Air Mail scandal
The Air Mail scandal, also known as the Air Mail fiasco, was a political controversy that erupted in 1934 following a congressional investigation into the awarding of airmail contracts to select airlines. The scandal intensified when the U.S. government revoked these contracts and assigned mail delivery to the U.S. Army Air Corps, leading to disastrous consequences.
Under President Herbert Hoover, the Air Mail Act of 1930 allowed Walter Folger Brown, then the Postmaster General, to award contracts at the "Spoils Conference", where major airlines divided routes among themselves, excluding smaller carriers. When details of the conference emerged, it became a scandal. A Senate investigation led to a contempt of Congress citation against William P. MacCracken Jr., the Assistant Secretary of Commerce for Aeronautics, but no further action was taken against Hoover Administration officials.
In response, newly elected President Franklin D. Roosevelt canceled all airmail contracts on February 19, 1934 and assigned the USAAC to carry the mail. However, the military was ill-equipped for the job, and severe winter conditions led to numerous crashes and the death of 13 airmen within days, sparking a public outcry, and would be called a fiasco in the press. Roosevelt ordered the service be returned to the airlines and Postmaster General James Farley issued temporary contracts on May 8, using a process similar to the original Spoils Conference. The airlines resumed operating the flights by June 1, and soon after, Congress passed the Air Mail Act of 1934, repealing the 1930 law, penalizing executives involved in the earlier deal, and leading to the breakup of the United Aircraft and Transport Corporation. The scandal also led to significant reforms in the airline industry, that spurred technological advancements, a shift toward passenger transport, and the modernization of the USAAC.
Roots of the scandal
Development of air mail
The first scheduled airmail service in the United States was conducted during World War I by the Air Service of the United States Army between May 15 and August 10, 1918, a daily run between Washington, D.C., and New York City with an intermediate stop in Philadelphia, Pennsylvania. The operation was put together in ten days by Major Reuben H. Fleet, the executive officer for flying training of the Division of Military Aeronautics, and managed by Captain Benjamin B. Lipsner, a non-flyer. Starting with six converted Curtiss JN-4HM "Jennies", two of which were destroyed in crashes, and later using Curtiss R-4LMs, in 76 days of operations Air Service pilots moved 20 tons of mail without a single fatality or serious injury, achieving a 74% completion rate of flights during the summer thunderstorm season.Air mail operations by the U.S. Post Office began in August 1918 under Lipsner, who resigned from the Army on July 13 to take the post. Lipsner procured Standard JR-1B biplanes specially modified to carry the mail with twice the range of the military mailplanes, the first civil aircraft built to U.S. government specifications. For nine years, using mostly war-surplus de Havilland DH.4 biplanes, the Post Office built and flew a nationwide network. In the beginning the work was extremely dangerous; of the initial 40 pilots, three died in crashes in 1919 and nine more in 1920. It was 1922 before an entire year ensued without a fatal crash.
As safety and capability grew, daytime-only operations gave way to flying at night, assisted by airway beacons and lighted emergency landing fields. Regular transcontinental air mail delivery began in 1924. In 1925, to encourage commercial aviation, the Kelly Act authorized the Post Office Department to contract with private airlines for feeder routes into the main transcontinental system. The first commercial air mail flight was on the route CAM No. 5 from Pasco, Washington, to Elko, Nevada, on April 6, 1926. By 1927 the transition had been completed to entirely commercial transport of mail, and by 1929 45 airlines were involved in mail delivery at a cost per mile of $1.10. Most were small, under-capitalized companies flying short routes and old equipment.
Subsidies for carrying mail exceeded the cost of the mail itself, and some carriers abused their contracts by flooding the system with junk mail at 100% profit or hauling heavy freight as air mail. Historian Oliver E. Allen, in his book The Airline Builders, estimated that airlines would have had to charge a 150-pound passenger $450 per ticket in lieu of carrying an equivalent amount of mail.
William P. MacCracken Jr.
became the first federal regulator of commercial aviation when then-Secretary of Commerce Herbert Hoover named him the first Assistant Secretary of Commerce for Aeronautics in 1926. During World War I he had served as a flight instructor, had served on the Chicago Aeronautical Commission, and was a member of the board of governors of the National Aeronautical Association when selected by Hoover.MacCracken left the Commerce Department in 1929 and returned to his private law practice, where he continued to be involved in the growth of commercial aviation by representing many major airlines.
