[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
THE ECONOMIC VIABILITY OF THE CIVIL RESERVE AIR FLEET (CRAF) PROGRAM
=======================================================================
(111-30)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MAY 13, 2009
__________
Printed for the use of the
Committee on Transportation and Infrastructure
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia, JOHN L. MICA, Florida
Vice Chair DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of JOHN J. DUNCAN, Jr., Tennessee
Columbia VERNON J. EHLERS, Michigan
JERROLD NADLER, New York FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida JERRY MORAN, Kansas
BOB FILNER, California GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas HENRY E. BROWN, Jr., South
GENE TAYLOR, Mississippi Carolina
ELIJAH E. CUMMINGS, Maryland TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania SAM GRAVES, Missouri
BRIAN BAIRD, Washington BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West
TIMOTHY H. BISHOP, New York Virginia
MICHAEL H. MICHAUD, Maine JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona ROBERT E. LATTA, Ohio
CHRISTOPHER P. CARNEY, Pennsylvania BRETT GUTHRIE, Kentucky
JOHN J. HALL, New York ANH ``JOSEPH'' CAO, Louisiana
STEVE KAGEN, Wisconsin AARON SCHOCK, Illinois
STEVE COHEN, Tennessee PETE OLSON, Texas
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
PARKER GRIFFITH, Alabama
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
VACANCY
(ii)
?
Subcommittee on Aviation
JERRY F. COSTELLO, Illinois, Chairman
RUSS CARNAHAN, Missouri THOMAS E. PETRI, Wisconsin
PARKER GRIFFITH, Alabama HOWARD COBLE, North Carolina
MICHAEL E. McMAHON, New York JOHN J. DUNCAN, Jr., Tennessee
PETER A. DeFAZIO, Oregon VERNON J. EHLERS, Michigan
ELEANOR HOLMES NORTON, District of FRANK A. LoBIONDO, New Jersey
Columbia JERRY MORAN, Kansas
BOB FILNER, California SAM GRAVES, Missouri
EDDIE BERNICE JOHNSON, Texas JOHN BOOZMAN, Arkansas
LEONARD L. BOSWELL, Iowa SHELLEY MOORE CAPITO, West
TIM HOLDEN, Pennsylvania Virginia
MICHAEL E. CAPUANO, Massachusetts JIM GERLACH, Pennsylvania
DANIEL LIPINSKI, Illinois CHARLES W. DENT, Pennsylvania
MAZIE K. HIRONO, Hawaii CONNIE MACK, Florida
HARRY E. MITCHELL, Arizona LYNN A. WESTMORELAND, Georgia
JOHN J. HALL, New York JEAN SCHMIDT, Ohio
STEVE COHEN, Tennessee MARY FALLIN, Oklahoma
LAURA A. RICHARDSON, California VERN BUCHANAN, Florida
JOHN A. BOCCIERI, Ohio BRETT GUTHRIE, Kentucky
NICK J. RAHALL, II, West Virginia
CORRINE BROWN, Florida
ELIJAH E. CUMMINGS, Maryland
JASON ALTMIRE, Pennsylvania
SOLOMON P. ORTIZ, Texas
MARK H. SCHAUER, Michigan
VACANCY
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Bauer, Brian, President, Evergreen International Airlines, Inc... 18
Coretz, Robert K., Chairman, Omni Air International.............. 18
Flynn, William J., President and Chief Executive Officer, Atlas
Air Worldwide Holdings, Inc.................................... 18
Graham, David R., Strategy Forces and Resources Division,
Institute for Defense Analyses................................. 18
Mcnabb, General Duncan J., USAF, Commander, United States
Transportation Command, Scott Air Force Base................... 4
Smith, Frederick W., Chairman and CEO, Fedex Corporation......... 18
Zoeller, Thomas E., President and CEO, National Air Carrier
Association.................................................... 18
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Costello, Hon. Jerry F., of Illinois............................. 37
Mica, Hon. John L., of Florida................................... 42
Mitchell, Hon. Harry E., of Arizona.............................. 44
Oberstar, Hon. James L., of Minnesota............................ 45
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Bauer, Brian..................................................... 49
Coretz, Robert K................................................. 54
Flynn, William J................................................. 69
Graham, David R.................................................. 79
McNabb, General Duncan J......................................... 86
Smith, Frederick W............................................... 93
Zoeller, Thomas E................................................ 105
SUBMISSIONS FOR THE RECORD
Airline Pilots Association, International, written statement..... 128
McNabb, General Duncan J., USAF, Commander, United States
Transportation Command, Scott Air Force Base, response to
question for the Record........................................ 133
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HEARING ON THE ECONOMIC VIABILITY OF THE CIVIL RESERVE AIR FLEET
PROGRAM
----------
Wednesday, May 13, 2009
House of Representatives,
Subcommittee on Aviation,
Committee on Transportation and Infrastructure,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2167, Rayburn House Office Building, the Honorable Jerry
F. Costello [chairman of the Subcommittee] presiding.
Mr. Costello. The Subcommittee will come to order. We
apparently have the sound system and everything in order, we
hope.
That is a first, General, I have to tell you, since we have
remodeled the room and have a new sound system.
The Chair will ask all Members, staff, and everyone to turn
electronic devices off or on vibrate.
The Subcommittee is meeting today to hear testimony on the
economic viability of the Civil Reserve Air Fleet program.
First, I will give a brief opening statement; call on the
Ranking Member, Mr. Petri, for any statement that he would like
to make or brief comments; then we, of course, will go to our
first witness, General McNabb.
I welcome everyone to the Aviation Subcommittee hearing on
the economic viability of the Civil Reserve Air Fleet, or CRAF.
President Truman established the CRAF program in 1951 to
augment the Department of Defense's airlift capability when
there is a high demand for airlift. Under CRAF, U.S. carriers
voluntarily pledge aircraft and crews to support the
mobilization of troops and equipment for predetermined rates.
In return, DOD offers several incentives, including exclusive
access to charter cargo and passenger airlift business, often
called peacetime business, when CRAF is not formally activated.
Currently, 34 U.S. air carriers have committed almost 1100
aircraft to the program. During a major war, CRAF carriers are
expected to meet approximately 93 percent of DOD's passenger
and approximately 37 percent of DOD's cargo requirements. It is
important that everyone is aware of the vital role that the air
transportation industry plays in our national security.
I would like to welcome General Duncan McNabb, the
Commander of the U.S. Transportation Command, headquartered at
Scott Air Force Base in the congressional district that I am
privileged to represent, who is responsible for managing the
CRAF program.
For over 50 years, the CRAF program has been an extremely
successful government and industry partnership. The CRAF
program meets the military's mobilization requirements while
saving taxpayers billions of dollars by foregoing the cost of
procuring a government fleet to meet those requirements.
USTRANSCOM, citing a 1994 RAND study, estimates the
cumulative cost of volumes associated with the program as high
as $128 billion in 2009 dollars.
General McNabb, I think you will find bipartisan support
for the CRAF program here in this Subcommittee, the Full
Committee, and in the Congress.
In 2007, Chairman Oberstar and Ranking Member Mica, Mr.
Petri, and I sent a letter to Chairman Skelton, the Ranking
Member, and to the Ranking Member, Mr. Duncan Hunter, of the
House Armed Services Committee, in support of the USTRANSCOM
assured business proposal. This proposal would authorize DOD to
guarantee a higher minimum level of peacetime business for CRAF
participants.
In fiscal year 2009, we were successful in getting this
assured business authority provision included in the annual
Defense Authorization Act, and it will be an effective
incentive for air carriers to commit aircraft to the CRAF
program.
Last August, the Institute for Defense Analyses published a
report on the CRAF program in response to a fiscal year 2008
National Defense Authorization Act. While IDA concluded that
CRAF is a vigorous program capable of meeting DOD requirements,
it also expressed some concerns that, as the operations in the
Middle East begin to decrease, it could adversely impact CRAF
carriers. Passenger charter carriers, which have experienced a
shrinking civil commercial market, would be particularly
vulnerable. I look forward to hearing from our witnesses what
additional steps can be taken to strengthen this program.
Chairman Oberstar, Ranking Member Mica, Ranking Member Mr.
Petri, and I are well aware of the importance of a well
equipped CRAF program. It is essential to supporting our
national security interest and helping our aviation industry
remain competitive globally. I am committed to working to
improve and strengthen this successful partnership to ensure
its future viability.
Before I recognize Mr. Petri for his opening statement, I
would ask unanimous consent to allow two weeks for all Members
to revise and extend their remarks, and to permit the
submission of additional statements and materials by Members
and witnesses. Without objection, so ordered.
At this time, the Chair now recognizes the Ranking Member
of the Subcommittee, Mr. Petri.
Mr. Petri. Thank you very much, Mr. Chairman. I am pleased
to join with you in welcoming our witnesses here today as we
consider the viability of the Civil Reserve Air Fleet program.
The Civil Reserve Air Fleet program is a voluntary
contractual arrangement between the Department of Defense and
privately owned and operated U.S. airlines. In order to support
the mobilization of troops and equipment during times of need,
U.S. airlines voluntarily provide standby commitments of
aircraft and crews. In return, the Defense Department provides
incentives through the Civil Reserve Air Fleet program
peacetime business. The idea is simple and the program is and
has been very successful.
The Civil Reserve Air Fleet program was created by
President Harry Truman back in 1951, and in 1987 President
Reagan affirmed its importance. The Civil Reserve Air Fleet
program has been activated only twice since its inception.
However, since 9/11, the Department of Defense has become
increasingly reliant on the peacetime provisions of airlift by
the Civil Reserve Air Fleet program's air carriers.
As we all know, the aviation industry is constantly
changing; the market changes and the industry reacts. Volatile
fuel prices, shrinking credit markets, growing debt and pension
obligations, and the impact of the current global recession on
air travel have impacted the airline industry in numerous ways.
The U.S. passenger airline industry lost $4.3 billion in
the first three quarters of last year. Demand for commercial
passenger charter flights has dwindled. At the same time, U.S.
airlines have reduced domestic capacity by 9 percent from 2007
to 2008, and airlines have also reduced active fleet aircraft
by some 18 percent.
The question is, how have these changes in the airline
industry impacted the Civil Reserve Air Fleet program? I am
interested in the status of the program in light of the
dramatic changes in the marketplace. As General McNabb states
in his written testimony, a robust commercial air industry is
vital for our national defense. I am also interested in
learning from today's witnesses what changes or improvements
they believe will help the continued viability of the Civil
Reserve Air Fleet program.
The Civil Reserve Air Fleet program is a great example of a
public-private partnership. It has seen us through 58 years and
numerous crises. Its success should be applauded and learned
from, and if we can improve this already successful program,
then we need to know what can be done.
So I thank all of our witnesses for appearing before the
Subcommittee today to share your points of view and look
forward to your testimony.
Mr. Costello. The Chair thanks the Ranking Member and now
recognizes for brief remarks or an opening statement the
gentleman from New York, Mr. McMahon.
Mr. McMahon. Thank you, Chairman Costello and Ranking
Member Petri.
And thank you, General McNabb and to all our witnesses, for
coming to testify today.
Since its creation in 1951, the Civil Reserve Air Fleet
program has proven to be a tremendous success. This program
ensures that, in times of national emergency, we have the
aviation capability to fully mobilize our Nation. The unique
partnership of commercial airlines with the Department of
Defense guarantees that our country will always be ready to
provide vital airlifts in times of crisis.
This cooperation between commercial airliners and the DOD
is a win-win for U.S. taxpayers and the commercial aviation
industry. The $2.5 billion allocated by DOD each year for this
peacetime charter airlift program is clearly money well spent,
especially when we consider that OMB estimates that it would
have cost the country perhaps as much as $128 billion in
inflation-adjusted dollars for the DOD to maintain the same
capacity over the life of this program.
