Certification of New Airlines

The Department of Transportation's certification process has added 90 new carriers to the airline industry during the past 5-1/2 years. These new carriers have increased competition among airlines and have reduced fares. However, about half of the applicants that applied to operate new airlines did not complete the process, mainly because they lacked the financial resources. In some cases, the Federal Aviation Administration spent considerable resources on costly certification activities. Although the Department of Transportation has taken steps to improve its certification process and reduce the amount of money spent on unsuccessful applications, it is too soon to know how successful these measures will be. The fees that applicants pay for certification allow the government to recoup only a small portion--less than one percent--of its costs for those applicants that complete the process. Although the government recoups some of its certification costs through ticket and fuel taxes, these funds are collected only from applicants that successful begin and sustain their operations. Requiring applicants to pay a greater share of the certification costs could generate revenue to help defray these expenses--a particularly important outcome during this period of declining federal budgets.

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.

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.

Director: Team: Phone: