Appendix — Hughes Tool Co. v. Trans World Airlines, Inc.
Supreme Court brief1973
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INDEX
: 4 Volume I
st of Relevant Docket Entries
. Complaint [Doc. 1] A-1
, Referring This Action to Judge Metzner for
il Purposes, dated August 31, 1961 [Doc. 42] ... A-33
mn n and Order of December 5, 1961 [Doc. 50) A-35
a rial Order, February 7, 1962 [Doc. 59] ............ A-36
pole ’s Answer and Counterclaims [Doc. 63] ........ AAl
piliday’s Answer [Doc. 83] . A-99
wtrial Order, July 12, 1962 [Doc. 101] —.......... A-116
fetrial Order, September 21, 1962 [Doc. 122) ....... A-118
fetrial Order, January 10, 1963 [Doc. 144] ........ A-129
Order, January 19, 1963 [Doc. 146] .......... A-127
pin ion and Order of Special Master dated January
"a2, 1963, Exhibit C to Bromley Affidavit dated
bruary 15, 1963 [Doc. 179] A-133
thibit A to the Affidavit of John F. Sonnett, dated
February 1, 1963 [Doc. 166] A-143
Rhibits B and C to the Affidavit of John F. Son-
bett, dated February 1, 1963 [Doc. 167] —......... A-226
tr Order, February 1, 1963 [Doc. 168] ........ A-253
inion and Order, February 7, 1963 [Doc. 173] ..... A-255
cl p0’s Notice of Position, dated February 8, 1963
Doc. 174] A-268
at
mecript of Pretrial Hearing, Februgry 8, 1963
5. 188]
sript of Pretrial Hearing, May 2, 1963 [Doe.
A-ii
Opinion and Order, dated May 3, 1963 [Doe. 191] .... A317
Opinion and Order of May 3, 1963 Granting Addi-
tional Defendants’ Motion to Dismiss (memoran-
dum endorsed on motion papers dated February
15, 1963) [Doc. 179B] A232
Judgment of the Court of Appeals on Interlocutory
Appeal, Entered July 10, 1964 [Docket No. 28405]
[Doc. 478] A3%
Judgment of the Court of Appeals Affirming Dis-
missal of the Counterclaims, Entered July 10,
1964 [Docket No. 28406] [Doce. 479] A326
Opinion of the Court of Appeals in Dockets No.
28405 and No. 28406 [Doc. 478] A328
Opinion and Order of Special Master J. Lee Rankin,
dated July 30, 1965 [Doc. 481] A-357
Opinion and Order of Judge Metzner, dated Novem-
ber 16, 1965 [Doc. 487] A-396
Transcript of Hearing Before Judge Metzner on
December 30, 1965 [Doc. 498] AA
Opinion and Order of Judge Metzner Denying De-
fendants’ Motion for a Pre-Hearing Order, dated
January 4, 1966 [Doc. 496] AA22
Order by Judge Metzner of January 4, 1966 Desig-
nating Herbert Brownell as Special Master in
Place of J. Lee Rankin [Doc. 497] AAA
Volume II
Excerpts from Testimony at Damage Hearing of
Robert W. Rummel [Docs. 554-2 through 554-10] A425
Testimony at Damage Hearing of John B. Connelly
[Doc. 554-11] A-9TT
—
A-iii
Volume III
PAGE
Excerpts from Testimony at Damage Hearing of
Edward J. Morehouse [Does. 554-13, 554-14] .... A-1209
Excerpts from Testimony at Damage Hearing of
Edward Wemple [Docs. 554-15 through 554-18,
554-32] A-1243
Excerpts from Testimony at Damage Hearing of
John C. Biegler [Doc. 554-19] A-1527
Volume IV
Excerpts from Testimony at Damage Hearing of
Gene M. Woodfin [ Does. 554-23, 554-24] 0... A-1567
Excerpts from Testimony at Damage Hearing of
Nathan S. Simat [Does. 554-25, -26, -27, -28, -30,
31] A-1575
Excerpts from Testimony at Damage Hearing of
L. John Hichner [Does. 554-31, -32] A-1727
Testimony at Damage Hearing of Van Court M.
Hare, Jr. [Doc. 554-32] A-1773
Excerpts from Pretrial Deposition of Robert W.
Rummel [Docs. 224, 225, 226] A-1797
Excerpts from Pretrial Deposition of Charles C.
Tillinghast [Docs. 210 through 222] .................... A-1850
Excerpts from Pretrial Deposition of Emmett O.
Cocke [Docs. 228, 231, 233, 235] A-1913
Jones v. Uris Sales Corp.—Master’s Report [not a
part of the Record herein] A-1934
Volume V
Notice of Filing of Report of Special Master dated
September 21, 1968 [Doc. 509] A-1965
Report of Special Master, Filed September 21, 1968
[Doe. 508] A-1966
A-iv
PAGE
Defendants’ Objections to the Report of the Special
_ Master, dated November 1, 1968 [Doe. 511] A-1967
Opinion and Order, Filed December 23, 1969, Adopt-
ing and Confirming the Report of the Special
Master [Doce. 519] A-227
Opinion and Order of April 13, 1970 Awarding
Attorney’s Fee and Costs [Doce. 530) oon. A-2060
Final Judgment Entered April 14, 1970 [Doe. 531] .. A-2073
Volume VI
Toolco’s Notice of Motion to Dismiss TWA’s Com-
plaint, August 8, 1961 [Doc. 22] A-2075
Order by Judge Herlands, dated August 14, 1961
[Doe. 25] A-2077
Transcript of Pretrial Hearing Before J udge Metz-
ner, September 6, 1961 [Doc. 47] A-2078
Pretrial Order of Judge Metzner, September 7 , 1961
[Doc. 44] A-2112
Transcript of Pretrial Hearing Before J udge Metz-
ner, October 2, 1961 [Doc. 48] A-2115
Pretrial Order of Judge Metzner, December 18, 1961
[Doc. 354] A-2138
Tooleo’s Notice of Motion Before Special Master
J. Lee Rankin, February 15, 1962 [Doc. 66] ........ A-2140
Transcript of Pretrial Hearing Before J udge Metz-
ner, February 23, 1962 [Doc. 79] A-2141
Orders of Special Master J. Lee Rankin, April 17,
1962, contained in excerpts from transcript of
deposition of Charles C. Tillinghast, Jr. [Doc.
217] A-2176
Interrogatory Propounded by TWA to Tooleo, May
4, 1962 [Doc. 89]
A-2197
PAGE
Interrogatory Propounded by TWA to Raymond M.
Holliday, May 4, 1962 [Doc. 90] A-2203
Transcript of Pretrial Hearing Before Judge Metz-
ner, May 17, 1962 [Doc. 96] A-2206
Portion of Transcript of Proceedings Before Spe-
cial Master J. Lee Rankin, June 4, 1962 [Doc.
218] A-2233
TWA’s Notice of Motion and Affidavit of John F.
Sonnett, June 25, 1962 [Doc. 305] A-2234
Affidavit of John R. Hupper, July 2, 1962 [Doc.
315] 7 A-2240
Transcript of Pretrial Hearing Before Judge Metz-
ner, July 12, 1962 [Doc. 107] A-2245
Pretrial Order of Judge Metzner, July 23, 1962
[Doe. 103] A-2267
Pretrial Order of Judge Metzner, July 24, 1962
[Doc. 93] A-2268
Transcript of Pretrial Hearing Before Judge Metz-
ner, July 26, 1962 [Doc. 113] A-2270
Affidavit of Robert G. Zeller, August 28, 1962 with
Exhibits A-K [Doc. 110] A-2283
Memorandum Reviewing the History of TWA’s Ap-
plication for Permission to Propound an Inter-
rogatory of Hughes Tool Company Concerning
the Location of Howard R. Hughes, August 30,
1962 [Doc. 106] A-2297
Transcript of Pretrial Hearing Before Judge Metz-
ner, September 6, 1962 [Doc. 355] A-2305
Afidavit of John F. Sonnett, September 14, 1962,
and Exhibits C and D thereto [Doe. 117] _......... A-2316
Portions of Transcript of Proceedings Before Spe-
_ Gal Master J. Lee Rankin, September 15, 1962
[Doe. 226] A-2382
A-vi
PAGE
Transcript of Pretrial Hearing Before Judge Metz-
ner, September 19, 1962 [Doe. 129] A-239)
Portions of Transcript of Discovery Proceedings
Before Special Master J. Lee Rankin, October 25,
1962 [Doce. 226] A-2428
Transcript of Pretrial Hearing Before Judge Metz-
ner, October 29, 1962 [Doc. 184] A-2438
Notice of Motion by Tooleo, December 4, 1962, for
Leave to Depose Sessel and Wadsworth [Doc.
338] A-2461
Transcript of Proceedings Before Special Master
J. Lee Rankin, December 14, 1962 [Doc. 237] .... A-2462
Transcript of Proceedings Before Special Master
J. Lee Rankin, December 28, 1962 [Doc. 237] .... A-2514
Transcript of Pretrial Hearing Before Judge Metz-
ner, January 9, 1963 [Doc. 185] A-2523
Transcript of Proceedings Before Special Master
J. Lee Rankin, January 14, 1963 [Doc. 237] ........ A-2571
Notice of Motion by Tooleo, January 14, 1963 [Doce.
145] A-2574
Transcript of Pretrial Hearing Before Judge Metz-
ner, January 17, 1963 [Doc. 186] A-2576
Notice of Motion by Tooleo, January 22, 1963 [Doe.
147] A-2602
Transcript of Proceedings Before Special Master
J. Lee Rankin, January 23, 1963 [Doc. 237] ........ A-2603
Notice of Motion by Tooleo, January 25, 1963 [Doe.
152] A-2615
Transcript of Pretrial Hearing Before Judge Metz-
ner, January 28, 1963 [Doc. 187] A-2616
Letter of Chester C. Davis to Judge Metzner, Jan-
uary 29, 1963 [Doec. 448] A-2642
A-vii
Letter of Chester C. Davis to Special Master J. Lee
Rankin, February 4, 1963 [Doc. 458] .................... A-2645
Lefer from John F.. Sonnett to Chester C. Davis,
February 5, 1963 [Doc. 459] A-2647
Notice of Motion by Toolco, February 6, 1963 [Doc.
170) z A-2648
Affidavit of Nazeeh Habashy, February 6, 1963 [Doe.
172] A-2649
Transcript of Pretrial Hearing Before Judge Metz-
ner, February 6, 1963 [Doc. 187] A-2650
Afidavit of Bruce Bromley, February 15, 1963
[without exhibits] [Doc. 179] A-2676
Affidavit of William C. Chanler, February 15, 1963
[Doc. 179] A-2689
Order to Show Cause dated February 16, 1963, and
Affidavit of John F. Sonnett, February 15, 1963
[Doc. 180] A-2692
Transcript of Pretrial Hearing Before Judge Metz-
ner, February 21, 1963 [Doe. 189] A-2704
Order of the Court of Appeals for the Second Cir-
cuit dated June 6, 1963, Granting Leave to Appeal
and Staying Damage Hearing Pending Appeal .. A-2736
Orders of the Supreme Court of the United States,
dated November 16, 1964 Granting Writs of Cer-
tiorari A-2737
Orders of the Supreme Court, dated March 8, 1965,
Dismissing the Writs of Certiorari as Improvi-
dently Granted in Hughes Tool Company et al. v.
Trans World Airlines, Inc., Nos. 443 gnd 501 .... A-2738
Opinion of the Court of Appeals dated September 1,
1971, in Docket Nos. 34902, 35114, Affirming with
: — the Judgment of the District
A-2739
is eee
PAGE
Orders of the Court of Appeals, dated September
28, 1971, Denying Petitions for Rehearing and
Rehearing in banc A-2799
Volume VII
PAGE
Excerpts from Transcript of Deposition of Charles
C. Tillinghast, Jr. [Excerpts from Does. 54, 210,
211, 216, 221] A-2800
Vol. 11 of Defendants’ Exhibits to Deposition of
Charles C. Tillinghast, Jr. (consisting of Ex-
hibit 11, with subparts 11-A through 11-T, inclu-
sive) [Doc. 238] A320
Opinions and Orders of the Civil Aeronautics Board
with respect to the Hughes Tool Company—TWA
Control Relationship, as follows:
(a) CAB Opinion and Order No. 3210, October
17, 1944 (officially reported at 6 C.A.B.
153) [not a part of the Record herein] .... A-3297
(b) CAB Order No. 4437, January 26, 1946 ... A-3307
(c) CAB Order No. E-922, October 29, 1947 .... A-3309
(d) CAB Opinion and Order No. E-1735, June
30, 1948 (officially reported at 9 C.A.B.
381) [not a part of the Record herein] .... A-3311
(e) CAB Opinion and Order No. E-4701, Oc-
tober 6, 1950 (officially reported at 12
C.A.B. 192) [not a part of the Record
herein] A-3333
(f) CAB Opinion and Order No. E-16195, De-
cember 29, 1960 (officially reported at 32
C.A.B. 13638) A-3408
A-1567
Excerpts From Testimony at Damage Hearing
of Gene M. Woodfin
[Tr. 6838] °° * Mr. Sonnett: I understand, but
I propose to spend a little time on this.
Q Under the heading “Jet Aircraft,” it reads:
“TWA’s major U.S. airline competitors have an-
nounced that they have ordered jet aircraft for de-
livery beginning in 1958. The cost of jet aircraft
will greatly exceed that of the latest models of
piston-engine aircraft (although they will have
greater speed and capacity) and their use will require
substantial investments in ground equipment and
will pose major problems relating to operations, traf-
fie control, maintenance and airport availability.
“TWA has placed no orders for jet aircraft, but
its management believes that it will be necessary for
TWA to operate such aircraft if it is to maintain
its competitive position and that the cost of the re-
quired aircraft, spare parts, and engines will ex-
ceed $320,000,000. Accordingly, TWA is making
plans for the operation of Boeing 707 and Convair
880 jets.
[Tr. 6839] “Hughes has placed orders, under con-
tracts assignable to TWA, for 15 Boeing 707-131
aircraft, 18 Boeing 707-331 aircraft, and 30 Convair
880 aircraft, for delivery beginning in 1959. These
contracts are subject to modification as to number
and model of aircraft covered and as to specifica-
tions of the aircraft, including seating capacity.
Hughes is not committed to sell any of these aircraft
to TWA, nor is TWA committed to buy any of them
_ from Hughes. Any such transaction between TWA
* and Hughes requires approval of the Civil Aeronau-
ties Board.
A-1568
W oodfin—Cross
“One of TWA’s a ie turbo.
prop aircraft and others have ordered such aircraft,
TWA has not ordered such aircraft, but is consider.
ing these and other types of new aircraft for future
use.”
Assuming those statements set forth in the registration
statement or prospectus were correctly made, would you
have advised TWA at the time to engage in the financing
which, in fact, it did engage in in 1957?
A. Well, if I may say so, the financing in 1957—and |
don’t know that this question has ever been put to
(Tr. 6840] me, but the purpose of the issue appears in the
prospectus. It also appears in the digest and DHR Trans
World Exhibit No. 7. This money was to pay for planes,
the Lockheed 1649 and spare parts, which it had, and to
pick up some additional bank borrowing on money that it
had to have at that time.
This was not intended to be a financing to cover $32),
000,000 worth of jets. They were on order—I would judge
from what I read here that they were using the Hughes
Tool Company credit to get a place in line to have these
planes ordered.
And I would not necessarily have advised any financing.
at all at that stage of the game if Hughes was content to
pay the down payments which I think run about 10 per cent
of the purchase cost on these over a period of time until, as
the pressure got a little stronger for Hughes Tool Com-
pany, you could hope to have a better climate for financing.
Mr. Morehouse didn’t want to do any financing during
this period of time either, and I don’t think I would havé
in 1957.
Q. So that, in your opinion, the financing in June of 1957
was not in the best interests of TWA and you would not
have so regarded it at the time?
A-1569
Woodfn—Cross
[Tr. 6841] A. I didn’t say that, Mr. Sonnett.
I said they had to have that financing—they were in
trouble—to pay for their 1649’s.
I thought you asked me and I apologize if I misunder-
stood, if I would have advised them to have done a financ-
ing which would contemplate the financing of $320 million
af jets in 1957. I did not intend to say that it was not
necessary to have the financing of the some $43 million at
that time to pay for planes that they had and were re-
Q. If you would assume, Mr. Woodfin, that every state-
ment of fact set forth in the prospectus before you had
been true, would you have advised TWA to go ahead with
this financing in June-of 1957?
A. I don’t think any of those facts set forth there would
be germane to the problem of whether or not you needed
the money to pay for the airplanes. If they take the air-
planes away, you had to do something. You didn’t have
bank credit. You would owe the bank $55 million. You
would come to a point where you had to do some financing.
The principal shareholder says, “I will put my money
out.” The minority come along. I think this is one of those
times you reach when you’ve got to put the [Tr. 6842]
‘money up.
Q. Are you saying that the decision would have been
made by Hughes and not by the management and that you
had to accept whatever decision Hughes made?
