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Pursuant to a congressional requirement, GAO reviewed the Federal Aviation Administration's (FAA) Aviation Insurance Program, focusing on: (1) whether sufficient funds are available to pay the insurance claims; (2) how FAA war-risk coverage compares with that of commercial insurers; and (3) how FAA administers the program.

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Matter for Congressional Consideration

Matter Status Comments
Congress should provide a mechanism by which the Department of Transportation (DOT) can obtain access to financial resources so that it can pay claims that exceed the Fund's balance within the normal time frames for commercial insurance. The source of funds could include a permanent appropriation for losses under premium insurance and the authority to borrow funds from the U.S. Treasury to pay losses under nonpremium insurance, which DOT would repay when it was reimbursed by the indemnifying agency.
Closed - Implemented
The 104th Congress addressed the majority of this concern through the National Defense Authorization Act for Fiscal Year 1997. The act made funds available to indemnify the program for losses incurred under DOD-sponsored flights, which account for the majority of flights insured. Still, gaps remain in the program's ability to pay claims for non-DOD flights. The 105th Congress enacted legislation (H.R. 2169, Public Law 105-66, providing for binding arbitration to address other funding-related gaps for non-DOD-related flights.
Congress should clarify the issue of whether a presidential determination is required before nonpremium insurance can be issued and for each subsequent 60-day extension.
Closed - Implemented
Congress has not taken any action to clarify whether a presidential determination is required before nonpremium insurance can be issued. However, the Federal Aviation Administration (FAA) is in the process of finalizing revisions to part 198 of the war risk insurance regulations. Included in this revision is FAA's declaration that the presidential determination requirements were met when the president signed the required indemnification agreements.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Transportation 1. The Secretary of Transportation should direct the Administrator, FAA, to set a date for completing the revision of FAA premium war-risk policies to make them more consistent with commercial war-risk policies.
Closed - Implemented
FAA has a premium policy on file that would be used should the need arise. FAA and carriers would negotiate specific terms for each carrier. The policy is continuously revised; Secretary of Transportation's approval is not necessary.
Department of Transportation 2. The Secretary of Transportation should direct the Administrator, FAA, to require airlines to submit copies of their current commercial war-risk policies and any subsequent revisions as a condition for obtaining premium and nonpremium insurance, and periodically verify the information submitted by the airlines.
Closed - Implemented
During early 1995, FAA sent letters to 46 airlines registered for federal war-risk insurance requesting that they submit their commercial war-risk policies. As of September 1995, 27 of 46 airlines had complied by submitting their policies. Further, DOD is requiring that in FY 1996 all CRAF participants submit their commercial policies and changes to FAA before contracts can be approved. This will be a continuous requirement.

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