In these difficult economic times, the airline industry is
struggling to remain affordable, yet competitive. For example,
ATA Airlines once provided approximately 10 percent of the
DOD's passenger airlift, but was forced to declare bankruptcy
and ceased operations, causing service delays within the CRAF.
Air travel is critical to support not only businesses, but
it is a critical part of our military transportation network.
Therefore, it is imperative for us to make sure that carriers
stay in business so we can continue to count on them.
It is estimated that over the next several years the DOD
may rely more heavily on the CRAF activations, which may have
an adverse effect on scheduled airlines. We should consider
whether to improve CRAF incentives to strengthen DOD's
partnership with the commercial airline industry.
Throughout the times of peace and times of crisis, we
should be grateful that we can count on the commercial airline
industry to deliver outstanding results every time our country
calls on them. But we need to make the necessary investments to
continue this important partnership, and that is why I think
this hearing is so important, and we are grateful to you for
convening it, Mr. Chairman. Thank you.
Mr. Costello. The Chair thanks the gentleman from New York
and now recognizes our witness from our first panel, General
Duncan J. McNabb, who is the Commander of the United States
Transportation Command at Scott Air Force Base.
General, welcome. It is a pleasure to have you before us
today. As I think some of the staff know, we go way back in
other capacities, when you were over Air Mobility and a
different position with TRANSCOM before you became the
commander. So we welcome you here today, we look forward to
your testimony, and I want to assure you that we have enjoyed a
close working relationship not only on the CRAF program, but
look forward to working with you on other matters as well.
General, your entire statement will be inserted and appear
in the record. If you would like to summarize, take as much
time as you would like. General McNabb.
TESTIMONY OF GENERAL DUNCAN J. MCNABB, USAF, COMMANDER, UNITED
STATES TRANSPORTATION COMMAND, SCOTT AIR FORCE BASE
General McNabb. Chairman Costello, Congressman Petri, and
distinguished Members of the Committee, it is indeed my
privilege to be with you today representing the men and women
of U.S. Transportation Command, more than 136,000 of the
world's finest logistics professionals.
USTRANSCOM leads a committed total force team of active
duty, guard, reserve, civilian, contractors, and commercial
partners. This team provides the capacity to deliver logistics
and distribution capability to support power projection in both
peace and war.
Today we focus on one of the earliest, most unique and
extremely successful partnerships between the Department of
Defense and the commercial airline industry, the Civil Reserve
Air Fleet, or CRAF.
How timely it is to hold this hearing on this capability
that airlift brings. Just yesterday we celebrated the 60th
anniversary of the Berlin airlift. On May 12th, 1949, the
Soviet Union capitulated to the Allied Airlift Offensive into
Berlin and lifted their blockade. Air power, employed with the
will and determination of some truly great aviation heroes,
helped save a nation.
With the success of the Berlin airlift as his backdrop,
President Truman instituted the CRAF program in 1951. He was
confident that this military-commercial partnership would
provide capabilities to the United States and to the world like
those witnessed in Berlin, the ability to save lives, and even
nations, when the need and opportunity arose.
Our commercial CRAF partners have certainly answered the
call, standing beside us for more than five decades. In
exchange for DOD peacetime airlift business, the carriers
promise to be there when needed for contingencies and
emergencies.
Since the program's inception, our partners have kept that
promise by participating in every military contingency
involving the United States. They have flown missions
voluntarily in peacetime and, during the two wartime CRAF
activations, first in 1991 during Operations Desert Shield and
Desert Storm, and again in 2003 during Operation Iraqi Freedom.
Currently, 34 separate CRAF carriers participate in the
program. Their commitment of 1100 aircraft, along with our
military organic fleet, represents a tremendous value to the
Nation. We simply could not accomplish our mission without the
unique capabilities our commercial industry partners provide.
It is this championship team, working together, that gives our
Nation unrivaled global reach, committed to serving our
Nation's war fighters by delivering the right stuff to the
right place at the right time. USTRANSCOM is diligently working
to ensure the program remains strong, viable, and able to
withstand changes in the global environment.
We are also mindful of potential threats we face as our
adversaries try to sever or slow the logistics lifeline to our
war fighters, and we will continue to keep the safety of our
CRAF carriers at the forefront of how we carry out our mission.
We are absolutely dedicated to preserving this key partnership
for our Nation's defense.
Chairman Costello and Congressman Petri, I am grateful to
you and the Committee for all you have done in support of U.S.
Transportation Command and the CRAF program. It has certainly
paid huge dividends for our Nation. I respectfully request my
written testimony be submitted for the record, and I look
forward to your questions.
Thank you, Mr. Chairman.
Mr. Costello. General, thank you.
General, I just have a few questions. One is, with the
economy as it is and we are facing several challenges in an
economy that is probably the worst that we have seen since the
Great Depression, we saw ATA Airlines go into bankruptcy last
year. Is CRAF properly structured to maintain adequate airlift
capacity and absorb any future losses? In other words, if other
carriers file bankruptcy, what will that do to your capacity?
General McNabb. Chairman Costello, one of the things that
was really good about visiting all the carriers as we look to
what we would have to do to CRAF and what are the smart things
that we would do following the CLR and the IDA studies was
that, when we went to each of the carriers, we said, hey, what
are your thoughts. So I would tell you that all of the
discussion with the carriers focused along that line of not
only what is happening economically, but also, as you mentioned
earlier, as we slow down, maybe, operations in the Middle East,
what will that impact be.
Your support of assured business was one of the first steps
that we asked for to help us do that, so that we could give
them kind of a projection that they could count on, that they
knew it would be there; and that was a big step that our
carriers had asked us to look at and then propose to you all,
and you certainly have done that.
We are also examining the military readiness and commercial
balance as you think to how we manage our overall fleet. Part
of it is the readiness of that active duty, guard and reserve
fleet, the military fleet, to make sure that it is ready to go.
As you know, the pilots and load masters that we trained in
that often times go on to either the guard and reserve and
fulfill their obligations there, and many of those same people
are in the Civil Reserve Air Fleet as part of that team.
So that readiness is absolutely essential but, again, how
we do that commercial mix is something that we can do, and
there is new technology, like simulators and others, that we
can take a very good look, make sure that we have got that
right.
One other, one that we are specifically looking at, again,
after talking to the carriers, is look at our Patriot Express
missions, which is those charter missions. We had looked hard
at that before. Basically, we were losing about $39 million a
year. DOD and OSD told us to go back and take a look at that
and try to make every--you know, look at all of the routes.
We have made quite a few changes that saved a lot of money
for the government. But now we have gone back, based on the
world we face, and say, hey, are there some of the places that
we might be able to reinstitute Patriot Express that is both
good for the war fighters, for the combatant commanders that
are out there, also good for their families, and then,
obviously, it is very good for the CRAF and our CRAF partners.
So we are taking a look at that as well.
It is the one that I worry about the most on the CRAF, is
how do you have a soft landing as we come back down. Obviously,
this impact of the current economic crisis impacts that even
more. What I do feel very good about is all of us are talking
about it and looking for ways that we can make sure that we can
help wherever we can.
Mr. Costello. Thank you. The assured business authority
that you made mention of, that you requested and received, when
you received that, it increased the minimum amount of business
that you can offer to participating carriers. Can you elaborate
a little bit as to why you needed that authority and why it was
important for you to receive it?
General McNabb. Yes, Chairman. Prior to 9/11, we did an
average of about $600 million a year with the Civil Reserve Air
Fleet. After 9/11, that obviously grew tremendously, and we are
in excess of $3 billion now. But at some point that will come
back down, and that assured business really does help the
carriers on looking at what do we do for the future to make
sure that we put this together, if you will, so that they can
make plans on leasing or buying of aircraft, what they are
going to do with their crews and what they are going to do for
the long-term.
We have not had to institute the assured business. You said
that there were a couple of things that we had to do, like make
sure that we can look out and project better. We are doing
that. And I think that, in working with industry, we will know
when we need to do that, but right now, obviously, business is
up. We haven't had to use that. We don't plan to use it in
2010.
And as we look at the movement of forces into Afghanistan,
it looks like that will be extended out a little bit further.
So we will watch that very carefully, but that assured
business, make sure that they can look even further to know
that we have a certain amount that they can plan on all the way
out into the future.
Mr. Costello. Thank you.
The Chair, at this time, recognizes the Ranking Member, Mr.
Petri.
Mr. Petri. Thank you. I probably should know a lot more
about this than I do, but I will just ask a basic question or
two. You do the regular logistics for the entire military as
well, don't you? I mean, people fly back and forth. You charter
planes or sometimes buy them tickets, people moving from one
base to another? It is a huge travel agency operation that you
have, I think. Is that correct?
General McNabb. Sir, it is the transportation requirement;
we do that with our commercial partners, so we work very
closely with them. As the TRANSCOM Commander, I also have
responsibility given to me as the distribution process owner,
which is really that end-to-end movement and distribution
system that I don't own all of that, but I help oversee that
and work with both the theater commanders and also the folks in
the States like the services and the agencies to make sure that
we put that all together. So I get to touch most of that, sir,
and, again, the commercial partners are key to that as we work
through the best way to do that for both the war fighter, but
also for the taxpayer.
Mr. Petri. And you move both soldiers and from time to time
you must do equipment or like package operations or whatever.
General McNabb. Yes, sir.
Mr. Petri. Air freight.
General McNabb. Yes, sir. We do about 25,000 passengers a
week would give you an idea of the magnitude that our Civil
Reserve Air Fleet partners do that, and they also move about
6,000 short tons of equipment every week. So they are taking a
lot. We plan on them doing about 93 percent of our passengers
and about 37 percent of our cargo lift. They take care of the
palletized cargo, kind of the bulk cargo that is moved, and
then we use our military side to move, when there is a higher
threat, we will use that if we were moving passengers in, and
then on the cargo side we will use it primarily to move the
military equipment, the rolling stock and stuff like that. So
we mix and match as we need to based on what the combatant
commanders need.
Mr. Petri. But how does this program really then--I mean,
it has been used only twice, in Desert Shield and Desert Storm,
and you are already leasing and purchasing all kinds of
activity. Is this actually necessary? How does this fit in? You
could commandeer, if you had to. I suppose it is a sort of
graduated deal. Could you describe why it is really necessary
or what it brings to the table and how much it is costing?
General McNabb. Yes, sir. Absolutely. It is very cost-
effective. We have three stages: basically regional conflict,
stage 1, we have a certain number of aircraft that are
committed to that by the carriers; stage 2 is a theater war,
much larger; and then stage 3 is full activation, and you might
call that we have activated the whole country in time of
threat.
On committing their airplanes to this program, what we
offer them is peacetime business to make sure that that--it not
only brings money to them, but also standardization, the
training, how they fly within our system. So today, for
instance, we have basically 135 sorties that are being done by
our commercial carriers. You hear us sometimes talk about 900
sorties a day done by the Air Mobility Command, my air
component, but 135 of those are these commercial partners that
are right within our system, and they are moving passengers and
cargo, and it is seamless.
We change and we mix and match whether it is more cost-
effective to do it commercially or, because of the threat, we
will do it militarily. That relationship obviously changes
depending on what is happening out there and what we are being
asked to do. In all cases, if I can do it commercially, that is
the cheapest way I can do that.
So this partnership, over the last 50 years, they have been
doing that kind of movement all the way through those years,
and we have, as you mentioned, only had to call them up twice.
But we have asked them to volunteer many times, and they have
said, yes, we have some airplanes that are available; how many
do you need.
I have had a number of instances, even over Christmas, when
you know that they are very busy, we had to move some forces.