A. Well, I’d say this: I’d say that, if the management
desided it wanted to have this offering and they talked to
Mr, Hughes, who owned—and let’s asyme the most inde-
pendent, competent management you want to assume, but
We've still got to make some assumptions about ownership,
fad if he says, “I am not willing to subscribe to my part
Wit” I don’t think you could have done it.
as
a * * . + .
A-1570
Woodfin—Cross
[Tr. 7200] The Special Master: I believe yon in.
timated before leaving aside any question of motives,
that the program of financing that was actually car.
ried out by TWA is a reasonable one within—while
men might reasonably have differed whether to do
some of this in 1955 or 1956 or 1957, that even in
retrospect, the actual financing program was within
the realm of good business judgment.
(Tr. 7201] The Witness: If Hughes hadn’t been
there they would have been in serious trouble, be.
cause they ran into deep operating troubles starting
in—I don’t know whether it is operating trouble. But
they started losing money.
You see, the start of 1955—1955 was a bad year for
TWA. They were down from $10 million earnings in
the previous year to the $5 million at the end of 1955,
and each quarter was getting progressively worse
in comparison to the preceding year. Contrary to
American, Pan American and United, they lost
money in 1956. The other companies made money
in 1956. They lost money in 1957. They lost money
in 1958. It wasn’t until 1959 that they started making
a little money again.
By this time, of course, their chances of any big
equity financing other than with Hughes’ help or any
big borrowing had disappeared and continued to be
more difficult to do from the very date that they had
the May financing or June financing, whenever it is
—it doesn’t tell us precisely—in 1955, because the
market went down like a rock from then, from then
on down the road, and their earnings went down.
A-1571
Woodfn—Cross
(Tr. 7259] * * * Q. Addressing ourselves again to page
9 of your report, the last sentence of the paragraph, the
first paragraph under (e) reads:
“Mr. Morehouse is assuming, contrary to our view,
that the common stockholders would double their
holdings in TWA when they could at best expect only
a nominal rate of return for the foreseeable future.”
Bearing that in mind,—
{Tr. 7260] A..I mean by “nominal rate of return,” of —
course, TWA was paying no dividend. This was a nominal
rate of return on the additional equity that was invested.
We would assume they would put it in tax—in govern-
ment notes or short-term governments or something so
they could get some return on it.
The Special Master: It would be the corporation
that could only expect a nominal return?
The Witness: Yes, the sentence is poorly drafted.
By Mr. Sonnett:
Q. With respect to that statement, let us consider the
1957 TWA common stock offering. That was a one-for-one
offering, I think, as we have already established, was it not?
A. Yes, completely underwritten by Mr. Hughes when
the company was in dire straits for money after loss years
1956, 1957, and in a very bad year in 1957.
Q. The subscription price of the 1957 offering—
A. $18.
Q. (continuing) —13 when the market was 14—
A. That’s correct.
‘Q (continuing) —what better expectation could the
tlockholders of TWA have in 1957 than presumably they
had [T'r. 7261] or would have had in 1955?
a:
A-1572
Woodfn—Cross
A. Well, they would have had very little, except they
were getting much closer to the jet age. At that time they
had the ‘equipment to pay for which they had on hand
There was a very definitive use for the money. And I am
sure it was an unhappy financing. It is not one that one
would have wanted to undertake, unless it was required,
Q. Do you recall the number of shares of the 1957 offer.
ing which were made available to stockholders other than
Hughes?
A. Well, I can’t tell you precisely, but it was—Hughes
at that time owned about 74 per cent, as I recall. So it is
about 25 per cent of 3.3 million.
The Special Master: Was your question offered
or taken up?
The Witness: Offered.
Mr. Sonnett: Offered.
By Mr. Sonnett:
Q. Our figure is 860,894 shares were made available to
stockholders other than Hughes.
Do you know how many of those shares were subscribed
for by others than Hughes?
A. Well, approximately three-fourths.
[Tr. 7262] Q. About 75 per cent, then?
A. That’s correct.
Mr. Sonnett: Would you mark this—
The Witness: 75 per cent of the 25 per cent.
Mr. Sonnett: Correct.
Will you mark these two letters, one July 9, 1957
of TWA to the Hughes Tool Company, and the sec-
ond July 11, 1957 of the same subject matter to the
New York Trust Company as the next exhibit, A
and B?
A-1573
Woodfn—Cross
(Letter dated July 9, 1957, from TWA to Hughes
Tool Company, marked TWA Exhibit 267A for iden-
tification as of this date.)
(Letter dated July 11, 1957, from TWA to New
York Trust Company, marked TWA Exhibit 267B
for identification as of this date.)
Mr. Sonnett: I will offer these in evidence.
Mr. Leisure: I will object to them, until there is
some questioning that would indicate their relevance.
The Special Master: I think they are relevant. I
will admit them.
[Tr. 7263] (TWA Exhibits 267A and 267B for
identification received in evidence as of this date.)
By Mr. Sonnett:
Q Referring to 267B, you note the statement therein,
do you not, that:
The Hughes Tool Company had purchased 45,917
shares of the common stock. This was out of the
portion made available to stockholders other than
Hughes and not subscribed for by Hughes.
Is that correct?
A. That’s true, plus the 170,900 shares which Merrill
Lynch bought for their account.
Q. Is it your understanding of the 1957 TWA financing
that the Hughes Tool Company was required to purchase
those 45,000-odd shares? A
A. I'd have to look at the prospectus again. I don’t be-
lieve they were, but I’d like to see the prospectus.
Q That is Exhibit 194.
A. They had to provide them with a minimum of $34
nillion, And I—and they had purchased the $34 million
A-1574
Woodfn—Cross
inimum. 'The 45,000 shares they didn’t have to Pick up,
if they didm’t want to.
The Special Master: That is the way I [Tr. 7264]
read it.
By Mr. Sonnett:
Q. Do you know the number of shares that Hughes pur.
chased through the exercise of rights which he had pur.
chased on the open market?
A. 170,000 shares, I would presume.
Q. 170,900?
A. 900 shares.
Q. Is that about right?
A. Yes, sir. I guess that—that’s the only way I know he
could have gotten them. Merrill Lynch bought the rights
and that would account in my mind for the offering being
as well subscribed as it was because it gave the rights some
value.
Q. Was he obliged under the financing to purchase the
rights?
A. Well, he was obliged to buy $30 million—up to $34
million worth. Which way he chose to do it, Mr. Sonnett,
I wouldn’t want to comment on, because whether that would
encourage other people to come in or not it was probably
helpful. Certainly they were unexercised rights that he had
to pick up or could pick up in addition to that.
Q. Could, not that he had?
[Tr. 7265] A. That he could, yes, 45,000. Nobody was
knocking the door down to take it all.
Q. That was not surprising in light of the then financial
situation of TWA in 1957, was it?
A. No, it wasn’t at all.
A-1575
Excerpts From Testimony at Damage Hearing
of Nathan S. Simat
{Tr. 75371 ° * * Q. Are you a member of any profes-
sonal society exercising disciplinary supervision over its
members ? ,
A. There are various professional societies to which I
belong, which exercise a small measure of disciplinary con-
trol over the members of the society, but I would not say
that I belong to any society that has either licensing prac-
ties or an examination practice or anything of that char- .
acter.
Q. What professional societies do you belong to, Mr.
Simat?
A. American Economic Association, American Statis-
tical Association, Institute of Management Sciences, several
others.
Q. Are there any others that you regard as relevant to
what you are doing here?
A. Yes. I belong to a Regional Planning Association
vhich I think covers the same kind of transportation matter
that is generally covered in this report. * * *
{Tr. 7708] * * * The Special Master: Are we
ready, then, to go ahead with Mr. Simat’s cross-
examination?
Mr. Hayes: I suppose the first step here—
Mr. Tenney: Is to move to strike it.
Mr. Hayes: (continuing)—would be to substitute
the corrected pages which havé been supplied for
the pages in the exhibits as originally presented.
That is Exhibits 271A and B for identification.
A-1576
Simat—Cross
All of the material that you required Mr. Simat tp
present has, according to Mr. Tenney’s letter, been
transmitted to plaintiff’s counsel, and in view of the
corrections, I think the best procedure would be to
consider the corrected pages substituted for the
original pages.
We have submitted the corrected pages. None
[Tr. 7709] of us, including our own office, has a copy
of the report with the corrected pages in lien of, and
we will endeavor to get copies for your convenience
whereby you will be ablé®o tell at a glance what the
original page was as well as the corrected page. We
just didn’t have the time to get that out before this
morning.
The Special Master: On that you are now offer.
ing—
Mr. Hayes: To substitute corrected pages for the
pages in the original report.
The Special Master: It will be received on the
same basis as the original submission.
Mr. Tenney: Mr. Brownell, may I be heard on
that?
The Special Master: Yes. “y.
Mr. Tenney: As I stated in my letter to you,
which defendants received a copy of on Friday, we
wish to renew our motion to strike the original
report, in which case there is no point in receiving
these changed pages in evidence.
I might start out by saying we disagree strongly
with Mr. Hayes’ statement that we have been given
what you said we were to be given.
(Tr. 7710] In aid of that motion, I would like,
first, a little additional voir dire of Mr. Simat, if!
may.
The Special Master: You may proceed.
A-1577
Simat—Cross
Mr. Hayes: I might call to your attention the
sentence in your letter to the effect that in the course
of the following weeks, most, if not all of the mate-
rial necessary to understand the data used and the
nature of the computations was finally made avail-
able. I am taking you at your word.
Mr. Tenney: I will explain that, Mr. Hayes.
Voir Dire Examination
By Mr. Tenney:
Q I imagine you realize, Mr. Simat, that you are still
mder oath, although you have not been resworn.
A. I understand.
Q You will recall your testimony in this hearing on
July 24, 1967. That was the day when I examined you on
the format and preparation of this report, Defendants’
Exhibits 271A and 271B, which I will call your report, and
I moved to strike it.
In recalling that testimony, do you wish to change any
of the testimony which you gave that day?
(fr. 7711] A. No.
Q. Specifically, you testified extensively that as source
material for your report—and I am talking about the report
it was originally filed—not about the report as you have
ww changed it—you testified that as source material you
wed TWA’s employees’ timetables, which are already in
evidence in this proceeding, corrected from certain filings
vith the CAB called transmission sheets, and you expressly
that you did not use the Official Airlines Guide. Cita-
tions for that are 7538 and 7542. ms
De you recall that testimony?
A. Yes.
Q Do you wish to change that testimony?
A No.
“a
A-1578 q
Simat—Cross
Q. Another specific instance, you testified quite exten.
sively about the so-called SLURP program and yon testi.
fied that this was used at Operations Research, Ine—ye
have called it ORI—and you were quite explicit about that
Do you wish to change that testimony?
A. I have since determined that Operations Research,
used not the version of the SLURP program that I thought
they were using, but a canned program which they obtained
(Tr. 7712] from IBM, which they had modified to include
certain features of the SLURP program. So I was mis.
taken in that respect.
Q. Would you care to give us the title of that canned
program?
A. No, I don’t have the title of the canned program. |
will be glad to furnish it to you.
Q. You also testified rather extensively towards the end
of that day that these operations were performed either
under your—
The Special Master: Read the citations for that
last point into the record also.
Mr. Tenney: It was explicitly covered at the
pages following page 7544.
The Special Master: Thank you.
By Mr. Tenney:
Q. You also testified towards the end of that day that
these operations were performed either under your super-
vision or by others with careful checks being made by you
For example, you talked about some hand-checking of
the computer work which I had the impression you per-
formed personally.
A typical example is at pages 7670 to 7672. I {Tr. 7712]
think there are others.
A-1579
Simat—Cross
Do you care to change your testimony on that?
Please remember, I am talking about your report as it
was originally filed, not as it has been changed or your try-
ing to change it now.
A. I frankly am not aware that I testified that I had
performed hand calculations personally. Hand calcula-
tions were performed by my organization.
If I testified to the effect that I personally performed the
hand calculations, I may have overstated my exact role.
I did perform some hand calculations, yes.
Q. Firgt, I would like to pursue the question of the Offi-
cal Airlines Guide and the employees’ timetables.
Mr. Simat, I have here—and I would like to go over in as
much detail as is necessary to make my point, but I don’t
think it will take a great deal of detail—the employees’
timetables effective January 10, 1961 for TWA, a copy of
the Official Airline Guide, showing the January 1961 time-
tables for TWA, and I would like you to look at Table I,
Book 1 of your computer printouts and find what you have
given us as the January 1961 timetables for TWA sched-
ules.
This is one that we looked at as a spot check.
(Tr. 7714] I would like you to examine them and see if
you can determine whether that schedule was taken from
the employees’ timetables or from the OAG.
I think you will find, because of the Convair 880 schedules
in January of 1961, that it quite clearly was taken from
the OAG.
A. Excuse me. May I have the flight number read back
again, please?
Q. Any Convair 880 flights.
A. Any one?
A-1580
Simat—Cross
Q. Any Convair 880 flights, or all.
A. What the comparisons indicate, that while there j
no Convair 880 flights shown in the Official Airline Guide
there are Convair 880—Convair flights shown in the en,
Ployees’ timetables and there are no Convair 880 flights
shown in our schedules here.
(Tr. 7715] * * * The Witness: May I point ont
in this connection, Mr. Tenney, that we have on re.
checking the schedule information transcriptions
found many errors and that we have, in fact, cor.
rected these errors, we believe, in our most reeent
runout of the schedule information.
And you will find in the revised data that informa.
tion for the Convair 880 schedules in this period js
reflected.
' (Tr. 7716] By Mr. Tenney:
Q. I am exploring the question of what your source
material was for your original report that you testified to
on July 24th, Mr. Simat.
‘A. Let me make this clear again, Mr. Tenney, that our
instructions were that the final source of all schedule in-
formation was the employees’ timetable.
This was the source to which all information was pre-
sumed to have been checked before it went into published
form.
Now we have found many errors, and apparently these
are included.
But let me also point out to you that before publishing
our previous report that we made every effort to ascertain
whether the errors in the schedule information were con-
sequential and our test checks indicated that the informa-
tion that we had transcribed if it was not entirely accurate
)
A-1581
Simat—Cross
was nevertheless very close to the actual experience of
TWA, and that revision of the information would not
result in any material changing of the findings and con-
dusions.
_ Mr. Tenney: We selected January of 1961 as a
~ spot check, because it was a logical place to expect
a difference between the employees’ (Tr. 7717] time-
tables and the OAG, because it was not until the
end of December 1960, that the defendants released —
to TWA any of the Convairs that they had been
holding up before.
When they were released it was necessary to take
urgent action to schedule the planes and naturally
the timetables were produced as fast as possible for
the employees. The OAG of course has a lead time.
So that we could check out—and it is perfectly
apparent that the OAG was used.
I would like to have this document—
Mr. Hayes: May I move to strike the sort of argu-
ment. If Mr. Tenney has any questions to address
to the witness I think he should address the ques-
tion and confine himself to the questions.
The Special Master: You may proceed.
Mr. Tenney: I would like this document which
was received on July 21st at 4:30 p.m, that is, the
Friday immediately before Mr. Simat’s previous
appearance here, with a very limited group of work
sheets that were then produced for us—I would like
this marked as TWA Exhibit 318 for identification.
It consists of 25 pages.
Mtr. 77181 ° * * Q. I show you TWA Exhibit 318 for
A-1582
Simat—Cross
Q. Will you look at page 2 of TWA’s Exhibit 318 for
identification and read into the record the first two sen.
tences, please?
A. “The purpose of this task is to prepare the schedule
of Trans World Airlines for analysis by a computer. The
necessary information will be taken from the Official Airline
Guide.”
Q. Do you wish to change your testimony as to the
source of the information contained in your report as far
as schedules go as it was originally submitted in this pro-
ceeding, Mr. Simat?
A. No, I do not.
This document was prepared at a very early stage. It is
essentially an internal document prepared to train people
who had no prior experience-with the transcription of sched.
ule information to correctly transcribe schedule informa.
tion.
_ Tr.-7719]_ We were at that time using for illustrative
purposes the Official Airline Guide because we had only a
limited number of copies of the employee timetable infor.
mation.
The entire set of instructions is cast in terms of Official
Airline Guide information which is in the same basic format
as employee timetable information.
The analysis that was prepared was to be checked and
ultimately conformed to the employee timetables, and this is
why we give the employee timetables as the source of the
information.
The correctness of the information is to be determined by.
comparison with the employee timetable and not with the
Official Airline Guide. .
That is the statement that I am making and that is the
statement that I wished to make earlier. All of the sched-
ule data were to have conformed by my instructions with
the employee timetable information. "
A-1583
Simat—Cross
And I might point out in this connection that it is not only
tree of the schedule information but also it is true of Form
ij information, that is, financial data, obtained for TWA
that we had at intermediate stages from time to time used
the ATA statistics for transcribing Form 41 oneness
rather than the Form 41 reports.
(ir. 7720] Ana the reason for this is that the Form 41
reports as available to us were in such terrible condition
that we were not able to work with them on a day to day
basis but again the instructions were that after all of the ©
transcription work was done, the information was tg be
checked back to the Form 41 reports which is the ultimate
source of the data.
