128. Letter From the Deputy Assistant Secretary of State for Economic Affairs (Loy) to the Chairman of the Civil Aeronautics Board (Crooker)1

Dear Mr. Chairman:

At our meeting on March 14 concerning the US-Brazil negotiations,2 the Board invited the Department’s comments on a proposal to undertake a study on the probable impact of the 747 and SST aircraft on our international aviation relations.3

The Department believes that such a study is indeed needed. We have, in fact, felt for some time that it would be desirable to look in depth into the question of the impact of aviation technological advances on U.S. international air transport policy and we had already given some preliminary thought to the question. It has been evident that, while much work has been done on the technical and economic characteristics of the 747 and SST, little or no study has been directed toward the effect which the introduction of these aircraft will have on the whole range of our international aviation policy. We should have a clear idea of what the impact will be, not only to plan for resolution of any problems when these advanced aircraft are introduced, but also to respond to foreign pressures for advance assurances of one sort or another, such as in the Brazilian situation.

We believe that the General Counsel’s memorandum of March 7,4 which was made available to us, provides a general outline of the scope and purpose of such a study. We offer the following comments either in amplification of or in addition to that memorandum: [Page 232]

We agree that attention should be directed toward an appraisal of the introduction of jet aircraft in the late 1950’s and 60’s. For example, it would be instructive to review the expectations which then existed and whether these expectations proved to be correct or not. Identification of the problems that arose and their causes would be desirable, as well as a review of how these problems were resolved. While there may be differences between this situation and the situation with respect to the introduction of the 747 and SST, some valuable lessons might be learned.
Although the question is most simply put in terms of 747 and SST, we suggest that the study focus attention also on the stretched versions of current aircraft. Also, it may be necessary to differentiate among these various categories, since it does not necessarily follow that the situations with respect to the stretched aircraft, the 747, and the SST will be the same. In fact, there may be significant differences among these situations.
The possibility of arrangements (such as financing, leasing, or cooperative arrangements) for foreign carrier use of these aircraft certainly deserves close attention, since this may be a means of resolving the foreign competitive impact problem.
The fare question also is crucial. Perhaps a case can be made that, since the 747 is expected to have a lower cost per seat mile than present aircraft, there should be a discount on the fares. On the other hand, there may be pressures for a fare surcharge to reduce the competitive impact. Perhaps advance planning can avoid the prospect of having to decide between basically irreconcilable alternatives.
The impact of the new aircraft on capacity is perhaps the most critical question for U.S. air transport negotiations. We need to know, first of all, when and where the new aircraft will be used and the extent to which these services will replace existing services. The impact in these particular markets at the indicated times will then have to be determined, based on several sets of assumptions on the state of the market at the time.

The Department welcomes the proposal that the Board undertake this study. In view of our very close interest in the subject, we would like to have the opportunity of participating in review of the study at appropriate stages and of contributing in any way we can to a useful end-product.

Sincerely yours,

Frank E. Loy 5
  1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, AV 12–7 US. No classification marking. Drafted by M. Styles (E/AN).
  2. The United States and Brazil were negotiating a bilateral air transport agreement, February 15–March 18; the agreement was concluded in July 1968.
  3. Not found; historians at the FAA speculate that the study was never undertaken.
  4. Not found.
  5. Printed from a copy that indicates Loy signed the original.