We put a call out to the carriers and said this is what we
need; they said if you can move three days later, we have you
covered. And that is what they do. That goes on day in and day
out, and if I can move it commercially, it is in the interest;
and the President's national airlift policy basically said,
hey, if they can do it on the commercial side, that saves
money.
Overall, as was mentioned, when you think about how much
this has saved, rather than us own this militarily, because
what I have this fleet for is that full-up wartime surge.
Mr. Petri. Just one quick final question. There was a
little bit of a brouhaha a couple years ago when some soldiers
were coming back, I think, on a charter flight from the Middle
East to Los Angeles Airport, and evidently the airport hadn't
been notified or there was some confusion. I think it was in
Oakland, actually. There was a feeling that the soldiers were
not treated appropriately and were kept out on the grass or
something for a long period of time. Has that recurred or have
you worked out procedures to deal with that? There was some
kind of a breakdown in communication, as I recall.
General McNabb. No. I sometimes mention on the 900 sorties
a day, it only takes one that will make CNN. So every day is
another day where we are trying to make sure our processes
stand up to that, so we work very carefully with the carriers
and say, hey, here are the standards and here are the kinds of
things that we need, the same as on our military cargo
aircraft.
When we have gone back and done our surveys, not only have
the carriers been 92 percent-plus on their departure
reliability and on-time reliability, but the customer surveys
have come back and, from the service standpoint, 98.9 percent
satisfaction. So that is something that when I look and, of
course, I say, well, where is that other 1 percent, you know,
let's get at that, because you never can stand on that, you
always want to improve it and get much more because you know
the folks are depending on that.
That doesn't mean we don't have incidents and it doesn't
mean there are not going to be times when, because of weather
or others, we are going to have to come in and help, and that
actually, you know, hopefully we have the processes in place to
do that. Certainly, we are committed to always fixing whatever
problems come up, and it is a continual improvement all of the
time.
Mr. Costello. The Chair thanks the Ranking Member and now
recognizes the gentleman from New York, Mr. McMahon.
Mr. McMahon. Thank you, Mr. Chairman.
General, the DOD currently has a policy that states that no
more than 40 percent of the CRAF carriers' revenue come from
the government. I guess that is called the 60/40 rule.
General McNabb. Right.
Mr. McMahon. I understand that the block hours, the amount
of time between the moment the aircraft begins moving from the
point of origin and the moment it stops moving at the
destination, instead of using revenue, it could be considered
to calculate to 60/40 rule. Where does the USTRANSCOM stand, as
of today, when it comes to using block hours instead of revenue
for calculating these figures?
General McNabb. Congressman, great question. For FY10, we
decided we would stay with the revenue, but then we are going
to change it to block hours. We think block hours is a better
apples to apples because commercial, the way you account for
that is a little different than what we do in the military.
Something the carriers brought up said block hours would
probably be a better way to do that, so we are going to do
that.
Mr. McMahon. Thank you, Mr. Chairman.
Mr. Costello. The Chair thanks the gentleman and now
recognizes the gentleman from Ohio, Mr. Boccieri.
Mr. Boccieri. Thank you, Mr. Chairman.
General, thank you for your testimony. As a C-130 pilot, we
appreciate this program. Obviously, we can't carry all the
troops to the Middle East on times of national mobilization. A
couple questions for you, General. Do you envision the need to
equip some of the CRAF aircraft with defensive systems to ward
off MANPADs, especially if we are flying them into a forward-
operating base or having mass mobilizations?
General McNabb. Sure, Congressman. One, as the C-130, as
you know what a workhorse that is, I actually, when I was the
Air Mobility Command commander, I looked very closely at this
issue and I worked with the National Defense Transportation
Association, their airlift Subcommittee, and said, hey, let's
get everybody's thoughts on that, and, quite frankly, we had
some carriers that said we would be willing to do that; most
said that they would probably defer.
And the way I finally came down on that is you know that it
is a lot more than defensive systems that allows us to operate
in those areas; it is the tactics, techniques, and procedures,
it is being able to do random approaches, it is the defensive
systems, but it is also using night vision goggles, and landing
on the runway, it is all of the kinds of things that we are
able to do that we have 130s and C-17s and C-5 crews that we
spend a lot of time training so that they can do that safely.
If you ended up having CRAF have defensive systems on and
we took them into the same locations, they would have to spend
an awful lot more on training those crews, which, again, that
kind of takes away from their business base. So that training
cost would be very large. And, in the end, I came out of that
thinking that the better way to do this is have the military
side really focus on the ability to go into that threat, make
sure that our threat working group looked at all of the places
we go into, and if there are places that we can safely operate
the Civil Reserve Air Fleet into with all parts of the tiered
security, then we would allow them to operate into that.
We have worked with the FAA on that as well, and that is
why we actually do allow cargo operations into Bagram, we do
allow cargo and pax operations into Al Asad.
Mr. McMahon. Is there a significant threat still to those
commercial aircraft flying in?
General McNabb. No. I think that what we do is we watch
that every day to make sure that we watch that in a multitude
of ways to include patrols to make sure that they are not in
threat. If I ever even sense that there is a threat to them,
then I just say, okay, we will stop short, transload to
military airplanes and we will bring them in that way.
Mr. McMahon. And do you make that call or does the theater
commander make that call?
General McNabb. The threat working group, that comes to me
and that is done at TRANSCOM. But, obviously, we are talking to
the theater commanders all the time and comparing notes. One of
the big parts is, if you end up having an airplane that is just
about to land and you find that out, we work very closely on
the command and control to make sure that we can very quickly
get hold of those crews and say go into holding or divert, make
sure that that is done safely.
Mr. McMahon. Okay. General question about the National
Defense Authorization Act. Fiscal year 2009 required the
Secretary of Defense to incentivize the CRAF carriers to use
newer, more efficient aircraft and to improve the
predictability of the DOD charter requirements. In addition to
maintaining their certification under FAA Part 121 as air
carriers, the CRAF participants must also undergo a
comprehensive on-site technical evaluation that assesses an air
carrier's ability to meet all the DOD quality and safety
requirements as outlined in 32 C.F.R.
I am looking over the carrier teams and I see that there
are international carriers like Ryan, and I am not familiar
with Calida Air, but, number one, how do you maintain the
training and quality assurance for international carriers and
also those domestic carriers? We see what happened with Flight
3407 that perhaps even our own domestic carriers perhaps didn't
receive the adequate training that our own military is required
to undergo, so how do you assure those quality assurance
procedures?
General McNabb. Well, first and foremost is the FAA
certifies those carriers and they make sure that all the
standards that go into being certified by the FAA are taken and
those carriers pass that. The second part is they are approved
by our CARB, and the CARB is that oversight board that we have
that looks into not only the operations, but does the periodic
inspections.
Also, if there is any problem with safety, that comes back
and the CARB can suspend the carriers from doing that. So all
of our CRAF carriers are both certified by FAA and approved by
the CARB, so we have got an extra layer in there to make sure
that they are ready to go and they can do this safely.
Mr. McMahon. Okay. Thank you, Chairman.
Mr. Costello. The Chair thanks the gentleman and now
recognizes the distinguished Chairman of the Full Committee,
Chairman Oberstar.
Mr. Oberstar. Thank you, Mr. Chairman, for holding this
hearing. Mr. Petri, I appreciate your participation.
General McNabb, you come highly recommended. Chairman
Costello says he has known you a very long time.
General McNabb. Sir, he has been superb in not only this
Committee, your Committee, but Chairman Costello, in the way he
has taken care of TRANSCOM and Scott Air Force Base has been
something that you can see what has happened as far as our
ability to do the defense transportation mission. So thank you
again.
Mr. Oberstar. It has been a while since I have been out to
Scott Air Force Base, but it was at a time when there was joint
use being considered. Is that working out now?
General McNabb. Sir, it is working out superbly. They built
a Mid-America Airport, they gave us another runway, and because
of that we basically now have three wings. That allowed us to
bring the tankers down from Chicago, so you have got a tanker
wing there that is a guard wing; you have got a reserve wing
that has C-9s and C-40s, and you have an active duty wing that
has C-21s and also helps man those C-40s and C-9s, and then you
have four major headquarters.
So I would say that we would love to have you come visit
Scott, because it has been growing and we have been
consolidating, so business is good at Scott. The corn is
growing, so it is a very nice time to come. But I would say
that Mid-America Airport was absolutely key to that, Chairman,
and the reason was if we hadn't had that second runway, we
would not have been able to bring in those other airplanes.
That dual runway allows us to do the training and make sure
that we can--you know, it opens that up to other missions,
which, again, allowed the growth to happen. So it has worked
out great.
Mr. Oberstar. I appreciate your assessment, because there
are other opportunities for joint use throughout our military
and civilian system, and it would be useful to have a further
perhaps not in the context of a Committee hearing, but a
roundtable discussion about creating additional capacity
through joint use operations, which is what Mr. Costello was
away ahead of the curve about 12, 14 years ago, 16 years ago
that we made that tour. San Diego comes to mind; there are
others out in the West Coast that could DOD commissioning of
military facilities in the base closure commission and of those
that are active.
And the President just recently--this is way far afield
from Civil Reserve Air Fleet, but it is important to our
overall aviation capacity and domestic airspace--President Bush
opened up airspace that had previously been reserved to
military use, and that allows for straighter routes. As we work
through the restructuring of the air traffic control system and
revising the end route facilities, 21 end route centers now
that ought to be reduced, consolidated, combined and create
straighter routing, which today actually follows the route of
bonfires in the 1920s and lighthouses first and then beacons in
the 1930s, we have to, and can do, better than that today.
General McNabb. Yes, sir.
Mr. Oberstar. And doing this would be very important to
integrate the work and the thinking of the airlift command in
this process.
General McNabb. Chairman, I would be glad to help however I
could. We have a couple of examples. When I think about Scott,
that was one. Charleston Air Force Base shares a runway with a
commercial and it really does work well, because one that helps
us is that our airplanes tend to be kind of doing the same
things, so we tend to fly larger airplanes that are flying in
commercial airfields anyway, and it ends up being pretty easy
to use those for operations. So it works great.
Mr. Oberstar. Seventeen years ago this Subcommittee held a
hearing on the Civil Reserve Air Fleet and war risk insurance
at which Mr. Klinger, the ranking Republican at the time,
observed the civil commercial air fleet has proven absolutely
critical to the success of the Nation's defense mission.
Operation Desert Shield/Desert Storm demonstrated that fact
abundantly. We would not have enjoyed the success we did
without the considerable airlift capacity provided by U.S. flag
carriers.
In that operation, the Civil Reserve Air Fleet carried out
5500 missions, carried enormous numbers of personnel and
enormous amounts of cargo into the zone, but they were flying
back empty. While they were somewhat compensated, our passenger
airlines that had committed certain numbers to their fleet, the
DC-10s, the 747, 100s, 200s, were disadvantaged compared to
their European competitors who were flying revenue flights out
of the theater to Europe and on to the United States. At the
time, there was a concern that--so that was one issue that we
were trying to address.
Another is that then, as Mr. Klinger observed, military
owned and operated heavy lift aircraft continued to dwindle in
number, and of the transports still operating, many find
themselves load limited as a result of aging airframes. I think
you can say that for the civil fleet as well. After September
11, the commercial airline carriers downsized their fleet, took
about 20 percent of the fleet out, older airframes, older
engines, parked them in the desert, and we have fewer 747s,
very fewer DC-10s, probably no 1011s except in a cargo capacity
operated principally--most of those flying are operated
overseas by other airlines, not subject to CRAF.
What concerns do you have about, if any, in your
assessment, of the state of the art? When CRAF was activated in
Desert Shield, in Desert Storm, initially, 38 aircraft were
called up in the stage 1--and you described the three stages of
call-up. Stage 2, there were an additional 140 long-range
aircraft called up and there were some problems of mismatches
between airlift demands and aircraft available, and the
planning was not as efficient, according to the hearing that we
had, as it might have been with closer coordination. There were
coordination problems between DOD and the Transportation
Department; it was the Research and Special Projects
Administration, RSPA, of DOT, which is now RITA, the Research
Information Technology Agency.