Postmaster General Walter Folger Brown sought to improve the efficiency of the air mail carriers in furtherance of a national transportation plan. Requiring an informed intermediary, Brown asked MacCracken to preside over what was later scandalized as the Spoils Conferences, to work out an agreement between the carriers and the Post Office to consolidate air mail routes into transcontinental networks operated by the best-equipped and financially stable companies. This relationship left both exposed to charges of favoritism. When MacCracken later refused to testify before the Senate, he was found in contempt of Congress.
Air Mail Act of 1930
Hoover appointed Brown as postmaster general in 1929. In 1930, with the nation's airlines apparently headed for extinction in the face of a severe economic downturn and citing inefficient, expensive subsidized air mail delivery, Brown requested supplementary legislation to the 1925 act granting him authority to change postal policy. The Air Mail Act of 1930, passed on April 29 and known as the McNary-Watres Act after its chief sponsors, Sen. Charles L. McNary of Oregon and Rep. Laurence H. Watres of Pennsylvania, authorized the postmaster general to enter into longer-term airmail contracts with rates based on space or volume, rather than weight. The Act gave Brown strong authority over the nationwide air transportation system.The main provision of the Air Mail Act changed the manner in which payments were calculated. Air mail carriers would be paid for having sufficient cargo capacity on their planes, whether the planes carried mail or flew empty, a disincentive to carry mail since the carrier received a set fee for a plane of a certain size whether or not it carried mail. The purpose of the provision was to discourage the carrying of bulk junk mail to boost profits, particularly by the smaller and inefficient carriers, and to encourage the carrying of passengers. Airlines using larger planes designed to carry passengers would increase their revenues by carrying more passengers and less mail. Awards would be made to the “lowest responsible bidder” that had owned an airline operated on a daily schedule of at least 250 miles for at least six months.
A second provision allowed any airmail carrier with an existing contract of at least two years standing to exchange its contract for a “route certificate” giving it the right to haul mail for 10 additional years. The third and most controversial provision gave Brown authority to "extend or consolidate" routes in effect according to his own judgment.
Within days of its passage, United Aircraft and Transport Company acquired the controlling interest of National Air Transport after a brisk but brief struggle between UATC and Clement M. Keys of NAT. The merger, begun in February 1930 to plug the only gap in UATC's cross-country network of airlines, had been amicable until three weeks before its finalization, when Keys reversed his initial approval. Ironically Brown was angered by the negotiations, worried that the specter of a potential monopoly would endanger the imminent passage of the Air Mail Act. The merger swiftly created the first transcontinental airline.
On May 19, three weeks after the passage of McNary-Watres, at the first of the "Spoils Conferences", Brown invoked his authority under the third provision to consolidate the air mail routes to only three major companies independently competing with each other, with the goal of forcing the plethora of small, inefficient carriers to merge with the larger. Further meetings between the larger carriers, presided over by Assistant Secretary of Commerce for Aeronautics William P. MacCracken Jr., continued into June that often developed into harsh wrangling over route distribution proposals and consequent animosity towards Brown.
After what was described as a "shotgun marriage" between Transcontinental Air Transport and Western Air Express in July to achieve the second of the three companies, competitive bids were solicited by the Post Office on August 2, 1930, and opened August 25. A surprise competitive bidding struggle ensued between UATC, through a quickly formed skeleton company it called "United Aviation," and the newly merged Transcontinental and Western Air over the central transcontinental route. After initial rejection of the Postmaster General's decision, final approval of the contract award to T&WA was approved by Comptroller General of the United States John R. McCarl on January 10, 1931, on the basis that United's puppet concern was not a "responsible bidder" by the definition of McNary-Watres, in effect validating Brown's restructuring.
These three carriers later evolved into United Airlines, Trans World Airlines and American Airlines. Brown also extended the southern route to the West Coast. He awarded bonuses for carrying more passengers and purchasing multi-engined aircraft equipped with radios and navigation aids. By the end of 1932, the airline industry was the one sector of the economy experiencing steady growth and profitability, described by one historian as "Depression-proof." Passenger miles, the numbers of passengers, and new airline employees had all tripled over 1929. Airmail itself, despite its image to many Americans as a frivolous luxury for the few remaining affluent, had doubled following restructuring. Much of this if not all was the result of the postal subsidies, funded by taxpayers.