Mr. SCHMIT. Oh, yes, yes, sir; we carry insurance. The CHAIRMAN. Is it sufficient? Mr. SCHMIT. Well, we think—we are able to pay all our claims. Mr. SCHMIT. Yes; underinsurance problems we have not. The CHAIRMAN. In other words, you can, by paying the premiums, secure sufficient insurance to make you whole for the loss to the consignee to whom the air cargo is being shipped? Mr. SCHMIT. That is correct. We remunerate the shipper for the total value of the loss, and depending upon our insurance policy, of course, will depend upon how much of this will be borne by American Airlines and how much by the insurance company, depending upon the deductible feature of the insurance. The CHAIRMAN. Do you have any limitation upon the amount of loss for which you are responsible? Do I make my question clear? For example, I am shipping diamonds worth $5 million. Can I insure them for their full value? Mr. SCHMIT. Yes, you can, by declaring a value. In many cases, of course, the shipper, it has been our experience the shipper will send items of this nature at no declared value because, of course, the rate is lower. The CHAIRMAN. In that case, what is the rate? Is it all poundage? Mr. SCHMIT. It is based on poundage; yes, sir. The CHAIRMAN. What is the limit of your liability per pound? Mr. SCHMIT. That will depend upon, it would be based upon the distance traveled and the total amount of revenue collected. There are many times, for example, when we will carry a shipment that may be valued at $10,000, let us say. The shipper will ship it at no declared value. The loss on American Airlines would be onlyit is my understanding only the cost of the revenue. The CHAIRMAN. The cost of the what? Mr. SCHMIT. Of the revenue, the revenue to be collected. So that the shipper in these instances, of course, when they do not insure, they have their own insurance with other companies, but when they ship it by air the amount of insurance that we would be liable for would depend upon the declared value. The CHAIRMAN. Thank you. Mr. ERNEST P. EVANS, Staff Member, Select Committee on Small Business, AMERICAN AIRLINES, New York, N.Y., June 3, 1969. 7 1 ༥ ད ། ་ མོ DEAR MR. EVANS: Thank you for your call yesterday regarding advising you of any corrections in my testimony before your Committee on May 23, 1969. I have reviewed those portions of my testimony which are interspersed with that of Mr. Noto and am enclosing herewith copies of pertinent pages with minor corrections inserted therein. These will appear on pages 448, 474 and 475. It will be appreciated if you will see that the necessary corrections are inserted. If I can be of any further service to you or the Committee, do not hesitate to call on me. Sincerely, J. L. SCHMIT, U.S. SENATE, Washington, D.C., June 9, 1969. Mr. JOSEPH L. SCHMIT, Vice President, American Airlines, New York, N.Y. DEAR MR. SCHMIT: Reference is made to your proposed correction on page 475 of the official transcript of the hearings on air cargo theft on May 23. It will be difficult to change this item, as you propose. You will note that your substitution on line 16 of the words "50¢ per pound" for the words "cost of the revenue" would result in an inaccurate exchange between yourself and the Committee Chairman on the balance of that page of the testimony. Therefore, to retain complete accuracy, we propose to leave your original answer as given in the transcript, place an asterisk at that point, and set forth the "50¢ per pound" alteration in a footnote. I am certain that you can understand the reason for this, and it will provide clarity. Because of your change in testimony, we have determined that some additional questions are required and we will place such questions and answers in a footnote in fuller explanation of this particular colloquy. Therefore, it would be appreciated if you would provide written answers to the questions enclosed. Such will be footnoted on page 475. We hope that this meets with your complete satisfaction, and should you have any further comments thereon, we would be pleased to receive them. Your courtesy in this entire matter is appreciated, and I feel certain that we will be in contact again, as further hearings are contemplated in this general area in the months ahead. Sincerely, Hon. CHESTER H. SMITH, Staff Director and General Counsel, Washington, D.C. CHESTER H. SMITH Staff Director and General Counsel. AMERICAN AIRLINES, New York, N.Y., June 17, 1969. DEAR MR. SMITH: Your letter of June 9, 1969, has been received wherein you transmit additional questions to which you ask my response. I am pleased to respond to these questions, the answers to which you will find attached. If I can be of further service to the Committee, I will be happy to do so. J. L. SCHMIT, ANSWERS OF J. L. SCHMIT, VICE PRESIDENT AND GENERAL AUDITOR, AMERICAN AIRLINES, TO QUESTIONS POSED BY THE SELECT COMMITTEE ON SMALL BUSINESS Question 1. Who bears the liability for loss of cargo or baggage: the terminal operator or