B-138695, MARCH 30, 1959, 38 COMP. GEN. 640

B-138695: Mar 30, 1959

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IS SUCH AN EXTENSIVE MODIFICATION THAT THE AIRPLANES MAY BE REGARDED AS ENTIRELY NEW TYPE PLANES WITHIN THE MEANING OF THE PURCHASE LOAN GUARANTY PROVISION IN SECTION 3 OF PUBLIC LAW 85-307. AFTER A DETERMINATION BY THE CIVIL AERONAUTICS BOARD THAT THE NEW TYPE AIRPLANES ARE NEEDED TO IMPROVE THE SERVICE AND EFFICIENCY OF THE OPERATION OF THE AIR CARRIER. NO OBJECTION WILL BE MADE TO THE APPROVAL OF A LOAN GUARANTY FOR THE PLANE CONVERSION. 1959: REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 11. - PRESENTLY OWNS CERTAIN CONVAIR 340 AIRCRAFT WHICH ARE POWERED BY PISTON ENGINES. TWO MANUFACTURERS HAVE DESIGNED TURBOPROP CONVERSIONS OF THE CONVAIR 340 WHICH CONVERSIONS INCLUDE REPLACEMENT OF THE PISTON ENGINES WITH TURBINE PROPELLER ENGINES.

B-138695, MARCH 30, 1959, 38 COMP. GEN. 640

CIVIL AERONAUTICS BOARD - AIRCRAFT PURCHASE LOAN GUARANTY - CONVERSION TO TURBO-TYPE AIRCRAFT THE CONVERSION OF AIRPLANES OF A LOCAL SERVICE AIR CARRIER FROM PISTON TO TURBO-POWERED ENGINES, WHICH GREATLY INCREASES THE VALUE AND PAY-LOAD OF THE AIRPLANE AND WHICH RESULTS IN THE CARRIER BEING REQUIRED TO OBTAIN ANOTHER TYPE CERTIFICATE, IS SUCH AN EXTENSIVE MODIFICATION THAT THE AIRPLANES MAY BE REGARDED AS ENTIRELY NEW TYPE PLANES WITHIN THE MEANING OF THE PURCHASE LOAN GUARANTY PROVISION IN SECTION 3 OF PUBLIC LAW 85-307, 49 U.S.C. 1324 NOTE, AND AFTER A DETERMINATION BY THE CIVIL AERONAUTICS BOARD THAT THE NEW TYPE AIRPLANES ARE NEEDED TO IMPROVE THE SERVICE AND EFFICIENCY OF THE OPERATION OF THE AIR CARRIER, NO OBJECTION WILL BE MADE TO THE APPROVAL OF A LOAN GUARANTY FOR THE PLANE CONVERSION.

TO THE CHAIRMAN, CIVIL AERONAUTICS BOARD, MARCH 30, 1959:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 11, 1959, REQUESTING OUR OPINION AS TO YOUR AUTHORITY UNDER PUBLIC LAW 85-307, 49 U.S.C. 1324 NOTE, TO GUARANTEE A LOAN MADE TO AN AIR CARRIER FOR THE PURPOSE OF FINANCING THE CONVERSION OF EXISTING PISTON ENGINE AIRCRAFT INTO TURBO-POWERED AIRCRAFT.

IT APPEARS THAT THE CARRIER--- THE HAWAIIAN AIRLINES--- PRESENTLY OWNS CERTAIN CONVAIR 340 AIRCRAFT WHICH ARE POWERED BY PISTON ENGINES. TWO MANUFACTURERS HAVE DESIGNED TURBOPROP CONVERSIONS OF THE CONVAIR 340 WHICH CONVERSIONS INCLUDE REPLACEMENT OF THE PISTON ENGINES WITH TURBINE PROPELLER ENGINES, INSTALLATION OF NEW RUDDERS, ELEVATORS, ENGINE AND ENGINE ACCESSORY ACCESS DOORS, OIL SYSTEM, CABIN SUPERCHARGER, HYDRAULIC SYSTEM, ENGINE STARTING SYSTEM AND ELECTRICAL SYSTEM, TOGETHER WITH VARIOUS OTHER MODIFICATIONS IN WINGS, FUEL SYSTEM, COCKPITS, ETC. YOU ADVISE THAT THE COST OF CONVERTING ONE AIRCRAFT IS ESTIMATED TO BE APPROXIMATELY $500,000. HOWEVER, IT IS ESTIMATED THAT THE MODIFICATIONS WOULD INCREASE THE CRUISING SPEED FROM THE PRESENT 249 MILES PER HOUR TO 318 MILES PER HOUR FOR THE NAPIER ENGINE AND 340 MILES FOR THE ALLISON ENGINE. IT IS ALSO ESTIMATED THAT THE ALLOWABLE GROSS TAKE-OFF WEIGHT WOULD BE INCREASED FROM 47,000 POUNDS TO 53,200 POUNDS, APPROXIMATELY ONE- HALF OF WHICH INCREASE WOULD REPRESENT AVAILABLE PAY-LOAD. MOREOVER, IT IS STATED THAT THE CONVERTED AIRPLANE WOULD HAVE GREATER PASSENGER APPEAL BECAUSE OF REDUCED NOISE AND VIBRATION OF TURBINE ENGINES.

