Petition for Writ of Certiorari — REA Express, Inc. v. Civil Aeronautics Board

Supreme Court brief1976

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EB 27 1976

October Term, 1975 Lee RODAK, JR., CLERK

Ne. €5-1233

REA EXPRESS, INC., a Bankrupt,

Petitioner,

VS.

CIVIL AERONAUTICS BOARD,

Respondent,

AIRLINES PARTICIPATING in AIR EXPRESS SERVICE,

AIR FREIGHT FORWARDERS ASSOCIATION,

AMERICAN RETAIL FEDERATION, BROTHERHOOD of

RAILWAY and AIRLINE CLERKS, NATIONAL SMALL

SHIPMENTS TRAFFIC CONFERENCE, DRUG and

TOILET PREPARATION TRAFFIC CONFERENCE, and

EASTERN INDUSTRIAL TRAFFIC LEAGUE, PET

INDUSTRY PARTIES, EMERY AIR FREIGHT,

Inéervenors.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

ARTHUR M. WISEHART

WISEHART, FRIOU & KOCH

219 East 42nd Street

Sixth Floor

New York, New York 10017

(212) 557-8800

Counsel for Petitioner

(8847)

areal

TABLE OF CONTENTS

Page

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Statutory Provisions Involved ............ccccsccecccces 3

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Reasons for Granting the Writ ........cccccccsecccccess 11

1. The decision below conflicts with statutory

requirements and with decisions of other courts in

failing to require findings as to the economic impact

involved in the termination of a public service.

The CAB’s failure to address itself to the

requirements of the National Environmental Policy

Act in the context of a decision to terminate Air

Express gives rise to a public policy issue of

sufficient importance to warrant review by this

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The decision below raises significant and recurring

problems concerning the relationship between the

exercise of jurisdiction by one administrative agency

in such a way as to preclude or frustrate the

jurisdiction of other administrative agencies, or the

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Contents

Page

TABLE OF CITATIONS

Cases Cited:

Alaska Airlines v. CAB, 285 F.2d 672 (D.C. Cir. 1960) ..... 12

Ashbacker Radio Co. v. FCC, 326 U.S. 327 (1945) ........ 15

Atchison Topeka & Sante Fe Railway Co. v. Wichita

Board of Trade, 412 U.S. 800 (1973) ..............04. 11

Braniff Airways, Inc. v. CAB, 379 F.2d 453 (D.C.

rd ee ade ia cd Sracst a tao th Wis iin th csenie-ce's MEPS

Brotherhood v. REA Express, Inc., 523 F.2d 164 (2d

Cir. 1975), cert. denied, —— U.S. —— .............. 24

Carey v. CAB, 275 F.2d 518 (Ist Cir. 1953) ............... 15

Goldberg v. Kelly, 397 U.S. 254 (1970) ................... 27

Harlem Valley Transportation Association v. Stafford,

ee 16, 18, 19

Kodiak Airways, Inc. v. CAB, 447 F.2d 341 (D.C. Cir.

Wee CeN nw Cbe On eV SUR Ge NSS wan ewesinscceixeeds 15

Morse v. United States, 270 U.S. 151 (1926) ......... shed aS 2

Moss v. CAB, 430 F.2d 891 (D.C. Cir. 1970) .............. 12

MAME See EEL LOSE POLIT NEM OREL A ELEM ES Mi LG AI NTE —

iii

Contents

Page

Nebraska Department of Aeronautics v. CAB, 298 F.2d

yf ee ae rrr re rr rr re 12

Northeast Airlines, Inc. v. CAB, 331 F.2d 579 (Ist

Noha ges whan e dace eRe eee R ER Ee CARES Oe 15

Schaffer Transportation Co. v. United States, 355 U.S.

8 Oe rT ne Peer Sr errr Tete ree 13

Trailways of New England, Inc. v. CAB, 412 F.2d 926

BE ED Vict ek sddink eae Cesena se ae dues scenweee 15

Transcontinental Bus System, Inc. v. CAB, 383 F.2d 466

(Sth Cir. 1967), cert. denied, 390 U.S. 920 (1968) ...... 15

United States v. Healy, 376 U.S. 75 (1964) ............008. 2

Wolff v. McDonnell, 418 U.S. 539 (1974) ............ eee 27

Statutes Cited:

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SRR ARP NAOT ARLE, SE ONES FREI LALGE IIE PAINE OE INNA AARNE BPEL EEA LOH N

Contents

Page

Other Authorities Cited:

Commoner, “Reporter at Large; Energy — III,” The New

We, Fee Oe. Tee GP exer cds secerstossavaavns 15

Congressional Record, January 23, 1976, p. H218 ......... 10

2 Davis, Administrative Law, §15.14, p. 432 .............. 14

Friendly, Some Kind of Hearing, 123 U. Pa. L. Rev. 1267

ce EO TO OE PET OT ee rrr 27

Stern & Gressman, Supreme Court Practice, §11.1 (4th ed.

oo, DORE Th EPP b ep ery eee Nr eg yet ey MERE OTN 20

Study of REA Express (Staff Study, 1965) ................ 20

Senate Committee Report on Commerce, “Federal

Assistance For Carriers of Express, p. 3 (S. Rep.

Me. Pa-TiSs, Soptewiber 15, FSTZ) ooo ccc vkcccvacas 2

In The

Supreme Court of the United States

ORE ORTON Tt ARTY eA ER:

, ™

October Term, 1975

No.

REA Express, Inc., a Bankrupt,

Petitioner,

VS.

Civil Aeronautics Board,

Respondent,

Airlines Participating in Air Express Service, Air Freight

Forwarders Association, American’ Retail Federation,

Brotherhood of Railway and Airline Clerks, National Small

Shipments Traffic Conference, Drug and Toilet Preparation

Traffic Conference, and Eastern Industrial Traffic League, Pet

Industry Parties, Emery Air Freight,

Intervenors.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

The petitioner, REA Express, Inc., a bankrupt (“REA”),

respectfully prays that a writ of certiorari issue to review the

judgment and decision of the United States Court of Appeals for

the Second Circuit entered on October 6, 1975.

REAPER SIREN IRE CNTR age err

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OPINIONS BELOW

The opinion of the Court of Appeals, reported at 524 F.2d

54, and the related opinions of the Civil Aeronautics Board

(“CAB”), appear in the appendix hereto. Page references to the

appendix are cited with the suffix “a.”

JURISDICTION

The judgment of the United States Court of Appeals for the

Second Circuit was entered on October 6, 1975. A timely

petition for rehearing was denied on December 1, 1975, and this

petition for certiorari was filed within ninety days of that date.

This Court's jurisdiction is invoked under 28 U.S.C. §1254(1).

See Morse v. United States, 270 U.S. 151 (1926); United States

v. Healy, 376 U.S. 75, 78 (1964).

QUESTIONS PRESENTED

1. Whether the decision to terminate Air Express could be

made without a comparative hearing as to (a) the costs to be

borne by the shipping public for alternative services, or (b) a

new service proposed by the Civil Aeronautics Board but not yet

developed.

2. Whether an environmental impact statement or

evaluation was required.

BE AEA SOAR DUE RT

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3. Whether a public transportation service may be

terminated without a supplemental hearing with respect to

substantial changes in circumstances including the carrier's

efforts to reorganize as a “debtor-in-possession” pursuant to

Chapter XI of the Bankruptcy Act.

STATUTORY PROVISIONS INVOLVED

Section 102 of the Federal Aviation Act, 49 U.S.C. §1302:

In the exercise and performance of its powers and duties

under this chapter, the Civil Aeronautics 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 a 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;

service by air carriers at reasonable charges, without unjust

discriminations, undue preferences or advantages, or unfair or

destructive competitive practices;

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(d) Competition to the extent necessary to assure the sound

development of anair-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 promotion of safety in air commerce; and

(f) The promotion, encouragement, and development of

civil aeronautics. [Emphasis added. ]

Section 1002(e) of the Federal Aviation Act, 49 U.S.C.

§1482(e):

In exercising and performing its powers and duties with

respect to the determination of rates for the carriage of persons

or property, the Board shall take into consideration, among

other factors —

(1) The effect of such rates upon the movement of traffic;

(2) The need in the public interest of adequate and efficient

transportation of persons and property by air carriers at the

lowest cost consistent with the furnishing of such service;

(3) Such standards respecting the character and quality of

service to be rendered by air carriers as may be prescribed by or

pursuant to law;

(4) The inherent advantages of transportation by aircraft:

and

(5) The need of each air carrier for revenue sufficient to

enable such air carrier, under honest, economical, and efficient

management, to provide adequate and efficient air carrier

service. [Emphasis added.]

Section 1002(h) provides (49 U.S.C. §1482):

(h) Whenever, after notice and hearing, upon complaint or

upon its own initiative, the Board is of the opinion that the

divisions of joint rates, fares, or charges for air transportation

are or will be unjust, unreasonable, inequitable, or unduly

preferential or prejudicial as between the air carriers or foreign

air carriers parties thereto, the Board shall prescribe the just,

reasonable, and equitable divisions thereof to be received by the

several air carriers. The Board may require the adjustment of

divisions between such air carriers from the date of filing the

complaint or entry of order of investigation, or such other date

subsequent thereto as the Board finds to be just, reasonable,

and equitable. [Emphasis added.]}

STATEMENT OF THE CASE

The transportation service known as “Air Express” was

originated by REA’s corporate predecessor in 1927, prior to the

passage of the Civil Aeronautics Act of 1938. From 1927 until

1944, Air Express was the only service under which small

shipments were hauled throughout the United States by

common carriers by air. The air services were performed by the

airlines and REA provided the ground services, including

handling, transfers, routing, billing, and pickup and delivery,

pursuant to a comprehensive agreement. REA was regarded as

_— — = - a ain Ge +

an “indirect” air carrier. Beginning in 1944, however, the airlines

began to publish their own tariffs and promote their own air

freight businesses. Air freight forwarders developed thereafter.

Despite the competition by the new services, Air Express

retained certain distinctive characteristics. It was the only

“priority” servic: the shipments were boarded first after baggage

and mail, and generally on the first flight out of an airport,

regardless of airline. It covered all points in the United States,

knitting the various airlines together into an integrated service.

It specialized in shipments that were small and difficult to

handle. It utilized a single, simplified tariff for all shipments on

all airlines, and to all locations. It provided unusual services,

such as armed guard protection. And, for those small shipments

it was best equipped to handle, it charged less than competing

services.

Since 1929, REA had been owned by the railroads. In 1969,

however, the railroads sold REA in an_undercapitalized

condition to a group put together by a new management which

the railroads’ voting trustees had recruited.

The Air Express arrangement had previously been

dependent upon agreements negotiated between REA and a

committee representing all of the airlines, subject to the approval

of the CAB. The agreements had a five year term. When REA’s

new management came into the picture in 1969, the Air Express

agreement was about to expire. The new management

discovered that, with the relative growth of the airlines’ separate

air freight businesses, it had become increasingly difficult to

negotiate a satisfactory Air Express agreement with the airlines

as a whole. The new management further discovered that the

airlines, to encourage the growth of their separate businesses,

were pricing air freight at substantially below cost.' The airlines

received about twice as much per ton mile from their share of

the Air Express divisions as they received from air freight.

Although the airlines did not receive their fully allocated costs

from either service, studies showed that they received a higher

percentage of fully allocated costs from Air Express than they

did from air freight. Finally, it appeared to REA’s new

management that the capital which the company so badly

needed to remain in business would not be forthcoming as long

as its ability to remain in Air Express was dependent upon the

good will of the airlines, who after all were competitors, in

negotiating an agreement.

Accordingly, on April 9, 1970, REA filed a petition and

complaint with the CAB, asking that the following be

established as the major principles to govern the Air Express

arrangement:

1. The amount which REA pays the airlines

should be fairly related to what other airline

customers pay for air transportation.

2. REA should have the independent right,

subject to Board approval, to develop and revise

tariffs for Air Express service free from the

1. The substance to this contention is indicated by the subsequent finding of an

Administrative Law Judge in a separate proceeding, the Domestic Air Freight Rate

Investigation, Docket 22859. In that case, which is still pending, the Administrative Law

Judge found that, based on 1972 data, air freight rates are unreasonably low and unjustly

discriminatory, and that they should be increased on an average by 38.8%.

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power of veto which the air carriers now have.

The Air Express agreement and the tariff

developed thereunder should not, as has been the

case in the past, preclude Air Express customers

from using the service for the long-haul air

market and for a broader range of shipments.

3. The agreement should be permanent and

provide for arbitration in the event that

negotiations are unable to resolve disputes.

However, the CAB dismissed REA’s petition and

complaint, and bifurcated the issues raised therein into two

separate proceedings: the Air Express Rates case and the Air

Express Service case. REA promptly,but to no avail, objected to

the severing of issues which were inextricably intertwined into

two separate proceedings. The cases were assigned to different

Administrative Law Judges who conducted separate hearings on

separate timetables. And while the Board reached a final

decision in the Afr Express Service case, the Air Express Rates

case, from which REA hoped to obtain the economic

wherewithal for its survival, through the CAB’s power (and

statutory duty) to make retroactive determinations with respect

to rate “divisions,”? remains undecided, consigned to some kind

of administrative limbo called informal conferences. Meanwhile

REA, unable to weather the CAB's terminal edict for Air

Express, has been adjudicated a bankrupt. Thousands of

employees have been thrown out of work, the interests of

stockholders and thousands of creditors with millions of dollars

in claims wiped out, and shippers throughout the country

deprived of express services.

2. REA's expert witness calculated that the amount of overpayment to the airlines.

based upon the yields which they were receiving from air freight. would have been in the

approximate amount of one million dollars per month, retroactive to April 9. 1970

Following oral argument in the court below, in an

attempted settlement, REA and the airlines negotiated a new Air

Express agreement which they felt addressed in a constructive

way the Board’s reservations about the prior arrangement. The

court remanded the matter so that the CAB could consider the

new agreement. Without further hearing or argument, however,

the Board adhered to its former conclusion, ignoring REA’s

financial plight in the groundless belief that REA’s operation as

a freight forwarder would provide the best opportunity for its

survival. By that time, REA had been compelled to petition for

reorganization under Chapter XI of the Bankruptcy Act, and the

Board never stopped to inquire whether REA then had the ways

and means of transforming its Air Express business into air

freight forwarding. REA requested a hearing but in vain.

The CAB’s conclusion about the supposed desirability of

REA’s becoming a freight forwarder was thrown into stark

irrationality by the Board’s decision, in yet another docket, to

require the airlines to develop another priority, interline service

for small shipments. REA contended that Air Express should be

kept in existence at least until the new service was developed so

that comparative benefits and costs could be measured, to which

the CAB responded with the contention that what it envisioned

was not a replacement for Air Express. Whether the new service

planned was or was not a replacement for Air Express — a

contention difficult if not impossible to refute because of the

impossibility of knowing precisely what the Board had in mind

— was irrelevant, of course, to the question of why Air Express

could not at least be retained in existence until the shippers —

those who would actually use the service — could give voice to

their preferences.

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aC ee ONE

The CAB’s death knell decision for Air Express had a

predictable effect on REA’s business; Air Express traffic

dropped off markedly, a condition exacerbated by the decision

of affirmance below on October 6, 1975, and on November 6,

1975, REA was adjudicated a total bankrupt.

Meanwhile, the Trustee, C. Orvis Sowerwine, Esq., has

maintained certain of REA’s profitable activities in operation,

and seeks means whereby the company can be rehabilitated and

restored to viability through a sale or other infusion of capital,

in the hope that the value of REA’s rights, of which he regards

Air Express as an important part, can be preserved and realized

upon as assets of the bankrupt estate. Funds potentially may be

available through the Railroad Revitalization and Regulatory

Reform Act of 1976, which has just been enacted. That Act

defines “railroad” to include “a common carrier by railroad or

express as defined in section 1(3) of the Interstate Commerce

Act,” a definition which REA, as the historical express

company, would satisfy. Congressional Record, January 23,

1976, p. H218.

The Trustee regards the decision below as a substantial

impediment to his hopes for rehabilitation and restoration.

Accordingly, the Trustee has sought and obtained permission

from Bankruptcy Judge John J. Galgay, in S.D.N.Y., Dkt. No.

75 B 251. to cause this petition for certiorari to be filed.

The Court of Appeals has granted a stay to prevent

implementation of the CAB’s decision, denied the CAB’s request

to dissolve the stay (3a), and has stayed the mandate pending

determination and final disposition of a petition for certiorari

(Sa), on the basis of REA’s showing of irreparable injury.

SASSER LS LOE LIE AG SE OLE

REASONS FOR GRANTING THE WRIT

Il. The decision below conflicts with statutory requirements

and with decisions of other courts in failing to require findings

as to the economic impact involved in the termination of a

public service.

The Federal Aviation Act requires the CAB to consider “the

need in the public interest of adequate and efficient

transportation of .. . property by air carriers at the lowest cost

consistent with the furnishing of such service.” (49 U.S.C.

§1482(e)(1) and (2).) (Emphasis added.)

Such a crucial consideration may not be ignored by the CAB

in making a determination to terminate Air Express. As stated

by this Court in Atchison Topeka & Santa Fe Railway Co. v.

Wichita Board of Trade, 412 U.S. 800, 817 (1973): “Even giving

the Commission’s opinion the most sympathetic reading that we

find possible, we cannot discover in it an expressed reason for

permitting the railroads to reduce their services without showing

that the rates they propose to maintain are reasonable rates for

the service they intend to provide.”

