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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1976
- **Citation:** 426 U.S. 906

## Text

Pe:

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

9

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.

a oe a Saad EF RG TIO Ber AE 7, Se |

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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

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2
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

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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).

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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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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.

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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

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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

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r
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):

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“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.

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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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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.)

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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

_— —_ =
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

1
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

70

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
Yes
No

Yes
Yes
Yes

Yes
Yes
No

Yes
No
No

Yes
Yes
No

Yes
Yes
Yes

EXHIBIT 3

ZONE IL
Pickup Delivery
Charge in Cents IS

350 300
350 300
325 250
250 400
250 400
250 300
400 265
400 265
300 250
275 250
275 250
250 250
300 300
300 300
280 300
350 350
350 350
235 350

PHAR COoORYV

To

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PDA AED = 0 new NAT Oe bate SIMO + ithe eS

RE ABA TYE ATG Sty 18 Iya

POPES: re Fe ANY SE ARG ONE SRN ie I NT

64a
Order of CAB Dated May 6, 1974

3. If the parties to the above-cited CAB Agreements have
not agreed upon a stipulation of the divisions of revenues prior
to the termination of the conference, they may file with the
Board within fifteen days of such termination date, briefs
addressed to the issues as described above.

By the Civil Aeronautics Board:

EDWIN Z. HOLLAND
Secretary

(SEAL)

65a
SUPPLEMENTAL ORDER OF CAB DATED MAY 6, 1974

Order 74-5-25
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 22388

EXPRESS SERVICE INVESTIGATION

SUPPLEMENTAL OPINION AND ORDER

BY THE BOARD:

In Order 73-12-36 the Board determined to (1) disapprove’

the agreements among the airlines inter se and between the
airlines and REA providing for air express service; (2) terminate
REA’s exemption authority to act as the exclusive indirect
carrier for air express; and (3) award REA nationwide air freight
forwarder authority and give REA six months to make the
switch from air express to air freight forwarder service. The
Board also found that the scheduled air carriers were under an
obligation to offer highly expedited air freight service.

22 RARER

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66a

Supplemental Order of CAB Dated May 6, 1974

REA is the only party to seek reconsideration of Order 73-
12-36. REA’s petition for reconsideration is supported by the
National Small Shipments Traffic Conference,' and opposed by
all of the airlines that are parties to the air express agreements,
the Air Freight Forwarders Association (“AFFA”), and Emery
Air Freight.

REA has also filed a “motion for extension” that “requests
the Board to permit air express to continue until January 31,
1975, so that the express partners may be afforded additional
time for negotiations looking towards continuation of the air
express system.” Twenty-four of the 28 airlines pariicipating in
the air express system support REA’s motion,? as does the
National Small Shipments Traffic Conference, . United Air
Lines, AFFA and Emery oppose it.?

The Board has determined to deny REA’s petition for
reconsideration and motion for extension. However, for reasons
explained hereafter we shall delay the implementation of our
decision to terminate the air express arrangement until August 1,
1974.

1. We will grant the NSTC’s motion for permission to file its reply late.

2. The four airlines that did not join in that answer are Delta, North Central, Southern
and United.

3. REA’s motion for extension and the various answers in support of, or in opposition
to, the motion are accompanied by motions for leave to file otherwise unauthorized
documents. The motions for leave to file otherwise unauthorized documents shall be
granted, except for the motion filed on April 16 by the Brotherhood of Railway and
Airline Clerks (See, infra, n. 22).

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67a
Supplemental Order of CAB Dated May 6, 1974

¢ Teves é ROI LIOR FAK NET FAP oe |

y REA’s Pleadings ;

REA’s petition for reconsideration and motion for —
extension overlap in many respects. Neither takes issue with the
Board’s decision to grant REA domestic airfreight forwarder
authority (REA in fact has long sought such authority) nor in
terms seeks reconsideration of our decision to end air express.
Rather, both purport to urge no more than that the termination _
date of air express be extended, with the petition for —
reconsideration also asking that REA be given additional
authority in the interim period. In point of fact, however, REA’s
petition for reconsideration, and to a lesser extent, REA’s
motion for extension, contend that Order 73-12-36 is in error in
a host of respects.

Taken together, REA’s two pleadings present three basic
contentions:

First, that the record shows that air express will continue to
be a viable arrangement given appropriate action by the Board,
and that the continuation of air express would be in the public
interest.

Second, that circumstances arising since the close of the
record in this proceeding further evidence air express’s continued
viability and its importance to the public.

) Third, that even if the Board persists in its determination to
end air express service (and REA’s position as the exclusive

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68a
Supplemental Order of CAB Dated May 6, 1974

ground agent for air express), the termination date should be
extended by at least 18 months, and perhaps considerably
longer, and REA should be accorded dual air express-air freight
forwarder authority in the interim.

Each of those three arguments refers to the claimed
importance of air express’s priority rights to air cargo space, to
REA’s broad geographic and commodity coverage, and to
action the Board should take to enable REA and the air express
system to return to financial health. It is to those issues that we
now turn.

Priority Service

By joint agseement between all U. S. certificated route
carriers and REA, REA is the only indirect air carrier that is
accorded priority treatment.‘ We found that notwithstanding
this arrangement, air express generally is not faster than air
freight forwarder service and is often slower; that the priority
rights of air express service only rarely have any effect; and that
to the extent that extra-quick transportation and priority rights
are useful to shippers, they can best be provided by airline tariffs
so providing, without being tied, as they are now, to door-to-
door air express service offered solely through REA. REA not
surprisingly disagrees. REA claims that the priority service that
air express offers is important to shippers, and that it is
necessary to set back the termination date of air express at least

4. The agreement provides, however, that the airlines are required to give priority only to
a “normal” amount of air express traffic.

EEG INO ES ELLE LET IN EO RIB EE SS BBS LN ETI TS

69a
Supplemental Order of CAB Dated May 6, 1974

18 months, and perhaps indefinitely, in order to assure that
shippers continue to have priority service available.5 In part
REA’s claims in this respect are based on views previously
heard, considered and addressed by the Board. And while REA
also raises arguments not advanced earlier, none merit
reconsideration of Order 73-12-36.

REA argues that Order 73-12-36 is inconsistent because the
Order finds little value in air express’s priority feature but at the
same time determines that airlines are under an obligation to
offer highly expedited air freight service. We perceive no
inconsistency. The record shows that a priorty air cargo system
that enabled a shipper to purchase extra-quick service would be
valuable to some shippers (albeit a relatively small number). We
accordingly found that airlines are under an obligation to file
tariffs providing for such service.

That is not inconsistent with our finding regarding the
significant value of the priority rights of air express for the
reason that even with such priority rights, air express is not
particularly fast. Air express—with its priority rights-is generally
able to deliver a shipment no faster than a forwarder can using
non-priority air freight services.© The new service contemplated

5. REA also argues, at least implicitly, that because of the importance of air express’s
priority service, air express should not be ended at all.

6. REA claims one of the air express rules by which the airlines jointly divide up the air
express business is a cause of this paradox. REA's point, apparently, is that we should
have approved the continuation of air express, while conditioning our approval on the
elimination of that rule. We discuss this general consideration infra, p. 13..

POOR SOPVYV

70a
Supplemental Order of CAB Dated May 6, 1974

in the Order, on the other hand, will assure truly fast deliveries,
in large part because it will be a system that will benefit from the
competitive efforts both of the direct air carriers and of the many
forwarders who have made it their business to achieve the fastest
deliveries that direct air carrier operations permit.

REA next argues that recent circumstances specifically the
ongoing fuel shortage--require that air express service be
continued at least for the duration of that shortage. REA’s
theory apparently is that capacity reductions stemming from the
shortage have already and will continue to substantially increase
the likelihood that any given air freight shipment will be delayed
by reason of insufficient cargo space. Air express shipments will
not be delayed, the theory goes, because of air express’s priority
rights. Thus shippers who need prompt deliveries will benefit by
extending air express’s life for the duration of the shortage. REA
offers no factual support for its position, however, and reports
on file with the Board fail to establish a dearth of cargo capacity
stemming from the fuel shortage.’

