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965
■m

THE AIRLINES:
a growth industry,
credit aids expansio

To the M em ber Banks o f the
Seventh Federal Reserve District:

It is our pleasure to submit to you the Annual Report of the Federal Reserve
Bank of Chicago for the year 1965.
Continuation of the favorable growth of economic activity and of banking has
highlighted the past year. Some of the more significant developments are described
briefly at the beginning of this report.
A discussion of the airlines industry and its role in the economy of the Midwest
and the nation is presented on pages 7-37.
Official appointments and elections during the year are reported on pages 42-44.
The volume of transactions in many department of the Bank has continued to
rise as business activity in the Seventh District has expanded further (pages 40
and 41).
On behalf of the directors, officers and staff, I extend to you appreciation for
your cooperation and counsel which has enabled us to provide continued high-quality
financial services to the public.
Sincerely,

January 27, 1966

J. S c a n l o n
President

h a r le s

Econom ic D evelo p m en ts

■ business activity continued to expand at a vigorous pace in 1965 as most firms experienced strength
ening demand for their products or services. Farm
income rose in response to higher livestock prices
and larger crop production. Credit demands were
strong throughout all sectors of the economy. At yearend, output, employment, income and sales were still
rising and the expectation was widespread that the
uptrend in business would continue well into 1966.

A ctivity in m ajor D istrict industries
moved ahead vigorously in 1965 except
steel a fte r m idyear

per cent, 1957-59=100

Business expenditures for durable equipment in
1965 were more than 15 per cent higher than in the
preceding year for the nation as a whole. Output of
business equipment increased sharply, relatively
much more than the 8 per cent rise in total industrial
production. Moreover, order backlogs for electrical
and nonelectrical machinery increased throughout
the year. The continued strong demand for machinery
and equipment is particularly important for such
centers as Milwaukee, Rockford and Peoria.
The automobile industry experienced another rec
ord year. More than 11 million passenger cars and
trucks were produced, far more than ever before.
Sales of new cars, including imports, exceeded 9 mil
lion units, surpassing the previous record of 1964 by
15 per cent. The continued strong demand for autos
reflected both increased incomes and willingness of
many households to incur additional instalment debt.

W holesale prices o f a b road range
o f commodities increased durin g 1965

per cent change (October 1964-October 1965)
-5
0
*5
*10
*15
*20

all commodities
farm products
livestock and poultry
grains
processed foods
meat, pou ltry and fish
dairy products
canned and frozen foods
1961

1962

1963

1964

1965

Activity in major Midwest industrial centers
moved close to capacity, with the available labor
force and plant facilities being utilized more fully
than at any time in at least a decade. This favorable
condition reflected the general increase in demand
and especially the high and rising outlays for pro
ducers’ and consumers’ durable goods, both impor
tant in the Seventh Federal Reserve District.

Annual Report, 1965

metal and metal products
iron and steel
nonferrous metals
machinery and equipment
agr icu lt ur al equipment
c o n s tr uc tio n equipment
m et a lw or k in g machinery
e le c t r ic a l ma c hi ne ry
household durables
f ur n itu re
ap p lia nc es
television and radio
chemicals
industrial chemicals
drugs
fats and oils

Total outstanding consumer debt increased about 12
per cent during the year while auto credit rose by
about 14 per cent.
Because of the lengthy labor-management negoti
ations, the steel industry posed a potential source of
instability throughout much of the year. Steel output
reached an annual rate of more than 145 million tons
in the spring and remained at a high level until early
September when a collective bargaining agreement
was reached. Usage of steel was at an all-time high,
and, in addition, major steel users built up large in
ventories in the face of a possible industry-wide
strike. As orders were cut back and inventories were
worked down in September and October, steel pro
duction was reduced sharply, but output was rising
again toward year end. Increased activity in the auto
and capital equipment industries helped to offset the
impact of the decline in steel output on overall busi
ness activity.
Unemployment continued to decline as activity
rose. In the fourth quarter, unemployment rates in
the District states ranged from 1.2 per cent in Iowa
to 2.5 per cent in Illinois and Michigan and were
well below the national average. Labor shortages
were reported for many skills in numerous areas.
Some upward movement in wholesale prices oc
curred during the year especially in food and nonferrous metals. With demand rising relative to capacity,
price increases were reported for a growing number
of commodities after midyear.
Strong rise in farm income

Net income from farming reached the highest level
in more than a decade. Moreover, with the number of

Hog prices sharply above y e a r e a rlie r
dollars per cwt.

Income from cattle feeding
m arkedly im proved

farms declining further, net income per farm rose to
record levels. The greatly improved farm income
situation resulted mainly from higher livestock prices
but also was aided by increased U. S. Government
payments under the feed grain and wheat programs.
Prices of hogs rose sharply during the first half
of 1965 and continued at very high levels in the re
mainder of the year. Even though farmers had cur
tailed production, their income from hogs was higher
than at any time since the early Fifties. Production
of beef was slightly greater than in the previous year,
and prices averaged somewhat higher. Corn Belt
feedlot operations turned in the highest profits in
recent years. Dairy farmers also realized somewhat
higher incomes—a result of small gains in both prices
and production. Farmers’ income from crops was
somewhat higher than in 1964 as a result of the
larger Government payments. The production of
crops was at a record high in the District states.
With farm income increasing and bumper crops to
be harvested, farmers stepped up their purchases of
machinery, especially tractors and corn harvesting
equipment. Also, prices of farm real estate rose at a
faster pace, especially in the Corn Belt states.
B anks continue rap id grow th

Financial developments in 1965 reflected a com
bination of the accelerated pace of business activity
and monetary policy designed to encourage economic
growth with price stability. In this environment, bank
credit rose faster than in other recent years but was

Federal Reserve Bank of Chicago

accompanied by rising interest rates.
Strong demand for funds by business to finance
the expansion of facilities and working capital was the
major force behind the record increase in member
bank loans. Farmers used large amounts of credit
to finance operating expenses and to purchase land
and machinery. Total loans and discounts of Seventh
District member banks at the end of November were
18 per cent above year-ago levels. This compares with
a 15 per cent increase at all member banks in the na
tion and with the previous record District gain of 15
per cent in 1963.
The aggregate increase in earning assets was some
what less than the increase in loans as some banks
financed part of the loan expansion by selling U. S.
Government securities. For all member banks in the
District, holdings of these securities fell about 8
per cent. However, the net purchases of other secu
rities—mainly municipals and U. S. agency issues—al
most fully offset the net liquidation of Governments.
On balance, total bank credit expanded by about 10
per cent in the past year, compared with a 9 per cent
gain in 1964.
Credit demands were strong in all District areas.
However, Michigan banks reported the largest loan
increases—33 per cent in Detroit and 19 per cent in
the rest of Michigan. Detroit banks also reported the
greatest reduction in holdings of Governments.
Loans increased throughout the year in contrast
to the usual pattern of substantial pay-downs in Jan
uary and February. After the effects of steel stock
piling and the strong rise of foreign lending preceding
the issuance of “voluntary credit restraint” guidelines
had passed, loan growth slowed. The decline in Gov
ernments occurred gradually until the final quarter
when it was reversed as a result of the Treasury’s sea
sonal financing operations. Banks’ acquisitions of
municipals proceeded at a rapid rate in the first half
but slowed markedly as the year progressed.
Much of the push behind loan demand stemmed
from the business community. Statements of the large
District banks where business loans are heavily con
centrated indicate a sharp rise for 1965 in the rate
of growth in loans to commercial, industrial and non
bank financial firms. Real estate loans also rose
more rapidly than in 1964 but consumer loans at
these banks slowed, contrary to the national experi
ence. At country banks the expansion in loans on
farm real estate continued at about the same rate as
in the previous year.
The strong overall demands for credit in the econ
omy have afforded profitable loan and investment
opportunities which have stimulated banks to bid ac-

Annual Report, 1965

Loan growth a t new high in 1965

tively for funds. The continued acquisition of mort
gages and tax-exempt securities, concurrent with
meeting heavy demand for business, agricultural and
consumer credit, reflects another year of substantial
deposit inflows and some increase in borrowed funds.
Deposits rose 9 per cent—about the same as in 1964.
Despite increased income in the District, demand
deposits rose only 3.5 per cent during 1965—slightly
less than in the prior year. At agricultural banks,
however, demand deposits increased considerably
more than in other recent years while major city
banks obtained a somewhat smaller share of the de
mand deposit growth.
As in other recent years, the major growth compo
nent was time deposits. Total time deposits rose
about 16 per cent during the year, and by year-end
time and savings accounts of District members were
nearly equal to their aggregate demand deposits. Five
years earlier, time and savings deposits were some
40 per cent below demand deposits of these banks.
To attract funds, many banks made further up
ward adjustments in rates paid on savings and time
deposits. Additional upward flexibility in these rates
had been gained through increases in the maximum
rates permitted under Regulation Q in November
1964. The large money market banks continued to
issue negotiable certificates of deposit. The net inflow
from this source accounted for about 10 per cent of
the aggregate expansion in time deposits. Most banks,
however, grew mainly by attracting savings balances.
Even at the large weekly reporting banks, savings ac-

counted for 70 per cent of the total growth in time
and savings deposits against 50 per cent in 1964.
A large portion of the funds used to finance loans
and investments has been acquired through con
tinued aggressive competition for the savings and
short-term investment funds of individuals, corpora
tions and governmental units. Many of these are in
terest-sensitive funds which can be retained only so
long as banks continue to offer returns equivalent
to those available on alternative investments. To the
extent that such funds are received in the form of
time deposits, they are subject to reserve require
ments, FDIC assessments and Regulation Q ceilings.
Some banks also use promissory notes, repurchase
agreements and Federal funds purchases as sources
of funds. While these instruments are free from the
reserve requirement, maturity and rate limitations
of CDs, they usually provide funds on a very short
term basis. Even notes with maturities of six months
or more may be presented for payment much earlier
since, in the absence of a secondary market in these
instruments, the issuing bank may stand ready to re
purchase them prior to maturity on request.
The volume of promissory notes outstanding is
still quite small. Estimates for the country as a whole
place the total at about 500 million dollars compared
with about 16 billion dollars of CDs. In the late sum
mer and fall, the rates offered by large banks on CDs
pressed against the legal maximum interest rates per
mitted on time deposits. In these circumstances some
banks boosted the amount of promissory notes out
standing. When the ceiling was again raised on all

Large banks show big gains
in business loans

Time and savings deposits
account fo r most o f deposit grow th

time deposits (but not savings deposits) last Decem
ber, a major reason for selling notes was removed.
Competition for funds with which to acquire highyield assets has changed the historical relationships
between types of bank assets and types of liabilities.
At current costs, it is profitable to acquire funds only
if they are invested in high-yield assets. Midyear call
reports of District member banks indicated that mort
gages and municipal securities amounted to onefourth of total earning assets at reserve city banks
and one-third at country banks. Moreover, loan ma
turities have lengthened. In the first three quarterly
interest rate surveys last year, 13 per cent of the
dollar volume of new loans reported were term loans,
against 9 per cent five years ago. Thus, assets ap
pear to be less liquid and liabilities more volatile.
M o n etary policy and in terest rates

Reserves of member banks rose rapidly in the first
half of 1965, leveled off in the summer and increased
sharply again in December. For the year, additional
reserves were supplied to the banking system at a
rate of about 5 per cent—somewhat more rapidly than
for any previous year in the 1961-65 expansion pe
riod. Money supply (demand deposits and currency
held by the public) increased at a slightly higher
rate than in 1964, and bank credit expanded at a
record rate of 10 per cent. The demands for funds
in the economy were so strong, however, that even
with this very substantial growth in credit, interest
rates moved higher, especially after midyear.

Federal Reserve Bank of Chicago

To have met the heavier credit demands of 1965
without any rise in interest rates would have required
acceleration of the unusually rapid growth in money
and credit that occurred throughout the year. With
the economy already at capacity in many areas, this
would have exerted upward pressure on prices.
All segments of the money market felt the impact
of the strong demand for funds. Beginning in March
the prevailing rate for Federal funds moved up to
4V& per cent and by autumn transactions at 4.25 per
cent were fairly common. The yield on three-month
bills rose above 4 per cent in October and reached
4.40 per cent by Mid-December on a discount basis.
Yields in the bond markets began to show a rising
trend in early fall. Rates on corporate securities
were affected by a large volume of new issues after
midyear. The tax-exempt market was strongly in
fluenced by changes in bank demand for state and
local issues. These issues have been an important
outlet for time deposit funds, and spurts in their av
erage yield during the past year occurred in corporate
tax and dividend months when banks were under
pressure to meet loan demand and CD maturities.
The typical rate on home mortgages, after a long pe
riod of stability, moved up several basis points in
October and November and, as the year drew to a
close, there were scattered signs of reduced availabil
ity of mortgage credit and some further tightening of
mortgage terms. Residential construction in major
Seventh Federal Reserve District metropolitan areas

increased substantially in 1965, however.
In early December, the Board of Governors of the
Federal Reserve System approved discount rate in
creases from 4 to 4.50 per cent in the New York and
Chicago districts (followed shortly by a like change
in the other 10 districts). This action was expected to
help bring about a slowing of credit growth to a rate
more consistent with the growth of available labor
and industrial capacity and to dampen the buildup of
inflationary pressures. The move was also consistent
with balance of payments objectives, although these
were a less important reason than in the two previous
discount rate increases in 1963 and 1964. Concur
rently, the Board again changed Regulation Q to set
the maximum interest rate permissible on time depos
its at 5.50 per cent—up from 4 per cent on 30 to
89 day maturities and from 4.50 per cent on CDs of
90 days and longer. The ceiling on passbook sav
ings deposit rates—now 4 per cent—was not changed.
The immediate impact of the announced changes
was a further rise in yields in all segments of the
money and securities markets. Many large banks in
dicated that they had adjusted their minimum loan
rate, the prime rate, from 4.50 to 5 per cent. Bill
yields rose by more than V\ per cent and bond prices
dropped sharply. Rates remained at the higher levels
through the peak period of loan demand in midDecember despite a larger than seasonal flow of re
serves into the banking system.
As 1 96 6 o p e n s . . .

Interest rates move higher
per cent
7 r

SOURCE: Federal Reserve Bulletin, Federal Housing Adm inistration,
Salomon Brothers and H utzler.

Annual Report, 1965

The nation embarks into 1966 closer to its eco
nomic goals than in many years. On the whole, 1965
was a year of healthy economic expansion although
some evidences of imbalance were perceptible late in
the year. In this District, particularly, tight labor
supplies and other shortages in facilities coupled with
strong demand posed a threat to price stability. If
current plans are carried out in the new year, addi
tions to new plant and equipment will add substan
tially to productive capacity. Flows of money and
credit will need to be adjusted to accommodate
changes in demand and capacity. Interest rates will
reflect the strength of credit demand. If loan demand
continues strong, some further impact may be felt in
the mortgage and tax-exempt markets.
Banks are faced with an ever more insistent chal
lenge to maintain a proper balance between their
asset mix and the nature of their liabilities. More and
more, banks must weigh the costs and benefits of
growth accomplished through active competition for
funds and the acquisition of risk assets that will cover
the accompanying rise in interest expense.

