[Congressional Record Volume 144, Number 119 (Thursday, September 10, 1998)]
[Extensions of Remarks]
[Pages E1694-E1695]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     INTERNATIONAL AIR ROUTE SALES

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                      Thursday, September 10, 1998

  Mr. OBERSTAR. Mr. Speaker, airlines realize windfall profits, 
sometimes amounting to hundreds of millions of dollars, from the sale 
of international routes which they were granted, free of charge, by the 
Department of Transportation. This practice not only produces windfall 
profits; it also imposes substantial costs on the airline purchasing 
the route; these costs, in turn, must then be recaptured by higher 
fares. Moreover, the sale of international routes sometimes prevents 
DOT from awarding the route to the carrier which is best qualified and 
best able to serve the public.
  Today, I am introducing legislation to prohibit this practice.
  Under governing law, international routes are originally awarded on 
the basis of a public interest determination by the Department of 
Transportation, following an evidentiary proceeding in which all 
applicants for the route have the opportunity to present their 
operating proposals. However, once a route is awarded, DOT permits the 
incumbent airline to sell the route for substantial sums, sometimes 
amounting to hundreds of millions of dollars. DOT has been willing to 
approve these sales as long as a sale would not be seriously 
inconsistent with U.S. international policy.
  The Department's approach has been to make this decision in a vacuum, 
without a comparative consideration of the proposals of other airlines 
which might be interested in the route. The effect of this policy has 
been that routes are frequently transferred to the largest U.S. 
airlines, which have the deepest pockets and are able to make the 
highest bid to the airline selling its routes.
  This approach is bad public policy for several reasons. First, it 
takes an asset, which was originally given to the holder free of charge 
in the public interest, and allows it to be sold for the highest price. 
The American public is the loser because the new route holder will have 
to raise fares to recoup the cost of the route. Secondly, the sale is 
inconsistent with the original rationale under which the route 
authority was granted: that the carrier selected can best serve the 
interests of the American public. Relying on the highest bid means 
that, potentially, a better qualified applicant will be denied the 
ability to provide this service to the American public. The DOT policy 
of approving the sale of major routes, apart from mergers, began in 
1986 when Pan American was allowed to sell its Pacific Division of 
United.
  The policy of permitting routes to be sold has led to other 
disturbing results. Recently Northwest Airlines, pledged international 
route authorities as collateral to enable Northwest to draw down a 
$2.08 billion line of credit syndicated by Chase Manhattan. The purpose 
of the draw down was to provide Northwest with sufficient funds to 
survive a strike until its employees agreed to Northwest's terms. I 
find it unacceptable for a company to use its international routes--
granted in the public interest--to support its ability to prolong a 
strike that denies many Americans basic air service. In addition, there 
have been rumors that

[[Page E1695]]

Northwest threatened that if it did not get its way in labor 
negotiations, it would sell off the assets of the company, including 
the international routes. Again, I find it unacceptable that 
international routes be used for this purpose. It is way past time that 
we stop such activities.
  My bill would end these abuses by prohibiting the sale of 
international routes. I recognize that this could be unfair if a 
carrier wanted to transfer a route it had previously purchased. In 
these cases, my bill would allow the carrier to recapture the price it 
originally paid.
  Mr. Speaker, we need to restore the original public policy premise 
for granting international routes: to provide the best service in the 
public interest. I hope my colleagues will join me in supporting this 
common-sense legislation which will promote the economic interests of 
the American traveling public.

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