By bifurcating the issues raised by REA’s petition and

complaint filed in 1970, putting the issues in the Service case

ahead of the economic issues raised in the Rates case

procedurally, the Board deprived REA and the shipping public

of important statutory rights to their substantial prejudice.

The decision below is at variance with the decisions of other

circuits indicating that public interest determinations regarding

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air services must include determination of the economic

consequences. See Alaska Airlines v. CAB, 285 F.2d 672, 674

(D.C. Cir. 1960); Nebraska Department of Aeronautics v. CAB,

298 F.2d 286, 291 (8th Cir. 1962). By terminating a public

service without first making an economic determination of the

costs of the service, the CAB effectively eliminated any

possibility of meaningful public participation in what it might

have to pay for competitive services, a result out of harmony

with the decision of the D.C. Circuit in Moss v. CAB, 430 F.2d

891 (D.C. Cir. 1970). How could the shipping public make a

choice as to which service it would prefer without knowing

ultimately what the cost would be? Nor does the decision below

offer a supportable response to that issue by referring to the

level of rates reflected in the then current tariff (19a). As Moss,

supra, shows, reference to tariff levels is not an adequate means

of discharging the CAB’s statutory economic requirements.

In the Rates case, REA contended that the amounts

received by the airlines for their Air Express divisions were

excessive by approximately one million dollars per month,

compared with their yield from air freight. Had those divisions

been adjusted as requested, REA would have been strengthened

financially and the shipping public would have been the ultimate

beneficiaries of reduced costs. The “hidden cost” of regulation,

when the regulatory agencies, as here, fail to take such

considerations into account, has been the subject of much recent

discussion.

The kind of error which results from the absence of

adequate analysis is exemplified by the general comment of the

court below with respect to recent tariffs (19a-20a). Ignored is

the fact that the rates for priority service by individual airlines :

have been 130% of their general commodity rates for air freight,

which do not include pickup and delivery. The comment also :

does not take into account the fact that in the still-pending —

Domestic Air Freight Rate Investigation, Docket 22859, the

CAB’s Administrative Law Judge found that air freight rates

“are unjust and unreasonable” and that the prevailing freight

rate structure is “unjustly discriminatory,” leading to the

conclusion that air freight rates should be increased by an

average of 38.8%. Thus there has been a substantial escalation in

what shippers have to pay for priority service for traffic formerly

moving by Air Express, and further escalation apparently is in

store.

The comparative cost analysis required is a responsibility

imposed upon the administrative agency, see Schaffer

Transportation Co. v. United States, 355 U.S. 83, 92 (1957), and

in this case, Air Express was terminated before that analysis ever

reached the point of administrative finality, notwithstanding a

finding by the Administrative Law Judge that “air freight

forwarder service is not endowed with the favorable economics

of a single ground agency concept, and consequently it cannot

develop a rate structure for small shipments commensurate with

air express.” (JA624(a).)

If Congress has mandated that a factor be given

consideration in the hearing process, it would make a mockery

of the will of Congress, and due process as well, to permit the

requirement to be side-stepped, as does the decision below,

by stating that there is no “assurance” that the hearing would

yield findings which would require a change in the Board's

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decision (21a). Either the hearing process as such has integrity or

it does not, and the condition that “assurance” be shown before

even a hearing will be allowed implies a kind of a priori

reasoning which (a) is the antithesis of due process, and (b)

would effectively preclude judicial review. As stated in 2 Davis,

Administrative Law, §15.14, p. 432:

“The cardinal principle of fair hearing

is .. . that parties should have the opportunity to

meet in appropriate fashion all facts that

influence the disposition of the case. . . . Nothing

short of bringing the facts into the record, so that

an unabridged opportunity is allowed for cross-

examination and for presentation of rebuttal

evidence, will suffice for the disputed adjudicative

facts at the center of the controversy.”

The requirement imposed by Congress that no significant

administrative action can be taken in certain areas without

findings on the environmental impact can not be obviated in

service abandonment cases by a ritualistic recitation that there is

no “assurance” that such findings would produce a different

result, and we submit that Congress has spoken no less plainly in

requiring findings on the economic impact in cases such as the

one here involved.

Besides the overriding requirement that the CAB anchor its

action on the considerations specified by Congress, the

Administrative Procedure Act mandates findings on each of the

statutory considerations to be supported by substantial evidence

on the record, 5 U.S.C. §706(2)(E), and the courts in other

Sues Peri ee

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circuits have not hesitated to reverse CAB action when the

Board has failed to state separate findings on all material issues

presented. See Trailways of New England, Inc. v.CAB,412 F.2d

926, 936 (Ist Cir. 1969); Braniff Airways, Inc. v. CAB, 379 F.2d

453, 462 (D.C. Cir. 1967); Northeast Airlines, Inc. v. CAB, 331

F.2d 579, 588 (Ist Cir. 1964); Carey v. CAB, 275 F.2d 518, 524

(Ist Cir. 1953); Transcontinental Bus System, Inc. v. CAB, 383

F.2d 466 (Sth Cir. 1967), cert. denied, 390 U.S. 920 (1968).

REA also consistently has requested that it be afforded an

Ashbacker-type comparative hearing with regard to the new

priority interline service which the CAB has ordered the airlines

to develop. Only this Court can resolve the important issue of

whether such a hearing is required in the circumstances of this

case by Ashbacker Radio Co. v. FCC, 326 U.S. 327 (1945), and

we respectfully request that it do so. In rejecting the applicability

of Ashbacker to this case, the court below apparently has

applied a different standard than the District of Columbia

Circuit in Kodiak Airways, Inc. v. CAB, 447 F.2d 341 (D.C. Cir.

1971).

II. The CAB’s failure to address itself to the requirements of the

National Environmental Policy Act in the context of a decision

to terminate Air Express gives rise to a public policy issue of

sufficient importance to warrant review by this Court.

The CAB, regulating an industry with the greatest

environmental impact per ton-mile of freight moved,}should be

3. Commoner, “Reporter at Large: Energy — III,” The New Yorker, Feb. 16, 1976,

p. 64, states:

(Cont'd)

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required to explain to this Court why, six years after passage of

the National Environmental Policy Act, it seeks the destruction

of the service with the least adverse environmental impact

without attempting to address itself to the statutory

environmental requirements (42 U.S.C. §4332).

The fact that the administrative agencies have been laggards

in satisfying the requirements of the National Environmental

Policy Act has already provoked judicial comment with respect

to the Interstate Commerce Commission. Harlem Valley

Transportation Association v. Stafford, 500 F.2d 328, 331 (2d

Cir. 1974).

The Harlem Valley case involved local rail abandonment

proceedings; the termination of nationwide Air Express service

has a much greater environmental effect and presents an a

fortiori situation. The adverse consequences are no longer a

matter of speculation. Following the cessation of Air Express

services as a result of REA’s adjudication in bankruptcy, Federal

Express, an air taxi cargo carrier seeking exemption authority to

(Cont'd)

“Transportation dominates the energy picture. It is the largest single

end use of energy, consuming twenty-five per cent of the total

American energy budget.”

“Air pollution from transportation can be judged by the amount of

fuel burned... .” (p. 69).

“In the last few years, energy productivities have been computed for

all the major modes of intercity transportation.

Railroads... have the highest energy productivity for general

freight: 1,300 ton-miles per million B.T.U.s, compared with 360 for

intercity trucks and 20 for airlines.” (p. 68).

Se ay

use larger aircraft, filed a petition for reconsideration with the

CAB dated January 28, 1976 making the following statement:

“The gap created by the final collapse of

REA’s long-declining Air Express service has had

a particularly significant impact on Federal

Express’ traffic because so few other air freight

carriers offer a system having a geographic scope

comparable to that of REA, particularly at low

density cities.” (pp. 11-12).

The bottom line in environmental terms is the admission

that, because of the large amount added to its nightly volume by

the cessation of Air Express, Federal has had “to add needed

capacity on a grossly inefficient basis — greatly increasing its

cost, wasting scarce fuel, and jeopardizing its service reliability.”

(p. 3).

Nor does the simplistic solution proposed by Federal —

letting it use larger aircraft — address itself to the underlying

problem.

Air Express is the least costly and most efficient method of

moving small shipments by air because of the shared use of

equipment and facilities. For the same reason, the environmental

consequences are less. As the Administrative Law Judge found,

80% of Air Express shipments were carried in the cargo space of

combination aircraft, space which in recent years, with the

advent of wide bodied aircraft, has been greatly underutilized

(JA626(a)). As these aircraft carry passengers also, they would

be operating in any event, and the environmental impact of Air

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SPIES SNE RAN SNE AL ROR a RRRWA IEA TC TALI t

Express carried in that way therefore was minimal. In contrast,

only 42% oi air freight forwarder traffic moves on combination

aircraft; the rest moves on specialized all-cargo aircraft, a

condition of imbalance which the ALJ found would be

exacerbated by the shift of Air Express to forwarder operations.

Noise is a further environmental factor because of the emphasis

placed by forwarders on all-cargo night operations, and the

potential effect on day/night operational patterns.

The lack of an environmental impact statement was raised

in but ignored by the court below (REA Br. 45, fn.). The point

was not raised directly in the administrative hearing because of

the following factors: (a) REA was not seeking termination of

Air Express but its continuation, (b) testimony regarding the

greater efficiency of Air Express was introduced, (c) the

proponents of the termination of Air Express, if anyone, had the

primary responsibility for justifying the environmental

consequences of the change which they sought, (d) the Harlem

Valley and other cases make it clear that the burden of assuring

compliance with the National Environmental Policy Act falls

upon the agency itself, (e) at the time of the hearing, the CAB's

definitive environmental regulations [promulgated in September

1975] were still several years from being written, and (f) the

Administrative Law Judge held that Air Express should be

continued, in part because of its greater efficiency of operation,

so at the time of review by the CAB, REA had no basis for

objecting to the lack of an environmental assessment nor was it

aware of the substantial nature of point until later, when the

great expansion in operations by Federal Express took place.

When Federal Express applied for an exemption to allow it

to operate larger aircraft, REA opposed the application and

muved to have the application consolidated withthe Air Express

Service case and the CAB’s priority service docket so that a

comparative hearing could be held on environmental and other

aspects. We also pointed out that Federal’s operation was

inherently wasteful, whether it used large or small aircraft,

because of its specialized nature and the circuity involved,

causing unnecessary air and noise pollution, and that

“The increase in the use of special purpose

aircraft, while the regulated air carriers are

operating combination aircraft with only a

fraction of their belly capacity filled with cargo

would constitute a major federal action having a

substantial impact upon the environment.”

Request for Hearing and Motion, Oct. 14, 1975,

p. 9.

The CAB ignored the environmental aspect and dismissed

REA’s motion as moot on the ground that it had denied the

application for other reasons. CAB Order 75-12-38, Dec. 8,

1975. However, the environmental point was not moot; it was

intensified as a result of the cessation of Air Express and

continued operations by Federal, as demonstrated by the

statements quoted above from Federal’s petition for

reconsideration.

The CAB may contend that REA could raise the same issue

in the District Court by bringing an unusual action in the nature

of mandamus, as in Harlem Valley, supra. But neither REA nor

Te aS ENTE OR

SMR RTE ORE: WRAL) BNE ASAIN WEL INE ABN ACHE ND

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the judicial system has the time nor resources to afford that kind

of redundancy. ihe CAB’s undeniable neglect in addressing air

cargo environmental concerns generally and in the context of

this proceeding particularly, we submit is a subject well worthy

of this Court’s attention. Cf. Stern & Gressman, Supreme Court

Practice §11.1 (4th ed. 1969).

III. The decision below raises significant and recurring problems

concerning the relationship between the exercise of jurisdiction

by one administrative agency in such a way as to preclude or

frustrate the jurisdiction of other administrative agencies, or the

Bankruptcy Court.

Air Express accounted for approximately 30% of REA’s

total revenues. The rest was derived from surface express,

operated under certificates of public convenience and necessity

issued by the Interstate Commerce Commission and various

state agencies. By placing the continuation of REA’s unique

surface express operations in extreme jeopardy, the CAB has

brought havoc to a sector of the public interest with respect to

which it has no jurisdiction.

For over one hundred years, express operations have been

characterized by their inter-modal nature. This was so significant

a factor in REA’s situation that a tripartite group with

representatives of the CAB, the Federal Maritime Commission

and the Interstate Commerce Commission worked together to

produce a comprehensive Study of REA Express (Staff Study)

in 1965. This Study pointed out that regulation of REA by the

different agencies “...is by virtue of various statutory

provisions which leave unanswered some questions of lines of

demarcation among the several agencies, and also of coverage of

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OR SPOR, Barty

21 '

all REA activities,” and that “the impact of competition goes F

beyond the areas in which a single agency may exercise its

authority.” (p. 3).

In its annual report for fiscal year 1974, the ICC expressed

concern about the effect of the CAB’s ruling regarding Air

Express (p. 54): “A December [1973] ruling by the Civil

Aeronautics Board affecting the operational status of REA

Express, Inc. (REA) may have serious bearing on the company’s

capability to maintain a financially viable posture.” It adds (p.

55): “Whether REA has the capability to continue as a viable

transporation entity in light of the CAB order remains to be

seen.” In addition, the ICC’s annual report states (ibid. ):

“In light of these circumstances and the special

status which REA enjoys under the Interstate

Commerce Act in the conduct of its express

service, a joint hearing of the Senate

Subcommittees on Air and Surface

Transportation was held in executive session on

June 10, 1974, to investigate the situation

involving REA. The Commission presented

testimony at these hearings concerning the

current operations of REA. The conclusions of

the hearing have not as yet been made public.”

And the Senate Committee on Commerce in its Report

entitled “Federal Assistance For Carriers of Express” (S. Rep.

No. 92-1158, September 15, 1972) stated (p. 3):

DMR ORES 5 tS LER E LRAFS a ~ |

“REA has long provided service for such unique

and sometimes undesirable and troublesome

items as corpses, blood, valuables, live animals,

ornamental crops, fresh fruits and vegetables,

shoes, drugs, medicines, coffee, typewriters,

furniture, flagpoles and the occasional household

items, steamer truck or camp baggage. Generally

speaking, REA is a carrier of small shipments.

Reportedly half its shipments weigh less than 50

pounds, almost three of every four are under 100

pounds and only 1/20 of REA’s traffic is

shipments weighing 1,000 pounds or more.

Currently the company employs some 16,000

employees.”

“The Committee is concerned about the possible

loss of REA _ Express service which the

Committee deems to be important even though

other companies in some instances may provide

similar service. The need for small shipments

service is of such that the loss of a significant

competitor for small shipments traffic could

conceivably reduce substantially the quality of

service for small parcels. Indicative of potential

difficulties are the problems which reportedly

face the pet industry, many breeders and dealers

(of dogs and birds especially). Some are

considering institution of proprietary service, and

others the formation of a shipper’s association.

Many others, however, are too small to engage in

such operations. Their potential problems are

most serious.”

As noted in the Statement of the Case, supra, Congress has

just enacted the Railroad Revitalization and Regulatory Reform

Act of 1976, containing provisions for financial assistance for

express companies like REA. The trustee is very desirous of

finding a successor who will rehabilitate the Express Company.

Thus the CAB’s decision to terminate Air Express places a

serious obstacle in the path of rehabilitation, and raises

important public policy considerations which do not lie within

the jurisdiction of the CAB exclusively.

Approximately two-thirds of REA’s revenues derive from

surface express operations regulated by the Interstate Commerce

Commission and the regulatory agencies of the various states

throughout the United States. To permit an agency which has an

impact upon substantially less than half of the total of the

operation conducted in the public interest to have a veto power

over the possibility of rehabilitating the Express Company

would be to undercut the regulatory authorities and

responsibilities of the other agencies affected in a way which

Congress could not have intended.

The court below said it saw no “need” for the CAB to

postpone its decision until it has finally determined the issues in

the Rates case or put into effect a new high-priority service (20a-

21a). We suggest that the burden should be just the opposite: in

view of the important public policy considerations pointed out

above, what was the Board’s “need” to implement its decision

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TAL ORTH

A SPLOT NS eae FRC IN

hee Atheletes ae

before those additional events take place? A good and faithful

servant of almost fifty years standing is entitled to no less

consideration.

Further, there is a substantial question whether REA was

accorded procedural and substantive due process by the CAB as

it struggled for survival. On February 18, 1975, REA was forced

to seek reorganization under Chapter XI of the Bankruptcy Act.

This presented an opportunity to submit new operational plans

which would reduce costs and give the company an opportunity

to straighten out its financial affairs. The creditors were

cooperative. However, the existing labor agreements constituted

a serious impediment to success, and REA succeeded in an

action to have them rejected as onerous and burdensome by the

Bankruptcy Court. In Brotherhood v. REA Express, Inc., 523

F.2d 164, 170 (2d Cir. Aug. 27, 1975), cert. denied, —— U.S.

——, the court said:

“When REA, after going into Chapter XI

proceedings, was authorized to operate as a

debtor-in-possession, it acted as a new juridical

entity.”

It was treated as a “new employer” which, the court

emphasized, “. ..must be granted certain prerogatives at the outset

in making changes in the method of operation, business

structure and labor arrangements of a venture. Otherwise, the

free flow of capital and efforts to revive or expand a weak

enterprise might be frustrated.” (/bid.)

RRA NR arnt

oper

Fs So

No single factor led to a greater degree of frustration of the

efforts to revive or expand REA as a Chapter XI debtor-in-

possession than the CAB’s inflexibility. When so extreme an

action as the rejection of collective bargaining agreements as

onerous and burdensome may be justified to satisfy the

objectives of the Bankruptcy Act, do not those same objectives

require the CAB at least to consider the possibility of some

accommodation? The Federal Aviation Act itself specifies that

the CAB shall consider “The regulation of air transportation in

such a manner as to.. . foster sound economic conditions in,

such transportation ... .” (49 U.S.C. §1302(b).)

