Deregulation of Air Cargo

Under CAB regulations, air cargo was allowed to be carried by certificated carriers in the belly of any type of aircraft and over any route for which the carrier had passenger authority. As of 1978, more than half of all cargo still moved in the bellies of passenger aircraft. No “all-cargo” commercial car­riers appeared on the scene at all until after World War II. In the 1970s, there were only a few all­cargo certificated carriers, including Flying Tiger and Seaboard World Airlines, and only one air taxi cargo operator. The air taxi was Federal Express, and it had been allowed entry into the cargo field by using the CAB exemption for small airplanes— under 12,500 pounds. Once a cargo plane landed, it was limited to a delivery radius of 25 miles by ICC regulation. The CAB set cargo prices and did not allow higher prices for faster transport.

In June 1976, John Robson proposed to Congress that cargo be treated separately from passenger operations and, going beyond what either Kennedy or Ford had authorized, sug­gested that air cargo be completely freed of regulatory control. At the time, the pending air­line deregulation bill applied to both passenger and cargo carriage, but the main problem with advancing the legislation lay with the passenger side of the legislation. This was due to powerful interest groups on the passenger side who were opposing airline deregulation vociferously. On the cargo side, there were no such interest groups working against the bill; in fact, most all of the interested parties supported complete deregula­tion of air cargo. This was the opening that John Robson saw and was the reason for his proposal to split the legislation and seek full deregulation for air cargo.

Federal Express and Flying Tiger represen­tatives worked closely with Congressional com­mittees to separate the passenger legislation from the cargo legislation, and on October 20, 1977, the cargo bill was signed into law by President Jimmy Carter. By this statute, the cargo carriers were free to use aircraft of any size, to fly them wherever they chose, and to set rates that were justified by market conditions.

The share price for Federal Express on the day of the passage of this law in October was $9.16. By December, it had catapulted to $34.75. Share prices for Flying Tiger also rose. Federal Express began acquiring large jet aircraft, up to seven times larger than those permitted during regulation. Total shipments increased by 38 per­cent in 1978. Overnight shipping was born, with pricing based in part on speed. In the world of air cargo and on the New York Stock Exchange, the name “FedEx” took on new meaning.

The deregulation of cargo also created opportunities for companies engaged solely in surface transportation. In 1981, United Parcel Service (also known as UPS) entered the over­night air delivery business and is today one of the largest cargo airlines in the country. It is an interesting fact that labor relations between UPS management and its employees are governed by the National Labor Relations Act, while FedEx is subject to the Railway Labor Act. This seem­ing contradiction is, of course, due to the fact that UPS was subject to the NLRA from its inception as the American Messenger Company in 1907.

The success of the air cargo carriers due to deregulation was a positive sign for air passen­ger deregulation. Arguments that chaos would follow deregulation of the air carrier industry were to some degree muted by the success of the air cargo carrier experience, but not everybody agreed. [11] [12]


The second entry into the lighter than air cat­egory was the craft known as the dirigible. The marked distinctions between a balloon and a dirigible are the elongated shape of the dirigible; the control planes to allow pilots of the dirigible to turn, descend, and climb; and the presence of engines to provide thrust.

Both balloons and dirigibles used hydrogen gas to provide a lifting substance until the gas helium was extracted from natural gas in 1917. Since the United States had a monopoly on helium, no other country was privileged to use it in their airships. Instead, they were required to continue to rely on the very flammable hydro­gen gas.

The first dirigibles (the term used here interchangeably with the term “airship”) flew in France between 1851 and 1884. The word dirigible is derived from the French diriger, meaning to steer. Airship, on the other hand, is a literal translation of the German, Luftschiff (airship).

Airships are of two main types, rigid and non-rigid. (See Figure 5-2.) The rigid airship was highly developed after the turn of the 20th cen­tury by Ferdinand Adolf von Zeppelin, a former German cavalry officer, who became acquainted with balloons during a visit to the United States. His LZ-1 became the first rigid airship to fly in a

17- minute sojourn over Lake Constance in 1900. This craft was 420 feet in length, supported by hydrogen gas, and cruised at 20 miles per hour with two 16 horsepower engines. Count von Zeppelin became a national hero because of his development of the very imposing and exciting “Zeppelins,” which could be seen overhead pro­ceeding majestically through the German coun­tryside. In 1909, Count Zeppelin formed the first passenger line for the carriage of passengers by air, Deutsche Luftshiffahrts A. G. (DELAG). DELAG, the airship company, carried passen­gers all over the country of Germany after its inauguration, and by 1913 had conducted over 1,600 flights, carrying 35,000 passengers without mishap.

