THE COURTS.  PP. 79-80. 

DELTA AIR LINES, INC. V. SUMMERFIELD, POSTMASTER GENERAL, ET AL. 

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF
COLUMBIA CIRCUIT.* 

*TOGETHER WITH NO. 222, CIVIL AERONAUTICS BOARD V. SUMMERFIELD,
POSTMASTER GENERAL, ET AL., ALSO ON CERTIORARI TO THE SAME COURT. 

THE CIVIL AERONAUTICS BOARD ISSUED AN ORDER FIXING MAIL-PAY SUBSIDY
FOR AN AIR CARRIER.  14 C.A.B. 681.  ON THE POSTMASTER GENERAL'S
PETITION FOR REVIEW, THE COURT OF APPEALS REVERSED.  92 U.S. APP. D.C.
256, 207 F.2D 207.  THIS COURT GRANTED CERTIORARI.  346 U.S. 811. 
AFFIRMED, P. 80. 

MR. JUSTICE DOUGLAS DELIVERED THE OPINION OF THE COURT. 

DELTA AIR LINES, PETITIONER IN NO. 223, IS THE SUCCESSOR BY MERGER TO
CHICAGO AND SOUTHERN AIR LINES (C&S).  C&S WAS AN AIR CARRIER WHICH
CONDUCTED BOTH DOMESTIC AND FOREIGN OPERATIONS PRIOR TO THE MERGER. 
THE PRESENT CASE INVOLVES SUBSIDY MAIL PAY FOR ITS FOREIGN OPERATIONS
FROM 1946 THROUGH 1950. 

IN 1948 THE BOARD, ON APPLICATIONS MADE BY C&S IN 1944 AND 1945,
FIXED A PROSPECTIVE ANNUAL SUBSIDY FOR ITS DOMESTIC OPERATIONS
BEGINNING JANUARY 1, 1948, WHICH THE BOARD ESTIMATED WOULD YIELD A NET
RETURN AFTER TAXES OF 7.4 PERCENT ON THAT PART OF ITS INVESTMENT
ALLOCABLE TO THOSE OPERATIONS.  9 C.A.B. 786.  THE FOLLOWING THREE
YEARS - 1948, 1949, AND 1950 - THE RATES IN OPERATION PRODUCED A
SUBSIDY OF MORE THAN $654,000 IN EXCESS OF A 7.4-PERCENT RETURN. 

IN 1946 C&S APPLIED FOR SUBSIDY MAIL PAY ON ITS LATIN-AMERICAN
ROUTES.  ON OCTOBER 18, 1951, THE BOARD ISSUED ITS OPINION AND ORDER. 
RATES WERE FIXED RETROACTIVELY FROM NOVEMBER 1, 1946, TO DECEMBER 15,
1950, AND PROSPECTIVELY FROM DECEMBER 16, 1950.  THE SUBSIDY AWARDED
WAS DESIGNED TO GIVE THE CARRIER A 7-PERCENT RETURN, ON THE PROPERTY
ALLOCABLE TO FOREIGN OPERATIONS, AFTER TAXES FOR THE PAST PERIOD, AND
10 PERCENT FOR THE FUTURE.  14 C.A.B. 681. 

IN FIXING THE SUBSIDY FOR THE PAST PERIOD, THE BOARD REFUSED TO
OFFSET AGAINST THE CARRIER'S NEED FOR FOREIGN OPERATIONS THE EXCESS
EARNINGS ON ITS DOMESTIC FLIGHTS.  IT GAVE TWO "CONSIDERATIONS OF
ECONOMIC POLICY" FOR THAT POSITION.  (FN1)  FIRST, THE BOARD SAID IT
WOULD PUT AN "UNJUSTIFIABLE STRAIN" ON DOMESTIC OPERATIONS IF THE
LATTER WERE REQUIRED TO CARRY THE INTERNATIONAL OPERATIONS.  SECOND, IT
CONCLUDED THAT REGULATORY ENDS WOULD BE BETTER SERVED BY MAINTAINING
"THE COMPARATIVE STATUS BETWEEN THOSE DOMESTIC OPERATORS WHICH HAVE
FOREIGN ROUTES AS AGAINST THOSE WHICH DO NOT HAVE FOREIGN ROUTES." 