The purpose of our hearing was to try to untangle these
complexities, improve the coordination between DOD and DOT, and
do a better job of scheduling through that kind of
coordination, so, 17 years later, it occurs to me that you
might give us a report on the status of coordination,
integration of scheduling and relationship between DOD and DOT.
General McNabb. Yes, sir. Well, one I would say is my
compliments, because you think about where we are. You have to
start somewhere, where somebody comes in and says, hey, we have
got to get our arms around this. But now that we have been
really at a surge operation for the last seven years and you
think about where we are today, as I mentioned, 135 sorties
going today that are being done with our commercial partners,
we have basically had a constant surge in which we have really
been able to work through a lot of the issues that you
identified through lessons learned.
A lot of the fixes were already in place, but some of the
things like forecasting and looking to can we give you a stable
system, I commanded the TACC in the late 1990s, and I would
tell you it was something we always were hoping to be able to
do, is to say here is the good forecast, and we know that what
we want to do is kind of give a sustained level of effort is
the best thing that we can give the commercial world so they
can plan against it, and basically fill in the valleys, smooth
out the peaks, and if we can do that, they can really do a lot
for us.
That is what we do now. We look out the next four or five
months and we constantly adjust to that. If we have a pop-up
requirement--and I would use a disaster relief as an example--
we may end up asking commercial carriers to pick up some of the
military legs so that we can have the military aircraft now
freed up to go do the disaster. All of that takes place in what
I think is a very superb manner. We can always do better.
One of the things that we would like to do is forecast and
really try to look to the future even more, because in many
cases the carriers want to look well beyond six months; they
need to be planning their fleets for the next five and ten
years. So we are working that. Again, your support of that
assured business really did help us on that.
Mr. Oberstar. What are your call-up availability
requirements now, is it 24, 48 hours? Does it differ under
stage 1, 2, and 3?
General McNabb. It does, sir. Twenty-four hours for stage 1
and 2, and 48 hours for stage 3. So, again, I think that the
system has worked very well, almost everything they have been
able to do on a volunteer basis, and when we have said we need
additional help from them, they have been able to figure out
how to do that. And, again, I think it is about the
relationships and that coordination between us of mixing and
matching, and looking at what their requirements are as well,
their commercial requirements.
Mr. Oberstar. How many 747s are committed, if that is not a
classified number, and 767s?
General McNabb. Sir, I would like to take that for the
record. When you think about the 1100 aircraft, we have got a
mix of all types of airplanes, and it is 747s, 767s, 777s.
You had talked earlier about modernization. It is the one
thing that I have talked to the carriers and the National
Defense Transportation Association about that concerns me, is
how do we incentivize you to modernize your fleet. How do we
make sure that if we are putting something in the desert, it is
the 747-100, not the 747-400, which I think is what you were
getting at.
And my take is that they are looking hard at that, but one
of the things they came back to us is they said you have got to
give us some routes where we can get good utilization on those
aircraft; and, in fact, we are starting a test in June where we
are going to have a flight directly from Dover all the way to
Incirlik, Turkey, and that airplane will just go back and
forth; and that will get that utilization rate so that they can
say, hey, I have invested in this aircraft and I now get the
utilization on it so I can get it to pay back.
Mr. Oberstar. Now, the investment in the aircraft also
includes strengthening the internal members, the structural
support members of the floor of the aircraft to accommodate
heavier weight and also tie-down facilities internally. So is
that work still being done on CRAF aircraft? And for that added
weight is the Defense Department continuing to compensate
aircraft that fly in commercial service for carrying that
additional weight and the fuel penalty it engenders?
General McNabb. Yes, Chairman. And primarily the growth in
the commercial cargo industry kind of changed everything. I
mean, obviously, in that 17 years, you think about where
commercial cargo is vis-a-vis passenger. So where we used to
have to modify passenger airplanes, we don't have to do that
anymore; they are coming right off the assembly line built as
freighters.
Mr. Oberstar. With that additional internal structural
strength?
General McNabb. Absolutely.
Mr. Oberstar. Maybe Mr. Smith, who is right here with us,
can explain that in his testimony; he is the leading proponent
of air freight.
General McNabb. It is amazing how far the industry has come
on commercial cargo and how the world has changed. Certainly,
when I think back to the early 1990s, when I was a Charleston
squadron commander flying 141s, and when we stood up Desert
Shield and Storm and you thought of where the industry was then
and then where we sit today, truly, my biggest concern right
now is passenger charter, which was not even something we had
to worry about back in the early 1990s; that was a very robust
area, but today, because of the market, that has changed a
little bit.
Mr. Oberstar. Today, a number of those passenger charter
operators are sidelined, they are either in bankruptcy or out
of business altogether, downsized their fleets. Has market
condition principally post-September 11, but more recently
since the onset of recession in December 2007, has that reduced
the scope of aircraft available?
General McNabb. I think primarily the market changed. And I
will defer to the second panel, but when I went around and saw
them, they said, hey, the market has changed the travel agency,
and it also has changed because newer aircraft, they have
smaller aircraft that have longer range because of technology.
So you have really changed the dynamics of the market.
Where charters filled a portion, in some cases you now have
direct flights from the legacy carriers going to the places
where you used to only have charter would be the only way you
could get there. And I think that that portion of that of
working with industry to say, hey, based on the new market, how
do we do this, that discussion continues on. But there are
opportunities and we are constantly having to adjust that.
Mr. Oberstar. Thank you. Your comments suggest that with
improved airframes and improved internal strength, that
retrofitting aircraft to carry heavier loads is not the issue
it was 15-plus years ago; you are not making that compensation
payment for that fuel penalty for heavier internal structure.
General McNabb. Sir, what I would say is if a commercial
carrier uses a more efficient airplane, they will make more
money on that because we will pay them a rate, and if they have
a very efficient airplane they will make more money; if they
have a less efficient airplane, they will make less or maybe
even lose some.
So that is kind of how we incentivize it now, but, again, I
have been working with the carriers to say how do we help you
get to more efficient airplanes that we can use in our Civil
Reserve Air Fleet day-to-day, so the peacetime lift that we are
doing, because, obviously, I am very concerned about the amount
of fuel that we use overall, not only in our military fleet,
but the commercial fleet that supports us as well.
Mr. Oberstar. And you need to work out a back-haul for
those aircraft for efficient use of aircraft and reduce your
costs?
General McNabb. Yes, sir.
Mr. Oberstar. In Desert Shield and Desert Storm and
subsequently, carriers--I am just looking at our hearing
transcript--entered into joint venture relationships and
agreements that allowed one carrier to, through this joint
venture under the CRAF agreement, to send a different carrier
out with aircraft. That raised legal problems later on, where
there was an accident in the zone or on return, or a carrier
that went out of business, the contract contracted carrier went
out of business and then the Air Force held the CRAF airline or
company to accountability. Do those issues exist today?
General McNabb. No, I would say those issues are not there.
What I would say is, for instance, with ATA, when ATA was
grounded, basically, the team that they were part of, they
picked that up, they felt responsibility. As we had 71 missions
that were affected, about 3,000 soldiers and sailors and
Marines and airmen were affected, that team came together very
quickly and used other members of their team to fill that in,
and we ended up having a minimal impact. That feeling of
responsibility by the team to say, hey, we understand that we
have an obligation here, certainly I think shows how good that
works.
I would also say, in this market, I find that there are
usually a lot of other folks that say we are willing to take
this on if we can, and the short notice nature is probably the
hardest part to deal with, because if you give them a little
time, there are an awful lot of people that can help.
Mr. Oberstar. In short, your assessment is that the Civil
Reserve Air Fleet is serving our defense establishment well,
needs to be continued, there may be some adjustments necessary.
Are there any adjustments that you think might require
legislative action?
General McNabb. Chairman, your help on the assured business
was huge for us. The continued support of war risk insurance is
huge for us, that is really important to us. And I think that
there may end up being--we have some of our carriers have
talked about if we could get to a multi-year approach in some
capabilities.
It is one that not everybody agrees, because the teaming
relationships are usually one to two years, and then they
adjust from there. I will just say that is one that I would
like to look at and I plan to have our folks look at, and I
promise to take a look if there is anything, any joy there that
would help the industry overall, but, again, we haven't got far
enough along that road. That is kind of like the next step that
we would like to take a look at.
Mr. Oberstar. Well, that is very encouraging to hear, and
what a contrast from our hearing a decade and a half ago, when
DOD refused to show up because they were so embarrassed about
their program that they couldn't face conflicting testimony
from the carrier sector, from DOT, and bipartisan--what should
I say?--correction. You have apparently corrected a lot of
these issues and I am very much appreciated. Obviously, CRAF is
in good hands.
General McNabb. Chairman, your support over these years,
that is why it is the way it is, because everybody worked very
hard together, to include this Committee, on doing the kinds of
things that we needed to do to make sure that we did make it
whole, because we do say it is a great value to this country to
have CRAF. I mean, it is tremendous. There are some things that
they can actually do a whole lot better than anything I can do
on the military side, and they also teach us about efficiency.
Industry has a way of coming in and we have that relationship,
and it really pays off for us as well.
Mr. Oberstar. Thank you, General. You too are a great
credit to our country.
General McNabb. Thank you, Chairman.
Mr. Costello. The Chair thanks Chairman Oberstar.
General McNabb, we thank you for appearing before this
Subcommittee today to offer your testimony. I think Chairman
Oberstar summed it up correctly, the program is in good hands
under your leadership. We thank you for your testimony. We look
forward to working with you to make any improvements that we
can in the CRAF program, and if you have legislative
suggestions, as you did with the assured business issue, we
stand ready to work with you.
With that, thank you, General McNabb, and we will ask the
second panel to come forward. Thank you.
General McNabb. Thank you, Mr. Chairman.
Mr. Costello. The Chair welcomes all of you at the witness
table today. Gentlemen, we appreciate your being here and look
forward to hearing your testimony. Let me introduce and
recognize our witnesses. Let me say, before I do, that your
entire statement will be appear in the record. We would ask you
to summarize your statement.
The Chair now would introduce the panel. First, I will
introduce Robert Coretz, the Chairman of the Omni Air
International; Mr. Brian Bauer, President of Evergreen
International Airlines; Mr. William Flynn, President and Chief
Executive Officer, Atlas Air Worldwide Holdings; Mr. Tom
Zoeller, who is the President and CEO of the National Air
Carrier Association; Mr. David Graham, the Deputy Director,
Strategy Forces and Resources Division, the Institute for
Defense Analyses; and certainly the last witness I will yield
to my colleague from Tennessee, Mr. Cohen, to introduce Mr.
Smith.
Mr. Cohen. Thank you, Mr. Chairman. It is indeed my honor
to introduce Memphis's number one citizen, Mr. Frederick W.
Smith. He is Chairman, President, and Chief Executive Office of
FedEx Corporation, which is the largest and most efficient and
timely air carrier in the world, a $38 billion global
transportation company, provides services that are
headquartered in Memphis, Tennessee.
Mr. Smith started this company after doing a paper in
college that didn't receive a very good grade, but that has
received a wonderful grade from the world's economy, the
world's business community, and the investing public. It has
made the difference in my city being a city on the globe and a
great city in America, instead of being a languishing city
without national, international reputation, 30,000-odd jobs,
and an NBA basketball team, which wouldn't have existed without
Mr. Smith stepping to the plate and funding the arena necessary
to bring that team to the city.