With the advent of World War I, Germany and England geared up to produce airships by the hundreds. The British navy produced 200 airships between 1915 and 1918, more than Germany, and almost all of them were used for antisubmarine patrol. Germany produced 125 Zeppelins between 1914 and 1918, and employed them in offensive engagements over the Eng­lish countryside, dropping bombs and otherwise wreaking havoc among the terrified population. The Zeppelins proved quite vulnerable to anti­aircraft battery fire and to fighter aircraft. Of the 125 Zeppelins manufactured and placed in ser­vice during the war, only 6 survived.


Non-rigid airship (blimp)

Semirigid airship



Elevator flap





Engine compartments




Several countries produced airships after the war. Both England and France built dirigibles, but accidents and mysterious disappearances caused the French to cancel their program in 1923. England continued operating dirigibles until 1930. Aerodynamic improvements were made as the technology advanced. The English R-34, completed in December 1918, had a total air resistance of only 7 percent of a hypothetical flat disc of the same diameter. The United States built its own dirigibles and even received a Zep­pelin as a war prize from Germany after the ces­sation of hostilities in 1918. The 660-foot ZR-III was the 126th Zeppelin constructed by Germany

and was later renamed Los Angeles and placed in service by the U. S. Navy.

After the war, the Zeppelin continued to be used in passenger service between America and Germany, as well as between Germany and South America. Zeppelin flights continued until the occurrence of the Hindenburg disaster in Lakehurst, New Jersey, in 1937. The Hinden­burg was undoubtedly the greatest airship ever constructed, boasting restaurants, staterooms, lounges, and other amenities for the enjoyment of its transatlantic passengers.

The Goodyear Company built airships for the United States, including the Akron in 1931,
commissioned for service in the U. S. Navy, and the Macon in 1933, also a navy craft. Both the Akron and the Macon were lost to weather, the last of a long line of airships that had come to similar grief. It was believed that the rigid air­frame employed in the dirigibles was not suffi­ciently flexible, given its rather large dimensions, to withstand the vicissitudes of rough air and storms. The days of the rigid airship thus came to an ignominious close with their last production in the 1930s.

The non-rigid airship, or blimp, was placed in service by the United States Navy in World War II in convoy operations, and proved effec­tive as an anti-submarine weapon. The only service to employ blimps in World War II, the United States Navy, worked 170 of the non­rigid airships over the Atlantic during the war, escorting 89,000 ships and logging some 500,000 hours flying time.

Today, blimps are used almost exclusively as promotional devices, employing television cameras for golf event coverage or other sporting events, or displaying brand names of commer­cial products on their ample sides. The advent of international terrorism after September 11, 2001, however, has caused renewed interest in the sub­ject of blimps as a potential countermeasure against terrorist attacks in the United States.

Transcontinental Airmail

On February 22, 1921, the first attempt at a through, continuous transcontinental airmail ser­vice was made. The plan called for a westbound plane to leave New York to fly the initial segment of the route to San Francisco, and an eastbound plane to leave San Francisco initiating the first segment to New York. (See Figure 10-9.) The trip each way would be sequentially flown by fresh airplanes and pilots, like the Pony Express, handing off the mail at predetermined points along the route. Two aircraft were assigned to begin at each end of the route.

The first airplane to leave New York dis­continued shortly after take off. The second plane flew to Chicago but was grounded due to weather. The first plane out of San Francisco crashed in Nevada, but the second plane made

Transcontinental Airmail

it to Reno, and 12 hours after leaving San Fran­cisco, the mail arrived in Cheyenne. Another plane took the mail on to North Platte, Nebraska, and there it was turned over to the next segment airmail pilot, Jack Knight.