ON THE POSTMASTER GENERAL'S POSITION FOR REVIEW THE COURT OF APPEALS
REVERSED THE BOARD.  92 U.S. APP. D.C. 256, 207 F.2D 207.  THE CASES
ARE HERE ON CERTIORARI, 346 U.S. 811, AND WERE ARGUED WITH NOS. 224 AND
225, DECIDED THIS DAY, ANTE, P. 67. 

AS WE HAVE ALREADY NOTED IN THE COMPANION CASES, SEC. 406(A) OF THE
CIVIL AERONAUTICS ACT, 52 STAT. 998, 49 U.S.C. SEC. 486(A), DIRECTS THE
BOARD TO FIX "FAIR AND REASONABLE RATES OF COMPENSATION FOR THE
TRANSPORTATION OF MAIL BY AIRCRAFT."  SECTION 406(B) PROVIDES THAT THE
BOARD IN DETERMINING THOSE RATES: 

"SHALL TAKE INTO CONSIDERATION, AMONG OTHER FACTORS,  ...  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." 

THE MANDATE IS THAT THE BOARD "SHALL TAKE INTO CONSIDERATION" WHAT
"THE NEED" OF THE CARRIER IS. THE ACT THUS POSES AS THE INITIAL
QUESTION FOR THE BOARD WHETHER THE FINANCIAL CONDITION OF THE CARRIER
IS SUCH THAT IT NEEDS A SUBSIDY OR HAS NO NEED FOR ONE.  THE BOARD DID
NOT FIND THAT DELTA HAD A "NEED" FOR AN ADDITIONAL $654,000.  IT MERELY
CONCLUDED THAT THOSE EXCESS DOMESTIC PROFITS SHOULD NOT "AS A MATTER OF
ECONOMIC POLICY" BE TAKEN INTO ACCOUNT IN COMPUTING A SUBSIDY FOR
INTERNATIONAL OPERATIONS.  IN THAT POSTURE THE DECISION OF THE BOARD
SEEMS NOT IN CONFORMITY WITH THE LAW. 

THE BOARD ANSWERS TO THE EFFECT THAT UNDER SEC. 406(B) IT "MAY FIX
DIFFERENT RATES FOR DIFFERENT AIR CARRIERS OR CLASSES OF AIR CARRIERS,
AND DIFFERENT CLASSES OF SERVICE."  IT MAY, THEREFORE, FIX A RATE FOR
INTERNATIONAL SERVICE.  SINCE IT MAY DO THAT, IT MAY, CONSISTENTLY WITH
RATE-MAKING DECISIONS (SEE, E.G., AMERICAN TOLL BRIDGE CO. V. RAILROAD
COMMISSION, 307 U.S. 486, 494), FIX THE RATE AT A LEVEL WHICH WILL
SUSTAIN THE PARTICULAR UNIT.  THEREFORE THE BOARD NEED DO NO MORE UNDER
SEC. 406(B) WHEN IT FIXES A RATE FOR INTERNATIONAL SERVICE THAN OFFSET
REVENUE ATTRIBUTABLE TO THE CLASS OF SERVICE FOR WHICH THE RATE IS
MADE.  THAT IS THE ARGUMENT. 

