Certification of New Airlines:

Department of Transportation Has Taken Action to Improve Its Certification Process

RCED-96-8: Published: Jan 11, 1996. Publicly Released: Jan 29, 1996.

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John H. Anderson, Jr
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Pursuant to a congressional request, GAO reviewed the Department of Transportation's (DOT) processes for certifying the initial operations of new airlines, focusing on the: (1) number of applicants that applied for and received authorization to begin new airlines since 1990; and (2) cost to certify new airlines and how the cost is distributed between the government and the applicants.

GAO found that: (1) from January 1990 to July 1995, 90 of 180 applicants were authorized to begin new airline operations; (2) 33 of these 90 airlines ceased operations prior to July 1995; (3) the 90 remaining applicants were not authorized to begin airline operations because they lacked the financial resources needed to perform proposed services or the DOT Office of the Secretary (OST) had not approved their applications; (4) factors that determine whether applicants receive OST and Federal Aviation Administration (FAA) certification include the completeness of the initial application and applicant's ability to meet operation and financial criteria; (5) OST has tightened its financial standards by requiring applicants to provide third-party verification of their financial plans; (6) FAA has revised its certification process to prevent applicants lacking sufficient financial resources from proceeding into the airline certification process; (7) OST and FAA have established an electronic communication link to share information about airline applicants, but it is unknown how much this will reduce DOT resource waste; (8) applicants pay less than $1,000 to apply for airline certification, while the government pays up to $150,000 to process each application; (9) a portion of the government's cost of certifying new airlines is recouped from ticket and fuel taxes once the applicants begin operations; and (10) OST and FAA must examine the appropriateness of certification fees, since certification costs are not recovered under the fee structure.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The September 1996 reauthorization bill directed FAA to establish fees for services to certify new airlines. FAA had established a working group to determine how to proceed and had initiated rulemaking to adjust these fees. However, pending appropriations legislation in both houses of Congress would prohibit the use of appropriated funds to plan, finalize, or authorize any new aviation user fees.

    Recommendation: The Secretary of Transportation should reevaluate the appropriateness of OST increasing its fees and FAA establishing fees for services to certify new airlines, taking into consideration the government's costs, the value of the services to the applicant, and the public policy or interest served.

    Agency Affected: Department of Transportation


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