So that then becomes the source of the report.
I do not regard the Official Airline Guide as the source
of the schedule analysis and the employees’ timetable is
the source of the schedule analysis.
Q We have here a copy of instructions by your office
that on their face direct the key punch operators to use
the Official Airline Guide?
A. These are not instructions to key punch operators.
These are instructions to our own people for the transcrip-
tion of information from a schedule to a work sheet which
is then submitted to the key punch operator for key
Q. Have you any copies of instructions to your people
calling for using the employees’ timetables? I seem to
reall that you testified that no copies of that sort of
instructions were retained.
| A. We do not normally retain copies of instruc-
{Tr, 7721] tions, of this sort.
A-1584
Stmat—Cross
It was by digging back through our files that we found
that we had an instruction manual in this degree of detail
The reason for preparing such a detailed instruction mannal
is that we were in fact dealing with inexperienced people to
whom a few oral instructions would have meant very little.
Q. Are you aware of any instance in which the OAG
differed from the employees’ timetables during the period
1959 through 1963 in which your Table 1, Book 1 of your
original computer printouts used the employees’ timetable
and not the OAG?
A. No. I haven’t made the complete check or compari-
son between the OAG and the employees’ timetable.
Mr. Tenney: Neither have we but we made a
spotcheck and the results of the spotcheck are now on
the record.
I offer in evidence TWA’s Exhibit 316 A and B,
317 and 318 for identification.
The Special Master: In the absence of objection
they will be received.
Q. You have indicated, I believe in an earlier [T.
7722] statement today, Mr. Simat, that in the course of
rechecking your work you found a number of errors.
I assume that those errors are the basis of the correc-
tions that have been proferred by Mr. Hayes this morning.
A. That is correct.
Q. When did you start finding out these errors, Mr.
Simat?
A. We had actually instituted check procedures even
before the submission of our first report. We were har-
dling a great deal of information in a very short space of
time.
A-1585
Simait—Cross
While we were employing checking procedures that we
had every reason to believe would detect any substantial
efrors in the results, we were not sure at any point up to
the submission of the report that we had correctly entered
allof the detailed information.
For one thing, as I mentioned earlier, the status of the
source material is exceedingly poor. In working with the
Form 41 data for example, we were working with copies of
copies. The original work sheets, I am sure was a carbon
copy to start with.
We found that a number of numbers were totally unde-
dpherable. We found .in other cases that there had
{fr.7723] actually been slippage of lines, wherein the
i t of the figures and the stub were not entirely cor-
rect.’
And then there were cases where we just simply had to
throw up our hands in despair, we just couldn’t make out
the figures at all.
The employees’ timetable information was in similar
shape. We were working with reproductions of reproduc-
tions and the information was very difficult to read.
We also had a number of relatively inexperienced people
transcribing the information. That is the reason for the
detailed manual which we do not normally prepare in con-
uestion with the schedule transcription work that we do
internally. Because of the necessity for compiling the in-
formation quickly, we had to bring in people on a tempo-
mary and part time basis to actually*do the transcription
work, ’
Now, none of these circumstances is conducive to 100 per
cent accuracy.
80 while I knew of no specific errors at the time that we
Sbmitted our report, T was ready to wager that there were
smumber of errors in the basic information.
a
A-1586
Simat—Cross
We were also compelled by pressure of time to [Tr. 7724]
introduce checking procedures which were not 100 per cent
satisfactory in disclosing all of the errors.
__ For example, in checking the schedule information, we
used a sampling procedure wherein the work product of
individual personnel was checked, spot-checked. If an
error was found, that particular period, whatever it might
a was redone. There were some periods that were redone
o, three times until we were satisfied that we had them
mai accurate.
On a sampling basis of course, there is a certain amount
of error that will get by undetected.
This was true both of the schedule transcription data
and also of the cost transcription data although it was
essentially true we kept our more experienced’ people on
the cost data rather than the schedule data.
Q. Mr. Simat, I am asking you simply when you started
the process of discovering these errors and making this
revision? You have given us Thursday night 311 revised
pages which we count as making 5,945 corrections.
We are advised that all 14 volumes of the computer
printouts—that is one set—if you add that one to it it is
one set—that we have been working on for two months
have been rerun.
{Tr.7725] When did it come to your attention, Mr.
Simat, that you should commence this revision?
A. I have been trying to explain, Mr. Tenney, that we
have felt all along that further checking procedures were
required and that if we had the opportunity to perform the
further checks and to introduce somewhat more accuracy
into the calculations and into the basic data that we work
from that we would.
The checking procedures were initiated before the publi-
cation or before the submission of our previous report. We
A-1587
Simat—Cross
have been working on corrections on checking from that
point forward.
We have found it necessary to put aside from time to
time our work on the corrections in order to progress in
I might point out in this connection that for almost the
entire month of July and a good part of the month of
Angst we were busily producing information in connec-
tion with the original report, answering questions, compil-
ing the basic reports, making sure that everything was
appropriately cross-referenced so that the understandings
«to what went into the original reports would be com-
plete.
We were also proceeding during this period in [Tr. 7726)
the preparation of our critique on the aircraft disposition
program. This, too, consumed a good deal of the time and
effort in the shop during the months of July and August.
We have also at the same time been proceeding on what
Inow call Phase 2 which is the more detailed approach that
I previously outlined. And as you know, we encountered
quite a few difficulties in obtaining the basic information.
We have had people working on the sample forms, catalog-
ing the information that was submitted.
We are progressing as fast as we can in that area. And
il of this has taken time away from the’ checking proce-
dures. But we have been progressing in that area.
In July, early July, we hired largely for this purpose, I
night point out, Mr. William Wolf, who was formerly a
direetor of scheduling for Pan American, He has been
Sending virtually full time reviewing the schedule data.
___The Special Master: Is any further checking going
_ % now which might result in additional modifica-
_ Honst
Py
A-1588
Simat—Cross
‘The Witness: Not of the original report, no, We
have completed all of the checking.
{Tr. 7727] Q. While you were preparing all this infor.
mation which you were talking about in answering ques-
tions on the original report, supplying cross-references,
telling us how it was put together—which parenthetically of
course you knew was the result of the correspondence that
defendants’ counsel and we were engaged in throughout
this period—why did you not at any point inform us that
& major revision of that report was under way?
A. Well, for one thing, Mr. Tenney, I do not believe
that the revision is a major one.
The errors that we have corrected while they are numer.
ous are relatively insignificant. The final results have been
barely changed.
Unfortunately, the method of estimation that we used
is a chain method wherein if the first number is changed,
virtually every number from that point forward is changed.
But all of the changes with one or two exceptions have
been very, very minor. They have not as was pointed out
in the letter of transmittal significantly changed our esti-
mate of the profit and loss from the added jet services. We
are within 2 per cent or approximately 2 per cent of our
original estimate.
The Special Master: Do you agree to that {Tr.
7728] conclusion, Mr. Tenney?
Mr. Tenney: I believe that he has adjusted his end
results so that they are a small number of percentage
points worse from the TWA standpoint. I have no
means, none whatsoever, of having an opinion based
on checking as to the remainder of his statement,
but I doubt it very much.
The Special Master: What’s running through my
mind is if the changes are all insignificant with pot-
A-1589
Simat—Cross
sibly one or two exceptions, which I understood you
to say, whether we could not have those one or two
exceptions and disregard the insignificant changes in
the interest of saving time here without producing
significant results.
Mr. Tenney: I would be surprised if Mr. Simat
would be willing to stand on the mish-mash of his
original report, frankly. * * *
(Tr. 7883] * * * Q. So Table 8A, which is jam-packed
with things like that—I have a list here five pages long— -
Mach 3 speeds and so forth for marginal speed for 880
aireraft and other early jets—Table 8A should be disre-
garded, is that correct, Mr. Simat?
A. Well, I certainly didn’t rely upon it. If there is
some other use you can see for the information in Table 8A,
the information is there, but I would certainly not rely on
it for any estimating purposes.
Q. Then let us turn to Table 9 in the same volume. This
table is headed “Operating Statistics of Added Flights.”
I take it that this is a table that you did rely on, is that
correct, Mr. Simat?
A. Yes.
Q. Let us turn once again to the CV-880 aircraft, which,
onee again, is the first jet aircraft type.
The Special Master: Table 9, is it?
Mr. Tenney: Table 9, yes.
Q. Let us take a look at June to.July of 1962 in that
table, and if you carry it over to the extreme right- [Tr.
18843 hand column, you find the average bleck-to-block speed
of added trips, and I find that the 880 aircraft was then
traveling average for additional flights 1.11 miles per hour.
Is that a figure that you should pay much attention to
in considering added flights, Mr. Simat?
=
mS ha
ss
A-1590
Simat—Cross
A. I certainly wouldn’t pay much attention to it
Q. What really was the normal cruising speed, approxi.
mately, of the CV-880 aircraft?
A. Oh, it’s about 475 miles an hour.
Q. From February to March of 1962, it seems to have
been going 177.07 miles per hour. That is pretty near stall.
ing speed for it, isn’t it?
A. No. Let me point out to you that we are talking
about block-to-block speeds, and block-to-block speeds are
computed by dividing the miles flown by the block-to-block
time.
There is in every flight profile, as you know, Mr. Tenney,
an ascent and descent factor. There is also a taxiing factor.
There is also a waiting time. And it is quite conceivable
that speeds as low as 30 miles per hour are flown by jet
airplanes, when they are flown over short distances, And
the bulk of the time in-flight is consumed in getting up into
the air and coming down or {Tr. 7885] flying around in the
air, but not in cruising.
eT ves peli MIs iat ti ie tectec & xen
a distance of 30 miles with a DC-3 airplane than witha
Boeing 707 jet. Over such stage lengths, the block speed
of the Boeing 707 would be slower than the block speed
of a DC-3.
Q. By the way, I show you, Mr. Simat, Vol. I of the
Coverdale & Colpitts report, which is TWA 4C-1.
On page 2, you will see some cruising speed information
as to different types of jet aircraft. I think you will find
that the CV-880 is shown as having a cruising speed of 615
miles per hour. I think you said it is someplace in the
400s.
Would you care to change that?
A. Yes, I will change that. I think I was thinking in
terms of average speeds.
licdtjaciceda accceale
A-1591
Simat—Cross
Q, Since we are dealing with block-to-block speed, which
might well be lower than cruising speed, would you turn
to the next table which is “Aircraft Type B-70,” which is
the symbol for the 131 aircraft, and look at November to
December of 1963, and look across at that same average
block-to-block speed? - ~
The 131 was averaging a block-to-block speed of 1745
miles per hour. Would that be explained by the {Tr. 7886]
fight profile, Mr. Simat?
A. Yes, in fact, it would.
Bear in mind, Mr. Tenney, I think you are forgetting that
weare dealing with differences, the differences between the
number of flights operated in one month and the number
of flights operated in a second month, differences in the
number of hours per day that aircraft are operated and
differences in the number of miles.
In both examples that you have selected, you will note
that the number of added departures per day were quite
amall, We were not dealing with any material volume of
added operations, and—it is possible, conceivable that
where a change in operations involves the substitution of
operations to and from terminal areas where the waiting
time, the taxiing time, the ascent-descent time, the conges-
tion factors are less than they are at some of the more
highly congested terminal areas, that we will get changes in
the number of hours per added operation which we divided
by the—or divided into number of added miles per added
operation will provide block speeds of 1745 miles or even
something perhaps slightly larger.
However, these do occur in a distinct mjnority [Tr. 7887]
of eases. Over the entire period, I think you can count on
almost the fingers of one hand the number of cases where
the block speeds are that unusual—the computed added
block speed, I should say, is that unusual.
' ©
A-1592
Simat—Cross
Tt will happen. It happens arithmetically. If I can give
you another contrived example: if we were to add a fraction
of a flight in New York where the terminal time is very
high, we would get under such circumstances or tend to get,
I should say, very low added block speeds.
On the other hand, in adding fractions of flights to points
such as Fresno, where the congestion factor is very low,
we could very well get block speeds of this amount.
Q. Doesn’t this show that this concentration upon differ.
ences in an extrapolation from differences that you have
engaged in in deriving your data for this entire analysis
arithmetically, as you put it, inevitably produces wild sta-
tistics that you have then ground into your regression
analysis?
A. That is not so. The use of first differences or differ-
ences between one period and another will, for certain
ratios, produce fairlyywide differences, particularly those
ratios involving hours and miles.
4ITr. 7888] There is generally more stability to ratios
involving miles and numbers of aircraft departures, that is,
the ratios which are depending upon average hop, and over
a period of five years the resultant average relationships,
in my opinion, are satisfactory.
In almost every instance that we have been looking at,
the number of added aircraft, the number of added de.
partures are relatively small.
Q. I thought that you testified earlier that in you
regression analysis there was no weighting of these seg
ment-month statistics for the number of flights involved
but the change was always treated as equivalent to an}
other changes.
A. That is correct, we treated each month as a separat
and distinct entity.
A-1593
Simat—Cross
Q. If you take into account the extremely small values,
there are certainly quite a number of strange results
here.
{Tr. 78941 ° * * Q. There are, of course, throughout
these tables a number of operating statistics of added
fights, and then operating statistics of deleted flights that
are similar to the ones that I have called your attention to
that have block to block speeds that are out of line with any
possibility for a given airplane, that have lengths of hop |
that are surprising, to say the least.
They are, as you have explained, produced by the
arithmetical results of the study of what you have called
first differences here. But I think that you made it clear
mough that you think these results are sound in your
opinion and that you are willing to extrapolate from them
0 I won’t go over all these other details.
Do you still insist that the method of subtracting one
month from another month by type of aircraft and dividing
these mileages and departures and relying on the factorial
differences that you have got is a sound method of analyz-
ing how an airline will operate?
A. Let me first point out to you, Mr. nein (Tr. 7895]
that we did not use the block speed relationships in any of
our analyses programs in the form in which they appear
in the tables referred to by you.
The only information that we used in connection with
our analyses was the length of hop of added flights. And
Ido not believe that you dwelt too long on the length of
hop added flights or deleted flights. P
I do want to point out, however, that we did not use the
block speed relationships nor did we use the utilization
tationships in any further analysis.
Ido not feel that the information that we were required
‘tee for want of other information to establish the pat-
A-1594
Simat—Cross
tern of added flights is the best information that I can om.
ceive of for estimating how added airplanes would be used
It was, however, the best information available to us,
We worked with obvious problems insofar as we wei
information which was uncorrected for seasonal variations
in traffic demand.
If we had better information, we would use the better
information.
The estimating problem that we were confronted with
was to make the best estimate we could with the inform.
tion available on the stage lengths for which or [Tr, 789)
over which added jet aircraft would be operated or the
added jet aircraft would be operated or the stage lengths
from which jet—or piston aircraft would be deleted.
The best experiencé in my opinion as to what would hap-
pen with an additional injection of jet capacity is what did
happen when capacity was added. ~~
We were compelled by reason of not having the interml
records of TWA to use published records as to the schedul-
ing of aircraft. And we find in comparing the published
scheduling records with reports submitted by TWA to the
Civil Aeronautics Board that it is not always true that
when flights are scheduled with Convair 880 aircraft they
are operated with Convair 880 aircraft. We are also find-
ing or have found that it is not true that when flights are
scheduled with 131 aircraft that they are always operated
with 131 aircraft.
There are substitutions of aircraft which do not appear
in the schedule data. And for these reasons there is a cer-
tain amount of infirmity in the schedule information. (n
the other hand, there is nothing better—or was nothing bet-
ter available to us.
And as for the soundness of the conclusions {Tr. 7897]
that we have derived from the data, it is a fact that the
A-1595
Simat—Cross
sage length of jet operations decreased as jets were added.
Nothing will alter that fact.
The decline in stage lengths is occasioned by the addi-
tional jet capacity at lower stage lengths than those flights
that were operated before the addition.
This is a simple mathematical conclusion. If the flights
were added at the same stage length as those already oper-
sted, there would be no decline in stage length. It is
obvious that added flights were coming in during the period
at lesser stage lengths than the flights that were already
being operated.
We have used what we think is or was the best available
information to us to estimate the relationship between the
existing and added flight stage lengths, and I believe that
our estimates are reasonable. We were able—
The Special Master: Can I interrupt at this point?
I don’t like to get too far out of tune with the devel-
opment of the case. I am quite puzzled at this point.
Do I understand that the effect of the shorter
stage lengths would be to increase your [Tr. 7898]
estimated costs of operation?
The Witness: That’s exactly right, sir.
The Special Master: I hope as we go along we
can keep this in mind. How can it be that two people
so expert in this field having the advantage of actual
operating figures can estimate the financial results
to TWA in the operation of a comparatively small
number of airplanes and come-up with a difference
of over $100 million in a five year period which is
over $20 million a year? ?
I hope somewhere along the line we could get a
summary so that I could focus on it while we are in
' the course of cross-examination here as to what are
A-1596 +
Simat—Cross
the categories of difference here, because just at first
blush it seems all out of line with me.