SECTION 3 OF PUBLIC LAW 85-307, 71 STAT. 629, 49 U.S.C. 1324 NOTE, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

THE BOARD IS HEREBY AUTHORIZED TO GUARANTEE ANY LENDER AGAINST LOSS OF PRINCIPAL OR INTEREST ON ANY AIRCRAFT PURCHASE LOAN MADE BY SUCH LENDER TO ANY AIR CARRIER HOLDING A CERTIFICATE OF CONVENIENCE AND NECESSITY ISSUED BY THE BOARD * * *. ( ITALICS SUPPLIED.)

AND SECTION 2 OF THE ACT STATES THAT:

AS USED IN THIS ACT--- " AIRCRAFT PURCHASE LOAN" MEANS ANY LOAN, OR COMMITMENT IN CONNECTION THEREWITH, MADE FOR THE PURCHASE OF COMMERCIAL TRANSPORT AIRCRAFT, INCLUDING SPARE PARTS NORMALLY ASSOCIATED THEREWITH. ( ITALICS SUPPLIED.)

THE QUESTION THUS PRESENTED, IN EFFECT, IS WHETHER AN EXPENDITURE BY AN AIR CARRIER FOR THE CONVERSION OF AN EXISTING AIRCRAFT AS DESCRIBED ABOVE CONSTITUTES THE "PURCHASE OF A COMMERCIAL TRANSPORT AIRCRAFT" WITHIN THE MEANING AND OVERALL INTENT OF THE STATUTE.

AS YOU ARE WELL AWARE, THE LEGISLATION WHICH ULTIMATELY BECAME PUBLIC LAW 85-307 WAS PROPOSED BY THE CIVIL AERONAUTICS BOARD FOR THE REASON THAT PRACTICALLY ALL OF THE LOCAL SERVICE CARRIERS WERE OPERATING DC-3 AIRCRAFT, AND TESTIMONY ADDUCED AT THE CONGRESSIONAL HEARINGS REVEALED THAT THESE CARRIERS DESPERATELY NEEDED SHORT-TO MEDIUM RANGE TRANSPORT AIRCRAFT, OF 36 TO 40 PASSENGER CAPACITY WITH SPACE FOR APPROXIMATELY 2,000 POUNDS OF CARGO, NEW LOADING CONFIGURATION DIFFERENT FROM THE 2- ENGINE AIRCRAFT THEN AVAILABLE, PRESSURIZATION FOR PASSENGER COMFORT, AND ATTRACTIVENESS TO THE PUBLIC, AMONG OTHER THINGS, TO GENERATE INCREASING RESPONSE FROM THE TRAVELING AND SHIPPING PUBLIC. IT ALSO WAS POINTED OUT THAT YOUR BOARD WAS OF THE OPINION THAT UNDER THE TERMS OF THE PROPOSED LEGISLATION THE LOCAL SERVICE CARRIERS MIGHT ACQUIRE SUITABLE AND IMPROVED SHORT-HAUL AIRCRAFT AND THEREBY ULTIMATELY REDUCE SUBSIDIES. FURTHERMORE, IT WAS BELIEVED THAT THE LEGISLATION WOULD OFFER A MEANS OF SECURING NEW EQUIPMENT SO VITALLY NEEDED FOR SUCCESSFUL AND HEALTHY OPERATIONS AT A REASONABLE COST, AND WOULD ASSURE TO MANY COMMUNITIES AND INDIVIDUALS ACROSS THE COUNTRY A CONTINUED AND IMPROVED SHORT-HAUL AND FEEDER-LINE SERVICE.

