Foreign Relations of the United States, 1958–1960, Volume III, National Security Policy; Arms Control and Disarmament, Microfiche Supplement

229. Memorandum of Discussion at the 430th NSC Meeting¹

Washington, January 7, 1960

SUBJECT

• Discussion at the 430th Meeting of the National Security Council, Thursday, January 7, 1960

PRESENT at the 430th Meeting of the National Security Council were the President of the United States, presiding; the Vice President of the United States; Mr. Livingston T. Merchant for the Secretary of State; the Secretary of Defense; and the Director, Office of Civil and Defense Mobilization. Also present and participating in the Council actions below were Mr. Fred C. Scribner Jr., for the Secretary of the Treasury; the Director, Bureau of the Budget; the Attorney General (Item 1); the Secretary of Commerce (Item 1); the Administrator, Federal Aviation Agency (Item 1); and the Chairman, Civil Aeronautics Board (Item 1). Also attending the meeting were the Chairman, Atomic Energy Commission; the Director, Central Intelligence Agency; the Director, U.S. Information Agency; the Chairman, Joint Chiefs of Staff; the Special Assistants to the President for National Security Affairs, for Science and Technology, and for Security Operations Coordination; the White House Staff Secretary; the Deputy Secretary of Defense; Assistant Secretary of State Gerard C. Smith; Assistant Secretary of Defense John N. Irwin, II; Mr. Charles Haskins, NSC; Mr. Howard Sturtz, Central Intelligence Agency (Item 3); the Executive Secretary, NSC; and the Deputy Executive Secretary, NSC.

There follows a summary of the discussion at the meeting and the main points taken.

1. U.S. POLICY WITH RESPECT TO THE DEVELOPMENT OF CARGO AIR LIFT(NSC Action No. 2151–f–(2); NSC 5919; Memo for NSC from Executive Secretary, same subject, dated January 7, 1960)

Mr. Gray began his presentation of NSC 5919 by referring to a study which the Department of Defense had recently submitted to the President on “The Role of MATS in Peace and War”. (A copy of Mr. Gray’s Briefing Note is filed in the Minutes of the meeting and another is attached to this Memorandum).

Mr. Gray said the Defense Department report was not up for consideration by the Council or decision by the President at this meeting, but he felt it would be useful for the Council to hear the report’s recommendations before considering NSC 5919. Accordingly, he asked the Secretary of Defense to summarize the recommendations which he had submitted to the President in the Department of Defense study. Secretary Gates said Mr. Douglas would present a summary of the Department of Defense recommendations.

Mr. Douglas said the Defense report on “The Role of MATS in Peace and War” had been a long time in preparation. He then read the first conclusion from the report and all the recommendations as follows:

CONCLUSIONS

“Military Airlift Requirements. The size of MATS and the extent and nature of its operations are keyed to approved military wartime airlift requirements. These requirements break down into (1) critical or hard-core² requirements which because of their nature or the nature of the mission to be supported must move in military operated aircraft, and (2) other essential or civil eligible³ requirements which can move in either military or civil operated aircraft.

“Hard-core requirements are applicable in general war situations as well as situations short of general war. Satisfaction of hard-core requirements (general or limited war) is vital to the successful implementation of military strategy. Therefore, MATS must possess adequate capability at all times to meet these requirements on an effective and timely basis.

“Commercial carriers do not now have adequate air cargo capability to accommodate those approved military requirements which could move during emergencies in commercially operated transport aircraft.”

RECOMMENDATIONS

“As a result of the study and conclusions arrived at, actions are being taken within the Department of Defense to carry out the following recommendations:

“1. That MATS be equipped and operated in peacetime to insure its capability to meet approved military hard-core requirements in a general war and in situations short of general war, and such other military requirements as cannot be met with certainty by commercial carriers on an effective and timely basis.

“2. That the modernization of MATS hard-core military airlift capability be undertaken as a matter of priority to improve airlift effectiveness and achieve operating savings.

“3. That MATS routine channel traffic (regularly scheduled, fixed routes) operations be reduced on an orderly basis consistent with assured commercial airlift capability and economical use of any MATS capacity resulting from necessary training or other operations related to its hard-core requirement.

“4. That as commercial carriers equip themselves with modern, economical long-range cargo aircraft and further orientation of MATS to the hard-core function is effected, increased use should be made of the services of such commercial carriers for routine logistic supply.