A combination of ground personnel and volunteers built bonfires along Jack’s route, which was to be traversed at night, and he made it to Omaha, his segment complete, by 1:00 a. m. There he learned that the plane scheduled to meet him in Omaha had not left Chicago due to weather. He volunteered to continue, armed only with an automobile road map to guide him over unknown terrain, a landscape he had never flown. This part of the country is chilly in February, and this night was accompanied by cold, ice, and snow, along with the low clouds that produce snow. He was unable to land at Des Moines, Iowa, as planned. He continued to Iowa City, and arriving, searched for the airport that was unlighted because the ground crew had left for the evening, believing that no sane person would fly in the prevailing conditions. A lone employee at the airfield heard his engine, lit a flare and watched as Jack Knight glided in with an empty gas tank. After refueling and accept­ing a quick cup of coffee, Knight gamely flew on to Chicago, finally landing at Checkerboard Field at 8:40 a. m. From there, the mail relay was continued to New York and, when the results were announced, the mail had been successfully carried coast to coast in slightly more than 24 hours.

The best that the Post Office had been able to do up to that time using the railroads was a transcontinental transit of three days. The experi­mental policy of flying the mail during daylight hours and handing the mail off to the railroads at night had only marginally improved savings in time, and was generally considered to be not cost effective. But with the grand experiment of February 21, 1921, it was now clear that flying the mails for the entire route could be done.

The success of this first attempt caused Con­gress to favorably consider appropriations sought by the Post Office, granting a splendid sum for that time, $1,250,000, for airmail extensions. Paul Henderson, who became Second Assistant Postmaster General in 1922, was committed to the Otto Praeger principle that the mail could be flown. But it was clear that the mail had to be flown both night and day, and that bonfires as a means of nighttime navigation probably had only the most limited of possibilities.

The Airmail Act of 1934 (The Black-McKellar Act)

The Black-McKellar Act, passed by Congress in June 1934, codified the arrangements for the award of airmail contracts made in April 1934 (see Figure 14-1), and repealed the pow­ers and prerogative of the Postmaster General as established in the Watres Act. Competitive bid­ding was reinstated. The newly named airlines bid on the routes. Airline executives involved in the Brown meetings were prohibited from occupying positions of authority in the new airlines. The vertical structure of the airlines

and manufacturing companies was prohibited. United Aircraft and Transport, for example, was dismantled and its operations split three ways:

• Boeing took over all operating properties in the West;

• All eastern United States’ functions were assumed by United Aircraft Corporation (today known as United Technologies), run by Rentschler;

• Finally the airline itself, United Air Lines, became a separate and independent entity.

The air carrier industry was reorganized under the Act by separating oversight and regula­tory authority among: [10]

2, The Interstate Commerce Commission, which would establish reasonable rates through competitive bidding oversight;

3, The Department of Commerce, which through the Bureau of Air Commerce would attend to safety.

Ultimately, the effect of the Act would be to divest the other large airline operations from their holding companies. Aviation Corporation (AVCO) divested itself of American Airlines, now to be run by C. R. Smith as an independent corporation. North American Aviation (NAA), a complex and diverse entity, was the parent of both TWA and Eastern Air Transport, and had substantial manufacturing interests. NAA first sold off TWA, which was then run by Jack Frye, a pilot’s pilot. In due course, Eddie Rickenbacker cobbled together Wall Street financing to the tune
of some 3.5 million dollars and bought out the Eastern Air Lines interest. Thus, all of the Big Four were positioned independently for the advent of commercial air transportation and the first comprehensive federal regulation of it.

Pan American, meanwhile, had been unaf­fected by the so-called Brown scandal and still had its airmail contracts awarded under the For­eign Airmail Act of 1928 by the Postmaster Gen­eral. The Brown philosophy that the international airmail business should not compete with the domestic airmail business, and vice versa, was intact. The international trade routes that had emerged from the Brown era were not in the least affected by the new law, nor by anything that Black had done, and Pan American was set to become the premier airline of all.