ADMITTEDLY, THROUGHOUT THE CONGRESSIONAL HEARINGS THERE WAS A CONSIDERABLE AMOUNT OF EMPHASIS PLACED UPON THE TERM "NEW EQUIPMENT," AND ORIGINALLY SENATE BILL NO. 2229 CONTAINED A SUBSECTION LIMITING LOANS TO AIRCRAFT MANUFACTURED AND DELIVERED AFTER THE ENACTMENT OF THE MEASURE. FURTHERMORE, THE SENATE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, IN ITS REPORT NO. 782, EXPRESSLY POINTED OUT THAT THE "PURPOSE OF THIS AMENDMENT IS TO MAKE SURE THAT THE LOANS GUARANTEED BY THE GOVERNMENT WILL BE FOR NEW AIRCRAFT, DESIGNED TO MEET THE NEEDS OF THE FEEDER-TYPE RRIERS," AND ADDED THAT THIS IS "A FIELD LONG NEGLECTED BY THE DESIGNERS AND MANUFACTURERS.' THIS PROVISION, HOWEVER, WAS DELETED FROM THE FINAL BILL FOR THE REASONS CONTAINED IN A STATEMENT OF THE MANAGERS ON THE PART OF THE HOUSE IN CONFERENCE REPORT NO. 1219, WHICH ARE:

SECTION 4 OF THE BILL CONTAINED SEVERAL PARAGRAPHS STATING CONDITIONS UNDER WHICH LOAN GUARANTIES COULD NOT BE MADE. BY ITS AMENDMENT THE HOUSE ELIMINATED ONE OF THESE PARAGRAPHS, AS FOLLOWS:

"/F) ON ANY AIRCRAFT MANUFACTURED UNDER A UNITED STATES TYPE CERTIFICATE ISSUED PRIOR TO THE PASSAGE OF THIS BILL.'

THIS PROVISION OF THE SENATE BILL WOULD HAVE HAD THE EFFECT OF DENYING THE BENEFITS OF THE BILL IN THE CASE OF LOANS WITH RESPECT TO ANY AIRCRAFT EXCEPT AIRCRAFT NEWLY CERTIFICATED AS TO THE TYPE AFTER THE ENACTMENT OF THIS LEGISLATION. THE HOUSE CONFEREES WERE UNWILLING TO LEAVE THIS RIGID LIMITATION IN THE BILL, SINCE IT IS FELT THAT IT MIGHT BE APPROPRIATE TO PERMIT THE GUARANTIES IN THE CASE OF SOME EXISTING TYPES OF PLANES WHEN IN THE JUDGMENT OF THE BOARD THIS WOULD IMPROVE SERVICE AND EFFICIENCY OF OPERATION OF CARRIERS. THEREFORE, IN THE CONFERENCE SUBSTITUTE THERE HAS BEEN SUBSTITUTED FOR THE SENATE PARAGRAPH ABOVE QUOTED A PARAGRAPH AS OLLOWS:

"/F) UNLESS THE BOARD FINDS THAT THE AIRCRAFT TO BE PURCHASED WITH THE GUARANTEED LOAN IS NEEDED TO IMPROVE THE SERVICE AND EFFICIENCY OF OPERATION OF THE AIR CARRIER.' ( ITALICS SUPPLIED.)

ALSO, IN A STATEMENT DATED AUGUST 23, 1957, SENATOR MONRONEY EXPLAINED, IN PERTINENT PART, AS FOLLOWS:

* * * ACCORDINGLY, THIS SECTION OF THE BILL WAS REWRITTEN SO AS TO PROVIDE THAT NO GUARANTY OF A LOAN COULD BE MADE UNLESS THE BOARD MADE A FINDING THAT THE AIRCRAFT INVOLVED WOULD IMPROVE THE SERVICE AND EFFICIENCY OF THE CARRIER. IN OTHER WORDS, IF THE AIRCRAFT DESIRED TO BE PURCHASED WOULD ACTUALLY IMPROVE THE SERVICE OF THE CARRIER, A LOAN COULD BE GUARANTEED. 103 CONG. REC. 15768. ( ITALICS SUPPLIED.)

AND, FINALLY, REPRESENTATIVE HARRIS, IN DISCUSSING THE CONFERENCE REPORT ON THE FLOOR OF THE HOUSE ON AUGUST 23, 1957, REFERRED TO THE SUBSTITUTED SUBSECTION (F) BY EXPLAINING:

IT IS FELT THAT THIS LANGUAGE IS SUFFICIENT SAFEGUARD AGAINST THE APPROVAL OF LOANS FOR OUT-OF-DATE OR INEFFICIENT AIRCRAFT. THE BOARD, WHICH SPONSORED THIS LEGISLATION, IS GIVEN WIDE DISCRETION TO SAFEGUARD THE INTEREST OF THE GOVERNMENT. 103 CONG. REC. 15824. ( ITALICS SUPPLIED.)