Mr. Tenney: Mr. Brownell, that is exactly what |
plan to do in the course of cross-examination. It is
quite a lengthy report and it has a lot of figures in
it. But I propose to go through the report section
by section, giving Mr. Simat as I believe I have
an ample opportunity to explain what he did: And
I believe that it will be quite apparent how he has
[Tr. 7899] come out with these diametrically Opposite
conclusions from the plaintiff’s experts here.
(Tr. 7917] ° * * By Mr. Tenney:
Q. In Book V of the computer printouts, Table 16, the
very first jet covered—
A. I believe it is the 880.
Q. 880. Have you found it?
A. Yes.
Q. Here I find that you have 34 samples for a study,
Mr. Simat, and once again the data are determinable from
the left-hand column, giving the’Y values and the right-hand
column giving the X values for your selected sub-case, and
once again can be plotted in the same way.
-{Tr. 7918] Is that generally correct? -
A. That’s generally correct.
Q. Have you attempted to plot this?
A. No, we have not made scatter diagrams of the infor-
mation on this table.
Mr. Tenney: I ask that this graph be marked as
TWA Exhibit 320 for identification.
A-1597
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By Mr. Tenney :
Q Assuming that TWA Exhibit 320 for identification is
acorrect transcription graphically of the data set forth in
your selected sub-case on the 880s, and that the least squares
line, a8 there represented, is a correct representation graph-
ically of your selected equation, a statistician, do you con-
sider that equation a very good fit of the data?
A. If that were the only information available, I might
be somewhat disturbed about the strength of the relation- .
ship, but the information that you have plotted on the chart
isnot the only information available.
(Tr. 7919} I also had, available to me the information that
the Convair 880 stage lengths in actual experience decreased
as Convair 880 aircraft were added.
I had the relationships that we had fitted not only to the
Convair 880 equipment, but also for the Boeing 707s, 131Bs,
the 131s and the 331s, all of which yielded a characteristic
pattern that indicated that the marginal stage lengths, stage
lengths at which added operations were performed, were
substantially below the stage lengths of the existing opera-
tions at the time of the addition.
The relationships, moreover, are consistent among the
various types of jet aircraft.
They are not only supported—they not only support one
mother, they are also supported, I think, by the planning
expectations of TWA.
From our analysis of the TWA jet plans, we find that
in projecting the usage of aircraft about to be delivered,
that TWA’s plans staff similarly made provision in their
planning estimates for a decline in the average stage length \
of operations as the size of the fleet was built up. And this,
of course, again indicates that the marginal load factor, the |
load factor at which added services
were being’ performed |
whe: be performed, is lower than the average stage length.
A-1598
Simat—Cross
[Tr. 7920] So, taken alone, the relationship is not as
good as I would have hoped it to be. Taken together with
all other available information, the relationship yields g
consistent result which is consistent not only with other
relationships similarly derived for other types of aircraft,
but also consistent with experience.
The Special Master: May I ask a question right
there?
Would you go so far as to say in your own analysis
that the other observations and information which
you had in themselves was the basis of your final
judgment rather than the study that vou made here!
The Witness: That is exactly right.
As I indicated, we did not expect to obtain high
correlations from the use of the kind of information
that we used in these anlayses, because we knew we
were including seasonal distortions in the picture
and we just didn’t anticipate that the relationships
would be that good.
On the other hand, we did get relationships from
the analyses that were consistent with what we
expected to find, and these relationships, I might say,
are supported not only by empirical evidence, but
(Tr. 7921] I believe by sound business practice.
In the scheduling of aircraft, an airline would ordi-
narily use the first airplanes that it receives in those
uses which are the most profitable to it.
As additional aircraft are received, they will go
into the next most profitable uses, and so on.
In the industry today, and it was true in the 1959-
1963 period as well, the most profitable operations,
| were conducted in the longer haul stage a
Short-haul operations are y and they were in
the 1959-63 period, either unprofitable or relatively
— compared to longer haul o i
A-1599
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So the relationships that we determined here were
relationships that we did expect to see. The problem
is simply one of measurement, attempting to find the
best measurement of the added stage length and it is
in this area that we expect that the supplemental
report will make a substantial contribution.
By Mr. Tenney:
Q. But, Mr. Simat, this is the only data you used in your
statistical analysis, isn’t it? None of the stuff [Tr. 7922]
you are talking about is involved in the statistical regres-
sion analysis in these printouts?
A. These are the only data that we used to establish the
precise relationship between the marginal stage length and
the added stage length, to test the principle of whether the
marginal stage length was, in fact, an amount below the
average stage length.
We considered considerable additional data, including
other information that appears in the IBM runs that have
been made available to you.
Q Is any of that additional data involved in the regres-
sion analysis that produced the equation that you have used
to determine stage lengths?
I would like a yes or no answer to that.
A. I believe I have already given—
Q I would like a yes or no answer to that.
A. To determine the exact relationship between added
stage length and average stage length that was used in our
estimates, we used no data, but the data contained i in these
analyses.
Q Isn't it entirely clear that | to any statistician—and,
of course, you are an expert gp es Mr. Simat—from
this plot that the relationship shown by that least squares
|
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{
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A-1600
Simat—Cross
line is statistically invalid and not as you [Tr. 7923] testified
in your direct testimony statistically valid?
I refer to page A5 of Vol. II of Defendants’ Exhibit 271
A. One of the biggest mistakes that a statistician cap
make is to accept the data that he is working with as being
beyond reproach.
A statistician must consider, in my opinion, the quality
of the information that he is working with at the time he
draws his conclusions.
It is customary practice among statisticians, for example,
to exclude certain observations, on the grounds that they
are atypical.
It is also a practice among some statisticians to weight
observations differently. Those which they accord more
standing to are weighted more heavily than those which
they feel are more nebulous, more tentative, perhaps sub-
ject to greater error are weighted less heavily.
I have already testified that we considered a number of
the observations here, those, for example, produced where
the traffic was either trending upward or downward, season
ally, to provide a distortion inthe relationships.
What we hope :to: have is a balance in the distor.
[Tr. 7924] tions. And I believe that we did, in fact, achieve
a balance.
We got on balance a ventions which was consistent
with what we would have expected on an a priori basis.
Q. I don’t see how you can have it both ways, Mr. Simat.
Either you are going to rely on history and not on a statis
tical analysis that you say you have determined to be
statistically valid—in that case we can talk about history
and we have no quarrel about history if history is used in
an Te way. | )
A-1601
Simat—Cross
But I do not see how you can refer to history to back up
a statistical analysis that you have testified—and you are
uder oath on this, Mr. Simat—
Mr. Hayes: He is quite conscious of the fact he
is under oath. Let’s not be Perry Masonish about
Mr. Tenney: It happens to be an important factor
here.
Mr. Hayes: Everything is important in this case,
Mr. Tenney.
Q. Mr. Simat, do you know of any instance in which a
statistician has represented an analysis as bad as this
(Tr. 7925] one as being statistically valid besides your own?
A. Yes.
Q. Name one.
A. In the first place, I do object to the characterization
of the analysis as bad.
There are a number of observations that are plotted on
the chart which is marked for identification as TWA 320.
They do not all have the equal value.
The fact is that a least squares line fitted to all of the
observations does show the kind of trend that we antici-
pated we would receive.
The fact that there are observations above and below the
line do not shake my confidence in a line, particularly since
Ido know from other information that the line that we
obtained is the kind of line that must have historically oc-
curred in the TWA experience.
The Special Master: That means you disregarded
this particular part of the study in reaching your
conclusion? Because this would appear to be con-
trary to your— |
A-1602
Simat—Cross
The Witness: No, we haven’t disregarded it, this
part of the study. We have used the relationship
shown here to determine the exact. mathematical
relationship between the stage length of added [Tr.
7926] flights and the average stage length. ‘We have
used it for that purpose only to find-a measure of
the relationship between the two results.
We have not used correlation in this case to test
whether the relationship is indeed valid, because
there is other information which I think is superior,
that indicates that we are dealing with a valid
correlation.
Now, I personally would have hoped for a more
defined relationship in the sense that the amount of
distortion present would be less than is here.
I believe that the way we have conducted the
analysis, we have balanced out upward and down-
ward distortions.
What I am saying in short is that I personally do
not place much weight on the correlation coefficient
that is derived from this particular relationship.
{Tr. 7928] * * * By Mr. Tenney:
Q. We have prepared in exactly the same way graphs
of the data set forth in Table 16 of the computer print-
outs in your preferred sub-case with respect to the other
two types of jets, as to which you have determined equa-
tions that are set forth and used in your report.
The equations themselves, of course, appear on page A7
of Vol. II of your report. The“data are derived from the
computer printouts.
tions with respect to these two Ty would be the same
it, Mr. Simat, that your bark to similar ques-
A-1603
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as the answer to the questions that I have asked you on the
earlier charts. Would that be so?
A Yes.
Q. Keeping these computer printouts in front of you,
there is some additional information on these computer
printouts that I would like to examine.
I think that this table which I have had prepared in blank,
which can be filled out from data ip the computer print-
outs, may be helpful.
I show you the form of the table.
{Tr. 7929] Ignoring, for the time being, the latter two
columns, I would like ta refer to the computer printout and
determine with you what the figures would bé for the first
three columns that are blank in this form: .’..
To explain the left-hand two columns, if necessary, the
left-hand column simply identifies the aircraft-type, and the
next column sets forth the equation taken directly from
your page A7 of Vol. II of your report. It also, of course,
is derivable from the computer printouts.
The next three columns are the ones that I would like to
obtain the information called for.
Turning to the B-331, can you tell us what the R figure
is or coefficient of correlation for your preferred equation
in the B-331, Mr. Simat?
A. The figure is .24429.
Q. How about R??
A. .05968. ni
Q. How about the standard error?
A. 3906.831.
Q. The CV-880 comes a little earlier in the printouts, T
think you will discover. I wonder if we could get the same
inforthation for the C'V-880? |
A. The R is .17838.
fhe R? is 03182. |
ed
yee
. ’
A-1604
Simat—Cross
{Tr. 7930] The standard error is 931.694.
Q. Next on the B-131—
The Special Master: Is this for each plane? When
it says B-331, does that mean for each increase, each
plane added?
Mr. Tenney: This is the formula that Mr. Simat
has derived for use in determining the stage lengths
for added flights for B-331s throughout the period.
The Special Master: Generally?
Mr. Tenney: Generally.
The Special Master: I see.
By Mr. Tenney:
Q. On the 131, what is the corresponding information!
A. The R is .69148.
The R? is .47815.
The standard error is 2345.181.
Q. Then the B-131B, which is the last of the jets as to
which you have derived equations set forth in your report!
A. The R is .27594.
The R? is .07615.
And the standard error is 1864.768.
Q. Those standard error figures are all in miles, as
Tr. 7931] indicated in this table; is that correct, Mr. Simat!
A. Yes.
Q. Turning to the last two columns left blank in this
form that I have given you, the expression at the head of
the next-to-the-last column, 1 minus R?, I believe you defined
at our last session as the coefficient of nondetermination; is
that correct?
A. That’s correct.
Q. And that can be derived, can it not, by the arith-
metical subtraction of R*? from 1; is that correct?
A. Yes. } | é
A-1605
Simat—Cross
Q The square root of 1 minus R?, which is the expres-
sion at the head of the final column, we found at our last
session is the coefficient of alienation, I believe; is that
correct ?
A. Yes.
Q And as indicated by the form of the expression, once
the coefficient of nondetermination has been obtained, its
square root can be calculated and that will be the coefficient
of alienation; is that correct?
A. Yes. “
Mr. Tenney: It would save time, perhaps, if I
furnished everyone with those figures. They are
readily obtainable, of course.
{Tr. 7932] I would like to have the sheet which
Mr. Simat has been filling out marked as TWA
Exhibit 323 for identification.
Mr. Hayes: He did not fill it out. He was reading
the figures.
Mr. Tenney: In that case, I would like to have
this sheet which sets forth in the columns to which
Mr. Simat was referring identical figures to those
which he read.
On the last two columns, the figures are obtainable
by the mathematical compyteition, that. he has just
described. we
I would like that mar as TWA" Pxhibit 323 for
identification. Sa?
Mr. Hayes: You don't oat that The other one
would be 323.
Mr. Tenney: I withdraw that. I thought I would
be marking something that he had been marking, but
it is yar under|the circumstances.
|
i
e |e | . <
a
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| avery high coefficient of alienation, 96, whi | is far hi
A-1606
Simat—Cross
By Mr. Tenney:
Q. Referring to Arkin and Colton Statistical Methods
{Tr. 7933] Book, which we were referring to at our last ses.
sion, on page 85, I read the following:
“Just as the coefficient of correlation is a relative
measure of the degree of association between two
series, the coefficient of alienation is a comparative
measure of the lack of association.”
Do you agree with that statement, Mr. Simat!
A. Yes.
Q. Looking at TWA Exhibit 323 for identification and
looking at the extreme right-hand column, we find that the
coefficient of alienation for your formula as to B-33ls is
.96970, which is very nearly perfect alienation or nonass-
ciation, isn’t it, Mr. Simat?
A. What the formula indicates is that there is a con-
siderable amount of variance which is not explained by the
relationship.
As I have testified, I would expect that.
Q. You have even more perfect alienation for the CV-88
formula, do you not?
A. There is a higher coefficient of alienation, meaning
that there is more unexplained variance, yes.
Q. Even for the B-131, the coefficient of alienation or
the measure of nonassociation of the data that you have
been analyzing is greater than the coefficient of correls-
{Tr. 7934] tion, is it not?
A. That’s true, but from that one cannot conclude that
there is an invalid sa cas tard — mater the two
variables.
Q. The final jet that we have ete) we have once
i
A-1607
Simat—Cross\_ |
}
than any measure of association shown for your formula;
is that not correct?
A. That is correct, there is a considerable gmount of
mexplained variance. |
Q. Mr. Simat, do you wish to change your testimony as
set forth on pages A7 of Vol. II of your report to the effect
that you have determined that these formulas are statisti-
cally valid and a significant improvement in —
stage lengths if added jet flights?
A No.
° e * * -*
(Tr. 79781° ** Q. The historical average was 1844 miles
for B-131s during the year 1959, and your report has sta-
tistically determined that added flights would be at 1401
miles by the [T'r. 7979] use of your equation in part A of
Vol. II; is that correct, Mr. Simat?
A. Yes.
Q. Referring to Ezekiel and Fox, page 24, a portion of
which we read into the record some time ago, you will recall
that Ezekiel and Fox suggests that the standard error of
an average or an estimate should be given together with it
asone method of indicating the statistical significance of the
average.
The standard error shown on TWA Exhibit 323 for your
B-131 equation is 2345 miles. So that if you were to follow
the practice suggested by Ezekiel and Fox, an appropriate
way of stating the mileage that you have estimated for
1959 B-131 added air flights would be, would it not, 1411
miles plus or minus 2345 miles?
A. Well, I don’t know that that’s an appropriate way
of stating it. And I agree that you should indicate a stand-
and error of the estimate. It could be one standard erro
onone side oth number, two Br sie errors, three stand-
,
a
A-1608
Simat—Cross
There is no single practice that is preferred.
But I don’t know what implication you are attempting to
obtain from all this. Whs.tever the standard error of the
estimate may be, what the equation yields is the [Tr. 7990)
most probable value of the marginal stage length.
Q. And if, as you suggested, you were to use two stand.
ard errors and follow the Ezekiel and Fox method of nota.
tion—you would only use two standard errors if you were
trying to emphasize your interest in accuracy—the notation
would be 1411 miles plus or minus 4690 miles, wouldn't it!
A. You understand, of course, that the standard error
is both to be added and subtracted. So that having arrived
at a figure of 1411 miles as the probable value, that what
the standard error is saying in effect is that you could sub.
tract from that figure as well as add to that figure.
And it could very well be that the true marginal stage
length is below the figure of 1411 miles that we have esti-
mated. It cuts both ways.
The Special Master: It would be somewhere be.
tween 0 and 4000 miles, roughly?
Mr. Tenney: It might be minus, sir, by his
analysis.
The Special Master: It might be minus down to
0? It might be plus up to 4000. Would that be right!
Mr. Tenney: I suppose so, sir. Some place [Tr.
7981] in that range.
The Witness: Well, the equation determines the
most probable value.
The Special Master: Yes, I understand.
* e s * «
{Tr. 8007] ‘ * * Q. Would you turn in your report,
Mr. Simat, to wae
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A-1609
Simat—Cross
Towards the bottom of the page you state:
“Selecting those city pairs where increases in jet
services were accompanied by decrease in piston ser-
vices, we correlated the amount of changes in jet
services with the amount of changes in piston serv-
ices for the various combinations of jet and piston
aircraft types involved.”
You go on to say that you did the same thing among piston
types, and you state that the correlations appear in Table ©
BV on page B-9.
What was the purpose of this analysis, Mr. Simat?
A. The purpose of the analysis was to ascertain whether
the introduction of jets displaced the piston (Tr. 8008] type
sireraft in rough proportions or whether the effect was
concentrated in one or another of the piston type aircraft.