“5. That commercial augmentation airlift procurement policies and practices be better adapted to the long-range Department of Defense requirements for effective overseas commercial airlift service so as to encourage and assist in sound economic growth, development, and maintenance of an increased air cargo capability; that there be explored the feasibility of (1) increasing the amount of MATS overseas cargo airlift moving on a common carriage basis in accordance with certificates of public convenience and necessity issued by the Civil Aeronautics Board; (2) entering into longer term contracts for MATS traffic; and (3) giving some preference in the movement of MATS traffic to those commercial carriers (a) who are effectively committed to the Civil Reserve Air Fleet (CRAF) program, or (b) whose facilities and equipment are most advantageous to the emergency needs of the Department of Defense; and that legislation be sought if necessary to permit accomplishment of any of the foregoing considered desirable.

“6. That the Department of Defense participate in and support governmental programs for the development of long-range, economical turbine-powered cargo aircraft for military and civil application.

“7. That the Department of Defense support proposed legislation for the guarantee of loans for the purchase of modern, newly-developed cargo aircraft by commercial carriers.

“8. a. That consideration be given to the use of the Air Force Reserve equipped with transport aircraft that might be available from MATS excesses as augmentation forces for MATS in time of emergency.

“b. That a study be made to determine the desirability and feasibility of employing the Air National Guard in a transport role.

“9. That the role of CRAF be re-examined with the objective of insuring optimum effectiveness and responsiveness of commercial airlift services to the Department of Defense under all conditions.”

After concluding his presentation of the recommendations from the Department of Defense report, Mr. Dougles observed that the draft policy paper (NSC 5919) was consistent with the Defense report, provided the splits in the policy paper were resolved as Defense desired. However, Mr. Douglas was concerned that in the present situation, with MATS not too large and heaving no surplus above the JCS requirements, we not lead the airline industry to expect a rapid decrease in MATS operation or traffic, even though over a period of time MATS traffic could be expected to decrease substantially. The Department of Defense was interested in the development of a good cargo aircraft, but it should be understood that such a modern cargo airplane would not for some years produce a substantial capacity to meet wartime needs.

Mr. Gray then briefed the Council on the divergence of views in Paragraph 1 of NSC 5919. Mr. Stans felt this difference could be resolved by deleting the word “security” in the first sentence of Paragraph 1 of NSC 5919 and referring at the end of the paragraph to “instruments of national security and other national policies.” This revision would change the emphasis from national security to national interest. Mr. Stans believed General Quesada and the Secretary of the Treasury would be satisfied with this revision. Secretary Gates said he could also accept the change proposed by Mr. Stans.

The President remarked that since he was budget-minded these days he wanted to know a little more about cost factors, particularly the cost of keeping MATS in operation and the cost of moving cargo by means other than MATS. Secretary Gates reported that last year MATS operations had been put on an industrial funding basis; accordingly, MATS was now run as a business enterprise. One feature of the cost factor was the Department of Defense practice of asking for competitive bidding for carrying personnel overseas. Sometimes, the low bids have penalized the “flag” lines. Under a low bid of $75–80 for a one-way trip across the North Atlantic some lines are losing money. The flag lines and other operators are at odds on this question. The President said if the equipment used were subject to the same inspection and if the pilots had similar certificates, he would be inclined to route the traffic by the cheapest means. General Quesada said the difficulty was that the air transport industry was a regulated industry, which made it monopolistic to a degree. Under the competitive bidding system, the concept of a regulated, monopolistic industry was cast aside. He felt the concept of the air transport industry as a regulated industry should apply to Department of Defense operations. As far as safety was concerned, in his view some operators were approaching conditions which he could not approve. He noted that some companies engage in competitive bidding at a time when they do not have any equipment or pilots, so if they obtain the contract by means of a low bid they have to lease equipment and hire pilots. As an economic matter, the cut-throat competition does not result in building additional modern airplanes. Pilots and equipment shift from one line to the other with no accumulation of transport assets available to the Department of Defense in an emergency. General Quesada repeated that competitive bidding was destroying the principle of a regulated industry.

Mr. Durfee pointed out that the Civil Aeronautics Board had not taken part in the preparation of the draft policy paper. He referred to Page 10 of the paper, which suggested that the present system of negotiating contracts was to be continued. CAB did not approve of the present system of negotiating contracts, but otherwise had no objection to the paper. The present practice of MATS in awarding business by competitive bidding led to cut-throat competition, which concerned the CAB. One of the largest certificated international air cargo carriers was now on the edge of insolvency due to its competitive bidding practices. Since 1958 FAA, the Department of Defense, and CAB had attempted to solve this problem, but had been unable to do so because CAB has no power to regulate international air rates. If and when CAB obtained the power to regulate international rates, it would probably establish a minimum rate, although Defense has objected to such minimum rates on the grounds that (1) all bids would tend to be at the minimum rate and (2) Defense would then have to choose a carrier to which a contract was to be awarded on some basis other than rates. Mr. Durfee felt that this difficulty could, however, be resolved; but unless CAB obtains the power to fix international rates, the present system of contracts may not assist in the development of a modern cargo aircraft.