On the Way to the Jet Age

«To put your life in danger from time to time. . . breeds a saneness in dealing with day-to-day trivialities, w

Nevil Shute, Slide Rule: The Autobiography of an Engineer

he last of the big airliners mounting recipro­cating engines on their wings were stretched versions of the airliners that had gone before. The DC-6 and the DC-7 were from the DC-4 model with various refinements to go along with the increase in length, breadth, and power. The Super Constellation was 19 feet longer than the original. With increased length came additional seating and with more seating came more revenue. Range was extended so that nonstop service was possible— not only coast-to-coast but transatlantic.

The DC-6 was launched in coast-to-coast service on April 27, 1947, with one stop en route for fuel. United advertised its service as ten hours total. (See Figure 19-1.) TWA’s Constellations could do about the same, advertised as ten hours, ten minutes.

Boeing, a late entry to the new postwar aircraft building party, in 1948 introduced the double-decked B-377 Stratocruiser, a four – engine landplane larger than either the DC-6 or

Constellation and designed with an emphasis on luxury reminiscent of the Pan Am Clippers. The airplane featured two decks with a cock­tail lounge with leather seating located below, accessible by a curved stairway, and with a honeymoon suite in the aft section. Take off per­formance in the Stratocruiser was marginal, with the DC-6 routinely outperforming it, but it was bigger and faster at 340 miles per hour than any other airliner. It was also expensive, costing over $1.5 million, and its high operation costs did not help matters. It had engine problems (the P&W Wasp Major had 112 spark plugs in 28 cylinders and delivered 3,500 horsepower) and the propel­lers had a tendency to go flying off on their own. Still, these airplanes were the ultimate in passen­ger comfort. New York to London was a pleasant affair of 12 hours duration, including cocktails, a five-course dinner, a good night’s sleep, and plenty of attention. But the Stratocruiser had the worst safety record of the postwar big planes; six were involved in fatal crashes with the loss of 108 passengers and 28 crew. United unloaded their Stratocruisers early; Northwest kept theirs for years. In the end, the airlines seemed glad to see them go. Figure 19-2 pictures the Boeing 377, the Constellation 049, and the DC-4.

The DC-7 proved to be the first true trans­atlantic airplane, flying either west or east with a full load. With it, Pan American regained its leadership position over TWA, which was flying the Super Constellation. The DC-7 had engines that were reaching the limits of reciprocating – engine power possibilities. With four Wright turbo-compound engines providing 3,250 horse­power, each weighing over 3,500 pounds, engine maintenance was a problem; American Airlines reported 10 engine failures a day on average. Westbound DC-7 service to the Pacific coast was advertised as nonstop, but with headwinds the advertised flying time of seven and one-half hours was often missed. Eastbound, American was able to adhere to its scheduled arrivals. The DC-7 made the first nonstop transatlantic cross­ing in 1957.

But the strain was showing; the limits of the reciprocating engine had been reached. It was time for the jet age.

Monroney Aeronautical Center

The Center was named for Oklahoma Sena­tor Mike Monroney, who was instrumental in securing passage of the Federal Aviation Act of 1958. The Center is the repository for all aircraft registration, documents of title to air­craft, and lien recordations on United States aircraft (the Aircraft Registry). The Airman Records Branch contains the records pertain­ing to every person issued a certificate by the FAA. It is the home of the FAA Academy, the training center for air traffic controllers, air safety inspectors, and other personnel. The Cen­ter also houses the Civil Aeromedical Institute (САМІ), which conducts research on various aspects of aviation safety, with an emphasis on human factors. САМІ specialists conduct tests on smoke toxicity, aircraft seats and restraint systems, air traffic controller selection and train­ing methods, and the effects of fatigue, age, work, and rest schedules for АТС personnel. Teaching activities at САМІ include the training of pilots in water and arctic survival techniques and the sharing of the latest research in avia­tion medicine with designated Aviation Medical Examiners.

William J. Hughes Technical Center

Research and development programs are con­ducted at the Technical Center located just outside Atlantic City, N. J., on a former Navy airfield. Activities conducted at the Center include test and evaluation in air traffic control, communications, navigation, airports, and air­craft safety and security. The Center strives to develop innovative systems and concepts, new equipment and software, and modifications of existing systems.


The FAA supports a large effort in the aviation community directed toward education of the flying public and the public at large. Periodic publications, such as the Advisory Circulars and Service Bulletins, and safety seminars for pilots, instructors, mechanics, and others reach out to all certificated airmen in an effort to facilitate improvements in all aspects of avia­tion safety.