THERE ARE ASPECTS OF TRADITIONAL RATE-MAKING THAT ARE CARRIED OVER
INTO THE ACT.  THUS WE HELD IN T.W.A. V. CIVIL AERONAUTICS BOARD, 336
U.S. 601, THAT RATES UNDER THE ACT ARE MADE RETROACTIVE ONLY TO THE
DATE OF THE APPLICATION.  WE ALSO NOTED IN THAT CASE THAT THE "NEED"
CLAUSE IN SEC. 406(B) IS NOT WHOLLY AT WAR WITH TRADITIONAL RATE-MAKING
FUNCTIONS.  ID., P. 604.  BUT THE APPLICATION OF THE "NEED" CLAUSE
WHICH THE BOARD HAS MADE IN THIS CASE IS AT WAR WITH THE LANGUAGE OF
SEC. 406(B).  THE STANDARD IS "THE NEED OF EACH SUCH AIR CARRIER."  THE
"NEED" OF THE CARRIER IS MEASURED BY THE ENTIRETY OF ITS OPERATIONS,
NOT BY THE LOSSES OF ONE DIVISION OR DEPARTMENT.  THE MEASURE OF "THE
NEED" IS AN AMOUNT OF COMPENSATION NECESSARY TO CARRY THE MAIL AND
"TOGETHER WITH ALL OTHER REVENUE OF THE AIR CARRIER" ADEQUATE FOR
MAINTENANCE AND DEVELOPMENT.  AND THE ACT DEFINES "AIR CARRIER" AS "ANY
CITIZEN OF THE UNITED STATES WHO UNDERTAKES  ...  TO ENGAGE IN AIR
TRANSPORTATION  ...  ."  SEC. 1(2).  THUS THE WORDING OF THE ACT
PRECLUDES MEASURING "THE NEED" OF THE CARRIER BY ANY OTHER UNIT THAN
THE CARRIER AS AN ENTITY. 

AS WE READ THE ACT, CONGRESS HAS ESTABLISHED A SPECIAL FORMULA FOR
THE FIXING OF A SUBSIDY RATE.  WHILE THE RATE MAY BE FOR A CLASS OF
SERVICE, THE RETURN IN FORM OF A SUBSIDY MUST BE COMPUTED WITH
REFERENCE TO THE ENTIRE OPERATIONS OF THE CARRIER.  THE REQUIREMENT IS
THAT THE BOARD OFFSET ALL OF A CARRIER'S REVENUES IN DETERMINING THE
SUBSIDY; THERE IS NO DISCRETION IN THE BOARD TO DISREGARD ANY PORTION
OF THE REVENUE BECAUSE OF ECONOMIC OR OTHER POLICY CONSIDERATIONS.  IN
OTHER WORDS, AN AIR CARRIER'S SUBSIDY NEED IS AN AMOUNT WHICH,
"TOGETHER WITH ALL OTHER REVENUE" OF THE CARRIER, WILL ENABLE IT TO
MEET AND MAINTAIN THE OBJECTIVES OF THE ACT.  THE CARRIER'S "NEED" IS
THEREFORE A LIMITING FACTOR IN THE SENSE THAT THE SUBSIDY MAY NOT
EXCEED IT.  SINCE THE BOARD DID NOT CONSTRUE AND APPLY THE ACT IN THAT
MANNER, THE COURT OF APPEALS WAS CORRECT IN REVERSING THE RATE ORDER. 

THE BOARD MAKES AN EXTENDED ARGUMENT OF POLICY AGAINST THAT POSITION
IN ELABORATION OF THE REASONS IT ADVANCED FOR NOT OFFSETTING THE EXCESS
EARNINGS FROM DOMESTIC OPERATIONS AGAINST THE INTERNATIONAL SUBSIDY
RATE.  (FN2)  IT MAINTAINS THAT MAXIMUM OPERATING EFFICIENCY ON THE
PART OF AIR CARRIERS AND THE DEVELOPMENT OF AIR TRANSPORTATION -
PROMINENT OBJECTIVES OF THE ACT (FN3) - WILL BE BETTER SERVED BY
SETTING SUBSIDY RATES ON A DIVISIONAL RATHER THAN ON A SYSTEM BASIS. 
THIS MAY BE SO.  BUT THAT IS A MATTER OF POLICY FOR CONGRESS TO
DECIDE.  AS WE READ SEC. 406(B), CONGRESS ADOPTED IN THE PRESENT ACT A
RATE FORMULA BASED ON "THE NEED" OF THE CARRIER AS MEASURED BY ITS
ENTIRE OPERATIONS, EVEN WHEN A RATE WAS BEING FIXED FOR A CLASS OF
SERVICE.  AFFIRMED. 