Despite the extremity of REA’s situation, and its status as a

new “juridical entity,” the CAB was unwilling even to accede to

its request for a hearing following the filing of its petition for

reorganization under Chapter XI. In its request for such a

hearing, REA stated that, “Fairness alone would dictate that, if

the Board is unwilling to approve the new Air Express

agreement in its present form, it should indicate what terms and

conditions it would approve so the continuity of employment

could be assured.” Hence, REA’s request was that the CAB

should “either approve the new Air Express agreement or order

a hearing in which an evidentiary record is made concerning the

new circumstances involving REA and Air Express.”4

At that stage of its existence REA had long passed the point‘

of ideology regarding Air Express, and was simply and humbly

seeking the opportunity to survive. The CAB turned a deaf ear,

4. Petition for Reconsideration, April 29, 1975, pp. 13-14. The Board denied this

request in its order dated May 23, 1975. REA did not file a separate petition to review as

the Second Circuit had retained jurisdiction over the matter.

TEPER A DR RIS RS ROLES RE Em

_— —_ =< 4 i in 2

denied a hearing on what the possibilities might be, and the

court below converted CAB’s non-consideration of the subject

into what is merely a speculation, unsupported by record

evidence, namely that “. .. the Board, apparently recognizing

employee welfare as a factor to be considered in deciding what

course would be in the public interest .. . granted air freight

forwarder authority to REA specifically on the ground that its

operation as a freight forwarder would provide the best

opportunity to benefit its employees.” (21a-22a).

We respectfully disagree with that conclusion even based

upon the record as it was presented in a hearing which ended in

1971.5 But as applied to a situation which existed in 1975,

following substantial and profound changes of circumstances,

not made the subject of a hearing before the Board, we submit

that the application of a false premise, namely that air freight

forwarding will be of benefit, when in fact the effect of such a

decision would be to wipe out the company, its jobs, and the

public services it performs, represents a denial of due process in

a very basic way. REA, its management, its employees, its

creditors, and its customers, all of whom had the greatest and

most direct interest in the survival of the company and its

services, and with no motive whatsoever for seeing the wrong

choice made, all believed that the forced conversion of the

company into air freight forwarding would be not “REA’s best

opportunity,” but a disaster.

As shown in an affidavit submitted by REA, such a

conversion would involve substantial changes in operations, in

5. The decision below errs in indicating that dual authority to provide both Air

Express and air freight forwarding service was a primary objective of REA. Dual

authority was requested only as an alternative position if other improvements in Air

Express — primarily reduction of costs and rates — were not made.

facilities, in marketing approach, in customers, in employee

practices and training requirements, which REA was unable to

make. Thus, in the changed circumstances, the decision to

terminate Air Express became a corporate death sentence.

“some kind of hearing is required at some time before a

person is finally deprived of his property interests.” Wolff v.

McDonnell, 418 U.S. 539, 557-8 (1974). We submit that such a

“hearing” must take place with respect to the factual situation as

it exists in some proximate time relationship to the period in

which the deprival of property interests occurs. In the

approximately four years following the hearing in the Air

Express Service Investigation, there have been significant

developments involving REA, other carriers, and in the industry

itself. There is a fundamental question of how “stale” a record

may be and still justify “substantial evidence” reliance thereon

within the context of the constitutional guarantee of due

process.

Even the termination of welfare benefits without a hearing

has been held to infringe upon due process, see Goldberg v.

Kelly, 397 U.S. 254 (1970), and the termination of a pioneering

public service should be given no less consideration. In a

constitutional scale of values, “there is a human difference

between losing what one has and not getting what one wants,” a

distinction which “is valid in economic regulation,” also, because

“capital has been expended, investor expectations have been

aroused, and people have been employed.” See Friendly, Some

Kind of Hearing, 123 U. Pa. L. Rev. 1267, 1296 (1975), and

discussion therein.

Finally, “The required degree of procedural safeguards

varies directly with the importance of the private interest

Yi sceeosensaemmenmeraen eK SPARS TRON A ERNE SERRE RIE SR rt mers ee

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LEED THF OUGH

affected .. .” (article cited supra, at 1278), and the importance

and magnitude of the public and private interests affected in this

litigation are substantially greater than those in many of the

cases in which this Court has taken for review to consider the

applicability of the due process requirements. (/bid.)

CONCLUSION

So that the decision below will not constitute a further

obstacle to hopes and efforts for the rehabilitation and

restoration of express services for the shipping public, a writ of

certiorari should issue to review the judgment and opinion of the

Second Circuit.

Respectfully submitted,

Arthur M. Wisehart

WISEHART, FRIOU & KOCH

219 E. 42nd Street

Sixth Floor

New York, New York 10017

Counsel for Petitioner

c{tBKARY Ee Court, U. &

2UBREME GOURT; U. & FILED

In The MAR 1 1976

Supreme Court of the United States ve cise

Aa.

October Term, 1975

No. W5-1 233

REA EXPRESS, INC., a Bankrupt,

Petitioner,

vs.

CIVIL AERONAUTICS BOARD,

Respondent,

AIRLINES PARTICIPATING in AIR EXPRESS SERVICE,

AIR FREIGHT FORWARDERS ASSOCIATION,

AMERICAN RETAIL FEDERATION, BROTHERHOOD of

RAILWAY and AJRLINE CLERKS, NATIONAL SMALL

SHIPMENTS TKAFFIC CONFERENCE, DRUG and

TOILET PREPARATION TRAFFIC CONFERENCE, and

EASTERN INDUSTRIAL TRAFFIC LEAGUE, PET

INDUSTRY PARTIES, EMERY AIR FREIGHT,

Intervenors.

APPENDIX TO PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND

CIRCUIT

’ ARTHUR M. WISEHART

WISEHART, FRIOU & KOCH

219 East 42nd Street

Sixth Floor

New York, New York 10017

(212) 557-8800

Counsel for Petitioner

ee ee ee ek en a eee cde ee eee ere See enn te er et

aritsiatiet aiamamoe mane ABN EL AN ola INDRA ST Wee”

TABLE OF CONTENTS

APPENDIX

Order Denying Petition For Rehearing ...-..-.++++++++++

Order Denying Motion to Dissolve the Stay Order ..... <2 :

Stay of Mandate ........eeeeeceecereceesceeceseaceers Sa

Opinion of Court of Appeals .....seeeeeeeeeeeerereees Ta :

Order of CAB Dated May 13, 1975) .....eeeeeeeeeeeeees 23a

Order of CAB Dated April 9, 1975 ......e eee eeeee ee eeee 3la

Order of CAB Dated June 26, 1974 .....ceeeeeeeeeeeees 46a f

Order of CAB Dated May SS ae rere rere yt rT Sla

CAB Express Service Investigation Dated December 7 1973 .87a |

Order of CAB Dated July 23, 1970 of Investigation and :

SUSPENSION .......cccccsrcccccencecccesoccsecsessoscoes 13la 4

RTS ILE AT te te PUT

SI ME LT RETR, Boy

APPENDIX

ORDER DENYING PETITION FOR REHEARING

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

At a stated term of the United States Court of Appeals, in

and for the Second Circuit, held at the United States Court

House, in the City of New York, on the first day of December,

one thousand nine hundred and seventy-five.

Docket No. 74-1611

REA EXPRESS, INC.,

Petitioner,

BROTHERHOOD OF RAILWAY AND AIRLINE CLERKS,

et al.,

Intervenors,

CIVIL AERONAUTICS BOARD,

Respondent.

AIR FREIGHT FORWARDERS ASSOCIATION, et al.,

Intervenors.

i i eee |

Order Denying Petition for Rehearing

A petition for rehearing containing a suggestion that the

action be reheard in banc having been filed herein by counsel for

the petitioner, and no active judge or judge who was a member

of the panel having requested that a vote be taken on said

suggestion,

Upon consideration thereof, it is

Ordered that said petition be and it hereby is DENIED.

s/ Irving R. Kaufman

Chief Judge

IRVING R. KAUFMAN

ORE OE Le

ORDER DENYING MOTION TO DISSOLVE THE STAY

ORDER

74-1611

B IS

UNITED STATES COURT OF APPEALS

Second Circuit

Filed November 24, 1975

A. Daniel Fusaro, Clerk

At a Stated Term of the United States Court of Appeals, in

and for the Second Circuit, held at the United States Court

House, in the City of New York, on the 24th day of November,

one thousand nine hundred and 75

REA Express, Incorporated,

Petitioner,

Civil Aeronautics Board,

Respondent.

Airlines Participating in Air Express Service, Air Freight

Forwarders Association, American Retail Federation,

Brotherhood of Railway and Airline Clerks, National Small

3LEED THROUGH

Order Denying Motion to Dissolve the Stay Order

Shipments Traffic Conference, Drug and Toilet Preparation

Traffic Conference and Eastern Industrial Traffic League, Pet

Industry Parties, Emery Air Freight,

Intervenors.

Dec. 3, 1975

It is hereby ordered that the motion made herein by counsel

for the respondent dated November 11, 1975 to dissolve the stay

order filed July 16, 1974 and continued by order filed October

10, 1975 be and it hereby is denied without prejudice to renewal

upon a showing that operations will not be resumed.

s/ J. Joseph Smith

J. Joseph Smith

s/ Paul R. Hays

Paul R. Hays

s/ Walter R. Mansfield

Walter R. Mansfield

Circuit Judges

STAY OF MANDATE

} UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Oct. 15, 1975

REA EXPRESS, INC.,

Petitioner,

BROTHERHOOD OF RAILWAY AND AIRLINE CLERKS,

et al.,

Intervenors,

-against-

CIVIL AERONAUTICS BOARD,

Respondent,

AIR FREIGHT FORWARDERS ASSOCIATION, et al.,

Intervenors.

No. 74-1611

Counsel for petitioner (“REA”) having advised this Court

that REA intends to petition for rehearing of this Court's

iia aa aca

RLEED THF OUGH

RO gS ee ALU GSAT ASS

Stay of Mandate

decision of October 6, 1975 and, if that is denied, to petition for

a writ of certiorari to the United States Supreme Court, in a

timely manner, and upon consideration of the showing of

irreparable injury made by the affidavits submitted on behalf of

petitioner and the stay previously entered by this Court on July

16, 1974,

IT IS ORDERED that the mandate herein be and hereby is

stayed pending determination of petitioner’s petition for

rehearing and, if that is denied, petition for a writ of certiorari.

If the petition for a writ of certiorari is granted, the stay shall

continue until final disposition by the Supreme Court in

accordance with Rule 41 of the Federal Rules of Appellate

Procedure.

Dated: New York, New York

October 10, 1975

s/ J. Joseph Smith

J. Joseph Smith

s/ Paul R. Hays

Paul R. Hays

s/ Walter R. Mansfield

Walter R. Mansfield

Circuit Judges

7. nes * ORAL ORME ETT AoE MR ANA AN ae ES

OR te A Sete aA Ren ee o .

OPINION OF COURT OF APPEALS

UNITED STATES COURT OF APPEALS

For tHe Seconp Circuit

No. 380—September Term, 1974.

(Argued: November 21, 1974

Remanded for Reconsideration:

December 23, 1974

Decided after Remand and

Reconsideration: October 6, 1975.)

Docket No. 74-1611

REA Express, Inc.,

Petitioner,

BrotHErnoop oF Ramway anp AIRLINE CLERKS, et al.,

Intervenors,

—against—

Civ. Aeronautics Boarp,

Respondent,

Air Freight Forwarpers Association, et al.,

Intervenors.

Before:

Smirn, Hays and MANSFIELD,

Circuit Judges.

Petition for review of orders of the Civil Aeronautics

Board terminating the authority of REA Express, Ine.

as an indireet air carrier to provide “air express” service,

Ae ew iO

a TO ph Ron terse a BR

Saat oy eae

RLEED THF OUGH

Opinion of Court of Appeals

but authorizing it to act as an air freight forwarder, and

denying its application for independent rate-making au-

thority.

The orders are affirmed.

é-—>

<-?er

Bert Rein, Esq., Washington, D.C. (Kirkland,

Ellis & Rowe, Washington, D.C., Arthur

M. Wisehart, Esq., John J. C. Martin, Esq.,

Peter G. Wolfe, Esq., New York, N.Y., An-

derson, Russell, Kill & Olick, P.C., New

York, N.Y., of counsel), for Petitioner REA

Express, Inc.

Peter R. STEENLAND, Jr., Attorney, Civil Aero-

nautics Board, Washington, D.C. (Thomas

J. Heye, General Counsel, C.A.B., O. D.

Ozment, Deputy General Counsel, Glen M.

Bendixsen, Associate General Counsel, Rob-

ert L. Toomey, Attorney, C.A.B., Washing-

ton, D.C., Thomas E. Kauper, Assistant At-

torney General, Howard E. Shapiro, At-

torney, Department of Justice, Washington,

D.C., of counsel), for Respondent Civil

Aeronautics Board.

Louis P. Harrer, Esq., Washington, D.C. (Rob-

ert N. Meiser, Esq., Haffer & Meiser, Wash-

ington, D.C., of counsel), for Intervenors

Air Freight Forwarders Association.

Sotomon I. Hirscu, Esq., Rosemont, Il. (Wil-

liam J. Donlon, Esq., Brotherhood of Rail-

way, Airline & Steamship Clerks, Rose-

mont, IIl., Reilly, Fleming & Reilly, New

York, N.Y., Highsaw & Mahoney, Washing-

AS PNR ni BOE AE

Opinion of Court of Appeals

ton, D.C., of counsel), for Intervenor Broth-

erhood of Railway, Airline and Steamship

Clerks. j

Jerry R. Ryay, Esq., Washington, D.C. (Reavis,

Pogue, Neal & Rose, Washington, D.C., of

counsel), for Emery Air Freight Corpora-

tion.

Evucent Wauiman, Esq., New York, N.Y. (N. |

Marshall Meyers, Esq., Washington, D.C., ©

of counsel), for Intervenors Pet Industry

Joint Advisory Council, Association of Ani- 4

mal and Fish Distributors, Inc., National ~

Pet Dealers and Breeders Assn., Inc., Pet :

Producers of America, Inc., Florida Trop-

ical Fish and Farm Assn., Inc., Safari An- ;

imal Imports, Inc., Gators of Miami, Inc., —

A-1 Animal Ranch, Inc.

Wituiam Keenan, Esq., New York, N.Y. (Mar-

tin S. Snitow, Esq., Arsham & Keenan, New

York, N.Y., of counsel), for Intervenors

National Small Shipments Traffic Confer- ~

ence, Inc., Drug and Toilet Preparations :

Traffic Conference and Eastern Industrial —

League, Inc.

PEL SPIRE CHRO Fe

Ricuarp A. Hype, Director Legal Proceedings,

United Air Lines, Inc., Chicago, Ill., for

United Air Lines, Inc., one of Airlines par-

ticipating in Air Express Service.

Russet S. Bernuarp, Esq., Washington, D.C.

(Macleay, Lynch, Bernhard & Gregg, Wash-

ington, D.C., William C. Burt, Esq., Koteen

& Burt, Washington, D.C., of counsel), for

ESSLP ATLL ATONE PI OIE

POOR COPY

RLEED THF OUGH

10a

Opinion of Court of Appeals

Airlines participating in Air Express Ser-

vice. ;

MansFIELp, Circuit Judge:

REA Express, Inc. (“REA”) has petitioned for review

of several orders of the Civil Aeronautics Board (“Board’’)

affecting REA’s operations, the most important of which

are orders (1) terminating REA’s authority as an indirect

air carrier to provide “air express” service under an agree-

ment with some 33 United States airlines’ but authorizing

REA to act as an air freight forwarder in lieu of provid-

ing “air express” service, and (2) denying REA’s applica-

tion for authority independently to set rates for air ex-

press services, free from any veto power by the airlines.

The orders had been entered in the Board’s Express Ser-

vice Investigation (Dkt. 22388) which had been instituted

in 1970 following REA’s filing of a complaint with the

Board seeking independent rate-making authority and aid

in REA’s stalemated negotiations with the air carriers.’

By order dated July 16, 1974, we stayed the Board’s orders

pending our review.

1 The authority was derived from the Board's 1941 decision to the

effect that REA, as an indirect air carrier, was granted a temporary

exemption pursuant to §1(2) of the Federal Aviation Act of 1938

(which later became §101(3) of the Act of 1958, 49 U.S.C. $1301(3)).

See Railway Express Agency (Grandfather Certificate), 2 C.A.B. 531,

541 (1941). In 1943 the Board approved the agreements between REA

and the air carriers subject to certain modifications. See Railway Ez-

press Agreements, 4 C.A.B. 157 (1943). The temporary exemption was

thereafter extended from time to time and renewal agreements were

approved at five-year intervals. The last air express agreement so ap-

proved was entered into in 1964 and expired in 1969.

2 A 1970 agreement, which was subject to Board approval of a new

higher tariff, collapsed when the Board suspended the tariff and insti-

tuted its proceeding entitled “Investigation of Air Service Rates”

(Docket 22387).

lla

Opinion of Court of Appeals k

Upon the argument of this appeal on November 21, 1974,

we were informed that on that very date an agreement é

had been reached between REA and all but six or seven of ©

the air carriers, which would meet most of the Board’s

objections to the continuation of the air express service

as operated jointly by REA and the air carriers. Since

friction between REA and the air carriers and their in-

ability to reach a new agreement had been a factor in-

fluencing the Board’s decision to terminate REA’s air

express service, we remanded the case to the Board for

reconsideration in the light of this new development, re-

taining jurisdiction over the appeal which had been briefed

and argued. By orders dated April 9, 1975, and May 23,

1975, the Board disapproved the latest REA-airlines agree-

ment as not in the public interest and reaffirmed its earlier

decision. Thereupon the parties filed additional memo-

randa directed toward the Board’s decision after remand.