the air carrier? What is the extent of such liability? Answer. The air carrier. For checked baggage liability is limited to $500 per passenger and for cargo $50 or 50¢ per pound, whichever is higher, per shipmentunless the passenger or shipper has declared a higher value and paid for it at the rate of 10¢ per $100. Question 2. Who or what agency determines this amount of liability? Question 3. Do you feel this amount of liability is adequate vis-a-vis the value, etc. of air cargo carried by American Airlines? Answer. Yes, since the shipper may declare a value high enough to cover the value of his goods. Question 4. Does American Airlines provide the shipper, at time of accepting shipper's cargo, with information on: (a) maximum carrier liability (b) where and how to obtain additional coverage (c) packaging and shipping technique (d) how to process a claim for loss, etc. If so, please provide the Committee, for the record, with copies of such forms and pamphlets which would detail this information. Answer. Only upon request. As to (a) and (b), however, this information is available in the carrier's filed Tariff, which is available at all offices. As to (c) the ATA has a committee currently working on a "Packaging Guide" for the shipping public. Question 5. Has the Airport Security Council conducted any investigation or held any meetings on carrier liability and the general idea of loss and theft insurance? If not, do you contemplate an examination of questions and problems in this general area! Answer. The subject of carrier liability for air cargo is presently under investigation by the CAB; therefore, the Airport Security Council would not embark on a unilateral discussion of this subject. The CHAIRMAN. Mr. Noto, one of the greatest difficulties experienced by this committee in its investigation of the problem of cargo theft in the air carriers was our inability to obtain statistical information on the extent of losses at major airports, and I think you have commented somewhat on that. The committee was told the carriers do not have such reports; is this true? Mr. Noro. We do have them in the Greater New York area. I cannot speak for those airports or carriers outside of the area of Greater New York, but the members of the council, of the airport security council, do have a reporting system which is greatly detailed, and went into effect March 1 of 1969. The CHAIRMAN. Of course, you really do not have any basis for experience, then, because you have not been operating long enough, but they are required to furnish you these reports? Mr. Noro. Yes, sir. And I might say this, that the system we have put into effect with the members of the council has a twofold purpose. The primary purpose is to assure that immediate notification is not only furnished to the proper law enforcement agencies that have the primary and ultimate responsibility for enforcement of the statutes involved, but to assure that there is uniform notification to the Federal Bureau of Investigation, the Port of New York Authority, the Police Department of New York City, and of Queens County district attorney's office simultaneously. The second aspect of the reporting system requires the carrier to furnish a copy of that report to us. Now, that serves a twofold purpose with us. We, in the council, are in position by collecting these data to analyze them, evaluate them, and act as a clearinghouse or as a disseminating agency for our carrier members. If we detect patterns, if we detect a certain modus operandi, that is being employed against one or more members, we are equipped to notify the council members so that they may take preventive action. The CHAIRMAN. Thank you. Now, our committee's investigatory record shows that your organization began as a result of a hearing by the New York Crime Investiga tion Commission in which they described the situation at Kennedy Airport as being so serious that the State of New York was going to be required to take action of establishing a new police or enforcement agency to cope with this growing and serious problem, is this true? Mr. Noro. That is accurate. The CHAIRMAN. Did the airlines go before the Civil Aeronautics Board to seek permission to establish the airport security council, Mr. Schmit? Mr. SCHMIT. I would say we consulted with the Civil Aeronautics Board during the time the council was being formed. It is my understanding that the Board minutes reflected that when the agreement was entered into, a copy would be furnished to the Board for its approval, which was done, and we received-the chairman of the council received, a letter back from the Board approving the agreement. The CHAIRMAN. I was curious as to the mechanics of this. Mr. SCHMIT. Yes. The CHAIRMAN. Did the Air Transport Association and the different lines represent to the CAB that the airport security council or a bodysimilar in nature would be established on a national basis, or was this limited to J. F. K. and the Greater New York