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WESTERN AIR LINES, INC. V. CIVIL AERONAUTICS BOARD 347 U.S. 67 


NO. 225.  ARGUED DECEMBER 9-10, 1953 - DECIDED FEBRUARY 1, 1954 - 92
U.S. APP. D.C. 248, 207 F.2D 200, 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 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. 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. 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. 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 SEC.
406(B).  PP. 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. 72-73. 

WESTERN AIR LINES, INC. V. CIVIL AERONAUTICS BOARD ET AL. 

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

*TOGETHER WITH NO. 224, 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. 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 IN PART.  92 U.S.
APP. D.C. 248, 207 F.2D 200.  THIS COURT GRANTED CERTIORARI.  346 U.S.
811.  AFFIRMED, P. 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 SEC. 406(B) OF THE CIVIL AERONAUTICS ACT OF 1938, 52
STAT. 973, AS AMENDED, 49 U.S.C. SEC. 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." 
(FN1)  SECTION 406(B) REQUIRES THE BOARD TO TAKE INTO 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."  (FN2)  THE CONTROVERSY 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 (FN3) 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 CONPENSATION 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., AT 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 (FN4) CHALLENGED THE
EXCLUSION FROM THE 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;
(FN5) 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 SEC.
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 MEANING OF SEC. 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 (SEC. 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
SEC. 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 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., AT 246. 

THE STANDARD PRESCRIBED BY CONGRESS, HOWEVER, IS "THE NEED" OF THE
AIR CARRIER WHOSE SUBSIDY RATES ARE BEING FIXED.  AFFIRMED. 

FN1  "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." 

FN2  "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." 

FN3  UNITED-WESTERN, ACQUISITION OF AIR CARRIER PROPERTY, 8 C.A.B.
298 (1947). 

FN4  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 SEC. 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. 

FN5  SEE, FOR EXAMPLE, EASTERN AIR LINES, MAIL RATES, 3 C.A.B. 733
(1942).