President Ford has formally approved a massive route swap that eliminated most direct overseas competition between Pan American World Airways and Trans World Airlines.

The President's action put the stamp of approval on an arrangement that has, for the most part, been in effect since March 1975. The route-exchange agreement between the two carriers had been approved by the Civil Aeronautics Board in January 1975, but was challenged in court by the Justice Department, acting at the President's direction, on the grounds that the board action was improper.

Last summer, a three-judge appeals panel ruled that the swap was improperly approved by the CAB which had failed to hold a hearing on it or to seek presidential approvel of its decision. The court ordered the airlines to undo the route exchanges, giving them 60 days to restore service to the original patterns.

In order to keep the route swap in effect, however, the CAB instituted an expedited proceeding to satisfy the conditions the court said weren't meet when the agency originally approved the agreement and got an order form the court delaying the effective date of its judgment. In November, having followed the mandated procedures, the CAB sent the agreement for his [TEXT OMITTED FROM SOURCE]

Under the agreement, which is in effect now until March 2, 1978, head-to-head competition between Pan Am and TWA was eliminated on most transatlantic and transpacific routes. Pan Am stopped service to France, Austria, Italy, Portugal, and the Azores, Spain and Morocco, and got authority to fly to Okinawa, Taipei and Bombay. TWA pulled out of Germany and stopped transpacific service to Honolulu, Guam, Hong Kong, Thailand, southern India and Sri Lanka.

Both carriers continued to fly to London from New York, but Pan Am stopped serving London from Los Angeles. Philadelphia and Chicago while TWA lost its authority to fly from Washington.

The idea was to reduce excess capacity on the routes the carriers were both serving to improve efficiency, and thus to improve profits. Both have suggested that the agreement has contributed substantially to improved financial results in their international operations.

Although the realignment plan resulted in a significant reduction of direct competition between Pan Am and TWA, the board said the plan was "the lesser of two evils." Because the carriers had been suffering "severe" losses in their international operations, "it seemed necessary to accept certain service reductions and a degree of inconvenience to the public in order to avoid a clear danger of a major cessation with greater attendant public disruption," the CAB said.

In approving the route swap, President Ford warned the CAB not to bypass presidential review of foreign route decisions again. "The procedures initially used by the board in this case remain the subject of my concern," he told the board in his approval letter. He also said he does not accept that portion of the court ruling which suggested that had a hearing been started, the board could have implemented the agreement pending completion of the hearing without submitting the interim order to the president. He said he would insist that the board submit interim orders for presidential approval before they are implemented.