Air mail had helped the commercial aviation industry thrive in its early days. Contracts to deliver mail were awarded to airlines by the federal government, and this guaranteed income funded the growth of the industry at a time when airlines struggled to turn a profit. However, this system was not without controversy. Federal reforms enacted in 1930, such as the McNary-Watres Act, gave most routes and air mail contracts to big airline holding companies. Small, independent airlines complained this was unfair, even though most had sold their own contracts, and some did not even exist when the law was passed.
The independents fought to break the holding companies' power. Their efforts led to congressional hearings and unfounded charges of corruption and conspiracy to monopolize the air mail. Responding to political pressure, President Franklin Roosevelt canceled all domestic air mail contracts on February 9, 1934. The Army Air Corps was again called upon to carry the mail.
In February 1934, the Air Corps again began carrying the mail. Flying in the worst winter in decades, in ill-equipped aircraft, Air Corps pilots suffered a series of widely publicized accidents, mostly during training. Several pilots died.
War hero and American Airways vice president Eddie Rickenbacker condemned the air mail crisis as "legalized murder" after several Air Corps pilots died while flying the mail. Charles Lindbergh, testifying before Congress, criticized President Roosevelt for hastily canceling the air mail contracts and punishing the airlines without due process. Eventually, the public outcry from Rickenbacker and others caused President Roosevelt to suspend the Air Corps' mail service until improvements could be made.
Four months after the air mail crisis began, Congress passed the Air Mail Act of 1934. It cut payment rates to airlines, returned most air mail routes to the major airlines, and gave some routes to smaller airlines. It divided regulation among the Post Office, Commerce Department, and Interstate Commerce Commission.
The Air Mail Act of 1934 restructured the air mail system. Aviation holding companies were dissolved and airlines were separated from aircraft manufacturers. Previous air mail contractors had to change their names or restructure. American Airways became American Airlines. Eastern Air Transport became Eastern Air Lines. The legislation also forced the firing of airline executives who had headed large holding companies, now accused (though wrongfully) of conspiring to monopolize the air mail. One victim was Philip G. Johnson of United Air Lines.
Like many others, Johnson had attended Postmaster Walter Brown's operators' conferences in 1930, in which air mail contracts and routes had been legally awarded. Ironically, United received no contracts during these so-called "Spoils Conferences."
Nevertheless, Johnson and many others were wrongfully barred from the airline industry without the benefit of a trial. This crisis demonstrated United States government’s ability to effect change on commercial airlines through its control of the air mail system, for better and for worse.