International Aviation: DOT Needs More Information to Address U.S.
Airlines' Problems in Doing Business Abroad (Chapter Report, 11/29/94,
GAO/RCED-95-24).
U.S. airlines serving key European and Pacific Rim Airports often face
obstacles that foreign airlines operating in the United States
experience to a much lesser extent. These obstacles include (1) limited
access to landing and take-off slots; (2) inadequate terminals; (3)
restrictions on their ability to perform ground services, such as
checking in passengers and handling baggage; and (4) restrictions and
delays in processing cargo. These obstacles at overseas airports affect
all airlines expect the national carriers, creating a home-country
advantage for that carrier. The State Department and the Transportation
Department recognize that U.S. airlines face many doing-business
problems overseas, and these agencies have had some success in
eliminating them. For examples, the two agencies helped U.S. airlines to
obtain slots at satisfactory times at a Tokyo airport. Other problems,
however, persist.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-24
TITLE: International Aviation: DOT Needs More Information to
Address U.S. Airlines' Problems in Doing Business Abroad
DATE: 11/29/94
SUBJECT: Airline industry
Airports
International relations
Air transportation operations
Commercial aviation
International travel
Competition limitation
International economic relations
International agreements
Data collection operations
IDENTIFIER: Pacific Rim
European Community
Main Airport (Germany)
Heathrow Airport (United Kingdom)
Charles de Gaulle Airport (France)
Orly Airport (France)
Narita Airport (Japan)
Gatwick Airport (United Kingdom)
Barajas Airport (Spain)
Malpensa Airport (Italy)
Fiumicino Airport (Italy)
Kimpo Airport (Korea)
Kai Tak Airport (Hong Kong)
Changi Airport (Singapore)
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Aviation, Committee on Public
Works and Transportation, House of Representatives
November 1994
INTERNATIONAL AVIATION - DOT NEEDS
MORE INFORMATION TO ADDRESS U.S.
AIRLINES' PROBLEMS IN DOING
BUSINESS ABROAD
GAO/RCED-95-24
International Aviation
Abbreviations
=============================================================== ABBREV
CRS - computer reservation system
DOT - Department of Transportation
EU - European Union
FAA - Federal Aviation Administration
GAO - General Accounting Office
RPM - revenue passenger mile
TWA - Trans World Airlines
Letter
=============================================================== LETTER
B-257041
November 29, 1994
The Honorable James L. Oberstar
Chairman, Subcommittee on Aviation
Committee on Public Works
and Transportation
House of Representatives
Dear Mr. Chairman:
As you requested, this report examines the (1) problems U.S.
airlines experience when operating abroad and (2) efforts of the
departments of State and Transportation to eliminate these problems.
We are making recommendations aimed at improving the effectiveness of
the U.S. government's efforts to work with foreign governments to
eliminate the obstacles U.S. airlines face that reduce their ability
to compete with foreign airlines.
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter. We will then send
copies to the Secretary of Transportation; the Secretary of State;
the Director, Office of Management and Budget; and other interested
parties. We will also make copies available to others on request.
If you or your staff have any questions about this work, please call
me at (202) 512-2834. Major contributors to the report are listed in
appendix I.
Sincerely yours,
Kenneth M. Mead
Director, Transportation Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
International traffic is increasingly important to U.S. airlines.
In 1993, international operations constituted 28 percent of U.S.
airlines' operations--up from 21 percent in 1980--and this traffic is
expected to grow to 35 percent by 2005. Although U.S. airlines have
improved their performance in international markets, they often face
restrictions abroad that reduce the efficiency of their operations.
Concerned about these restrictions, the Chairman, Subcommittee on
Aviation, House Committee on Public Works and Transportation, asked
GAO to (1) identify problems that U.S. airlines face in doing
business in Europe and the Pacific Rim and (2) examine the U.S.
government's actions to resolve these problems.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
International aviation is governed by bilateral agreements, whereby
two countries negotiate the air transport services that take place
between them. The United States has 72 bilateral agreements that
establish traffic rights--the routes that airlines can serve between
the countries and any limitations on the number of airlines or
frequency of flights. Ancillary issues--such as access to adequate
airport facilities, which the airlines need to exercise the traffic
rights--are usually provided for in the agreements by a general
provision that guarantees the airlines a fair and equal opportunity
to compete. Such issues may also be addressed in specific
provisions. When these ancillary issues are in dispute, they are
commonly termed "doing-business problems." U.S. law requires that,
to the greatest degree possible, the departments of State and
Transportation (DOT) eliminate unfair competitive practices faced by
U.S. airlines in international travel, "including excessive landing
and user fees, unreasonable ground handling requirements, undue
restrictions on operations . . . and similar restrictive
practices." DOT takes the lead in formulating policies and
countermeasures to resolve doing-business problems; the State
Department chairs bilateral negotiations and coordinates DOT's
actions with overall U.S. foreign policy.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
U.S. airlines serving key European and Pacific Rim airports often
face obstacles that foreign airlines operating in the United States
experience to a much lesser extent. These obstacles include (1)
limited access to landing and take-off slots (reservations); (2)
inadequate terminal facilities, such as counter space for ticketing;
(3) restrictions on their ability to perform ground services, such as
checking in passengers and handling baggage; and (4) restrictions and
delays in processing cargo. In general, obstacles at overseas
airports affect all airlines--U.S. and non-U.S. alike--except the
national carrier, creating a home-country advantage for that carrier.
These obstacles hurt U.S. airlines particularly because they prevent
these airlines, which are often much more efficient than foreign
airlines, from fully exercising this competitive advantage.
The State Department and DOT recognize that U.S. airlines face many
doing-business problems overseas, and these agencies have had some
success in eliminating them. For example, the two agencies
facilitated an accommodation among the airlines at Tokyo's Narita
Airport so that U.S. airlines obtained slots at satisfactory times.
However, other problems persist. In attempting to resolve these
problems, the State Department and DOT (1) negotiate with foreign
governments that often protect their own flag carriers from
increasing U.S. competition, (2) balance the competing commercial
interests of the various U.S. airlines, and (3) weigh the resolution
of these problems with their attempts to obtain traffic rights for
U.S. carriers. DOT's efforts are inhibited because the agency does
not collect or analyze information on doing-business problems. As a
result, it does not know whether certain problems are pervasive,
whether they are increasing in number, or whether it is making the
most effective use of its limited resources to solve these problems.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
OBSTACLES OVERSEAS RAISE
U.S. AIRLINES' COSTS AND
REDUCE EFFICIENCY
-------------------------------------------------------- Chapter 0:4.1
U.S. airlines face obstacles in doing business overseas that raise
their costs, reduce their operating efficiency, and create a
home-country advantage for the national carrier. While U.S.
airlines were unable to provide GAO with precise measures of these
impacts, they did provide specific examples of their problems. For
instance, at various times, U.S. airlines have obtained only limited
access to several key airports, such as London's Heathrow Airport,
because they have had difficulty obtaining take-off and landing slots
at times that coordinate with their domestic schedules. Insufficient
or inconvenient slots reduce the value of U.S. airlines' traffic
rights. Slots are not assigned automatically with traffic rights but
are allocated by airport slot coordinators, often employees of a
nation's flag carrier. Foreign authorities said that high demand and
capacity constraints keep them from accommodating U.S. airlines'
requests regarding slots. In comparison, foreign airlines reported
fewer problems obtaining their preferred slots at key U.S.
international airports.
At several major foreign airports, U.S. airlines' facilities are
inadequate compared with the facilities assigned to the national flag
carrier. At Tokyo's Narita Airport, U.S. and other foreign airlines
occupy half of an old, overcrowded terminal, while Japan's national
airlines use a spacious new terminal. Japanese officials have agreed
to renovate the old terminal over a 10-year period and make
modifications to reduce the disparity between the terminals.
However, the current disparity severely impairs the other airlines'
ability to attract higher-paying first- and business-class
passengers, according to U.S. airline officials. Likewise,
restrictions on ground operations, such as passenger check-in and
baggage-handling, raise U.S. airlines' costs and reduce efficiency.
Airports such as Milan's Malpensa prohibit U.S. and other airlines
from conducting such ground operations for themselves. Instead, only
the airport authority and/or national carrier can provide these
services--a problem particularly common in Europe. In the Pacific
Rim, numerous restrictions also increase the costs of processing
cargo. At Seoul's Kimpo Airport, for example, U.S. airlines cannot
operate trucking companies but must use Korean truckers to deliver
cargo and express shipments, resulting in higher costs and delays.
In contrast, Korean airlines can own trucking companies in the United
States.
U.S. EFFORTS TO RESOLVE
DOING-BUSINESS PROBLEMS
ACHIEVE MIXED RESULTS
-------------------------------------------------------- Chapter 0:4.2
DOT and the State Department have had mixed results in eliminating
U.S. airlines' problems. During negotiations with Germany in 1994,
for example, the United States preserved for Delta Air Lines the
right to provide ground-handling services for all its flights at its
Frankfurt hub. However, many other problems persist. In attempting
to resolve them, DOT and the State Department face a formidable task.