Moreover, if it be assumed that the fuel shortage will
ultimately result in cargo demand outstripping cargo capacity,
the appropriate course is not to attempt to prolong REA’s

7. Thus in 100 of REA’s top markets (see REA Ex-209) air cargo load factors — that is,
percent of available air cargo space filled by air express, air freight, and mail — during
the three-month period November and December 1973, and January 1974, averaged
about 37%, up only about five points from the same period last year. These figures are
compiled from service segment data reported to the Board by the airlines. (January 1974
data are the last currently available.)

entities

Bl

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%
ie

Tla
Supplemental Order of CAB Dated May 6, 1974

monopoly over priority rights to cargo space. Rather, it is to
ensure that the airlines offer priority service to all. For if limit-
ations on airline capacity stemming from the fuel shortage were
in the months or years ahead ultimately to make it difficult to
obtain cargo space, it would plainly be contrary to the public
interest to perpetuate the present arrangement, in which those
shippers unable to accept the delays inherent in such
circumstances would have to deal with REA because of REA’s
exclusive right to priority treatment.

Geographic Coverage

REA argues that air freight forwarders will not be able to
match the geographic coverage now provided by air express.®
REA also claims that even if the Board remains of the view that
the forwarders have the wherewithal to expand their coverage,
termination of air express should nevertheless be delayed in
order to determine if the air freight forwarders will in fact
expand the geographic scope of their operations sufficiently, and
in order to give the forwarders the time to effectuate the changes
in their operations that such expansion requires.

Upon consideration of the pleadings, the Board has
determined that no error has been shown in the findings and
conclusions made in Order 73-12-36 concerning the geographic
coverage of air express and the forwarders’ abilities and
intentions.

8. We note, however, that REA’s authorization as an indirect carrier is not being ended,
but rather being changed from air express ground agent to air freight forwarder.

eee pipes ent ae Sate ce oe .
(te ea een nae - Sle TS ae MESA RCE SAEED BSE - Bspegens Fe

11. Similar considerations apply in respect to commodity coverage. In fact, the record is
even clearer that the airlines and the forwarders will be fully able and willing to
efficiently handle all of the commodities that now move on air express. REA claims that
transporting some kinds of cargo presents difficult operational problems, referring
particularly to the transport of live animals at a time when capacity has been cut because
of the fuel shortage. But REA adds nothing beyond that already considered by the Board
in Order 73-12-36 andaboveat p. 5 with the exception of a reference to a finding of a
Congressional! Committee (as reported in a newspaper article) that the Board and other
agencies should “monitor” domestic animal shipments. The Congressional document
cited indirectly by REA is a report of the House Committee on Government Operations,
House Rept. No. 93-746, “Problems in Air Shipment of Domestic Animals,” 93rd Cong.,
Ist Sess. (1973). As indicated, REA refers to the report as supporting its claim that air
express should be continued in order to assure proper treatment of live animals being
transported by air. In fact, however, the Report states that animals shipped by air
express apparently often fare worse than animals shipped via air freight, that there are
delays in the shipment of animals moving by air express, and that it appears that “REA é
in many instances is not equipped to handle animal shipments.” Moreover, the Report
specifically proposes that REA’s handling of animal traffic “be monitored”: Report at
pp. 9-11, 18.

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Rim DR GEN NY OORT, Sy NR oe aE

74a

Supplemental Order of CAB Dated May 6, 1974

Relative rate levels of air express and air freight

REA claims that a decision in the Rates case'? is needed to
provide a comparision between air express rates and the rates
offered by alternative services, and that the Board cannot
reasonably take action ordering the end of air express until the
conclusion of the Rates case.

The Board does not share REA’s views. To begin with, as
discussed in our opinion in the Rates case, the question of lawful
express rates for the future is now moot by reason of the Board’s
decision in this proceeding to terminate the air express
arrangement, and, accordingly, has not been considered in the
Rates proceeding by the Board.'?

Moreover, relatively low express rates, standing alone,
cannot be the basis for perpetuating the air express system (even
assuming that it could in fact be perpetuated). The Board
recognizes that in many instances air express rates for small-
package, short-haul shipments are less than air freight rates.
However, as we stated in Order 73-12-36, this factor does not

12. Investigation of Air Express Rates, Docket 22387.

13. We note that in any event it is evident that the record in the Rates case could not
provide a meaningful comparison between express and other freight rates. For, as Order
74-5-23 establishes, the record in that proceeding is woefully deficient, and, largely
because of REA’s failure to comply with evidence requests, does not contain basic
information needed for the comparison that REA now insists upon. In this connection,
AFFA, in its answer to REA’s petition, argues that the Rates case should be abandoned
because the record is stale. REA has moved for leave to file an otherwise unauthorized
reply to AFFA’s argument, in vhich REA strongly opposes abandonment of the Rates
case. The airlines have moved for leave to file an otherwise unauthorized answer in
opposition to REA’s reply. We shall grant the motions of REA and the airlines.

75a
Supplemental Order of CAB Dated May 6, 1974

outweigh other important public interest considerations that
point to the termination of the current air express arrangement.

We also note that in recent years air express rates have been
substantially increased a number of times.'* One result of these
increases is that in many instances it is now less expensive to
ship even the smallest package on an airport-to-airport basis via
the airfreight services of the airlines, and in some instances, the
forwarders. (More than 20% of all express shipments were
airport-to-airport shipments.)!*

Finally, we cannot accept REA’s argument that the Board
should wait and see what rates the airlines and forwarders will
publish for priority service before terminating air express. First,
as previously discussed, REA’s relatively low rates are not
sufficient reason, in and of themselves, for perpetuating the air
express system. Second, even apart from the Board’s power to
control rates, there is no basis for REA’s suggestion that the
rates for the new priority service will be unreasonably high. In
fact, as noted in Order 73-12-36, it is the Board’s view that
competition for priority shipments among the direct air carriers

14. In the past few years alone there have been numerous and substantial increases in air
express rates. In fact, since January 1, 1974, REA has increased its general commodity
rates by 10% and certain special commodity rates (and related minimum charges) far
more than 10%. The total additional revenue derived from these rate increases has
accrued almost exclusively to REA, and not to its express partner, the airlines.

15. Air express service has always been a door-to-door service under a single rate which
includes pickup and delivery service. Air express customers preferring to ship on an
airport-to-airport basis (to avoid the delays inherent in pickup and delivery services, for
instance) must nonetheless pay the full rate.

Sag Ray A AACN PEMA a ELE SI LE SIREN RE ORES SBOE!

oe |

76a
Supplemental Order of CAB Dated May 6, 1974

and all indirect air carriers, including REA, will result in an
optimum balance of price and service. Third, and as also
previously discussed, an extension of the life of the air express
arrangement would hamper the institution of the new, and what
we believe to be, superior, priority service.

Air Express’s Viability

As detailed in Part V of Order 73-12-36: (1) air express is a
joint arrangement that hinges on the maintenance of an
agreement between two parties (REA, onthe one hand, and, on
the other, the airlines as a group) whose interests have long been
divergent and are becoming ever more so, with the result that air
express service remains in chronic danger of being interrupted or
ended; (2) while the Board has sufficient authority to compel the
airlines to provide line-haul services for REA under an
arrangement that would resemble the present air express system
in certain respects, the Board could not insure that the airlines
would continue to perform ground services on behalf of REA
that are an integral and important part of the air express
arrangement; (3) REA, upon which the air express system
depends, is in serious financial trouble which could only be
alleviated, if at all, by a substantial increase in air express traffic
volume; and (4) the kind of traffic volume increase REA needs
could only occur if REA were granted expanded authority, but
that such authority would have a detrimental impact on the
public interest and, in any case, would not work.

As we understand the thrust of REA’s two pleadings insofar
as they deal with this aspect of Order 73-12-36, REA is arguing

” — .
'

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POSES Pe MERE 3 Me RE IE ARE SNES PEIN ON ERA SII EM AAD ELSA IT GRE RIT hae AE

77a

Supplemental Order of CAB Dated May 6, 1974

that the Board could and should have taken steps to increase the
chance of air express’s continued viability by imposing various
requirements, all beneficial to REA, on the airlines; that, as a
result of current developments, there is a greater chance that
REA and the airlines can work out their differences if given an
extra eight months to do so; and that since determinations to be
made in the Rates case will substantially affect REA’s continued
viability, it would be error on our part not to delay termination
of air express until a final order issues in the Rates case.

We turn first to REA’s argument that the Board’s earlier
approval of the air express agreements created “block bargaining
power” on the part of the airlines; that the airlines—utilizing that
power—have discriminated against REA; that the Board should
have acted to prevent that discriminatory treatment; that if
theBoard had in fact done so it would have gone far toward
returning REA and the air express toward viability; and that by
not doing so the Board has acted contrary to antitrust policy.