THE AIRLINES:
a growth industry,
credit aids expansion

( ^ ) n a typical day more than 250,000 persons
board commercial airliners in the United States, trav
eling for business, pleasure or other personal rea
sons. Some are off on short hops, such as Chicago
to Detroit, while others head for points as far away
as Istanbul, Tokyo or Sydney. Each of these trav
elers reaches his destination in a matter of hours.
Time saved compared with surface travel ranges
from hours to weeks. Many travelers return home
the same day after round trips of a thousand miles
or more to have dinner with their families.
The jet age of air travel on U. S. airlines is now
in its eighth year, starting with the first transatlantic
flights in Boeing 707s late in 1958. Douglas DC-8s
entered service the following year. Improved and
specialized versions of these four-engined aircraft
currently are in production. Meanwhile, smaller jet
planes designed for shorter trips are coming into
service in increasing numbers.
Almost 90 per cent of all airline passenger miles
now are flown in turbine-powered planes, either pure
jet or turboprop. In 1966 some of the trunk airlines
are scheduled to complete the transition to all tur
bine service. By the end of the decade, all of the
piston-powered aircraft probably will have been re
tired by the U. S. airlines. The DC-3s, DC-6s, DC-7s,
Convairs, Martins and Constellations are still excel
lent machines but now have been outclassed.
Not only are the jets faster and more comfortable
than the aircraft being replaced but also are more
economical. Experience has shown that profitable
operations on competitive routes require that the
public be offered top-quality service in the best
equipment available. Anything less may lead to defi
cits and possible bankruptcy or merger with a strong
er line.
Following the introduction of the first jets and
turboprops, the backlog of flight equipment ordered
by U. S. airlines at the peak in 1959 totaled 2.5
billion dollars—double the book value of all equip
ment then in service. There were suggestions that
financial disaster might result from “too many seats

in the sky.” A slowdown in the growth of air travel
in the early Sixties lent credence to these fears.
Since 1962, however, total airline passenger traf
fic has grown at a rate of about 15 per cent each
year. During the same period air freight and express
traffic has increased more than 20 per cent an
nually. As a result, the airlines, backed by credits
arranged with commercial banks and other institu
tions, have embarked upon a second major wave of
jet aircraft acquisitions.
A recent industry survey indicates that 704 air
craft valued at 3.7 billion dollars will be acquired in
the 1965-69 period—far more than the capital ex
penditures contemplated only two or three years
ago. This program both reflects and helps to support
continued economic expansion.
A sto ry of grow th

Because passenger revenues constitute 82 per
cent of all operating revenues of U. S. airlines, the
volume of business is measured most commonly by
passenger miles (one passenger carried one mile

Federal Reserve Bank of Chicago

equals one passenger mile). In 1965, 95 million
passengers traveled an average of roughly 700 miles
each for a total of 67 billion miles, about 16 per
cent more than in the previous year. Total ton miles
(10 passengers and their baggage or a ton of prop
erty flown one mile) and total revenues rose by sim
ilar proportions.
Last year’s increase in airline business was three
times as great as the 5 per cent rise in total output
of goods and services but was typical of postwar ex
perience. From 1947 through 1965 the average an
nual growth in airline passenger miles was 12.8 per
cent compared with a growth rate for the entire
economy of 3.7 per cent. Using the alternative and
more inclusive measure of revenue ton miles, the an
nual growth of airline services was 14 per cent in the
postwar period.
According to a U. S. Department of Commerce
study of 374 products and services, the airlines have
expanded at double the rate of the electric utilities and
the motor truck lines—their closest rivals among the
major service industries. Among manufactured prod
ucts, only such new items as polyethylene, high pu
rity oxygen and air conditioners have outperformed
the airlines consistently. But annual sales of these
fast growing products amount to only a tiny fraction
of the airlines’ gross revenues, currently about 5 bil
lion dollars.
The uptrend in airline revenues and ton miles has

Airl ine revenue g row th
has accelerated in recent years
billion doll ars

SOURCE: C ivil A eron a u tics Board.

Annual Report, 1965

M ore than 70,000 passengers w ere han d le d each day
d u rin g the Christmas season a t C hicago's O 'H a re Field

been slowed in the postwar recession periods of 195354, 1957-58, and 1960-61. Total revenues and traffic
have never declined on a year-to-year basis, but the
rate of advance has been highly sensitive to cyclical
changes in economic activity.
Public c a rrie r num ber one

Private autos have accounted for about 90 per
cent of intercity passenger miles in recent years as
was the case prior to World War II. There seems
little prospect that the relative place of the auto will
be altered appreciably as the predominant means of
travel, particularly on trips of 200 miles or less. Air
line traffic growth largely reflects diversions of busi
ness from railroads, buses and ships and encourage
ment of travel that would not have taken place but
for the availability of this rapid and comfortable
means of transport.
Airline passenger travel was one of the relatively
few economic activities that increased in volume
throughout the Depression years. In fact, annual in
creases averaged almost 30 per cent in the years
1931-33. Airline passenger miles in the latter year
totaled 200 million but still accounted for only a
tiny fraction of intercity common carrier traffic (rail
roads, airlines and buses) in the United States.
With the DC-3 as the standard airliner, passenger
miles passed the 1 billion mark by 1940. Even so,
the airlines accounted for only 3 per cent of intercity
passenger traffic handled by common carriers. In
troduction of four-engined aircraft after World War
II, coupled with improved service and greater public
acceptance, boosted domestic airline miles over the
10 billion total in 1951. In that year airlines ac
counted for 17 per cent of intercity passenger miles
—for the first time exceeding the first-class rail total.
Airline traffic passed the total for intercity buses
in 1955, railroad travel including coach in 1957 and
the total for railroads and the buses combined in
1963. In the latter year more than 51 per cent of

all intercity common carrier passenger travel was by
air. This proportion was about 55 per cent in 1965.
Improved equipment and scheduling have been
heavily responsible for the growth of air travel. Rela
tive stability of charges in the face of a generally ris
ing price level also has been important. Despite im
proved service, airline fares averaged 6.1 cents per
mile in 1964—compared with 5.3 cents in the years
prior to World War II and 5.8 cents in the late For
ties. The average of all consumer prices has more
than doubled since 1939.
Average airline fares have been held down, in
part, by a variety of pricing innovations. Coach ser
vice with higher density seating and fewer “frills” than
first-class service was introduced by the trunk lines
in 1948. Since that time a number of special arrange
ments have been introduced, including family plans
under which the spouse and children of a passenger
paying full fare are carried at a substantial discount
and group plans that encourage excursions. Service

men on leave have been carried at half price since
1963 on a standby basis. The proportion of passen
gers paying coach or other economy fares has in
creased steadily and now accounts for about 75 per
cent of the total.
The increase in airline travel has been both a cause
and an effect of reductions in passenger service by
the railroads. Combined first-class and intercity coach
railroad travel has declined in all but one of the years
since World War II—the Korean War year 1951.
Total railroad passenger miles in 1964 were only
half as great as 15 years earlier.
Railroads for many years have regarded most of
their passenger business as a losing proposition, but
the regulatory process slowed withdrawal. With the
growth in availability of air service and improved
highways, and a more permissive regulatory climate,
the railroads have gained greater freedom to reduce
the number of scheduled passenger runs. The process
has been cumulative. The reduction in train service

Federal Reserve Bank of Chicago

in many centers has forced reluctant travelers onto
the highways or into the air.
A ir serv ice to sm a lle r tow ns

Rapid development of local service airlines, estab
lished with the help of liberal Government subsidies
in the early postwar years, has brought modern air
transportation to hundreds of medium- and smallersized communities, most of which have been fast
losing rail passenger service. While at some large
cities the expansion of air operations has more than
offset withdrawals of trains, the picture is different
for many moderate-sized centers. Numerous thriving
communities in the 5,000 to 20,000 population
range today have fewer common carrier passenger
schedules than in the early postwar years.
As recently as 1947, 13 one-way train operations
were offered on a typical weekday by four rail lines
between St. Louis and Chicago. Smaller places lying
between the big terminal cities also had relatively
convenient rail service. Decatur had four daily trains
to Chicago; Springfield had ten; Bloomington eight;
Taylorville three; Carlinville two; Lincoln three, and
Pontiac had four.
Travelers from St. Louis in 1947 also could select
from a total of 14 airline schedules to Chicago. But
no scheduled air service to Chicago was available at
any of the intermediate points. (Three flights served
Peoria, which does not lie on a direct St. Louis-Chicago rail route.)
Today, of course, the air and rail schedules are
quite different for some of the centers in the St.
Louis-Chicago sector. A local service line, Ozark
Airlines, now offers eight northward schedules daily
from Springfield, three from Bloomington and six
from Decatur. No other scheduled air service is
available to Chicago from communities in the St.
Louis-Chicago corridor.
Marked reductions in rail service have occurred
since 1947. The 13-train schedule from St. Louis to
Chicago has been reduced to six. One of the four
railroads has no passenger operations at all on this
line, and two railroads have discontinued overnight
trains.
Alternatives have narrowed sharply at intermedi
ate points. A few small communities have lost all
rail service to Chicago. At Springfield, schedules
northward today are down to four from ten in 1947;
at Decatur there are two compared to four, and
Bloomington is down to three from eight. All three
of these cities now have air service, however, with
schedules that give the traveler a choice of departure
times as good or better than ever before.

Annual Report, 1965

Curtailment of train services has not been accom
panied by the inauguration of air scheduling at such
communities as Carlinville, Dwight, Clinton, Pana,
Lincoln and Pontiac. Because intercity bus opera
tions also have been curtailed, reduced rail service
at these towns has meant a net loss in common car
rier passenger scheduling.
The accompanying map shows the changes in pas
senger service scheduling that have occurred since the
war in three Midwest travel corridors from Chicago
fanning outward to Sioux City-Qmaha and Detroit
as well as to St. Louis. Typical Chicago-bound week
day rail and air schedules at most towns of 5,000
and more in 1947-48 are contrasted with those of
1965. Clearly, total schedules by air and rail car
riers have broadened substantially at the terminal
points and at some of the intermediate points.
The contraction of rail passenger operations began
well before the postwar period. Probably it has been
related more closely to the automobile than to the
plane, especially in short- and medium-haul markets.
Capture by the airlines of long-haul traffic from the
rails, of course, has tended to accelerate schedule
reductions at points along the rail lines as well.
The present-day pattern of airline operation has
brought the overwhelming majority of the popula
tion well within a 60 to 90 minute drive of airports
with scheduled service. Residents of Chicago, New
York and Los Angeles may spend almost as much
time driving to or from the airport through rush-

Domestic a ir travel
now exceeds bus and ra il com bined

billion passenger miles

SOURCE: A ir T ra n spo rt Association.

Typical w e e kd a y ra il and a irlin e service to C hicago and three M idw est ra il corridors

DETROIT and Chicago
16

N um ber o f departures

C h a rlo tte

Railroads

D o w a g ia c

D e tro it-A n n A rb o r

Michigan
A d ria n
B attle C reek

N um ber o f departures

1947

G ra n d Rapids

H olland

O m aha

Jackson

Sioux C ity

K a la m a zo o

Iowa

Lansing

1965

Railroads

Airlines
1947

1965

Airlines

1947

1965

1947

1965

Iowa
N ew ton

O e lw e in

O ttum w a

Perry

A lg o n a

Red O a k

OMAHA-SIOUX CITY and Chicago

M a rsh a ll

Ames

Spencer

Niles

A tla n tic

W a te rlo o

St. Joseph-Benton H a rb o r 3

W e b s te r C ity

Illinois
0

Indiana

Boone
Burlington

M ich ig a n C ity

C a rro ll

South Bend

C e d a r R ap ids-M a rio n

ST. LOUIS and Chicago
St. Louis

F re e po rt

C harles C ity

G a le sb u rg

C herokee

Geneseo

C hariton

Illin o is

B e lvide re
D ixon

4
13

B loom ington

Clinton

C a rlin v ille

Creston

K ew anee

La S a lle -O tta w a -P e ru

0
0

Clinton

Des M oines

M e nd o ta

D ecatur

D ubuque

M onm outh

F a irfie ld

M o rris

Lincoln

Fort D odge

Princeton

Litch fie ld

G rinn e ll

Q u a d C itie s*

Pana

Independence

Pontiac

Iow a C ity

M a rsha llto w n

T a y lo rv ille

M ason C ity

W a tse ka

M ount Pleasant

K a n kake e

S p rin g fie ld

Rochelle

Rockford

Savanna

Sterling-R ock Falls

S ycam ore-D e K a lb

*lncludes Iow a p o rtio n .
SOURCE: O ffic ia l Guide o f the Railways (September 1947 and S eptem ber 1965), O ffic ia l A irline Guide (Septem ber 1965).

Federal Reserve Bank of Chicago

hour traffic as individuals residing considerable dis
tances from smaller airports.
Many industry observers have emphasized the
need for a comprehensive third level of airline ser
vice (air taxis), supplementing the local service lines,
for communities without easy access to existing lines.
Several such carriers are currently in operation. Wider
development of such services is limited by the high
seat-mile cost of operating small aircraft seating only
a few passengers.

Som e e a r ly histo ry

Near Kitty Hawk on North Carolina’s Outer Banks
an impressive monument commemorates the first
powered flight—December 17, 1903—of a heavierthan-air craft, designed, built and piloted by Orville
and Wilbur Wright. This achievement rightfully holds
an honored place in the history of aviation. A full
generation was to elapse, however, before commer
cial aviation played a significant role in the transpor-

Com m ercial a irlin e operations a t points in the Seventh District, ye a r ended June 30, 1964
Scheduled
departures
perform ed

Passengers
enplaned

Scheduled
departures
perfo rm e d

Airlines

Passengers
enplaned

Airlines

(thousands)

(thousands!
Iow a

Illinois

Bloom ington

1.6

4.2

O ttum w a

1.9

4.7

Champaign

4.6

34.9

Sioux C ity

5.3

34.4

B N ,N O ,O Z

172.2

7,445.5

AA,BN ,C O ,DL,EA,

W a te rlo o

6.6

37.5

B N ,O Z

C hicago

L C ,N O ,N W ,O Z ,T W ,U A
Danville

2.0

6.3

D ecatur

3.5

20.1

G alesburg

1.0

3.9

M a tto o n

1.2

2.8

Peoria

7.9

65.3

Q uad C ities

8.4

99.8

O Z ,U A

Rockford

2.2

8.3

S pringfield

7.4

44.7

Sterling

1.3

2.3

1.4

4.6

Columbus

0.5

0.2

Fort W a yn e

5.0

76.4

Indianapolis

0.7

1.8

Battle C reek

1.7

16.9

Benton H a rb o r

1.7

9.0

C a d illa c

0.6

0.9

57.6

1,644.7

5.6

28.6

N O ,U A

12.1

120.0

LC ,N O ,U A

D etroit-A nn A rb o r

NO
AA,AL,DL,EA,LC,
M O ,N O ,N W ,T W ,U A

Flint
G ra n d Rapids
Jackson

1.8

4.7

K alam azoo

3.3

28.0

LC ,N O

Lansing

7.2

54.6

N O ,U A

M anistee

1.1

2.7

DL,UA

Muskegon

4.1

30.7

Pellston

2.3

8.4

Port Huron

0.5

0.6

Indiana
Bloom ington

M ich ig a n
A lpena

LC ,N O

NO
N O ,U A
NO
*

23.7

505.7

Kokomo

1.7

3.8

Lafayette

3.6

17.6

Saginaw

5.9

63.1

N O ,U A

M a rio n

1.7

2.2

Traverse C ity

2.8

15.8

M uncie

1.3

4.5

A p p le to n

1.1

7.0

B eloit

2.5

5.9

Richmond

0.5

0.4

South Bend

8.3

79.5

AA,D L,EA,LC ,O Z,TW
LC

LC
LC ,N O ,U A

Iow a
Burlington

2.0

10.1

C e d a r Rapids

8.1

74.4

O Z ,U A

C lin to n

1.9

4.0

11.0

201.8

Dubuque

2.9

Ford D odge
Io w a C ity
Mason C ity

Des Moines

W isconsin

C lin to n v ille

1.4

1.3

G reen Bay

8.1

81.7

NO
N O ,N W ,O Z

M adison

9.6

94.0

M a n ito w o c

1.4

3.5

B N ,O Z ,U A

M arshfield

0.7

1.1

11.0

M ilw aukee

27.6

418.9

2.6

8.4

Oshkosh

3.3

32.9

1.3

6.5

Stevens Point

2.3

5.2

2.1

11.0

W ausau

3.6

18.7

NO
NO
E A ,N O ,N W ,O Z ,U A

*S ervice n o t cu rren tly p ro vid e d .
Key: AL— A llegheny, A A — Am erican, BN — Braniff, C O — C on tin en ta l, DL-— D elta, EA— Eastern, LC— Lake C en tra l, M O — M ohaw k, N O — N o rth
C en tra l, N W — N o rth w e st, O Z — O za rk, T W — T W A , UA— U nited.
SOURCE: A irp o rt A ctivity Statistics o f C ertificated Route A ir Carriers (January 1965), C iv il A eronautics Board and Federal A via tio n Agency.

Annual Report, 1965

tation system of the United States.
For several years after 1903, few people were
aware that the principles of controlled flight had been
mastered. There had been too many well-publicized
tragic or comic failures. Moreover, eminent scientists
had published articles for popular consumption
“proving” that manned flight was physically impos
sible. As a result, the early successes of the Wrights
were ignored or reported inaccurately, even by their
hometown newspapers in Dayton, Ohio.
Interest in aviation grew rapidly following exhi
bitions by the Wrights in the United States and Eu
rope in 1908. In 1909, Louis Bleriot flew across the
English Channel. In 1911, Cal Rodgers crossed the
continent from New York to Pasadena in “84 days
and 15 crashes.”
Aviation progressed more rapidly in Germany,
France and England than in the United States, par
ticularly under the stimulus of World War I. A huge
aircraft building program was inaugurated after the
United States entered the war. Despite expenditures
of hundreds of millions of dollars, however, no U. S.
built aircraft was used in combat.
After the armistice of November 1918 the Govern
ment abruptly canceled its orders for aircraft. But
the nation then possessed a large number of newly
trained pilots, hundreds of two-seat “Jennies” and
DH-4s, the newly designed 400-horsepower Liberty
engine, and a rudimentary airmail service.
Airmail service was inaugurated between Wash

ington and New York in May 1918 by the Army—
an operation later assumed by the post office. De
spite many mishaps, this route system was continued
and expanded until 1927 when it was turned over to
private contractors, as directed by the Kelly Act of
1925.
In retrospect, the development and use of com
mercial aircraft during the Twenties appears to have
been painfully slow. The most significant break
through doubtless was the introduction of the highly
efficient and reliable Wright Whirlwind and Pratt and
Whitney radial engines. The first Whirlwind, rated at
only 200 horsepower, was the ancestor of the power
plants of the great majority of military and commer
cial aircraft built in the United States until the jet
age. The largest and latest models developed over
3,000 horsepower.
Charles Lindbergh’s New York to Paris flight in
May 1927 generated vast popular interest. This flight
proved nothing except the skill and daring of the
young pilot and the worth of his plane and its en
gine. The Atlantic had been crossed by aircraft as
early as 1919 and a nonstop coast-to-coast flight had
been accomplished by Army pilots in 1923. Never
theless, aviation enthusiasm attributable to the flight
resulted in a sharp surge in prices of aviation com
mon stocks.
Suddenly, an abundance of investment funds was
available for an aviation industry that had been
starved for capital ever since World War I. The re-

Federal Reserve Bank of Chicago

suit was an orgy of financial manipulation and the
creation of complicated holding company structures
encompassing airlines, equipment manufacturing and
even airfields. But a broad market for aircraft and
airline service was lacking. Consequently, aviation
shares subsequently declined even more than the
overall market averages in the 1929-32 crash.
Ford and Fokker trimotor aircraft were intro-

A ircraft in service and on o rd e r
fo r U. S. scheduled airlines
O c to b e r

1963

1964

1, 1965

305

197

164

150

204

202

197

104

585

613

474

441

434

1939

1949

1959

147

449
112

P isto n tw o e n g in e
D C -3
C o n v a ir
M a rtin
T o ta l

147

P isto n f o u r e n g in e
D C -4

230

D C -6

109

325

217

203

189

D C -7

220

164

121

104

137

1 11

107

418

859

546

487

389

C o n s te lla tio n
S up e r C o n s te lla tio n
T o ta l

duced in 1926. Altogether about 350 of these air
craft-seating 10 to 14 persons, cruising at about
120 miles per hour and costing about 60,000 dol
lars each—were produced in this country from 192631.
The Ford Motor Company joined forces in 1925
with W. B. Stout, pioneer builder of all-metal air
craft. Later General Motors Corporation arranged
with Anthony Fokker—the Flying Dutchman
who was responsible for Germany’s best fight
ers during World War I—to build commercial
models in the United States. Fokker construc
tion continued the use of tubular steel fuse
lages in combination with cantilever wings of
O n o rd e r
wooden spars and plywood covering used in
O c to b e r
the wartime fighters.
1, 1965
Both Ford and General Motors disposed
of their aircraft manufacturing interests in the
0
early Thirties. GM’s departure from the field
0
0
may have been related to the crash of a U. S.
0
built Fokker in 1931 that caused the death
of Knute Rockne—the famous Notre Dame
0
football coach. The publicity that followed
0
may have slowed the development of com
0
mercial aviation, but it hastened the intro
0
duction of improved, all-metal airliners that
0
entered service in 1933 and 1934.
0

T u rb o p ro p tw o e n g in e
C o n v a ir 5 8 0 - 6 0 0

F -2 7 a nd F H -2 2 7

T ota l

T u rb o p ro p fo u r e n g in e
Viscount

Electro

117

178

177

176

T ota l

T u rb o je t t w o e n g in e
C a ra v e lle

Boeing 7 2 7 * *

20
88

1 44

187

Boeing 7 3 7

BAC-1 1 1

42
122

D C -9
20

108

177

41 1

133

157

183

100

104

112

119

104

114

125

406

450

493

135

T ota l

T u rb o je t fo u r e n g in e
66

Boeing 7 0 7
Boeing 7 2 0
C o n v a ir 8 8 0 - 9 9 0
D C -8
T ota l

O th e r

200

102

139

114

127

T o ta l

347

1 ,0 72

1,871

1 ,8 12

1 ,8 3 4

1 ,8 6 6

596

* S ix ty conversions from piston engined a irc ra ft.
* * Three engines.
SOURCE: A ir T ransport Association.

Annual Report, 1965

M odern a irlin e rs em erg e

Airmail payments to private contractors at
first were made on the basis of weight carried.
“Flying mail trucks”—specialized single-en
gined aircraft—were developed in the middle
and late Twenties with space for two or more
passengers. Mail had priority, however, and
passengers were sometimes put off at ter
minals when a full load of mail awaited trans
port. Numerous small operators carried air
mail under contract on designated routes be
tween major cities.
Four such air “transport” companies were
merged in 1929 to form the nucleus of the
present United Air Lines system. But for the
most part little progress was made in develop
ing a coordinated network of airline systems.
In 1930 the Watres Act gave the Post
master General power to negotiate mail pay
ments on available space-mile rather than
on the basis of pounds actually carried. The
intention was to motivate the airlines to
acquire large, multi-engined planes and de
velop passenger traffic. The Postmaster Gen
eral, moreover, was given wide discretion in

Principal aircra ft used by U. S. airlin es
M a n y p la n e types have been su b sta n tia lly m od ified subsequent to in tro du ctio n. Changes include increased size and pow er
an d adjustm ents o f ran ge and seating density to specific tra v e l markets.
Boeing 40: Entered U.S. service, 1927;
m o d ifie d , 1928;
4 passengers;
cruising speed, 110 m ph;
gross w e ig h t, 3 tons;
ve ry short range

Boeing 80: 1928, '2 9 ;
12-14 pass.; 115-120 m ph;
9 tons; ve ry short range

DC-3: 1936; 21-28 pass.; 170-185 m ph; 13 tons; short range
DC-2 (sim ila r to DC-3, b u t sm aller):
1934; 14 pass.; 175 m ph; 10 tons; short range

DC-4: 1945; 40-68 pass.; 220-240 m ph;
37 tons; medium range

DC-6 series: 1947, '5 1 ; 52-74 pass.;
300-315 m ph; 50 tons; m e d iu m /lo n g range
Lockheed C o n s te lla tio n : 1946; 44-64 pass.; 300 m ph; 53 tons; m e d iu m /lo n g range
Super C o n s te lla tio n (sim ila r, b u t la rg e r):
1951, '5 7 ; 63-99 pass.; 350 m ph; 78 tons; m e d iu m /lo n g ra ng e

awarding contracts and designating routes. As a re
sult, he was able to encourage and even force consoli
dations. This led to the development of the systems of
American, TWA (originally TAT) and Eastern, which
together with United, have long constituted domestic
commercial aviation’s “Big Four.” Pan American
meanwhile, became the Government’s “chosen instru
ment” to provide air transportation to Latin America,
and later to Europe and Asia, in flying boats.

Ford and Fokker trimotors were joined by Boeing
trimotors and two-engined Curtis Condors in 1929
and 1930. These aircraft were all reasonably safe
and reliable but slow, had limited capacity (10 to 14
passengers) and had some difficulty crossing moun
tain barriers. Most routes could not be operated
without Federal subsidy in the form of airmail pay
ments. Better aircraft, therefore, were a necessity.
With the withdrawal of the large auto firms from

Equipment operated by m a jor U. S. airlines, O cto b e r 1, 1965
Am erican

C ontinental

B ra n iff

Delta

Eastern

N ation a l

N ortheast

N orthwest

TW A

United

W e stern

Pan
Am.

P isto n
16

C o n v a ir

D C -4
D C -6

D C -7

C o n s te lla tio n

19
10

Jet a n d tu rb o p ro p
V iscount

E lectra

16
20

C a ra v e lle
35

B -7 2 7

B -7 3 7
9

B A C -1 1 1
D C -9
B -7 0 7

B -7 2 0

C V -8 8 0 , 9 9 0

15
16

D C -8

T o ta l*

172

A lle gheny

Bonanza

177

C en tra l

Frontie r

Lake
C en tra l

114

26
49

153

M ohaw k

N orth
C entral

O z a rk

Pacific

286

Piedmont

Southern

TransTexas

W e st
Coast

P isto n
D C -3
C o n v a ir

M a rtin

25
13

Jet a n d tu rb o p ro p
14

F -2 7
C o n v a ir 5 8 0 - 6 0 0

B A C -1 1 1

T o ta l

* F ifte e n miscellaneous a irc ra ft included in totals.
N ote: A ll trunk lines have siza b le o rde rs outstanding fo r je t a irc ra ft, e sp e cia lly shorter-haul types. M ost lo ca l service lines a re in the midst
o f equ ipm e n t transitions. For e xa m p le , N orth C e n tra l is buying DC-9s; O z a rk plans to re p la c e its entire present fle e t w ith FH -227s and DC-9s;
Lake C e n tra l is re p la c in g DC-3s w ith N o rd 262s.
SOURCE: A ir Tra n spo rt Association.

Annual Report, 1965

C o n v a ir 240 , 340 , 440 : 1948, '5 6 ; 44-56 pass.;
270-290 m ph; 25 tons; short ra ng e
M a rtin 202, 404 (sim ila r to C o n va ir): 1947, '5 1 ;

40-44 pass.; 270-280 mph; 23 tons; short range

Boeing 707 series: 1958 to date ;
121-199 pass.; 600 m ph;
130-168 tons; long range
B oeing 7 20 (sim ila r, b u t sm aller):
1960; 104-122 pass.; 600 mph;
118 tons; medium ra ng e

Lockheed Electro 1-188 (tu rb o p ro p ): 1959, '6 1 ;
66-91 pass.; 4 00 m ph; 57 tons; medium range

DC-8 series: 1959 to d a te ; 112-250 pass.;
600 m ph; 137-169 tons; long range

aircraft production, the lead passed to relatively
small firms that specialized in the field. These were
Boeing, Douglas, Lockheed and, later, Martin and
Consolidated. Rapid growth of these firms was made
possible largely by financing through retained earn
ings and progress payments made by equipment buy
ers. Each firm built both commercial and military
types and each played a vital role in meeting the na
tion’s World War II needs.
The first truly modern aircraft, introduced in 1933,
was the Boeing 247—a two-engined, all-metal, lowwing monoplane with retractable landing gear—ca
pable of cruising at 155 miles per hour and maintain
ing level flight on one engine. Despite these ad
vances, the 247 (predecessor of the four-engined
B-17 Flying Fortress) was outclassed the following
year by the Douglas DC-2. In general, the DC-2 was
similar to the 247 but was larger, faster and capable
of longer flights.
An improved Douglas aircraft, the famous DC-3,
appeared in 1936. It quickly became standard on the
major airlines, which had acquired over 200 by
Pearl Harbor. During World War II about 10,000
DC-3s, designated C-47s by the Army Air Force,
were built. Hundreds of these planes remain in ser
vice throughout the world at the present time.
Some of the basic facts of airline economics are
epitomized in the story of the DC-3. First, equipment
accounts for a very large share of the carrier’s physi
cal assets. Second, superior equipment serving a com
petitive route immediately places operators of exist
ing aircraft at a grave disadvantage. Third, larger
aircraft offer lower operating costs per seat-mile, and
hence greater profits, assuming a sufficient volume

O perating costs
are much low er fo r jet a irc ra ft
cents per ton mile

SOURCE: Federal A v ia tio n Agency.

Annual Report, 1965

of potential traffic. Fourth, barring an accident, air
craft are virtually immortal when properly main
tained.
Airframes are fabricated from aluminum, which
does not rust or deteriorate in normal use. Engines,
instruments and other special equipment can be re
placed or renovated. Maintenance is topnotch, as it
must be if the airlines are to operate safely and
efficiently. As a result, aircraft normally are sold or
withdrawn from service only as a result of obso
lescence—the inability to compete with improved,
lower-cost types.
Toward the end of the Thirties, the major airlines
were cooperating with Boeing and Douglas in the
development of four-engined aircraft. The principal
result was the Douglas DC-4, which would have en
tered domestic airline service in 1942. The military
preempted the first deliveries of these aircraft, how
ever, and large-scale production (as C-54s) was or
dered for the worldwide transport system necessitated
by the war.
DC-4s and DC-3s built for the military were con
verted to civilian use after 1945 and carried the bulk
of a rapidly rising air traffic while the industry
awaited volume production of the postwar airliners—
four-engined Lockheed Constellations, and Douglas
DC-6s, Boeing Stratocruisers and the two-engined
Convairs and Martins. These new aircraft had cruis
ing speeds approaching 300 miles per hour compared
with 120 for the trimotors, 185 for the DC-3s and
240 for the DC-4s. Seating capacity was raised to
50 or more, and cabins were pressurized and air
conditioned. (The DC-7, cruising at 350 miles per
hour, was introduced in 1953.)
Fleets of postwar piston aircraft placed the air
lines in a posture that made profitable operations
possible for the trunks without the crutch of Federal
airmail subsidies. The situation appeared to have
stabilized. But, even then, many industry executives
were looking ahead to a new era—the age of the jets.
Jet airliners cost 3 million dollars or more and fly
at 600 miles an hour at altitudes in excess of 30,000
feet. Nevertheless, they can be operated at a seatmile cost well below that of fully depreciated, fourengined piston planes. The advantages of the jets
are principally in their providing more seat-miles per
hour, the simplicity and ease of maintenance of their
engines and strong customer appeal. U. S. built jets
have set the standard for the world and are used by
many foreign airlines.
A similar equipment transition was accomplished
earlier in the railroad industry. The last steam loco
motives were retired from domestic service a decade

Sud SE-210 C a ra v e lle (French): 1961;
64 pass.; 5 00 m ph; 45 tons; m edium range

Convair 900: I9 6 0 , '6 2 ; 84-121 pass.;
600 m ph; 97-120 tons; m e d iu m /lo n g ra ng e

Convair 880 (w ith o u t w in g pods)

C o n v a ir 580, 600 (tu rb o p ro p conversion
o f piston C onvairs): 1964 to d a te ; 44-52 pass.;
310-350 m ph; 28 tons; short range
B oeing 727 series (three jets): 1964 to date :
91-170 pass.; 600 m ph; 81-85 tons; m edium ra ng e

BAC-111 (B ritish): 1965 to d ate :
63-79 pass.; 500 m ph; 39-44 tons; short ra ng e

DC-9 series: 1965 to d a te ; 56-115 pass.;
5 50 m ph; 39-45 tons; short ra ng e

edly superior to the piston engine, could not measure
up to the performance of the jets on longer trips.

ago because they could not compete with the diesels.
Most of these engines were in excellent condition
and could have been used for many additional years.
But costs of operating newly purchased diesels, in
cluding the full burden of depreciation, were such
that it was profitable to scrap even the newest steam
locomotives.
If the pure jets had not become available in the late
Fifties, piston-powered planes would have been su
perseded in large numbers by turbine-powered pro
peller aircraft—the turboprops or propjets. Vickers
Viscounts, produced in Great Britain, were intro
duced into U. S. service in 1955 by Capital Airlines.
Their higher speed and reduced noise and vibration
immediately won traffic from competing piston air
craft. The Lockheed Electra, a U. S. built turboprop
capable of cruising at 400 miles per hour, entered
service in 1959.
Fairchild Hiller turboprops (originally a Fokker
design) are used by a number of local service lines.
A similar smaller plane—the French-built Nord 262
—currently is being introduced by Lake Central, and
a number of local service lines are converting pistonengined Convairs to turboprops. Nevertheless, the
turboprop was largely leapfrogged by the U. S. air
lines, because these power plants, although mark

A d e fe n se -re late d in du stry

Legislation relating to the airline industry always
has been influenced to a substantial degree by military
preparedness considerations. The Federal Aviation
Act of 1958 repeats language of the Civil Aeronau
tics Act of 1938 in proclaiming the Government’s
purpose as that of encouraging and developing an
air transportation system adapted to the needs of
commerce, the postal service and the national de
fense.
After Pearl Harbor, 221 of the airlines’ fleet of
390 aircraft were taken over by the military forces.
The remaining units were operated at virtual capacity
under a formal system of priorities that gave prefer
ence to travelers on urgent business related to the
war. In addition, airline personnel and planes flew
emergency missions in the United States and to the
principal theaters of war to transfer men and mate
rials. The airlines also helped to train military airmen
and operated facilities to repair and modernize
equipment. Aircraft originally developed for com
mercial airlines were built and used in large numbers
for military transport by the Air Transport Com-

A irc ra ft are stripp e d dow n a nd re b u ilt
lie ovei

■ U

.m * .

U P .,

* 3.1^-225
* T1—— *
4

2$:JS? *•

mand and the Naval Air Transport Service.
The airlines aided the Berlin airlift of 1948, mili
tary operations in Korea and, currently, are playing a
role in supplying Vietnam. The Military Air Trans
port Service (MATS) was formed in 1948 by a union
of the two services previously operated by the Air
Force and the Navy. Since the mid-Fifties, MATS has
been backed up by the Civilian Reserve Air Fleet,
a designated group of first-line aircraft in regular
service with the major airlines that are available to
the Government on short notice together with ex
perienced crews.
MATS, renamed the Military Airlift Command on
January 1, 1966, operates hundreds of planes that
carry personnel and material on regular routes and
schedules for the armed forces throughout the world.
Since 1960, the U. S. Department of Defense has con
tracted with the private airlines for military haulage,
following a policy of leaving the “hard core” to
MATS. The volume of these contracts is increasing
but MATS remains “the world’s largest airline.”
Since World War II, some aircraft types developed
by the military have been adapted for civilian use.
Boeing Stratocruisers of the late Forties and early
Fifties were based on the wartime B-29. Similarly,
years of experience in building and operating mili
tary jet aircraft, particularly the Boeing B-47 and
B-52, preceded the first commercial jet orders in
1955.
The airlines also have made extensive use of radar
and other navigational and landing aids pioneered
by the military. It is unlikely that the airlines would
be seriously considering the purchase of supersonic
transports (SST) were it not for the knowledge and
experience gained through work on such military de
signs as the B-58, B-70 and A -ll.
A ir tra v e l sa fe ty

Some potential air travelers are deterred by con
cern about the safety of this means of transport.
Crashes are always front page news, and incidents
involving some element of risk often are widely pub
licized even when no fatalities or injuries occur.
Statistics provide ample evidence that the chances
of any given commercial airline flight ending in di
saster are extremely remote. In 1941, after a careful
review of the pertinent data, major life insurance
companies eliminated from their regular policies spe
cial clauses relating to air travel on commercial air
lines. Since that time, safety records have improved
further.
The usual method of comparing the safety of var
ious means of transportation is to use fatalities per

O ffic e w o rk a lo ft—
equ ipm e n t is p rovid ed on some flig h ts

100 million passenger miles. Each year since 1951
this rate for scheduled airlines has been less than
one. In the 10-year period, 1954-63, the fatality rate
averaged 0.41 for the airlines compared with 0.12
for railroads, 0.16 for intercity buses and 2.43 for
private autos. On a mileage basis, therefore, it ap
pears that an intercity trip in a car is six times as
dangerous on the average as a similar trip by plane.
Commercial airlines perform almost 4 million de
partures and landings each year. On the experience
of recent years, the chance of a fatal accident during
any one trip is about one in a half million. A theoret
ical “average passenger” might make daily round trips
for several centuries before becoming involved in a
fatal accident. Several of the local service airlines
have never had a fatality in hundreds of millions of
passenger miles. This is why trip insurance can be
sold so cheaply even though underwriters must ab
sorb selling and administration costs.
Despite evidence of a high degree of safety in air
travel, it is clear that some risk exists whenever any
vehicle is in motion. The airlines guard against the
special hazards of air transportation by careful selec
tion and training of personnel, painstaking mainte
nance and use of the latest navigational aids and
safety devices. Concern for each of these factors is
necessary, although expensive.
The airlines and their suppliers perfected two-way
radios, de-icers, controllable-pitch propellers, flaps
and air brakes during the Thirties; also the radio
beam was substituted for lighted beacons to guide
traffic on the airways. Strides were made in weather

Federal Reserve Bank of Chicago

forecasting and Instrument Landing Systems (I.L.S.)
were introduced in the early postwar period. In the
mid-Fifties, many aircraft were equipped with air
borne radar to warn of storm centers ahead. Radios
and altimeters have been continually improved and
backed up by one or more alternative systems.
A irlin e m eteorologists o p e ra te w ea th e r analysis
stations a t key cities a lo n g th e ir routes

Civil Aeronautics Board (CAB) and Federal Avia
tion Agency (FA A ). Since the mid-Twenties these
agencies and their predecessors have had the respon
sibility of certificating aircraft and flight personnel,
as well as the airlines as operating organizations.
These certificates can be withdrawn whenever evi
dence arises of defects or negligence.
The FAA promulgates and enforces air safety
rules and is responsible for navigational aids on the
airways, landing aids at the airports and control of
aircraft movements from takeoff to touchdown. The
CAB carefully investigates accidents to ascertain a
“probable cause,” so that similar difficulties may be
avoided thereafter.
Deterrents to a ir tra v e l

Each d a y a irlin e executives review
th e ir system's o p e ra tin g p icture

Improved engines have played a large role in ad
vancing air safety. The best piston engines are cer
tified to fly 3,000 hours between overhauls. For the
simpler jets and turboprops with rotary motion rather
than the reciprocating action of pistons, this period
has more than doubled. The chance of any properly
maintained engine, piston or turbine failing in flight
is very small. Since engines are independent of one
another, the statistical possibility of two failing on the
same trip is negligible.
Airlines have their own high safety standards and
are constantly on the alert to new ideas and concepts.
They also are under the safety supervision of the

Annual Report, 1965

Factors other than safety tend to deter expansion
of air travel. Among these are the time spent going
to and from large city airports, occasional postpone
ments and cancellations of flights and delays some
times encountered in baggage handling.
Modern airports typically are located far from
downtown business districts. Principal runways com
monly exceed two miles in length and large acreages
are required for hangars, terminal buildings, auto
parking and other facilities. In addition, outlying lo
cations are desirable so that airports are beyond
proximity to tall structures and densely populated
urban areas.
Travel time to airports has been reduced by the
expansion of expressway systems. Helicopter services
carry passengers to and from airports in Chicago,
Los Angeles, New York and San Francisco.
Cancellations of flights have been reduced to about
1 per cent of the total for major lines, mainly be
cause of improved reliability of equipment and instru
ments, but also because of such factors as better
weather information and faster snow removal. Air
lines have attempted to reduce operating delays and
some report that 85 per cent of all flights now ar
rive at their destinations on time or within 15 min
utes. As a result of these efforts, much of the seasonal
tendency for air traffic to decline in the winter months
has been eliminated.
Better airport lighting, improved instruments and
careful training of aircrews and FAA air traffic con
trollers have steadily reduced the “landing minimums” at most terminals. At the largest, most mod
ern airports landings of properly equipped aircraft
are permitted when visibility is restricted to a ceiling
of 200 feet and one-half mile ahead. Improved sys
tems, now being introduced, will reduce these limits
to 100 feet and one-quarter mile. Finally, experi-

ments are under way on systems that are expected to
make possible the ultimate achievement of zero-zero
landings in which the approach and touchdown are
guided and controlled entirely by instruments.
The more prosaic problem of baggage handling
also is yielding to solution. At some airports passen
gers are relieved of their baggage at curbside, instead
of having to carry it into the building. Some airlines,
as a result of new equipment and techniques, are mak
ing most baggage available to passengers as soon as
they can reach the point of delivery.
W ho flie s w h ere

To carry passengers or property interstate on a
scheduled basis, an airline must obtain a certificate
of “public convenience and necessity” from the CAB
for each route (except for the air taxi exemption for
aircraft of under 12,500 pounds). In the late Twen
ties and early Thirties, regular passenger service was
provided by those lines that had been awarded con
tracts to carry airmail. The Civil Aeronautics Act of
1938 provided for certification of permanent routes
and for subsidy payments, where necessary, to main
tain adequate service on these routes.
At present there are 24 certificated domestic passen
ger-cargo lines and three all-cargo lines. Eleven of
Stewardesses— both decorative and h e lp fu l

M u ltim illio n d o lla r com puter systems o f m ajor airlin es
confirm reservations in seconds

the domestic route carriers are known as the trunk
lines, while 13 are designated local service lines. The
trunks are the descendants, directly or indirectly, of
the air carriers that operated the “grandfather routes”
certificated on a permanent basis in 1938 on the
strength of satisfactory previous performance on mail
contracts.
The local service carriers, often called feeder lines,
were certificated in the early postwar years as sec
ond level airlines to serve smaller localities and con
nect these with major airports served by the trunk
lines. Actually, the great bulk of the passengers using
local lines complete their journeys on these routes
and are not “fed” to the trunks.
In only a few instances do the operations of local
service lines overlap one another. In general, each
is the sole supplier of feeder, or local services, with
in a given geographical area. Although the local ser
vice lines have greatly increased their route mileage
and traffic volume, all are smaller than any of the
trunks. To some extent, the local carriers compete
with the trunk lines, sharing with them numerous
city-pair travel markets. Nevertheless, the local lines
usually are at a competitive disadvantage vis-a-vis
their trunk line rivals, owing to the intermediate
stops required and their inability in most instances
to match the equipment that the trunks use.
As airline traffic increased in the late Thirties, the
CAB moved to encourage competition by certificating
two, three and even more carriers to serve individual
routes having high traffic densities. When more than

Federal Reserve Bank of Chicago

one airline offers service over a given route—for ex
ample, Chicago to Washington or to New York—ri
valry can become intense. Although fares are regu
lated by the CAB, airlines compete on the basis of
schedules, speed and comfort of equipment, classes of
service, efficient handling of reservations, consistency
of on-time performance, food, entertainment, speed of
baggage handling and the charm and beauty of stew
ardesses. Each line advertises extensively, using tele
vision, radio, large newspaper ads and billboards to
exploit its services as well as the attractions of the
area it serves.
Selected major routes of the trunk lines are shown
on the accompanying table. United, American and
TWA have extensive nationwide systems. Operations
of the other trunks are more or less regional in na
ture, although Delta, Northwest and National have
coast-to-coast routes.
Areas of operations of most local service lines are
indicated roughly by their names. Among these are
Allegheny, Mohawk, Piedmont, Southern and Pacific.
Principal local carriers in the Midwest are North Cen
tral (Michigan, Wisconsin and Minnesota), Ozark
(Iowa, Illinois and Missouri) and Lake Central (In
diana, Michigan and Ohio).
Most of the domestic trunks and a few of the local
service lines also operate international schedules,
mainly to Canada, Mexico and Central America but
also to Europe and Africa (TW A), the Far East
(Northwest and TWA) and South America (Delta
and Braniff). Pan American operates routes that ex
tend around the globe but not within the 48 states.
Route com petition

The CAB is regularly confronted with applications
by airlines for certificates of “public convenience and
necessity” to operate additional routes, or for perma
nent certifications of routes granted on a temporary

The ch am p ion — a DC-3 b u ilt in 1939;
13 years w ith a tru n k lin e ; then a local;
re cen tly converted to executive use;
9 years o f fly in g tim e; 260 m illion passenger miles

Annual Report, 1965

Trunk line nonstop jet and tu rb o p ro p
services over 15 m ajor intercity routes,
Septem ber 1965
U nited

A m erican

TW A

Eastern

O thers

N e w Y o rk a n d
C h ica g o

Boston

N A , NE

BN, N A

N A , NE

W a s h in g to n

Los A n g e le s

San Francisco

M ia m i

C h ica g o a n d
Los A n g e le s

San Francisco

W a sh in g to n

M ia m i

DL, N W

W a s h in g to n a n d
Los A n g e le s

M ia m i
San Francisco

Boston

X
X

Los A n g e le s a n d
San F rancisco*

*N o n sto p je t service also is p ro v id e d b y Pacific Southwest A ir Lines,
a n o n -c e rtific a te d in tra s ta te c a rrie r.
Key:

BN— B ra n iff,

C O — C ontin en ta l,

DL— D elta ,

N A — N a tio n a l,

NE— N orthe a st, N W — N orthw est, W A — W estern.
SOURCE: O ffic ia l A irline Guide (S eptem ber 1 9 6 5 ).

basis. Such certificates resemble franchises and once
obtained comprise—along with trained personnel—the
principal nonphysical assets of the airlines.
Certificates covering densely traveled long hauls
are eagerly sought, while authorization of additional
competition is often opposed vigorously by airlines
already operating these routes. Valuable route cer
tificates have been allotted to certain financially
weak carriers in order to maintain them as going
concerns. Decisions of the CAB sometimes have been
appealed to the Federal courts.
Once certificated for a given route, an airline usu
ally is required to provide a minimal service, even if
operations prove to be unprofitable. The CAB now
employs a “use it or lose it” formula in connection
with its administration of subsidies to determine
whether a given point generates sufficient traffic to
continue receiving service. In recent years the trunks
have voluntarily given up various routes serving
smaller centers to the subsidized local service lines.
Since its formation in 1938, the CAB has allowed

no new entry into the ranks of the trunk carriers. In
fact, the number of these airlines has been reduced
by mergers from 18 in 1938 to 11 at the present
time.
Vast changes have taken place in the route systems
of the individual carriers notwithstanding the “freeze”
on the number of trunk lines. Once useful distinctions
between the big three or four and the others have lost
much of their meaning.
Fifteen of the most important city-pair routes are
served by at least two trunk lines providing nonstop
jet or turboprop flights. Most commonly these mar
kets are served by three carriers, but some have as
many as five or six. The three largest carriers play
major roles in these markets. United, American and
TWA are rivals on seven of the 15 routes.
Generally, the greater the number of suppliers of a
service, the more determined any one of them will
be to innovate, offer improvements in quality or low
er prices. It is widely thought, therefore, that the in
terests of consumers will be served best in unregu
lated industries when the number of firms on the
supply side is “large.” Whether this is the case also in
regulated industries is a debated issue.
In many industries, a firm’s expansion into a new
market area entails a considerable capital investment