Foreign governments protecting their national carriers are not often
disposed to resolve these issues in favor of lower-cost U.S.
carriers. In addition, DOT's Office of International
Aviation--responsible, in conjunction with the State Department, for
negotiating bilateral accords and addressing doing-business
problems--has had its staffing level cut by about half over the last
12 years. This reduction occurred as international operations
increased in importance to U.S. airlines and as stronger, more
aggressive U.S. carriers replaced failed or financially ailing
carriers as major participants in the international marketplace.
Several U.S. airline officials complained that their problems often
linger because no one official in DOT is in charge of monitoring the
status of their problems or fashioning solutions to them. GAO also
found that DOT did not collect and analyze information on
doing-business problems, with the exception of formal complaints
filed by the airlines. Because it does not collect and analyze such
information on a regular basis, DOT cannot determine the extent to
which certain problems are pervasive or identify trends. Noting that
DOT staff had difficulty compiling such information during GAO's
review, the agency's Assistant Director for Negotiations stated that
a periodic, centralized "clearinghouse," in which information on the
status of airlines' problems is collected and analyzed, would provide
the agency with a better overview of the problems and allow it to
better develop solutions to those problems. Several other DOT
officials, on the other hand, stated that resource constraints were
the main reason why they could not give prompt or sustained attention
to some problems.
RECOMMENDATION
---------------------------------------------------------- Chapter 0:5
To ensure that U.S. airlines' doing-business problems receive
sustained attention in an era of increasing U.S. airline activity
overseas and declining government resources, GAO recommends that the
Secretary of Transportation collect and analyze information on the
status, nature, and severity of U.S. airlines' doing-business
problems overseas. With this information, DOT would be in a better
position to establish priorities and strategies to address the most
serious and pervasive problems.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
GAO discussed a draft of this report with senior DOT and State
Department officials, including DOT's Acting Assistant Secretary for
Aviation and International Affairs and the Department of State's
Director, Office of Aviation Programs and Policy. These officials
said that U.S. airlines' doing-business problems overseas are real
and often persistent. They also noted that foreign laws and culture
present challenges to many trade activities but that because of the
historically pervasive role of governments in international aviation,
U.S. airlines operating abroad receive greater assistance in
resolving problems than do many other industries. In addition, they
emphasized that they have resolved numerous problems for U.S.
airlines and that inadequate resources prevent DOT from providing the
sustained attention such problems deserve. On the basis of their
comments, GAO made several revisions to this report. As requested,
GAO did not obtain written comments on a draft of this report.
INTRODUCTION
============================================================ Chapter 1
Over the last decade, U.S. airlines have become increasingly
successful international competitors. Stronger, more efficient U.S.
airlines--American, Delta, and United--joined Northwest as major
participants in foreign markets in place of failed or financially
ailing incumbents, such as Pan Am and Trans World Airlines (TWA).
These airlines helped increase the U.S. share of passenger traffic
in international markets. Because of these gains, the international
marketplace has steadily become more important to U.S. airlines.
Nonetheless, for a variety of reasons, U.S. airlines frequently have
been unable to make a profit on their international services. Unlike
the domestic market, the international market is heavily regulated,
mostly governed by bilateral agreements between countries. In these
agreements, countries establish traffic rights--the routes, and in
some cases the number of airlines that can offer service and the
frequency of flights available for each nation's airlines. When U.S.
airlines encounter discrimination or unfair competitive practices in
foreign countries, the Department of Transportation (DOT) has
authority to take all appropriate actions to eliminate these
practices, commonly referred to as "doing-business problems."
INTERNATIONAL OPERATIONS ARE
INCREASINGLY IMPORTANT TO U.S.
AIRLINES
---------------------------------------------------------- Chapter 1:1
International traffic is increasingly important to U.S. airlines,
accounting for 28 percent of their revenue passenger miles (RPM) in
1993\1 --compared with 21 percent in 1980. This trend is expected to
continue. The Federal Aviation Administration (FAA) estimates that
by 2005, international traffic will account for 35 percent of U.S.
airlines' traffic.
International traffic has increased in importance largely because the
U.S. government adopted a market-oriented international aviation
policy, and more efficient U.S. airlines have replaced financially
ailing or failed carriers (Braniff, Eastern, Pan Am, and TWA) in the
international marketplace. The new U.S. competitors are more
productive and have lower operating costs than many foreign airlines.
For example, a study by the European Union (EU) found that the
overall operating costs of major European airlines were about 50
percent higher than the operating costs of major U.S. airlines in
1992. In addition, U.S. airlines introduced into international
markets the innovative operating and marketing practices, such as
frequent flyer programs, that they had developed to compete in the
deregulated U.S. market. These innovations also helped U.S.
airlines successfully compete with foreign carriers for passengers
traveling to and from the United States. By 1993, the U.S. share of
the trans-Atlantic market had increased to 47 percent from 42 percent
in 1980; in the Pacific Rim market, the U.S. share had increased to
53 percent from 41 percent.\2
Services across the Atlantic and to the Pacific Rim are particularly
important to U.S. airlines. As shown in figure 1.1, these services
accounted for about 85 percent of U.S. airlines' international
traffic in 1993. As shown in figure 1.2, these two regions also
accounted for 83 percent of U.S. airlines' international revenues.
For routes between the United States and these regions, U.S.
airlines are often competing against other countries' flag carrier,
such as Air France (France), Alitalia (Italy), Lufthansa (Germany),
Japan Air Lines (Japan), or Cathay Pacific (Hong Kong).
Figure 1.1: Scheduled U.S.
Airlines' RPMs in International
Markets by Region, 1993
(See figure in printed
edition.)
Source: FAA.
Figure 1.2: Scheduled U.S.
Airlines' International
Revenues by Region, 1993
(See figure in printed
edition.)
Note: Total exceeds 100 percent because of rounding.
Source: DOT.
Although U.S. airlines have increased their share of international
markets, they have had difficulty making a profit on these services.
Over the last 5 years, U.S. airlines have collectively lost over
$4.1 billion on international services (see table 1.1). A number of
factors contributed to this negative performance, including the Gulf
War and the global economic slowdown in the early 1990s, low fares,
and increased costs incurred by some U.S. airlines (e.g., Delta) in
assimilating into their system the international routes of their
failed or financially ailing predecessors (e.g., Pan Am). However,
as table 1.2 illustrates, some U.S. airlines have been able to make
profits from their international operations. These varying results
also demonstrate how U.S. airlines compete in the international
marketplace not only with foreign airlines but also among themselves.
Table 1.1
Scheduled U.S. Airlines' Operating
Profit or Loss From Domestic and
International Services, 1989-93
(Dollars in billions)
Domest Internationa
Year ic l Total
------------------------------ ------ ------------ ------
1989 $1.854 $(0.043) $
1.811
1990 (0.988 (0.924) (1.912
) )
1991 (0.528 (1.257) (1.785
) )
1992 (1.147 (1.298) (2.444
) )
1993 2.097 (0.662) 1.434
Total $1.288 $(4.184) $(2.89
6)
------------------------------------------------------------
Source: Air Transport Association.
Table 1.2
Selected Scheduled U.S. Airlines'
Operating Profit or Loss From
International Services by Region, 1993
(Dollars in millions)
Latin Total
Atlant Americ Pacifi Internationa
Airline ic a c l
---------------------- ------ ------ ------ ------------
American Airlines $(1.6) $199.6 $8.3 $206.3
Continental Airlines 3.8 24.2 (17.9) 10.1
Delta Air Lines (523.7 (1.1) (85.0) (609.7)
)
Federal Express (168.7 (6.4) (110.8 (285.7)
) )
Northwest Airlines 19.5 N/A 43.8 63.3
Trans World Airlines (185.3 N/A N/A (185.3)
(TWA) )
United Airlines (83.8) (35.8) 230.6 111.0
United Parcel Service 0.8 (3.1) 28.7 26.4
USAir 19.3 (4.5) N/A 14.8
============================================================
Total $(919. $173.0 $97.9 $(648.9)
7)
------------------------------------------------------------
Note: "N/A" denotes that a carrier does not serve that region.
Source: DOT.
--------------------
\1 A RPM is one paying passenger transported one mile.
\2 The Atlantic market, though consisting predominantly of service to
Europe, also includes service to the Middle East and Africa. The
Pacific Rim region (also referred to as the Asian-Pacific region)
consists of 34 countries in Northeast Asia, Southeast Asia, South
Asia, and the Southwest Pacific.
BILATERAL AGREEMENTS GOVERN
INTERNATIONAL AVIATION
---------------------------------------------------------- Chapter 1:2
Under the framework established by the Chicago Convention in 1944,
international aviation is governed in most cases by bilateral
agreements on civil air services. Two countries negotiate the air
transport services between them and award their airlines the right to
offer those services. The United States has 72 bilateral aviation
agreements covering air services to 107 countries.\3
These agreements establish the traffic rights of the airlines
offering service in international markets. In general, traffic
rights determine (1) which routes airlines can serve between the
countries and to third countries; (2) what services they can provide
(e.g., scheduled or charter); and (3) in some cases, how many
airlines from each country can fly the routes and how frequently they
can offer flights.
