The Contract Air Mail Act of 1925, a.k.a., the Kelly Act, was the first piece of legislation targeted with freeing the airmail service from total control of the Post Office Department. The act, passed on February 2, 1925, provided for a four year bidding period that would begin on smaller "feeder" routes. The act also set airmail rates and the level of the subsidies contractors could receive for flying the mail. The subsidies would be dependent on the amount of mail carried and the number of zones it traveled through.
The initial contracts were awarded to Colonial Air Transportation, National Air Transport, Robertson Aircraft Corporation, Western Air Express and Varney Air Lines. The first amendment offered to the Kelly Act was a change in subsidy payments. As of June 3, 1926, contractors were paid $3.00 per pound of mail for the first 1,000 miles traveled, and 30 cents per pound per additional 100 miles.
Other important components to the future of U.S. airmail were the Morrow and the Lassiter Boards. The Morrow Board was the creation by President Calvin Coolidge in 1925. The group, led by banking executive (and future father-in-law of Charles Lindbergh) Dwight Morrow, was asked to recommend a national aviation policy. The report, presented on December 2, 1925, included several recommendations, including non-military government-set standards over civil aviation. The Lassiter Board, created under War Department supervision, concluded that the U.S. aircraft industry was "entirely inadequate to meet peace and war time requirements. . . It depends for its existence almost wholly upon orders placed by Government services." In 1926 came the next major piece of airmail legislation, the Air Commerce Act, which turned to the Morrow Board's recommendations for assistance. The Air Commerce Act broadened responsibilities for the development of aviation by passing control of civilian aviation to the Commerce Department.
The next major step in the evolution of U.S. airmail service came in 1930 with the McNary-Watres Act. Yet another amendment to the original Air Mail Act of 1925, McNary-Watres provided under section 4, that "The Postmaster General is authorized to award contracts for the transportation of air mail by aircraft between such points as he may designate to the lowest responsible bidder at fixed rates per mile . . . [and] Postmaster General may award to the lowest responsible bidder, who has owned and operated an air transportation service on a fixed daily schedule over a distance of not less than 250 miles and for a period of not less than six months prior to the advertisement for bids. . . . Whenever sufficient air mail is not available, first-class mail matter may be added to make up the maximum load specified in such contract." Section 6 of the act gave the Postmaster General power to replace contractors if "the public interest will be promoted thereby."
The McNary-Watres Act brought objections from numerous sources, including Clyde Kelly, author of the original airmail legislation, for placing too much power over the service in the hands of the Postmaster General and the postal service. Through 1926, U.S. mail was being carried by contact fliers on small feeder routes, while U.S. Air Mail Service pilots continued to provide the service along the nation's transcontinental flyway.