We cannot conclude that REA’s claims in this respect
require reconsideration of Order 73-12-36. The air express
agreements are plainly anticompetitive, and have the effect of
eliminating competition between airlines and excluding air
freight forwarders from various types of markets.’ As we have

16. REA takes issues with the Board’s characterization of air express as a monopoly. In
our view, however, REA’s arguments do not warrant our reconsidering our position in
this respect. First, as touched on above, REA’s unique arrangement with the airlines goes
far toward assuring that air freight forwarders will be precluded from serving the
country’s smaller air cargo markets. Second, as we also touched on earlier, of the many
indirect air carriers only REA (as air express’s sole ground agent) has a claim to priority

(Cont'd)

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78a

Supplemental Order of CAB Dated May 6, 1974

elsewhere discussed, the 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. REA
nonetheless argues that notwithstanding the foregoing, Order 73-
12-36 runs afoul of the antitrust laws by failing to order the
continuation of the arrangement, and that as part of its
“supervisory responsibility” the Board has to permit the air
express arrangement to continue while taking steps to protect
one of the willing participants to the agreement from its
partners.'? We cannot concur. 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.

(Cont'd)

treatment by the airlines. The fact that this exclusive right (granted by all of the
certificated route carriers acting jointly) does not seriously limit the air freight
forwarders’ ability to compete with air express shows only that an intended monopoly
service has for various reasons not worked that way in practice. Even here, however,
there is little doubt that some shippers distinguish between REA and other kinds of air
freight service — however mistakenly — on the ground that air express has priority
claim to cargo space. Moreover, REA’s exclusive claim to priority service could become
a matter of real significance if the fuel shortage were ultimately to result in cargo load
factors climbing to high levels. Further, the existence of air express tends to prevent the
institution by airlines of highly expedited service readily useable by air freight
forwarders.

17. REA argues that the Board’s decision to deny it independent tariff authority is
inconsistent with views expressed by the Board in the Air Freight Forwarder Case, 9
CAB 473, 486 (1948). In that case the Board noted that a dispute between the airlines
and REA could be eliminated if they agreed to participate in a system whereby REA
would publish an express tariff based upon charges imposed on REA by the airlines for

(Cont'd)

79a
Supplemental Order of CAB Dated May 6, 1974

Moreover, our power to require the airlines to treat REA in
any specified manner is in many respects limited. Thus the
Board can not force any party to enter into a contractual
relationship. In this regard, as discussed earlier, it is unlikely
that the airlines and REA would be able to work out an
arrangement continuing air express even if the arrangement were
approved by the Board as is. Imposing the kinds of new
conditions urged by REA would almost surely preclude
continuation of air express by reason of the unwillingness of the
airlines to become parties to an agreement so conditioned.

It is true that the Board probably could license REA to
operate independently of an airline-REA agreement, and could
compel the airlines to publish an air express tariff covering rates
to REA. But as Order 73-12-36 points out, we are unaware of
any authority by which we could require the airlines to continue
to provide the many ground services that they presently perform

(Cont'd)

their services to REA. The Board's views therein are not inconsistent with its decision in
this proceeding. First, the Air Freight Forwarder Case supports the airlines’ position
which, as noted by the Board in Order 73-12-36, is that the airlines should be permitted
to charge REA enough to cover their full costs. Second, Order 73-12-36 agrees with the
Board’s earlier conclusion that the Board does have the authority to permit REA to file
its own tariff based upon rates charged REA by the airlines. However, the Board
concluded in this proceeding that under existing circumstances a grant of the tariff auth-
ority REA seeks would not in fact serve to perpetuate the air express system in its
present form. REA also has argued during the course of this case that, as an alternative
to the beforementioned complementary tariff system, it should be permitted rate freedom
in the sense that it would publish the only express tariff and the airlines would receive a
division of the rates REA would charge to the public. It is in this sense that the Board
stated at page 27 of its Opinion that “. . . it is understandable that the airlines have
refused to enter into an arrangement whereby the rates to be charged for such shipments
would be within the control of another company (REA) whose interests and cost
structure vary considerably from those of the airlines.”

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on behalf of REA at so many of the nation’s airports. REA
points us to none and indeed does not dispute the concerns
expressed on this point in Order 73-12-36.

REA’s claims (in its motion for extension) that the June
termination date for air express ordered by Order 73-12-36
ought to be extended eight months in order to permit the airlines
and REA to work out their differences and arrive at a new
agreement. REA bases its request on, among other things, newly
instituted negoitiations between REA and the airlines, that,
according to REA, show signs of possibly bearing fruit.

We cannot agree to this request for postponement. In the
first place, the decision to end the air express arrangement was
by no means predicated on the inability of the airlines and REA
to come to an agreement. Our point was that any agreement
between the two sides would necessarily be unstable due to the
parties’ divergent interests. Moreover, even that was but one of
several concerns that led the Board to conclude that the air
express agreements should be ordered ended.

Second, there is no basis for concluding that there is any
real chance that REA and the airlines will be able to work out
the fundamental differences between them.'® All of the airlines
participating in the air express arrangement filed a pleading
supporting Order 73-12-36, and opposing REA’s petition for
reconsideration. Thereafter, 24 of those airlines appeared to
reverse course and supported REA’s motion for extension.

18. REA has so argued. See oral arg. tr. at 29-30.

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Supplemental Order of CAB Dated May 6, 1974

United, for one, argues that that change in direction by the 24
direct carriers is prompted more by the hope that an extension
would result in their collecting a greater percentage of the
amounts due them by REA than by matters more directly
related to the public interest. We need not speculate on the
motivations of those 24 carriers, however, since the fact of the
matter is that four airlines did not join in that response to REA’s
motion, thereby adhering to the position they espoused in the
airlines’ opposition to REA’s petition for reconsideration. In
1973, those four carriers — Delta, North Central, Southern, and
United — accounted for 35 percent of all air express traffic. Of
the 500 or so points in the United States receiving certificated air
service, about 100 receive such service only from one or more of
those four carriers.!8a

In these circumstances, we can only conclude that the
possibility of continuing the air express arrangement in anything
like its present form — that is, a consensual arrangement
providing broad geographic coverage — has not been shown to
be any less free from doubt than it was at the time of issuance of
Order 73-12-36, or that this state of affairs is likely to change for
the better by January or thereafter.

REA’s other argument in respect to continuing air express’
viability appears to be that REA’s financial problems — which

18a. Ft. Wayne, Ind. is served only by Delta and United; Meridian, Miss., by Delta and
Southern; and Flint, Lansing, Muskegon, and Saginaw/ Bay City/ Midland, Mich., by
North Central and United. Each of approximately 90 other points are served only by one
of the four carriers.

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have been a major source of weakness in the air express system
— could be greatly ameliorated if the division of air express
revenues between REA and the airlines were appropriately
adjusted in REA’s favor. REA points out that this question of
divisions is at issue in the Rates case and that accordingly the
Board cannot reasonably make any determination about the
viability of air express until the conclusion of that case.

We cannot agree, however, that delaying action here to
await the final outcome of the Rates case would serve any
purpose, much less benefit the public interest. To begin with,
and as discussed in our accompanying Rates opinion, the record
in the Rates case does not now permit a determination of
reasonable divisions, and it is not completely clear that it will
ever do so despite our order there.'? Further, as discussed in
Order 73-12-36 and concurred in by REA, in order for REA to
attain financial health as the air express ground agent it would
have to greatly increase its traffic volume. A change in divisions
would not be enough to render air express viable” unless it were
accompanied by extensive changes in REA’s authority that
would be neither feasible nor in the public interest.

The Mechanics of the Changeover

REA claims that it needs more than six months to change
from air express ground agent to air freight forwarder. It points

19. Of course that case will in any event consider division questions only on a
retrospective basis. Moreover, the authority of the Board to order divisions is itself
contested.

20. As noted earlier (at n.14 above), REA’s share of each dollar of air express revenue
has been steadily increasing. Yet the carrier's financial health remains unsatisfactory.

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to such matters as the need to instruct its employees in air
freight rates and the need for specialized equipment, including
containers, certain types of vehicles, and so forth. In our view,
however, REA has utterly failed to show that the six months
grace period granted to REA by Order 73-12-36 is insufficient. A
prompt switch by REA from air express ground agent to air
freight forwarder should present no undue difficulties. It is
already an air freight forwarder in international markets. REA
has long claimed it badly needs air freight forwarder authority,
presumably on the basis of careful consideration by its
management of how REA would conduct air freight forwarder
operations. It has its many long standing customers. It appears
that a very considerable portion of its buildings and equipment
are suitable for air freight forwarder operations. And its
management and employees are intimately familiar with the air
cargo industry. Moreover REA provided no factual support that
it needs more time.?!

