Airline Competition

Recent bankruptcies by financially strapped U.S. airlines have heightened congressional concerns about the effects of industry consolidation on domestic and international competition. Foreign investment is a potential source of capital for U.S. airlines, but it is limited by law. This report examines the implications of relaxing existing restrictions on foreign investment in and control of U.S. airlines. GAO assesses the impacts in five key areas--domestic and international competition, national security, airline employment, and safety. GAO also examines the Department of Transportation's procedures for enforcing the current 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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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