In short, we were testing Mr. Wemple’s premises and
our own premise by this examination. |
If, in fact, the introduction of the jets affected only the
Tong haul piston aircraft, we would expect to find correlation
between the added jet services and the displaced piston
services only between jet aircraft and such aircraft as the
Lockheed 1649A.
We did, however, find that there was a strong correlation
between added jet services and displaced piston services
for all prevailing types of piston aircraft. And this we -
believe supports the validity or our estimate that where
ve have in estimating the distribution of piston miles dis-
placed by plane type allowed for proportionate declines, in
the piston miles operated by all types of aircraft.
Q' How was this analysis performed?
bi It was performed by selecting those city pairs and
er i = from one month to the next, where
b were increases in jet operations and decreases in
A-1610
Simat—Cross
piston operations with the particular types of airplanes
involved here.
{Tr. 8009] In other words, for the correlation between
Boeing 331s and Martin 404-202As, the R being for that
correlation .87, we selected all of those segments where
there was an increase in Boeing 331 service and a decrease
in. Martin 404-202A service in the same period, and we
correlated the amount of correspondence in the segments
between the amount of added Boeing 331 service and the
amount of retired or displaced Martin 404 service.
In short, if one mile of Boeing 331 service was added
and one mile of Martin 404-202A service was displaced, we
had a correlation between those two factors.
If it varied among the segments, then in some cases the
amount of added Boeing 331 miles might be five and the
deleted Martin 404 miles one, so that we had one for one
mile displacements, five for one mile displacements, ten for
one mile displacements and so on, the correlation would be
lower.
It was only when the displacement was on either a milé-
for-mile basis or some defined ratio that remained constant
among the various pairs of points that we got high correla-
tions and this—what’s set forth here is the result of those
regressions.
Q. Would these additions and deletions be on the same
segments?
{Tr. 8010] A. Yes.
Q. And in the same month?
A. And in the same month, yes.
Q. Since there are 60 months and well over 100 segments
served by TWA at all times during this period, you have
approximately—you have a minimum of 6000—actually I
think it is closer to 8000—segment months that you were
studying, is that correct?
A-1611
Simat—Cross
A. You would have to multiply that by another factor
to provide for the number of different combinations of air-
eraft that are under consideration.
Q. But each segment month is separately studied to
determine what combinations of aircraft you can find to
have changed in that segment month, is that—
A. That’s right.
And one particular segment month can provide as many
as ten eins of aircraft, ten or more, taking two at
a time.
Q. Where in the computer printouts is this analysis to
be found?
Actually, Mr. Simat, I think——
A. The basic data, of course, appear in Table VIII,
Q. The regression analysis to be found in Table XX
fTr. 8011] of Book V?
A. Also Table XXTI.
Q. Looking at your chart on page B-9, the first half of
it where you are showing correlation. between added jet
services and displaced piston aircraft services, there are 27
different correlation figures shown. __
Comparing them to the correlations that appeared orig-
inally on your unrevised page B-9 there really is very little
similarity. They are practically all changed. They aren’t
even all relating to the same pairs of aircraft types. _
Can you explain why these results were changed so very
much in your revision?
A. Well, in the first place, I don’t agree with your char-
acterization of the results. T think that both the unrevised
and revised data indicate the same general picture, and that
is the correlation between added jet services and deleted
piston services across the board for all types of piston
services,
A-1612
Simat—Cross
As to why there were changes, as you know there were
some errors in the original schedule analysis, and these
errors were corrected in the revised schedule analysis,
In some cases, the number of instances where we
{Tr. 8012] had an increase with one type of airplane and a
decrease with another type of airplane, these were dimin.
ished to the point of no return or were added and 80 we
have somewhat different results. ’
But the picture is in my opinion almost exactly the same
and the changes themselves are not material.
Q. In original page B-9 for these two particular aircraft
types you referred to a moment ago, the Martin 404 and
the Boeing 331, originally you showed a correlation coefii-
cient of 1.00.
Now, in the revised page you show a correlation coefii-
cient as you mentioned a moment ago of .87.
- Looking at Table XX of Book V where the regression
appears for this particular pair of planes, it is opposite
sign change M4 versus B30 is the heading—have you found
the table, Mr. Simat? ,
A. Yes, I have.
Q. How many samples is this based on?
A. Two.
Q. So that ont of the, say, 8000 segment months, there
were two segment months in which there was a change in
the service of opposite sign nature between Martin 404s and
Boeing 331s, is that correct?
A. That’s correct. .
(Tr. 8013] Q. Actually I was rather surprised in the light
of that number of samples at the change in the correlation
coefficient between 1.00 in your original and your revised .87.
With two samples, you only have two points, don’t you,
Mr. Simat?
A. That’s correct.
A-1613
Simat—Cross
q Isn’t it true that you can draw a straight line between
two points that passes perfectly through those two points
sneesarily ?
A. That’s certainly true.
@ What would the correlation coefficient of such a
straight line be with respect to those two points?
A 1.00.
Q Yet the correlation coefficient set forth in this table
is as you reproduce it in your report, .87, is it not?
A. That is correct.
Q. Can you explain this apparent anomaly, Mr. Simat?
A. The only way I can explain it and I would certainly
have to check into itis that the RHO which is printed out
here is a RHO corrected for the number of samples.
ffr.8018] * * * By Mr. Tenney:
Q Mr. Simat, just before lunch, we were talking about
Tables 20 and 21 of the computer printouts and their rela-
tion to the correlation set forth on page B-9 of Vol. II of
your report.
We had been talking about the particular relationship
between Martin 404s and B-331s and had noticed that there
was a sample size of 2 in Table 20 with a coefficient of cor-
tdation of .87.
On Table 21, which takes.in all sign changes for that same
pair of types, there is a slightly larger sample size.
Have you found the table, Mr. Simat?
A. Yes, I have.
Q The sample size there is 5, is it not? * * *
fTr.8019]° ** A. Yes, the sample size is 5.
Q. So that if you take all instances out of the 8000 seg-
ment months under study in which changes in both the 331s
A-1614
Simat—Cross
and Martin 404s occurred, there are 5 of which 3 had
changes in the same direction; is that correct?
A. Yes.
Q. It was only the other two that had changes in the
opposite direction that you had studied in Table 20 coming
up with a correlation coefficient of .87.
Now, when you take the remaining three into account in
Table 21, the correlation — is only .25; is that right,
Mr. Simat?
A. Yes.
Q. And R? is .06?
A. That is correct.
~ Q. To take the one that you were looking at a moment
ago that I inadvertently misled you to, the Martin 44
against the CV-880, you have a sample size there of 3,
(Tr. 8020] taking all changes into account in the 8000-seg.
ment months, is that right, Mr. Simat?
A. Yes. .
Q. And the coefficient of correlation there is .29 and the
R? is .08; is that right?
A. That’s right.
Q. Of those three samples, one involves changes in the
same direction. Table 20 only studies another case of a
sample size of 2 in opposite directions.
_ If you turn to Table 20 on that pair of airplanes, you
will find a coefficient of correlation .65, which, once again,
is surprising, since a straight line can be drawn between
the two points, but still considering the sample size and
the nature of the coefficient of correlation, is that a very
statistically valid relationship that you have determined!
A. No. |
A-1615
Sitmat—Cross
(Tr. 8064] By Mr. Tenney:
Q. The figures that we looked at on page 4-33 were only
for 1960, of course, and they only reflected the passengers
deleted because of the addition of that portion of the six
sdditional 331s that were put on domestic service in 1960,
which was an average of 1.4 aircraft.
If for 1960, for example, you wish to count all the pas-
vagers-that were deleted, piston, because of, according to
your study, the replacement of piston flights by jet flights,
you have to go to Part V, VI and VII.
In Part V, the figures are on page V-20. This relates
to the earlier delivery of CV -880s, twenty in number. Ex-
ase me. Early deliveries of the Boeing 331s and 131s. I
am sorry.
And the 1960 total of passengers deleted works out at
8371.
For the twenty CV-880s, that is Part VI, on page 6-18,
ud a large number of passengers are deleted in 1960. It
works out adding all these types together at 947,374.
In Part VII at page 7-19, still in 1960, for ten additional
S08, we have an additional 533,971 piston passengers de-
kted for a total in that year alone of 1,729,434 piston pas-
wagers that TWA is assumed to have [Tr. 8065] lost.
Totaling the corresponding tables for jet passengers
wided, you get 546,707, for a net loss of 1.2 million pas-
Doing the same thing for all others, coming up with a
grand total—none of these figures are added up and totaled
by year in your report—but totaling them up, we find that
in the five-year period TWA has deleted 5,102,206 piston
Passengers, but has only gained 2,041,515 jet passengers
for'’a net loss of over 3 million passengers.
A-1616
Stmat—Cross
Don’t you think that computing a net loss of over 3 mil.
lion passengers as the direct result of reequipping the air.
line with new, modern jet equipment is a little strange, Mr,
Simat?
A. Nota bit. As a matter of fact, my figures don’t en.
tirely agree with yours, but they are very close. And they
indicate that over the five-year period, according to our
estimates, there would be a decrease of approximately 13
per cent in total passenger originations of TWA, and a
decrease of 2.5 per cent in the total passenger miles flown
by TWA.
And if I again—I again call your attention to the statis.
ties which I cited earlier that indicated that be- [Tr. 8066]
tween 1959 and 1961 alone at a time when TWA added
approximately 1 billion seat miles to its operations with
jet airplanes, TWA suffered a loss of over 10 per cent in
the number of passengers which it carried, and I believe a
loss in the passenger miles—I haven’t checked that figure—
I will right now—
Q. You attribute this loss to the direct result of
equipment with jet aircraft, Mr. Simat?
A. There is a loss in passenger miles from a total of
4.6 billion to 4.25 billion, approximately, in a two-year
period.
And I do attribute this loss to the scheduling changes
which accompanied the introduction of the jet fleet.
As I pointed out, the replacement of piston aircraft miles
with jet aircraft miles in the longer stage lengths and the
increase in the absolute number of jet flights operated in
the longer stage lengths did not develop any material
amount of traffic.
On the other hand, the displacement of piston services
from the shorter stage lengths did have a material impact
A-1617
Simat—Cross
on the volume of traffic moving in the short-haul segments.
And it did decrease in absolute terms the n of pas-
sengers and passenger miles that [Tr. 806 re flown
over those segments, because the short-haul market is
extremely sensitive to the number of flights that are oper-
ated, the frequency of service and frequency of service was
eartailed and curtailed very markedly during this period.
Q. You believe that by TWA getting and putting into
service ten additional Convair 880s and about perhaps up
to one-third of six additional Boeing 331s that would have
been assigned to domestic service, plus the somewhat earlier
receipt of the aircraft, both the additional and the ones
that it did, in fact, receive—it is your opinion that this
would have had the direct result of TWA losing net some-.
thing in the neighborhood of 3 million passengers?
'A. That is correct. I think the last thing that TWA
needed at this time was additional capacity. That was at
a time when the entire industry was having difficulties
incorporating the capacity which it had.
The earnings of all carriers were down and all carriers
show the same kind of decline in traffic.
IfI recall the period, the government was quite concerned
at that time about the amount of over-capacity and the air-
lines were furnishing a report to the Board at its request,
with special data indicating load factors of jet flights on
the major segments of the airlines. This [Tr. 8068] was
no bonanza period. :
Q. Going back to this table that you were referring to
inthe Handbook of Airline Statistics, looking at the origina-
tions—if that is the line that we should look at—line 19—
if you extend your examination from 1961, which is where
you directed our attention up to 1963, you do not find that
there has been a loss in passenger originations since 1959,
do you, but, instead, an increase in passenger originations?
+
A-1618
Simat—Cross
A. That is correct. And it took a very substantial
growth in the economy to produce that kind of an increase
in traffic.
Q. It is about a 500,000 increase in passengers net over
that five-year period; is that correct?
A. Are we still referring to TWA?
The Special Master: Yes, origination.
The Witness: Passenger origination. Excuse me,
I am looking at the wrong line here.
Let me point out that between 1959 and 1962 the
number of passenger originations on TWA in no
year exceeded the 1959 total. It was only in 1963
that we had the increase of 500,000 passengers.
And I should further point out in connection with
that that there was a very substantial gain in
(Tr. 8069] income levels and in economic activities
which accounts, in my opinion, for the general
increase in traffic during this period. .
It has nothing to do with the acquisition of
jets.° °°
(Tr. 8070] * * * By Mr. Tenney:
Q. Mr. Simat, the answers that you were giving, ex-
planations that you were giving a moment ago, lead rather
naturally into the consideration of load factors and other
matters that are discussed rather fully in your Part C,
which I think we can go into more fully tomorrow.
There is one question separate point still in Part B that
T would like to get before we get to Part C, and it is a
change of subject.
It deals with pages B-19 and B-20 of Vol. II of your
report.
A-1619
Simat—Cross
Qn these pages there appears a section or there com-
mences, I should say, a section headed “Number of Piston
hireraft Retired (Domestic and International Divisions).”
On those two pages which are both revised, there [Tr.
$71] are some changes indicated from the earlier version
of your report.
I wonder if you could explain to me why you made those
deletions ?
A. Simply because I goofed. I had intended to use a
method which would substantially understate the number
of piston aircraft retired, so that the eliminated deprecia-
tion and insurance costs would be low.
I found that I selected a method which maximized the
amount of depreciation and insurance costs that I elimi-
nated. It was just a mistake on my part. I don’t know how
Imanaged to mesmerize myself into thinking I had chosen
the conservative method, but I was wrong.
Q. When you had found out that you had not chosen the
conservative method, Mr. Simat, but had, instead, chosen
a method that would maximize, you decided to stick with
the maximization and change the description of it as con-
servative rather than the other way around; is that correct?
A. Idon’t believe I have categorized it as conservative.
Q You did originally?
A. I did originally, yes.
Q. And that is the substance of the deletion, Tr. 8072]
isn’t it? “
A. I fully confess to the error of my ways.
Q. If you had calculated the annual aircraft miles per
available aircraft for each of the years in question from
the actual data for that year, the result would have been
fewer aircraft miles per available plane and a larger num-
ber of so-called surplus aircraft than you have assumed,
would it not?
/
A-1620
Simat—Cross
A. Yes, if we had used the low utilization rates prevail.
ing as a result of the mothballing of piston aircraft, no
longer used or useful in TWA’s aircraft services or sched.
ule services, we would have ended up with a higher number
of surplus aircraft, yes, sir.
Q. ‘On page B-21 where the table appears in Which you
compute the number of surplus aircraft, actually all o
dates under the word “Years” really are meaningless, aren
they? Couldn’t they just as well be replaced by the year
1958, since it was 1958 data that you used?
A. Oh, I suppose we could eliminate some superfluous
numbers in the table.
The fact is that the last column, the annual aircraft miles
per available aircraft, is the figure that is used in calculat-
ing surplus aircraft. And the same figure was used for
each aircraft type for each year.
{Tr. 8073] And that figure is based upon 1958 experi-
ence. ees
{Tr. 8092] * * * Q. Turning, however, to TWA Exhi-
bit 330, which sets forth both jet capacity and piston capa-
city, it is true, is it not, Mr. Simat, that a piston séat offered
to the public on any market is, to some extent, a competi-
tion with every type of seat that is offered to the public on
the same market?
A. I don’t think there is any question about that. If
their services are operated in the same market, if they are
at all acceptable to the public traveling in that market, those
services do compete with all other services in the same
market that are similarly acceptable to the public.
Q. Consequently, it is relevant in determining the
increase in capacity that is being offered to the public,
based on your assumptions of increases in the number of
[Tr. 8093] jet seats offered, to take into account the overall
capacity including pistons; is it not?
A-1621
Simat—Cross
A, Only to the extent that there is a direct overlap in
eery market in which services are offered. That is, in
every market where there are jet services, there are piston
services. In every market where there are piston services,
there are jet services.
Also, if we are going to play the arithmetic game of
siding piston capacity and jet capacity as though they were
equal things, the results can be highly misleading, because
tile a pistén seat does compete with a jet seat, it does not
pete with a jet’seat on equal footing.
On TWA Exhibit 330 for identification the next to
ast column sets forth the net change for TWA alone, jets
and pistons, year by year, and that column certainly is deal-
ing with a.change in the same market, is it not, Mr. Simat?
A. No, it is not.
For that column to be accurate, we would have to have
the conditions that I just enumerated, a complete overlap
of the market where piston and jet services were being sup-
plied and complete comparability of jet and piston seats
interms of their appeal to the public.
{fr 81201 * * * Q. Page 403 of the 1965 CAB Hand-
book which I see that you are looking at gives a definition
of break-even passenger load factor which is very close,
almost exactly the one that you gave as your first definition,
and I assume is the definition that we should use in looking
at these tables. ' .
(Tr. 8121] I read that definition into the record just for
convenience.
“Break-even passenger load factor represents the
« number of passenger load factor points at which
“+ scheduled passenger revenues equal the cost of con-
ducting scheduled passenger service.”
A-1622 J
Simat—Cross
I think that is all I need to read for our present purposes
for the definition.
Using break-even load factors in that sense then, Mr.
Simat, what was the effect on the break-even load factors
of American trunk airlines of the introduction of jets into
their fleets? |
A. The general impact was to reduce break-even factors, _
Q. The break-even load factors for operations of jets
was lower than with pistons, was it not?