When there is anything important in Memphis, Fred Smith is
there, whether it is coming up with helping with the gold
tournament at St. Jude's, he is also a co-sponsor of and
provides Memphis international exposure, but also provides
funding for St. Jude's, or other efforts, Federal Express is
there.
This particular subject matter is, I know, dear to Mr.
Smith's heart, because when it came time to have a memorial on
the mall for World War II veterans, he stepped up and was the
co-chair, if I remember correctly, in raising the funds and
seeing that our World War II veterans were properly
memorialized and remembered and that effort was remembered.
When he was a young man--and I heard this story just
recently, and I don't know exactly how true it is or accurate--
allegedly, he and Landon Butler, and maybe even Sid, from what
I was told, got together and decided they need to go over to
Vietnam and volunteer. They were not drafted, but they
volunteered for service and Mr. Smith served as a pilot in
Vietnam.
I have read his statement. I wish I could be here for the
entire time. Unlike a mayor, Congresspeople have to be two
places at once and don't march to their own drum, so I have to
be at the Judiciary Committee, where we are marking up a
performer's rights bill, which is important to a lot of
constituents in my district as well. I have read your statement
and appreciate what FedEx has done in Desert Storm and other
areas. It is important that we have this cargo available to us,
fleets, in case we have the need to call them up in peacetime,
and FedEx has been there and participated.
During this recent economic situation, his efforts in not
cutting employees until absolutely necessary, but, instead,
jointly cutting pay was highly commendable and recognized and
he cut his own pay 20 percent, and he has been a leader on the
challenge of climate change in this country and delivered
addresses here in Washington and elsewhere to educate the
public. So it is my honor to be here to represent Mr. Smith in
Congress and to welcome him to the Aviation Subcommittee.
Thank you, Mr. Chairman.
Mr. Costello. The Chair thanks the gentleman from Tennessee
and now recognizes Mr. Smith.
TESTIMONY OF FREDERICK W. SMITH, CHAIRMAN AND CEO, FEDEX
CORPORATION; ROBERT K. CORETZ, CHAIRMAN, OMNI AIR
INTERNATIONAL; BRIAN BAUER, PRESIDENT, EVERGREEN INTERNATIONAL
AIRLINES, INC.; WILLIAM J. FLYNN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ATLAS AIR WORLDWIDE HOLDINGS, INC.; THOMAS E. ZOELLER,
PRESIDENT AND CEO, NATIONAL AIR CARRIER ASSOCIATION; AND DAVID
R. GRAHAM, STRATEGY FORCES AND RESOURCES DIVISION, INSTITUTE
FOR DEFENSE ANALYSES
Mr. Smith. Well, thank you very much, Mr. Chairman, Ranking
Member Petri, Chairman Oberstar. Mr. Cohen, I appreciate that
kind introduction. Let me correct one item for the record,
though. You talked about the grade I got in college. It was a
very good grade for me and I was happy to receive it.
[Laughter.]
Mr. Smith. I am here, as Mr. Cohen said, representing FedEx
Corporation. FedEx is a very large enterprise, composed of four
operating divisions: FedEx Services, FedEx Freight, FedEx
Ground, and our largest operating company, Federal Express,
which is the company, as he mentioned, that I founded in 1971.
It is the world's largest all cargo air carrier, operating in
220 countries, moving 3.5 million shipments, with a fleet of
650-plus aircraft. It is the largest assemblage of wide-body
aircraft in the world. It is by far the largest fleet of wide-
body cargo aircraft in the world.
We have been a long-term participant in the Civil Reserve
Air Fleet program and I would like to make a few points,
noting, as you did, Mr. Chairman, that our complete statement
is entered into the record.
We believe that the CRAF program and the participation of
civil air carriers in our Nation's defense has served this
country very well. CRAF provides 1,000 civilian aircraft,
augmenting the Air Force fleet in time of war or crisis in a
highly cost-effective way. We take our commitment to CRAF very
seriously, and we have a proven track record in fulfilling CRAF
obligations. CRAF participants provide aircraft for peacetime
and surge capacity, as the General noted, and we believe it is
important that CRAF remain strong and sound.
FedEx Express is a major contributor to the CRAF program.
We commit 78 long-range, wide-body aircraft, which is 100
percent of our eligible long-range fleet and represents 34
percent of the all cargo wide-body fleet committed to stage 3.
As an example of that commitment, we moved over one-third of
the cargo transported on commercial aircraft during Operations
Desert Shield and Desert Storm. We provide peacetime lift as
well. We are currently flying about 13 to 14 missions per
month, and we participate in the military's worldwide express
cargo program.
Large scheduled carriers with a large, ongoing business,
like FedEx, do not utilize, generally, all of the points
allocated for our commercial fleet. To compensate for the risk
of that substantial commitment, the CRAF program allows
carriers like FedEx Express to provide value and receive
compensation for directing a team of CRAF participants. We
believe the team concept works well, allowing smaller charter
carriers on the team to, in effect, purchase some of the points
from scheduled carriers that gives them more peacetime flying,
and thereby provides the Department of Defense with a broad
range of aircraft for peacetime and mobilization, and also, as
the General pointed out a moment ago, a single point of contact
for a group of carriers.
The Civil Reserve Air Fleet program continues to work and
we believe that the basic structure should be preserved, but we
believe there are some aspects that can be improved. Some
commentators recommend discontinuing the team concept, but we
believe strongly it should be preserved to provide the economic
incentives for large carriers to commit aircraft, necessary
levels of peacetime flying for charter carriers, and valuable
administrative and managerial benefits for the U.S.
Transportation Command in the Department of Defense.
The ATA situation that was referenced we do not believe is
a reason to discontinue teams. The teams were not the cause of
this, but, rather, the disruption was a lack of sufficient
passenger charter capacity in the industry as a whole. In fact,
the team concept allowed the team to assemble assets to meet
DOD's demand, as General McNabb noted.
We do not support the requirement to commit to a certain
level of peacetime flying because we believe it will reduce the
flexibility of the teams, hinder efforts to place the most
appropriate aircraft for peacetime missions, and we believe the
voluntary method works quite well.
DOD can and should, we believe, rely less on 747 aircraft
for peacetime flying and more on more cost-efficient, smaller
wide-body aircraft which can, with proper loading, be used more
effectively.
DOD can improve opportunities for carriers to fly a
peacetime business and thus strengthen the CRAF program through
operational changes that will encourage increased use of
simulator training in the military and more use of the less
costly civilian lift provided by CRAF carriers.
With that, after the panel speaks, I would be happy to
answer any questions that you might have.
Mr. Costello. The Chair thanks you, Mr. Smith, and now
recognizes Mr. Coretz.
Mr. Coretz. Mr. Chairman, Mr. Petri, and Members of the
Committee, as Chairman of Omni Air International, a passenger
charter airline based in Tulsa, Oklahoma, it is my distinct
privilege to appear before this House Aviation Subcommittee to
discuss the economic viability of the Civil Reserve Air Fleet.
Providing passenger air charter service is the core competency
of our airline. Hence, my comments this morning will be focused
on the passenger charter segment of the industry and its
relevance to the CRAF program.
Omni has been an approved CRAF carrier since 1995 and has
been an active and significant CRAF participant providing
passenger airlift to USTRANSCOM. From 2001 to present, Omni,
along with other charter and scheduled airlines, have safely
transported nearly 4 million U.S. service men and women in
support of DOD operations in Iraq and Afghanistan. Notably and
importantly, during this time period, charter passenger
airlines provided in excess of 90 percent of all USTRANSCOM
commercial passenger airlift. Less than 10 percent of
USTRANSCOM missions were operated by scheduled airlines.
Why this disproportionate amount of business between the
charter versus the scheduled airlines? The substantial majority
of USTRANSCOM passenger demand requires mission flexibility.
This airlift is being met daily by charter airlines. Charter
airlines are in the business of providing on-demand lift based
on the customer's schedule, not the airlines' schedule.
While scheduled airlines provide an important and
meaningful role within CRAF, the fact remains that the large
scheduled airline operating systems were designed for their
core business of routine scheduled airline service for business
and leisure passengers. Their systems are rigid and do not
successfully allow for the elasticity required to meet the
challenges unique to DOD operations.
Charter airlines are those the Nation regularly counts on
for mobility and readiness, no matter what the contingency or
mobilization requirement. Charter airlines are now, as we
speak, providing the majority, if not all, the augmentation DOD
needs to support our troops in Iraq, Afghanistan, and other
military efforts around the world. In any national crisis,
charter airlines are the first responders to USTRANSCOM, with a
can-do philosophy to get the job done.
Maintaining a strong, continued, viable, robust CRAF
requires a national focus on those elements that optimize
commercial fleet participation along with best value to the
government. An intimate understanding is needed from the unique
perspective of the charter passenger airlines and their role
supporting USTRANSCOM in order to fully understand the charter
airline significant value within the CRAF program.
The past success of CRAF government program and industry
partnership will evolve to a new level of success with the
benefit of hindsight only by understanding the current
challenges and taking appropriate action. In order to maintain
an economically viable CRAF, specific actions must include:
First, minimum annual purchase which focuses appropriated
funding directly to the passenger charter airlines who bring
the war fighter to the fight and ensures optimum readiness at
the least cost and best value.
Second, understanding USTRANSCOM utilization requirement.
This becomes the economic driver dictating best value assets to
provide passenger airlift to USTRANSCOM. Such assets should be
selected by industry through responsible economic modeling.
Third, CRAF can be further stabilized by providing multi-
year contracting. This allows predictability to charter
airlines, ultimately benefitting DOD with stability and cost
savings which come through long-term planning.
Fourth, the 60/40 rule previously discussed is antiquated
and should be permanently abolished. It is advantageous to the
government to allow airlines to exercise fiscal responsibility
in determining their own customer base. An arbitrary government
mandated business mix is detrimental and causes destabilization
of airlines.
Fifth, USTRANSCOM and Congress decision-makers should
continue to collaborate with the charter industry for
successful implementation of any changes in CRAF policy.
Incontrovertibly, since its inception in 1951, the CRAF
program has proven to be a successful government and industry
partnership. The CRAF program has repeatedly demonstrated its
significant economic value to the American taxpayer.
In closing, CRAF enjoys an enviable, proven track record.
USTRANSCOM is an exceptional customer with unique requirements.
While CRAF remains strong and viable, there is room for
modification to assure future health and success. Such
improvements can only be achieved by spending dollars wisely
that appropriately align with USTRANSCOM's need of flexible
mobility.
Thank you.
Mr. Costello. The Chair thanks you, Mr. Coretz.
Before I recognize Mr. Bauer, let me announce that we have
three votes pending on the floor. We hope to receive your
testimony, Mr. Bauer, and then we will go to the floor as
quickly as possible, get the votes done, and come back and
resume the hearing.
Mr. Bauer, you are recognized.
Mr. Bauer. At least I have no pressure today.
Mr. Chairman, Members of the Committee, on behalf of the
men and women of Evergreen International Airlines, I am pleased
to appear before you today to discuss the Civil Reserve Air
Fleet and the role Evergreen plays in CRAF peacetime and
contingency operations and plans.
In brief, CRAF represents the best of a public-private
partnership. It is a partnership tested in times of contingency
and exercised daily for the USTRANSCOM CRAF contracting
provisions, which we believe have served the program well for
many years. Abrupt changes to these provisions, including
teaming arrangements, would have a significant negative effect
on CRAF participation.
Evergreen is a manager of the largest teaming arrangement
involving almost 50 percent of the CRAF aircraft, and we well
understand our partners' concerns for changes affecting their
participation. It must also be noted that maintaining a vibrant
CRAF is dependent upon the level of peacetime airlift business
to sustain current CRAF commitments. It is the robust and
assured level of peacetime contract dollars that allow CRAF
participants to operate daily for the DOD. Reducing that level
of business would be detrimental to CRAF participation and, as
a result, national security will be jeopardized.