We affirm the Board’s orders under review.

“Air express,” the oldest method of shipping air cargo,

is a door-to-door priority air cargo service offered only by f

REA which, pursuant to its agreements with United States

air carriers, functions as the single agency responsible f

for all ground services required to make the shipment, in-

cluding pick-up, terminal handling, interline transfers, and ©

delivery to the consignee. In addition to single carrier re-

sponsibility, it features single documentation, expedited

priority air service, a simplified rate structure, and wide

geographical coverage throughout the United States, par-

ticularly in small cities which do not generate enough busi-

ness to support a larger scale air cargo service. Under its

arrangements with the airlines, REA issues a single uni-

form express bill of lading and bills the customer at spe-

cial air express tariffs which cover door-to-door charges at

simplified rates based essentially on commodity and dis-

a re |

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Opinion of Court of Appeals

tance and which are shared by REA and the air carriers.

The airlines dispatch the customer’s shipment on the first

available flight to its destination. For the purpose of han-

dling this business REA maintains offices at some 69 air-

ports. At the remaining 500 airports or so REA’s ground

services are provided by airline personnel.

For many years REA’s air express service represented

the only method of shipping merchandise by air carrier.

Following the Board’s decision in Railway Express Agree-

ments, 4 C.A.B. 157 (1943), however, the air carriers be-

gan offering to the public airport-to-airport “air freight”

services to be rendered by the carriers on their own at

tariffs posted by the airlines. The shippers and con-

signees were required, respectively, to deliver and pick

up their shipments at the airports involved. In 1948 a

third form of air cargo service known as “Air Freight

Forwarder” service was authorized by the Board, see Air

Freight Forwarder Case, 9 C.A.B. 473 (1948), whereby

indirect carriers known as air freight forwarders were

authorized to pick up freight from shippers at a given

point, assemble and consolidate the shipments for transfer

by direct air carrier and, upon arrival of the consolidated

shipment at its designation, perform break-bulk and dis-

tribution functions.

The introduction of competition by direct carrier air

freight service and by forwarders resulted in air express

eventually developing primarily into a door-to-door small

package service, with the average shipment weighing only

27 pounds and moving approximately 500 miles. Air

freight forwarders attracted larger size shipments (80-

nound average) while the airlines’ own air freight ser-

vice averaged 300 pounds per shipment. Unlike REA the

forwarders for the most part could not provide single

carrier responsibility and single documentation except for

ee eae

SPIER SS ew res

13a

Opinion of Court of Appeals

shipments between pick-up and delivery zones of uirports

covered by their tariffs. As a result most forwarders

have tariffs based on the point-to-point tariffs of the di-

rect air carriers with only a few publishing door-to-door

tariffs.

Air express service is available at every airport city

covered by scheduled air carriers. Although REA main-

tained at one time 3,000 office or agency locations per-

forming its operations throughout the country, this num-

ber has been considerably reduced in recent years. However,

the number of cities and towns covered by its services

far exceed the facilities offered by forwarders, which

generally maintain no facilities at all at the smaller air-

port cities except for some “destination” agencies which

do not originate shipments,

By the late 1960’s the amount of forwarder business

was increasing enormously (168% during the period 1966-

70) in contrast to REA’s air express business, which was

virtually at a standstill (3% increase during 1966-70).

REA, furthermore, was experiencing acute financial ad-

versity, resulting in substantial annual losses from 1966

to 1974, which led to its institution of Chapter XI bank-

ruptey proceedings in 1975. The cooperation between REA

and the air carriers, which was essential to the success-

ful operation of air express service, faltered. As the

airlines increased their own competing air cargo freight

service, their negotiations with REA stalemated and REA,

because of its financial plight, had difficulty making pay-

ments due the airlines.

In the Express Service Investigation REA argued that

in order to survive it needed (1) independent rate-making

3 Emery Air Freight Corp., however, has surface freight authority from

the ICC which allows it to provide pick-up and delivery service anywhere

in the United States, and thus to provide single carrier responsibility

and documentation to the same extent as REA.

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tery

TN ART RVs SMO OB ELON T LE PP AT ET PME AN Be

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RES PUTEE NEED LIMON RAP ING Ty TTA ATR RR TER TAN OD IE TD

Opinion of Court of Appeals

authority, (2) dual authority to provide both air express

and air freight forwarding service, and (3) permanent

status as the exclusive air express carrier. Fundamental

to REA’s position was the assumption that air express pro-

vides a priority service over a larger geographical area

and at a lower cost to the public than air carriers or for-

warders and that continuance of air express was therefore

in the public interest. However, while the airlines conceded

in the Express Service Investigation that there was a pub-

lie need for the existing form of air express service at

least with respect to certain types of small shipments (e.g.,

“life or death” commodities, highly perishable products,

animals), the forwarders urged abolition of air express

service on the ground that, in view of the increasingly

comparable service being provided by them and by the

carriers, air express was no !onger needed and had the

adverse effect of stifling competition and the growth of

these other services. The forwarders argued that they

could match the service in terms of speed, commodity and

geographical coverage. Various shippers, on the other hand,

who preferred or were currently dependent on air express

service, urged its continuation.

In an initial decision dated May 4, 1972, the Administra-

tive Law Judge (“ALJ”) found, among other things, (1)

that air express service as represented by the partnership

between airlines and REA as a single ground agency had

a utility distinguishable from the other air freight services

and was in the public interest, (2) that as long as REA

engaged in air express service it would be contrary to the

public interest to grant it forwarder status, and (3) that

the establishment by REA of a special tariff for air express

tariff was unnecessary. Based upon limited elapsed time

surveys made by the parties, the ALJ found that, while

the bulk of shipments handled by all three services (air

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Opinion of Court of Appeals

express, air freight, and forwarder) were delivered within

48 hours of origination, REA handled the highest percent-

age of those shipments delivered within 24 hours, with the

possible exception of Emery. He further found that REA’s

priority air express offered the shipper an advantage dur-

ing holiday seasons and peak traffic occasions, assuring

shipment by the first available flight regardless of the time

of origination. He further concluded that because of REA’s

wide commodity coverage and simplified single carrier re-

sponsibility and single documentation REA was able to

handle small shipments at a lower cost than other services

and was able to ship small commodities, such as animals

and high security shipments, between points not served

by the other services.

The ALJ concluded that if air express should be abol-

ished many shippers would be faced with substantially

higher costs for small shipments and small airport cities

would be left with the airport-to-airport service of direct

air carriers since there would be no air forwarder repre-

sentation at these points. With respect to REA’s request

for dual air express-forwarder rights the ALJ reasoned

that such authority was not in the public interest because

it would give REA an unfair advantage over competing

services. Thus in effect the ALJ recommended mainte-

nance of the status quo.

Upon appeal the Board affirmed the ALJ's finding that

it would not be in the publie interest to grant REA dual

air express-forwarder rights or independent rate-making

power. These powers, the Board concluded, would enable

REA to dominate the indirect air carrier industry. would

have an adverse impact on the development of the air

freight business, would cause customer confusion. would

divert REA’s energies from the small shipment-small com-

munity service 2nd would lead air carriers to refuse to

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Opinion of Court of Appeals

enter into agreements with REA for carriage of cargo

originated by REA. Independent rate-making power

would, because of lack of cost data and the conflicting

interests of REA and the airlines, lead to insoluble regula-

tory problems and irreconcilable differences between REA

and the airlines. It also appeared likely to the Board that

REA could through cross-subsidization burden certain types

of shipment with costs attributable to others, thus gain-

ing an unfair advantage over other air freight services,

enabling it to obtain some of their longer-haul heavier

shipments.

The Board further concluded that air express service

was no longer in the public interest. Based on its analysis

of the record it found that as the nation’s general air

freight industry had grown many of air express’ historical

advantages had “withered away.” REA’s air express busi-

ness, in contrast to that of the airlines and forwarders,

had not increased substantially. Its service was no longer

unique since it was not faster than that of the forwarders,

which had developed operational techniques comparable

and in some instances superior to express service, as re-

flected by elapsed time surveys. The Board found that

with the increase in air cargo space air express’ priority

rarely had any impact. Although a small percentage of

shippers found air express’ highly expedited service use-

ful, the Board decided that this need could better be han-

dled by requiring the air carriers to develop a new highly

expedited priority service under special tariffs that would

be available to all shippers demanding priority service

rather than to permit it to be handled solely by REA

as a coordinating ground agent.

Conceding that in the past REA had provided broader

geographical coverage than the other air freight services,

the Board expressed the belief that with the demise of air

17a

Opinion of Court of Appeals

express the larger forwarders would probably expand

their existing coverage, which had already been increased

to inelude virtually every carrier airport city. Further-

nore, in view of REA’s worsening financial condition the

Board believed that REA would be forced to pull out of

many small conanunities and to conselidate its services.

With respect to commodity coverage the Board similarly

concluded that, in view of the very few items presently

hand!ed solely by REA and the likelihood that other air

freight services would expand their coverage to handle

these commodities, the termination of air express would

neither preclude any commodity from moving by air nor

result in any community being unserved in the handling

of such merchandise. Furthermore, without an economically

Viable REA and an agreement between it and the airlines,

which provided the essential air transportation and at 85%

of the airports the necessary ground services, air express

service simply would not be able to function.

Having concluded that air express service, which had

been handled exelnsively by REA, must be terminated, the

Board decided that it would nevertheless be in the publie

interest to grant authority te REA to function as an air

freight forwarder, since this would enable it to handle

the | pes of traffie with which it could deal most effectively

and te operate withent dependenev on an agreement with

he airlines. In sum, the Board (1) disapproved the REA-

airlines agreements for air express service on the ground

that such serviee was no longer in the publie interest and

accordingly denied REA’s requests for dual air express-

air freight forwarder authority and for independent rate-

making power, (2) terminated REA’s temporary authority

as the exclusive indirect air carrier for air express, (3)

authorized REA to operate nationwide as an air freight

forwarder, and (4) directed the air carriers to introduce

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Opinion of Court of Appeals

a new high-priority cargo service designed for shipments

requiring highly expedited carriage and delivery.

Discussion

REA’s first contention is that in terminating air express

service the Board violated the mandates of the Federal

Aviation Act of 1958, 49 U.S.C. §$1301(3), 1302 and 1382(b),

and of the Administrative Procedure Act, 5 U.S.C. §$701-

706, by limiting itself to consideration of selected ad-

versarial contentions and by failing to apply “public in-

terest” criteria specified by Congress as the standard in

deciding the issues before the Board. See FPC v. Texaco,

Inc., 417 U.S. 380, 394-97 (1974). The effect, REA argues,

was to “execute” it as a carrier and to harm the shipper

interests by distorting the geographic and commodity cov-

eraze that would be available to them in the future and

by foisting a more expensive forwarder service upon the

public. We disagree.

The Board’s decision, supplemented by its order on re-

mand, discloses that it observed its responsibilities to REA

and to the public, making its “public interest” determina-

tions only after weighing and balancing the essential rel-

evant factors which it was obligated to consider: the ship-

pers’ needs, the cargo offered for transport, the nature and

extent of the markets and commodities affected, and the

characteristics of the three competing services.

The record reveals substantial evidence supporting the

Board’s findings to the effect that with rare exceptions

REA’s service is not faster than that of the other types of

service, that its priority treatment has become almost en-

tirely meaningless, that its broad geographic coverage is

no longer unique in comparison to that of competing for-

warder services and that its exclusivity in the transport

of certain commodities has disappeared. Being supported

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Opinion of Court of Appeals

by substantial evidence, these findings must stand. Federal

Aviation Act of 1958, §1006(e), 49 U.S.C. ¢1486(e); Ad-

ministrative Procedure Act, (10(e), 5 U.S.C. ‘706(e);

Universal Camera Corporation vy. NLRB, 340 U.S. 474, 488

(1950).

Although the Board, in carrying out its duty to deter-

mine whether a particular form of service will promote

“adequate, economical and efficient service by air carriers

at reasonable charges,” 49 U.S.C. (1302(c), may be obli-

gated, as REA argued, to consider the “comparative eco-

nomics” of the various types of air service offered, we do

not believe that this requires the Board to conduct an in-

vestigation in depth into the costs of each type of service

of the kind that might be required for a rate determination

under 49 U.S.C. (1482(e), or for a determination as to

whether an entirely different kind of service should be ini-

tiated, see, e.g., Schaffer Transportation Co. v. United

States, 355 U.S. 83 (1957). Here the Board, acknowledg-

ing that REA offered lower rates to small-package ship-

pers for some commodities, concluded that the public need

for such service would best be served in the future by

opening up air express markets to all indirect air carriers

and relying on competitive forces to provide a dependable

air freight service for all classes of commodities. We can-

not say that its conclusions are unreasonable. Indeed, the

Board’s conclusion was reinforeed by REA’s filing in No-

vember 1974 of a new tariff (Appendix B to Board’s An-

swering Memorandum dated June 16, 1975, following its

adherence upon remand to its earlier decision) raising its

rates on many commodities, thus eliminating much of the

advantage claimed on the basis of lower rates. Although

we are advised that it has since filed still another tariff

lowering the rates on some commodities, the interim higher-

rate proposal raises questions as to its ability to operate

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Opinion of Court of Appeals

an air express service economically at present rates and

as to whether the rates would not be revised upward if

REA should continue to operate air express as a monopoly.

We agree with REA that if the public interest mandated

the continuance of the present air express system the

Board could not properly confuse that issue with the prob-

lems inherent in REA’s precarious financial condition. On

the other hand, in deciding whether the public interest

would be served, the Board was not precluded from consid-

ering, among other factors, REA’s dire straits, at least

in the absence of a showing that some other carrier might

conceivably be willing and able to provide air express

service. Here, unlike the situation in Northeast Airlines

Inc. v. CAB, 331 F.2d 579 (1st Cir. 1964), upon which REA

so heavily relies, no carrier other than REA would pro-

vide air express service. Indeed, REA, operating under

the umbrella of a CAB-granted monopoly, is the only car-

rier that has ever provided that service. In any event,

although the Board took REA’s uncertain future into con-

sideration, its decision was based firmly on the ground

that the public need for air express service had all but

vanished with the advent of substitute services.

Having concluded that the Board’s decision to terminate

air express service must be upheld, we see no purpose to

be served in reviewing the Board’s denial of REA’s appli-

cation for independent rate-making authority and dual air

express, freight forwarder status except to note that the

Board’s conclusion that the grant of such authority would

not be in the public interest appears, for the reasons stated

by the Board, to be reasonably grounded and well within

the proper exercise of its powers. Furthermore, there was

no need for the Board to postpone its decision with respect

to termination of air express service until it had finally

determined the issues pending in the Air Express Rates

2la

Opinion of Court of Appeals

Investigation (Docket 22387) or until the airlines had put

into effect the new high-priority service as directed by

the Board’s order. Deferment of the orders presently

under review until completion of the rates investigation

would unduly delay a step believed by the Board to be

essential, i.e., the termination of air express service, with-

out any assurance that the investigation would yield find-

ings requiring a change in the Board’s decision. Since the

high-priority service contemplated by the Board is not

intended as a replacement of air express service but as

an entirely new type of fast, airport-to-airport service

not presently available, continuation of air express would

not provide an interim substitute for the high-priority

service sought by the Board. A further evidentiary hear- :

ing of the type ordered in Ashbacher Radio Co. v. FCC, :

326 U.S. 327 (1945), is therefore not required in this case,

where the Board has already held one evidentiary hearing. :

Lastly, for the reasons stated by the Board in its Order :

on Remand disapproving REA’s November 21, 1974, agree-

ment with most of the airlines, that agreement does not :

change the basic findings upon which the Board based its

termination of air express service.

The Brotherhood of Railway and Airline Clerks

(“BRAC”) supports REA’s application, arguing that the

Board failed to make suitable provisions for the welfare

of employees who would be displaced by termination of ‘

air express service. However, since no proposal was made

to the Board for imposition of labor-protective conditions,

the matter may not be considered initially by us, Federal

Aviation Act of 1958, §1006(e), 49 U.S.C. §1486(e). Fur-

thermore, the record reveals that the Board, apparently

recognizing employee welfare as a factor to be considered

in deciding what course would be in the public interest,

Air Line Pilots Assn. v. CAB, 475 F.2d 900, 905 (D.C. Cir.

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22a

Opinion of Court of Appeals

1973), granted air freight forwarder authority to REA

specifically on the ground that its operations as a freight

forwarder would provide the best opportunity to benefit

its employees.

The Board’s orders are affirmed.

23a

ORDER OF CAB DATED MAY 13, 1975

‘ Order 75-5-98

UNITED STATES OF AMERICA

CIVIL AERONAUTICS BOARD

WASHINGTON, D.C.

Adopted by the Civil Aeronautics Board at its office in

Washington, D.C., on the 23rd day of May, 1975

Dockets 22387, 22388, 26238

Docket 27193, Agreement CAB 24824

Lins Dh

EXPRESS SERVICE INVESTIGATION ET AL

AIR EXPRESS AGREEMENT,

REA EXPRESS, INC.