Mr. Douglas admitted that the situation was difficult. He would like to see the private air carriers build up an increased capacity. However, he felt that Defense had no alternative to awarding contracts on the basis of the lowest bid. Defense had tried various other systems in awarding contracts and had always run afoul of the Comptroller General. Mr. Douglas then pointed out that the Policy Guidance in NSC 5919 might lead to a possible misunderstanding with respect to certificated carriers. This term could be construed to include only a very few carriers and in this case the increase in cost would be high. The Department of Defense could live with some thirty certificated carriers. Mr. Douglas felt the Department of Defense had made considerable progress in increasing the participation of private airlines in MATS business, inasmuch as 53 per cent of the personnel and 18 per cent of the cargo were now carried under commercial contract. The President asked how much traffic was carried by ship. Mr. Douglas said that in the last two years the Air Force had sent 95 per cent of its personnel and dependents by air, while the Army had sent a smaller number by air. Mr. Douglas pointed out that it cost less to send military personnel and dependents by air than to pay the cabin rate by ship. The President asked whether cargo moved mostly by air or by ship. Mr. Douglas said most of the cargo moved by ship. Since MATS had been put on an industrial funding basis, a great many items formerly carried by air were no longer so carried. However, the industrial funding basis made the whole MATS operation look like a commercial airline operation. MATS should, by contrast, be building up a war capability. The President agreed that war capability should be the criterion of MATS operation, but noted that wartime requirements were sometimes subject to differing interpretations. He believed, in view of the things which had already been said, that this problem should be solved by locking three or four experts in a room until they arrived at a solution.

General Twining pointed out that General Quesada would soon have to testify before Congressional Committees on his program. General Quesada said the basic question was: What is the role of MATS? In his view the present practices of MATS were in conflict with Bureau of the Budget Bulletin No. 60–2. Interrupting, Mr. Douglas said he could not agree with this observation. General Quesada then read extracts from the Bureau of the Budget Bulletin, and concluded that military personnel were moving over routes which were competitive with commercial air carriers. The President said he saw no objection to this practice if that was the most efficient way to run the Department of Defense. General Quesada said the cost factor as between MATS and the commercial airlines were on different bases. Moreover, when MATS was used to transport personnel and goods that could be carried by commercial lines, it was not engaged in training for war. General Quesada said there were seventy-one certificated carriers, 25 of which were now engaged in litigation. He noted that certification has various meanings. An airline can be certificated for an area, for passengers only, or for cargo only. An airline requires a CAB exemption in order to operate outside the field of its certification. He believed Mr. Douglas’ fear that the term “certificated carriers” as used in the paper would cover only a small number of carriers was not justified. The President wondered why the word “certification” had to be used. He thought “certified” would do as well. Mr. Douglas said the Department of Defense was willing to use certificated carriers to carry Defense traffic, but pointed out that some satisfactory carriers would be eliminated by this phrase as defined in NSC 5919, because some satisfactory carriers were not certificated.

The President recalled that at one time, in some operations at least, the Government had a list of qualified bidders. Secretary Gates said there was a list of qualified bidders for most operations except for airline operations. Mr. Stans pointed out that the Department of Defense had some discretion in awarding contracts for carriage of persons and goods by air. The President remarked that if a list of qualified airline bidders were maintained, account could be taken of the experience factor. General Quesada said some airline companies which submit low bids for Defense business had no planes, no pilots and no money; they had only an idea.

The President felt that if the Government could determine how many persons and how much cargo it wished to move by air, normal commercial competition should result in building the airplanes and putting them into operation. He felt that a good war reserve could not be maintained unless MATS could operate in time of peace. However, he would like to simplify the whole problem. Mr. Stans said economic comparison between MATS operation and “contracting out” was not simple. He suggested that the paper should go back to the Planning Board for resolution in the light of the recommendations in the Department of Defense study. The President said he would like to see the interested parties get together and come up with a single recommendation. He had the impression there was plenty of cargo space on airlines at the present time, and apparently there was a great deal of air freight business.