A. On the basis of overall averages, that is true.
In the shorter haul markets, the break-even load factor
on jet operations actually exceeds the break-even load fac.
tor on certain of the pistons. °
Q. That varies in accordance with the type of jets as
well as the type of pistons, does it not, Mr. Simat?
(Tr. 8122] A. It varies with the type of jets as well as
the type of piston.
It varies with the distance of operations.
It varies with revenue yield.
There are lots of variables in the break-even load factor.
Q. Page 403 of the CAB Handbook, 1965 CAB Hand-
book, which is the page that I see you have before you, gives
the average break-even load factor for the domestic trunk
lines generally as being for the year 1959, 57.5 per cent: for
the year 1960, 58.3 per cent; for the year 1961, 56.0 per cent:
1962, 51.3 per cent and 1963, 50.7 per cent.
Is that correct, Mr. Simat?
A. That’s what the figures say.
Q. Your Table C-VII at page C-17 of your report shows
1961 as the first year when the trunk line carriers had ap-
proximately as much jet capacity as piston capacity. Be-
fore that, there was more piston capacity. After that, there
was more jet capacity.
Is that correct, Mr. Simat?
A. Yes.
A-1623
Simat—Cross
The Special Master: What year was that?
Mr. Tenney: 1961.
(Tr. 8123] Q. Generally, the sharp drop in break-even
lad factors following 1960 and for the next several years
has been attributed to the introduction of jets into service,
is that not correct, Mr. Simat?
The Witness: Excuse me. May I have that ques-
tion read back, please? I missed something.
The Special Master: Sure.
(The question was read.)
A Tam not sure that everyone attributes the decline in
break-even load factor to the introduction of the jets.
T certainly do.
The Special Master: Did or did not?
The Witness: Do.
Mr. Tenney: There is time, I think, perhaps, for
one more general question before lunch. It may save
a good bit of time if it proves possible to answer it
simply.
Q Can we agree, all else equal, that a passenger would
inal probability choose to travel by a jet rather than by a
piston, if he was given the alternative?
‘A. Tam sure we could agree on that, if we add a few
‘tore conditions. One is that the timing of the jet and pis-
ton services are acceptable to him; that the [Tr. 8124] num-
ver of stops or routing of the airplane is satisfactory, both
fm the standpoint of the jet and the piston services.
I don’t think there is any real doubt that a passenger
offered a choice of alternative services at convenient de-
patture times, offering him non-stop, where he wanted to
ro, that passenger would unquestionably choose the jet.
A-1624
Simat—Cross
(Tr. 8125] ° * * The Witness: I wanted to sup.
plement the last answer that I gave to state that I
was assuming, in making the answer, that the rates
for transportation on the jet and piston aircraft
were the same.
The Special Master: You mean the fares?
The Witness: Yes.
Cross examination (cont’d) by Mr. Tenney:
Q. Mr. Simat, if the break-even load factors decline
simultaneously, it is perfectly possible for a decline in
passenger load factors to be accompanied by an increase
in profits, is it not?
A. Yes.
Q. American Airlines, at the end of 1959, is shown
by the ICAO Fleet Statistics, which appear in TWA
Exhibit 57, which is already in evidence—American Air-
lines, [Tr. 8126] as I say, is shown as having at the end of
1959 twenty-four jets in its fleet, all of them Boeing 707s.
I show you a photocopy of the relevant page of TWA
Exhibit 67.
Is that correct?
A. Are you asking me to vouch for the ICAO Sta-
tistics or simply to tell you whether the figures you quoted
are part of the statistics that you furnished me?
Q. Whether they are part of the statistics that I
furnished you.
A. Yes, there are twenty-four aircraft shown for
American Airlines as of the end of 1959. ;
Q. The corresponding table, still from TWA Exhibit 67,
in the ICAO Fleet Statistics as of the end of 1960, shows
that American Airlines had increased its jet fleet by an
additional ten Boeing 720 jets; is that correct?
A-1625
Simat—Cross
A, The same source shows that as of the end of 1960
American Airlines had thirty-four aircraft on hand, ten
df which were Boeing 720 aircraft.
Q I make that a 42 per cent increase in its jet fleet
from the end of the preceding year.
Referring to the 1965 CAB Handbook which you have
fore you, at page 144, American’s overall load factors
are shown as declining from 70.4 per cent in 1959 to 65.3
(Tr. 8127] per cent in 1960; is that correct, Mr. Simat?
A. I am looking.at a page 144, Mr. Tenney, and I see
sload factor of 60.5 per cent which is termed the overall
revenue load factor in 1959, and a load factor of 56.5 per
ent in 1960.
I think you were talking about a revenue passenger load
futor, not the overall load factor.
Q. Yes, I am incorrect. I did misspeak myself, Mr.
Simat. I intended to call your attention instead, as you
have indicated, to the total revenue passenger load factor
vhich in those years is 70.4 per cent and 65.3 per cent re-
sectively. Is that correct?
A. Yes.
Q. The same handbook, 1965 handbook at page 403,
vhich we were looking at this morning, reports break-even
had factors, and for American they report the break-even
had factor—break-even passenger load factor, I should say
—as being 65.2 per cent in 1959, but 61.0 per cent in 1960;
is that correct?
A. Yes. .
Q Still in the same handbook at page 242, American’s
Tr, 8128] operating profit is reported, and its operating
profit in 1959 is reported as having been $24,518,000. It
tyed about the same, but rose slightly in 1960 to
721,000, according to this report.
Is that correct, Mr. Simat?
Yes.
A-1626
Simat—Cross
Q. So that American in the years 1959 to 1960 would
be an example of an airline whose passenger revenue load
factor declined while its profit stayed even or, indeed, in.
creased somewhat; is that correct?
A. That is correct. And I point out further that be.
tween 1959 and 1960, American Airlines added approxi.
mately 1.5 billion seat miles to its total operations. While
I do not have the figures for jet and piston service
separated, I would assume that the great bulk of the in.
crease, if not the entire increase, was increased seat miles
operated with jet aircraft. And having added 1.5 billion
seat miles during this period, American Airlines added a
profit of approximately $200,000 between 1959 and 1960,
The Special Master: Operating profit?
The Witness: Right.
(Tr. 8142]*** Q. In 1964, for Trans World Airlines,
the CAB 1965 Handbook at page 146 shows a revenue pas-
senger load factor of 56.4 per cent which has decreased
substantially from the years that we were looking at earlier
does it not?
A. Yes, and it is up considerably from the low point of
the period which was in 1962 when the load factor was
51.3 per cent.
Q. On page 403, the break-even passenger load factor
for TWA is shown as having declined to 48.9 per cent which
is substantially lower than it was during the years we were
looking at before, is that not correct?
A. Yes, it is down from the break-even load factor in
1959 and also from the break-even load factor in 1960.
(Tr. 8143] Q. On page 244, TWA’s domestic operating
profit for the year 1964 is shown at $50,892,000, is it not!
A. Yes.
A-1627
Simat—Cross
Q. So this, too, is an example of the fact that it is pos-
sible for load factors to decline while profits increase, is it
not?
A. I wish you would go back over those figures again.
It was my recollection that the load factor in 1964 was up.
Q. The load factor in 1964 was 56.4 per cent and the
comparison that I was drawing was with 1960 when it was
689 per cent.
So that over that period of time, there had been a de-
erease of 7.5 per cent in the load factor?
A. Yes, it is possible.
It is also possible to lose money in a rising load factor.
Q. You have explained both in your report and orally
that in your opinion not only did each addition of jet ca-
pacity produce a less than proportionate traffic increase, but
ilso that each decrease in piston aircraft capacity—that
with each decrease in piston aircraft capacity the loss in
piston traffic was more than [Tr. 8144] proportionate to
the reduced capacity. There, of course, I am quoting from
CI of your report.
Ithink that you have also here earlier today and yester-
day drawn the further conclusion that a net loss of airline
passengers over this period was the result, is that correct?
A. That is correct.
lindicated that the explanation of the loss in traffic was
‘sensitivity of the passenger travel market in shorter
‘sage lengths to frequencies of operations, that is, to the
wmber of flights available. With the curtailment of piston
tireraft services, the effect on traffic is quite marked.
Q The 1965 CAB Handbook at page 144 has Ameri-
an statistics, that is, American Airlines statistics, and at
mage 132 it has total domestic trunk statistics.
A-1628
Simat—Cross
Looking first at American and at the origination line
which I think you told us the other day was the best line to
look at, the line 19 as far as traffic goes, I find that in the
last pre-jet year, which was 1958, American’s originations
are reported as 7,191,000 and that in 1963 the last year
that we are concerned with in our study, at 8,402,000.
The intervening years I will read rapidly.
(Tr. 8145] 1959, 7,633,000.
1960, 8,080,000.
1961, 7,576,000.
1962, 7,998,000.
Over the period, is it not clear that American’s passenger
traffic increased significantly?
A. It is certainly true that over the period from 1958 to
1963, there was a significant increase in American Airline’s
traffic, and the traffic of every trunk line in the business,
Also, all the local service airlines, all of the international
carriers. And this increase was in large part the result of
a very substantial gain, in economic activity. ;
Q. It is also the period of the first five years in which
jet capacity was introduced by these airlines into schedule
service, is that not correct?
A. That is correct.
And let me point out to you, Mr. Tenney, that with re
spect to American Airlines’ passenger originations, between
the year 1959 and 1961, there was a decline in the absolute
number of passengers from 7,633,000 to 7,576,000.
And this was a period when American presumably, by
your count, had an edge in the number of jet aircraft.
{Tr. 8146] Q. The decline as we both know, for TWA
was greater, was it not?
A. Yes, but with a greater number of aircraft, American
Airlines, they should have shown, if I understand your
theory correctly, a substantial increase in passenger trafii.
A-1629
Simat—Cross
- [tis perfectly obvious that the jets that were added
between the years 1959 and 1961 did not add a single
passenger.
Q I would like to put-into the record the corresponding
fgares for domestic trunks as a whole from page 131 of the
(AB Handbook, again the originations line. For all domes-
tie trunks in 1958 there were 35,515,000 originations.
1959, 44,488,000.
1960, 45,184,000. -.
1961, 44,669,000.
1962, 46,759,000.
1963, 53,380,000.
The increase that those figures reflect you would attribute
tothe same factors that you attribute the increase in Ameri-
cah’s passengers, is that correct, Mr. Simat?
A. Tincreased—I attribute the increase in the [Tr. 8147]
total number of passenger originations and the much
greater increase in passenger miles I might point out to
a greater public acceptance of air transportation, part of
‘continuing trend, and further to a very substantial im-
provement in the state of the economy.
If you will take random data for the years 1965 and 1966,
you will see the increase in these two years is even more
immatic than anything that we had experienced before
ithout any substantial influx of jets.
Q Will you repeat that last part, please?
A. Without any substantial influx of jets.
@ On page C-II, you make the statement at the end
the first paragraph that in your opinion:
“A further addition of capacity by TWA or by
any other air carrier would have been even more
5 unprofitable.”
A-1630
Simat—Cross
Setting TWA aside for the moment, what do you mean,
Mr. Simat, when you use the phrase “even more unprofit-
able” in that sentence?
A. I have in mind that between 1958 and 1961, for ex.
ample, the airline industry added considerably to its invest-
ment in the form of jet aircraft, and yet the airline industry
as a whole did not experience [Tr. 8148] an increase in earn-
ings. In fact, there was a decreage in earnings.
So that for every dollar of investment added, there was,
in fact, a loss, an operating loss.
I am suggesting that if the capacity increase had been
any greater than it actually had been that the amount of
the profit lost would have been still greater.
I am further suggesting that it was not possible for any
major airline to have added capacity over and above the
capacity it already added at a profit.
Q. The fact is that American Airlines returned a profit
in its operations during every year of this period, did it
not? :
A. That is not the test.
The test is whether the additional investment in aireraft
and in capacity produced a net operating income over and
above the net operating income that would have been
experienced if they hadn’t added the capacity to the invest-
ment.
We are talking about adding capacity here, not maintain-
ing capacity.
Q. How do you know, Mr. Simat, what American would
have achieved if it had not added capacity during this
period?
{Tr. 8149] A. We have the figures for the earlier years
of the period.
I am not aware of any developments in the economy, in
the climate in which American Airlines and other lines were
A-1631
Simat—Cross
gerating, that would have caused a deterioration in profits,
asept the addition of capacity.
Q The fact remains, does it not, that American Air-
ines achieved a profit in each year in this period? That can
aly be answered yes, I think, Mr. Simat.
A. It is your question. I think the answer is yes. Let
ne check. .
American Airlines in each of the years from 1959 through
1%8 achieved a profit in domestic operations.
In international operations American Airlines lost money
n 1959, 1960, 1961.
Q I think you have already testified, Mr. Simat, that
fr American the international operations represented in
fe year that you selected to compare only two per cent
if the total, a relatively minor proportion, is that not cor-
ret?
A. The total revenues are not great, but that doesn’t
make the operations any less profitable.
(fr. 8150] Mr. Tenney: Would you read that back to
me!
(The answer was read.)
The Witness: I would point out to you, Mr. Ten-
ney, in this connection, that in the year 1964, Ameri-
can Airlines reported a net profit of $3,231,000 on
total international passenger revenues of $8,200,000.
By just crude calculations that appears to be close
to a 40 per cent return per dollar of passenger reve-
nue.
Q Mr. Simat, what would ‘have happened in your
inion to any airline that in 1959 through 1963 did not ac-
mize jets but simply continued to fly the pistons that it had
hem flying before?
| A. "There would have been some loss of traffic.
A-1632
Simat—Cross
Q. I thought you testified that there were no factors
that you were aware of in the economy during this period
that could have accounted for any losses other than the in.
crease in jet capacity?
A. Ibelieve that your earlier questions were directed to
the industry as a whole.
‘Q. No, they were not.
A. We are now talking about a single carrier.
Q. They were not. They were addressed to a single
(Tr. 8151 carrier, specifically in many instances American,
The same way your sentence on page C-II that I called your
attention to is addressed to a single carrier, an additional
capacity by TWA or by any other carrier. |
I am not talking about the industry. I am talking about
a single carrier. |
A. The record will speak for itself, but my recollection
is that the line of questioning that came up earlier had to
do with the state of industry and factors that would account
. for traffic developments within the industry as a whole,
Q. Let us go back to some of those questions then so that
we know what we are talking about.
We were talking at one point there about American Air.
lines. And we are talking about American Airlines in con-
nection with this sentence of page C-II of your report which
says and I quote only this part:
“A further addition of capacity by any other
carrier would have been even more unprofitable.”
I am inquiring as to how unprofitable the historic addition
of jet capacity was by a specific airline, in this case, Amer-
ican.
I call your attention again, as I did before, [Tr. 8152] to
page 242 of the CAB Handbook showing that American Air-
lines actually returned a profit throughout this period.
A-1633
Simat—Cross
A. Perhaps, Mr. Tenney, I can illustrate some of the
besic economics here with a rather simple numerical ex-
ample.
Let’s assume a situation where there are only two carriers
in the whole wide world and they operate between one pair
of points.
And let’s assume that each of the airlines is operating 100
seats in the market and each is carrying 80 passengers. The
load factor is in each case 80 per cent.
And by any break-even standards, this is a profitable load
factor.
Let us assume that things go on swimmingly in this vein,
mtil one of the two carriers decides that it might be desir-
able to add another flight and to obtain a bigger share of
themarket. So it does this. It adds another flight, another
100 seats.
It is now offering two-thirds of the capacity in the mar-
ket, and this should entitle it to two-thirds of the traffic.
There will be 300 seats in the market, instead [Tr. 8153]
of the 200 seats, 160 passengers, and the load factors will
be 53.3 per cent, probably in terms of just pure break-even
point, without considering return on investment and costs
of capital, an amount that is sufficient to recover the operat-
- ing costs of the operation for all carriers in the market.
However, what has the carrier that has added the addi-
tional flight wrought? He is now getting two-thirds of the
traffic, approximately 107 passengers, in lieu of the 80 pas-
sengers he was getting before. So he is adding 27 passen-
gers, but he has added 100 seats and the costs of 100 seats.
Bo by virtue of the addition of the flight, he has gained
% passengers, but he has lost a lot of money.
(Now, the operation may on an overall basis be profitable,
bat it is not as profitable to either carrier as it was before.
A-1634
Simat—Cross
To the carrier that has been stripped of the 27 passengers
that the adding carrier has acquired, he is losing the reve.
nue of the 27 passengers.
To the carrier who has added the capacity he is gaining
revenues of the 27 passengers but he is adding one heck of
a lot of costs.
[Tr. 8154] So nobody gains.
Q. The other carrier lost those passengers while not
doing anything at all, isn’t that correct, Mr. Simat?
A. That’s correct.
Now, let’s go through the arithmetic again and have the
other carrier recover some of those passengers.
We have our first carrier operating 200 seats now, and
the second carrier in the market has decided that he is not
to be outdone. So he adds another 100 seats in the market.