AND CERTAIN PARTICIPATING AIRLINES

ORDER

In Order 75-4-54, the Board, at the direction of the United

States Court of Appeals for the Second Circuit, reexamined its

decision in the Express Service Investigation in light of the air

express agreement and revised tariff filed subsequent to the time

of the Board’s earlier decision.! The Board concluded, upon :

reexamination, that the fundamental legal and policy issues

1. See Orders 73-12-36, 74-5-25, and 74-6-118.

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Order of CAB Dated May 13, 1975

which led to the Board’s original decision were not altered by the

subsequent agreement and tariff, and, therefore, the subsequent

agreement was adverse to the public interest and should be

disapproved. The Board’s earlier decision was reaffirmed. REA

Express, Inc., has filed a petition for reconsideration of Order

75-4-54. The Pet Industry Parties have filed an answer in

support of the petition and Emery Air Freight and the Air

Freight Forwarders Association have filed answers in

opposition. We shall deny the petition.

REA makes five basic arguments. First, the petitioner

contends that there is no showing that the air freight forwarders

or the airlines can fully replace air express service. In this

connection, REA claims that the Board’s failure to

comparatively evaluate its proposal with priority cargo service

violates the Ashbacker doctrine.? Second, REA argues that the

Board’s most recent order improperly evaluated express rates

vis-a-vis the rates of forwarders by comparing ordinary

forwarder rates (based on consolidation of shipments) with

REA’s expedited service rates, and failed to consider likely rate

increases. Third, REA claims that a hearing is required in order

to resolve certain factual disputes associated with its transition

from air express to air freight forwarder service. Fourth, REA

asserts that the Board’s concern that forwarders are excluded

from various types of markets is obviated by the new tariff

which allows forwarders to use REA’s airport-to-airport express

rates. Finally, REA makes an equitable argument that

elimination of its express authority at this time would be unfair

2. Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945).

25a

Order of CAB Dated May 13, 1975

to shippers and REA’s employees, and that the Board should

defer its decision pending the outcome of REA’s Chapter XI

bankruptcy proceeding.

Most of REA’s arguments and contentions are, in essence,

repetitions or variations of earlier contentions advanced to, and

rejected by, the Board. Nothing in the petition for

reconsideration establishes error in the Board’s earlier decision

Or presents any matters that otherwise would warrant grant of

the relief sought.

1. We see no basis for REA’s assertion that it is entitled,

under the Ashbacker notion, to yet another hearing. The Board ~

has already completed a massive investigation of air express

service in which it specifically compared, in detail, REA’s service

with ordinary air freight service. On the basis of the record ©

established at the hearing, the Board concluded that REA’s ~

monopoly air express arrangement no longer offered any unique ~

public benefits which would justify continuation of its. special

regulatory treatment. In addition, the Board concluded that

there was a need for a new, but different, type of high-priority

cargo service offered directly by the airlines. These two matters,

although clearly related, are nevertheless distinct. While we

recognize that the carriers have not, as yet, filed the necessary

interline agreements and associated tariffs so as to be ready to

fully implement this new service (on-line tariffs are in effect for

certain carriers), we have every anticipation that they will do so

once the uncertainty surrounding REA’s express Service is

resolved by the Court of Appeals. REA’s assertions that the!

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26a

Order of CAB Dated May 13, 1975

Board should not end REA’s service “before its hypothetical

replacement has appeared on the scene so that the pros and cons

of each can be measured...,” and that the need for its

particular service has not been filled because the airlines have

not developed their high-priority interline service, misconceive

this fundamental distinction. The Board retains full regulatory

authority to require the establishment of appropriate high

priority service if affirmative Board action becomes necessary.

More importantly for present purposes, further regulatory

action to insure the implementation of the new service would

not, in any event, include a reactivation of REA’s express

monopoly as a “substitute.”

We find it unnecessary, at this juncture, to pass upon REA’s

further arguments that high priority service rates are likely to be

higher than existing air express rates, and that the difference

between express rates (if retained) and freight rates are likely to

increase.t The new high priority service will be different from

REA’s current service and may well be a higher cost service.°

3. We are not persuaded by REA’s attempt to elevate the priority freight issue to

one of major decisional significance. In the context of the overall case, it was merely a

minor part of our conclusion that air express service, per se, had outlived its usefulness.

To the extent that the petitioner may also argue that its new airport-to-airport service is

entitled to a comparative evaluation with the new high priority service, suffice it to say

that, as discussed more fully infra, we are not prepared to place priority service in the

hands of a single carrier.

4. REA points to the increases recommended by Judge Present in the Domestic Air

Freight Rate Investigation, Docket 22859. Judge Present’s decision is now before the

Board for review.

5. Tariffs filed by individual carriers show a 30 percent increase in rates when

compared with the airlines’ existing standard line-haul freight rates. See, e.g., Order 75-5-

34, May 8, 1975. These tariffs are the subject of a Board investigation and hearing in the

Priority Reserved Air Freight Rates Investigation, Docket 26838.

27a

Order of CAB Dated May 13, 1975 E

However, the Board has power to insure that such rates are

reasonable. While ordinary freight rates may increase in the

future, there is no Showing that the relationship between €

forwarder rates and REA’s rates, which are now more or less the :

same, would change appreciably.°

2. The Board Properly evaluated REA’s new express rates E

vis-a-vis the rates of other air freight forwarders. We compared {

the rates for REA’s service with the rates for the forwarders’ :

standard service in view of our earlier determination that REA’s

service offers no advantage in terms of speed of delivery. Thus,

the fact that the forwarders offer an even faster service is

immaterial. Indeed, REA Shares the Board’s view of the

appropriate competitive comparison since Appendix B to Order

75-4-54, which detailed our comparison, was taken, in terms,

from REA’s justification filed with its proposed November 4

tariff.

3. No further hearing is required to resolve any conflicting

evidentiary matters. As noted above, an extensive evidentiary

hearing has already been held, and we do not read the court’s

remand order — which was the impetus for the reconsideration

of our earlier decision — as requiring a new evidentiary hearing.

Nor is one justified. Our original decision concluded that, with

the possible exception of air express rates for small package

shippers, express service no longer offered any unique public

6. REA makes an argument that its costs will continue to be lower than those of the

air freight forwarders and that this will inure to the benefit of the shipping public. The

recent changes in REA’s rates belie this argument.

LINES RR

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Order of CAB Dated May 13, 1975

benefits. Subsequently, we noted that even the rates advantage

had evaporated. Whether cr not particular shippers would

continue to favor REA — and we have no reason to doubt that

some shippers will prefer REA’s forwarder service — does not

change our fundamental conclusion that REA is no longer

entitled to a preferred position in the air cargo business.’

4. Our original decision concluded, inter alia, that the

elimination of the REA monopoly and the opening up of air

express markets to all indirect carriers, including REA, will best

promote the future growth of a dependable air freight service,

particularly with respect to small-package shipments. REA

points out that its more recent tariff now includes airport-to-

airport as well as door-to-door rates, and argues from this that

forwarders may now expand into new markets by utilizing

REA's air express service on an airport-to-airport basis. We do

not believe that this factor obviates the fundamental problem.

Under REA's proposal, the carrier's monopoly would be

continued despite the Board's conclusion, reiterated in Order 75-

4-54, that continuation of this arrangement runs contrary to the

spirit of the antitrust laws and is not justified by any counter-

balancing public benefits. Moreover, REA would, under its

proposal, retain control over all express shipments, including

those of its competitors, and this appears to us to be counter-

productive to the fullest development of priority service.

Moreover, adoption of REA’s approach would simply subject

7. We are unimpressed by REA’s apparent confusion over our finding that it has

already made the transition from air express to air freight forwarding. The carrier's

argument, reduced to fundamentals. 1s simply a restatement of its histomc position that

its service continues to be umigue. That position is simply wrong.

29a

Order of CAB Dated May 13, 1975

priority service to all the historic and potential uncertainties

associated with REA’s monopoly.*

5. Finally, we see no equitable basis for a deferral in the

implementation of our earlier decision. We do not believe that

the possible effect on REA’s employees or shippers, or the

pendency of REA’s bankruptcy proceeding, warrants further

delay. We must point out, again, that the Board has never

contemplated the elimination or demise of REA, with any loss

of jobs for its employees. Rather, the Board seeks to expand the

development of air freight service generally and permit REA to

play a constructive role in that development, with all the rights

and opportunities for successful operation enjoyed by existing

forwarders. Such action should work to the benefit of REA’s

employees. Significantly, REA does not request, as a remedy,

the imposition of conditions to protect its employees. Rather, it

argues that considerations of employee security should override

all other public interest factors so as to “require the continuation

of Air Express....” Although we are sympathetic to any

difficulties which may be faced by REA’s employees, we do not

believe either that our action has been a major contributing

factor to employee dislocations® or that the problems faced by

REA's remaining employees justifies a complete reversal of our

8. REA asserts, citing Order 74-9-4, that the Board has found that high priority

service 1s a “replacement for aur express.” That characterization is misleading insofar as it

suggests identity — rather than overlap — between the two forms of service. It is the

Board's position, notwithstanding use of the word “replacement” in Order 74-9-4, that

the record established that air express is not comparable to high priority service. See

Order 73-12-36

9 REA has already severely contracted its operations and staff although the Board's

decision is yet to take effect.

~~ ——

C5 A OE AIG

Ci Penge pm

Order of CAB Dated May 13, 1975

original decision. Similarly, as fully detailed in our earlier

decisions, we believe that the transition of REA from express

operator to forwarder, and the entry of direct carriers and

forwarders into the priority cargo market, will eventually inure

to the benefits of the shipping public.

In like fashion, we do not believe that our decision should

be deferred pending completion of the bankruptcy proceedings.

First, we believe that REA’s best hope for survival as part of the

air cargo system is by operating as an air freight forwarder. The

formal transition from express operator to forwarder should be

completed as promptly as possible. Second, we believe the

bankruptcy court is entitled to the benefit of the Board's

judgment in this respect so that it may move forward to remedy

REA’s financial difficulties in the most productive fashion. Any

deferral of action on the Board’s part might be improperly

viewed as a vacillation with respect to the Board's determination

of REA’s future role.

ACCORDINGLY, IT IS ORDERED THAT: REA’s

petition for reconsideration be and it hereby is denied.

By the Civil Aeronautics Board:

EDWIN Z. HOLLAND

Secretary

(SEAL)

3la

ORDER OF CAB DATED APRIL 9, 1975

| Order 75-4-54

UNITED STATES OF AMERICA

CIVIL AERONAUTICS BOARD

WASHINGTON, D.C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D. C.,

on the 9th day of April, 1975

Dockets 22387, 22388 and 26238

Docket 27193, Agreement CAB 24824

EXPRESS SERVICE INVESTIGATION ET AL

AIR EXPRESS AGREEMENT,

REA EXPRESS, INC.

AND CERTAIN PARTICIPATING AIRLINES

Sarre

ORDER ON REMAND AND DISAPPROVING

AGREEMENT

noc ey

INTRODUCTION

eee

The Board once again has before it the question of the on-

going relationship between the airlines and REA Express, Inc., _

with regard to air express service. In the original decision in the

Express Service Investigation, Docket 22388, the Board (a)

POOR COPY

32a

Order of CAB Dated April 9, 1975

disapproved, as contrary to the public interest, the existing air

express service arrangement (Agreements CAB 12866 and 17935)

between the airlines and REA and cancelled REA’s existing air

express exemption, (b) issued air freight forwarder authority to

REA, and (c) concluded that each scheduled air carrier has an

obligation to offer pronty freight service as part of its duty to

provide adequate interstate and overseas air transportation. In a

related proceeding. the Board authorized _inter-carrier

discussions of pron ‘f cargo services. REA petitioned the

United States Court of Appeals for the Second Circuit to review

the vanous Board decisions and the court stayed the Board’s

decision in the Express Service Investigation insofar as it

ordered an end to the existing air express arrangement. By

Order 74-11-11, November |, 1974, the Board allowed a new air

express tariff structure to become effective, although it did not

deal with the underlying question, at issue here, concerning the

continued approval or disapproval of the agreements and

exemption which provides for air express service.

Thereafter, on November 22, 1974, a new air express

agreement was filed with the Board for approval. The new

agreement, if approved by the Board, would become effective

the day after Board approval, would be of continuous duration,

and would supersede the old Air Express Agreement (Agreement

CAB 17935, Docket 22388) which would be terminated.2 On

1. See Orders 74-2-118, 744-1, 74-5-74, and 74-11-26.

2. Answers with respect to this agreement were filed by the Air Freight Forwarders

Assoaation, Emery Air Freight Corporation, the Brotherhood of Railway, Airline and

Steamship Clerks, Freight Handlers, Express and Station Employees (BRAC), and the

(Cont'd)

33a

Order of CAB Dated April 9, 1975

December 23, 1974, the Court of Appeals remanded the judicial

proceeding to the Board in order that the Board might

reconsider its earlier decisions “in light of the Board’s disposition

of the Air Express Agreement executed and filed on November

22, 1974, and other relevant circumstances, including the revised

Air Express Tariff effective November 4, 1974... .”

In general, the arguments made in support of approval of

the new Air Express Agreement are that it would allow for the

continuation of service which some shippers desire; that it would

eliminate the problems associated with the old agreement as they

were described by the Board in the Express Service

Investigation, Docket 22388, particularly when viewed together

with the new air express tariffs; that it would permit REA to

achieve a healthy financial status; that the new agreement is the

best method of providing the public with priority air express

service; and that it would limit competition to the extent

necessary to achieve the efficiencies of a single ground agent for

air express. The arguments presented in opposition to approval

are that the new agreement would not really change the nature

(Cont'd)

Pet Industry Council, and a reply was filed by the applicants. In addition, informal

“protests” or “objections” to the new agreement were received from four humane

associations, including the American Society for the Prevention of Cruelty to Animals.

Also, a reply was filed by the Drug and Toilet Preparation Traffic Conference and the

National Small Shipments Traffic Conference, Inc., together with a motion for leave to

file an unauthorized document. This filing will be treated as a late-filed answer and will

be accepted. Finally, United submitted, in Docket 22388, a motion to file an otherwise

unauthorized document, accompanied by “Comments” purportedly directed to matters

pending in Docket 22388. REA, in response, argues that since the Board has not

requested comments in Docket 22318, United’s submission is, in effect, an untimely

response to the new Air Express Agreement. We shall deny United's motion.

;

ee, ae ee te ee a at

TO SOMES

OR PONY

34a

Order of CAB Dated April 9, 1975

of the air express arrangement; that it would not controvert the

Board’s previous findings that the anticompetitive aspects of this

arrangement are not overcome by a serious transportation need

or important public benefits; that REA would retain control

over all air express shipments, even those of its competitors; that

the possibility of future air express crises would not be

eliminated by the new agreement; that the air express rate and

revenue division structure unfairly favors REA over other

indirect carriers and possibly the airlines; and that this

agreement would not make a feasible form of air express service

available to other indirect air carriers, but would prevent the

establishment of the high-priority air cargo service which the

Board has directed the airlines to offer to the public. Another

argument in opposition is that the agreement does not

specifically provide for the proper care of animals shipped in air

express.

In view of the matters presented, and in compliance with

the court’s directive, we have considered the new agreement and

related tariff— both independently and in connection with our

earlier decision— and have concluded that the agreement of

November 22 is adverse to the public interest and should be

disapproved and that the Board’s earlier decision should be

reaffirmed.

SUBSTANTIVE M ER

The fundamental legal and policy issues which underlie the

present manner in which air express service is performed—i.e.,

EEE SES

9 SOR VRE RLS GP NS

ome ad SLES ey ~ Sar eR KE

35a

Order of CAB Dated April 9, 1975

pursuant to an agreement among the airlines (Agreement CAB

12866) and an agreement between the airlines and REA as the

monopoly airexpress indirect carrier (Agreement CAB 17935)-

were fully examined in the Express Service Investigation, where

the Board concluded that the existing air express arrangement

did not offer any unique public service benefits which would

justify its continuation. On the contrary, the evidence

conclusively showed that the original air express format

developed prior to 1938 had been rendered obsolete by more

recent developments, including particularly, the expansion of air

freight forwarder operations and air cargo operations by the

airlines themselves. Based on the extensive record in the Express

Service Investigation, the Board found that air express no longer

offered the public superior speed or commodity and geographic

coverage which once distinguished it from other air cargo

services and thereby justified its unique treatment by the Board.

Only in the area of rates to small package shippers was there

some evidence that REA had maintained its historic advantage.

In addition, the Board found that air express service under the

existing regime would remain in constant danger of sudden

suspension and that such uncertainty was clearly adverse to the

public interest. Finally, the Board concluded that elimination of

the REA monopoly and the opening up of air express markets

to all indirect carriers, including REA, will best promote the

future growth of a dependable air freight service, particularly

with respect to small-package shipments. The modifications to

the air express arrangement recently submitted do not

undermine-nor, indeed, address-these fundamental bases for the

Board’s earlier decision. (The major differences between the new

en a ad

DOoMmaDo iimmrmDovyv

36a

Order of CAB Dated April 9, 1975

and old agreements and tariffs are set out as an appendix to this

opinion and order.) On the other hand, recent developments

generally reinforce the Board’s earlier determination. In sum, we

see no basis for approving the current agreement or altering our

earlier decision.}

Nothing in the current submissions warrants any change in

our earlier finding that the existing air express arrangement no

longer provides any unique public service advantages. On the

contrary, it now appears that any alleged benefits have

materially deteriorated. Significantly, Delta, Southern, United,

Piedmont, Pan American, and Ozark have already withdrawn

from the express arrangement. Thus, the nationwide coverage

which was a principal public benefit of REA’s service has been

ended. Furthermore, REA’s air express tariffs and pickup, and

delivery service are now similar to those of forwarders and other

air freight carriers. The recently established air express rate

structure, effective November 4, 1974, is also not materially

different from that of freight forwarders in general, particularly

with respect to smaller packages.* Reductions proposed in

3. We are sympathetic to the concerns of the humane societies, but since our action

herein is to disapprove the agreement, we will not deal specifically with the matters

raised by the humane societies in this order. In Docket 26310 the Board is conducting an

investigation of the rules and practices relating to the acceptance and carriage of live

animals in domestic air freight transportation. Any changes in the treatment of animals

which that Investigation shows to be necessary would seem to be appropriate for any

type of air cargo system in effect at that time, and it is suggested that the humane

societies direct their attention to Docket 26310. See Orders 74-1-79 and 74-7-26.