FN1  THE BOARD SAID: 

"IF AN OFFSET POLICY WERE ADOPTED, THE ALMOST INVARIABLE RESULT WOULD
BE THAT, AS IN THE INSTANT CASE, THE PROFITS FROM A CARRIER'S DOMESTIC
OPERATION WOULD BE USED TO SUSTAIN ANY INTERNATIONAL OPERATIONS IT
MIGHT HAVE.  RECOGNIZING THIS LIKELIHOOD, WE HESITATE TO BURDEN THE
MORE ROBUST SEGMENT OF THE INDUSTRY WITH THE OBLIGATIONS OF THE
ECONOMICALLY WEAKER PART.  FOR IF THE DOMESTIC AIR TRANSPORT SYSTEM CAN
BE KEPT FINANCIALLY SOUND, THE PUBLIC MUST ULTIMATELY BENEFIT, PUTTING
ASIDE ANY CONSIDERATION OF THE OBVIOUS ADVANTAGE OF REDUCED RATES OF
MAIL COMPENSATION.  THUS, WE ANTICIPATE THAT IF THE CARRIERS' EARNING
POSITION CONTINUES STRONG, REDUCTIONS IN THE DOMESTIC FARE LEVEL WILL
BE POSSIBLE, THEREBY GIVING IMPETUS TO THE FURTHER DEVELOPMENT OF THE
INDUSTRY.  IN ADDITION, WITH IMPROVED EARNINGS, THE DOMESTIC OPERATORS
SHOULD BE ABLE TO BENEFIT THE PUBLIC AND THEMSELVES WITH MORE MODERN
AIRCRAFT, AND WITH IMPROVED METHODS AFFORDING SAFER AND MORE EFFICIENT
OPERATIONS.  WE CANNOT ESCAPE THE THOUGHT THAT IF WE ALLOW
INTERNATIONAL OPERATIONS TO BE CARRIED ON THE BACK OF DOMESTIC
OPERATIONS, WE SHALL BE SUBJECTING THE LATTER TO AN UNJUSTIFIABLE
STRAIN.  MANY OF THE DOMESTIC OPERATORS ARE WELL ALONG THE ROAD TO SELF
SUFFICIENCY.  IT IS OUR DUTY TO SPEED THEM ON THEIR WAY, NOT THWART
THEM. 

"IT ALSO APPEARS DESIRABLE TO MAINTAIN THE COMPARATIVE STATUS BETWEEN
THOSE DOMESTIC OPERATORS WHICH HAVE FOREIGN ROUTES AS AGAINST THOSE
WHICH DO NOT HAVE FOREIGN ROUTES.  SINCE CARRIERS FALL INTO FAIRLY WELL
DEFINED CLASSES, THE BOARD IS ENABLED TO FIX UNIFORM DOMESTIC MAIL
RATES FOR GROUPS OF CARRIERS PROVIDED, OF COURSE, THAT THEIR
COMPARATIVE STATUS IS PRESERVED BY EXCLUDING CONSIDERATION OF ANY
INTERNATIONAL OPERATIONS.  A CARRIER OPERATING UNDER A CLASS RATE HAS
EVERY INCENTIVE TO OPERATE EFFICIENTLY BECAUSE IT MAY RETAIN ANY
PROFITS IT EARNS IN EXCESS OF THE ESTIMATED RETURN TO BE AFFORDED BY
THE UNIFORM RATE.  IT IS ALSO ADMINISTRATIVELY DESIRABLE TO PRESERVE A
COMPARATIVE STATUS BETWEEN CARRIERS BECAUSE THE BOARD HAS BEEN ABLE TO
ANALYZE THE OPERATIONS OF EACH CARRIER WITHIN A CLASS IN THE LIGHT OF
THE RESULTS ACHIEVED BY OTHERS WITHIN THE SAME CLASS.  THE COMPARISON
TECHNIQUE OF RATE-MAKING HAS PROVED TO BE THE MOST SATISFACTORY AND
PRACTICABLE AVAILABLE TO THE BOARD.  IF WE WERE REQUIRED TO FIX RATES
FOR BOTH DOMESTIC AND INTERNATIONAL OPERATIONS AT THE SAME TIME, IT
WOULD BE DIFFICULT, IF NOT IMPOSSIBLE, TO FIND A SUITABLE BASIS FOR A
COMPARISON TECHNIQUE OF ANALYSIS. 