Responsibility for distribution of federal grants under the Airport Improvement Program is assumed by the FAA under the Airport and Air­way Development Act.

The Airline Deregulation. Act of 1978


ills to deregulate airline service were sub­mitted to Congress by both the Ford Admin­istration and Senator Kennedy. In April 1975, hearings began on these bills before the Senate Aviation Subcommittee chaired by Nevada Dem­ocrat Howard Cannon. Support for the airline deregulation bill came from many quarters and from both sides of the aisle. Republican President Ford supported it, as did Senator Orrin Hatch (R-UT) and Senator Strom Thurmond (R-SC). Democrats from Kennedy (D-MA) to presiden­tial candidate Jimmy Carter supported it.

But the airline industry as a group was strongly against it. The most vehement oppo­nents of deregulation were the weaker and less financially strong airlines, like Eastern, Ameri­can, and TWA. Under regulation they had pro­tection of their most profitable routes, and they feared deregulation would unleash competitive vultures to take away their only lifeline to sus­tainability. Most local service providers opposed deregulation because they feared that the trunk lines would take over their most dense and profit­able routes.

Democratic Congressman Elliott Levitas (D-GA), using procedural tricks and Congressio­nal rules, stalled the bill in Congress specifically for Delta Airlines, whose principal office was in

Atlanta, for a period of time. He added to the bill the provision for terminating the authority of the CAB, thereby ending its existence, which many believed would kill the legislation. It didn’t.

The airline industry remained solidly opposed to deregulation until the hearings in the spring of 1977, when for the first time United Airlines split from the carrier group. United CEO Richard Ferris came from the hotel industry, not the airlines, and some said that his conver­sion to the need for deregulation was the result of a failure to understand the workings of air transportation. But there were other support­ers, including the intrastate carriers, particularly Southwest, which with deregulation could break forth from the confines of Texas to challenge the airline industry country-wide. Hughes Airwest and Frontier Airlines were two local service providers who favored deregulation. Then there were the commuters, who wanted to be free of the CAB-imposed limitation of 30-seat aircraft; they supported the bill.

Labor groups were opposed to the proposed law, fearing new airlines would hire nonunion labor, thereby reducing wages and threatening job security and favorable work rules. Com­mercial banks and insurance companies, which provided capital and loans to the air carrier
industry and aircraft manufacturers, opposed the law. These companies lived according to well-established amortization and annuity tables that predicted future performance based on past experience. Nobody could say with any reason­able certainty exactly what would happen under a deregulated airline industry.

Missing in all of the debate was any articula­tion of a national public policy for air transpor­tation in the United States. Most industrialized countries had integrated public transportation systems that included rail, highway, and air. These foreign transportation systems were pri­marily owned and operated by their governments at taxpayer expense as a function of national pride and necessity.

In the United States, there was no coherent national transportation policy. With the excep­tion of the air transportation and maritime infra­structure and the national highway system, the United States relied on private enterprise and local municipalities to furnish its transportation services needs.

The closest thing to a national air transporta­tion policy that existed in the United States was the Civil Aeronautics Act of 1938, as adminis­tered by the CAB. But this statute was enacted primarily to protect the airlines from destruc­tive competition and to promote safety and popular acceptance of air travel. As national policy, it was probably time for a change, but very little was heard in the Kennedy hearings about national policy; rather, the subject focused on anecdotal evidence of overpricing, ineffi­ciencies, lack of capacity, and governmental mismanagement.

Carter had been elected president in 1976, and by early 1977 he began appointing people to head various affected agencies who shared his views on deregulation. To the ICC he appointed deregulator George Stafford as Chairman. To the CAB he appointed Alfred Kahn, the author of Economics of Regulation, to replace Robson. Carter went at deregulation across the board, pushing bills to deregulate the railroads, motor carriers, moving companies, and the gas industry.