For reasons expressed earlier herein and in Order 73-12-36,
the nation’s shippers will be better served when air express is
ended. For that reason prompt termination is in order. REA
claims that it will suffer badly if it has to switch to air freight
forwarder status on June 5.22 However, in our view, even if that

21. While its pleadings are replete with generalized allegations in this respect, we are
provided with no specific data that could lead us to conclude that we should reconsider
the determination in Order 73-12-36 that six months is sufficient time for the changeover.

22. On April 16th the Brotherhood of Railway and Airline Clerks sought leave to file an
answer in support of REA’s motion for extension, arguing that termination of REA’s air
express authority would cost many of REA’'s employees their jobs. REA’s petition for

(Cont'd)

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were the case, there has been no showing that REA would be in
a materially different position after a deferral than it is now.”

In sum, the evidence is that a prompt termination of the air
express system is in the public interest. However, the Board
appreciates the complexity involved in setting up a new priority
system for handling air freight. In this connection, we note that
while the airlines have met for the purpose of establishing a
priority system, they have not, as of this date, filed tariffs that
would offer priority service by June 5, 1974. In order to give the
carriers time to present the Board with a new system for priority
handling of air freight and file the appropriate tariffs, the Board
has decided to extend its approval of the air express agreements,
and REA's exclusive express authority, through July 1, 1974.

Cont'd

reconsideration also refers to the impact our decision would have on its employees, and
the Board has, of course, taken this consideration into account as a public interest factor,
but has found that the public interest will, on balance, be favored by the actions we have
ordered. Moreover, it is our belief that since the air cargo industry will be strengthened
by the termination of air express, the net impact on the industry's employees will be a
favorable one. Further, BRAC's position is predicated on the view that the possibility
exists that the present air express system can continue. However, we have concluded to
the contrary. Since BRAC is not a party, and has not shown good cause for late filing,
we shall deny its motion.

23. REA also claims that the airlines and forwarders, need substantially more than six
months to adjust to the Board's decision to terminate air express. Again, REA provides
no factual support for its claim and has otherwise failed to support its argument. In
fact, the airlines and forwarders, speaking for themselves, dispute REA’s contention, and
further state that they will have no difficulty making whatever adjustments are required
by the Board's order.

en

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Our decision not to extend the termination date of air
express as requested by REA to all intents and purposes moots
REA’s request for dual authority. Even apart from that,
however, we would not grant the authority REA wishes. As :
discussed in Order 73-12-36, such dual authority would present a '
variety of problems, including the possibility of serious '
confusion on the part of the public. Moreover the grant to REA

of dual authority would be a meaningless gesture since the
airlines have made it more than plain that they would not
continue to deal with REA as air express ground agent if REA
obtained air freight forwarder authority.

ACCORDINGLY, IT IS ORDERED THAT:

1. The petition for reconsideration and the motion for
extension filed by REA Express, Inc., be and they hereby are
denied;

PO ee ane age mee

2. The motion of the National Small Shipments Traffic
Conference for leave to file an untimely reply to REA’s petition
for reconsideration be and it hereby is granted;

3. The motion of REA Express, Inc., for leave to file an
otherwise unauthorized motion for extension, and the motions
of the Air Freight Forwarders Association, Inc., Emery Air
Freight, Inc., the National Small Shipments Traffic Conference,
the participating airlines, and United Air Lines, for leave to file
otherwise unauthorized answers to REA’s motion for extension
be and they hereby are granted;

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4. The motion of REA Express, Inc., for leave to file an
otherwise unauthorized reply to the answer of the Air Freight
Forwarders Association to REA's petition for reconsideration,
and the motion of the participating airlines for leave to file an
answer to REA’s reply, be and they hereby are granted;

5. Ordering paragraph “3” of Order 73-12-36 be and it
hereby is modified to read as follows:

“3. That the exemption authority of REA Express, Inc., to
conduct operations in air transportation initially granted by
Order Serial Number 941, dated March 13, 1941, as amended
(the most recent amendment authority being granted by
exemption Order E-22273, dated June 4, 1965) be and it hereby
is terminated on the date that REA commences air freight
forwarder operations pursuant to an authorization issued in
accordance with our decision herein, or on August 1, 1974,
whichever date occurs first;”

6. Except to the extent granted herein, all motion,
applications and requests involved herein be and they hereby are
denied; and

7. This Order shall be served on all persons on whom Order
73-12-36 was served, and the Brotherhood of Railway and
Airline Clerks.

TIMM, Chairman, GILLILLAND, Vice Chairman, and
MINETTI, Member, concurred in the above opinion and order.
WEST and O’MELIA, Members, did not take part in the

EDWIN Z. HOLLAND

Secretary

(Seal)

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CAB EXPRESS SERVICE INVESTIGATION DATED
DECEMBER 7, 1973

73-12-36

oO Te Ps parE geae

UNITED STATES OF AMERICA
CIVIL AERONAUTICS BOARD
WASHINGTON, D. C.

Docket 22388 }

EXPRESS SERVICE INVESTIGATION :

Decided: December 7, 1973 F

1. Agreements providing for air express service between .
REA Express, Inc., and participating scheduled airlines and '
among the participating airlines disapproved, and prior
approvals withdrawn. 4
bg

2. Exemption authority of REA Express, Inc., to conduct

air express service terminated. ;
3. REA Express, Inc., awarded air freight forwarder i
authority. '
4. Scheduled air carriers found to have obligation to offer F
priority service as part of their duty to provide adequate ;
interstate and overseas air transportation. :
:

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CAB Express Service Investigation Dated December 7, 1973

OPINION
BY THE BOARD:

1. INTRODUCTION

This is a proceeding to explore the role of express service in
air transportation. The crucial issue in the proceeding, from the
start, has been what action the Board should take in respect to
the indirect air carrier authority of REA Express, Inc., and the
related agreements between the various airlines and REA.

Administrative Law Judge James S. Keith concluded, after
presiding at a lengthy hearing on the matter, that express service
in its present form serves a useful public purpose and should be
maintained basically without change. In support thereof he
found (1) that there are important differences between air
express and other forms of air freight, i.e., that air express is
cheaper, faster, provides more comprehensive geographic and
commodity coverage, and enjoys the exclusive benefit of priority
treatment by the airlines; (2) that the present type of inter-airline
agreement and the type of agreement between the airlines and
REA are essential to the existence of air express service and
should therefore be continued; and (3) that REA is the only
qualified ground agency willing and able to enter into agreement
with the airlines to provide air express service, and should
therefore be continued as the exclusive indirect air carrier of
express.

By Order 72-6-27, June 6, 1972, the Board exercised its
right of discretionary review. Briefs were filed by Allied

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CAB Express Service Investigation Dated December 7, 1973

American Bird Co. (Allied), Bureau of Operating Rights (BOR),
REA Express, Inc. (REA) and Southern Pacific Air Freight,
Inc. (SPAF). The Air Freight Forwarders Association (AFFA),
Emery Air Freight Corporation (Emery), the National Industrial
Traffic League (NITL), and the Participating Airlines (airlines)
adopted their briefs to Judge Keith as their briefs to the Board.

The airlines generally agree with the findings and
conclusions of Judge Keith.

REA agrees with Judge Keith’s conclusions concerning the
utility of air express and REA’s role as the exclusive indirect
carrier thereof. But it contends that the judge failed to take steps
necessary to insure the continuation of REA and express service.
REA claims that if the Board maintains the status quo, as
recommended by the administrative law judge, it will not be able
to continue to provide service in many markets. In order to
avoid this result, it urges the Board to adopt three courses of
action. First, the Board should award REA permanent authority
as the exclusive indirect carrier of express. Second, it should
reform the airline-~-REA agreement so as to (1) eliminate rules
therein that require REA to divide up shipments among all
available air carriers; (2) permit REA to offer the shipping
public air express tariffs free of airline control; and (3) permit
REA to consolidate and containerize air express traffic. Third,
the Board should award REA air freight forwarder authority in
addition to its exclusive air express authority. In this respect,
REA maintains that it needs air freight forwarder authority in
order to spread the costs of air express over a greater volume
of business than air express is capable of generating.

