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It is our conviction that the United States should proceed without delay with the program to build two prototype supersonics for test and research purposes. It is only by building a prototype that we will have the test data to weigh fact against fantasy and determine the feasibility of a production model. It is only by building a prototype that we will have the specifications to end all the speculations. A prototype, in short, will give us the hard facts we need to judge the supersonic in terms of safety, economics, and the environment.

The airlines have no intention of sonic-booming customers, passengers, or prospective passengers. Nor do they have any intention of enlarging any airport noise problem.

NON POLLUTION OF AIR AND NOISE

We remind you, however, that each new generation of aircraft has been more socially responsible than the last. The 747, for example, is not only virtually smoke-free but quieter than the smaller 707.

We therefore have reason to believe that the level of technology demonstrated by the American aircraft and aerospace industries is sufficient to achieve a supersonic which would not contribute to air or noise pollution.

FISCAL RESPONSIBILITIES OF AIRLINES

There are those who claim that the airlines will not be able to afford the SST, and I was very encouraged by the Secretary of Treasury's remarks just now, that we were all going to be healthy and growing again.

There were, if you recall, those who claimed that the airlines would not be able to afford the jet in 1958. Yet, it was the operating economy of the jet engine that provided the airlines with the earnings to reinvest in the even more efficient wide-bodied jets of today.

We are confident that as corrective action is taken to restore competitive balance to the industry, history will repeat itself, and the 747 and other wide-bodied aircraft will provide the earnings to reinvest in the SST late in the decade.

PROGRAM

INVESTMENTS BY AIRLINES AND

MANUFACTURERS

AIRPLANE AND ENGINE

As evidence of our faith in the American supersonic, 13 airlines have already invested $81 million in the program-$18 million for Pan Am alone-paid into the U.S. Treasury 5 years ago. Airplane and engine manufacturers have put up $206 million, and are committed to invest further as the program progresses.

RETURN ON GOVERNMENT INVESTMENT AND BALANCE OF PAYMENT

The return on investment to the U.S. Government through the sale of 500 supersonics would be a billion dollars. The sale of American aircraft in the overseas market has already contributed nearly $5 billion in the past decade to the plus side of our balance of payments

. If American leadership in aircraft manufacture continues throughout the seventies, it can mean a favorable trade balance of at least

$10 billion. If SST leadership swings to the British, French, and Russians, this balance of $10 billion swings against the United States.

The SST is here, it is coming on, and the issue is whether we do it and gain the benefits, or whether we let someone else do it and gain the benefits. Those benefits, stemming from new knowledge, are many not only in terms of foreign trade but in terms of our world leadership position, military strength, tax revenues, and our prosperity in general.

Failure to support the supersonic transport program will ultimately mean that we run the risk of relinquishing world leadership in aviation, as we have already in shipping.

In view of what is already happening around the world in the production of steel, automobiles, and textiles, there is compelling reason to hold fast to the production advantages we have in aeronautical technology

ENVIRONMENT

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We believe that those who oppose the supersonic on ecological grounds have ben misguided in wanting to cancel a program that is specifically designed to determine whether or not a socially sound SST can be built.

Entirely apart from the immediate internal economic aspect, those who oppose the supersonic as a “waste of money" have seriously underestimated its vital implications to expanding knowledge, to creative activity, which is the true basis of leadership. Gentlemen, that ends my testimony on behalf of the major airlines of the United States. If you have questions, I will answer them on behalf of my company and myself and try to reflect the view of the industry.

Chairman ELLENDER. Are there any questions?
Senator PROXMIRE. Mr. Chairman.

RUSSIAN TU-144 AIRCRAFT

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Senator BIBLE. May I ask one?
Chairman ELLENDER. Go ahead.
Senator BIBLE. Just one question.

Mr. Halaby, has either Pan Am or any other American airline a firm order for the TU-144 ?

You can speak for Pan Am. I don't know if you can speak for the others.