Now we have 400 seats in the market. We have 160 pas-
sengers divided two ways. That is 80 passengers per car.
rier. Divide that two ways, and that is 40 passengers per
flight. r
We are not operating all services at a load factor or 40
per cent.
The carrier has gained back the difference between 90
and—excuse me. Let me calculate that one out.
Mr. Tenney: Off the record.
(Discussion off the record.)
The Witness: It has gained back the 27 passengers
and it has cost that carrier the cost of operating 100
seats to gain back that 27 passengers [Tr. 8155] and
it has lost money in the process.
Now, ask me should it have done what it did,
added the second 100 seats? The answer is no.
It was better off not operating the second 100 seats
than operating the second 100 seats.
A-1635
Simat—Cross
In other words, you do not correct mistakes by
making additional mistakes.
Q In that example that you just gave, Mr. Simat, you
made the comparison for the second carrier between—the
comparison as to what the second carrier achieved by add-
ing its jet between the number of passengers that it ended
wp with after these two successive additions of capacity in
the same market which was 80 to the figure that it would
have had, and, in fact, since you did it ina step process, did
for a time have, as a result of doing nothing while the first
carrier added its flight, and that is how you got the 27
additional passengers produced by its added flight, that is,
the second carrier’s added flight, is that correct? ;
A. That’s correct, yes. It is the difference between not
doing anything and doing something.
Q. Why did you not compare the number of passengers
thet it had at the very end of all of this operation with
the number of passengers that it had at the very beginning
of all of this operation, in which case it would [Tr. 8156]
have produced zero passengers by adding a flight?
A. Well, if you want me to make the comparison, I will,
but I don’t think it is appropriate. .
.Q It would be quite unsound to make that comparison,
wouldn’t it?
A. I can’t answer that question categorically.
If you assume a situation where one carrier is free to act
ind another carrier is not free to act, then the answer is
probably yes.
But if you assume a situation where all carriers in the
market are free to act, then I’m not sure what the answer is.
In other words, it is a question of whether you have to
yo account what the competitive impact of the action
be.
A-1636
Simat—Cross
Q. Iam trying to confine myself to the example that you
formulated which was as you explained deliberately simpli-
fied, but attempting to take into account competitive factors,
In the terms of your comparison of these two air carriers
who are the only two air carriers in the market and they
compete on this particular pair of cities, which is, of course,
a necessarily simplified assumption, but in terms of your
own example it would be [Tr. 8157] quite unsound, would
it not, to evaluate what the second carrier achieved by add-
ing its flight through a comparison of what it had before
there had been any increases, even by the first carrier
against what it had after both carriers had made their in.
crease? That would be an unsound comparison, would it
not?
A. That would be true. And it would also be unsound
for the first carrier in the market to have added the 100
seats without considering the possibility that the second
carrier in the market would add a like 100 seats. -
Q. The answer to my question was yes, was it not?
A. With my qualification, yes.
Q. I am going to get a straight answer to my question,
Mr. Simat. That’s not a qualification you just gave. It is
a volunteered statement about something the first carrier
you say should have taken into account. The answer to my
question was yes, was it not?
A. I think I’ve answered all of your questions, Mr. Ten-
ney.
Mr. Tenney: Would you read my question back,
please?
(The question was read.)
Q. I would like an answer to my question without
(Tr. 8158] any volunteered comment as to what the first
carrier ought to be thinking about while this is going on. |
A-1637
Simat—Cross
The Special Master: Give him an answer.
A. I believe I said it was true.
{Tr. 8165] * ** Q. In. 1959, as this table shows, TWA
flew 1,379,000,000 jet seat miles, according to your table, and
1,146,000,000 jet passenger miles, is that correct, in 1958?
A. Yes.
Q. The marginal load factor that we pointed out a
moment ago appears in your table opposite the year 1960,
bat actually you have applied this as the marginal load fac-
tor for 1959 in your computations, have you not?
A. That is correct. We have used the change between
1959 and 1960 to guide us in determining how additional
capacity operated in 1959 would be utilized.
(Tr. 8166] Q. Just to look ahead a bit, you do this in
each year, do you not? The marginal load factor that you
determine and put in your table opposite the year 1961 is
the one that you use for calculations of 1960 results and so
on down the line. 1962’s marginal load factor is used in
191. 1963 is used in 1962 and 1964 is used in 1963, is that
correct ?
A. That is correct.
Q. In 1960, before adjustment again, the figures shown
for available seat miles for TWA are TWA’s actual 1960
figures, are they not?
‘A. Yes.
Q. The same is true for revenue passenger miles shown
for 1960, actual TWA statistics, nothing assumed about
them, is that correct?
A. That’s exactly correct.
Q. The amount of the assumed capacity increase does
not come into your computations until after you have deter-
Ty
A-1638
Simat—Cross
mined this marginal load factor from the actual capacity
increase in the subsequent year, is that correct?
Mr. Hayes: I am sorry to interrupt—
A. Iam not sure I understand that question.
The Special Master: Read it back, please.
(Tr. 8167] (The question was read.)
Q. If that is confusing, I will try to restate it.
A. Well, I think I understand the question now.
The answer is that the amount of capacity increase is
something that is entirely: independent of the calculation of
the marginal! load factor.
Q. The amount of capacity assumed to be increased!
A. Or assumed to he increased, yes, sir.
Q. The assumed increased capacity for TWA which both
you and Mr. Wemple have used for the year 1959 can be
found on page V-VII in Volume I of your report. It is
Table V-F. I think as a matter of fact it may appear in
one of the tables we put in. I think TWA Exhibit 329 and
330 that we put in earlier this morning actually has that
figure. It has been the easiest way to look at it.
For 1959. I find that there was an assumed increase of
267.9 million available seat miles of jet capacity for TWA,
is that correct?
A. Yes.
Q. Your marginal load factor is determined in this table
based on a computation of the results of an addition in
available seat miles of 1.640 billion, is it not?
A. Yes.
{Tr. 8168] Q. Mr. Simat, the assumed increase in capa-
city in 1959 is only about 19 per cent of TWA’s actual 1959
capacity, but von have determined a marginal load factor
based on the results of an addition in capacity of, I think
it is, 118 per cent.
A-1639
Simat—Cross
Is that a proper method of computing what would have
occurred in 1959?
A. Yes, I believe it is a proper method of computing
what would have happened in 1959.
Q. Do you really think that you would have as much of
a drop in load factors from a 19 or 20 per cent increase in
capacity as you had from 118 per cent increase in capacity?
A. I think that we are within the range of capacity
inereases where the differences in the marginal load factors
are not material. -.
{Tr. 8225]** * Q. Mr. Simat, I notice that that correla-
tion between the B-131B and the B-720-B was by a fair
amount the highest correlation in your table on C-26, which
is taken from Table XX, and it is by a very considerable
amount the highest of the correlations between any two
pairs of aircraft that we have been discussing here when
the correlations are taken from Table XXI as well.
Can you tell us what in general TWA’s experience with
the 720Bs in its fleet was? How many were there, in gen-
eral when it did have them and what the circumstances were
when they left TWA’s fleet?
A. They were a total of four aircraft all told, and they
vere in service from July of 1961 through October of 1962.
The aircraft were leased to TWA. The figures T gave
ror were for domestic services. There is an {Tr. 8226]
indication, a footnote to the table that in 1961 .0O—excuse
m—0.1 aircraft were assigned to the International Divi-
sion.
Q. When did the Boeing 131B aircraft come into TWA’s
fleet ?
A. The first of the aircraft assigned to service came in
in April 1962.
=
Simat—Cross
A-1640
Q. By the time that the 720Bs were retired from TWA’s
service and the lease terminated, how many 131Bs approxi-
mately had come into TWA’s fleet?
A. In the last month in which there are any recorded
B-720Bs, there were on the average 1.8 such aircraft, and
in the s@#me month the number of available 131Bs in domes-
tic services is indicated as 17.6.
Q. What was the relationship in point of time between
TWA entering into the contract for the purchase of the
the 131Bs and its making the arrangements for the lease of
the 720Bs?
A. I can’t answer that question, Mr. Tenney.
Q. To put it more generally, is it not the case that the
720Bs were leased by TWA to fill in part the needs for jet
equipment during the period pending ‘the arrival of the
131Bs for which they made arrangements at approximately
the same time?
(Tr. 8227] Mr. Hayes: I object on the ground
that there is nothing in Mr. Simat’s testimony as to
this unless he knows as a matter of fact.
The Special Master: Do you know?
The Witness: I don’t know as a matter of fact,
no.
Q. If the 720Bs were leased as a stop gap measure pend-
ing the arrival of the 131Bs, that would tend to explain why
you would get a very high correlation between the additions
of 131Bs and the deletions of 720Bs, would it not?
A. If that were so, yes.
[Tr. 8290] * ** Q. Did that proportion in your opinion
increase, decrease or remain the same over the five year
period you have studied?
A-1641
Simat—Cross
A. There was a slight tendency for the proportion to
decrease over the five year period from which we concluded
that the factor, whatever it was for jet operations was
smewhat different from the factor of piston operations,
that the average jet passenger would tend to make fewer
intermediate stops than the average piston passenger.
At the beginning of the period, however, there were
several forces which required, if anything, more stops on
m the part of the jet passenger than the piston passenger
because the jets were operated over a limited number of
stage lengths or a limited number of markets. There was
wme tendency for passengers who might have used direct
fights to have rerouted themselves so as to [Tr. 8291] make
we of the jet aircraft involving a separate connection or an
additional connection over and above the connection that
they would have made if there were no jet services avail-
able.
The Special Master: Does that indicate there was
a strong passenger preference for jets during this
early period of jet operation?
The Witness: I think that where the jets were
available, the jets were obviously the preferred air-
craft. And where it was possible to make connec-
tion to jet flights and save time in the process, pas-
sengers would reroute themselves.
In those cases, of course, there would be no addi-
tional traffic created by reason of the rerouting. It
is simply a matter of passengers rerouting them-
selves.
And if rerouting involved an additional number of
miles flown, a passenger flying out of his way to make
_, the connection, this would have a depressing effect
~ On revenue yields. For the same amount of revenues
A-1642
Simat—Cross
that the airlines would collect, it would have to fly
the passenger a greater distance.
(Tr. 8328] * * * By Mr. Tenney:
Q. Page D-19, the next page has one thing that I found
just slightly puzzling, the top of page D-19 which is a
revised page.
The sentence says:
“They establish a relatively small spread between
the jet and piston aircraft percentages ratios as we
would expect and they establish a somewhat higher
percentage ratio for piston than for jet aircraft serv.
ices as we would further expect.”
And I notice that the revision on that page, the only revis-
ion was that you changed the word “lower” in the phrase
“somewhat lower percentage” to the word “higher” to make
it “somewhat higher percentage.”
Was that change a reflection of a change in your compn-
tations or a change in your expectations, Mr. Simat?
A. It was a change brought about by the clear light of
day.
As I recall my drafting of the original sentence, it was
some time around 2:30 in the morning, and sometimes I am
not at my best at 2:30 in the morning.
(Tr. 8329] Q. On page D-21, Table D-IX, we have what
you have headed “Recalculation of Estimated Net Added
Passenger Revenues to Determine the Amount of Overstate-
ment from the use of Faulty Passenger Revenue Yields,”
which is a lengthy table in terms of numbers of columns at
any rate, and the first three columns after the dates are
taken, according to your heading, from Mr. Wemple’s fig-
ures.
A-1643
Simat—Cross
After that, we are dealing with your computations.
Is that correct?
A. Well, in the case of column 5, the computations are
not mine. The computations were already prepared by the
Civil Aeronautics Board. They are the computations of
average passenger trip lengths which we derived from the
Handbook of Airline Statistics published by the Civil Aero-
nautics Board.
Q. So this is an actual average trip length of passenger
sdded miles, although you have headed it “Assumed Trip
length,” is that correct?
A. That is correct.
Q. The next column is headed “Actual Trip Length of
Passenger Added Miles.”
That is not an actual trip length, that is an assumed trip
length, isn’t it, Mr. Simat?
(Tr. 8330] A. That’s a calculated actual trip length of
the traffic that was added between 1959 and 1963, derived
directly from TWA’s experience.
To obtain this figure, we took the 1959 passengers carried
by TWA and the 1963 passengers carried by TWA and sub-
tracted one total from another to obtain the number of pas-
sengers added.
We took the 1959 passenger miles and subtracted those
asenger miles from the reported 1963 passenger miles to
letive the number of added passenger miles.
Then we derived the added passenger miles by the added
misengers to obtain the added distance over which the
dded passengers traveled. /
And that figure is 1453, which is what you would expect
the added traffic were largely carried in jet aircraft.
hi You have applied that 1453 in each of the five years,
through 1963, without any change, is that correct?
A-1644 sa
Simat—Cross
A. Well, the 1453 is the average for the 1959-1963
period, and for purposes of this calculation we have used
the period average and applied it to each of year of the
period.
Q. If you tried to compute this figure in the manner
[Tr. 8331] that you have described on an annual basis by
comparing each year with the next year, could yon do it?
A. It could be done. And I would anticipate that in lien
of the amount shown here of 1453 miles each year of the
period, we would have a decreasing series, where in 199
the trip length of added passengers was substantially
higher than the trip length in 1963. And if I carried the
calculations out on that basis, I think you would find that
the column headed “Mr. Wemple’s Overstatement of Net
Passenger Revenues in Miles” column 9, would be higher
for the years 1959 and 1960, somewhat lower for the years
1962 and 1963, and the total effect of introducing an annual
average trip length would be to increase the amount of the
overstatement from 4.6 to something higher.
Q. In 1960, as opposed to 1959, TWA had a decline in
revenue passenger miles. ,
There was also a decline between those two years in
originations.
You have the phenomena from 1960 to 1961.
If you applied your method in those two years to obtain
an annual figure, what kind of result would you get?
A. I don’t think you could apply the same method {Tr.
8332] to data for the years 1959, 1960 and 1961, since during
this period, as I have testified and as you have now stated,
there was an absolute decline in the amount of traffic carried
by TWA, notwithstanding the addition of considerable jet
capacity.
To make the calculations on an annual basis, I would—
for this period—I would go to the detailed information
A-1645
Simat—Cross
viiech has now been furnished us by TWA indicating the
mine trip length and the flight stage length of passengers
that were actually carried by TWA in jet services.
We now have the information we did not have earlier,
vhich enables us to get behind divisional averages and
totals.
From the information that we now have we are able to
mike a better approximation or a better estimate of the
average trip length of added traffic year by year for jet
sireraft. In fact, we can do this for each type of jet air-
plane.
Q If you performed this annual computation from 1959
t 1960 and 1960 to 1961 using the method that you de-
stibed and carried out the arithmetic, in spite of the fact
that TWA had a decline in those years in originations and
passenger revenue miles, by your method wouldn’t you come
out with a negative yield figure with TWA paying the [Tr.
$333] passengers to travel on it?
A. I think we have another version here of a parable.
It was once true, Mr. Tenney, that Capital Airlines had
anegative investment. In other words, it was on a deficit
inits investment account and it was also true that they lost
money for that year. And some witness divided the operat-
ing loss by the investment base which was negative and
concluded that Capital had the highest rate of return in the
industry.
The reason for that is when you divide one negative by
mother negative you get a positive. ~
Q. But doesn’t the fact that it cannot possibly be used
man annual basis during much of this period indicate that
this method that you have used to select a single figure
vhich you call actual trip length of passenger added miles
for each year of the five-year period is a completely un-
sound method ?
Not so, Mr. Tenney.
a
A-1646
Simat—Cross ‘
The obvious fact which you can observe from column 5 is
that the average trip length of passengers during this
period was increasing. It went from 892.6 miles in 1959 to
942.3 miles in 1963.
And algebraically I know of no phenomenon that [Tr.
8334] would explain that increase in average trip lengths,
save the fact that the added passenger traveled at a some.
what higher average trip length than the passengers that
we started out with in 1959.
In other words, to bring the average up you have to add
something at a higher value than the average.
There are varying ways of determining what the trip
length is of an added passenger. In those years where
there was an absolute decline in the volume of passengers
and passenger miles, algebra fails you.
However, there are ways of obtaining, even for those
years, the trip lengths of added passengers. And if you
look at the entire period from 1959 to 1963, it is possible,
using simple algebraic calculation, or arithmetic calculation,
I should say, to compute the average trip length of the
added passenger.
The figure that appears when you make that computation
is 1453 miles. That is the trip length which explains the
difference in the average trip length experienced by TWA’s
passengers between 1959 and 1963.
And to my mind, it is not an unreasonable figure.
Q. But to summarize, in part, this figure when you ap-
ply it in each year in this five-year period without change,
isn’t it true, Mr. Simat, that there is nothing fTr. 9335]
whatsoever actual about it; that it is instead an example
of a variable constant added to your work to come out with
a predetermined answer, otherwise known as the finagle
factor?
A-1647
Simat—Cross
A. It is certainly true, Mr. Tenney, that the 1453 miles
does not—is not the added trip length for each year of the
period. It is the average for the entire period.