Even before passage of the Airline Deregu­lation Act, Kahn attacked regulation of the air­lines in order to create, in his words, “something as close to total deregulation as the (existing) law will permit, to be achieved as quickly as pos­sible.”[13] He told his staff that they “were going to get the airline eggs so scrambled that no one was ever going to be able to unscramble them.”2

Carter continued to push the airline deregula­tion bill. In April 1978, the Senate passed the bill 83 to 9. In the House of Representatives, Carter enlisted the powerful Speaker of the House, Tip O’Neill, to corral votes from undecided Represen­tatives. By 1978, the relaxed administration of the CAB initiated by Robson and Kahn showed (1) a decline in fares for the first time since 1966, (2) an expansion of air traffic at a rate faster than in the preceding 10 years, and (3) the highest carrier profitability in 10 years. All this had been achieved even while the rate of inflation steadily rose.

Based on these results observed during the spring and summer of 1978, and on the growing support of leaders of both political parties, opposi­tion to the deregulation of the airlines virtually van­ished. The deregulation bills passed both Houses.

On October 28, 1978, Carter signed the Act into law. The Airline Deregulation Act (ADA) amends the Federal Aviation Act of 1958, stating as its purpose “to encourage, develop, and attain an air transportation system which relies on com­petitive market forces to determine the quality, variety, and price of air services.” The Act com­pletely changed the economic foundation for the domestic airline industry and provided for its full implementation over the course of a four-year period. It provided, among other things:

1. For the phase-out of the CAB and its author­ity over domestic routes and fares,

2. For the phase-out of existing economic reg­ulations formerly constituting barriers to competition,

3. Safeguards for the protection of air carrier service to small communities,

4. For the facilitation of entry of air carriers into new markets, and

5. For certain protection of airline employ­ees who may be adversely affected by the results of the Act.

CAB route authority was scheduled to end on December 31, 1981, and rate authority was set to terminate on December 31, 1983. The CAB itself was mandated to cease to exist as of the close of business on December 31, 1984.

This policy of fixing specific termination dates, laddered out into the near future, was to allow the airlines time to develop responses to the changes caused by the Act. The spe­cific provisions for airline guidance during the CAB phase-out period included the following changes: 1

Because of the speed that the Board began to confer new authority, within a year of the passage of the Act certificated lines were able to serve virtually any route they wished. New entries were also granted during this time, although not as quickly as route authority.

The Board arranged a series of meetings throughout the country to address the needs of small communities to facilitate the transition of service mandated by the local service subsidy program and the new essential air service pro­gram mandated by the ADA.

Although the Act was designed to offer tem­porary federal payments to airline employees adversely affected by the Act (see 7 above), this provision of the Act was never implemented. This was due to the inability of the government to make any objective determination as to the cause of job losses or dislocations among air­line employees, given the simultaneous onset of the Act, fast-rising fuel prices, and the resulting recession that began in the early 1980s.

Transition from a regulated to an unregu­lated economic airline environment proved dif­ficult in two particular areas: fares and mergers. Prior law of the Supreme Court had exempted the airlines from compliance with the antitrust laws (the Sherman Antitrust Act and the Clayton Act) that governed other commercial enterprises in the United States. Instead, antitrust oversight and enforcement of the airlines had been conferred on the CAB. This authority had been consistently exercised for over 40 years in the airline industry.

The liberalization of CAB practices that began in the 1970s continued during the phase­out of CAB authority in the early 1980s. There were charges of price-fixing among the airlines as they raised fares and rates almost in lockstep due to the doubling of jet fuel prices between 1979 and 1980. Mergers were approved during this time that most certainly would not have been approved under prior CAB practice.

Upon the demise of CAB authority, airlines became subject to the same antitrust laws as all other commercial business with enforcement jurisdiction initially residing in the Department of Transportation.3

With deregulation in place, there was no longer any requirement to secure from the CAB certificates of convenience and necessity before commencing service on a route. No longer were there artificial barriers to entry into the previ­ously exclusive airline carrier club, nor was there any requirement to secure approval from the CAB for rate increases.

When deregulation became law, all of the pent-up competitive instincts of airline bosses were suddenly unleashed. Like adolescents let loose on a first unsupervised journey away from home, excesses might have been expected. The choices of how to proceed were practi­cally unlimited. Unbridled optimism coupled with a fear of being left behind in the race to gain position on their competitors spurred frenzied activity of all sorts, and not a few miscalculations.