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The two shipper parties, NITL and Allied, agree that there
is a need for air express service. NITL supports the findings and
conclusions of the Initial Decision. Allied wants the Board to
take steps to eliminate the threat of a discontinuance of air
express service resulting from the inability of the airlines and
REA to agree to terms.

BOR and AFFA urge the Board to cancel the air express
agreements and to terminate REA’s exemption. In their view: (1)
there are no material distinctions between air express service and
air freight service provided by the airlines directly or by the
forwarders indirectly, and that accordingly, there is no basis for
affording REA different regulatory treatment from the
forwarders; (2) the present air express arrangement is otherwise
contrary to the public interest. BOR and AFFA generally agree
that there is a need for air freight services of a highly expedited
character to handle freight involving life or death commodities,
highly perishable products, or articles that must reach
consignees particularly rapidly for various reasons. To
accommodate this type of traffic, BOR recommends that the
direct air carriers file tariff rates and rules providing for
whatever special handling may be required. Such tariffs would
be available not only to the air freight forwarders and the
general public, but also to REA, which should be given air
freight forwarding authority under Part 296 of the Economic
Regulations. '

1. Emery and SPAF generally agree with the BOR position. However, Emery
would limit the high priority tariff to “humanitarian commodities” and those critical to
the national defense. SPAF is willing to accept BOR’s proposal, but, if the concept of air
express is maintained, SPAF urges that a limited number of forwarders now offering an
express type service also be granted air express authority.

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CAB Express Service Investigation Dated December 7, 1973

Oral argument has been heard, and the case stands
submitted for decision.

Il. SUMMARY

Earlier Board decisions established air express as a separate
service, apart from all other air cargo services, and granted REA
a monopoly to conduct that service. For some time, however,
REA’s operations have been on the brink of extinction. In the
first place, the very existence of express service today is wholly
dependent upon a 1970 court decree requiring REA and the
airlines to continue service. Not only have the parties been
unable to agree on the terms of express service, but their long-
smoldering disputes threaten to erupt again in the future, thus
jeopardizing the express scheme. Secondly, REA is financially
impoverished and, by its own statement, does not want to
continue service under the present regime.

The real issue, therefore, is not whether to continue the
separate service known as air express, but whether to attempt to
change it — or to replace it entirely. Neither choice is inviting.
The first alternative requires strengthening REA’s monopoly
position at the expense of the airlines and forwarders and, quite
likely, shippers as well. The second alternative is to let air
express become part of the general air cargo business and, by
licensing REA as a forwarder, allow REA and other forwarders
to serve all or most of this market, probably at somewhat higher
rates. Either alternative entails some risks and uncertainties
about the future. As we see it, the latter choice is the best
available to us.

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CAB Express Service Investigation Dated December 7, 1973

REA seeks to expand its present authority because it cannot
continue air express service unless it returns to profitability. To
accomplish this, REA insists that it not only be allowed to
maintain its stranglehold over air express, but also be given an
air freight forwarder’s license. But the Board cannot find that
REA’s possession of dual air express-air freight forwarder
authority would be in the public interest. On the contrary, it
would place REA in a position to dominate the entire indirect
air carrier industry, with consequent adverse impact on the
development of air freight. It would cause serious confusion for
REA’s customers as to nature of the services any given
shipments would receive. And it would divert REA’s energies
away from small shipment, small community, service.

In any event, REA’s partners in express service, the airlines,
have served notice that they would refuse to enter into an air
express agreement if REA acquires dual authority. So this
option is not available as a practical matter.

In addition, REA wants the Board to reform its express
agreement with the airlines so that REA would have ratemaking
powers free from airline veto. That request is neither feasible nor
desirable; it would only breed a host of new problems. Again,
independent rate authority would simply divert REA’s energies
away from small shipment, small community traffic. It would
present insoluble regulatory problems since the data needed to
evaluate proposed rate changes would not be available. And it
would increase the likelihood of sudden disruption of service
resulting from inreconcilable differences arising between the

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CAB Express Service Investigation Dated December 7, 1973

airlines and REA. Finally, to the extent REA’s proposal could
be put into effect, the likelihood is high that the grant of
independent ratemaking authority would not increase REA’s
traffic enough to make REA profitable again.

Because of these reasons, REA cannot be given the
authority it seeks — unless the chance that it could thereby
continue its separate express service is so vital that it outweighs
all other considerations. That is not the case. For, as this
nation’s general air freight industry has grown and developed,
many of air express’ historical advantages have withered away.
No longer is air express faster than general air freight service.
The priority status of air express shipments rarely has any
impact, and in any event, shipper requirements for priority
service can best be made by airline tariffs specifically intended to
meet those needs. Finally, in terms of geographical and
commodity coverage, few (if any) points, and no commodities,
will go unserved as a result of the termination of air express. In
sum, an end to air express will not deprive the public of any
unique services.

‘
|
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}

*

This decision marks a change from the Board’s 1948
conclusion that “the public interest requires the continuance of
[REA’s] air express service.”? That finding, which was not meant

2. Air Freight Forwarder Case, 9 C.A.B. 473, 483. Even at that time, the airlines
regarded the REA arrangement as temporary “until the airlines as a group were ready to
take over all express operations.” See National Air Freight Forwarding Corp. v. C.A.B.,
197 F.2d 384, 388 (D.C. Cir. 1952). In 1955, without a full-fledged re-examination about
whether an express service (separate from air freight) was still needed, the Board
continued REA’s authority on the ground that, at that time, “There is no substitute
available * * *.” Air Freight Forwarder Investigation, 21 C.A.B. 536, 564, 630. Of
course, even after REA’s express authority terminates, the airlines remain free at all
times to provide express service themselves.

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to be binding for all time, reflected the infant state of the new air
freight industry. Until 1944, all air cargo was carried as air
express. The first airline began carrying air freight (as distinct
from air express) that year; and the first forwarders were
authorized to begin operations in 1948. Standing then at the
beginning of a new era, the Board could not know that twenty-
five years hence REA would be nearly destitute, that the newly-
authorized forwarders would be offering fast, comprehensive
service, that REA would be unwilling to continue nationwide
express service except with drastically expanded authority, and
that the likelihood would be low that REA could continue its
existing service even were that new authority to be granted. As a
result of these developments, the Board no longer has the option
to continue express service in the format contemplated in 1948,
and consequently, cannot reach the same conclusion.

In contemplating air express’ demise, the Board is aware
that this service offers the lowest nongovernmental rates? to
many small-package shippers. This would be a compelling
reason to continue air express if that were possible. Indeed, the
Board has given serious thought to inviting the parties to
continue operations under the present contractual arrangements.
Even if REA were willing, however, it would be forced to curtail
many of the present services which have justified keeping air
express as a separate service. And once REA is reduced to
paralleling those services which airlines (and forwarders) already
provide, the airlines’ continued willingness to support REA as

3. U.S. Postal Service rates are often lower than those of air express. See p. 23, n.
W, infra.

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both a partner and a competitor is open to doubt. Moreover,
although REA might somehow muddle through for awhile, it
would only be postponing the inevitable collapse. For, under :
any arrangement satisfactory to the airlines, REA cannot cure
its financial plight. And, if REA gains basic advantages it seeks,
it cannot avoid rancorous disputes with the airlines. Whether or
not the arrangement is revised, express service will remain in
chronic danger of sudden suspension.

The time has come to lay a solid groundwork for a .
dependable small-package service. That is not possible so long as i
REA’s express service continues to exist. For, while REA
continues its monopoly, and offers its low rates, air freight t
forwarders cannot economically afford to expand into REA’s
special markets and offer competitive small-package service.
Once air express markets are opened to all, including REA,
small-package shippers will have the chance to gain the benefit
of a truly dependable service. And they will be released from the
constant threat that the only available service will suddenly
disappear.

