Impact on Federal Government if the Combined Continental Airlines and Texas International Airlines Fail To Meet Financial Obligations

CED-82-33: Published: Feb 3, 1982. Publicly Released: Feb 16, 1982.

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GAO was requested to obtain information on the potential financial loss to the Federal Government if the combined Continental Airlines and Texas International Airlines fail to meet their financial obligations. The report addressed the following subjects: (1) essential air service to the Pacific; (2) aircraft loan guarantees; (3) potential revenue loss to the Treasury; and (4) the Airline Employee Protection Program.

The Airline Deregulation Act of 1978 guarantees essential air transportation for any point in the United States to which any carrier:(1) is providing service pursuant to a certificate issued under the Federal Aviation Act, or (2) is authorized by that certificate to provide service, but the service was suspended on the Airline Deregulation Act's date of enactment. The Federal Aviation Administration operates a statutory aircraft and equipment loan guarantee program and the Federal Government is authorized to guarantee loans for the purchase of aircraft and spare parts. Should Continental Airlines go out of business, the tax revenue loss to the Federal Government, in the opinion of GAO, will be less than the tax revenue generated by the services Continental provided. Much of this revenue would likely be provided by other airlines who picked up the foregone services. Even if the other airlines stepped in, the labor, capital, and other resources currently employed by Continental would transfer eventually to other occupations and provide tax revenue to the Treasury. The Airline Deregulation Act provides a protection program for airline employees who either lose their jobs or have their pay reduced as a result of deregulation, with the exception of certain classes of employees. Congress enacted the Airline Employee Protection Program because it believed cessation of 40 years of airline economic regulation might result in temporary adjustments in the labor requirements of some air carriers.

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