BASED UPON THE FOREGOING, THEREFORE, IT WOULD APPEAR THAT THE PRIMARY PURPOSE AND INTENT OF THE ACT WAS TO ASSIST THE LOCAL SERVICE CARRIERS TO PROCURE NEW TYPES OF AIRCRAFT WHICH IN THE OPINION OF THE CIVIL AERONAUTICS BOARD WOULD IMPROVE THE SERVICE AND EFFICIENCY OF THE CARRIER. FURTHERMORE, A CAREFUL STUDY OF THE LEGISLATIVE HISTORY OF THE MEASURE POINTS TO THE FACT THAT THE ORIGINAL EMPHASIS UPON "NEW EQUIPMENT" GRADUALLY BECAME MODIFIED BY THE TERMS "SUITABLE" " ,IMPROVED," AND "NEW TYPES" OF AIRCRAFT SO URGENTLY NEEDED BY THE CARRIERS. AND, OF COURSE, AS STATED ABOVE, THE BILL FINALLY WAS FURTHER BROADENED TO PERMIT THE PURCHASE OF AIRCRAFT WHICH IN THE JUDGMENT OF YOUR BOARD WOULD IMPROVE THE SERVICE OF THE CARRIER.

IN CONSONANCE WITH THE AUTHORITY VESTED IN THE BOARD UNDER THE ACT, YOU STATE THAT WHILE THE BOARD BELIEVES THE FINANCING OF AIRCRAFT MODIFICATIONS IS NOT A PROPER SUBJECT FOR A GOVERNMENT INSURED LOAN UNDER PUBLIC LAW 85-307, IT IS THE BOARD'S FURTHER VIEW THAT THE INSTANT PROPOSAL IS NOT A MERE MODIFICATION, BUT, RATHER, IT INVOLVES THE CONVERSION OF EXISTING AIRCRAFT FROM ONE TYPE TO ANOTHER AT A COST WHICH APPROACHES THE COST OF ACQUIRING COMPLETELY NEW TURBINE-POWERED AIRCRAFT. IN OTHER WORDS, WHEN THE CARRIER TURNS OVER A 340 CONVAIR AIRFRAME TO THE MANUFACTURER VALUED AT APPROXIMATELY $200,000 AND LATER RECEIVES A COMPLETED CONVAIR PROPJET AIRCRAFT WITH A VALUE OF APPROXIMATELY $700,000, IT WILL HAVE ACQUIRED AN IMPROVED AIRCRAFT WHICH IT DID NOT HAVE BEFORE, AS DISTINGUISHED FROM A MERE MODIFICATION OF THE 340 CONVAIR. FURTHERMORE, YOU POINT OUT AS SIGNIFICANT THE FACT THAT THE CONVERTED AIRCRAFT CANNOT BE CERTIFIED UNDER SAFETY REGULATIONS APPLICABLE TO CONVAIR 340 AIRCRAFT, AND THAT A NEW OR SUPPLEMENTAL TYPE OF CERTIFICATE MUST BE OBTAINED UNDER REGULATIONS APPLICABLE TO TURBINE-POWERED AIRCRAFT, AND THIS FOR THE REASON THAT THE EXTENSIVE MODIFICATION WILL RESULT IN THE AIRCRAFT BECOMING, FOR ALL PRACTICAL PURPOSES, AN ENTIRELY NEW TYPE.

SO FAR AS THE FORM OF THE PROPOSED TRANSACTION IS CONCERNED, IT APPEARS THAT THE RESULT ACHIEVED WOULD BE THE SAME WHETHER THE CONVERSION WAS PERFORMED ON AN AIRCRAFT BELONGING TO THE CARRIER, OR ON A SIMILAR CRAFT PURCHASED BY THE CONVERTING MANUFACTURER FROM THE SAME OR ANOTHER CARRIER, AND SOLD TO THE CARRIER IN ITS NEW OR CONVERTED FORM. SINCE IN THE LATTER CASE THERE COULD BE NO QUESTION THAT THE ACQUISITION OF THE CONVERTED CRAFT WOULD BE A PURCHASE, WE SEE NO SUBSTANTIAL REASON FOR OBJECTING TO THE PROPOSED METHOD OF PROCEDURE.

THE ESSENTIAL QUESTION THEN WOULD APPEAR TO BE WHETHER THE AIRCRAFT TO BE DELIVERED TO THE CARRIER AFTER THE CONVERSION IS NEEDED TO "IMPROVE THE SERVICE AND EFFICIENCY OF OPERATION OF THE AIR CARRIER.' SINCE AUTHORITY TO DETERMINE THAT QUESTION IS SPECIFICALLY VESTED IN THE BOARD BY SECTION 4 (F), 49 U.S.C. 1324 NOTE, OF THE STATUTE, AND SINCE SUCH DETERMINATION WOULD NECESSARILY INVOLVE THE DETERMINATION THAT THE AIRCRAFT INVOLVED IS OF SUCH A TYPE AS WOULD BE SUITABLE TO MEET THE NEED REFERRED TO, WE WOULD, ON THE FACTS STATED IN YOUR LETTER, SEE NO BASIS FOR OBJECTION BY OUR OFFICE TO THE APPROVAL BY YOUR BOARD OF A LOAN GUARANTY IN THE CIRCUMSTANCES STATED.