4. See Apendix B to this order. See, also, Order 74-11-11, November 1, 1974.

PRE oA, ELLE NNO ce NICD

. aren — Sa eS rte 5

°F ROR EB PIB IT I LIL I Es EON IN IS LEED LE LI FM: GERD

37a

Order of CAB Dated April 9, 1975

numerous rates, marked to become effective April 30, 1975, will,

if permitted to become effective by the Board, bring the express

structure even closer to that of forwarders. And, as the Board

noted in its original decision, the designation of a shipment as

air express does not, in practice, result in any faster service than

if the package were sent as air freight. Finally, REA has, in

essence, already made the transition from air express to air

freight forwarding so that any change in formal authorization

will have virtually no effect on the type of service available to

the public. The only remaining distinction btween REA and air

freight forwarders is in nomenclature and privilege which do not

translate into any meaningful benefits to the shipping public.

There is little doubt that the strength of the REA/airline

arrangement has been further eroded since the time of the

Board’s original decision. As noted earlier, various airlines have

withdrawn from the basic air express agreement. Furthermore,

the conflicting interests of REA and its remaining airline

“partners” nonetheless continues, even under the new

arrangement. Also, under that new arrangement air express

services would end ten days after any default by REA to the

airlines. Moreover, section IV of the new agreement plainly says

that all adjustments and increases in air express rates can be

vetoed by either REA or the airlines. Equally important,

subsequent to the time of the Board’s earlier decision REA filed

a petition initiating a bankruptcy action in the Federal courts. In

all these circumstances, we can only conclude that the new air

express agreement is no more stable than the earlier

arrangement was at the time of our original decision.

Homan erro ovy

IN 5 PNG ERD GR ARR A EIA

SOLE A IE ICS ORRIN Be te

ee a ee |

38a

Order of CAB Dated April 9, 1975

Finally, and importantly, we continue to believe that the

future development of air freight, including the benefits to the

public of a reliable form of cargo service, can best be achieved

by allowing other indirect carriers to participate in priority

service so that a dependable service can be established. As we

indicated in our Supplemental Opinion and Order 74-5-25, at

pp. 12-13:

“The air express agreements are plainly

anticompetitive, and have the effect of

eliminating competition between airlines and

excluding airfreight forwarders from various

types of markets... [T]he air express

agreements do not produce counter-balancing

public benefits, but rather stand in the way of the

establishment of an improved air cargo

system .... Disapproval of the air express

agreements is fully in keeping with the spirit of

the antitrust laws. It is the perpetuation of them

that would have been contrary to that spirit. And

we are not aware of any supervisory

responsibility imposed on us that requires us to

attempt to aid an unhappy partner to an

arrangement that has outlived its time... .”

Not only will our new approach remove the ever-present threat

that the only available express service may suddenly disppear,

but it will foster the usual competitive interplay which we believe

=",

OQ PERT NET AME

39a

Order of CAB Dated April 9, 1975

desirable in bringing about improved air freight service to the

public.‘

PROCEDURAL MATTERS

The Board has also reexamined its earlier determination

regarding the need for a new high-priority air cargo service since

this was a part of the Board order remanded by the Court in

light of the proposed new air express agreement. After careful

consideration, we find nothing in the new agreement to alter our

earlier conclusion that there are a limited number of

commodities requiring the fastest possible service, that air

express does not fill the need for priority service, and that,

accordingly, each air carrier has an obligation to meet this

limited need with a high-priority service of its own. In

connection with the proposed agreement, we find no indication

that air express service would be any more successful than under

the current agreement in meeting the need for high-priority

service.

In order to establish high-priority service, we permitted the

airlines to hold discussions concerning the development of

interiiising procedures and the like for this new service.® The air

carriers have now had more than one year to conduct those

discussions, but most have not yet filed with the Board their

tanffs and any necessary interline agreements. While such

5. See, generally, Household Goods Air Freight Forwarder Investigation, Order 72-7-33,

July 10, 1972.

6. Orders 74-2-118, 74-4), 74.4.4 and 74-11-26

tS aaa te

are hcp eee

SST ROE AND EAI 4

EPL LE EMME ICRA ONY RRB LIES 8 FE

40a

Order of CAB Dated April 9, 1975

reticence may be understandable in light of the court order

staying this and other aspects of the Express Service decision, it

must be emphasized that the public interest requires the

establishment of this service as soon as possible. Accordingly, we

will grant the pending request in Docket 26238 and authorize

further discussions by the airlines. This authorization will expire

fourteen days after the issuance of the court’s mandate in REA

v. CAB, No. 74-1611. Moreover, by that fourteenth day, the

Board expects the airlines to have submitted the tariffs for high-

priority service as well as whatever agreement or agreements are

necessary to accomplish the essential interlining aspects of the

service.’ The tariffs and agreements should be marked to become

effective no later than 90 days after the issuance of the court’s

mandate.

In this fashion, the status quo protected by the court’s stay

is not disturbed, for vile the carriers are free to discuss and

formulate whatever procedures are necessary, no action will be

taken and no new industry-wide service will begin until after the

dissolution of the stay. At the same time, this directive will have

the beneficial effect of implementing our earlier determination

on the need for high-priority service as soon as possible.

Finally, as noted above, REA and the participating airlines

have filed, on March 27, 1975, a new air express tariff marked

for effectiveness on April 30, 1975. That tariff, inter alia,

7. We note that the airlines participating in the discussions essentially agreed on an

interline agreement on June 11, 1974. Very little additional work would seem necessary.

The Board will expect that the agreement provide for an interline service which is

consistent with the public interest.

4la

Order of CAB Dated April 9, 1975

provides for price reductions at sixty-three cities which REA

estimates would recapture traffic lost since implementation of

its November increases. Since the Board has not yet passed upon

the new tariff, in detail, we of course offer no views upon it

except to note that the new filing provides no reason for the

Board to stay its decision here.

ACCORDINGLY, IT IS ORDERED THAT:

1. Agreement CAB 24824 be and it hereby is disapproved;

2. The reply of the Drug and Toilet Preparation Traffic

Conference and the National Small Shipment Traffic

Conference is accepted;

3. The authorization granted in Order 74-2-118, as

extended by Order 74-11-26, be and it hereby is further extended

until 14 days after the issuance of the mandate of the United

States Court of Appeals for the Second Circuit in REA v. CAB,

No. 74-1611.8

4. Except to the extent granted herein, all applications,

motions and requests be and they hereby are denied.

By the Civil Aeronautics Board:

(Seal) EDWIN Z. HOLLAND

Secretary

8. The discussions shall be subject to the conditions imposed in Order 74-11-26.

Ee PR PRs RR) rere

taal test bP a oh deena «aad

ee ee —~— A eT eS ~Pm—

42a

Order of CAB Dated April 9, 1975

APPENDIX A

Page | of 2 pages

Major differences between the new and old Air Express

Agreements and Tariffs

1. The new agreement would have no termination date; the

old agreement expired after 5 years.

2. Withdrawal by any party from the new agreement would

require 12 months’ notice; the old agreement required only 6

months’ notice for withdrawal.

3. In case of default by REA on any payment due the

airlines, the airlines’ obligations under the new Air Express

Agreement would be terminated, and all money owed the

airlines by REA would become due 10 days after default; the old

agreement merely provided for termination of the agreement in

the case of certain bankruptcy actions by any party.

4. REA, under the new agreement, would pay the airlines

for the airlines’ services in ground handling of air express

shipments when no REA employees are at an airport ($4 per

shipment; $5 for animals); the old agreement had no similar

5. The procedures for the provision by REA of substitute

service (surface transportation of air express shipments in those

cases where air service is, or is alleged to be, unavailable or

insufficient) would be clarified in the new agreement; they were

less clear in the old agreement.

= — ee << oS OR A EE eee. —_

43a

Order of CAB Dated April 9, 1975

6. The new agreement would specify that no changes in the

air express tariffs would be made without the written

authorization of the airlines; in the old agreement this was not

clearly required. (In both the new and old agreements, air ~

express rates are to be set jointly by REA and the airlines).

7. In the new agreement, air express revenue would be

divided among REA and the airlines twice a month; under the '

old agreement REA allocated and paid the airlines their share of _

the revenue once a month. :

8. The new agreement specifies that the airlines and REA '

would waive the right to request the CAB to change the new Air :

Express Agreement, and to retroactively readjust the airexpress

revenue divisions between REA and the airlines. Also, REA _

would request the CAB to dismiss REA’s request for such

readjustment in docket 22387. '

9. The new air express tariffs provide separate charges for _

airport-to-airport air express service, on the one hand, and _

pickup and/or delivery of air express shipments, on the other .

hand. REA retains the full pickup-and-delivery charges, if any, :

on particular shipments, and REA and the airlines divide the air

shipment charges, in accordance with an agreed-upon- _

allocation-of-revenue schedule. The old tariff only provided for

door-to-door air express rates.

10. The new air express tariffs provide for three categories

of city-pair markets, with the rates for large city to large city

POOR COPY

RFLEED THF OUGH

44a

Order of CAB Dated April 9, 1975

(column A) shipments the lowest, the rates for small city to

small city (column C) shipments the highest, and the rates for

large city to or from small city (column B) shipments in between,

for each category (mileage/weight) of shipment. The airlines’

share of the total charge is the same regardless of which column a

shipment falls into, while REA’s share (and thus the total

charge) is higher in column B and A, and in C and B. The old

tariff had no similar provision.

PLEED THF OUGH

COLUMN A

FROM - TO

Atlanta, Ga. - Charlotte, N.C.

Air Express

Emery

Airborne

Buffalo, N.Y. - Boston, Mass.

Air Express

Enery

Aiiborne

Baltimore, Md. - Ft. Wayne, Ind.

Air Express

bmery

Airborne

Cleveland, Ohio - Hartford, Conn.

Air Express

Enery

Ailborne

New York, N.Y. = Chicago, Ill.

Air Express

Exnery

Airborne

Columbus, Ohio - Omaha, Neb.

Ait Express

Emory

Airborne

Chicago, Ill. - Dallas, Tex.

Air Express

Enery

Airborne

* REA Explanation of Proposed Changes in Rates and Charges, Official

CAB No. 1 and Proposed Air Express Pickup & Delivery Tariff No. l,

950

747

711

950

747

711

950

1037

711

950

747

711

930

747

711

950

747

711

930

747

711

Submitted September 30, 1994

950

747

963

950

747

9738

950

1037

1020

950

747

973

950

747

939

950

747

1031

350

747

999

COMPARISON OF PROPOSED

AIR EXPRESS CHARGES WITH

CHARGES OF AIR FREIGHT FORWARDERS

WEIGHT IN POUNDS

10 25 50 70 100 200

CHARGE IN CENTS IS

1500 1550 1550 1654 1859 3346

1600 2000 2444 2690 3017 5128

1452 1913 2576 2747 3005 6010

1590 1571 1908 2204 2653 4932

1609 2033 2530 23818 3209 5490

1473 1965 2633 2397 3219 6433

1500 1681 2156 2536 2998 3302

1643 2097 2670 3917 3523 6263

1557 2179 3112 3499 4073 3156

1500 1757 2330 2744 3134 5576

1600 2033 2539 2818 3209 5499

1473 1965 2683 2997 3219 6438

1500 1901 2576 2973 3594 5922

1690 2118 2764 3170 3772 6440

1494 2019 2790 3043 3433 6366

1500 1901 2576 2973 3584 5922

1600 2181 2929 3432 41981 7454

1578 2231 3219 3649 4292 8584

1500 1943 2698 3035 3325 6039

1600 2181 2929 3432 4181 7454

1515 2072 2897 3198 3649 17293

RLEED THF OUGH

Appendix B *

300

4821

7554

8031

7197

8064

3697

7614

8454

11376

8025

3064

8697

8235

9027

9369

8235

9795

12042

3334

9795

10035

EXHIBIT 3

ZONE I

Service

Provided Pickup Delivery

in both

Directions Charge in Cents IS

‘Yes 335 275

Yes oe 275

Yes 285 275

Yes 350 350

Yes 205 325

Yes 490 300

Yes 400 300

Yes 300 250

Yes _ 330 350

Yes 330 350

Yes 300 250

Yes $25 375

Yes 525 375

tes 525 300

Yes 263 275

Yes 265 275

Yes 250 250

Yes 375 300

Yes 300 300

Air Express Tariff No. i.

CAB No, 2

POOR COPY

| TITIES WE nt Re OE.

COLUMN A - Continued EXHIBIT 3

WEIGHT IN POUNDS ZONE I

Service

. 8 5 10 25 50 70 =6100 200 300 Provided Pickup Delivery

in both

FROM - TO CHARGE IN CENTS IS Directions Charge in Cents IS

New York, N.Y. - Jacksonville, Fla. :

Air Express 950 9590 1500 1943 2633 3095 3325 6030 2334 Yes 525 315

Emery 1037 1037 1643 2260 3107 3599 4569 8394 11645 Yes 525 313

Airborne 711 «#1041 #1599 2285 3326 3793 4506 9012 12714 Yes 525 250

Denver, Colo. - Chicago, Ill.

Air Express . 956 3930 1550 2054 2828 3200 4088 6292 8727 Yes 355 375

Emery 747 747 1600 2039 2708 3036 3637 6240 8333 Yes 335 375

Airborne 71L 999 1515 2072 2897 3193 3649 7293 10035 Yes 303 309

Houston, Tex. - Dayton, Ohio

Airc Express 950 330 1550 2054 2328 3200 4033 6292 3727 Yes 400 265

Emery 747 747 1600 2076 2650 2939 3499 6076 #£g610 Yes 490 265

Alrborne 7ll 1041 #1599 2285 3326 3793 4506 9012 12714 Yes 300 250

Kansas City, Kans. - Phoenix,Ariz.

Air Express 950 950 15735 2034 2843 3373 4377 6788 ~ 9366 Yes 350 250 e

Emery 747 747 #1599 2200 2438 3524 4322 7790 10167 Y2s 350 250 e

Airborne Fil 1031 1578 2231 32193 3649 4292 8584 12042 Yes 300 250 E

Tulsa, Okla. - Los Angsles,Calif. ; : é

Air Express 930 950 1650 2331 3151 3305 4955 3184 10635 Yes 260 350 :

E.wnery 747 747 1600 2210 3031 3599 4433 7828 40374 > Yes 260 350 k

A.rborn2 711 #1031 1578 2231 3219 3649 4292 3594 12042 Yes 250 350 :

P.ttsburga, Pa.— Salt Lake City,Ut. :

Air Express 930 950 1725 2533 3539 4249 5678 9344 12387 Yes 300 270 FE

Emery 747 747 1600 2302 3310 4039 53107 9234 12459 Yes 350 279 x

Al~dDorne 711 1073 1662 2444 3649 4249 5151 10302 14718 Yes _ 280 250 Ns

Wew York, N.Y¥.-Los Angeles, Calif.

Air Express 950 950 1730 2834 4121 5190 35747 #+%11722 15606 Yes 525 350 &

Emery 747 747 #1600 2481 3828 4815 6284 11698 16026 Yes 525 350 3

Airborne j 7ll 1094 1704 2559 3363 4549 5580 11160 16059 Yes 525 350

Miami, Fla. - Portland, Ore.

Air Express 950 930 18190 3010 43933 5516 7207 129590 17637 Yes 350 390

Emery 747 747 1609 2491 3328 4315 6234 11698 16026 Yes | 300

Airborne 7ll s1115 1746 26556 4978 4939 60035 12013 17394 Yes 325 300

—— -- -

% Re ee ee ee ee

COLUMN B EXHIBIT 3

COMPARISON OF PROPOSED

AIR EXPRESS CHARGES WITH

CH.KGES OF AIR FREIGHT FORWARDERS

WEIGHT IN POUNDS

cOneE I

Service ; d

1 5 10 25 50 70 100 200 300 Frovided Pickup Delivery

in both

FROM-TO CHARGE InN CENTS IS Directions Charge in Cents IS

Roche ster,N.Y. - Lansing,Hich.

Air Express . 1100 1100 1525 1700 2029 2249 2615 4794 6972 Yes 325 250

Enery ; 1464 1464 1718 2105 2636 2946 3454 6218 9327 Yes 325 250

Airborne 711 +1010 1536 2125 3°95 3348 3863 7726 10704 No 300 250

Allentown,Fa. - Buffalo,N.Y.

Air Express 1100 1100 1525 1700 i850 1954 2159 3946 572) Yes 250 350

Rrery 7 1037 1037 1643 2100 2695 3057 3590 6420 8661 Yes 250 350

Airborne 7a8 968 1452 1913 2576 2747 3005 £6010 6031 Yes 250 305

Elmira,N.Y¥. - Boston,Mass. P

Air Express . 1100 1100 1525 1700 2029 2249 2615 4794 6972 Yes 285 350

Enery 1037 1037 1643 2100 2695 3057 3590 6420 8661 Yes 285 350

Airborne 711 968 1452 1913 257G 2747 3005 £6010 8031 Yes 250 325

Baltimore,HNaryland - Lexington, KY.