--------------------
\3 Some countries do not have a bilateral agreement with the United
States or are covered by a bilateral agreement between the United
States and another country.
PROBLEMS IN DOING BUSINESS CAN
INHIBIT AIRLINES' ABILITY TO
EXERCISE TRAFFIC RIGHTS
---------------------------------------------------------- Chapter 1:3
Ancillary activities are those necessary to exercise traffic rights.
They include, among other things, the adequacy of airlines'
facilities and the policies and procedures for passenger and cargo
services at international airports. When ancillary activities are in
dispute, they are called "doing-business problems." Doing-business
problems are obstacles that inhibit the airlines from fully
exercising the traffic rights available to them under bilateral
aviation agreements or that reduce the competitiveness of the
airlines' services. These problems include inadequate facilities or
restrictions on the ability of the airlines to provide their own
ground-handling services.\4
Doing-business problems can negatively affect operating costs as well
as an airline's ability to compete effectively and to serve
customers.
Many problems with these ancillary activities are not specifically
addressed in U.S. bilateral agreements but rather are broadly
covered under provisions in the agreements guaranteeing airlines the
"fair and equal opportunity to compete." However, several U.S.
bilateral agreements negotiated over the last decade contain
provisions that specifically address particular problems, such as
restrictions on ground-handling.
--------------------
\4 Ground-handling comprises a wide range of airport services needed
by airlines for their passengers, cargo, and aircraft. Most
ground-handling services are of three types: passenger- handling,
ramp-handling, and cargo-handling. Passenger-handling includes
checking in and boarding passengers, providing information to
passengers at arrival desks and departure halls, handling baggage
within terminals, and transporting passengers between the terminals
and the aircraft. Ramp-handling involves activities that take place
on the runway apron, such as loading and unloading aircraft, cleaning
and maintaining aircraft and equipment, refueling, pushing back and
towing aircraft, loading and unloading baggage, and catering.
Cargo-handling includes loading and unloading cargo and storing it in
warehouses.
DOT AND THE STATE DEPARTMENT
ARE RESPONSIBLE FOR ADDRESSING
U.S. AIRLINES' DOING-BUSINESS
PROBLEMS ABROAD
---------------------------------------------------------- Chapter 1:4
Responsibility for negotiating bilateral agreements for the United
States rests with DOT and the State Department. In addition, 49
U.S.C. section 41310 states that the Secretaries of State and
Transportation shall take appropriate action to eliminate any
discrimination or unfair competitive practices faced by U.S.
airlines overseas. U.S. carriers can file formal complaints with
DOT about such practices. DOT must approve, deny, dismiss, or set
such complaint for hearing or investigation, or institute a
proceeding proposing other remedial action within 60 days of
receiving the complaint. DOT can extend the deadline in 30-day
increments to a maximum of 180 days if (1) officials believe
negotiations are leading to an imminent resolution and (2) more time
is required in the public interest and the affected carrier has not
suffered economic harm as a result of filing the complaint.
DOT takes the lead in formulating polices and countermeasures to
resolve doing-business problems, while the State Department is
responsible for chairing negotiations with foreign governments and
coordinating DOT's actions with overall U.S. foreign policy. In
addition, officials at U.S. embassies assist U.S. airlines
operating abroad, sometimes facilitating discussions between foreign
government officials and U.S. airline representatives to resolve
specific problems.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:5
Concerned about the problems U.S. airlines have reported in doing
business abroad, the Chairman, Subcommittee on Aviation, House
Committee on Public Works and Transportation, asked us to (1)
identify problems that U.S. airlines face in doing business in
Europe and the Pacific Rim and (2) examine the U.S. government's
actions to resolve these problems.
To identify the problems U.S. airlines face in doing business in
Europe and the Pacific Rim region, we interviewed officials from
DOT's Office of International Aviation, FAA's Office of Civil
Aviation Security, and the State Department's offices of Aviation
Programs and Policy and Aviation Negotiations. We also interviewed
representatives of U.S. airlines in Washington, D.C. In the Pacific
Rim region, we performed our work in Australia, Hong Kong, the
Republic of Korea, Japan, and Singapore. We selected these five
countries because, together, they accounted for over 90 percent of
international airlines' passenger traffic in the Pacific Rim region
and about one-third of international airlines' traffic worldwide in
1990. To assess problems in Europe, we visited the United Kingdom,
France, Germany, Spain, and Italy. We chose these countries because
they account for about 77 percent of airline passenger traffic
between the United States and Europe. In those countries, we also
interviewed officials representing the U.S. government, U.S.
airlines, foreign governments, foreign airlines, foreign airport
authorities, the European Union, and aviation trade associations.
Finally, we inspected the facilities provided to U.S. airlines at 13
airports in Europe and the Pacific Rim.
To assess the impact of the doing-business problems faced by U.S.
airlines, we reviewed information and documents obtained from local
U.S. airline officials in the countries we visited. We then
discussed the information with U.S. embassies and with foreign
airports and governments. We also spoke to U.S. airline officials
in Washington, D.C., about these problems. Although U.S. airline
representatives were unable to provide precise measures of the
impacts of doing-business problems, they did provide us with specific
examples of how these problems affect their operations.
To evaluate the U.S. government's actions to resolve U.S. airlines'
problems overseas, we reviewed DOT's and the State Department's
files, documents, reports, and regulations. We also interviewed U.S.
airline representatives, DOT and State Department officials, and U.S.
embassy staff.
Finally, we discussed a draft of this report with senior DOT and
State Department officials, including DOT's Acting Assistant
Secretary for Aviation and International Affairs and the State
Department's Director, Office of Aviation Programs and Policy. On
the basis of their comments, we made several changes to this report.
We have included a detailed discussion of their comments and our
changes at the end of chapters 2 and 3. As requested, however, we
did not obtain written comments on a draft of this report. We
conducted our work between July 1993 and September 1994 in accordance
with generally accepted government auditing standards.
DOING-BUSINESS PROBLEMS REDUCE THE
COMPETITIVENESS OF U.S. AIRLINES
OVERSEAS
============================================================ Chapter 2
In doing business at key European and Pacific Rim airports, U.S.
airlines encounter numerous problems that constrain their operations
and reduce their opportunities to compete effectively. These
problems include (1) limited access to landing and take-off slots at
commercially viable times; (2) inadequate airport facilities; (3)
restrictions on ground-handling operations, such as servicing
aircraft; and (4) restrictions and delays in processing cargo.
Foreign airlines, in comparison, generally face many fewer problems
when operating at U.S. airports. Although U.S. airlines could not
provide precise estimates of the costs resulting from these
obstacles, their cumulative effect is to raise the airlines'
operating costs and reduce the quality of services. In general,
obstacles at a particular overseas airport are experienced by all
airlines--U.S. and non-U.S. alike--except, in many cases, the
national flag carrier. That carrier therefore has a competitive
advantage. In addition, several of these obstacles can have a
disproportionate impact on U.S. carriers because these airlines are
generally more efficient than many foreign airlines and thus are best
positioned to take advantage of increased freedom to operate without
restrictions.
LIMITED ACCESS TO SLOTS REDUCES
COMMERCIAL VALUE OF U.S.
AIRLINES' TRAFFIC RIGHTS
---------------------------------------------------------- Chapter 2:1
U.S. airlines have only limited access to several congested airports
in Europe and the Pacific Rim because they cannot obtain
slots--reservations for aircraft landings and take-offs--that allow
efficient connections with domestic flights. Airports control slots
when the demand for them exceeds their capacity. According to U.S.
airline officials, insufficient or inconvenient slots reduce the
commercial value of their traffic rights. In contrast, the foreign
airlines we spoke with reported no problems obtaining commercially
viable slots at the two slot-controlled international airports in the
United States--Chicago's O'Hare International Airport and New York's
John F. Kennedy International Airport. For example, in the past,
slots at O'Hare Airport have been withdrawn from domestic airlines if
they are needed by U.S. and foreign airlines for international
services. However, the FAA Authorization Act of 1994 prevents any
increase in withdrawal of domestic slots for use by foreign airlines
at Chicago's O'Hare.
U.S. airlines told us that they had difficulty obtaining slots at
commercially competitive times at Frankfurt's Main, London's
Heathrow, Paris's Charles de Gaulle and Orly, and Tokyo's Narita
airports. Table 2.1 lists the problems the airlines encountered at
these airports.
Table 2.1
U.S. Airlines' Problems Obtaining
Commercially Viable Slots at Selected
Airports in Europe and the Pacific Rim
Airport Problem Alleged impact
------------ -------------------------------- --------------------------------
Europe
--------------------------------------------------------------------------------
Frankfurt- Assigned departure slots for one Greater concentration of
Main U.S. airline's flights were operations and increased costs
spaced too close together; for staff and facilities
airline cannot obtain arrival
slots to accommodate
substitution of slower aircraft
on one route.
London- One airline was offered slots Incompatible with connections
Heathrow\a for a route at inconsistent with domestic flights; airline
times.\b postponed inaugurating the
flight, thus losing potential
market share and passenger
revenues to competing airlines
London- One airline's departure slots Increased risks of passengers'
Heathrow were scheduled at less favorable missing connecting flights in
times than those of competing the United States
airlines.