And I have testified that if we determined as we now can
more accurately the figure for the added trip length for
wach year of the period, we would find that it is higher for
9, 1959, than it is for 1963, and that if we made the ad-
jastments in Table D-IX on that basis, that we would find
that the overstatement in Mr. Wemple’s estimates were
een greater than we estimdte in column 9 of the
table. eee
(Tr. 8400] °° * The Special Master: As long as
you were interrupted in your argument by me, Mr.
Hayes, let me ask you, suppose” Mr. Simat next
spring should [Tr. 8401] after more cross-examina-
tion, develop another theory which he thought was
even more accurate to express his views, how would
you feel about that?
Mr. Hayes: I think that if I were in your shoes I
would say you’ve had time enough to think up your
best one.
The Special Master: You think three bites is
enough?
Mr. Hayes: No, it is only two bites. The second
was merely correction.
The Special Master: The first and then revision
and substitution? | .
Mr. Hayes: The second is rot a bite.
The Special Master: Do you, Mr. Simat, look on
this as a substitution for your—what will be the
status of your present report if this report is al-
lowed?
A-1648
Simat—Cross
The Witness: I think I testified earlier and I still
feel that the revenue estimates produced by this
second round would be far superior and more reli-
able than the revenue estimates produced by the
first round.
The Special Master: Let me ask you, either you or
Mr. Hayes, whichever one decides, your pre- [Tr.
8402] sent report comes up with the idea that TWA
would have lost millions of ‘dollars if it had had these
additional planes. ee j
Do you think it is reasonable to expect that your
supplemental report will show that TWA would have
come up with some profit, that there would be $50
million difference between your present estimates—
60 million between your present estimate and revised
estimates? What help is it going to be to me to have
a supplemental report which shows that instead of
losing $60 million under these assumptions TWA
would have lost 70 million or 100 million or 30 mil-
lion or would have broken even, not had any profit!
That is really my problem.
Mr. Hayes: I think it amounts to this. You are
sitting as a master in a damage. hearing. What we
have so far tendered is merely a critique of plain-
tiff’s expert witness, with the reasons given as to
why in our expert’s opinion his assumptions can't
be accepted; and with adoption—with the applica-
tion rather to the plaintiff's expert’s methodology of
refinements that our expert thinks should be made
before it could be accepted.
The second report is ‘taking a new, fresh [Tr.
8403] look based not on divisional averages, not o
assumed data.
A-1649
Simat—Cross
For example, the assumption that Mr. Wemple in-
dulges with respect to how many flights there would
be in the International Division without telling us
where they are going to fly. He did not study that or
anything else, without telling us what areas they
would be put in or where they would be put in or
anything about them.
Now what is proposed is that on the basis of what
TWA actually did—
The Special Master: I understand that.
Mr. Hayes: —flight by flight—
The Special Master: Let me—
Mr. Hayes: To answer your question if I may—I
don’t think I have answered it—
The Special Master: I don’t think you have either.
Mr. Hayes: That’s what I would like to do. This
is merely preliminary. --”
The Special Master; : “Right.
Mr. Hayes: I think from your position as a master
on a damage hearing you would want to know what
is the best estimate that can be made based [Tr. 8404]
on the actual facts regardless of what the result
would be. I can fully understand Mr. Simat sitting
here can’t tell you what is is going to come out with.
He has not finished it.
The Special Master: Let us take a couple of hypo-
thetical situations. Suppose Mr. Simat came ont
with the result in a supplemental report on his re-
fined figures that TWA would have lost $120 million
instead of $60 million, what difference as a practical
matter would that make in the case?
Mr. Hayes: I think as a practical matter that
would make this difference to you, that on a detailed
study assuming it stands up there couldn’t possibly
A-1650
Simat—Cross
be any award of damages here. There is nothing
to compromise.
The Special Master: Isn’t that true on the pres.
ent—
Mr. Hayes: We think the present report tends to
establish that the calculations put in by plaintiff are
not reliable, but the second report would show what
are reliable calculations and there would be a much
firmer basis for a conclusion by you that there
couldn’t possibly have been the damages claimed.
That is the big difference it [T'r. 8405] would make.
The Special Master: That would seem to throw
considerable doubt on your mind on the validity of
the present report. .
Mr. Hayes: No, it does not. I don’t at all even
suggest that there is any lack of validity in the pres-
ent report.
Iam thinking rather of a record that we must make
here first for you and then for the courts beyond,
and I am thinking chiefly of the best evidence for
this case. This is what I am driving at.
The Special Master: SoamI. I want to make it
very clear on the record that I in view of the large
amounts involved in this case, I want to give the
defendants more than what I think is reasonable time
to develop their expert testimony in this matter, and
I am trying to lean over backwards in that respect.
On the other hand, I recognize we have to come to
the conclusion some time.
You say that this should be the last bite, the third
bite. Mr. Tenney says the second bite is enough.
I realize there is tremendous cost to both [Tr. 8406]
sides involved.
A-1651
Simat—Cross
I still can’t quite get through my head why Mr.
Simat, having presented this report showing that
TWA would have lost $60 million on these assump-
tions as to why—and you stand on that report as
being the judgment—because Mr. Simat has said very
firmly that in his opinion even aside from the results,
his study has shown that he thinks that all the sur-
rounding facts and circumstances and background
support his conclusions. If his conclusions are ac-
cepted at face value, TWA not only has no case, but
as I said facetiously the other day, they owe Mr.
Hughes quite a lot of money.
But what I mean to say is that the gap is so wide
there, before you could come to a conclusion that
TWA was damaged, if you are going to accept Mr.
Simat’s testimony, that a ten per cent change in the
figures, 20 per cent, I believe, change in the figures
would still come to the same conclusion, that under
no circumstances is TWA entitled to any damages
here.
So I don’t want to waste your time or the plain-
tiff’s time or the Court’s time or anybody else de-
laying the matter for another year, six months to
(Tr. 8407] a year, as I think Mr. Tenney expressed
it, if I can’t see any possibility of there being a change
in your general conclusions.
Mr. Hayes: If I knew which I don’t, and I am not
inquiring because I have no right to make—
The Special Master: In other words, how can you
do anything except help TWA in a new report, by
showing that the loss wouldn’t have been as much
as you thought? Because it certainly won’t do much
» good as I see it at the moment to say TWA would
have lost 70 million instead of 60 million.
A-1652
Simat—Cross
Mr. Hayes: I couldn’t agree with you more, Mr,
Brownell. * * *
(Tr. 8431] * * * By Mr. Tenney:
Q. At the end of our session on Tuesday, Mr. Simat, we
had gone over some information as to Pan American and
other carriers, equipment position in 1959. I would like to
turn to the next year 1960.
You testified that by the end of 1959 Pan American had
received 21 jet aircraft, and that TWA had received four
of its international type B-331s.
Can you tell us what Pan American received in terms of
jet aircraft during the year 1960, mentioning types if you
have them available?
A. I have before me a summary table which does not
provide information as to the type of aircraft beyond a
general description of the manufacturer and the overall
model number.
And according to the figures that I have before me, as
of December 31, 1960, Pan American had 29 Boeing aircraft
of the 707 variety, and this was an increase of eight over
the number of aircraft it had on hand at the end of Decen-
ber 31, 1959.
Pan American further had 17 DC-8 aircraft, Douglas
aircraft, for a total of 46 aircraft. And the {Tr. 8432] 46
at the end of 1960 compares with a total of 21 aircraft at
the end of 1959, all of which were Boeing.
Q. I think perhaps you know this of your own know!
edge, Mr. Simat, even thongh the model numbers are not
set forth in greater detail in that table.
Of those eight additional Boeing 707 type aircraft re-
ceived by Pan American in the year 1960, it is true, is it
not, that three of them were Boeing 707-331s, originally
constructed to TWA’s specifications?
A-1653
Simat—Cross
A. It sounds right, Mr. Tenney, but I do not have the
fgares before me to confirm it.
Q Can you tell us how many additional intercontinental
type jet aircraft TWA received in 1960?
A. Again, I will have to.consult another source for that.
According to the figures before me, TWA had 19 Boeing
ureraft in 19—at the end of 1959, and a total of 27 at the
end of 1960.
That is a net gain of 8. I would have to consult another
wuree to determine the type numbers of those 8 aircraft.
Q I think that from the Coverdale & Colpitts report—
ind in fact I think we covered this on Tuesday—15 of those
tireraft in both years were Boeing 707-131s, not used in
transatlantic service.
(fr. 8433] So that all 8 of the increase in 1960 were of
the 831 type ?
A. Yes, that has been called to my attention as some-
thing that appears on page 10 of the Coverdale & Colpitts
report.
Q In 1960, therefore, Pan American took delivery of a
total of 25 additional jet aircraft nsable on its interconti-
wntal routes, while TWA took delivery of an additional 8
ora without regard to the specific manufacturers
or precise model numbers.
Yet on page E-5 of your report, it appears, does it not,
tat during 1960 TWA was able to increase its percentage
if available seats offered as compared to Pan American’s
wailable seats offered from 53 per cent to-72 per cent.
That is what vour table shows there, does it not, Mr.
Simat ?
A. Yes.
Q On Tnesday we put in TWA Exhibit 337 which gives
he ratio in a slightly different form as Pan American to
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Simat—Cross
TWA, and it shows that the ratio of transatlantic seats
offered by Pan American to those offered by TWA dropped
in 1960 to 1.39 from a figure in 1959 of 1.89, which is just
a different way of expressing the same [Tr. 8434] propor.
tion, is it not, Mr. Simat?
A. Yes.
Q. Doesn’t this change in the proportion of seats offered
between those two airlines at a time when Pan American
was taking delivery of far more aircraft than TWA was—
doesn’t this change in proportion indicate that Pan Ameri-
can found it necessary to use many of its jets on other
routes and could not concentrate on a competitive response
to TWA in the transatlantic market?
A. It could mean various things, Mr. Tenney.
It could mean that Pan American decided that the capac
ity in the transatlantic market was already excessive, and
that a further investment of equipment in the transatlantic
market would not have been economic for it.
Q. Do you see from these statistics any support for the
theory that Pan American in 1960 was engaging in com-
petitive response to TWA’s increase in transatlantic
service?
A. Yes, I note that between 1959 and 1960, Pan Ameri-
can increased its seating capacity in the transatlantic mar-
ket from 472,000 to 537,000, an increase of approximately
25 per cent.
Q. The approximate increase in TWA’s seats offered
from 1959 to 1960 was on the order of approximately 70
[Tr. 8435] per cent I make it by eye. It that about right,
Mr. Simat?
A. Your eye is pretty good. It is within 1 per cent of
what I caleulate on my slide rule.
T also note, Mr. Tenney, that the total number of TATA
passengers increased approximately 25 per cent between
1959 and 1960.
A-1655
Simat—Cross
Q. One of the assumptions that we are operating under
in all of these estimates is that six of the jet aircraft that
Pan American would have had at the end of 1960, that is,
thesix Boeing 707-331s that we have referred to would not
have been in Pan American’s fleet but would instead have
been in TW A’s fleet, is that not correct?
A. That is one of the assumptions, yes.
Q Moreover, an additional assumption that we are
making in these estimates is that delivery dates of these
sireraft as between Pan American and TWA would have
been reallocated with more of the earlier delivery positions
gong to TWA and fewer of the earlier delivery positions
going to Pan American, is that not correct?
A. If by these aircraft you mean aircraft of the Boeing
31 type, the answer is correct.
It is not, of course, correct with respect to [T'r. 8436] the
six aircraft.
Q If TWA with the historical proportion of aircraft
wvailable to it was in 1960 able to increase its percentage of
total available seats offered in transatlantic service as com-
pared to Pan American to 72 per cent, is it not reasonable
fo assume that our reconstructed TWA, as we sometimes
all it with six more jet aircraft of the proper type and all
fits aircraft of this type having their delivery dates some-
vhat affected in a favorable direction by that second
ssumption would have been able to schedule substantially
more proportionately jet seats as compared to a Pan Ameri-
am that under these same assumptions would have had
fewer aircraft on a somewhat slower timetable?
A The answer is not necessarily so, and maybe to make
it more precise, no.
The fact is that Pan American did have aircraft deployed
mother divisions which could have been switched to the
gay
A-1656
Simat—Cross
Atlantic Division. Pan American had various other options
on the operation of aircraft, all of which would have per.
mitted Pan American to increase its volume of service on
the transatlantic sector over and above the service that it
actually supplied in 1959 on the same sector.
{Tr. 8437] Q. In terms of jet aircraft, as opposed to
piston aircraft, what options did Pan American have that
would have made the conclusion I suggested a moment ago
an unsound one in your view?
A. My earlier statement did refer to jet aircraft. If]
didn’t make that clear, let me make it clear now.
Q. Then would you explain what the options were that
you referred to?
A. Well, during the year 1960, Pan American had a total
available fleet on the average of 32.4 aircraft, these are
four-engine jet aircraft, of which a total of 16.0 or some.
what less than half were deployed in the Atlantic Division.
That left a remainder of some 16.4 aircraft deployed in
other divisions which could have been deployed in the
Atlantic Division if need be.
In the same year, TWA had all told a total of 6.1 four-
engine jet aircraft assigned to its international services.
So there was on hand as far as Pan American was con-
cerned a substantial reserve of four-engine jet aircraft
which were available to be switched into the Atlantic Divi-
sion if management had so decided.
Q. But on our assumption, of course, that reserve would
have been substantially less by perhaps six aircraft?
(Tr. 8438] A. I referred, Mr. Tenney, to average num-
bers-of: aircraft for the entire year, and not the number
of airplanes on hand at the end of the year.
And I pointed out earlier that there are material differ
ences between the average numbers of aircraft available
during the year and the average numbers of aircraft—the
actual numbers of aircraft available at the end of the year.
A-1657
Simat—Cross
If, for example, every airplane in the fleet were received
on December 30th, the actual average number of aircraft
available during the year—and let us assume a fleet of ten
sirplanes is received on December 30th—it would be in the
order of 20 days divided by 365 or by quick arithmetic some-
thing about 6 or .6 or .7.
Q. Have you computed what the average number of air-
eaft during the year 1960 for Pan American would be if
you took into account the assumptions that we are operating
under?
A. No, Ihave not made that calculation, but I will. It is
a calculation that can be made from the receipt dates of
the airplanes after allowing for an inservice lag to put
the dates on all fours with the dates that are reported to the
Civil Aeronautics Board. There is, of course, a difference
in the counting of (Tr. 8439] aircraft days between the
information reported to the Civil Aeronautics Board and
the information maintained internally by TWA.
In the case of the Civil Aeronautics Board information,
- the starting date, the date when the meter started running
-maireraft days is the date that the airplane is placed in
wrviee, in transport service. It is not the date when it is
svailable for service.
And there is a lag which I would estimate is normally on
te order of approximately ten days between the in-service
date and the availability date.
Q I think perhaps there is another way that this can
be computed without much difficulty. .
Im’t it true that the amount of the annual average jet
ureraft available for service to Pan American would be
dereased by the operation of these assumptions in 1960
thould be the same as the amount by which the annual
aeee of airplanes of this type available to TWA in 1960
Ril
A-1658
Simat—Cross
was increased? We are just talking about the same air.
craft switched over and certain delivery assumptions,
Is that not correct?
Mr. Hayes: May I have that question, please?
{Tr. 8440] The Special Master: Read it back.
(The question was read.)
A. Yes, that’s approximately correct with the difference
that the method of counting aircraft days by the Civil
Aeronautics Board is a little bit different than the method
of counting aircraft days that is used in the Coverdale &
Colpitts report and used internally by TWA.
Q. I find on Exhibit D of Volume IV of the Coverdale
& Colpitts report the figure given of an additional 5.0 B-331
jet aircraft available for commercial service to TWA during
the year 1960, and that figure is given as an annual average.
So that while there might on the basis of the slight differ.
ence in computation that you refer be a slight difference
there, we are talking approximately about 5.0 aircraft
fewer on an annual average basis available to Pan Ameri-
can in 1960, are we not?
A. Yes.
Q. Is it your opinion that Pan American in 1960 would
have allowed the effect of any equipment shortage that it
might have felt it had to be concentrated upon those parts
of the worldwide system other than the transatlantic routes!
(Tr. 8441] The Witness: May I have that ques.
tion read back?
(The question was read.)
The Special Master: Is that clear to yout
The Witness: I think it is clear to me now.
A. I don’t think there is much doubt that Pan American
if it felt it was suffering from an equipment shortage would
A-1659
Simat—Cross
have placed the bulk of its equipment in the Transatlantic
Division.
In point of fact, the Atlantic Division is where Pan
American first put its jets.
In the year 1959, for example, Pan American had on hand
during the year an average of 7.7 jets on a system-wide
basis. Of these 7.7, 6.3 were put in the Atlantic Division.
Q@ Wouldn’t Pan American be jeopardizing its world-
wide good will if it extended beyond a limited period of
time the period during which it did not offer adequate serv-
ie on it worldwide routes other than the North Atlantic?
A. I am afraid I don’t understand what you mean by
Pan American’s international good will.
fr. 8442] Q. Pan American’s routes are as you have
testified and as, of course, is on the record in other context
here worldwide and ha
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