We applaud Congress for passing the assured business
legislation affecting CRAF contracting; however, we would
suggest it should also extend beyond passenger operations and
include cargo operations as well.
For its part, Evergreen is proud of the fact that it has
been a CRAF carrier since its inception. Year after year,
Evergreen has operated peacetime cargo missions for the
Department of Defense and has been at the forefront of missions
operating during CRAF activation. Evergreen operates a fleet of
classic Boeing 747 cargo aircraft.
To better respond to the Department of Defense's needs, we
are assessing the cost benefit of fleet enhancement to more
modern 747s, which offer increased payloads at significantly
less cost, especially in terms of fuel. We are cognizant of the
Nation's continued dependence on foreign-provided fossil fuels
and hope through these efforts to do our part for the strategic
and environmental benefit that will accrue.
While we are eager to proceed on our capitalization plan,
the Nation's current economic plight has thwarted our attempts
to obtain sustainable credit and terms to satisfy this effort.
We are in search of a bold new leadership approach which will
afford Evergreen, and any other CRAF carrier, the opportunity
to upgrade our fleet.
The Administration and the Congress have recognized the
importance of measures to stimulate the economy. Providing such
an opportunity to the CRAF carries makes good sense for all of
the reasons above, as well as stimulating employment in the
manufacture and re-manufacture of commercial aircraft tied to
the CRAF. Evergreen looks to your leadership to assist the U.S.
commercial aircraft industry gain the benefits associated with
incorporating modern aircraft into their flights. It makes good
sense for the industry and for our Nation
Thank you for your attention.
Mr. Costello. The Chair thanks you, Mr. Bauer.
The Subcommittee will recess. I would ask our witnesses at
the table to please return. We are hoping to resume the
Subcommittee hearing at 11:50, so I think you have got about
20, 25 minutes to get a cup of coffee or whatever you would
like to do. We will return immediately after the third vote.
The Subcommittee stands in recess.
[Recess.]
Mr. Costello. The Subcommittee will come to order. The
Chair will now recognize Mr. Flynn.
Mr. Flynn. Good afternoon, Chairman Costello and Members of
the Committee. I want to thank you and the Committee for the
opportunity to participate in this hearing today and share the
Atlas perspective in CRAF.
The strength of our company begins with our people. Among
our 1500 employees, we have 900 pilots, 324 who have prior
military aviation experience and 34 of whom currently serve in
the National Guard and in the Air Force Reserve, and our
strength is built upon our fleet. Atlas operates the world's
largest fleet of Boeing 747 freighter aircraft. We currently
have 29 aircraft in our fleet.
To Mr. Oberstar's point earlier, 21 of these aircraft are
modern, purpose-built 747-400 freighters and have an average
life of nine years.
In addition, we are a launch customer for Boeing's newest
747-8 freighter. We have 12 on order. Our order is valued at
about $2 billion and represents a significant modernization of
our fleet and all of our aircraft, including our new deliveries
will be committed to CRAF.
Atlas is one of the few American flag carriers that other
major foreign airlines contracts with for heavy airlift
requirements. Our customers include British Airways, Emirates,
Qantas, and DHL Express. In 2008, we operated over 19,000
flights, serving 316 destinations in 110 countries.
The CRAF program is the benchmark for how government and
industry can work effectively together to support U.S. national
security interests around the globe. Like my CRAF teammates
here today, Atlas is proud of our CRAF participation and
support of our troops in Iraq, Afghanistan, and other locations
around the world.
I have the following comments and recommendations that
relate to the future economic viability of the CRAF program. I
would like to first focus on assured business. I applaud
Congress for enacting the legislation that approves assured
business and peacetime incentives for U.S. flag CRAF carriers
that appeared in the 2009 National Defense Authorization Act.
Assured peacetime business does attract and incentivize CRAF
volunteerism, as General McNabb pointed out, and peacetime
business is a strong incentive to participate in CRAF.
I would like to point out, though, that the assured
business language specifically mentions CRAF passenger
carriers. I believe the intent was to include both CRAF cargo
and passenger carriers, and I suggest the language be amended
to recognize both groups' participation and contribution.
I would also like to focus on organic and commercial
readiness. Commercial fleets have been effectively and
efficiently integrated into the DOD and combatant commander
plans for many years. Together, we produce unmatched mobility
for the U.S. forces who respond to crises and contingencies
around the globe. Unfortunately, our organic military fleets
are experiencing unprecedented wear and tear resulting from the
additional flying hours required to prosecute two wars.
Concerned commanders, including General McNabb, have stressed
that this increased wear and tear threatens not only our
current readiness, but also jeopardizes our Nation's future
ability to surge.
We can reduce military fleet wear and tear by increasing
utilization of commercial CRAF carriers, as directed in the
national air lift policy, and this will preserve and extend the
critical combat life of our organic military fleets.
Modern aircraft, like the 747-400 and the new 747-8F, offer
significant operating cost efficiencies, and those savings can
be passed on to the American taxpayer. We need to adopt and
accelerate the business processes that realize supply chain and
distribution chain efficiencies, and task the most efficient
and effective aircraft for those missions, as outlined by
General McNabb in his earlier statement.
Mr. Chairman, I believe we have a call to action here
today. We need to preserve CRAF capability and ensure its
future viability. Our national security depends on our
collective commitment, and a viable and vibrant CRAF preserves
and creates jobs that will aid our national economic recovery.
Mr. Chairman, I appreciate the Committee's willingness to
address this important issue and raise the level of awareness
across the Government. We are committed to modern aircraft
solutions that drive commercial economic growth and
development, while standing ready to support the DOD through
the U.S. Transportation Command, should the Nation call.
This concludes my remarks. Thank you.
Mr. Costello. The Chair thanks you, Mr. Flynn, and now
recognizes Mr. Zoeller.
Mr. Zoeller. Thank you, Mr. Chairman, Members of the
Committee. Thank you for the opportunity to appear here today
to discuss the financial viability of our Nation's charter
airline business and the economic viability of the Civil
Reserve Air Fleet program.
As you have already heard this morning, given the global
economic environment, recession, fuel prices, the occasional
outbreak of H1N1 flu, these are difficult times for the air
carrier industry, and that is what makes this hearing so
timely.
We certainly appreciate the opportunity, as the association
that represents a number of the carriers that are involved in
the daily operations of CRAF, to be here today. NACA is an
industry association which represents a variety of Part 121 air
carrier operators, including low-cost passenger airlines,
charter passenger carriers, and charter and ACMI cargo
operators.
At the outset, let me say that the CRAF program has worked
well and has been an instrumental part of the success of the
military's operations, getting our troops and cargo to their
intended destinations safely and on time. It is a model
partnership between the Federal Government and the private
sector, and over the last 50 years it has been continually
nurtured and refined and is today a robust program.
General McNabb and General Lichte at Air Mobility Command
continue to monitor the overall economic health of the
carriers. Through informal and formal meetings, we work with
both the generals and their staffs to provide timely updates on
the status of our carriers and the industry as a whole. We
believe that it is important that we continue to work together
to refine and develop appropriate policies that sustain the
economic viability of the carriers.
As we have already heard from General McNabb and the other
witnesses today, the success of the missions rely heavily on
the commercial airline industry. From April 2008 to March 2009,
commercial passenger aircraft accounted for 58 percent of the
transportation of troops and 32 percent of the cargo was
transported by commercial aircraft.
Throughout the years, a number of U.S. troops overseas has
determined the transportation requirements for TRANSCOM. As a
result, the level of incentives has fluctuated. Logistic
policies and programs continue to change and while most of the
focus at TRANSCOM has been on the transportational logistics
for the draw-down of troops in Iraq and the renewed focus in
Afghanistan, TRANSCOM and AMC have begun to look towards the
future when our military involvement in both countries comes to
an end.
Certainly, we have heard enough of the minimum annual
purchase requirement for charter carriers. A so-called minimum
buy authorization language included in last year's Defense
Authorization Act was important to our members and we certainly
appreciate the work of Congress in providing TRANSCOM this
authority, which simply authorizes TRANSCOM to take the steps
necessary to improve the predictability of the DOD charter
requirements.
We will be working with USTRANSCOM as it begins to
implement this authority. We want to ensure that the minimum
buy is set at the right level of value to ensure appropriate
subscription of carriers into the CRAF program. The total value
must be sufficient to provide the appropriate incentives to
upgrade the aircraft, which in turn can improve the overall
efficiency for CRAF operations.
While the minimum buy program goes a long way to help
sustain the charter airline industry, there are other Federal
policies that are equally important to the overall health of
the charter industry in the United States. We are deeply
concerned about the upcoming negotiations between the U.S. and
the European Union as they continue discussion on the drafting
of a second Open Skies agreement, which is intended to build
upon the agreement which went into effect last March.
It has been made clear within the context of initial
negotiations and the exchange of correspondence that the EU is
extremely interested in the further liberalization of U.S. laws
and regulations. In particular, the Europeans are strongly
interested in an agreement which would grant European carriers
seventh freedom rights.
For many years, the DOT has permitted foreign air carriers
charter authority to fly U.S. passengers from the U.S. to third
country destinations. A majority of the foreign carriers
operating these flights pair with U.S. tour operators or other
indirect air carriers in the winter months to run vacation
programs from the U.S. to various destinations. These charters
operate for extended periods of time, for up to four months or
so, without ever returning to their home country.
The primary reason that foreign carriers are used is price.
At the height of the winter travel season in the U.S., carriers
around the world are experiencing a low in passenger vacation
flights, and these foreign carriers have the excess capacity
and aircraft and are willing to offer them to U.S. tour
operators at cost to simply meet the lease payments on the
aircraft. The U.S. carriers simply cannot meet this competitive
advantage, thus, resulting in the lost business for the U.S.
charter airlines, and we believe an ultimate threat to the
long-term viability of U.S. charter aircraft participation in
CRAF.
Despite some regulatory clarifications made by the DOT in
2006, we believe that DOT is routinely approving seventh
freedom charters in part because the DOT argues that it has
total discretion in deciding what criteria it will use for
granting such permission, as they consider this an extra
bilateral issue. As I mentioned, this is taking renewed
importance within the context of the second agreement
negotiations. The EU has proposed to formally adopt seventh
freedom passenger rights in any new agreement.
We strongly oppose the adoption of seventh freedom traffic
within the context of a second Open Skies agreement because we
result it will result in destruction of the U.S. charter
industry. First, there is no significant market in the EU for
U.S. carriers to fly. Many EU residents use the extensive rail
system and the advent of low-cost carriers like Ryan Air and
Easy Jet. The charter market has become less viable in Europe
today than before. Contrast that to the U.S., where air
transportation is essential for tourists to reach their
destinations.
EU carriers are attractive to tour operators because they
cost generally less than U.S. carriers. There is a significant
difference in the cost of the U.S. regulations compared to
foreign carriers. Basically, the FAA has authority only over
making sure that crew members have valid pilot certificates and
that aircraft have valid air worthiness certificates.
In addition to seventh freedom rights, we have seen
deterioration in the application of the Fly America Act, which
requires that any contract for air transportation of passenger
or property by any U.S. Government agency must be provided by
U.S. air carriers. Fly America is an essential element in our
national defense, as the U.S. is so dependent on the commercial
air fleet for its airlift needs.
Finally, I would just add, Mr. Chairman, I was going to
talk a little bit about congestion, because that continues to
be a problem. We certainly appreciate the work that this
Committee has done in moving a long-term, financially stable
program for funding NextGen to the FAA, which is long overdue.
I was going to talk a little bit about the slot
restrictions in New York, but I think Secretary LaHood today
took care of that for us, so that will hopefully resolve itself
through negotiations with DOT and the carriers. But, obviously,
our carriers operate the entire air transportation system here
subject to the same problems as our legacy carriers, so we
appreciate the work and we look forward to working with you.