Total transport revenues
o f U. S. scheduled airlines,
ye a r ended June 30, 1965
Trunk
lines

Domestic

In te rn a tio n a l
and
te rrito ria l

Total

Local
service

Domestic

(m illion dollars)

A m e rica n

563

572

A lle g h e n y

Eastern

406

464

Bonanza

TW A

446

169

615

C e n tra l

U nited

661

712

Frontier

B ra n iff

101

116

Lake C e n tra l

C o n tin e n ta l

M ohawk

D e lta

253

257

N orth C e n tra l

N a tio n a l

148

1 48

O z a rk

N o rth e a s t

P acific

N o rth w e s t

153

232

Piedm ont

W e s te rn

108

118

Pan A m e ric a n *
*A s id e from

605

Southern

Trans-Texas

W e s t C oast

Pan A m erican, the la rg e st in te rn a tio n a l a irlin e was

T ra n s-C a rib b e a n w ith revenues o f 2 6 million dollars. Flying T iger was
the la rg e st a ll-ca rg o line w ith revenues o f 53 m illion d olla rs. BOAC
and A ir France, the tw o la rg e st fo re ig n -ow n ed free w o rld a irlin e s , are
a p p ro x im a te ly the size o f D elta.
SOURCE: C ivil A eronautics B oard.

and commitment of operating expenditures. This is
especially true of the railroads, where extension of
service into a new territory calls for substantial out
lays for land, grading, station structures and trackwork as well as increased operating costs.
Expansion of an airline’s route network is relatively
less costly than for a railroad, particularly because
the airway is already there to be used. Setting up op
erations at new points, however, may require the
acquisition of terminal space and equipment servic
ing facilities, the hiring of ground personnel and sales
promotion in a new market. Where, however, a car
rier already operates at two cities but not between,
connecting service can be provided readily, assuming
sufficient equipment and qualified personnel are
available.
Entry of an airline into a market may be felt
keenly by the lines already operating. Existing op
erators may maintain schedule frequency or even in
crease it to retain their market shares, with adverse
effects on load factors and earnings.
At any time, the domestic airline market as a
whole is delicately balanced. A marked change made
in any one segment of the market is likely to require
subtle compensating adjustments elsewhere if the in
terests of equity and efficiency are to be adequately
served. Clearly, the responsibility of the CAB in con
nection with route awards is weighty and the prob
lems involved in making suitable assignments of op
erating rights is highly involved.
The CAB has followed a policy of increasing com
petition on routes where the volume of traffic was
sufficient to permit additional carriers to operate
profitably. Some students of the airline industry have
advocated freedom of entry to new markets for all
qualified operators. Proponents of the present sys
tem fear that a more liberal policy would lead to ex
cess capacity and ruinous competition.
Mergers of domestic airlines also must be approved
by the CAB. In some cases, mergers have been per
mitted when financial difficulties have threatened the
continuation of operations. Since 1950, five trunk
lines and six local service lines have merged and
ceased to exist as independent carriers. The most re
cent and most important of the postwar mergers was
the 1961 consolidation of Capital and United. As
a result, United became the largest domestic airline,
surpassing American.
During the early Sixties, mergers of Pan American
and TWA, and American and Eastern were proposed,
but the CAB did not give its approval. Since then, these
lines have followed independent expansion policies
and apparently have lost interest in the mergers.

Federal Reserve Bank of Chicago

A ir term in als

Unlike the railroads, the airlines do not build and
maintain their rights-of-way and terminals. (Court
actions have determined that the air itself is not under
control of property owners.) The FAA maintains the
“airways” on which commercial airliners (and other
aircraft) are kept on course through radio beams,
radar and other aids. In addition, airports have bene
fited from a variety of Federal and local government
aids.
Most civilian airports are owned and operated by
cities, counties or special authorities. Maintenance of
a suitable airport has been a matter of local pride for
many communities and many have utilized general
obligation bonds to provide facilities, in some cases
in excess of their needs.
Various Federal relief agencies, especially the
WPA, invested about 400 million dollars in airports
during the Thirties. A much larger outlay was made
during World War II in the construction of airports
that subsequently were turned over to municipalities
for civilian use. Since the Federal Airport Act of 1946,
the Government has made more than 700 million dol
lars available to local public airport agencies on a
dollar matching basis to aid in the development and
improvement of airport facilities. The largest airports,
such as Chicago’s O’Hare Field (“the World’s Bus
iest” ) and New York’s Kennedy International Air
port, cover thousands of acres and represent invest
ments of hundreds of millions of dollars.
Airports obtain revenues from aircraft landing or
takeoff fees (usually assessed by weight), rentals of

Rise in a v a ila b le seats
has outpaced passenger tra ffic gains
billion seat miles

SOURCE: C ivil A eronautics Board.

Annual Report, 1965

M ilw a u ke e's M itche ll Field— extension o f je t ru nw a y
re q u ire d a tunnel fo r h ig h w a y tra ffic

hangars and other terminal buildings, sales of fuel
and payments made by concessionaires of such facil
ities as restaurants and parking lots (usually under
contracts awarded on competitive bidding).
The FAA and the airlines have continuously pressed
local authorities to raise standards to permit airports
to handle expanding traffic more efficiently and safely.
Of course, airport facilities are used by general avia
tion (private aircraft other than the commercial air
liners) and the military as well as the airlines.
The Administrator of the FAA maintains a peri
odically revised National Airport Plan. In March 1964
he reported that a 1.1 billion dollar investment was re
quired for airport improvements in the period to 1967.
Excise ta x e s

Until recently, Federal funds devoted to the con
struction, maintenance and operation of airports and
airways have come from general tax revenues, includ
ing, of course, the proceeds of certain taxes upon air
transportation. But, these air transportation taxes
simply were elements of the elaborate Federal excise
system.
A tax on passenger travel by air, rail and bus was
imposed during World War II partly to finance war
expenditures and partly to discourage civilian travel.
Legislation enacted in 1962 repealed the 10 per cent
passenger travel tax then in force as an excise and re
imposed (at half the old rate) a selective levy, now
termed a user charge, on air travel only. The tax on
air passenger fares currently yields roughly 165 mil
lion dollars annually. Collections, which are paid into

the Treasury’s general fund, are regarded as a charge
for the use of airways and airports financed largely
by the Federal Government.
Similarly an airline user fee is the 2 cents per gal
lon tax on high-test gasoline, although proceeds are
earmarked for the highway fund. In the President’s
fiscal 1966 Budget message, delivered in 1965, a
similar levy on airline jet fuel (high-grade kerosene)
was proposed, but no action was taken by Congress
during 1965. It is expected that the proposal will be
reintroduced, since the user charge principle has
gained wide support as an element of the national
transportation policy.

as many stewardesses are employed as pilots and co
pilots, but turnover of these young ladies is much more
rapid. The typical stewardess serves less than two
years before resigning, usually to get married.
The em erg ence of freig h t

From the earliest days the airlines have carried ex
press and freight shipments, as well as passengers and
mail. But until the postwar period, revenues from
these operations remained only a small proportion of
the total.

Pro du ctivity rises

About 40 per cent of the operating expenses of the
airlines are accounted for by wages and salaries. In
1964 compensation of 190,000 employes exceeded
1.5 billion dollars. Total employment has increased
appreciably each year since 1958.
Revenue ton miles flown per airline worker has
increased steadily in the postwar period as a result of
increases in aircraft size, more extensive use of me
chanical equipment to handle baggage and cargo, more
efficient engines, use of electronic equipment for han
dling reservations and improved managerial tech
niques. In 1964 the airlines produced 42,000 revenue
ton miles per employe compared with 28,000 five
years earlier, and only 10,000 in the early postwar
years.
The average annual compensation per airline em
ploye now exceeds 8,000 dollars, well above the aver
age for most other industries. About 15 per cent of
airline employes are flight personnel—pilots, engineers
and stewards and stewardesses. Annual salaries of
pilots, numbering 15,000, start at about 12,000 dol
lars. Captains of large jets with responsibility for as
many as 180 passengers, together with equipment
valued at as much as 8 million dollars, may earn
33,000 dollars per year.
Airlines always have placed emphasis upon high
caliber employes, with adequate intelligence, training,
personality and appearance. Public confidence is in
fluenced directly by the airline personnel with whom
passengers come in contact. An even larger number
of persons behind the scenes also play vital roles in
maintaining efficient operations.
Aside from the pilots, perhaps the most distinctive
airline employes are the stewardesses, who serve meals
and refreshments and attempt to keep passengers
happy and comfortable. The first stewardesses were
added to flight crews in 1931 by United, and most
other airlines followed suit soon afterward. Almost

Im proved e qu ipm e n t speeds b a g g a g e h an d ling

Freight and express accounted for less than 3 per
cent of total airline revenues before World War II.
By 1964, this proportion had more than doubled. It
appears that air freight will continue to grow relative
to passenger business. In fact, some industry analysts
visualize the time when airline freight revenues will
rival passenger ticket sales. Large investments are
being made by the airlines in freight terminals, han
dling equipment and sales promotion.
Numerous pilots trained by the Army and Navy
acquired one or more war surplus aircraft soon after
World War II and attempted to establish profitable
air freight operations. In 1949, the CAB certificated
four all-cargo lines to operate domestic routes. Mean
while, the established passenger lines also began to
emphasize air freight to help utilize available capacity
more fully.

Federal Reserve Bank of Chicago

Most freight is still carried along with passengers
or in'aircraft that have been retired from passenger
service. Increasingly, however, the airlines are acquir
ing jet aircraft such as the Douglas DC-8F that are
specifically designed for commercial air cargo use.
Some recent orders are for “quick change” aircraft,
especially the Boeing 727 QC that can be converted
from passenger to cargo service in about 30 minutes,
thus permitting passengers to be carried in the day
time and freight at night.
The jet air freighters can lift as much as 45 tons
for medium-range hauls and 40 tons coast to coast.
Moreover, cargo moves at 600 miles an hour. (Unlike
surface vehicles and propeller aircraft, the jets operate
most efficiently at or near top speed.) As a result, a
large jet can do three or four times the work of a fourengined piston plane and at half the cost.
Charges for air freight have averaged about 20 cents
per ton mile in recent years, about seven times as high
as railroad charges. Of course, the make-up of traffic
of the two carriers varies greatly. On small-lot items
the cost relationship is much closer. Some industry
analysts visualize average rates on air freight as low
as 10 cents per ton mile, compared with 3 cents or so
for the rails and 6 to 7 cents for trucks.
Air freight offers advantages, other than speed, in
reductions in packaging costs and less risk of damage
or pilferage. Use of sealed containers that can be inter
changed with any surface carrier is likely to become
important in the future.
Producers of electronic components and other inA specialized a ir fre ig h te r—
the C a n a d a ir CL-44 sw in g ta il tu rb o p ro p

Surge in a irlin e stock prices
reflects im proved profits
per cent, 1957-59 =100

SOURCE: S ta n d ard and Poor's.

dustrial products with high values relative to weight
or bulk use air freight in large volume. In addition,
there are significant movements of certain fresh fruits
and vegetables—especially straw berries—and style
merchandise. A dramatic example of the possibilities
inherent in jet freight was the shipment of thousands
of calves to Italy during the summer of 1964, not as
prize stock but for slaughter.
Manufacturers in many cases have been able to
reduce inventories and eliminate regional warehouses
while improving service to customers through the use
of air freight. Increasingly, light manufacturing facil
ities are being located within easy trucking distance
of major airports.
Financing the a irlin e s

The fundamental purpose of any private industry
is to supply a product or service at a price that will at
tract enough customers to assure profitable operations.
Buyers of common stocks, and their investment ad
visors, are constantly re-evaluating the success of vari
ous industries, and more particularly individual firms,
in meeting this goal. Since 1962 the average price of
airline stocks has risen sharply, but only about in line
with improved profits (see chart).
Airline shares sell at the relatively low ratios, by
today’s standards, of 10 to 14 times current annual
earnings because of uncertain prospects for revenues
and profits. Stocks of other leading industries com
monly sell at 15 to 20 times earnings, and much higher
multiples exist for “growth” firms in such industries
as electronics and pharmaceuticals.
With the introduction of the jets, there were hopes

Annual Report, 1965

that the airlines were on the threshold of a substantial
rise in profits. Although acquisition and introduction
of the new equipment involved expenditures of vast
sums of money, individual lines were prepared to make
these investments and lenders were ready to help with
financing for two main reasons. First, the jets, on
paper, appeared to offer lower-cost transportation.
Second, past experience indicated that no airline
could survive if it did not provide service equivalent
to that offered by competitors.
Jets proved even more attractive to the public than
had been expected. After various introductory prob
lems were overcome, moreover, these aircraft were
even more economical to operate than had been as
sumed in advance planning. However, the period from
late 1958 to early 1962, when most of the jets now on
hand were acquired, was a time of sluggish growth for
the economy. As a result, airline traffic and revenues
rose less than had been anticipated. Profits declined
and some lines reported deficits.
The surge in airline traffic and profits since 1962
reflects the large, sustained upswing in general busi
ness activity. Airline traffic, despite a strong growth
trend, has been sensitive to changes in economic
activity.
Few major industries are so concerned with leverage
as the airlines. Basically, high leverage means that if
a firm does well profit-wise, it is likely to do very well
indeed. On the other hand, if operations fall below a
certain minimum, deficits can be substantial.
Leverage in the airline industry is measured in both
operating and financial terms. A substantial propor
tion of the expenses of each airline is incurred whether
planes fly or not. This is true of depreciation, most ad
ministrative and selling expenses, and even, in part,
salaries of flight crews. Second, when planes do fly,
the proportion of seats and cargo capacity utilized has
almost no effect upon direct operating costs, convenTelescopic lo a d in g b rid g es— passengers b o a rd and leave
planes w ith o u t g oing outdoors o r using stairs

A irline debt
la rg e r than equity since 1958
billion

d o ll a rs

*D a ta fo r 1963-65 are June 30.
SOURCE: C ivil A eronautics B oard.

tionally measured to include flight crew compensation,
fuel and oil, insurance, maintenance and depreciation.
Because of these factors, airlines make vigorous
efforts to keep aircraft in the air as much as possibleon charter flights as well as scheduled trips. Individual
flights are profitable whenever a margin of revenues
over direct expenses can be obtained.
Over the years the airlines have steadily increased
the proportion of each day that aircraft are in flight.
Short-haul aircraft currently average 8 or 9 hours of
every 24 in the air and large aircraft, used for longer
trips, 10 to 12 hours. (These proportions are calcu
lated on an annual basis and include periods when
planes are out of service for overhaul.)
One of the most commonly cited airline operating
statistics is the load factor—the proportion of available
seat miles or ton miles utilized. For the trunks the
passenger load factor has averaged about 55 per cent
in recent years. A passenger riding a jet on a densely
traveled route at a rush hour, Friday through Monday,
may feel that the airlines are operating at or near ca
pacity. But aircraft in service are available around the
clock and some flights proceed with only a few pas
sengers.
Attention often is focused on the break-even point—
the proportion of available airline seats that must be
occupied to pay all operating expenses, including over
head. As the break-even load factor is exceeded, rev
enue available for payment of interest, income taxes,
dividends and re-investment rises sharply.
Load factors and break-even points can be calcu

Federal Reserve Bank of Chicago

lated readily for particular types of aircraft and even
for individual flights. For piston aircraft break-even
points have been reached at load factors of 50 per
cent or more. For some large jets on long hauls, the
break-even point is said to be less than 40 per cent.
Break-even load factors are related to a measure of
operating expense that includes certain components
of a more or less fixed nature, especially depreciation,
insurance, maintenance and overhead. Typically, an
individual flight will be profitable if receipts exceed
out-of-pocket, or marginal cost, which need not in
clude any portion of overhead expenses. Thus, a given
schedule or charter flight may be economical to op
erate with only a handful of occupied seats or a mod
erate cargo of freight if the revenue generated is
enough to defray direct salary expense, fuel costs and
landing fees. Anything earned over and above these
direct expenses represents cash income that would
otherwise not be received. While it usually is true that
the higher a load factor, the more profitable the op
eration, it does not follow that light loads necessarily
lose money.
Another measure of airline leverage is the operat
ing ratio—total operating expenses as a percentage of
total operating revenues. Because airline capital in
vestment consists mostly of aircraft that generate
substantial depreciation charges, airline operating ra
tios are comparatively high, averaging only 90 per
cent. Such ratios are much higher than those of most
railroads, whose investment accounts include not only
equipment but also substantial holdings of right-ofway and terminal properties, which have no airline
counterpart. Obviously, any factor that raises revenues
or reduces expenses will increase operating profits by
a similar amount.
Financial leverage is reflected in the airline bal
ance sheets as in other industries. In the early years,
the capital structure of the industry consisted largely
of the stockholders’ equity—capital stock and surplus.
The bulk of any return to capital, therefore, repre
sented return to equity. Since the first wave of the jet
acquisitions was completed, 60 per cent or more of
the capital structure of the airlines has consisted of
long-term debt. Returns to capital now must be di
vided between debt and equity. Since interest on debt
is fixed by contract, returns to capital in excess of
interest charges accrue to the equity interest, thereby
providing leverage.
Most of the trunk and some of the local service air
lines now have convertible debentures (convertible
into shares of stock) as part of their capital structures.
Increases in market values of shares make it desirable,
at some point, for bondholders to exercise their option

Annual Report, 1965

M ajor assets and liabilitie s
o f all scheduled airlines
1 95 5

1960

June 3 0 ,
1965

(miillion dollars)

C u rre n t assets

580

929

1 ,3 7 2

211

308

675

2,1 91

3 ,2 9 8

117

1 ,358

3 ,4 4 8

5 ,0 7 2

386

707

1 ,0 4 8

149

391

O th e r lia b ilitie s

123

Lon g-te rm d e b t

274

1 ,5 0 8

2 ,0 7 6

Investments a n d sp e cia l funds
O p e ra tin g p ro p e r ty
a nd e q u ip m e n t, net
O th e r assets

T o ta l assets
C u rre n t lia b ilitie s
D e fe rre d F e d e ra l incom e ta x e s

S to ckh o ld e rs' e q u ity

T o ta l lia b ilitie s

668

961

1,501

1,358

3 ,4 4 8

5 ,0 7 2

SOURCE: C ivil A eronautics B oard.

to convert to stock. This, of course, tends to decrease
the debt-to-equity ratio and facilitate new borrowings.
Most of the increase in airline equity, aside from re
tained profits, has come through the conversion route
in the postwar period. Sales of new common stock
have been rare.
The decline of subsidies

Most airlines throughout the world have been subsi
dized, at least initially, by their respective govern
ments. Commonly, foreign governments own their
nation’s principal airline in whole or in part. Some
government lines are operated to promote national
prestige, despite substantial operating losses. The pol
icy of the U.S. Government has been to encourage the
growth of private airlines principally by providing
navigational aids, controlling entry and operation
rights, and direct assistance in financing local airports.
Where necessary, subsidies have been paid to supple
ment operating revenues—but always with a view to
ward the time when each line could stand on its own
feet.
When the post office flew the mail, and for many
years under private contracts, the Government paid
more for the service than the total revenue provided
by sale of airmail stamps. Clearly, airmail was heavily
subsidized under these arrangements.
From 1930 until 1953, airmail payments were used
to subsidize the broader concept of an air transport
industry that would carry passengers, express and

freight, as well as mail. Payments for carrying a given
volume of mail were based on “need,” and varied
greatly among the various airlines. This system was
criticized on the grounds that it did not encourage ef
forts to upgrade service and promote managerial effi
ciency, because such improvements tended to reduce
subsidies.
The early system of airmail payments was directly
responsible for one of the most unfortunate chapters
in the history of commercial aviation. Following con
gressional investigations starting in 1933, all airmail
contracts were cancelled in February 1934 because
of charges that these had not been negotiated properly.
For over two months the Army Air Corps flew the mail
on reduced schedules. Several aircraft and 12 airmen
were lost in a series of crashes. In early May 1934,
the airmail was returned to private carriers after
changes in bidding procedures.
Starting in 1953, mail payments have been pre
scribed by the CAB (generally after negotiation)
on the basis of estimates of the cost of the service,
including a fair return and, where necessary, subsidies
have been paid openly as public service revenues. The
major trunks and the international passenger-cargo
carriers have been “off subsidy” since the mid-Fifties.
Airline subsidies were less than 85 million dollars
in 1964 or about 2 per cent of total revenues. This
proportion has been declining gradually in recent
years. Local service lines received almost 80 per cent
E laborate electronic flig h t sim ulators help
to tra in pilots and engineers in procedures

A v a rie ty o f specialized g ro u n d equ ipm e n t helps
reduce " tu r n a b o u t" tim e fo r big jets

of the subsidy paid in 1964 with the rest going to the
Alaskan and other territorial lines and the helicopter
services. Only the smallest trunk, Northeast, currently
receives subsidy payments, mainly because its New
England operations resemble those of local lines.
Some observers foresee the time, perhaps two or
three years hence, when several of the local service
lines will be able to operate profitably without subsidy.
Newly purchased short-haul jets may do the job for
certain locals if sufficient traffic can be generated to
exploit the inherent operational economies of these
aircraft.
Domestic airmail is now hauled at rates of 27 cents
a ton mile, well below that on air express and at a small
fraction of the post office’s airmail revenue. Mail pay
ments, once the main source of income for the airlines,
now account for only about 3 per cent of the gross
revenue of the domestic operators.
For over a decade the post office has experimented
with sending some first-class mail by air on a non
priority basis at rates comparable to those paid on air
freight. As a result, there has been speculation for
years that “all up mail,” merging airmail and first class,
might be feasible.
In November 1965 the Postmaster General stated
that plans were being pressed “to provide a new class
of priority mail that will be delivered overnight almost
everywhere in the country.” This move has been en
couraged, in part, by the reduction in schedules of
trains that can carry mail expeditiously.
The a llo w a b le return

Following the long General Passenger Fare Investi
gation, the Civil Aeronautics Board determined in
1960 that earnings of 10.5 per cent (after taxes but
before interest) on invested capital (defined by for
mula but approximately equal to long-term debt and

Federal Reserve Bank of Chicago

equity) constituted a fair return for the trunk airlines.
The CAB’s rate base amounts to about 70 per cent of
the total assets, in contrast to the rate base normally
used in utility regulation that approximates total assets.
When first announced, the 10.5 per cent rate of re
turn seemed academic, because the airlines as a group
were barely breaking even. The CAB, however, re
cently reasserted its adherence to this guideline, at a
time when returns to capital were believed to be at or
near the “fair” level.
From 1950 through 1955 the return on debt and
equity combined for the trunk lines as a group ranged
between 11.2 and 14.2 per cent. Thereafter the rate
declined, reaching a low of 1.5 per cent in 1961. The
rate reached 10.1 per cent in 1964, and there was a
further increase to about 12 per cent in 1965. Still
higher rates have been projected for 1966.
Many problems arise concerning the usefulness and
precision of the fair return concept in the airline in
dustry. First, there are controversies concerning the
definitions of both return to capital and the rate base.
Agreement is lacking on the treatment of such impor
tant factors of income determination as the investment
tax credit, the selection of useful lives and residual val
ues of equipment for purposes of depreciation and the
allocation of costs between domestic and international
operations.
No general agreement exists on the number of years

Returns to ca p ita l
o f a ll scheduled airlines
Total
Interest

Dividends

Rate o f return

R etained

returns to

O n e q u ity

earnings

c a p i t a l1

and d e b t

equ ity

(million dollars)

(per cent)

1955

10.0

12.1

1956

8.9

1 1.1

1957

5.2

5 .5

1958

5 .5

5 .9

1959

110

6 .2

7 .8

1960

-21

3.2

1961

-5 9

2.1

1.0
-3 .9

1962

111

163

5 .7

5 .5

1963*

112

176

6.2

6.7

1964*

104

102

256

8 .5

13.0

1965*

106

239

396

12.0

21.1

'B e fo re interest but a fte r income taxes.
* Y e a r ended June 3 0 .
SOURCE: C ivil A eronautics B oard.

Annual Report, 1965

Transportation fares
have risen much less
than prices o f other services
cents per passenger mile

1957-59 =100

* Excludes occupancy ch arg e fo r first-class tra v e l.
SOURCE: Inte rsta te Commerce Commission a nd Bureau o f Labor
Statistics.

to be averaged in determining whether returns to cap
ital meet the standard. On the rate base, there are dif
ferences of opinion concerning the inclusion or exclu
sion of such items as leaseholds and advance payments
on new aircraft.
Even if difficulties relating to rate base, fair return
and income determination are resolved, the question
remains of what to do about it. Earnings of electric
utilities usually can be raised or lowered by adjusting
charges. But while these utilities are virtual monop
olists in their market areas, and elasticity of demand
is relatively low in the short run, the airlines invari
ably have competition from other modes of transport
and often from other airlines. As the CAB stated in
1960, it is “faced with the facts that a large part of the
domestic route structure is served by two or more car
riers in competition and that fares must be uniform
between them, notwithstanding that one carrier’s rev
enue need may be less than another’s.”
Normally, the CAB exercises its jurisdiction over
fares and charges through approval or disapproval of
proposed changes filed by individual lines. Because
of higher returns on invested capital since 1963, the
CAB has been pressing for lower passenger fares. In
1965 a number of cuts were made in payments for
mail and other Government contract work, baggage
allowances were raised and proposed surcharges on
new jet services were rejected. (Existing jet surcharges
were not disturbed.)

Recent statements of CAB personnel have indi
cated that the Board would like to see additional fare
cuts in the form of still more attractive group and fam
ily plans, experiments with lower fares at off-peak
hours and provision of spartan service with fewer
amenities than those now customarily offered on coach
service.
Agreement is lacking on the impact of lower fares
and charges on profits, because of uncertainties con
cerning the demand elasticity for airline service. Ap
preciable fare cuts doubtless would help to fill empty
seats, but what would be the net effect upon total rev
enues and earnings? Over the years, fares usually have
been reduced when volume of traffic and profits were
rising rapidly, and increases have been requested and
approved in years such as 1958, 1960 and 1962 when
traffic growth was less than anticipated and earnings
were under pressure.
Implementation of the fair return concept in the
airline industry requires rather a different approach
than that used in most utility regulation. Partly this
is because of still uncertain growth prospects and the
vast changes that have occurred in airline equipment
and operations and partly because the CAB must con
sider the needs of each carrier for “sufficient revenue
. . . to provide adequate and efficient service.” Never
theless, it is clear that because profits have risen sub
stantially the industry and the CAB are in a better po
sition to re-evaluate the existing structure of fares and
charges. A prominent airline executive suggested in

A verage a irlin e fares
have declined since 1963

SOURCE: Inte rsta te Commerce Commission.

G ains in a irlin e tra ffic have fluctuated
more than changes in to ta l output
per cent change from

1947

'49

'51

previous year

'53

'55

'57

'59

'61

'63

'65

SOURCE: C ivil A eronautics Board and D ep a rtm e n t o f Commerce.

December 1965 that a new general fare investigation
be launched.
M oney for equipm ent

Investment and credit analysts find the airlines to
be a well documented industry from a purely statistical
standpoint. Standardized quarterly reports of operat
ing and financial results are filed with, and published
by, the CAB. Similar equipment typically is operated
by a number of lines and detailed cost comparisons for
each type are available. Also, since 1934 the airlines
have been engaged solely in the transportation of pas
sengers and property by air. The domestic trunks and
local service lines are not affiliated with aircraft manu
facturers, or other forms of transportation.
Even with comprehensive data available, a large
element of judgment enters into any prognosis for the
industry or for particular airlines. Because of rapid
growth and other special characteristics of airline op
erations, rule-of-thumb balance sheet ratios are not
used as widely as in most other industries. Airline
earnings, moreover, have tended to fluctuate sharply.
Nevertheless, banks, insurance companies and other
institutional lenders have been willing to finance a
large proportion—75 per cent or more in some cases—
of the capital investments in the past decade. Partly,
this is because awards of competing routes are re
stricted, and because of the belief that airline bank
ruptcies will be prevented by subsidies or mergers.
But the main reason is the confidence that lenders
have that cash flow will be more than adequate to

Federal Reserve Bank of Chicago

cover debt service even for lines that fail to earn net
profits over periods of several years.
In 1961 the airlines, as a group, suffered a net
loss of almost 40 million dollars. Interest amounted
to 94 million dollars that year, but depreciation and
amortization allowances exceeded 400 million dollars
amply covering debt service, including scheduled
principal payments, for most lines. In the 12 months
ending June 1965, depreciation and amortization
amounted to 400 million dollars while net profits, at
a record high, totaled 290 million dollars. Interest
payments in the recent period were 106 million dollars.
Additional cash also became available from equip
ment sales and deferred taxes. Total cash flow has in
creased each year during the past decade (see table).
During the airlines’ early years, aircraft were de
preciated in three to four years. After World War II a
seven-year term was used commonly. At present, the
airlines use various expected useful lives for book
purposes, ranging from 10 to 16 years, and a residual
value of 10 or 15 per cent. Many lines use a shorter
life for tax purposes. (The Treasury’s 1962 guideline
suggests six years.)
Airline equipment financing commonly is provided
by groups of large banks (usually located on the line’s
routes), insurance companies or a combination of
these institutions. In some cases there are cooperative
plans with banks taking the shorter maturities of note
issues—up to 5 or 10 years—and the insurance com
panies taking maturities of 20 years and more.

M ajor sources o f "cash flo w "
fo r a ll scheduled airlines
D e p r e c ia
tio n o f
f l ig h t
e q u ip m e n t

O th e r
d e p r e c ia tio n
and
a m o r tiz a tio n

In c re a s e
in d e fe r r e d
in co m e
ta x e s

R e ta in e d
e a rn in g s

T o ta l

(rn illio n d o lla rs )

1955

124

2 0 2

1956

133

219

1957

189

238

1958

1 81

254

1959

211

2 2

307

1960

257

1961

337

-5 9

351

1962

325

461
473

324

1963*

330

1964*

326

1 0 2

604

1965*

329

239

735

* Y e a r ended June 30.
SOURCE: C ivil A eronautics Board.

-2 1

Annual Report, 1965

M ovies, stereo, b everage a nd fin e fo o d —
luxuries o f to d a y 's firs t class a ir passenger

Most airlines have continuing revolving credits with
one or more banks. The credit line is based, in part,
upon the depreciated value of all equipment in service.
As a need arises, existing loan agreements can be
amended and extended or converted to amortized term
loans. Credit ratings of the airlines have been upgraded
through the years. Most of the trunks borrow from
commercial banks near the prime rate (paid by the
largest and strongest commercial borrowers) or at a
premium of .25 to .75 per cent above this rate. Re
volving credit agreements usually provide that changes
in the prime rate be reflected in changes in rates on
outstanding loans.
As much as 90 per cent of equipment loans, ranging
up to 10 million dollars, to local service, territorial
and helicopter airlines may be guaranteed by the CAB
under legislation enacted in 1957 and extended in
1962. Loans are guaranteed only if adequate financing
would not be available without this aid.
Financing of new aircraft purchases typically is ar
ranged before purchase programs are announced.
Funds are advanced as down payments and subse
quent progress payments become due. Often princi
pal payments are deferred for two or three years until
the new planes have been integrated into the air
line’s operations and are contributing to revenues.
Unlike many railroads, airlines do not have out-

standing mortgage bond issues with after-acquired
property clauses that take precedence over short
term debt on claims to property. On the contrary,
long-term debt typically is subordinated to short
term debt. For this reason, the equipment trust cer
tificate method, devised originally to bypass the afteracquired property clauses, has not been used in
aircraft financing.
Although chattel mortgages have been used to
secure aircraft equipment loans, most of the out
standing loans to the major lines by banks or insur
ance companies are unsecured. However, loan agree
ments contain “negative pledges” which state that
aircraft will not be sold or subjected to a prior lien
without the lender’s permission. Other negative cov
enants in loan agreements specify restrictions on div
idends and salaries and upon the issuance of addi
tional debt. Affirmative covenants relate to adequate
maintenance of aircraft, payment of taxes and mini
mum working capital. Should any of these covenants
be disregarded, the lender may demand immediate
payment of the principal of the loan.
The airlines have benefited substantially from the
7 per cent investment tax credit but, because of
large equipment programs coupled with moderate
profits, many airlines cannot take full advantage of
the tax credit, which is limited to 25 per cent of a
given year’s tax. As a result, some lines have entered
into lease agreements for the acquisition of new
equipment. Lessors in a position to take full advan
tage of the tax credit buy and take title to aircraft, and
adjust rental payments to share the benefits of the tax
credit with lessees. Of course, long-term leases are
virtually the equivalent of debt and are treated as
such by investment analysts.
Aircraft leasing has been arranged with both leas
ing companies and commercial banks. Because of the
investment tax credit, a syndicate of banks may be
able to provide equipment to an airline at an effec
tive interest rate of about 2 per cent, while anticipat
ing earnings of over 5 per cent on the lease. The final
cost to the airline and the extent of the profit to the
banks will depend upon a number of unknowns, but,
most importantly, the residual value of the aircraft
accruing to the lessors as owners 10 to 16 years
hence.
T o w a rd the Seventies

The airlines can be expected to continue to grow
in importance in the economy in the years ahead.
Barring business recessions, industry and Govern
ment studies indicate that passenger traffic may rise
10 per cent or more annually—at least double the

probable rate of expansion of total output. Cargo ton
miles are likely to increase at an even faster pace.
Air transport will have an increasing impact upon
the pattern of location of new production facilities.
Moreover, the availability of rapid transit by air to
any part of the nation or the globe enables business
firms to expand their market areas more readily.
Rapid lo a d in g and u n lo a d in g o f p a lle tiz e d cargo
speeds d elive ry o f a ir fre ig h t

Some DC-3s a re being converted
to a ll-c a rg o carriers by local service lines

Distances can be measured more meaningfully today
in air time rather than miles. Trimotors carried pas
sengers coast to coast in 28 hours in 1929. In the
late Thirties this trip took 16 hours, compared with
at least 60 hours by train. The first nonstop trans
continental flights in DC-7s, starting in 1953, took
8 hours. With the introduction of the jets, this time
was cut to five hours. Supersonic transports (SSTs)
may halve this schedule a decade or so hence. (Sched
ules normally are faster on West to East flights with
prevailing winds.)

Federal Reserve Bank of Chicago

M e rcha n d isin g a ir tra v e l—
pastel planes and high style uniform s

For some years to come, the nature if not the
total numbers of the commercial air fleets appears
predetermined. As piston aircraft are phased out,
jets will fly the longer schedules, with turboprops filling
in on shorter hauls. Virtually all the models expected
to be used in the next several years are tried and
proven so that no new “teething” difficulties are ex
pected. Airlines are reducing the number of basic air
craft types they operate to facilitate maintenance and
flight planning.
Production is now under way on “stretched-out”
versions of aircraft now in service. Longer DC-8s
will carry a maximum of 250 passengers compared to
173 at present. New Boeing 727s will carry 170 com
pared to 90 in present models. Even the short-range
DC-9s, just being introduced, are being ordered in
lengthened versions to carry 115 persons—twice as
many as the first four-engined piston aircraft. Costs
per available seat mile are expected to be reduced 2025 per cent by these higher capacity aircraft. Longerrange aircraft also in production will permit nonstop
flights well in excess of 5,000 miles, the longest now
scheduled.
Experiments continue on short takeoff and landing
aircraft ( stol) and vertical takeoff and landing
types ( vtol) to permit use of airports close to the
downtown areas of large centers. Work is being
pushed on supersonic transports to carry over 200
passengers at almost three times the speed of sound
(Mach 3), and a giant transport for the Government
(the C5A) that might carry 650 passengers if a
civilian version were developed. But these radically

Annual Report, 1965

different aircraft are not expected to enter the domestic
air transport picture until the Seventies. Possibly,
earlier additions to present fleets will be aircraft seat
ing 350 to 400.
The new short- and medium-haul jets are releasing
the four-engined models for the long trips, 1,500
miles or more, on which they achieve their greatest
economies of operation. Extensive use is being made
of computers in handling reservations, accounting,
maintenance and flight planning.
Air freight, despite great progress, has merely
begun to tap its potential market. Passenger traffic
will continue to gain as the economy grows and in
comes rise. Business travel, which accounts for twothirds of current airline passenger miles will continue
to increase, but this sector of the market already has
been largely captured by the airlines. Moreover,
business firms, increasingly, are providing their own
seat-miles through 30,000 or more company owned
aircraft.
The largest potential passenger traffic gains are
likely to occur in nonbusiness private travel. Aver
sion to flying is much less prevalent in the younger
age groups. Vacations are lengthening steadily and
continued increases in spendable income and more
liberal credit plans aid in financing longer trips. Only
one-fourth of 1 per cent of personal consumption ex-

A irline sh are o f consumer outlays
fo r in te rcity tra ve l has risen sharply

SOURCE: D ep a rtm e n t o f Commerce.

penditures now are allotted to airline ticket pur
chases. Airline managements are devoting their ef
forts to raise this proportion.
Commercial air transportation has reached its
present “basic industry” stage in a remarkably short
time. The route and scheduling patterns and the
services and equipment familiar today in trunk line
operations have mostly emerged in the postwar years.
Local service lines are wholly a product of this era.
As recently as two or three years ago, earnings of
the carriers were a cause for deep concern about the
industry’s ability to gain a firm financial foundation
of profitability. The turnaround in airline profits has
raised the rate of return for the trunks near the tar
get level and the end of subsidies may be in sight
for at least some of the local service lines.
These developments pose a challenge not only for
the industry but for regulation and official policy in
air transportation. The emergence of substantial and
rising profits may be taken as a clear sign that the air
travel market is capable of sustaining even more
schedules and services than are offered now with the
added equipment and ground facilities to provide
them.
A stepped-up inflow of investment and additions
of new schedules and new routes can be expected to
emerge. Clearly, an important goal of public policy
and company managements will be to secure further
adaptation of the industry to the fast growing market
for air transport.

Testing a scale model o f a supersonic tra n s p o rt—
2,000 miles per h our a t 70,000 fe e t in 197?

Acknow ledgm ents
The ph oto g ra p h s in this section o f the A n n ua l Report

Flying Tiger Line, Inc.: p. 28; G en eral Dynamics, C onvair

were p ro vid e d by: A m erican A irlines: Cover, p. 13, p. 15

Division: p. 19— up pe r rig ht, m id dle le ft; Lake C entral A ir

— to p rig h t, p. 2 0 — upper le ft, p. 21, p. 22— upper le ft,

lines: p. 19— lo w er rig ht, p. 3 5 — lo w er rig h t; Lockheed

p. 2 3 — bottom le ft and to p rig ht, p. 31— to p rig h t; The Boe

A irc ra ft C o rp o ra tio n : p. 15— lo w er le ft, p. 17— lo w er le ft,

ing C om pany: p. 9, p. 15— to p le ft, u p pe r center, m iddle

p. 37; M ilw au kee C ounty A irp o rt D epartm ent: p. 26; M o

left, p. 17— up pe r rig ht, lo w er center, p. 19— m iddle rig h t,

haw k A irlines Inc.: p. 7, p. 19— m id dle ; N o rth C entral A ir

bottom le ft; B ra n iff In te rn a tio n a l: p. 36; C ontinental A ir

lines, Inc.: p. 17— up pe r le ft, p. 2 0 — upper rig h t, p. 24;

lines: p. 34; Delta A irlines: p. 20— lo w er le ft; D ouglas A ir

O 'H a re A irp o rt, D e pa rtm e nt o f A via tio n , C hicago: p. 8, p.

c ra ft C om pany, Inc.: p. 15— m id dle right, lo w er center,

29 (M etro News Photo); United A ir Lines: p. 17— m iddle

lo w er rig h t, p. 17— u p pe r center, lo w er rig h t, p. 19— low er

le ft, p. 19— u p pe r left, p. 2 0 — lo w er rig ht, p. 22— low er

le ft; Fairchild H iller C o rp o ra tio n : p. 17— m iddle rig h t; The

le ft, p. 27, p. 31— bottom le ft, p. 35— upper m iddle.

Federal Reserve Bank of Chicago

S T A T E M E N T OF C O N D I T I O N

A sse ts
G o ld c e rtific a te a c c o u n t .....................................

D e ce m b e r 3 1 , 1 9 6 5

D e ce m b e r 3 1 , 1 9 6 4

$ 2 ,2 0 9 ,4 9 5 ,0 4 7

$ 2 ,2 0 6 ,9 9 9 ,1 6 5

3 1 8 ,0 6 5 ,6 5 0

2 8 6 ,9 6 7 ,6 9 5

T o ta l g o ld c e rtific a te reserves

$ 2 ,5 2 7 ,5 6 0 ,6 9 7

$ 2 ,4 9 3 ,9 6 6 ,8 6 0

F e d e ra l R eserve notes o f o th e r Banks

8 4 ,8 8 5 ,0 0 0

6 1 ,5 7 6 ,0 0 0

O th e r c a s h ............................................................

2 1 ,6 8 1 ,9 0 5

2 5 ,4 6 7 ,3 0 4

R e d e m p tio n fund fo r F e d e ra l Reserve notes

Discounts a n d a d v a n c e s :
S ecured b y U. S. G o v e rn m e n t securities

T o ta l discounts a n d a d v a n c e s

1 5 ,1 5 0 ,0 0 0
5 ,8 2 2 ,0 0 0

O t h e r ............................................................

2 0 ,9 7 2 ,0 0 0

2 ,2 5 0 ,0 0 0

________4 ,2 3 0 ,0 0 0
$

6 ,4 8 0 ,0 0 0

6 ,7 4 1 ,8 3 5 ,0 0 0

6 ,3 0 1 ,9 6 8 ,0 0 0

T o ta l loans a n d s e c u ritie s.

$ 6 ,7 6 2 ,8 0 7 ,0 0 0

$ 6 ,3 0 8 ,4 4 8 ,0 0 0

Cash item s in process o f co lle c tio n

1 ,5 0 8 ,1 7 2 ,0 5 0

1 ,4 0 1 ,2 8 8 ,5 0 9

2 0 ,4 9 0 ,5 1 7

2 1 ,5 3 1 ,3 2 0

U. S. G o v e rn m e n t s e c u r i t i e s ..............................

Bank p re m is e s ............................................................
O th e r a s s e t s ............................................................

1 3 9 ,7 7 5 ,4 2 5

8 5 ,0 0 7 ,1 9 9

T o ta l a s s e t s ...........................................

$1 1 ,0 6 5 ,3 7 2 ,5 9 4

$ 1 0 ,3 9 7 ,2 8 5 ,1 9 2

$ 6 ,8 9 0 ,6 4 2 ,1 4 5

$ 6 ,3 8 6 ,4 1 6 ,5 3 0

$ 2 ,8 1 4 ,2 8 2 ,4 5 3

$ 2 ,6 3 8 ,2 3 8 ,9 2 9

4 9 ,2 6 4 ,8 9 2

8 1 ,0 5 5 ,4 2 0

2 1 ,3 0 0 ,0 0 0

3 1 ,0 2 0 ,0 0 0

L ia b ilitie s
F e d e ra l R eserve n o t e s .....................................
D eposits:
M e m b e r b a n k r e s e r v e s ..............................
U. S. T re a s u re r— g e n e ra l account
F ore ig n

............................................................

O t h e r ............................................................

2 1 ,5 4 9 ,2 1 8

1 7 ,6 5 2 ,7 3 7

T o ta l d e p o s i t s .....................................

$ 2 ,9 0 6 ,3 9 6 ,5 6 3

$ 2 ,7 6 7 ,9 6 7 ,0 8 6

1 ,0 8 0 ,0 7 6 ,2 4 3

9 9 9 ,0 0 0 ,8 1 9

O th e r l i a b i l i t i e s .....................................................

3 0 ,9 3 0 ,8 4 3

9 4 ,6 9 5 ,0 5 7

T o ta l l i a b i l i t i e s ....................................

$ 1 0 ,9 0 8 ,0 4 5 ,7 9 4

$ 1 0 ,2 4 8 ,0 7 9 ,4 9 2

.....................................................

7 8 .6 6 3 .4 0 0

7 4 .6 0 2 .8 5 0

...................................................................

7 8 .6 6 3 .4 0 0

7 4 .6 0 2 .8 5 0

$1 1 ,0 6 5 ,3 7 2 ,5 9 4

$ 1 0 ,3 9 7 ,2 8 5 ,1 9 2

R atio o f g o ld c e rtific a te reserves
to F e d e ra l Reserve n o te lia b ilitie s .

___________ 3 6 . 7 %

___________ 3 9 . 1 %

C o n tin g e n t lia b ility on a c c e p ta n c e s p u rchased
fo r fo re ig n c o rre s p o n d e n ts ..............................

D e fe rre d a v a ila b ility cash item s .

C a p ita l a c c o u n ts
C a p ita l p a id i n
Surplus

T o ta l lia b ilitie s a n d c a p ita l a c c o u n ts

Annual Report, 1965

2 0 ,3 9 1 ,2 0 0

1 7 ,3 1 4 ,8 0 0

S T A T E M E N T OF E A R N I N G S A N D E X P E N S E S

C u rre n t e a rn in g s:

1965

Discounts a nd a d v a n c e s ..................................................................................

1964

3 ,9 3 3 ,3 9 6

2 ,7 7 4 ,2 8 0

U. S. G o v e rn m e n t s e c u r i t i e s ..........................................................................

2 5 3 ,9 5 8 ,4 6 6

2 2 3 ,5 0 2 ,2 4 8

F ore ig n c u r r e n c ie s .................................................................................................

1 ,9 7 9 ,9 4 4

9 0 1 ,8 2 3

A ll o t h e r ................................................................................................................

6 8 ,9 9 7

4 8 ,5 4 1

T o ta l c u rre n t e a r n i n g s ..................................................................................

$ 2 5 9 ,9 4 0 ,8 0 3

$ 2 2 7 ,2 2 6 ,8 9 2

O p e ra tin g e x p e n s e s ..........................................................................................

$ 2 7 ,9 0 9 ,4 6 2

$ 2 8 ,3 7 2 ,0 3 3

F e d e ra l Reserve c u r r e n c y ..................................................................................

4 ,0 0 3 ,9 4 6

3 ,1 1 7 ,6 4 1

Assessment fo r expenses o f B o a rd o f G o v e r n o r s .....................................

1 ,2 2 3 ,9 0 0

1 ,2 2 4 ,5 0 0

T o t a l ................................................................................................................

