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in June 1934, codified the arrangements for the award of airmail contracts made in April 1934 (see Figure 14-1), and repealed the pow­ers and prerogative of the Postmaster General as established in the Watres Act.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.