Help for the Feeders

"In some financial circles, the word airplane has become a dirty word." So says Mackey Airlines' President Joseph C. Mackey, and nowhere is the complaint louder than among the nation's 13 small feeder airlines, which cannot raise the money to buy the aircraft they need. Last week the feeders were in Washington, urging Congress to approve a pair of bills designed to help them out of their financing problems. One was a bill introduced by Oklahoma's Senator Mike Monroney that would give U.S. feeder airlines a Government guarantee on any loan from private sources; the other, in the House, would allow airline operators, like homeowners, to reinvest proceeds from the sale of old planes in new equipment without paying a capital-gains tax. Without such help, warned the Air Transport Association's President Stuart G. Tipton, one of the most promising of all U.S. industries will stay "stuck on dead center." Shoppers & Salesmen. The irony is that few industries can match the feeder lines' growth. Flying every kind of short-haul traveler from weekend shoppers to city-hopping salesmen, the lines carried 3,453,000 passengers last year (up from 25,000 in 1946) on 31,740 miles of routes in 44 states. Because of their growth, air traffic in many small U.S. cities now matches the volume of major cities abroad. Traffic at Fresno, Calif, (pop. 107,900) equals that of Frankfurt; traffic at Ontario, Calif, (pop. 39,430) is equal to Paris'. With soaring revenues (up 16.7% in 1956), the feeders estimate an annual income of $100 million in only a few years. Yet the lines lose money every time they take to the air. They already cost taxpayers $27 million annually in subsidies, will probably cost more with each passing year.

The main problem is an almost complete dependence on a fleet of 188 low-capacity Douglas DC-35, the 21-year-old aerial workhorses that no longer pay their way no matter how efficiently they are operated. San Francisco's cos-t-conscious Southwest Airways has cut ground stops to only 120 seconds, but maintenance and operating costs keep going up. "A spare part that used to cost maybe 80^," explains one airline man, "runs about $5 now, and has to be specially made." Even if the feeders, which operate with an average load factor of 45%, could boost their loads to the big trunklines' average of 65%, the DC-3 would still lose money. The revenues would equal only 87.5^ a mile v. a cost of about $1 a mile.

Hot Prospect. The hottest prospect to replace the DC-3 is the $550,000 Dutch Fokker F27, a pressurized turboprop plane, whose high speed and economy is ideal for short-haul routes. Fairchild Engine & Airplane Corp., building the F-27 under license, already has 69 firm orders or options from U.S. lines. Flying without subsidy, the F-27 is expected to break even on a load factor of 57%. Better routing, with Civil Aeronautics Board help, could then boost feeder traffic, although many lines will still need subsidies for years to come. Even so, few feeders can raise the cash to buy the Fokker. Of 35 firm F-27 orders, says Bonanza Air Lines' Executive Vice President G. Robert Henry, only nine have been completely financed. Fairchild has taken the remaining orders largely "on good faith." The feeders would also like to buy France's speedy (500 m.p.h.) Caravelle pure jet. But only San Diego's Pacific Southwest Airlines, with three Caravelles on order (at $1,950,000 apiece), has been able to swing a deal.

No Profits, No Loans. "Bankers just aren't interested in loaning us money after seeing our books," says Jack Ayer of Trans-Texas Airways, which has never declared a dividend, last year netted barely $10,000 on operating revenues of $5,997,000. Almost every other feeder is in the same squeeze. When Central Airlines asked the Fort Worth National Bank for more than $2,000,000 to replace its DC-35, the bank could only take a sternly "dim view"; Central has already been to the bank 107 times since 1949, is still in the red. To buy a needed old DC-4, Alaska's Reeve Aleutian Airways got a $500,000 bank loan only by pledging virtually the entire personal assets of President Robert C. Reeve's family, plus seven company planes as collateral.

In Washington last week, virtually the entire U.S. aviation industry lined up in support of the two bills to help the equipment-starved feeders get the planes they need. Though no one is sure how Congress will vote--or even if the bills will get out of committee this session--the CAB is solidly behind the Senate proposal for guaranteed loans to the feeders. The bill would guarantee up to 90% of any private loan up to a maximum face amount of $5,000,000 for each company, and estimates are that the lines will need a total $60 million in the next five years. The House bill exempting capital gains may be even more important, since it would benefit not only the feeders but the whole U.S. airline industry. By freeing $67 million in capital gains earned from selling old planes over the next five years, A.T.A. President Tipton testified, the bill would give the industry a $270 million credit reserve toward new planes. Even that is only a start. To keep pace with the growth of air travel, U.S. airlines must spend at least $2.5 billion for new equipment in the next few years.

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