Mr. Costello. The Chair thanks you, and let me say, as you
know and I think everyone in the room knows, we passed our
reauthorization bill in the House in September of 2007. We
believe that that bill and the bill that we are about to move
to the floor of the house, hopefully next week, has a robust
funding mechanism not only to provide additional funding to the
FAA to do things that they need to do as far as inspecting
repair stations and a number of other things, but also provides
a substantial amount of money to moving NextGen to its next
step, which we all know is vitally important to the aviation
system in the United States.
I thank the gentleman for his testimony, and while I have
you, all of you, you might, assuming that we get to the Floor
next week and have the same positive result that we had in 2007
in moving a bill out of the House, we would encourage you to go
over to the other body and encourage them to pass a
reauthorization bill so that we can get to conference and get a
stable flow of funds into the system for the next three to four
years.
With that, the Chair now recognizes Dr. Graham.
Mr. Graham. Thank you, Mr. Chairman.
I directed the Institute for Defense Analyses' review of
the viability of the CRAF program. IDA's August 2008 report has
been released by DOD and is available to the public. I am
pleased to be joined today by two of my coauthors, retired
General H.T. Johnson and Dr. Jerome Bracken. I will take a
couple minutes to briefly highlight the main themes of the IDA
report, many of which have been hit upon already today.
First, our main findings. Today, the CRAF program is robust
and is meeting DOD's needs. U.S. airlines are providing between
$2.5 billion and $3 billion of air services each year to DOD.
These are mostly in support of Operation Enduring Freedom and
Operation Iraqi Freedom. Through the CRAF teaming arrangements,
the U.S. airlines today commit to provide over 650 long-haul
aircraft if called upon to meet DOD's mobilization needs for a
national emergency and a total commitment of over 1,000
aircraft, as you heard earlier.
Looking forward, DOD's continuing operational demands will
contribute to a healthy program. But we have one concern that
was identified in our report, which is the prospect of
continued reductions in the fleets of the passenger charter
airlines. Their commercial revenues are in long-term decline as
the tour group business has migrated to the scheduled airlines.
In contrast, the demand for the commercial cargo charter
airlines is strong, so the cargo industry will not have
difficulty in meeting DOD's future demands.
To address this evolving situation in the airline industry,
the principal recommendation of the IDA study is to implement
an assured supply approach in contracting for CRAF. The primary
goals of this approach are to set expectations and to create
airline commitments to meet DOD's demands in all circumstances.
USTRANSCOM needs to ask the airline industry to partner in
meeting a range of both preplanned and probable needs through
the normal charter contract. This would avoid too rapid a move
to CRAF activation in the event of unplanned military
operations short of all-out national emergencies. The CRAF
participants need to be able to back up their obligations for
assured supply. The approach should be flexible, but, to build
a proper partnership, it may be desirable to establish separate
passenger and cargo teams.
In return for these commitments from the airlines, DOD
would adopt proven practices that would strengthen the
government-industry partnership. First, multi-year contracts
would allow both USTRANSCOM and its industry partners to plan,
invest, and organize their operations in a more efficient
manner. Currently, Congress permits such long-term contracts
under performance-based logistics in selected areas. We believe
this authority should be extended to include airlift.
Second, improvements in the sharing of planning information
would help the airlines to make more efficient and effective
investment decisions and help them to secure financing. Our
report outlines a best practice approach that is in common
commercial use.
We also have recommended suspending the rule that requires
the airlines to obtain no more than 40 percent of their
revenues from DOD. In our view, this rule has outlived its
original intent, and it likely will not be enforceable on a
routine basis as the commercial revenues of the passenger
charter segment continue to shrink.
Our report outlines a number of other adjustments in the
CRAF program designed to improve effectiveness and efficiency.
These address CRAF rate-making procedures, actions to increase
the monthly utilization rates for CRAF aircraft, the structure
of the Air Medical Evacuation program, and the potential to
substitute commercial aircraft for DOD airlift in current
operations in order to preserve the life of DOD's fleet.
DOD possesses most of the policy and management levers it
needs to act on our recommendations, but Congress would need to
act to extend multi-year contracting authority to CRAF.
In summary, Mr. Chairman, as you have heard several times
today, CRAF has been a terrific value for the American taxpayer
and an effective partnership between government and industry.
We believe that the assured supply contractual approach will
help prepare both DOD and the airlines to keep the program
viable for the foreseeable future.
Thank you very much.
Mr. Costello. The Chair thanks you, Dr. Graham, for your
testimony and now recognizes the distinguished Chairman of the
Full Committee, Chairman Oberstar.
Mr. Oberstar. Thank you, Mr. Chairman.
I regret that I have to pop in and out of the Committee
hearing because of other Committee activity. I wanted to take
this opportunity, though, to congratulate Fred Smith, President
of FedEx, for the continued support of the Civil Reserve Air
Fleet. Going back to my Chairmanship of the Aviation
Subcommittee, FedEx was the most dependable and the broadest
based participant in the Civil Reserve Air Fleet and had very
constructive observations to make back in the 1980s and in
1991, after Gulf War I, when a number of recommendations were
made by FedEx and other carriers, and you still are at it.
I wanted to comment on your request for more flexibility in
the type of aircraft requested in peacetime for cargo
movements. I think that is a good suggestion. There were
limitations fixed in the three stages of call-up of Civil
Reserve Air Fleet and in the peacetime operations that can be
adjusted now. As the General noted in his testimony, civilian
aircraft are stronger, have heavier lift capability, have
longer range, more fuel efficiency today than they did 18-plus
years ago.
You also made a suggestion of the use of simulators for
military flight training. Simulators are widely used in the
civilian fleet and are very cost-efficient, cost-effective, and
I am sure we will have an opportunity to discuss that with
General McNabb later.
A suggestion made by Dr. Graham just now that the provision
limiting revenues for a carrier from CRAF to no more than 40
percent of the operation, that was initiated back in 1952 and
subsequently to keep fly-by-nights out of the operation to
ensure or prevent any carrier becoming totally dependent upon
the Civil Reserve Air Fleet for its operations, and I would
like to have your comment on that, Mr. Smith.
Mr. Smith. On the 60/40 thing, Mr. Chairman? Our opinion on
it is pretty straightforward. It is currently not being
enforced. The impact is primarily on the passenger side of the
house, so our view is it should either be enforced or
eliminated.
I think, at the end of the day, the objective, as you
mentioned a moment ago, is simply to ensure that the carrier
that is providing services to the Department of Defense is on
sound financial footing, and that could be accomplished in ways
other than the 60/40 rule. So as long as the DOD can satisfy
itself that the carriers are well funded, the equipment is
modern and safe, it doesn't seem to us there is any particular
reason for the 60/40 rule anymore, and, as I said, it is not
being observed now.
Mr. Oberstar. As long as the carrier has its fitness
certificate, fit, willing, and able, meets those three
criteria, you would be comfortable with that provision being
removed?
Mr. Smith. Yes, sir, I would, because I think as long as
the DOD has the ability to assess the quality of the carrier
services for its mission, you know, they are using modern
airplanes, not junk airplanes, and things of that nature, and
they are on sound financial footing, that is the objective of
the 60/40 rule. So that can be accomplished in a way other than
the 60/40 rule.
Mr. Oberstar. Yes.
Mr. Coretz. Mr. Oberstar, I would like to add that I agree
with Mr. Smith. First of all, from a safety point of view, as
General McNabb pointed out, not only are all the airlines
sitting at this table required to meet FAA 121 standards from a
regulatory point of view, but we are under further scrutiny and
positive scrutiny direct by the DOD under the Civil Aeronautics
Review Board.
Secondly, at least from a passenger charter industry, if
the 60/40 rule were enforced, there would be no passenger
charter industry. Twenty years ago, 10 years ago, the passenger
charter segment was $1.5 billion annual revenue stream; today,
that is under an estimated $200 million.
So I think the key is safety and that there are not the
fly-by-night operations that you had brought up, and that is
being very adequately enforced through regulatory compliance.
Mr. Oberstar. Thank you. Thank you. I want to thank all the
panel and thank General McNabb for his testimony earlier. I
have to run off to another Committee responsibility, but I just
wanted to take this opportunity again to compliment Federal
Express on their consistent support of the Civil Reserve Air
Fleet and the contributions, which were very substantial in
Gulf War I and II.
Thank you, Mr. Chairman.
Mr. Costello. Thank you, Mr. Chairman. The Chair thanks
Chairman Oberstar and now recognizes the gentleman from
Arkansas, Mr. Boozman.
Mr. Boozman. Thank you, Mr. Chairman.
And thank all of you all for being here.
Mr. Smith, do you see your level of CRAF participation
continuing in the future?
Mr. Smith. Yes, sir. I would see no reason that it would
decline.
Mr. Boozman. Okay.
Any of the rest of you guys want to comment in that regard?
Yes, sir.
Mr. Flynn. At Atlas Air, we certainly remain committed to
CRAF, and, as I commented in my written remarks, the new
aircraft that we will begin to take delivery of will also be
committed to CRAF as we on-board them to the fleet.
Mr. Boozman. Good. Yes, sir.
Mr. Coretz. I would add from a passenger point of view,
Omni Air International is fully committed to meeting the
passenger requirements on a continuing basis with CRAF.
Mr. Bauer. And, of course, Evergreen. We have operated this
program for many years and we continue to remain committed to
the program.
Mr. Boozman. Thank you, Mr. Bauer.
Mr. Zoeller, in your written statement you discuss several
provisions of the FAA reauthorization bill that, if enacted,
will be very costly for your member airlines. Can you tell me,
if enacted, what impact the implementation of these provisions
might have on the CRAF program?
Mr. Zoeller. Well, I think it goes really to the charter
industry, and many of the carriers here are already low-cost
operators over all. So the challenges that would be presented
by some of those provisions would make their operating costs
such that not to say that they would go out of business, but I
think they would have to look for other business opportunities
besides beyond the CRAF program.
So when you are looking at sort of the entire context of
issues that confront the charter industry today, those
challenges that some of the provisions of reauthorization make
it more challenging for the carriers to operate, so that cost
structure just would make it more difficult for them to remain
in business, I think. I think some of them could answer more
specifically on that, but that is sort of the concern that our
members have.
Mr. Boozman. What do you think are some incentives we could
do to perhaps have more modern aircraft usage in the CRAF
program?
Mr. Zoeller. Well, I think that is an issue that we have
been working with General McNabb, and they are certainly aware
in order to bring more aircraft, more efficient aircraft into
the fleet, you have to have a higher utilization rate. I think
a lot of credit has to be given to TRANSCOM and AMC, because
they have been trying to reduce the block time for the carriers
so that they can use the aircraft in other services.
So that is one of the issues I think that is what we are
looking at. I think also certainly the assured business model
will at least provide some level of guarantee of revenue for
the carriers that they will be able to go, hopefully, when we
have a capital market, to go to the capital market and be able
to acquire some of the aircraft.
Mr. Boozman. Mr. Graham, in conducting your study of the
CRAF program, did you interview or talk to any of the air
carriers participating in the CRAF program?
Mr. Graham. This was our third or fourth study of the CRAF
program. We have met with the carriers I guess throughout the
time that we have conducted these studies. We did not meet with
anyone during the course of this particular study. We briefed a
meeting where all of the airlines participated at TRANSCOM in
January of this year, after concluding this study, and we had
met with a large group of carriers about 15 months before that.
Mr. Boozman. Very good. At least one of the CRAF
participants has expressed concern that a multi-year contract
will be a disincentive for CRAF participation, rather than an
incentive. What was IDA's reasons for believing that multi-year
contracts would improve the program?