Mr. HALABY. I can certainly speak for Pan Am, which does not have a firm order, and I believe I can speak with confidence that no U.S.-flag carrier has.

It is generally accepted knowledge that no one other than Aeroflot, the Soviet national airline, will be offered the aircraft at first. In other words, only Aeroflot would get the airplane in the beginning, and after that, and perhaps other Socialist airlines will be offered the airplane, would it be offered elsewhere.

Senator BIBLE. We heard much last year when we had this matter on the floor about Japanese orders for the TU-144. Do you have any knowledge on that?

Mr. Halaby. We have only speculation to go on. I think the Tupelov scenario would run something like this: The airplane has flown

successfully, and Astronaut Neil Armstrong and several of us have seen it and talked to Yelyan, the Soviet test pilot, and with both Tupelovs, father and son. Tupelov 144 is very similar to the Concorde. And although none of us were allowed to Hy it, we were allowed to sit in the cockpit and go over it in great detail.

It appears that it will be offered to Aeroflot, and I would think they would operate it first in the seclusion of their own test range, which might very well be Moscow to Khabarovsk, which is out east near Japan.

After suitable tests, perhaps with passengers and freight, they would then, I suppose, fly it on to Tokyo. That would induce the Japanese to want to go supersonic, even if there were no U.S. SST and no Concorde.

That in turn would set off the Soviet SST race, which would then extend into the Pacific, where we are a direct and I believe strong competitor to Japan airlines for whom we have the greatest respect.

It is often difficult to realize, as we are preoccupied with our own domestic problems, that we are talking about a universe of transportation here. It is not just the United States, or even service to and from the United States, that we must be very concerned with, but also between points all around the world.

So the Tupelov might very well develop in that way.

BRITISH AND FRENCH CONCORDE AIRCRAFT SCENARIO

The Concorde, on the other hand, would be a different and more difficult scenario, if you will. There, British Overseas Aircraft

, BOAC, and Air France would be offered the airplane, and I would suppose urged, if not pressured, to take it for their transatlantic operations.

My predecessor, Juan Trippe, saw to it that the American flag would not be denied an equal opportunity to fly that airplane, if it was successful, so every third Concorde of the first 18--would be delivered to Pan Am, and would be introduced on the Atlantic.

Other American carriers have made conditional orders for the airplane, and it would be used over water routes all around the world.

SPEED AND SEAT FACTOR

Even if the airplane is as uneconomic as its critics state, it will become a formidable competitor.

We introduced the first jet in 1958 and 1959, and for the first year the seat factor was in the order of 90 percent. The second year it dropped down to perhaps 65 or 70 percent, and, of course, it was flying against the slower airplanes. It seems to be a rule of modern man to prefer to save time, and, therefore, he is willing to pay a jet surcharge, as was the case in the first years of the introduction of the subsonic jet.

So, if we follow the past at all, we would have a situation where the operator of the Concorde, without any solution to the sonic boom, with relatively poor economics, compared to the 747 flying the same route

, would get such a high seat factor, and could command such a surcharge, that he would sweep much of the market in the years when it was not competitively available.

RUSSIAN COMPETITION

That is the real threat we face, and, of course, if there is no Concorde, if there is no U.S. supersonic, for which I think most of the world's airlines would wait, then the Tupelov is the only SST.

It is hard to imagine that Aeroflot would be the only supersonic operator into the United States or Canada. But if you are interested in the possibilities, then you have to contemplate the Free World's airlines watching the Tupelovs go by on the Trans-Atlantic, the TransSiberian, and Trans-Pacific routes.

I suggest that is, I hope, a remote likelihood, but it is a possibility which as a businessman I have to conjure with.

Senator BIBLE. Thank you very much, Mr. Halaby.
Chairman ELLENDER. Senator?

RUSSIAN OFFERS FOR SALE OF TU-144 AIRCRAFT

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Senator PROXMIRE. Could I? Mr. Halaby, you told us something that I did not understand before. You tell us that the Russian plane, a supersonic plane, has not been offered to date to anyone except to their own airline. Is that correct?

