Airline Competition:

Impact of Changing Foreign Investment and Control Limits on U.S. Airlines

RCED-93-7: Published: Dec 9, 1992. Publicly Released: Jan 8, 1993.

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Pursuant to a congressional request, GAO provided information on the current restrictions on foreign investment in and control of U.S. airlines, focusing on the impact of relaxing restrictions on: (1) domestic and international competition, (2) national security, (3) airline employment, and (4) safety. GAO also reviewed the Department of Transportation's (DOT) procedures for enforcing these restrictions.

GAO found that: (1) relaxing statutory limits on foreign investment and control could provide U.S. airlines with greater access to capital, reduce debt costs, invest in new aircraft, and enhance their competitive position; (2) foreign airlines are the most likely investors because they benefit from international and domestic service integration; (3) current investment restrictions limit foreign investors' ability to influence management decisions and bilateral agreements restrict competition by limiting the number of airlines servicing a particular route; (4) foreign government airline subsidies could create unfair advantages for foreign-controlled U.S. airlines and upset the U.S. policy of relying on market forces to set fares; (5) the Department of Defense (DOD) relies on U.S. airlines' voluntary participation in the Civil Reserve Air Fleet (CRAF) program to supplement its airlift capability during military emergencies, and was concerned that foreign investors might discourage U.S. airline participation in CRAF; (6) increased foreign investment could put airline jobs at risk, but could also help stabilize U.S. airline employment by strengthening financially weak airlines; (7) foreign investment would not likely affect airline safety, but safety inspectors' workload could increase; (8) DOT examines airlines' financing and management before granting airlines operating authority; (9) investors are not required to obtain DOT approval before completing investments which may cause difficulties in undoing complex corporate investment transactions; (10) DOT does not determine investments' potential effects on competition and national security; and (11) DOT needs to review foreign investments on a case by case basis to ensure that they do not reduce international competition.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The Commission on Airline Competition's report, issued in September 1993, had recommendations in this area, which were consistent with GAO's recommendation. Although congressional consideration of this matter was anticipated, no action has been taken or is presently contemplated.

    Matter: If Congress chooses to relax the limits on foreign control of U.S. airlines, it may wish to consider limiting eligibility for greater investment and control of U.S. airlines to investors from countries that are willing to exchange improved access to their aviation markets for greater opportunities to invest in U.S. airlines.

  2. Status: Closed - Not Implemented

    Comments: The Commission on Airline Competition's report, issued in September 1993, had recommendations in this area, which were consistent with GAO's recommendation. Although congressional consideration of this matter was anticipated, no action has been taken or is presently contemplated.

    Matter: If Congress chooses to relax the limits on foreign control of U.S. airlines, it may wish to consider limiting eligibility to foreign investors that are not subsidized by foreign governments.

  3. Status: Closed - Not Implemented

    Comments: Action on this recommendation depends on action taken on the previous recommendations.

    Matter: If Congress chooses to relax the limits on foreign control of U.S. airlines, it may wish to consider modifying the scope and timing of the DOT review process to ensure that potentially harmful investments are prevented by: (1) giving DOT authority to review investments before they are made final and to prohibit investments that fail to meet the fitness criteria; (2) requiring DOT, in conjunction with its fitness review, to make explicit determinations under its separate statutory authority with respect to international aviation competition; and (3) requiring that DOT consider potential national security impacts of foreign investments in U.S. airlines in consultation with DOD.

 

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