Mr. Graham. If you look at the general DOD rationale for
multi-year contracts, they are put in place when companies that
are supplying services to the government are required to do
their business efficiently and effectively to make investments
that are specialized to the relationship with the government in
providing services to the government. Looking forward in the
CRAF program at the degree of commitment that some airlines are
going to have to make to the government business, we think that
rationale applies squarely in this case as well.
Mr. Boozman. Okay. Thank you very much.
Thank you, Mr. Chairman.
Mr. Costello. The Chair thanks the gentleman.
Mr. Smith, I want to join in Chairman Oberstar's comments
about FedEx's commitment to the CRAF program; it is well known,
well documented, and the program would not be as successful as
it has been without the commitment of FedEx, as well as others,
but in particular FedEx. So we thank you and we assume that
your company will stay committed to the CRAF program in the
future.
I only have a few questions just for the record, so we can
clarify a few things for the record. In your testimony, you say
that FedEx opposes a system where team members must commit a
certain level of peacetime and surge flying. I wonder if you
might explain why FedEx opposes that.
Mr. Smith. Well, Mr. Chairman, we think that the current
team concept works well for the DOD's requirements. Simply put,
you know, if it ain't broken, don't fix it. The team concept
has provided, over the years, a lot of flexibility on the part
of the carriers to meet the DOD's needs, and the more you put
rigidity into that process, the less flexible the system is
going to be.
So we just don't concur with the idea that somehow this
system is not meeting the needs of DOD, except to the extent,
as has been brought out in the testimony, that aircraft that
are primarily passenger charter airplanes only are declining.
So with that one proviso there, we think that the teaming
concept works well.
Mr. Costello. Dr. Graham, in your testimony you suggest
that CRAF teams should either specialize in either cargo or
passenger. I wonder if you might elaborate on the record.
Mr. Graham. To be very clear, our point is that the CRAF
teams should be capable of meeting the commitments that they
make for meeting the ups and downs in day-to-day business, and
our point is that, in order to be able to back up those
commitments, it may require the teams to specialize. We are not
advocating that they specialize.
Mr. Costello. Any other member on the panel want to
comment? Yes, Mr. Coretz.
Mr. Coretz. I would comment. It was brought out earlier by
General McNabb about ATA and the failure of ATA, and the team
structure proved that there was very little disruption in
service. Certainly, when any airline fails, there is going to
be some disruption, but the other team members stepped up to
the plate to provide the immediate lift required by USTRANSCOM.
In addition, FedEx actually paid for seats on scheduled traffic
in order to ensure that that business that was committed
through the team structure was actually flown. So I think that
has quite well proven the value of the teams.
Mr. Costello. Mr. Bauer?
Mr. Bauer. Evergreen, of course, is a member of the
Alliance team, which makes up probably the largest
participation of the legacy carriers, commercial passenger
carriers. At the same time, we do a significant amount of the
cargo flight. The team basically manages itself to balance that
commitment both at the primary carriers and then having the
secondary carriers to provide the lift in the call-ups.
Mr. Costello. Dr. Graham, you indicate in your testimony
that TRANSCOM should revise its charter service rate-making to
level the playing field for modern and classic aircraft. I
wonder if you might elaborate on that.
Mr. Graham. Yes. We have looked at the rate-making formulas
and practices at AMC and TRANSCOM, and without going into a lot
of details, the situation is that it is possible to earn a much
higher rate of return on an older aircraft in the program just
because the way rates are calculated today.
In looking forward, we were trying to think of a way that
would help to manage the transition from the current generation
of aircraft that are in the CRAF program to a next generation
of aircraft. If you consider the choices that an airline would
have to make with an old aircraft today, they will come to a
point where a major inspection will reveal problems--this is
just a fact of life--that will require either a major
investment in maintaining that aircraft, or trading in that
aircraft for a more modern aircraft, or parking the aircraft
that they have got and reducing the amount of capacity that
they offer to the government.
We think the rate-making process should encourage a
decision to modernize the aircraft, so the recommendations that
we made specifically would have been to essentially allow the
airlines to earn the same rate of return on a newer aircraft as
they earn on the older aircraft, which would allow them, when
they have to make the decision about the future of their
offering to DOD to choose to provide modern capacity.
Mr. Costello. To the point that Dr. Graham makes, Mr.
Flynn, you indicate in your testimony that, if there was a
greater commitment on behalf of TRANSCOM, that it would result
in CRAF carriers' ability to seek and get financing to
modernize their fleet on an assured business comment. Do you
want to comment?
Mr. Flynn. Yes, thank you, Mr. Chairman. That comment in
our testimony essentially builds on what Dr. Graham said, that
new aircraft, for example, a new 747-8, is going to cost
somewhere around $180 million for one plane. Now, it will
deliver to CRAF, for example, substantially lower fuel burn, as
well as substantially more cargo capacity. But if an adequate
level of return can't be generated on the aircraft, it is hard
to commit it and make those kinds of investments.
Mr. Costello. And the commitment that you are speaking of,
that if TRANSCOM made more of a commitment, it is the same
commitment Dr. Graham is talking about, rate-making to level
the playing field?
Mr. Flynn. Well, I think it is a couple of things. It is
certainly rate-making to reflect the capital investment in the
newer asset, but then combined with it would be some of the
initiatives that General McNabb talked about earlier. In his
written testimony he has talked about a pilot program running
aircraft direct from the U.S. to Turkey and perhaps to Kuwait,
and at the same time ensuring the maximum loadability of that
aircraft.
The combination of rate-making that reflects the capital
commitment and some of the simple supply chain innovations that
General McNabb talked about will allow the carrier to earn a
return, have good utilization on his aircraft, and, we believe,
ultimately lower the cost to the taxpayer because TRANSCOM
would achieve the lowest cost per pound to move freight from
the United States to some operating theater overseas.
Mr. Costello. I thank you.
I want to let our witnesses know today that there are a
number of Members who could not be here because there are other
hearings going on, a lot going on today on Capitol Hill. In
fact, I have another markup going up right now that I will be
going to in just a few minutes, so we are about to conclude.
But I wonder if any of you would like to offer, in addition to
your written testimony, your comments, any other comments that
you would want to offer to us to put into the record concerning
not only your testimony, but the testimony of the other
witnesses.
I would turn to you, Mr. Smith, first.
Mr. Smith. Well, Mr. Chairman, I think we have laid out our
position about CRAF and our commitment to it. I mentioned that
we do not have any intention of decreasing our commitment to
the CRAF program. We have not made a decision yet as to whether
we will put in the new long-range 777 airplanes that we have on
order; we have 30 of them on order.
And I would be remiss, and I am sorry the Chairman isn't
here, if I didn't express to this Committee again our strong
opposition to the Railway Labor Act provision that concerns
FedEx that was in the FAA reauthorization bill. We think it
overturns over a century of knowledge. FedEx Express has always
been under the Railway Labor Act; its ground operations exist
only to service the air carriers.
The issue was litigated; the Ninth Circuit Court found that
it was correctly configured. Alternatively, UPS, which has a
very different genealogy, that issue was also litigated and
firmly decided in the Second Circuit Court of Appeals, and it
is an issue that, quite frankly, we feel is a major public
policy issue and an issue that, if that is what the Congress
wants to look at it, it ought to be subject to hearings and a
separate piece of legislation where the public interest can be
represented in terms of the customers that rely on these
systems.
It is a very important issue to us and, as you may know,
such a big issue that, when we exercise the option on our
remaining 15 777s, those orders are conditional that FedEx
Express remains a Railway Labor Act carrier, those orders are
cancelled. And it isn't because there is any peak on our part
in any way, shape or form, it is simply a reflection of the
board of directors of FedEx understanding that the purpose of
the Railway Labor Act is that a system has to be a hole, that
it can't be subject to local labor disruptions. That is why it
was passed in 1926, after 50 years of failed labor laws. So it
is a huge issue to us and it will have an impact on our company
if that passes.
Mr. Costello. Well, I thank you and I am sure that we have
had a lively debate on the issue in the Full Committee. I am
sure, when we get to the floor, that that will be one of the
issues that will be fully debated not only on the floor, but if
we get into conference as well. If it is still in the bill in
conference, it will be certainly a subject of lively debate.
The Chair now recognizes Mr. Coretz.
Mr. Coretz. Thank you, Mr. Chairman. I would say that if
you ask the average American what they knew about the CRAF
program, they would wonder what you are talking about, and the
reason is it works. It is a program that has been
noncontroversial, a benefit to the taxpayer, and it is a really
strong program that works in concert, as everybody has said
across this table, in partnership with industry and government.
The two points I would like to stress is, A, we do applaud
and commend the legislation that approves the assured business
model. Our hope now is a continuation of dialog between
government, USTRANSCOM, and industry to implement those dollars
effectively and to implement those dollars where they best use
and create effective lift capacity for USTRANSCOM. I think it
is key to get that legislation or the issuance of those dollars
appropriated correctly.
Secondly, as far as equipment that we talked about, I would
just like to add a comment. In order to add new modern,
efficient aircraft, it is a function of either a higher rate to
pay for it or higher utilization. The current historic DOD
utilization for a passenger airplane is eight hours a day. If
the utilization were 12, 14 hours a day, we could justify newer
equipment. However, we don't feel that we are in a position to
change how our customer does business; they are unique,
distinct, and their historical perspective or use of aircraft
evolves around an eight-hour-a-day utilization model.
So, in summary, I would say to that point I think industry
needs to determine when it is best to equip aircraft with a
different generation or type.
Mr. Costello. The Chair thanks you.
Mr. Bauer?
Mr. Bauer. I would like to thank the Committee for the
opportunity, also thank TRANSCOM for the opportunity to provide
the service; we appreciate it. Just to sum it up, I am going to
steal from Mr. Smith. If it ain't broke, don't fix it.
Mr. Costello. Mr. Flynn.
Mr. Flynn. Thank you, Mr. Chairman. We appreciate the
opportunity to be here today. I think I speak for all the
witnesses here today: we think CRAF works very well. We
appreciate your leadership and the leadership of General
McNabb, and we think there are some incremental improvements
that can be made which will ultimately result in a more
efficient system for TRANSCOM and for the taxpayer. Thank you,
sir.
Mr. Costello. Mr. Zoeller?
Mr. Zoeller. Thank you, Mr. Chairman. Just to follow up on
the exchange earlier with some of the members and General
McNabb about counter MANPADS, and I think there is still an
interest on some of our members about exploring a feasibility
study to see if such a program would work. As you know,
Department of Homeland Security had a program and we think
there is at least some interest on the part of our carriers to
look at that to see if that could be applied in the CRAF
environment that could provide an added level of safety to the
missions and provide more opportunities for the carriers.
Mr. Costello. Dr. Graham.
Mr. Graham. I guess my final comment would be that the
issues facing the CRAF program are on the table. I think there
has been a commendable amount of communication between the
government and industry on these issues and kind of a healthy
exploration of options as to how to move forward.
Mr. Costello. Well, the Chair thanks all of you for being
here today, for offering your testimony and answering the
questions. I am aware that a few Members will be submitting
questions in writing that we would ask that we would submit to
you and ask you to submit an answer in writing so we can share
that for the record with the Members who have expressed an
interest in certain issues.
Obviously, the CRAF program is working well. As General
McNabb testified, there is always room for improvement, and
that is his job and our job, all of us, to continue to seek
improvements in the CRAF program and other programs that we
have responsibility for. So we stand ready as a Subcommittee to
work with TRANSCOM and to work with our private partners as
well in making this program even more efficient and more
successful in the future.
Again, we thank you for your testimony and we look forward
to working with you in the future.
That concludes the hearing and the Subcommittee will stand
adjourned.
[Whereupon, at 12:53 p.m., the Subcommittee was adjourned.]
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