Paris- One cargo airline was assigned Reduced ability of airline to
Charles de inconsistent daily slots; meet express shipment deadlines
Gaulle applying for and receiving
approval for slots is time-
consuming.
Paris-Orly Noise curfew makes it difficult Reduced ability of airline to
for one cargo airline to obtain meet express shipment deadlines
slots during nighttime hours. for next-day delivery
Pacific Rim
--------------------------------------------------------------------------------
Tokyo- Five U.S. airlines\ had Cannot offer additional services
Narita difficulty in obtaining or adjust schedules
competitive landing and take-
off slots at varying times\.
--------------------------------------------------------------------------------
\a The U.S. bilateral agreement with the United Kingdom specifies
that only two U.S. airlines may serve London's Heathrow.
\b According to the slot coordinating organization, the airline's
request for slots received lower priority than those of other
airlines because the airline's traffic rights for the proposed flight
had not yet received official approval from the U.S. and U.K.
governments.
Acknowledging that these problems occur, DOT has determined that they
are not the result of discrimination against U.S. carriers but
rather are due to limited airport capacity. Airlines are not
provided with slots automatically when they receive traffic rights.
Instead, under guidelines developed by the aviation industry,
airlines can request slots twice a year from the designated "slot
coordinator" at an airport, often an employee of the national flag
carrier or a government entity. Airlines retain the right to those
slots that they used during the previous travel season--known as
historical slots. In allocating slots, coordinators are supposed to
balance requests from domestic and international airlines with the
airport's capacity. Airlines competing on the same routes often
prefer slots at the same peak operating hours. When slot
coordinators are unable to accommodate an airline's first request,
they try to offer other slots as close in time to the preferred slots
as possible or may assign slots that vary from day to day for the
same flight. Once airlines are assigned slots, they can exchange
slots among themselves, subject to the coordinator's approval.
Because national flag carriers dominate the airports in their
homeland, these carriers usually have many more historical slots and
greater flexibility to adjust their operations than other airlines.
When these other airlines, including U.S. airlines, do not have
slots for their flights at competitive times, the commercial value of
their traffic rights is reduced because uncompetitive slots result in
less convenient departure and arrival times or longer layovers for
passengers. Obtaining slots is a recurring problem for U.S.
airlines at congested airports because they frequently attempt to
modify their schedules in response to market demand, according to DOT
officials. For U.S. passenger airlines, the ultimate impact is lost
revenues because passengers may prefer to fly on competing foreign
airlines, particularly national flag carriers, that have more slots
and more convenient flight times at their respective hubs. U.S.
cargo airlines also lose revenues because inconvenient slots can
delay their time-sensitive operations, requiring them to reimburse
customers for late deliveries.
INADEQUATE AIRPORT FACILITIES
IMPAIR U.S. AIRLINES' ABILITY
TO PROVIDE QUALITY SERVICE
---------------------------------------------------------- Chapter 2:2
At a number of airports in Europe and the Pacific Rim, U.S. and
other foreign airlines are located in passenger and cargo terminals
that have inadequate or inferior facilities for aircraft, cargo
shipments, and passenger traffic compared with the newer terminals
and facilities assigned to national flag carriers. Furthermore,
these airlines are sometimes prevented from moving to more modern
facilities at these airports. As a result, several U.S. airlines
contend that they are unable to achieve the same quality of service
as the national flag carriers. Some of these airports are in the
process of or planning to expand or upgrade facilities used by U.S.
airlines. However, these improvements will not be completed for
several years, and most of the airports have not provided for interim
modifications to reduce the disparities. Therefore, until the
renovation projects are completed, U.S. and other carriers will
remain at a competitive disadvantage vis-�-vis the national flag
carrier in each of these countries.
U.S. AIRLINES ARE PROVIDED
WITH INADEQUATE FACILITIES
-------------------------------------------------------- Chapter 2:2.1
Many U.S. airlines operate out of old and overcrowded terminals. At
9 of the 13 airports we visited, U.S. airlines have inadequate
facilities for ticketing and checking-in passengers, insufficient
gates for parking aircraft, or insufficient warehouse space for
cargo. (Table 2.2 lists the problems reported by U.S. airlines at
these airports.) These deficiencies lead to congestion, delays in
processing passengers and cargo, and higher operating costs.
Airlines operating at airports overseas generally have little control
over terminal facilities. Foreign airport authorities say that they
establish the number of check-in desks and gates assigned to each
airline on the basis of the anticipated number of passengers and the
amount of space available. Although we were unable to verify this
statement, we found that several U.S. airlines' facilities at nine
airports we toured were inadequate for their needs.
Table 2.2
U.S. Airlines' Problems With Airport
Facilities at Selected Airports in
Europe and the Pacific Rim
Number
of U.S.
airline
s
affecte
Airport Problem Alleged impact d
----------- ---------------------------- ---------------------------- -------
Europe
--------------------------------------------------------------------------------
London- Insufficient number of Delays in processing 1
Gatwick check-in counters; no check- passengers
in counters dedicated to
airline
Cannot move to more modern, Service improvements 1
convenient terminal\a prevented
Madrid- Insufficient number of Delays in processing 2
Barajas check-in counters; no check- passengers
in counters dedicated to
airline\b
Insufficient number of gates Inconvenient for passengers 3
or jetways who must be transported to
and from terminals by bus
Milan- No check-in counters See above 1
Malpensa dedicated to airlines\c
No jetways See above 1
Paris- Located in older, Congestion and delays in 3
Charles de inefficiently designed processing passengers
Gaulle passenger terminal
Insufficient number of See above 2
check-in counters
Cannot move to more modern Service improvements 2
and convenient terminal\d prevented
Cannot move to airport from Operating improvements 1
Paris-Orly airport prevented
Paris-Orly Insufficient number of See above 1
check-in counters
Paris-Orly Insufficient number of gates Inconvenient for passengers 1
who must be transported to
and from terminals by bus
Rome- Insufficient number of See above 2
Fiumicino check-in counters; no check-
in counters dedicated to
airlines
Insufficient number of gates See above 1
or jetways
Pacific Rim
--------------------------------------------------------------------------------
Seoul- Insufficient number of See above 2
Kimpo check-in counters
Insufficient warehouse space Higher operating costs; 6
for cargo; construction of prevented from expanding
new warehouse has fallen services to meet demand
behind schedule
Tokyo- Located in old, overcrowded Impaired efficiency of 3
Narita passenger terminal operations
--------------------------------------------------------------------------------
\a One U.S. airline was permitted to move to a more modern terminal.
\b Two U.S. airlines have dedicated check-in counters.
\c One U.S. airline has dedicated check-in counters.
\d The Paris airport authority, A�roports de Paris, said that
capacity constraints prevent it from allowing all airlines to operate
at the newer terminal.
The following two examples are typical of the problems that U.S.
airlines encounter with facilities that impede their ability to
provide services that are fully competitive with those of the
national flag carrier.
PARIS'S CHARLES DE GAULLE
AIRPORT
------------------------------------------------------ Chapter 2:2.1.1
In Paris, three U.S. airlines are dissatisfied with structural
inefficiencies at Charles de Gaulle Airport, where they are located
in the older of the two passenger terminals--Terminal 1.\5 The
terminal design requires that the luggage of all arriving and
departing passengers move through a central sorting site underneath
the terminal. As a result, passengers may await their baggage for 30
to 45 minutes or even longer when baggage is transferred between
airlines. At Terminal 1, we also noted that all arriving and
departing passengers use the same level in the transit and passport
control area, making it difficult for departing passengers to reach
their gates because of congestion in the terminal. Finally, one
airline complained that the terminal does not have enough check-in
counters to accommodate its schedule, particularly during peak
departure times. U.S. airlines have raised these issues with the
airport authority, which responded that the situation cannot be
improved because of the structural design of the terminal.
The airport's newer terminal--Terminal 2--does not suffer from the
same problems. Opened in 1981, originally for the exclusive use of
the national flag carrier, Air France, Terminal 2 is designed for
more efficient baggage-handling and passenger transfers and for easy
access to ground transportation. We concluded that Terminal 2 is a
more efficient terminal, giving Air France a competitive advantage
over U.S. airlines operating out of the older terminal.
--------------------
\5 Other U.S. airlines serve Paris through Orly Airport. Air France
operates from Charles de Gaulle's Terminal 2. At the time of our
visit, only one U.S. airline had received permission to move to
Terminal 2, although other airlines have made formal requests to do
so.
TOKYO'S NARITA AIRPORT
------------------------------------------------------ Chapter 2:2.1.2
At Tokyo's Narita Airport, we identified a similar disparity between
the facilities of the national flag carrier and those of other
airlines. Three U.S. airlines operate from an old, over-crowded
passenger terminal at Narita Airport, making their services less
attractive than those of the Japanese airlines and some other foreign
airlines, which operate from a spacious new terminal. The airlines'
problem has been exacerbated because the amount of available space
has been reduced by half with the closure of the airport's north wing
as the airport authority begins a decade-long renovation of the old
terminal. Thus, the 3 U.S. airlines and 13 other foreign airlines
operate from one-half of the old terminal, even though the number of
passengers using the two terminals is essentially equal.