"IN VIEW OF THE FOREGOING, WE FIND THAT THE EARNINGS FROM C&S'
DOMESTIC ROUTES SHOULD NOT BE USED TO OFFSET THE 'NEED' RESULTING FROM
THE CARRIER'S INTERNATIONAL ROUTES.  THIS CONCLUSION STEMS FROM
CONSIDERATIONS OF ECONOMIC POLICY; WE ARE NOT DECIDING THE QUESTION OF
OUR LEGAL POWER TO MAKE SUCH AN OFFSET."  14 C.A.B., AT 683. 

FN2  SEE NOTE 1, SUPRA. 

FN3  SECTION 2 OF THE ACT PROVIDES: 

"IN THE EXERCISE AND PERFORMANCE OF ITS POWERS AND DUTIES UNDER THIS
ACT, THE BOARD SHALL CONSIDER THE FOLLOWING, AMONG OTHER THINGS, AS
BEING IN THE PUBLIC INTEREST, AND IN ACCORDANCE WITH THE PUBLIC
CONVENIENCE AND NECESSITY: 

"(A)  THE ENCOURAGEMENT AND DEVELOPMENT OF AN AIR-TRANSPORTATION
SYSTEM PROPERLY ADAPTED TO THE PRESENT AND FUTURE NEEDS OF THE FOREIGN
AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE POSTAL SERVICE, AND
OF THE NATIONAL DEFENSE: 

"(B)  THE REGULATION OF AIR TRANSPORTATION IN SUCH MANNER AS TO
RECOGNIZE AND PRESERVE THE INHERENT ADVANTAGES OF, ASSURE THE HIGHEST
DEGREE OF SAFETY IN, AND FOSTER SOUND ECONOMIC CONDITIONS IN, SUCH
TRANSPORTATION, AND TO IMPROVE THE RELATIONS BETWEEN, AND COORDINATE
TRANSPORTATION BY, AIR CARRIERS: 

"(C)  THE PROMOTION OF ADEQUATE, ECONOMICAL, AND EFFICIENT SERVICE BY
AIR CARRIERS AT REASONABLE CHARGES, WITHOUT UNJUST DISCRIMINATIONS,
UNDUE PREFERENCES OR ADVANTAGES, OR UNFAIR OR DESTRUCTIVE COMPETITIVE
PRACTICES: 

"(D)  COMPETITION TO THE EXTENT NECESSARY TO ASSURE THE SOUND
DEVELOPMENT OF AN AIR-TRANSPORTATION SYSTEM PROPERLY ADAPTED TO THE
NEEDS OF THE FOREIGN AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE
POSTAL SERVICE, AND OF THE NATIONAL DEFENSE: 

"(E)  THE REGULATION OF AIR COMMERCE IN SUCH MANNER AS TO BEST
PROMOTE ITS DEVELOPMENT AND SAFETY; AND: 

"(F)  THE ENCOURAGEMENT AND DEVELOPMENT OF CIVIL AERONAUTICS."