Secretary Mueller observed that the commercial carriers were not developing uncompromised cargo planes because of the competition from MATS. Secretary Gates thought that an uncompromised air cargo plane might have to be developed by the Government. The President wondered whether it was good business to insist on a completely uncompromised air cargo plane. General Quesada said all aircraft at present had been designed basically for the purpose of carrying passengers. If it were possible to design a cargo plane from the ground up, that is, an uncompromised cargo plane, the cost of carrying cargo by air could be reduced by one-half. The air transport industry was now in the position which the highway transport industry would be in if all cargoes were carried by modified buses rather than by trucks. The President observed that it might be a mistake to design planes solely for the purpose of carrying cargo; he thought perhaps on the analogy of ocean freighters, provision might be made even in a cargo plane for carrying a few passengers.

Mr. Gray felt the Council had drifted into a discussion of technicalities. He believed two questions should now be answered: (1) does the Council want the Planning Board to revise NSC 5919 and (2) what should be done with the Department of Defense report on the role of MATS. The President said the Department of Defense report should be made available to the Planning Board, which should coordinate this report with NSC 5919. He felt we must try to arrive at a better understanding of what we are trying to do before making any decisions. Secretary Gates said it was desirable to make decisions regarding MATS as early as possible because of the need for testimony on MATS before Congressional Committees. The President wondered whether the Defense report had appeared not because he had requested it, but because Congress was conducting an investigation.

Mr. Gray then called attention to Paragraph 18 of NSC 5919 providing that if legislation is proposed which would, through purchase loan guarantees, encourage the acquisition of uncompromised cargo aircraft it should contain provisions to ensure the immediate availability of these cargo aircraft to meet military mobilization requirements. Mr. Stans said the large airlines insisted that they could develop an uncompromised cargo aircraft if they could obtain some of the business now carried by MATS, but the small airlines wanted guaranteed loans. There was thus a difference of opinion in the industry as to whether guaranteed loans were needed. The President said that in the absence of purchase loan guarantees, the business would go entirely to the big airlines. Mr. Dougles believed that the Department of Defense could produce an uncompromised cargo airplane for about $80 million in development costs. Mr. Stans felt strongly that if the Department of Defense developed an uncompromised cargo airplane, the plane should be turned over to the airlines under a royalty arrangement which would provide for reimbursement of development costs to the Department of Defense. Mr. Dougles said the only reason for Defense development of an uncompromised cargo aircraft was because such an aircraft was needed. General Quesada then expressed the strong conviction that an uncompromised cargo aircraft could be built without cost to the Government. He felt the air transport industry was dynamic and well-financed, and that free enterprise would see to it that an uncompromised airplane was built without cost to the Government, provided the airlines were assured of MATS business. The President said he was almost convinced, but did not wish to adopt a provision which would result in the large airlines obtaining all the business. Perhaps the Small Business Administration could make a small business loan to the smaller companies. Secretary Mueller said the maximum small business loan was $250,000 which was a small amount in the airline industry, although it might allow a small company to make a start. Mr. Douglas felt that most airlines receiving contracts meet the definition of small business.

General Quesada said he was convinced the air cargo industry had a great potential. Two hundred uncompromised aircraft could reduce the cost of carrying cargo by air by one-half or perhaps even more. At the present time only 4/100 of 1 per cent of the total freight carried was carried by air.

Mr. Gray said the Planning Board would revise NSC 5919 in the light of the discussion and of the Department of Defense report on MATS. The President said the experts should also consult.

The National Security Council:

a. Discussed the subject in the light of the draft statement of policy contained in NSC 5919; the views of the Joint Chiefs of Staff thereon (transmitted by the reference memorandum of January 7, 1960); and an oral summary by the Deputy Secretary of Defense of the recommendations contained in a report submitted to the President by the Department of Defense, entitled “The Role of MATS in Peace and War”.

b. Referred NSC 5919 to the NSC Planning Board for urgent review in the light of the discussion at the meeting, the above-mentioned Defense report, and further consultation between the agencies primarily interested.

[Omitted here is the remainder of the memorandum.]

Marion W. Boggs

1. Source: Agenda item 1: U.S. policy with respect to the development of cargo air lift. Top Secret. Extracts—10 pp. Eisenhower Library, Whitman File, NSC Records. Drafted on January 13.
2. “Airlift requirements which must move in military aircraft, manned and operated by military crews because of special military considerations, security, or because of limiting physical characteristics such as size or dangerous properties. Included in this category are special military deployments involving nuclear retaliatory forces, the SAC post strike recovery mission, tactical deployments, movement of missiles, special munitions, etc. [Footnote is in the original.]
3. “These are the so-called ‘civil eligible’ requirements. [Footnote is in the original.]