Aviation Insurance

The Federal Aviation Administration's (FAA) aviation insurance program, which is set to expire in September 1997, covers aircraft operations that are considered essential to the foreign policy interests of the United States when commercial insurance is unavailable on reasonable terms. The program is important because the government must call on commercial airlines to move troops and equipment when it has insufficient airlift capacity. In 1994, GAO reported that the program lacked enough funds to pay potential insurance claims in the event of a catastrophic loss. (See GAO/RCED-94-151.) GAO testified that although progress has been made in addressing that issue, two other concerns raised in the 1994 report remain. First, gaps persist in the program's ability to pay claims for non-Defense flights. These flights account for only a small percentage of flights that have been insured by the program, but a single major loss could wipe out the program's available funds and leave a substantial part of the claims unpaid. FAA would need to seek supplemental funding to pay those claims, but the delay could pose financial hardship for the affected airline. Second, GAO believes that some uncertainty about the program continues because of ambiguity in the statutory language and FAA's current implementing regulations about whether the President must determine that a flight is in the foreign policy interests of the United States before issuing insurance.

GAO noted that: (1) in its 1994 report, GAO found that the program did not have sufficient funds available to pay potential insurance claims in the unlikely event of a catastrophic loss; (2) progress has been made in addressing this matter; specifically, the National Defense Authorization Act for Fiscal Year 1997 made funds available to indemnify the program for losses incurred under Department of Defense (DOD)-sponsored flights, which account for the majority of flights insured; (3) while GAO's major concern has been addressed, two other concerns that it raised in the 1994 report remain unresolved; (4) gaps remain in the program's ability to pay claims for non-DOD flights; (5) although these flights account for a relatively small percentage of the flights that have been insured by the program, a single major loss could liquidate the program's available funds and leave a substantial portion of the claim unpaid; (6) FAA would need to seek supplemental funding to pay the claim, but the delay could cause financial hardship for the affected airline; and (7) GAO believes that some uncertainty about the program continues to be caused by ambiguity in the statutory language and FAA's current implementing regulations about whether the President must make a determination that a flight is in the foreign policy interests of the United States before issuing insurance.