“ir Express 1100 1100 1525 1828 2479 2916 3448 6098 8757 Yes 400 250

lery 1037 1037 1643 2097 2670 3017 3523 £6268 8454 Yes 400 250

.irborne 711 1020 1587 217 3112 3498 4078 8615€- 11376 Yes 300 250°

Manche ster,N.H.-Cleveland, Qh.

ir Express 1100 1100 1525 1938 2680 3156 3604 6412 9228 Yes 275 330

tnery 1606 1606 18674 2306 2902 3263 3871 70€O 10590 Yes 275 330 i

,irborne 1713. 31976 2473 2965 3683 3897 4219 8438 11697 Yes 250 300

Binghanton,N.¥. - Chicago, Ill.

Air Express 1100 1100 1525 1938 2680 3156 3604 6412 9228 Yes 250 375

Enery 1037 1037 1643 2145 2810 3230 3871 6986 9513 Yes 250 375

irborne 712. 363% 1578 2231 3219 3649 4292 8584 12042 Yes 250 300

Charlotte,NC,- Peoria, Ill.

‘ir Express 1100 1100 1525 2053 2962 3419 4122 6810 9471 Yes 275 250

Enery 1037 1037 1643 2282 3165 3792 4706 8672 12060 Yes 275 250

i.irborne 711 1020 1557 2179 3112 3499 4078 8156 11376 No 275 250

STATION HOw ETI Ed

COIUMN B - Continued

FROM -— TO

tiiami, Fla.- New Bern,N.C.

Air Express 1100

Emery 1634

Airborne 1711

Des Moines, Ia. - Houston, Tex

air Express 1100

Enery 747

Airborne 711

Hoiston,Tex. -Lincoln, Neb.

Air Express 1100

Emery 1690

Airborne 711

Omha,Neb.- Midland, Tex.

Air Express 1100

Enery 1690

Airborne 73

Pittsburgh, Pa. - Fort Smith,

tsk.

sir Express 1100

Emery 1776

Airborne 1711

St. Louis, Mo.-Las Vegas,Nev.

Air Express 1100

Emery 1032

Airborne 711

1$25

1909

2557

1525

1600

1620

1525

1988

1599

1575

1988

1557

1600

2690

2494

1725

1636

2€83

2053

2358

3179

2136

2140

2337

2136

2495

2285

2214

2495

2179

2302

2650

3019

2534

2313

2497

2962

2981

#112

3091

2824

3433

3091

3204

3326

3252

3204

3112

3269

3450

3790

3688

3269

3756

WEIGHT IN POUNDS

CHARGE

3419

3367

4499

3559

3258

3948

355%

3683

3798

3879

3683

3499

3879

3999

2048

4479

3953

4399

100

200

IN CENTS IS

4122

4006

5078

4399-

3918

4722

4399

4431

4506

5034

4431

4078

5034

4855

4433

6039

4968

$365

6819

7352

10156

6934

6616

9444

6934

£190

9012

7806

8190

8156

7806

9046

8666

964€

9190

10730

300

Service

Provided

ia Both

Directions

Yes

EXHIBIT 3

ZONE IL

Pickup Delivery

Charge in Cents IS

350 300

325 250

250 400

250 300

400 265

300 250

275 250

250 250

300 300

280 300

350 350

235 350

PHAR COoORYV

eee ee Ce ee oe 2 ee

PDA AED = 0 new NAT Oe bate SIMO + ithe eS <A) rele’ PRR OE OS See Wn we Ore @.1 = re ee

COLUMN B - Continued , EXHIBIT 3

ZONE I

Service -

1 5 10 25 50 70 100 200 300 Provided Pickup Delivery

FROM - TO in Seth

CHARGE IN CENTS IS Directions Charge in Cents IS

Madison,Wisc,- Portland, Ore.

Air Express : . 1100 1100 1800 2734 4070 4885 6530 10768 14244 Yes 260 300

Emery 1032 1032 1636 2334 3326 4044 5111 9466 13257 Yes 260 300

Airborne 711 1084 1683 2497 3756 4399 5365 10730 15367 Yes 250 300

Rochester,NY. - Bakersfield, Calif.

Air Express 1100 1100 1850 3111 4739 S865 7759 13480 17946 Yes 325 250

Emery 1926 1926 2315 3134 4417 5314 6710 12808 19212 Yes 325 250

Airborne 711 #1115 1746 2556 40768 4850 6009 12018 17394 No 300 250

POOR COPY

FLEED THROUGH

a ce a

EXHIBIT 3

COMPARISON OF PROPOSED

AIR EXPRESS CHARGES WITH

¢ : CHARGES OF AIR FREIGHT FORWARDERS

« WEIGHT IN POUNDS ZONE I

Service

1 5 10 25 50 70 100 200 300 Provided Pickup Delivery

in both :

FROM - TO CHARGE IN CENTS IS Directions Charge in Cents IS E

Pensacola, Fla.-South Bend, Ind. e

Air Express 1600 1600 1925 2523 3494 4024 4973 78490 10833 Yes 250 350 §

Emery 1822 1822 2150 2740 3602 4183 5111 9563 14352 Yes 230 350 &

Airborne ‘ 711 1041 1599 2235 3326 3793 4506 9012 12714 Yes 250 250 é

Pensacola, Fla. - Amarillo, Tex. z

Aic Express 1500 1600 1950 2621 3675 4160 531% 8180 11346 Yes 250 250 :

Emery : 1822 1822 2150 2740 3602 4188 5111 9563 14352 Yes 250 250 2

Airborne rai 1020 1557 2179 3112 3499 4973 8156 11376 Yes 250 259 é

Moline, Ill. - Sheridan, Wyo. --

Air Express 1600 1600 1950 2621 3676 4160 5314 8180 11346 Yes 325 259

Emery 1935 1935 2269 2903 3353 4488 5494 10340 15510 No 325 NSA

Airborne 37ih 2032 2620 3337 4433 4948 5722 11444 16380 No 250 250

Fargo, N.D. - Lynchburg, V4.

Air Express 1600 1600, 2100 2974 4096 4579 6046 10348 13125 Yes 250 250

Emery 1747 1747 2056 2595 3355 3394 4706 8772 13158 Yes 250 250

Airborne 711 1052 1620 2337 3433 3948 4722 9444 413380 Yes 250 250

Albuquerque, N.M. - Spokane, Wash.

Airc Express 1600 1600 2075 2834 3968 4801 63393 10528 13476 Yes 250 300 i,

Emery 1932 .1932 1536 2313 3269 3953 4363 9190 12846 Yes 250 300 Z

Airborne 711 1952 1620 2337 3433 3949 4722 9444 13380 Yes 250 309 ;

Tucson, Ariz. - Aberdeen, Wash.

Air Express 1690 1690 2150 2993 4169 5964 6326 10904 14220 Yes 250 350

Emery 1822 1822 2150 2749 3602 4183 5111 9568 14352 No 250 NSA

Airborne 1711 2031 2578 3231 4219 4649 5292 10584 15042 No 250 350

Richmond, Va. - Alamogordo, N.M.

Air Express 1690 1600 2275 3234 4601 5522 7381 12174 16104 Yes 250 250

Emery 1926 1926 2290 3020 4155 4938 6158 11686 17529 No 250 NSA

Airborne 1711 2094 2704 3550 49853 5549 6580 13160 19059 No 300 250

ory N.Y. - Walla Walla, Wash. :

ir Express 5 1600 2320 3554 5140 6327 ; 5

Emecy 1328 }Oe6 2315 3134 4417 5314 2373 13483 18333 “As 333 358 ;

Airborne 1711 IfS 2746 3656 5078 5356 7009 14913 20334 ° .

EERSTE RTO REN, NLS TRIE ERLE III E LALLA LELE LL DLS NALS LI IEL LLIN LENE AE DANAE TIS ROT SRI AN bie ieee

EXHIBIT 3

COMPARISON OF PROPOSED

AIR EXPRESS CHARGES WITH

CHARGES OF AIR FREIGHT FORWARDERS

WEIGHT IN POUNDS - ZONE I

Service

es 10 25 50 70 100 200 300 Provided Pickup Delivery

in both

FROM - TO . CHARGE IN CENTS IS Directions Charge in Cents IS

Spokane, Wash. - Pendleton, Ore.

Air Express 1600 1690 1925 2009 2059 2154 2417 4359 6321 Yes 390 250

Emery 1436 1436 1696 2065 25466 2332 3319 $942 3913 No 300 230

Airborne : 1711 2010 2536 3125 4905 $343 4363 9726 13794 No 300 250

Des Moines, Iowa - Springfield, Mo.

Air Express 1600 1690 1925 2000 2248 2534 2956 $418 7881 Yes 250 2590

Emery 1549 1549 1305 2204 2745 3065 3590 6496 9744 Yes 250 250

Airborne 711 1020 1557 2179 3112 3499 4079 3155 11376 No 250 256

Muskegon, Mi. - Burlington, Towa

Air Express 1690 1600 1925 2000 2249 2534 2955 5419 7331 Yes 275 275

Emery 1464 1464 1719 2105 2635 2946 3454 6219 9327 No 275 275

Airborne 1711 2010 2535 3125 4005 4348 4863 9726 13704 No 275 250

A-stin, Tex. - El Dorado, Ark.

Air Express ° 1600 1600 1925 2018 2480 2865 3449 6412 9357 Yes 300 256

ouery 1663 1663 1342 2409 3059 3472 4151 7626 11439 fes 390 250

“a rborne 711 1010 1535 2125 3995 3348 3863 7726 19704 No . 250 259

coe, La. - Charleston, S.C. %

ir Express 1609 1600 1925 2426 3349 3365 4559 7693 10770 Yes 259 300 $

very - 1522 1522 1772 2163 2697 39190 3523 6368 9552 Yes 250 330 4

“irborne 1711 2020 2557 3179 4112 4499 5078 10156 14376 Yes 250 275 ;

¢ ney, ll. - Grand Forks, N.O. .

.r Express 1699 160) 1925 2283 3929 3557 4374 7243 19434 Yes 275 250 :

soery 1663 1663 1942 2409 3059 3472 4151 7626 11439 No 275 250 :

A: rborne 1711 2020 2557 3179 4112 4499 5078 10156 14376 No 265 250

G-eenville, S.C. - Fay2tteville,Ark. 4

Arr Express 1690 1690 1925 2523 3494 4024 4973 7840 10833 Yes 273 269

Enery 1831 1931 2184 2792 34537 4292 3245 9840 14760 Yes | 60 =

Airborn2 711 1020 1557 2179 3112 3499 4078 = 815€ 11376 No 250 50 :

. 1‘

é q

POOR Vv

RFIEED THEOLGH _——

46a

ORDER OF CAB DATED JUNE 26, 1974

Order 74-6-117

UNITED STATES OF AMERICA

CIVIL AERONAUTICS BOARD

WASHINGTON, D.C.

Adopted by the Civil Aeronautics Board at its office in

Washington, D.C. on the 26th day of June, 1974

Docket 22387

INVESTIGATION OF AIR EXPRESS RATES

ORDER DENYING MOTION FOR STAY

By Order 74-5-23, entered in the above captioned

proceeding, the Board found, inter alia, that the issue of the

lawful future rates for air express service had been rendered

moot by its decision in the Express Service Investigation (Order

73-12-36) to terminate REA’s exemption authority to conduct

air express service. In addition, the Board found that although

the issue of whether it should attempt to retroactively

redistribute between REA and the direct air carriers air express

proceeds for prior periods was still ripe, the record and analyses

developed by the parties on this issue was far from adequate for

an informed judgment as to what the just, reasonable, and

equitable divisions would be, or as to the Board’s jurisdiction to

prescribe such divisions. In this posture, the Board found it

appropriate to request the interested parties to meet under the

ety

SANTEE LEI OE IO OT LO TS PATO AR ET

$f COLE RAL DE a oe at)

47a

Order of CAB Dated June 26, 1974

chairmanship of the Director of the Bureau of Economics, and

to endeavor to reach agreement “with respect to such matters as

the detailed air express traffic and revenue data for calendar

years 1971, 1972, and 1973; methods of evaluating the divisions

made under the formula outstanding during the period April

1970 forward; and,...,an overall conclusion on_ the

appropriate divisions for the period.”!

REA has now filed a motion requesting that the Board stay

Order 74-5-23 pending completion of judicial review.2 Answers

to the motion have been filed by the airlines participating in air

express service (“Airlines”), Emery Air Freight Corporation

(Emery), the Air Freight Forwarders Association (AFFA), and

the Pet Industry Parties (Pet).3

Upon consideration of the motion and answers, the Board

has determined for the reasons set forth below to deny the

request. While REA apparently seeks a stay pending judicial

review of the Board’s order, it does not articulate the reasons

why a stay is warranted, and we are unable to find that a stay is

appropriate.

1. Order 74-5-23 at 9.

2. REA’s Motion also seeks a stay of the Board’s decision in the Express Service

Investigation, Docket 22388. By Order 74-6-118, the Board denied the Motion as applied

to the Service proceeding.

3. On June 11, 1974, REA filed a reply to the answers of Emery and AFFA

accompanied by a Motion For Leave To File An Otherwise Unauthorized Document.

We will grant REA’s motion.

POAR CORY

48a

Order of CAB Dated June 26, 1974

The Rates proceeding order which REA now seeks to stay

principally involves two distinct findings: first, that the issue of

lawful future express rates is moot as a result of the decision to

terminate REA’s express monopoly; and second, that the

existing record is inadequate for determination of the issue of

retroactive redistribution of express revenues from prior periods

and that further procedures are necessary. REA’s motion

completely fails to support any claim that either of these two

findings will result in any irreparable injury to REA.

Accordingly, we cannot find any basis for grant of the stay. In

addition, the findings on the state of the record with respect to

retroactive divisions do not constitute a final order of the Board

on this issue and, therefore, are not ripe for judicial review.

Hence, no basis for a stay pendente ‘ite of this aspect of the

order exists.

In our original order, we had sought to promote resolution

of a number of issues underlying the retroactivity question

through discussions between the interested parties. A meeting

for this purpose had been scheduled for May 28, 1974, but was

subsequently canceled at the suggestion of counsel for REA,

who expressed the opinion that the meeting might not be

productive in view of the pendency of the motion for stay. The

Airlines in their answer took note of the cancellation of the

meeting and suggested that rather than proceed with a meeting

in accordance with the procedure outlined in Order 74-5-23, the

Board first direct the parties to file briefs directed to the

jurisdictional issue, and to consider the remaining issues only if

the Board decides that it has jurisdiction.

OASYS SEY, ELL EEN BLE AG DML SRE IO" —

49a

Order of CAB Dated June 26, 1974

We do not agree. There are several different resolutions that

can be made of the retroactive redistribution issue regardless of

the ultimate finding on the jurisdiction issue. Accordingly, for

the foregoing reasons as well as the reasons expressed in Order

74-5-23, we will direct a rescheduling of the meeting in

accordance with the procedures outlined in our previous order.

The procedural dates will be determined by the Bureau Director.

ACCORDINGLY, IT IS ORDERED THAT:

1. REA’s motion to stay of Order 74-5-23 be and it hereby

is denied.

2. The ordering paragraphs of Order 74-5-23 be amended

to read as follows:

“1. An informal conference be convened by the Director,

Bureau of Economics, for the purpose of assembling factual

material and attempting to reach agreement on the divisions of

revenues pursuant to operations conducted under Agreements

CAB 12866 and CAB 17935, as amended, as set forth in Order

74-5-23;

“2. At the termination of the conference by the Director, he

shall forthwith file with the Board a report, accompanied by

such stipulations as have been agreed upon by parties to the

CAB agreements cited in paragraph one; and

PODR COPY

RLEED THF ‘DU SH

50a

Order of CAB Dated June 26, 1974

“3. If the parties to the above-listed CAB agreements

cannot reach agreement on a stipulation of the divisions of

revenue prior to the termination of the conference, the Director

shall establish a procedural timetable for the filing by the parties

with the Board of briefs and reply briefs addressed to the issues

discussed in Order 74-5-23.”

By the Civil Aeronautics Board:

EDWIN Z. HOLLAND

Secretary

(SEAL)

| oe Pe ee ea ee

Sla

ORDER OF CAB DATED MAY 6, 1974

Order 74-5-23

UNITED STATES OF AMERICA

CIVIL AERONAUTICS BOARD

WASHINGTON, D.C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D.C.

on the 6th day of May, 1974

Docket 22387

INVESTIGATION OF AIR EXPRESS RATES

ORDER

This investigation was instituted by Order 70-7-109, July 23,

1970, to determine the lawfulness of the air express rates and the

divisions of such rates and charges as between REA and the

direct air carriers. At the same time, in a companion order,' we

instituted the Express Service Investigation, Docket 22388, to

explore, among other things, the future role of express or

priority cargo service in air transportation and whether the

existing concept of an air express agreement between the direct

air carriers and an express company should be maintained.

1. Order 70-7-110. That order also deferred action on an amendment of the air

express agreement between REA and the airlines which provided, inter alia, for new

divisions of rates.

POOR COFRY

52a

Order of CAB Dated May 6, 1974

The Board has now, in Order 73-12-36, issued December 7,

1973, in the Service Investigation, authorized REA to operate as

a domestic air freight forwarder, ordered the termination of

REA’s exemption authority to conduct air express service, and

indicated that separate rates for expedited freight should be

established? independently, by direct air carriers and air freight

forwarders, rather than pursuant to agreements. In the light of

that decision the instant Air Express Rates Investigation has

been rendered moot in most respects. Because of the change in

REA’s mode of operation foreshadowed by our decision that it

shall henceforth be an air freight forwarder rather than maintain

its air express monopoly, no useful purpose would be served by

our passing on the lawfulness of air express rates or attempting

to resolve the disagreement between REA and the direct air

carriers concerning the amounts to be paid over to the latter

from revenues to be received under lawful prospective rates for

express.