Mr. HALABY. I said that I was certain it had not been offered to Pan Am, nearly certain to no U.S.-flag carriers, and there was general knowledge that it had not yet been offered to other free world carriers. Whether it has been offered to Air India

Senator PROXMIRE. That includes Japan? It has not been offered, to the best of your knowledge, to Japan?

Mr. HALABY. To the best of our knowledge, it has not. They would be one of the earliest likely recipients of an offer because of the reciprocal air rights between the Soviet Union and Japan, and the rather controlled airways, supersonic airway between the Soviet Union and Tokyo.

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CAPABILITY OF AIRLINES TO FINANCE PURCHASES OF SST

Senator PROXMIRE. Now, you are going to be one of the very best, perhaps the best qualified witness to tell this committee about the capability of the airlines to finance this.

The figures we got from Mr. Magruder and from Mr. Volpe were that they expect 500 to 800 of these planes in the period 1978–90. This is a 12-year period.

If you take the lower figure of 500, and the cost is $50 million apiece, this would mean a $25 billion purchase by the airlines to finance.

You have got about 2/9ths of the traffic, as I recall, I think I saw in your statement. At any rate, I calculate that if you get your share that you might have to invest as much as $6 or $7 billion in supersonic transports during this period, or about $500 million a year.

Now, it troubles me very much that we may have a situation where the Federal Government may have to come in either with a guaranty, come in with loans, come in with a direct subsidy, that we have several witnesses before my Joint Economic Committee testifying that this is in their view, very likely.

What is your answer to that? Do

you
feel that

you

would be able to finance this, based on your past experience, and your present financial situation ?

AIRLINE OVERCOMPETITION Mr. Halaby. Certainly not on our present financial situation, which has very serious elements of Government-promoted competitive waste in it.

We are assuming, and the Secretary of the Treasury's remarks were helpful, that the U.S. Government is going to do something about the present situation of the U.S. airline industry.

Senator ProxMIRE. By that, you mean subsidize it in some way? Mr. Halaby. No, no, to eliminate the waste of overcompetition.

For example, Pan Am is in a unique position, because we have no domestic interstate route structure. Every country in the world has an airline, but Pan Am is an airline without a country, so we have a quite unique position.

We are also extremely vulnerable to 92 foreign and domestic scheduled carriers and supplementals, so we have, as you know, I believe, to go out and compete not only with BOAC and Air France on the Atlantic, but with Aeroflot and the other 43 airlines that are now flying the Atlantic.

Something must be done to rationalize this wasteful overcompetition. Now, whether or not that is done depends to a very considerable extent on the Congress. There are hearings underway now on that subject.

Senator ProxMIRE. Well, suppose we assume that this is done, and take favorable assumptions, and now my question is: In your view, can not just your company, but the airline industry itself finance this perfectly enormous capital investment on the basis of the very big difficulty they are in right now, and the realistic appraisal of what is likely to take place in your view in the future?

Mr. HALABY. Senator

Senator PROXMIRE. Let's make optimistic assumptions from the standpoint of efficiency.

Mr. Halaby. Right. If there is an international air transport system that is an efficient one, it is a sensible use of U.S. civil airpower, we are confident that in the time frame we are talking about, 1978, 1979, 1980-you see, with the improvements of this engine, and the further reduction in noise, and the general improvement of the efficiency of the airplane, we may be talking about 1979 rather than 1977--but in any case, by that time we believe, assuming favorable Government action and continued prosperity of the type the Secretary of Treasury is talking about, we will be able to afford to buy these airplanes.

Another way to look at it is we cannot afford to go without them.

OPINIONS OF BANKERS

Senator PROXMIRE. Yes, yes, I understand that, but my question is: Will you be able to finance it privately, in your best judgment

I talked to some bankers, and they question this very, very seriously, They point out that A.T. & T., for example, finances about $212

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