In the long run, we believe, this result will best serve both
the public and REA. Once REA becomes an air freight
forwarder instead of an express carrier, it will be freed of
artificial constraints and have a genuine opportunity to
rehabilitate its finances. Moreover, once the express monopoly
ends, both airlines and freight forwarders will be encouraged to

) fill any service voids and to achieve, as a result of competition, a
more optimum balance of price and service.‘

4. Except to the extent modified herein, we adopt as our own the findings and
conclusions of Judge Keith.

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Ill. BACKGROUND

Air express is one of the three types of federally regulated
air-cargo® service available to the shipping public today.° It is a
service of the scheduled air carriers’ and REA, and is provided
pursuant to two interairline agreements. The first (Agreement
CAB 12866) organizes the airlines into a collective unit for the
purpose of dealing with the matter of air express service and
with REA (the “ground agent”) through an authorized Air
Express Negotiating Committee. The second (Agreement CAB
17935) joins the airlines and REA (the chosen ground agent)
into a type of partnership for the provision of air express
service.2 Under the Air Express Agreement, it is the
responsibility of the airlines to provide airport-to-airport service
for a “normal” amount of air express on a priority basis, and it
is REA’s obligation to provide various ground and
administrative services. However, at the airports where REA has
no airport field offices (approximately 85 percent of the air
carrier airports in the country, the air carriers perform all
ground services (such as transfers between aircraft, routing of
shipments, receiving and delivery over-the-counter shipments,

5. We will here use the term “air cargo” to include both air express and air freight.

6. The others are airline air freight and air freight forwarder air freight.

7. At the time of hearing, 31 U.S. carriers (including two helicopter operators and
three all-cargo carriers) and two foreign-flag carriers (Air Canada and Air France) were

parties to the air express agreement with REA.

8. The agreement between the airlines, on the one hand, and REA, on the other,
will sometimes hereafter be referred to as the “Air Express Agreement.”

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and paperwork). The airlines estimate that 28 percent of all air
express shipment handlings occur at these airports.

Air express offers broad geographic and commodity
coverage, and a relatively simple rate structure that is designed
to be particularly attractive for small shipments moving
relatively short distances. While door-to-door service is provided
without extra charge, a substantial percentage of air express
shipments move on an airport-to-airport basis because of the
delays inherent in pickup and delivery service. Because the rate
structure for air express is constructed on a weight and mileage
block basis, air express rates do not take account of market
density considerations or the rates of competing carriers. Air
express rates are generally not affected by the nature of the
commodity shipped.

The last Air Express Agreement to receive Board approval
was entered into in 1964 and expired on June 30, 1969. After a
delay due to a change in ownership of REA,'® negotiations
between the airlines and REA on a new agreement were

9. The Air Express Agreement contemplates, however, that REA will perform the
billing and claims handling and also the paperwork for shipments picked up or delivered
or received at REA’s non-airport terminals.

10. For nearly 40 years REA was owned and controlled by the nation’s railroads.
However in 1969 the railroads sold their controlling interest to REA Holding
Corporation, a newly-organized company owned by management officials and outside
investment firms. At the time of hearing, the holding company owned 99.2% of REA’s
stock and the fractional balance was owned by two railroads. The railroads have an
option to buy back 19.8% of REA's stock by July 1974. The holding company also owns
all of the stock in The Express Company, Inc., which has recently been awarded
international air freight forwarder authority. See Application of the Express Company,
Inc., For International Air Freight Forwarder Authority, Orders 72-10-60 and 72-12-43.

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undertaken,'' but proved fruitless. Finally, on April 4, 1970,
REA filed a Petition and Complaint with the Board (Docket
22096) indicating that the differences between it and the airlines
were so basic that they could not be satisfactorily resolved
without Board intervention. The airlines answered by stating
that the termination of the air express agreement was preferable
in their view to an agreement that would constitute a surrender
to REA's demands. The instant investigation was instituted on
July 23, 1970, partly in response to the parties’ inability to settle
their differences informally. However the dispute continued
unabated thereafter. REA refused an airline offer to extend the
agreement beyond July 31, 1970 (the expiration date of the last
agreed upon extension), and the airlines responded by
embargoing all air express shipments, effective midnight on that
date. At this point various shipper groups sought and obtained
court orders that required the airlines and REA to continue air
express operations pending a determination in this proceeding
and a contemporaneous investigation of air express rates in
Docket 22397.!'a

The parties are now operating under an interim agreement,
scheduled to expire 60 days after the date of the final orders in
both cases. It is likely, therefore, that but for the court orders
and these investigations, there would have been no interim
agreement, and, hence, ro air express service.

Turning to REA, it operates as both an ICC-regulated
surface express carrier, and as the airlines’ express service

11. The parties agreed to extensions of the 1964 agreement during the talks.

Ila. Investigation of Air Express Rates (hereafter the “Rates” case or proceeding).

Bl

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CAB Express Service Investigation Dated December 7, 1973

ground agent. It has run into trouble in both areas. Its surface
traffic has declined from about 47 million shipments in 1967 to
15 million shipments in 1970. Since REA’s farflung organization
depends on a large volume of traffic for its viability, the decline
in surface traffic has put heavy pressure on REA’s air express
functions. But REA’s air express traffic, while not suffering
continuing declines comparable to its surface traffic, has not
been increasing rapidly either, in marked contrast to the air
freight traffic of air freight forwarders.

Express and Air Freight Traffic,'? 1960-1970
(Thousands of tons)

Calendar REA Direct Air Air Freight
Year Express Carriers Forwarders

1970 122 2,145 640 ]
1969 124 2,049 $12
1968 1 136 1,830 391
1967 121 1,564 295
1966 118 1,442 239
1965 110 1,266 218 t
1964 96 1,004 163

1963 84 827 128
1962 82 769 110
1961 73 N.A. 98
1960 70 $22 N.A.
Percentage In- :
crease Five 3% 49% 168%

Years 1966-1970

12. Air parcel post figures for the 1960-1970 period are difficult to utilize because of
definitional changes in the 1960's. However, for three years 1968-1970, air parcel pest
shipments increased from about 123,000 tons to about 185,000 tons.

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Largely as a consequence of the foregoing, REA’s financial
position has deteriorated drastically.'? It has survived in recent
years only by selling off capital assets amounting to $48 ,000,000,
and at the present time its saleable assets are virtually exhausted.

IV. AIR EXPRESS WILL FILL NO UNIQUE SERVICE
NEEDS

Notwithstanding REA’s perilous condition, the
Administrative Law Judge recommended that air express be
continued because he thought that it provided a unique service.
Insofar as the Law Judge viewed air express as irreplaceable
from the standpoint of service convenience, we cannot agree. In
the early days of air freight, air express did possess many service
advantages over conventional air freight. Many of those
advantages no longer exist; others are likely to disappear soon;
and the remainder can be achieved through other means.

A. Speed of delivery and priority treatment.

REA and its supporters have long claimed that air express
service is unique in that: (1) it is faster than other forms of air
cargo transportation, and (2) its priority rights insure that a
shipment will travel on the earliest flight out. In fact, however,
air express generally is not faster than air freight forwarder
service, and is often slower; the priority rights of air express

13. REA’s net worth in 1970 was minus $26,000,000. Its last profitable year was
1965, when it earned about $1,000,000. Since then (through 1972), it has lost about
$68,000,000.

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CAB Express Service Investigation Dated December 7, 1973

shipments only rarely have any effect; and to the extent that
extra-quick transportation and priority rights are useful to
shippers, they can best be provided by airline tariffs so
providing, without being tied, as they are now, to door-to-door
air express service offered solely through REA.

Air express is not faster. The weight of the evidence of
record establishes that air express is not unique in providing
expeditious service to the public; other forms of air freight
provide service that is as fast, or faster than, regular express
service. Indeed, even the airlines, a partner and strong supporter
of continuing the express arrangement, concede this point and
for good reason. Shippers use air transportation to save time,
and the forwarders, among others, appreciate that in their
competitive environment they must provide fast and efficient
service in order to survive. Consequently, the forwarders have
developed services and operational techniques that are —
comparable, and in some instances superior, to express service:
(a) both types of service provide for the shipment to be picked |
up and placed aboard aircraft the same day, and to be delivered :
at destination the “next day,” when airline schedules —
reasonably permit, otherwise the second day; (b) forwarders, like
REA, tender shipments to the airlines throughout the day to
achieve maximum speed of delivery; (c) express service does not
provide for faster ground handling; and (d) as we shall discuss —
shortly, the priority feature of express generally has no
significant effect upon the movement of air cargo. 4

14. A shipment that is delivered within 48 hours of the time that it had been picked 7
up is considered to be a “next-day delivery” in industry usage. See Initial Decision at 39.