We found substantial differences between the old and the new
terminals in the amount of space, number of ticket counters, and
quality of the lounges, as well as other amenities. The new terminal
was also more aesthetically pleasing than the old terminal. The old
terminal is being upgraded over the next decade to make it comparable
to the new terminal, but the U.S. airlines were dissatisfied with
the proposed plan because it did not provide for interim
modifications to minimize the disparity between the terminals. U.S.
airline officials said that the disparity between the old and new
terminals would severely impair their ability to attract lucrative
business- and first-class passengers. After consultations with U.S.
government and airline representatives, Japanese authorities agreed
to make interim renovations and to phase in construction work to
reduce the adverse effect on U.S. airlines. Nevertheless, a
disparity in terminal quality still exists, and Japanese national
airlines have advertised the differences between the new and old
terminals in an effort to capitalize on the situation.
EFFORTS ARE UNDER WAY TO
UPGRADE FACILITIES, BUT
PROBLEMS WILL LIKELY PERSIST
FOR SEVERAL YEARS
-------------------------------------------------------- Chapter 2:2.2
Airport authorities in Europe and the Pacific Rim acknowledged the
problems with facilities and said they plan to expand and upgrade
them. Expansion and upgrading of facilities are planned at London's
Gatwick, Milan's Malpensa, Rome's Fiumicino, Seoul's Kimpo, and
Tokyo's Narita airports. The airport authorities we interviewed
noted, however, that such improvements will not be completed for
several years. Furthermore, several of these improvements are being
made primarily for the benefit of the national flag carrier. For
example, Paris's Charles de Gaulle is developing a new terminal for
Air France. U.S. airlines at the airport will likely be permitted
to move to the terminal that Air France vacates (Terminal 2), but a
disparity in the quality of the terminals will persist.
RESTRICTIONS ON GROUND-HANDLING
SERVICES CONTRIBUTE TO
INCREASED COSTS AND POORER
SERVICE
---------------------------------------------------------- Chapter 2:3
Of the 13 European and Pacific Rim airports we visited, 9 restrict
U.S. and other airlines' choices for ground-handling services by
either prohibiting the airlines from performing these services
themselves and/or designating specific agents to supply handling
services--often to the airport authority or national flag carrier.
Each of these airports also prohibits U.S. airlines from
"third-party handling," whereby airlines or their subsidiaries are
allowed to provide ground-handling services to other airlines. By
comparison, foreign airlines generally have freedom to provide their
own handling services or contract for services at major U.S.
international airports. Table 2.3 lists the restrictions on
ground-handling services encountered by U.S. airlines at the
airports we visited.
Table 2.3
U.S. Airlines' Problems with Ground-
Handling Restrictions at Selected
Airports in Europe and the Pacific Rim
Number of
U.S. airlines
Airport Restriction affected
--------- ------------------------------------------------------ -------------
Europe
--------------------------------------------------------------------------------
Frankfurt Cannot handle ramp operations themselves or freely 3
-Main\a contract for services until Nov. 1997; cannot provide
handling services for other airlines
Madrid- Cannot handle ramp operations themselves or freely 3
Barajas\b contract for services
Cannot provide handling services to other airlines 4
Milan- Cannot handle cargo, passenger, or ramp operations 4
Malpensa themselves or freely contract for services; cannot
\c provide handling services for other airlines
Paris- Cannot handle ramp operations themselves or freely \4
Charles contract for services; cannot handle cargo,
de passengers, or ramp operations for other airlines
Gaulle\d
Paris- Cannot handle ramp operations themselves or freely 1
Orly contract for services; cannot provide handling
services for other airlines
Rome- Cannot handle passenger or ramp operations themselves 1
Fiumicin or freely contract for services
o\c
Cannot handle ramp operations themselves 2
Cannot provide handling services for other airlines 3
Pacific Rim
--------------------------------------------------------------------------------
Hong Cannot handle cargo or ramp operations themselves or 3
Kong- freely contract for services
Kai Tak\
Singapore Cannot handle ramp operations for other airlines 1
-Changi
Seoul- Cannot provide handling services to other airlines 2
Kimpo
--------------------------------------------------------------------------------
\a Although the Frankfurt airport authority has a monopoly on
providing ramp-handling services, DOT preserved the right for U.S.
airlines to provide ramp-handling services for their own flights.
\b Although Iberia has a monopoly on providing ramp-handling
services, two U.S. airlines are allowed to handle some ramp
operations at Madrid themselves. However, one U.S. airline is
charged higher rates for some services that Iberia provides because
it does not contract with Iberia for all ramp-handling services.
\c The Milan and Rome airport authorities generally have a monopoly
on all ground-handling services at their airports. One U.S. airline
can provide its own ground-handling services at Milan and Rome but
must pay a royalty to the airport for the privilege. Another U.S.
airline recently began handling its own passenger operations at Rome.
\d Only the Paris airport authority and Air France can provide
ramp-handling services for other airlines.
In general, the restrictions on ground-handling services at these
airports are experienced by all airlines--U.S. and non-U.S.
airlines alike--except for the national flag carrier. Flag carriers
such as Air France, Alitalia, Cathay Pacific, and Iberia thus enjoy a
competitive advantage at airports in their home countries. They or
their subsidiaries are the only entities allowed to handle their own
ramp operations or provide third-party ground-handling services and,
thus, control the cost and quality of these functions or generate
additional revenues.\6 However, at Frankfurt and Milan airports, the
restrictions apply to the national flag carriers as well. Revenues
from ground-handling services can be significant sources of income
for the airport authorities and flag carriers. In contrast, U.S.
airlines do not enjoy a similar monopoly on ground-handling services
at U.S. airports.
Ground-handling is a significant element of operations, affecting
airlines' costs and ability to compete effectively and to serve
customers. U.S. airline representatives emphasized that
restrictions on ground-handling services raise operating costs, lower
the quality of service, and reduce efficiency. They would like the
freedom to conduct such services themselves or freely contract for
them by choosing among several competing agents. These
representatives contend that current restrictions allow
ground-handling agents to charge excessive prices and unilaterally
impose charges and fees. For example, one U.S. airline complained
that Paris's Orly Airport does not consult with airlines about its
operating plans and fees. In some cases, the U.S. airline itself
must provide services which it has already paid the airport to
perform. U.S. airlines estimate they could save about $1 million to
$1.4 million annually by providing their own ground-handling services
rather than contracting for them from current providers at particular
airports. Furthermore, representatives from U.S. and other airlines
contend that monopoly ground-handling agents--such as those at
Frankfurt, Madrid, Milan, and Rome--have little incentive to keep
costs low or provide high-quality services and are generally
unresponsive to the airlines' complaints.
Finally, U.S. airlines believe that restrictions on ground-handling
also affect their potential revenues. According to some U.S.
airlines, the ability to generate additional revenues through
third-party handling would also affect their decision to provide
their own services if allowed to do so, especially at airports where
they operate relatively few flights and where performing their own
ground-handling services would be too expensive. Airport authorities
we interviewed, however, cited various reasons for limiting
competition in these services and argued that they, not the airlines,
can best judge the most efficient use of their airports' resources.
For example, some airport authorities stated that they are entitled
to maintain a monopoly in ground-handling because of the capital
investments they have made. They also said that allowing more
handling agents at their airports could compromise safety, security,
and the quality of services. However, according to State Department
and DOT officials, such claims need to be carefully evaluated to
determine their validity. Airport authorities also expressed concern
that removing competitive restrictions on ground-handling could
result in labor disputes and staff layoffs. Nevertheless, most
airport authorities in the European Union countries accept the
possibility that ground-handling monopolies may be opened to further
competition because of pressure from the airline industry and the
EU.\7
--------------------
\6 Alitalia does not perform its own or provide third-party
ramp-handling at Rome's Fiumicino. However, it does own more than
half of the Rome airport authority, which is the only agent allowed
to provide ramp-handling services at the airport. Similarly, the
parent company of Cathay Pacific--Hong Kong's flag carrier--has
ownership interests in all the companies providing ground-handling
services at Kai Tak Airport.
\7 The EU consists of Belgium, Denmark, France, Germany, Greece,
Ireland, Italy, Luxembourg, Portugal, Spain, the Netherlands, and the
United Kingdom. In response to airlines' complaints, the EU is
developing guidelines on competition in ground-handling and has
drafted a consultation paper on the topic.
CARGO RESTRICTIONS AND
PROCESSING DELAYS RAISE U.S.
AIRLINES' OPERATING COSTS
---------------------------------------------------------- Chapter 2:4
At three Pacific Rim airports we visited, U.S. airlines face
restrictions on distributing cargo in the importing countries and
problems clearing customs. These problems raise airlines' operating
costs, cause delays in delivery, and narrow service options. (Table
2.4 lists the problems U.S. airlines reported at these airports.)
These problems, which we generally did not find in Europe, are
particularly detrimental to international overnight express carriers.