$ 3 3 ,1 3 7 ,3 0 8

$ 3 2 ,7 1 4 ,1 7 4

Less re im b u rs e m e n t fo r c e rta in fisca l a g e n c y
a n d o th e r e x p e n s e s ..................................................................................

3 ,7 2 4 ,8 2 3

3 ,6 9 1 ,6 0 6

C u rre n t n e t e x p e n s e s ..................................................................................

$ 2 9 ,4 1 2 ,4 8 5

$ 2 9 ,0 2 2 ,5 6 8

C u rre n t net e a rn in g s .........................................................................................

$ 2 3 0 ,5 2 8 ,3 1 8

$ 1 9 8 ,2 0 4 ,3 2 4

1 0 3 ,8 8 1

1 9 7 ,9 4 6

C u rre n t expenses:

A d d itio n s to c u rre n t n e t earn in g s:
P ro fit on sales o f U. S. G o v e rn m e n t securities ( n e t ) ..............................

A ll o t h e r ................................................................................................................

T o ta l a d d i t i o n s .................................................................................................

—

9 4 ,0 6 5

1 9 5 ,2 3 0
$

1 9 5 ,2 3 0

D eductions fro m c u rre n t net e arnings:
Loss on sales o f U. S. G o v e rn m e n t securities (n e t) .....................................

1,301

A ll o t h e r ................................................................................................................

4 0 ,3 5 9

T o ta l d e d u c t i o n s ..........................................................................................

4 1 ,6 6 0

3 5 ,7 6 6

1 5 3 ,5 7 0

1 6 2 ,1 8 0

N e t e a rn in g s b e fo re p a y m e n ts to U. S. T r e a s u r y ..............................

$ 2 3 0 ,6 8 1 ,8 8 8

D iv id e n d s p a i d ................................................................................................................

4 ,6 2 6 ,2 8 4

4 ,3 7 3 ,2 1 9

P aym ents to U. S. T re a s u ry (inte re st on F e d e ra l Reserve notes)

2 2 1 ,9 9 5 ,0 5 4

2 5 9 ,2 3 4 ,9 3 5

T ra n s fe rre d to s u r p l u s .................................................................................................

4 ,0 6 0 ,5 5 0

$— 6 5 ,2 4 1 ,6 5 0

$ 7 4 ,6 0 2 ,8 5 0

$ 1 3 9 ,8 4 4 ,5 0 0

N e t d e d uc tio n s fro m (— ) o r a d d itio n s to c u rre n t n e t e a rn in g s

3 5 ,7 6 6

$ 1 9 8 ,3 6 6 ,5 0 4

S u rp lu s a c c o u n t
Surplus, J a n u a ry 1

..............................

T ra n s fe rre d to surplus— as a b o v e
Surplus, D e c e m b e r 31

4 ,0 6 0 ,5 5 0

— 6 5 ,2 4 1 ,6 5 0

$ 7 8 ,6 6 3 ,4 0 0

$ 7 4 ,6 0 2 ,8 5 0

Federal Reserve Bank of Chicago

1965

1964

Commercial bank c h e c k s ...........................................................

262,867

237,462

G over n m e n t c h e c k s* ...................................................................

17,186

16,777

O ther item s......................................................................................

1,127

519

Commercial bank c h e c k s ...........................................................

745,431

687,893

G over n m e n t c h e c k s* ...................................................................

94,692

93,759

O ther item s......................................................................................

1,794

1,716

Currency r e c e iv e d and c o u n t e d ...........................................

5,578

5,559

Coin r e c e iv e d and c o u n t e d ...................................................

Coin w r a p p e d ................................................................................

Unfit currency withdrawn from c ir cu la tio n ......................

833

864

Dollar amount (in millions)

Clearing and
collection

Num ber o f p i e c e s (in thousands)

Dollar amount (in millions)

Currency and
coin

Num ber of p i e c e s (in millions)
Currency r e c e iv e d and c o u n t e d ...........................................

866

893

Coin r e c e iv e d and c o u n t e d ....................................................

536

348

Coin w r a p p e d ................................................................................

969

703

Unfit currency withdrawn from cir cu lation ......................

159

222

Dollar amount (in millions)

Safekeeping of
securities!

Securities r e c e i v e d ......................................................................

15,957

16,792

Securities r e l e a s e d ......................................................................

16,118

16,410

C o u p o n s d e t a c h e d ....................................................................,

260

262

In safe k e ep in g on D e ce m b e r 3 1 ...........................................

8,476

8,637
426

Num ber o f p i e c e s (in thousands)
Securities r e c e i v e d ......................................................................

383

Securities r e l e a s e d ......................................................................

350

369

C o u p o n s d e t a c h e d ......................................................................

3,008

2,913

In safe k e ep in g on D e ce m b e r 3 1 ...........................................

1,526

1,493

Total loans made during y e a r ...............................................

11,033

11,384

Daily a v e r a g e o u ts ta n d in g ......................................................

Num ber o f banks a c c o m m o d a t e d during y e a r .........................

171

179

Dollar amount (in millions)

Discount and
credit

Purchases and sa le s of securities for member banks

Investment
Transfer of
funds

Dollar amount (in m illions)......................................................

1,812

1,799

Number o f tr a n sa c tio n s............................................................

18,075

17,150

Dollar amount o f funds transferred (in millions).....................

686,256

570,905

Num ber o f transfers (in t h o u s a n d s ) ...............................................

672

615

in c l u d e s postal money orders.

Annual Report, 1965

"("Including c o lla te r a l custodies.

1965

1964

15,513

15,200

M arketable securities
Dollar amount (in millions)
Issu ed.......................................................................................
Servicing:
Securities r e c e i v e d .................................................

18,021

15,806

Securities d e l i v e r e d ..............................................

21,439

20,961

R e d e e m e d ..............................................................................

19,280

20,050

344

348

Securities r e c e i v e d ................................................

212

209

Securities d e l i v e r e d ...............................................

551

513

R e d e e m e d ..............................................................................

664

724

1,528

1,576

Number of p ie c e s (in thousands)
Issu ed.......................................................................................
Servicing:

Services to the
U.S. Treasury

Savings bonds
Dollar amount (in millions)
Issu ed .......................................................................................
Servicing:
Bonds r e c e iv e d for r eissu e ................................

154

160

Bonds d e liv e r ed on reissue...............................

154

160

Bonds d e liv e r ed on r e p la c e m e n t ...................

R e d e e m e d ..............................................................................

1,068

1,028

24,127

22,880

Num ber of p ie c e s (in thousands)
Issu ed.......................................................................................
Servicing:
Bonds r ec e iv e d for reissu e ................................

699

Bonds de live r ed on r eiss u e ...............................

784

779

Bonds d e livered on r e p la c e m e n t ...................

R e d e e m e d ..............................................................................

16,393

15,313

Dollar amount (in m illions)......................................................

8,201

7,793

Number o f p ie c e s (in th o u sa n d s)........................................

1,937

1,912

Federal tax receipts p r o c es sed

Requests for ad d itio n al copies o f this A n n ua l Report should be addressed to:
Research D epartm ent
Federal Reserve Bank o f C hicago
Box 834
C hicago, Illinois

60690

Federal Reserve Bank of Chicago

FRANKLIN J. LUNDING
C h a irm a n o f the Finance C om m ittee
Jew el Tea C o m pa n y
C h ica g o , Illin ois
C h a irm a n a n d F e d e ra l R e se rve A g e n t

JAMES H. HILTON, D ire cto r o f D evelopm ent
Iow a State U niversity o f Science a n d T ech n o lo g y
Am es, Iow a
D e p u ty C h a irm a n

JO H N H. CROCKER, C h a irm a n o f the Board

W ILLIA M E. RUTZ, D ire cto r

The C itizens N a tio n a l Bank o f D ecatur

a n d M e m b e r o f the Executive C om m ittee

D e ca tu r, Illinois

G id d in g s & Lewis M a ch in e T ool C o m pa n y
Fond du Lac, W isconsin

W ILLIA M A . HANLEY, D ire c to r

HARRY W. SCHALLER, President

Eli Lilly & C o m pa n y

The C itizens First N a tio n a l

In d ia n a p o lis , In d ian a

Bank o f Storm Lake
Storm Lake, Iow a

GERALD F. LANGENO HL, T reasurer
a n d A ssistant S ecre tary (R etired)

JO H N W . SHELDON, President

A llis-C halm ers M a n u fa c tu rin g C o m pa n y

Chas. A . Stevens & Co.

M ilw a u k e e , W isconsin

C h ica g o , Illinois

KENNETH V. ZWIENER, C h a irm a n o f the Board
H arris Trust a n d Savings Bank
C h ica g o, Illinois

DETROIT

BRANCH

JAMES W . MILLER, President
W estern M ic h ig a n U niversity
K a la m a zo o , M ich ig a n
C h a irm a n

FRANKLIN H. M OORE, C h a irm a n o f the B oard

JO H N H. FRENCH, JR., President
C ity N a tio n a l Bank o f D e tro it

a n d President

D e tro it, M ic h ig a n

The C om m ercial a n d Savings
Bank o f St. C la ir C o u n ty
St. C la ir, M ich ig a n

M A X P. HEAVENRICH, JR., President

GUY S. PEPPIATT, C h a irm a n o f the Board

H eavenrich Bros. & C om pany

F ed e ra l-M o g u l C o rp o ra tio n

S a g in a w , M ic hig a n

D e tro it, M ichig a n

R AY M O N D T. PERRING
C. LINCOLN LINDERHOLM, President

C h a irm a n o f the Board

C e n tra l Bank

The D e tro it Bank a n d Trust C o m pa n y

G ra n d Rapids, M ic h ig a n

D e tro it, M ich ig a n

M EM BER OF FED ERA L A D V IS O R Y C O U N C IL
EDWARD BYRON SMITH, C h a irm a n o f the B oard
The N o rth e rn Trust C o m pa n y
C h ica g o , Illin o is

Decem ber 31, 1965

Annual Report, 1965

CHARLES J. SCANLON, President
HUGH J. HELMER, First Vice President

ERNEST T. B A U G H M A N , V ice President

RICHARD A . MOFFATT, Vice President

JO HN J. ENDRES, G e n e ra l A u d ito r

HAROLD J. N E W M A N , Vice President

ARTHUR M . GUSTAVSON, Vice President

LELAND M . ROSS, Vice President

PAUL C. HODGE, Vice President,

HARRY S. SCHULTZ, Vice President

G e n e ra l Counsel and S e cre tary

LAURENCE H. JONES, Vice President a nd C ashier

BRUCE L. SMYTH, V ice President

CLARENCE T. LAIBLY, V ice President

RUSSEL A . SW ANEY, V ice President

CARL E. BIERBAUER, Assistant Vice President

EDWARD A . HEATH, Assistant V ice President
a nd Assistant S ecretary

GEORGE W . CLOOS, S enior Economist
JAMES R. MORRISON, C hief E xam iner
LE ROY A . DAVIS, Assistant Vice President
KARL A . SCHELD, Assistant Vice President
LE ROY W . D AW SO N , Assistant Vice President
ROBERT E. SORG, Assistant Vice President
FRED A . DONS, Assistant G e n era l A u d ito r
DANIEL M . DOYLE, Assistant Vice President

JOSEPH J. SRP, Assistant Vice President

ELBERT O. FULTS, Assistant Vice President

LYNN A . STILES, S enior Economist

VICTOR A . HANSEN, Assistant Vice President

CHARLES G. W RIGHT, Assistant V ice President

ARNOLD J. ANSCHUTZ, Assistant Cashier

W ILLIA M O. HUME, Assistant Cashier

HARRIS C. BUELL, JR., Assistant C hief E xam iner

ERICH K. KROLL, Assistant C ashier
W ARD J. LARSON, Assistant Counsel

JO HN J. CAPOUCH, Assistant Cashier

a n d Assistant S e cre tary

FRANCIS C. EDLER, Assistant C ashier

R AY M O N D M. SCHEIDER, Assistant C ashier

LESTER A . GOHR, Assistant C ashier

CARL W. WEISKOPF, Assistant C h ie f Exam iner

DETROIT

BRANCH

RUSSEL A. SW ANEY, Vice President

PAUL F. CAREY, Assistant Cashier

RICHARD W . BLOOMFIELD, Assistant Vice President

LOUIS J. PUROL, Assistant C ashier

GO RDO N W . LAMPHERE, Assistant G e n e ra l Counsel

W . GEORGE RICKEL, Assistant C ashier

December 31, 1965

Federal Reserve Bank of Chicago

Appointm ent's, Elections an d R etirem ents

1 ) li ring the year the following appointments and
elections were announced, effective January 1, 1966:
Henry T. Bodman, Chairman of the Board, Na
tional Bank of Detroit, Detroit, Michigan, was ap
pointed Member of the Federal Advisory Council
from the Seventh Federal Reserve District for 1966 to
succeed Edward Byron Smith, Chairman of the Board,
The Northern Trust Company, Chicago, Illinois.
Franklin J. Lunding, Chairman of the Finance
Committee, Jewel Tea Company, Chicago, Illinois,
was redesignated Chairman of the Board and Federal
Reserve Agent for 1966.
Guy S. Peppiatt, Chairman of the Board, FederalMogul Corporation, Detroit, Michigan, was reap
pointed Director of the Detroit Branch Board for a
three-year term ending December 31, 1968 and was
designated Chairman of the Branch Board for 1966.
Harry W. Schaffer, President, The Citizens First
National Bank of Storm Lake, Storm Lake, Iowa,
was reelected Director for a three-year term ending
December 31, 1968.
John W. Sheldon, President, Chas. A. Stevens &
Co., Chicago, Illinois, a Director since 1961 was
designated Deputy Chairman for 1966.
B. P. Sherwood, Jr., President, Security First Bank
& Trust Co., Grand Haven, Michigan, was appointed
Director of the Detroit Branch Board for a threeyear term ending December 31, 1968, to succeed C.
Lincoln Linderholm, President, Central Bank, Grand
Rapids, Michigan.
Elvis J. Stahr, Jr., President, Indiana University,
Bloomington, Indiana, was appointed Director for a
three-year term ending December 31, 1968, to suc
ceed James H. Hilton, Director of Development,
Iowa State University of Science and Technology,
Ames, Iowa.

Annual Report, 1965

Joseph O. Waymire, Vice President and Treasurer,
Eli Lilly and Company, Indianapolis, Indiana, was
elected Director for a three-year term ending De
cember 31, 1968, to succeed William A. Hanley, Di
rector, Eli Lilly and Company.
Laurence H. Jones, Vice President and Cashier,
relinquished the title of Cashier.
Carl E. Bierbauer, Assistant Vice President, was
promoted to Cashier.
William O. Hume, Assistant Cashier, was pro
moted to Assistant Vice President.
Ward J. Larson, Assistant Counsel and Assistant
Secretary, was promoted to Assistant General Coun
sel and Assistant Secretary.
Rudolph W. Dybeck was elected Assistant Cashier.
The employes listed below, all with service records
of more than 25 years, retired in the course of the
year from the Bank:
Olive R. Almquist
Winifred M. Hyland
Elmer C. Bagaasen
Hortense Leader
Dorothy Malcomb
Helen A. Baldus
Matt W. Malone
John Borsig
Fred W. Burgess
Lillian H. Ohnmeis
Ingeborg C. Paulson
Grant E. Erickson
Walter W. Peterson
John Gibson
Ruth D. Hamilton
Charles M. Rust
The following employes retired after association
with the Head Office or Detroit Branch for more
than 40 years:
Agnes V. Buckley
Frank Lane
Morris Bonnem
Arthur G. Langlois
Lawrence E. Howes
Wilma W. Ritchie
Milton C. Laibly
Herbert H. Spencer-Smith
These 24 retired employes of the Bank represent
more than 870 years of service to this institution.

Full text of Annual Report of the Federal Reserve Bank of Chicago : Annual Report 1965 : The Airlines: A Growth Industry, Credit Aids Expansion

FRASER