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Elapsed time surveys conducted by the parties support the
conclusion that air express is simply not faster than air freight.
While these surveys have a number of failings,'’ they
nevertheless do indicate that in the nation’s major markets, at
least, REA’s services do not produce an elapsed time
distinguishable from other air freight services. The results of
these surveys are set forth at 39-41 of Judge Keith’s Initial
Decision. Summarized here, the surveys showed that the
majority of air express and air freight shipments received next-
day service, and nearly all shipments received at least second-day
service. Indeed, Emery’s survey showed that Emery provides
faster door-to-door service than REA; and REA’s own survey,
using REA’s own standards, corroborates Emery’s.'®

Priority treatment rarely has any impact. The air express
arrangement has long provided that the airlines will give space
priority on aircraft to express shipments. In 1948, when air
cargo space was very limited, the Board found that priority was
a distinguishing characteristic of air express. But circumstances
have changed. While the amount of cargo moving by air has
increased dramatically, the amount of cargo space operated by

15. See Initial Decision at pp. 39 and 48.

16. REA’s figures indicate that both REA and Emery achieved identical first-day
performance (45.8%). However, at the hearing it was established that Emery’s
performance was even better since a number of shipments, not reported by REA, were
also delivered on the first day. Tr. 2670. More specifically, REA’s survey indicates that
Emery achieved comparable first-day service, and faster second-day service (i.e., 92.3%
of Emery’s shipments were delivered by the end of the second day, as compared to 87.5%
for air express).

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CAB Express Service Investigation Dated December 7, 1973

the airlines has increased even faster.!’ Thus the problem today
is not finding cargo capacity, but filling it.'* A survey conducted

17. As illustrated by the table below, the percentage of available cargo capacity that
now goes unused is high:

UNUSED CARGO CAPACITY, Scheduled Domestic Service
(Fiscal Year 1973)

All carriers in scheduled

domestic service 70.5%
Trunks and Pan American 72.5
All Cargo Operations 39.9
Local Service Carriers 74.7

In large part this is due to the vastly increased cargo capacity of present-day aircraft, as

listed below:
Post 1955* Combination Pre-1955* Combination
Aircraft Aircraft
Aircraft Type Cargo Capacity Aircraft Type
(Cubic Feet) (Cubic Feet)
B-747 6,250 DC-7 750
L-1011/DC-10 3,000 DC4 350
DC-8 / B-707 1,350 Constellation 450
B-727-200 850 DC4 250
DC-9 600 DC-3 85

* The Board’s last formal review of air express was in 1955.

18. See Motor Carrier-Air Freight Forwarder Investigation, Opinion on Remand,
69-4-100, pp. 11-12; Household Goods Air Freight Forwarder Investigation, 72-7-33, pp.
4-5.

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by the airlines, and submitted into evidence in this proceeding,
shows the effect of the plethora of cargo capacity on the value of
the priority aspects of the air express. Of the flights surveyed,
only one out of every 58 (1.7%) departed without sufficient space
to accommodate the cargo tendered for the flight."

Thus the utility of the priority provisions in the air express
agreements is very limited, as even REA conceded elsewhere.”°
Moreover, as we now discuss, shipper requirements for priority
service can best be met by airline tariffs specifically intended to
meet those needs.

High Priority Tariff. The evidence before us shows that
notwithstanding the considerations discussed above, highly
expedited service that gets priority treatment is useful to various
shippers, and that they use air express to satisfy these
requirements. Upon consideration of the record herein, we find
ourselves in agreement with those shippers that there is a need,
albeit a very limited one, for service of that nature. We have
further concluded that such a need can and should be met
through the publication of high-priority tariffs by the various
direct air carriers. We discuss this matter more fully below,?' and
only note here that as a result of this determination shippers

19. Of 37,500 flights surveyed, 650 left cargo behind because of full cargo holds.
Noting that the survey was conducted during a non-peak traffic period, the Law Judge
intimated that more cargo might be denied boarding in holiday and other peak seasons
(1D. 33, 48, 52). On this record, however, it would be speculation to assume that the
percentage of flights departing with cargo holds full during peak periods is materially
different than the figures resulting from the airlines’ survey.

20. See Initial Decision, Rates Proceeding, at page 38.

21. At pages 38-39.

Becta A ioe “= SS NRA GET ANN READABLE PINS OER RR Sy See na TRAE PAT RITA RN SAIL 20S DTI

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CAB Express Service Investigation Dated December 7, 1973

52 ENS eH Oe AOS AR

ee al

interested in priority status for their shipments will be able to get
it from both the direct air carriers and air freight forwarders,
and REA’s monopoly over such service will be ended.

Cie,

Ben Mme Riess

B. Geographic Coverage.

REA, like the direct air carriers and the air freight
forwarders, does the vast bulk of its business in a relatively few :
large markets.?? Nonetheless, while REA is under no mandate to
serve any given point, REA has long provided broader
geographic coverage than the direct air carriers or any air freight
forwarder. Previous Board decisions approving the air express
system were based, in part, on this factor.

On the other side of the coin, as we weigh the evidence of
record, few (if any) points would go unserved as a result of the
termination of air express service. To begin with, the direct air
carriers offer air freight service, including pickup and delivery
service, to and from virtually every air carrier airport city, and
its environs, in the United States.?3

Suet cas

The larger forwarders also offer service to virtually every air
carrier airport city, and serve about as many cities with exclusive

22. For example, REA’s own exhibits show that 6 cities produced 56% of its total
air express shipments, and only 4% of its combined offices produced 82% of its total air
express shipments. Similarly, they show that 87.4% of REA’s gross O&D revenues come
from only 6.5% of the thousands of offices it claims it has. See Exhs. 2EA-T-8, p. 4;
REA-202, p. 2; REA-205 and REA-212. See also Exhs. AFFA-R-11.

23. As a general rule, direct and indirect carriers may file tariffs providing for
pickup and delivery service within twenty-five miles of an airport, or the city limits of a
certificated point, whichever is larger. The vast preponderance of the U.S. Population
lives and works within 25 miles of the nation’s 500 air carrier airports.

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en ls Le OU RT SPT rare Mereng

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CAB Express Service Investigation Dated December 7, 1973

stations** as does REA: 66 for Emery, 56 for Airborne, and 69
for REA. When the forwarders’ intermodal service is added to
the picture, their systems are comparable to REA’s. For
example, two of the larger forwarders offer coordinated air-
truck service to approximately 17,800 points beyond airport
terminal areas.25 In fact, the larger forwarders now have
authority from the ICC that permits them to provide pickup and
delivery service at any point in the U.S., provided only that
some part of the movement is by air. Accordingly, the
forwarders have ample regulatory authority to offer nationwide
geographic coverage.

Secondly, it is our judgment, based upon the evidence of
record and the history of the air freight forwarder industry, that
many (if not all) gaps in geographic coverage resulting from a
termination of air express will be quickly filled by freight
forwarder expansion. The record is replete with evidence of air
freight forwarder plans to that effect.26 And air cargo industry
economics make it most likely that those plans will bear fruit.

24. REA operates only 69 airport field offices with its own employees. Of this total,
37 are operated exclusively by air express employees, and 32 are operated by REA
employees engaged in both surface and air express activities. As indicated previously,
airline employees, rather than REA employees, perform the airport terminal functions
normally associated with air express shipments at all other airports.

25. Exhs. EAF-T-2 and AFFA-100, 101.

26. For example, Emery states that if REA discontinues operations, it will bridge
resulting gaps in air freight service. Thus it testified:

“Emery is prepared to assume [the responsibility in] its present
tariff to provide [transportation for] all of the commodities that are

(Cont'd)

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CAB Express Service Investigation Dated December 7, 1973

But even if forwarders cannot expand as expected, they can .
surely match REA at those communities which Rea could 3
continue to serve in the future. For REA’s historic broad ‘
geographic coverage is clearly a relic of the past. Not only is 3
REA already consolidating its service, but it must soon retrench
if it is to survive. As REA concedes, it will pull out of many
small communities unless it can improve its profitability by
means of expanded authority.2” Elsewhere we explain why REA
cannot be granted the new authority it seeks and that, in any
event, that authority would not cure its financial woes. Suffice it
here to say that no community will lose air cargo service solely
because of our action.

(Cont'd)

PEE TINA

presently found in the current air express tariff, and further to add
all of the points that are not presently in Emery’s air freight
forwarding tariff in order that there can be a continuation of the
same type, scope, commodity and points of service as is presently
contained in REA’s air express activities. We believe that the air
carriers themselves would file some sort of a complementing tariff
similar to their air freight tariff that would provide the underlying
air carriers with the same sort of service to be held out to the public
and to be used by air freight forwarders in the event of demise of
REA.

RE EISEN ES EI LEERY RTE Lt Et

“Such would be an airport-to-airport tariff, . . . there would not be
any gap in continuation of the type of air express service in the
event that REA disappears.” EAF Brief 19-20; Tr. 2663-2664.

PERLITE SOA TIME RY OA ONE MOM,

moar:

Similarly, Airborne states that if the Board permits it to offer express-type service,
such as we are proposing to do herein, it will convert its 141 destination agencies to
outbound generating points. This, of course, is in addition to its 56 airport offices. It
further anticipates that in one year it would set up a total of 400 generating points for
both conventional air freight and high priority traffic. AFFA also states that other
forwarders represented by it contemplate similar expansion in their service if they are
authorized to offer an express-type service. See, e.g., Tr. 2261-2262; Exh. AFFA-LR-16.

ey

27. For the same reasons, REA will reduce the number of commodities for which it
offers service.

PIE SA LSD TR RL ORME OS

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C. Commodity Coverage

As discussed above, termination of air express would not
reduce the geographic coverage of air cargo. Similarly, no
commodity presently moving by air will be precluded from
continuing to do so as a result of our decision herein.

REA presentlycarries onlyabout 18 more items than do the
airlines and the larger forwarders. (Thus for all but a fraction of
the millions of shipments moving in air transportation, REA’s
commodity coverage is coextensive with that of the forwarders
and the airlines.) Moreover not even these few commodities will
lose service as a result of the ending of air express.28 REA, as an
air freight forwarder, will be fully authorized to continue to
handle all of the commodities, and provide all of the services, it
presently offers. In any event the record shows that even were
REA to turn away from such business, it would be handled by
the direct air carriers and other air freight forwarders.

By way of example, we consider the carriage of live animals
and birds, and security services (items singled out for special
emphasis by the administrative law judge). We appreciate that in
the past many shippers of animals and birds were dependent
upon air express, since REA provided the only extensive door-
to-door service for these commodities. As to the future,
however, it is apparent that other air cargo services should fully
meet the needs of these shippers. The airlines have recently
included live animals and birds in their pickup and delivery

28. As noted above, REA will be forced to reduce the number of commodities for
which it offers service if the present air express regime is continued.

NATED tenor

— SF GTER SS Pmt SR ROR ORR A RR OMT A ALPEN OME, ONE SIO ODN CER E MIDIS EDL BES SHAE
Pee
8

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CAB Express Service Investigation Dated December 7, 1973

ERENT RT a

) service. And the forwarders have stated that they plan to provide ;
similar services of their own. (The airlines and forwarders are
demonstrably fit to handle such shipments and have done so in
the past.) Additionally, there is no evidence in the record that
there will be any harm of grievous delay to birds and animals if
they are shipped via air freight rather than air express. Shippers
of birds, for example, have stated that they now use air freight
service to transport birds to quarantine areas, and use air
express for further distribution. In the future these shippers
should be able to use either the forwarders, including REA, or
the airlines for the entire operation.

iE CG Ot gm

LOE AISI LOE LI NEARER IE I EIGES BEE NRE EIN Fs

Similarly, there will be no injurious hiatus in the |
transportation of valuables or other commodities covered by :
REA’s security services. For one thing, Emery has demonstrated ¢
that it would provide this service if the express category of
freight is abolished. For another, the air freight industry has
reached a stage of development where specialized forwarders are
now providing security service comparable to REA’s.”9

In sum, as we read the evidence before us, no community %
will go unserved as a result of the termination of air express, and
no commodity will be precluded from moving by air. The record
also shows that transit time for REA shipments does not vary
materially from that of shipments handled by air freight

29. See, e.g., Orders 69-3-31, 69-5-50, and 71-7-53. The last-named order refers to

Wells Fargo Air Express (WFAX), which states in this proceeding that it will specialize »

in express-type transportation of currency, coin, gold and silver bullion, securities, jewels

and other valuables. Tr. 1711, Exh. WFAX-T. Its exhibits suggest that its service will be *
similar to, and in some respects superior to, REA’s. Furthermore, we note that another
well-established security specialist, Brink's Inc., has recently applied for air freight

forwarder authority, and indicates that it intends to provide extensive services similar to

those offered by Wells Fargo. (Docket 25687) 3

erence

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CAB Express Service Investigation Dated December 7, 1973

forwarders, and that, in any event, highly expedited service by
the direct air carriers is feasible and, indeed, is part of their duty
to provide reasonable transportation.

In all these ways, in other words, cessation of air express
service will have no material impact on the public.

V. THE PRESENT SYSTEM CANNOT BE MAINTAINED

In many markets air express offers lower rates for small-
package shipments than do either the direct air carriers or the air
freight forwarders.*° This fact constitutes a compelling argument
for continuing the service if such continuance were feasible.
However, based upon the record in this proceeding and many

30. See Initial Decision of Administrative Law Judge Shapiro in the Rates case.
Since the date of that decision air express and air freight rate levels have changed
substantially. On an overall basis, both have increased. Comparisons of present air
express rates (rounded to the nearest dollar) with the present and proposed priority mail
rates are as follows:

SS. > i OT LRT iT AMAR, ee”

Weights 300_miles 1,000 _miles 1,800 miles

5 Ibs. air express $12 $12 $12
present postal 3 3 4
proposed postal 3 3 4

> ie air express 12 13 16
present postal 7 9 i
proposed postal 6 8 9

25 Ibs. air express 12 16 20
een 12 14 18
proposed postal 10 12 1s

Postal service is not available for some shipments, however, because of commodity and
size restrictions, lack of pick-up service, etc.

De oe oe

“a

pa WERE et LS oe METAR ETH BE AMI ORL ELIE PRE AGP Vm NEEL 2 OE SRR Bae - i

pF SN

7
Illa :
4
>
a

CAB Express Service Investigation Dated December 7, 1973

years of experience with the present arrangement, we are
convinced that the basic realities of the situation offer no
practicable way of retaining the present air express arrangement.

PATI R HS

Air express is a joint arrangement that hinges on the
maintenance of an agreement between two parties whose
interests have long been divergent and are becoming ever more
so. Indeed, air express is currently being operated solely by
virtue of a court order preventing termination of the underlying
agreement pending the conclusion of this proceeding. The
airlines, on the one hand, and REA, on the other, have been
unable to agree even on the basic question of what share of air
express revenues each should get. Disagreement here hinges not
only on what cost accounting theories should be used to
determine each party’s share, but also on the accuracy of raw
cost and traffic figures.>!

24 SHORTT PME RAR NTIN D> othe oy tree wm Uet

ROL ar.

Moreover, ongoing changes in the industry are adding to
the sources of friction between REA and the airlines. The
airlines are becoming increasingly commited to the air freight f
business and not surprisingly have exhibited a strong interest in i
restricting the attractiveness of air express, in which revenues :
have to be split with REA, to traffic holding little interest for the
airlines: small shipments moving door-to-door. REA, on the ‘
other hand, faced with loss of substantial volumes of traffic in its :
traditional markets as a result of changes in postal regulations
and the growth and development of the air freight forwarder
industry, has been demanding changes in its relationship with

31. See, e.g., Judge Shapiro's Initial Decision in the Rates case, and the airlines’ and
REA’s briefs to the Board in that proceeding.

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the airlines, and in the air express rate structure, designed to
permit air express to compete successfully for much of the traffic
that is now moving by the airlines’ air freight services.

While the Board can regulate aspects of air freight service, it
would be difficult (if at all possible) for the Board to force the
parties to consent to conduct air express operations under the
present system when they cannot come to terms. It is probably
true that the Board could license REA to operate independently
of an airline-REA agreement, and could compel the airlines to
publish an express service tariff covering rates to REA. But,
absent an agreement between the parties, there is no way to
insure that the airlines will be willing to continue performing all
the ground services at those airports — 85 percent of the total —
where REA has no airport field offices.*? Consequently, no
matter what the Board does in this proceeding, nationwide
express service will remain in chronic danger of being
interrupted or terminated as a result of eruptions of differences
between the two sides.*

Further, the air express system depends upon REA's
viability, and REA is in deep financial trouble. Its liabilities far

32. Even at major airports where REA has field offices, the airlines perform

33. As noted earlier, the existing interim agreement terminates 60 days after the
final order in this proceeding.

34. Judge Keith found that if air express is to be continued without substantial
interruption of service, there are no alternatives beyond the utilization of REA as the
ground agency for the airlines We agree Among other things. while all of the air freight
forwarder parties are applicants for air express authority, none 1s willing to relinquish its
air freaght forwarder authonty to enter into an arrangement with the airhnes on the same
basis as REA. Sec, in this regard, pages 31-32 infra

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CAB Express Service Investigation Dated December 7,

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385609_0098%3A1. Public record. Not legal advice.