Many of these problems stem primarily from foreign countries' overall
trade policies or from bureaucratic complexities, such as the
involvement of non-aviation-related government ministries in aviation
issues. For example, some delays in freight-forwarding were caused
by a lack of sufficient customs inspection officials; staffing levels
for these officials are determined by a customs ministry, not by the
airport authority.
Table 2.4
Problems With Delays in Cargo-
Processing and Freight-Forwarding at
Selected Airports in the Pacific Rim
Airport Problem Alleged impact
------------------------- ------------------------- --------------------------
Hong Kong-Kai Tak Airport lacks dedicated Delays in clearing customs
transit facility for
express packages and free
trade area for transit
packages; customs
inspection is slow.
Airlines cannot handle Loss of custody of express
their own cargo. packages
Costs for customs Increased overall
clearance are excessive. operating costs
Seoul-Kimpo Airlines cannot operate Delays in cargo
domestic trucking processing, loss of
companies. custody of express
packages, and increased
costs; prevents direct
delivery of freight to
customers
Tokyo-Narita Airlines must use off- Increased costs, which
airport warehouse must be passed on to
facilities and must use a customers, making U.S.
trucking company owned by services less competitive;
a competing Japanese cannot offer same-day
airline to transport delivery service
cargo between the airport
and the warehouse.
Customs inspectors work Delays in cargo-
short hours; fees for processing and increased
overtime work by customs costs
inspectors are excessive.
One airline was denied a Increased operating costs
business license
comparable to those held
by other integrated
carriers in Japan.
Duties and taxes for Trans-Pacific cargo
freight-forwarding carried by U.S. airlines
include the cost of subject to higher duties
transportation. and taxes than intra-
Asian cargo carried by Far
East airlines
Clearance system for Delays in clearing customs
packages is outdated; and increased costs
fees for use of automated
clearance machines are
excessive.
Number of packages that Delays in clearing customs
can be cleared during
overtime shift of customs
inspectors is limited to
900.
Value threshold for Increased proportion of
customs inspections is shipments that must be
only $80. inspected; slower
clearance process
Customs application form Delays in clearing customs
is limited to only three and increased operating
airway bills; each form costs
must be accompanied by
$14 fee.\a
--------------------------------------------------------------------------------
\a In contrast, U.S. customs procedures allow freight forwarders to
list an unlimited number of packages on an application, charging a $5
user fee if the combined value of goods on the application is less
than $1,250.
U.S. airlines' experiences in Korea and Japan typify these problems.
Korean regulations prohibit foreign companies from operating domestic
trucking companies, preventing the two U.S. cargo airlines that
serve Korea from directly delivering freight to their customers.
Instead, the airlines must hire Korean trucking companies.
Similarly, U.S. cargo airlines must use a Japanese trucking company
owned in part by a competing Japanese airline to transport cargo
between Tokyo's Narita Airport and their off-site warehouse because
Japanese authorities do not allow U.S. airlines to transport their
own cargo between the two points. According to U.S. airline
officials, these restrictions cause delays in freight delivery, a
loss of custody over express packages, and increased costs. One U.S.
airline, because it must rely on the Japanese service, cannot offer
same-day delivery service and must pass the higher costs on to
customers, making its services less competitive. In contrast, Korean
and Japanese airlines do not face the same delays or excess charges
for trucking when they move cargo in the United States.
OTHER ISSUES AFFECT U.S.
AIRLINES OVERSEAS
---------------------------------------------------------- Chapter 2:5
U.S. airlines have also encountered other types of problems
overseas. TWA, for example, filed a formal complaint in 1992 against
Italian aviation authorities for overcharges of air navigation fees
over a period of several years. With the assistance of U.S. embassy
officials in Rome, TWA negotiated an agreement with Italian aviation
authorities that required those authorities to reimburse TWA
approximately $2.2 million. However, according to TWA and State
Department officials, the Italian authorities have not paid the
agreed amount and discussions continue with the Italian government to
resolve the situation.
At Seoul's Kimpo Airport, U.S. and other foreign airlines must
purchase walkie-talkies (necessary for communication within the
airport), provide them to airport authorities, and then rent them
back at a high fee. They must also pay a sizeable safety inspection
fee for each batch of electronic equipment imported, even if the same
type of equipment has already been inspected and approved. According
to Korean airport officials, this procedure and the fees are
necessary for safety reasons.
Finally, although security is not a doing-business problem, numerous
U.S. airline officials complained that complying with FAA's security
requirements at certain European airports compounds the effects of
their doing-business problems. FAA requires U.S. airlines to meet
more stringent security requirements on flights from Europe to the
United States than foreign airlines. FAA's Director, Office of Civil
Aviation Security Policy and Planning, told us that the different
security requirements are determined by different threat levels and
that the measures required of U.S. airlines reflect that fact. He
noted that FAA has assessed the quality of security at international
airports overseas that carry passengers to the United States and has
determined that most foreign airlines provide a level of security
similar to that provided by U.S. airlines on the basis of different
threat levels. U.S. airline officials, however, emphasized that the
difference in requirements puts them at a competitive disadvantage
and said that foreign airlines should be required to meet the same
requirements as U.S. airlines.\8
--------------------
\8 For a more detailed discussion of security issues, see Aviation
Security: Additional Actions Needed to Meet Domestic and
International Challenges (GAO/RCED-94-38, Jan. 27, 1994).
FOREIGN AIRLINES FACE FEWER
PROBLEMS IN DOING BUSINESS IN
THE UNITED STATES
---------------------------------------------------------- Chapter 2:6
We interviewed representatives of several foreign airlines regarding
their doing-business problems in the United States. They reported
fewer problems than U.S. airlines reported experiencing overseas,
and the problems were not as severe. For example, representatives of
foreign airlines we spoke with did not report any difficulties in
obtaining slots or problems with ground-handling restrictions at U.S.
airports. They did have complaints about the adequacy of facilities
assigned to them at U.S. airports. British Airways officials, for
example, complained that the airline could not expand its operations
at Newark International Airport because of congestion at its
terminal. Similarly, officials from Iberia, the Spanish flag
carrier, complained about the increased facility costs the airline
will pay after moving to a new terminal at John F. Kennedy Airport.
Several foreign airlines were also concerned about delays in
immigration processing at airports in Los Angeles and New York and
about fines levied by the Immigration and Naturalization Service for
transporting undocumented passengers who request political asylum
when they arrive in the United States. For example, Lufthansa
complained that foreign airlines at John F. Kennedy Airport must
share immigration facilities, while U.S. airlines have separate
facilities. As a result, long lines are common during immigration
processing, inconveniencing the foreign airlines' passengers.
Officials from another foreign airline also complained that foreign
carriers are subject to a number of U.S. local sales and income
taxes, while U.S. airlines are exempt from such taxes in several
foreign countries. Nevertheless, these airlines had many fewer
complaints than U.S. airlines had concerning overseas facilities,
and most of them also praised the efforts of U.S. airports to meet
their needs.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:7
The presence of U.S. airlines in the international marketplace is
steadily increasing. However, their success is limited by a range of
problems in doing business at European and Pacific Rim airports.
Although it is difficult to quantify the costs and lost revenues
resulting from these problems, their cumulative effect constrains
operations and reduces U.S. airlines' opportunities to compete
effectively. In contrast, foreign airlines generally do not
experience such problems to the same extent when operating in the
United States and thus avoid the resulting drain on efficiency,
quality, and competitiveness. Furthermore, because U.S. airports do
not engage in similar practices, U.S. airlines do not benefit from
the advantages that such obstacles provide home-country flag carriers
in Europe and the Pacific Rim.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:8
We discussed our findings with senior DOT, FAA, and State Department
officials, including DOT's Acting Assistant Secretary for Aviation
and International Affairs, Assistant General Counsel for
International Law, and Assistant Director for Negotiations; FAA's
Assistant Chief Counsel and Director of the Office of Security Policy
and Planning; and the State Department's Director, Office of Aviation
Programs and Policy. These officials agreed with the information
presented, acknowledging that the problems U.S. airlines encounter
in doing business abroad are real and persistent.
These officials noted, however, that doing business abroad is often
difficult for U.S. airlines because they must adapt to foreign laws
and culture. DOT officials pointed out that the U.S. airlines
currently flying international routes have far less experience
operating in foreign markets than the airlines they replaced and thus
may have unrealistic expectations about the degree of operating
freedom achievable at foreign airports. DOT and State Department
officials also pointed out that because of the historically pervasive
role of governments in international aviation, U.S. airlines
operating abroad receive greater government assistance in resolving
their problems than most other U.S. industries that operate
internationally.
DOT and State Department officials also noted that foreign airlines
suffer doing-business problems at U.S. airports. For example, they
cited problems experienced by Canadian airlines obtaining slots at
Chicago O'Hare. However, these officials agreed with our assessment
that foreign airlines face fewer problems in the United States than
U.S. airlines encounter overseas.