airports? Mr. SCHMIT. I cannot speak for the ATA but The CHAIRMAN. For American Airlines, does the clearance which you have in this area-and I do not see why you would have any difficulty in securing the clearance to establish an airport security council wherever you wanted it at the various terminals around the country--but when you secured the approval, was that simply for the Greater New York airports or did it include your operations nationwide? Mr. SCHMIT. Yes. The securing of the authority was restricted only to the Greater New York airports. The CHAIRMAN. I see. 90 Do you know whether you have this authority for other airports around the country? Mr. SCHMIT. No; we do not at this time, at the present time. It is my understanding, Mr. Chairman, that both the ATA (Air Transport Association) and the IATA, which is the International Air Transport Association, have under consideration the formalization of security committees within those two organizations. The CHAIRMAN. Are these problems confined primarily to ports of entry, like Miami, Los Angeles, and San Francisco or places like that; are you having many problems, as in my hometown of Reno, Nev., for example? Mr. SCHMIT. Yes. We have principally in ports of entry because this is where the high-value merchandise comes in. The CHAIRMAN. I understand. Do you have security councils at any other "port of entry" airports? Mr. SCHMIT. This concept; no, sir. The CHAIRMAN. I am sorry. Mr. SCHMIT. I say the concept of the Airport Security Council is only in the New York area. The CHAIRMAN. Is only in the New York area. Mr. SCHMIT. That is correct. The CHAIRMAN. Thank you. I am introducing for the hearing record a copy of the CAB agreement entered into by the Air Carriers, the members of your organization, which according to you, is only limited to the Greater New York Authority. (The document referred to follows:) CIVIL AERONAUTICS BOARD, Universal Building, Washington, D.C. DEBEVOISE, PLIMPTON, LYONS & GATES, DEAR SIRS: On behalf of the carriers listed below, we are enclosing for filing herewith, pursuant to Section 412(a) of the Federal Aviation Act, two copies of an Agreement for Airport Security Council. One of the copies has been certified as true and complete by the undersigned and by an officer of American Airlines, Inc., one of the executing parties. For the purposes of convenience, separate counterparts of the Agreement were executed by each of the signing air carriers, but, as provided in Section 8 of the Agreement, each of such separate counterparts is deemed to constitute one and the same instrument. A list of the carriers which have executed and deliv, ered counterparts is attached to each copy and also is set forth below: LIST OF CARRIERS WHICH HAVE EXECUTED AND DELIVERED THE AGREEMENT American Airlines, Inc. is odi vd noitemNational Airlines, Inc.19ers AdT British Overseas Airways Corporation, To New York Airways Helicopter Svc.es Braniff International.admos of m81301g Northeast Airlines.jas to tilidiana Delta Air Lines, Inc. sors nstiloqoriem Pan American Airways ja 9287etliq Eastern Airlines of amargorg gobs of Seaboard World Airlines, Inc.) edT The Flying Tiger Line, Inc.o stultant Trans Caribbean Airways, Inc.o off Irish International Airlines.ad betalqme Trans World Airlines, Incini to 178q Japan Air Lines Co. Ltd. as volque United Air Linesarpobs 101 879darem KLM Royal Dutch Airlines. anotas Varig Airlinese odd ovent of tasoittue Mohawk Airlines, Inc. In addition, at a meeting held in New York City on May 29, 1968, called by the Air Transport Association of America and the International Air Transport Association, or subsequently, the following additional carriers indicated that they would join in the Agreement and that they were in the process of obtaining signed copies through their home offices: LIST OF ADDITIONAL CARRIERS WHICH HAVE EXPRESSED INTENTION TO SIGN The Agreement was declared effective at the May 29, 1968, meeting in New York. However, filing has been deferred to this date so that at the time of filing the greatest possible number of signed counterparts of the Agreement in effect would have been received. We will inform you by letter on a weekly basis as additional signed counterparts are received. We are also enclosing our check for $20, representing the filing fee and, for your possible convenience, we are enclosing three extra copies of the Agreement. Background of agreement The Agreement for Airport Security Council represents an important new cooperative effort by the air carriers serving New York City to protect the air cargo industry from criminal activities. The problem is a serious one. Facts adduced in an investigation made during 1966 and 1967 by the Temporary Commission of Investigation of the State of New York and in public hearings held by the Commission in December, 1967 showed an increase in thefts and pilferage at John F. Kennedy International Airport in New York and indicated infiltration by organized crime into certain |