There remains, however, the question whether the Board

should attempt to redistribute air express proceeds between the

REA and the direct air carriers on a retrospective basis. This

matter was within the scope of the hearing conducted by

Administrative Law Judge Milton H. Shapiro, his Initial

Decision, and our Order 72-7-15 undertaking review. Briefs have

been filed and oral argument conducted, and the question was

submitted for decision. However, as discussed more fully below,

2. Subject, of course, to the normal rate procedures involving review and possible

investigation and suspensions. The prder also disapproved the agreements covering air

express services, rates and divisions. Express operations will continue for a “wind-up”

period through July 31, 1974. Order 74-5-25.

SRO eee eas

CLIN, ABIES IEY LT ALINE OLIN AEM TTR ONES OTN

og Te YON

_ Soper) PRR

53a

Order of CAB Dated May 6, 1974

we are not satisfied with (1) the analyses made by the parties

concerning the Board’s power to order a retroactive adjustment

of the revenue divisions heretofore made by REA and the

airlines or (2) the state of the record on REA and airline costs

and revenues, and we are uncertain at this time whether, under

all the circumstances, it would be in the public interest for the

Board to exercise its discretion (assuming our jurisdiction) and

attempt to redistribute the air express revenues. We do know,

however, that there are major gaps in the data necessary to an

informed judgment as to what the just, reasonable and equitable

divisions would be, and that we have serious doubts with respect

to the jurisdiction question which were not resolved by the

parties’ presentations.

REA contends that it has been denied its fair share of air

express revenues in the past and argues that the Board can and

should require an adjustment of these revenues for the past

period beginning April 9, 1970, the date of REA’s Petition and

Complaint seeking reformation of the agreement and relief with

respect to the revenue allocation reflected in the existing

agreement.’ Its argument is based on section 1002(h) of the

3. See Orders 70-7-110, 70-8-48 and 71-2-68. The Board originally dismissed REA's

pleading since the reform and relief requested were the subject of the broader ranging

Express Service and Express Rates cases, but when the carrier raised the issue of the

legal effect of dismissal prejudicing its powtions with respect to the date of any

retroactive action under section 1002(h) of the Act, we reinstated the Petition and

Complaint for the limited purpose of preserving our legal option to grant relief

retroactive to the April 9, 1970, filing date, and consolidated that limited reinstatement

with the instant investigation. The Board also announced that it refrained from taking

any position on its power to grant such relief or the need for the relief, stating that it

intended only to preserve such legal option should the Board decide to exercise it under

proper circumstances.

~~ ear fe La Cae

i ary DCL EEL DOIN SD BRIO ye

Pen |

weg

54a

Order of CAB Dated May 6, 1974

Federal Aviation Act, which provides that when the Board

prescribes just, reasonable, and equitable divisions of joint rates

between the air carriers parties thereto it may require the

adjustment of divisions between such air carriers from the date

of the filing of a complaint or such later date as it finds just,

reasonable and equitable. REA claims that, under a proper

division formula,’ the airlines owe it over $1 million a month

from April 9, 1970, forward, and that hence retroactive

adjustment is needed to restore to REA its rightful entitlement.

At the threshold, the airlines have challenged the Board’s

jurisdiction to make retroactive adjustments of the divisions.

They take the position that (1) while the Board can prescribe

divisions prospectively through its power to condition approval

of REA-airline agreements under section 412 of the Act, it

4. Section 1002(h) reads as follows:

“Whenever, after notice and hearing, upon complaint or upon

its own initiative, the Board is of the opinion that the divisions of

joint rates, fares, or charges for air transportation are or will be

unjust, unreasonable, inequitable, or unduly preferential or

prejudicial as between the air carriers or foreign air carriers parties

thereto, the Board shall prescribe the just, reasonable, and equitable

divisions thereof to be received by the several air carriers. The

Board may require the adjustment of divisions between such air

carriers from the date of filing the complaint or entry of order of

investigation, or such other date subsequent thereto as the Board

finds to be just, reasonable, and equitable.”

5 Under the formula proposed by REA, airline divisions from air express are to bear the

same relationstep to airline air express costs as airline freight revenues bear to airline

freight costs aad the airline costs are to be computed on the basis of by-product costing.

AP em Maton os ERLE TLIC EO GIONS BE PO OTS ESI” 2 LPI OMELET ALIS IN REI

55a

Order of CAB Dated May 6, 1974

cannot alter the agreements themselves® and (2) the Board lacks

the power to prescribe divisions of revenues between REA and

the airlines pursuant to section 1002(h), since express rates are

not “joint rates” between REA and the airlines. They assert that

joint rates may exist only between connecting carriers operating

through routes (i.e., airlines) and not between indirect air

carriers and direct air carriers. The airlines state that REA does

not operate “through routes” in air transporation, but only pick-

up and delivery services, which are terminal services rather than

line-haul or through route services.

In his Initial Decision Judge Shapiro did not reach the

jurisdictional question under section 1002(h). Contemplating

divisions for the future, he determined, in the then existing

circumstances, that jurisdiction is conferred by section 412. That

section of the Act allows the Board to approve or disapprove

agreements between REA and the airlines and has been the

vehicle for Board control of REA-airline relationships, including

the method of dividing revenues, since the inception of the air

express service. In the Judge’s view, although the power to

prescribe rate levels does not coincide with the power to

prescribe divisions, once the rate levels are prescribed according

to the costs of the carriers for air express, the parties could

proceed, as in the past, to negotiate an agreement with respect to

divisions to reflect the prescribed rates, and the Board can offer

the parties the choice of Board approval if they conform to the

6. The carriers argue that if the parties to an agreement do not accept a condition the

Board can disapprove the agreement, but not re-write it. Withholding approval of an

agreement because of a deficiency would not here serve to change the distribution of

express revenues for past periods.

, ee FS ARRED TY ILO LARLY LED SLA LUDE POP LAEITIYNC ASSEN RETA LOPS EDIE BEN N

POOR COPY

RIEFEHM THROLIGH

Séa

Order of CAB Dated May 6, 1974

conditions relating to divisions, or of disapproval if they fail to

accept them. As to the retroactive adjustment issue, Judge

Shapiro held that the rates and divisions he found reasonable

showed that rather than there having been an overpayment to

the airlines by REA from the proceeds of the air express

revenues, the airlines had been underpaid. He found that the

evidence did not support REA’s contention that it is entitled to

reimbursement for overpayments to airlines under existing

divisions; that the airlines had made no claim for retroactive

payment or alterations of the divisions, because of their view

that neither Section 412 nor section 1002(h) grants authority to

make retroactive adjustments; and that in all the circumstances

no such adjustment was required. Accordingly, he found that

there was no need to require retroactive adjustments of the

divisions as a condition of approval of any REA-airline

agreement to be reached regarding air express rates.’

As the Board currently views the matter, a major difficulty

with the conclusion of the Administrative Law Judge is that the

existing record does not appear to contain sufficient factual

7. In the light of the Board's decision in the Express Service Investigation, its power

under section 412 to attach conditions to approval of the REA-airline agreement is no

longer available as a means of prescribing divisions as a practical matter (absent

consensus), since we are terminating the agreement in any event. Whatever the merits of

conditioning approvals of agreements having future applicability on acceptance of

prescriptions of divisions of revenues for past periods, the sanction of disapproval is lost

where the agreement is not of a continuing nature, and we have no basis directly to

reform an agreement between the parties. As Judge Shapiro correctly stated, under

section 412 the Board is empowered to offer the parties a choice of approval if conditions

are accepted or disapproval if they are refused, cf, McManus v. C.A.B., 286 F.2d 414 (2d

Cir., 1961).

SP APES ERE TNS IEES PD, FESS

Be an en Sk ae a ata eae

57a

Order of CAB Dated May 6, 1974

information to permit us to conclude whether or not the existing

revenue divisions, which could extend over a period as long as

from April 1970 to 1974, are equitable. Although Judge Shapiro

exercised a great deal of patience and persistence in attempting

to determine the costs incurred by REA and the airlines, this

task proved to be what he called “a prickly and elusive

challenge.” This was especially true so far as REA’s financial

results and operating statistics were concerned.

The problem stems in part from the fact that REA does not

report on a recurrent (or even sporadic) basis any detail for its

air express revenues, expenses and investment, nor such basic

data as air express shipments, pieces and pounds, separately

from such information for its surface express operations, much

less on a more refined basis which would for example

differentiate between system and domestic air express, or general

commodity-rated and _ specific commodity-rated _ traffic.*

Apparently, it also keeps its books on a system basis only,

although air express is handled by a separate operating division

of the company. Quite obviously, this history and practice of

aggregate accounting and reporting both emphasizes the need

for accurate allocations and makes the allocations more difficult

to accomplish and to assess. When this deficiency was coupled

with a fundamental revision of REA’s system of accounts,

effective July 1, 1970, the result was to render it extremely

8. The general commodity-rated traffic and the specific commodity-rated traffic are

somewhat different in terms of volume, weight and prices per shipment, and weight per

piece. See Initial Decision, Appendix J. The ALJ's costs were based on those for the

general commodity-rated traffic, since marketing considerations would normally have a

greater impact on the SCR’s than on the GCR's.

ace LE IE gig SE TS Se TEN ea RSE SRP I IRS g 5 TOO eS SI

- ~ i S = my AE: SS 3 .

PODR COPY

~~ —_——_ —b ee Aa EOE

58a

Order of CAB Dated May 6, 1974

difficult, if not impossible, to compare data for this first half of

1970 with data for the second half of that year, or to reconcile

the data for the two halves of the year with the carrier’s report to

the interstate Commerce Commission for calendar 1970, much

less to make dependable comparisons with earlier years or

projections to later years. Yet, REA was insistent that 1970 was

the only feasible base period, since it had made two cost studies

during that year which it deemed crucial to its allocation of

costs. REA further asserts that, because of a number of variable

factors, the studies could not be applied to 1969 data to develop

cost allocations for that prior period (which had been designed

earlier as the base year), and that even the costs REA itself had

developed for 1969 were merely the product of what it

characterizes as a “meaningless mathematical exercise.” In that

posture, and because of “the quality of the evidence actually

furnished at the hearing” (1.D. p. 12), the Judge determined, in

effect, to accept 1970 as the base year. However, it must be

noted that the variables which were asserted by REA to make its

costing inapplicable to 1969 data would appear to make equally

questionable the application of its methodology to later periods.

Moreover, as indicated in the initial decision, the evidence

presented at the hearing was not of the highest quality, to say

the least. The exhibits were revised and recast on various

occasions, not only to alter findings from the studies, but also to

change fundamental statistics, such as number of shipments, and

the result is a morass of seemingly conflicting figures. The

problem is greatly aggravated by the absence of basic data for

traffic and revenues subsequent to the hearing in this case. Judge

at — a

59a

Order of CAB Dated May 6, 1974

Shapiro directed REA to furnish monthly reports of air express

traffic data until the Board’s fina! decision in this investigation.

In July 1971 REA requested permission to be relieved of this

requirement. The request was denied by the Judge, but

nevertheless REA unilaterally discontinued submitting the

reports. Whatever the other difficulties of determining the

proper divisions for years subsequent to 1970, the continued

absence of basic information needed to allocate costs would

make the task impossible.

Within the limits of the data the Administrative Law Judge

has made cost findings for 1969 and 1970 which satisfied him

that the airlines, rather than REA, had been underpaid and that

REA had not proven that it was entitled to reimbursement for

overpaying the airlines under the divisions. REA has challenged

these findings, alleging that the Initial Decision contained errors

involving over $26 million of claimed costs denied to it and

almost $36 million of airline costs mistakenly allowed. While a

preliminary review indicates that at least $22 million of claimed

errors respecting REA costs are unsubstantiated? and that most,

9. REA has claimed “inflation™ of $14.5 million but, quite apart from the fact that this

item has no bearing on 1970 costs, the record support will not bear scrutiny. The primary

bases for the claim are (1) its two forecast 15% payroll increases, predicated on asserted

increases im that amount in the railroad industry, plus (2) a projection for economic

inflation, footed on an overall forecast in the Survey of Current Business. But REA

stated on brief tothe Board that it had not paid its union employees increased wages

since June 1970 and a national! forecast is too speculative a basis to apply to the costs of

any particular company. Further, there is no reason to believe that REA experienced

inflation any more severe than the airlines with whom the air express revenues are to be

divided.

(Cont'd)

Ce as al net ae Sa PL FR ag FE FE Oe OF FE A ete a

60a

Order of CAB Dated May 6, 1974

if not all, of REA’s theories pertaining to the airlines’ express '

costs are invalid,'® the Board is unwilling to undertake an in-

(Cont'd)

The second major “error” asserted was the disallowance of $7 million in return and

taxes. However, this figure rests on the theory that a particular amount of money here

$3.5 million—is required to attract capital. Neither the theory nor the amount ts

adequately supported. As a means of reaching the sum in question, REA applied a

claimed 15% capital to a constructed investment which would produce the result. This ts

a totally unacceptable approach. We will not inflate investment to make up for losses

incurred prior to the institution of this investigation, nor attempt to provide a return on

investment covering the cost of capital for REA's entire system, nor provide capital

directly, as opposed to a return element affording the means for attracting capital and

the return element is not intended to make up for operating inefficiencies, failure to

adjust costs to revenue, or lack of receptivity to service needs and customer

requirements. See Tr. 515-517.

The remaining items are questionable. REA’s posture on these rest on such factors

as allocations based on unsupported judgment which are inconsistent with statements in

tariff justifications on file with the Board; retroactive revisions of accounting for bad

debts; insurance allocation ratios twice as high in one period as in another, and a

mistaken view of the impact of a shipment count on the costs for general commodity-

rated traffic. Problems of evidentiary support also inhere in the allocations of “other

revenue” and accounting for value charges, C.O.D. fees, and other accessorial charges.

10. The first error ($3.74 million) attributed by REA to the initial decision was the use of

a joint product rather than a by-product basis for allocating airline-costs as required by

our decision in the Domestic Passenger-Fare Investigation, Docket 21866-7. But the ALJ

did not misread our decision as asserted by REA. In contrast to our tentative view with

respect to freight rates, we stated that we had no reason to believe that mail and express

rates could not cover a fully allocated share of capacity and noncapacity costs. Our view

has not been altered by the record in the instant investigation, which strongly suggests

that REA’s past problems with contracting shipment volumes were attributable to a

reputation for poor service rather than to its prices. These prices remained advantageous

competitively vis-a-vis air freight in the short-haul markets where the vast bulk of REA’s

traffic is carried. The repeated post-hearing filings for rate increases by REA are not

inconsistent with a belief that express traffic is relatively price-inelastic. Moreover, for }

division purposes, costs should not be altered by price elasticity considerations: divisions

(Cont'd)

ELTA EL LE¥S LE RILERLLIBE LE OLE SLO ——

6la

Order of CAB Dated May 6, 1974

depth review of REA’s contentions with respect to 1970 in the

absence of, at the least, more data for the remaining years which

(Cont'd

should be cost-based, and where the respective percentage shares of revenues are fixed in

proportion to respective costs, inability to price at cost is irrelevant.

Second, the theory that the airlines’ share of express revenues should have the same

relationship to their express costs (based on by-product “costing™) as their freight rates

bear to freight costs was properly rejected by the ALJ. If it is true that the airlines cannot

recover full costs from their freight operations (a question still to be determined in the

Domestic Air Freight Rate Investigation, Docket 22859), it still does not follow that they

should therefore lose money on express or should therefore be awarded a low share

(assertedly $3.79 million less) of express revenues.

The next alleged error, labeled “priority and density,” actually involves the theory

and mechanics of capacity cost allocations: that is, the so-called weight versus space

dispute, as well as the weighting factors used. REA states that over $14 million is at

stake, but does not segregate the elements involved. Our tentative view is that the ALJ

correctly used the space basis of allocation. That method requires the use of relative

density as a conversion factor, and the ALJ properly preferred on-board density over

dock-side density. He also properly followed precedent by using a priority weighting to

allocate costs, since some costs are incurred because of reserving capacity in recognition

of the priority agreement and the priority does result in some preference to express on

some flights. Cf. Nonpriority Mail Rate Case, Order 70-4-9. However, we do not here

pass on the validity of the priority weighting chosen. On the other hand, although REA

made no evidentiary showing as to the proper cargo load-factor standard and failed to

address itself to a passenger load-factor standard, it would appear that airline capacity

costs are overstated for at least part of the division period if passenger load-factor

standards developed in the Passenger-Fare Case are not applied.

Finally, REA makes a broadside attack on the ALJ’s noncapacity costs, asserting a

$14.3 million error. The difficulty with REA’s presentation is that it relies very heavily on

an unsubstantiated judgment that the airlines’ cost of handling express traffic is one-sixth

that of handling freight. The record shows that at many airports the airlines perform all

handling functions, and that even where REA does play a significant role, there are

countervailing influences such as the size of express pieces and the expense of runners.

As in the case of REA's costs, we shall not here explore the contentions of the

parties with respect to airline express costs. We do note, however, two apparent problem

areas: (1) the initial decision disallowed all reservations and sales expense, but some costs

in this function do appear to be entailed, as the ALJ appears to have recognized, and (2)

a straight-line approach to capacity cost allocations ignores the problem of taper in the

short distances common for express shipments.

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.