Finally, DOT and FAA officials said that a discussion of the
potential competitive effects of FAA-imposed security requirements
was not appropriate for a review of U.S. airlines' problems in doing
business abroad. They emphasized that complying with security
requirements is not a doing-business problem. In addition, FAA
officials, while agreeing that the agency needs to be aware of the
economic costs of its security requirements, stated that FAA must
focus on creating security measures that effectively meet the threat,
not on reducing or imposing security measures to create an economic
"level playing field" between U.S. and foreign carriers. We agree
that the costs associated with complying with security requirements
do not constitute a doing-business problem. But we note that
different security requirements may exacerbate the effects of the
U.S. airlines' doing-business problems that we identified. It was
in this context that numerous U.S. airline representatives raised
concerns about the competitive effects of different security
requirements.
DOT AND THE STATE DEPARTMENT HAVE
HAD MIXED SUCCESS IN RESOLVING
U.S. AIRLINES' PROBLEMS IN DOING
BUSINESS OVERSEAS
============================================================ Chapter 3
DOT and the State Department recognize that U.S. airlines face a
variety of doing-business problems overseas. Although these agencies
possess several regulatory and statutory tools to address such
problems, their effectiveness in resolving them has been mixed. They
have been relatively effective in resolving problems that they found
violated bilateral agreements. But they have been less successful in
addressing problems that, although they may not affect solely U.S.
airlines, prevent U.S. airlines from fully realizing their potential
operating efficiency. In attempting to resolve these problems, DOT
and the State Department face several constraints, which include
negotiating with sovereign nations that are often protecting their
national flag carriers from increased U.S. competition, balancing
the desire of U.S. airlines for increased traffic rights with the
need to resolve doing-business problems, and addressing an increasing
workload with declining resource and staffing levels. Given such
constraints, no one strategy can fully address the airlines'
problems. However, because it does not periodically collect and
analyze information on these problems, DOT cannot determine whether
certain problems are pervasive in different countries, document
whether they are increasing in number, make the most effective use of
its limited resources to address these problems, or enter bilateral
negotiations as well prepared as it could be.
U.S. GOVERNMENT HAS GREATER
SUCCESS RESOLVING PROBLEMS
FOUND TO VIOLATE BILATERAL
ACCORDS
---------------------------------------------------------- Chapter 3:1
DOT and the State Department have resolved several doing-business
problems for U.S. airlines. These successes have usually occurred
after DOT determined that a practice violated a bilateral accord
because the practice either discriminated against U.S. airlines or
was specifically covered in the accord. The two agencies have been
less successful in addressing problems that, although they may not
constitute overt discrimination against U.S. airlines, prevent U.S.
airlines from operating as efficiently as possible and fully
exercising their competitive advantage over many foreign airlines.
BEST RESULTS HAVE BEEN
ACHIEVED IN RESOLVING
PROBLEMS THAT VIOLATE
BILATERAL ACCORDS
-------------------------------------------------------- Chapter 3:1.1
DOT and the State Department have been successful in resolving
several issues that are addressed in bilateral agreements or that DOT
determined denied U.S. airlines a fair and equal opportunity to
compete. For example, by negotiating a memorandum of understanding
to supplement the bilateral agreement with Korea, DOT and the State
Department addressed several concerns that U.S. airlines had about
the construction of cargo warehouse facilities at Seoul's Kimpo
Airport. DOT also approved American Airlines' formal complaint
against the Italian government and Milan airport authority, finding
that the airport authority had created a discriminatory barrier to
American Airlines' ability to compete effectively by prohibiting the
airline from using its own computer reservation system (CRS) to
check-in and ticket passengers. American Airlines and the airport
authority resolved the problem before DOT imposed sanctions.
Similarly, after Delta Air Lines filed a complaint against the
Frankfurt airport authority for denying the airline the right to
perform its own ground-handling services at Frankfurt Airport--a
right guaranteed in the bilateral accord--DOT and the State
Department addressed Delta's concerns while negotiating an agreement
with the German government in early 1994 so that Delta could perform
ground-handling services for all its flights.\9
DOT and the State Department also dealt with U.S. airlines'
inability to obtain commercially viable slots at Tokyo's Narita
Airport by facilitating an accommodation among the airlines serving
the airport so that U.S. airlines obtained slots at satisfactory
times.
Finally, since the 1970s, DOT and the State Department have
negotiated the inclusion of provisions on commercial opportunity in
over 50 bilateral accords. These provisions commonly address
ground-handling, currency remittance, and the right of airlines to
establish offices and bring employees to foreign countries. They
also have negotiated exemptions from certain operating restrictions
for individual U.S. airlines at several foreign airports. For
example, Delta is the only passenger airline currently performing its
own ramp-handling services at Frankfurt Airport.
--------------------
\9 Currency remittance refers to the process whereby airlines convert
revenues earned in foreign currencies into their own currency and
transfer the revenues to their own country.
MANY OTHER DOING-BUSINESS
PROBLEMS REMAIN UNRESOLVED
-------------------------------------------------------- Chapter 3:1.2
DOT and the State Department have had much less success resolving
those problems that do not involve overt discrimination against U.S.
airlines and that are not covered by specific, detailed provisions in
bilateral agreements. For example, they have been largely unable to
resolve U.S. airlines' concerns about cargo restrictions in Japan
and the range of ground-handling problems in Hong Kong. DOT also
denied American Airlines' formal complaint against Milan airport
authority's ground-handling monopoly on the basis that the Italian
flag carrier, Alitalia, is also prevented from providing its own
ground-handling services. As discussed in chapter 2, many other
problems remain unresolved, including the airlines' recurring
problems in obtaining commercially viable slots at London's Heathrow
Airport.
Apart from the provisions in bilateral agreements guaranteeing
airlines an equal opportunity to compete and those covering
commercial opportunity, several of these problems, such as the
inability to obtain commercially viable slots, are not specifically
identified in bilateral accords. Even when such practices are
covered by bilateral accords, problems still arise if the relevant
provision is too general. For example, of the six foreign countries
that we visited in which U.S. airlines complained of restrictions on
ground-handling and for which air services are governed by bilateral
agreements, two countries did not have accords with the United States
that addressed ground-handling, and the provisions in the remaining
four accords were too general to sufficiently address the airlines'
concerns.\10 Partly as a result, ground-handling problems in these
countries persist. According to DOT officials, the Department seeks
to solve U.S. airlines' problems regardless of their legal status;
that is, whether the problems are covered by a bilateral accord. But
these officials noted that a problem's legal status influences how
DOT attempts to resolve the problem and the length of time it takes
to achieve improvements.
In some cases, however, DOT and the State Department have resolved
problems in which a foreign airport's practices do not discriminate
against U.S. airlines or do not violate a bilateral agreement.
These successes have usually occurred after a sustained effort over a
long period of time, according to DOT officials. For example, DOT
and the State Department negotiated with the United Kingdom over a
15-year period to secure a more equitable structure for user fees for
U.S. airlines at Heathrow Airport. According to DOT officials,
resolution of this problem required an extensive effort and a
substantial investment of resources. Table 3.1 details the mixed
results achieved by DOT and the State Department in their efforts to
resolve U.S. airlines' problems in doing business overseas. These
problems include both practices covered by bilateral accords and
those not covered.
Table 3.1
Status of U.S. Airlines' Problems in
Doing Business in Europe and the Pacific
Rim
Airport Action and status
--------------------------------------- ---------------------------------------
Europe
--------------------------------------------------------------------------------
Frankfurt-Main Slots: DOT staff monitored the slot
allocation process for discrimination
or unfair treatment of U.S. airlines
but has not found a basis for
intervention to secure slots.
(Unresolved)
Ground-handling: During 1994
negotiations with the German
government, U.S. negotiators preserved
the right for Delta to provide ramp-
handling services for all of its
flights. (Resolved)
London-Gatwick Facilities: U.S. airlines have not
requested assistance from DOT.
(Unresolved)
London-Heathrow Slots: Airport capacity issues were
addressed during meetings in 1993 with
the U.K. concerning liberalization of
the U.S.-U.K. aviation relationship,
but specific slot problems were not
discussed. U.S. airlines still
experience general frustration
obtaining slots, although they resolved
the problems described in chapter 2.
(Limited resolution)
User fees: The United States recently
completed arbitration with the U.K.
government to secure a more equitable
fee structure for U.S. airlines.
(Resolved)
Madrid-Barajas Facilities: DOT is generally aware of
U.S. airlines' concerns but has no
outstanding request for assistance.
(Unresolved)
Ground-handling: The United States has
periodically monitored ground-handling
at the airport to ensure that U.S.
airlines are not being discriminated
against, negotiated the right of
American Airlines to provide passenger-
handling services and of TWA to
contract with a nonmonopoly supplier,
and raised issues in negotiations and
through the embassy. The new Iberia
services to the U.S. in 1987 were made
contingent on the resolution of U.S.
airlines' concerns at that time.
(Limited resolution)
Milan-Malpensa\ Facilities: DOT approved a formal
complaint by American Airlines
regarding its inability to use its own
CRS for checking-in and boarding
passengers\; the problem was
subsequently resolved. (Resolved)
Ground-handling\a: DOT denied American
Airline's formal complaint after
determining that monopoly handling
affects all airlines alike, including
Alitalia. (Unresolved)
Paris-Charles de Gaulle\ Slots: U.S. airlines have not requested
assistance from DOT. (Unresolved)
Facilities: U.S. airlines have not
requested assistance from DOT.
(Unresolved)
Ground-handling: DOT is generally aware
of U.S. airlines' concerns although it
has received no request for assistance.
(Unresolved)
Paris-Orly Airport access: DOT has supported one
U.S. airline's request to move from
Orly to Charles de Gaulle Airport; in
the absence of a bilateral agreement,
there is no legal entitlement for such
a move. (Unresolved)
Facilities: DOT is generally aware of
U.S. airlines' concerns although it has
received no request for assistance.
(Unresolved)
Rome-Fiumicino\ Facilities: DOT is generally aware of
U.S. airlines' concerns although it has
received no request for assistance.
(Unresolved)
Ground-handling\a: U.S. embassy staff
have met with their Italian
counterparts to support an effort by
U.S. airlines to provide their own
ground-handling services; one U.S.
airline, aided by the U.S. embassy,
recently began performing its own
passenger-handling services. (Largely
unresolved)
User fees: U.S. embassy staff have met
with appropriate Italian officials to
accelerate repayment of about $2.2
million in overcharges for navigation
fees owed to TWA, but without success.
(Unresolved)
Pacific Rim
--------------------------------------------------------------------------------
Hong Kong-Kai Tak\b Multiple problems: U.S. negotiators
have raised the range of problems
experienced by U.S. airlines with their
Hong Kong counterparts, but without
success. (Unresolved)
Singapore-Changi Ground-handling: U.S. representatives
met several times with Singapore
authorities to discuss one U.S.
airline's request to provide ground-
handling services to other airlines,
but without success. (Unresolved)
Seoul-Kimpo\c Facilities: U.S. embassy staff have
held a series of meetings with the
relevant Korean ministries regarding
construction of a cargo warehouse;
agreements have been reached on most
issues. (Largely resolved)
Ground-handling: Issues have been
raised at task force meetings, and DOT
and State secured the limited right of
U.S. airlines to supply aircraft
maintenance services to other airlines.
(Limited resolution)
Cargo restrictions: The U.S. embassy
has raised this issue in task force
meetings; DOT discussed the issue with
its Korean counterpart during formal
consultations in January 1993; some
restrictions will be lifted, with
limitations, over the next 2 years;
restrictions on intermodal transport
will not be lifted. (Largely
unresolved)
\ User fees: This issue has been
discussed during task force meetings;
the Korean aviation authority now gives
notice and consults with U.S. airlines
on fee increases. (Largely unresolved)
Tokyo-Narita Slots: U.S. airlines obtained
commercially viable slots after a 3-
month delay. (Resolved)
Facilities: U.S. government
representatives met numerous times over
a 2-year period with Japanese officials
and U.S. airlines to discuss facility
issues and held lengthy discussions on
the renovation of the old terminal.
(Resolved)
Cargo restrictions: The U.S. government
has held numerous meetings with
relevant Japanese ministries and U.S.
airlines to discuss cargo restrictions,
import delays, and warehouse problems.
(Unresolved)
--------------------------------------------------------------------------------
\a The Italian antitrust commission has ruled that airlines should be
allowed to provide their own ground-handling services at Milan and
Rome, but the ruling has been challenged by the monopoly providers of
ground-handling services.
\b According to the State Department, negotiations have been hampered
by the transition in government under way as Hong Kong's status as a
colony comes to an end.
\c The U.S.-Korea memorandum of understanding negotiated in 1991
created three task forces to address issues of doing business:
customs, the construction of a new cargo warehouse, and facilitating
airline services.
--------------------
\10 U.S. airlines also complained about restrictions on
ground-handling at Paris's Charles de Gaulle and Orly airports, but
France terminated its bilateral aviation agreement with the United
States in May 1992.
DOT AND STATE DEPARTMENT HAVE
SEVERAL TOOLS TO RESOLVE
PROBLEMS BUT FACE CONSTRAINTS
---------------------------------------------------------- Chapter 3:2
In attempting to resolve U.S. airlines' doing-business problems, DOT
and the State Department must consider numerous factors, including
the severity of the problem and the United States' relationship with
the country involved on aviation trade. At their disposal are
several statutory and regulatory tools that authorize retaliatory
measures. For example, the United States may deny the schedule of
flights to the United States proposed by a country's flag carrier or
may impose other sanctions. Such stern measures have limited
application, however, in addressing practices that do not clearly
discriminate against U.S. carriers or violate bilateral accords.
DOT interprets its authority under 49 U.S.C. section 41310 as
requiring a finding of a violation of a bilateral accord or other
instance of unfair or discriminatory treatment before it may impose
sanctions. Efforts by DOT and the State Department to resolve the
range of doing-business problems that do not overtly discriminate
against U.S. carriers are complicated by several constraints, such
as the need to negotiate with foreign governments that are often
protecting their own flag carriers from increasing U.S. competition.
APPROACH TAKEN TO RESOLVE
DOING-BUSINESS PROBLEMS IS
AFFECTED BY SEVERAL FACTORS
-------------------------------------------------------- Chapter 3:2.1
Resolving doing-business problems generally involves several steps.
First, the affected airline usually tries to resolve the problem by
negotiating with the national flag carrier, airport authority, or
government agency. If that fails, the airline contacts the U.S.
embassy in that country, which tries to resolve the problem locally
by facilitating discussion between the U.S. airline's
representatives and foreign government officials. Additional
contacts may be made orally or by diplomatic note through the U.S.
embassy or directly from the State Department to the foreign embassy
in Washington, D.C. If the U.S. embassy is unsuccessful, it
contacts DOT and the State Department directly, and these agencies
initiate higher-level intergovernmental contacts. As a last resort,
a U.S. airline may file a formal complaint with DOT against an
offending foreign airline, airport authority, or government and may
call for retaliatory sanctions.
DOT decides what approach it will take to resolve a problem on a
case-by-case basis. It first conducts an initial investigation to
ascertain the facts and determine whether the problem warrants
action. The agency then formulates a response to the problem in
light of the United States' strategic position in the bilateral
aviation relationship. DOT considers several concerns, such as other
pending aviation issues between the United States and the foreign
government. Staff from DOT's Office of International Aviation
formulate responses. If a major aviation trading partner--such as
the United Kingdom--is involved, the Assistant Secretary for Aviation
and International Affairs generally plays a key role. Finally,
depending on the nature and gravity of the grievance, the Secretary
of Transportation may review responses. Throughout this process, DOT
coordinates with the State Department.
As mentioned above, the legal status of a problem (i.e., whether the
problem is addressed in a bilateral accord) is a key factor that
shapes DOT's attempts to resolve the problem. DOT's approach is also
determined by the bargaining leverage available to the U.S.
government to resolve the problem. The greater the bargaining
leverage the United States has to influence a foreign government, the
greater the likelihood that a problem will be resolved
satisfactorily. This leverage depends on a mix of factors. For
example, a foreign airline might be seeking opportunities from the
United States or might hold discretionary authority to serve the
United States that is not guaranteed by the relevant bilateral
agreement. In such cases, DOT is in a better position to bargain and
resolve doing-business problems. According to DOT officials,
although DOT can always raise issues with U.S. bilateral partners,
the leverage that the United States has to pressure a foreign
government primarily determines when a problem is resolved.
Consequently, according to DOT officials, foreign governments
sometimes develop the political will to resolve such problems only
when their flag carriers want additional authority to serve the
United States. Finally, DOT attempts to design countermeasures to
doing-business problems that are proportional to the harm the problem
causes. For example, DOT would not typically threaten to suspend
service between the United States and a foreign country to resolve a
dispute over the number of check-in counters at a foreign airport.
When an airline identifies an issue as important, the U.S.
government can instruct embassy staff to discuss the issues with
foreign officials, deliver a formal protest, or request consultations
or address the problem during ongoing negotiations with its foreign
counterparts.
LEGISLATIVE AND REGULATORY
TOOLS ARE AVAILABLE TO DOT
IN ITS ATTEMPTS TO RESOLVE
DOING-BUSINESS PROBLEMS
-------------------------------------------------------- Chapter 3:2.2
DOT has several statutory and regulatory tools to encourage foreign
governments to resolve U.S. airlines' doing-business problems.
First, under 49 U.S.C. section 41304, DOT can suspend, amend,
modify, limit, or put conditions on the operating permits of foreign
airlines if it finds, among other things, that an airline or its
government has engaged in unfair, discriminatory, or restrictive
practices against U.S. airlines. For example, DOT has required that
a foreign airline fly to a specific airport in the United States or
use its U.S. competitor for ground-handling services. Second, DOT
can deny foreign airlines the discretionary authority to fly routes
to the United States. Similarly, DOT also uses 14 C.F.R. part 213
to require foreign airlines to file their U.S. schedules; DOT can
then curtail a foreign airline's existing services or deny proposed
services to the United States to pressure the foreign governments.
Finally, as described in chapter 1, DOT can impose retaliatory
sanctions under 49 U.S.C. section 41310 or under its general
authority to place conditions on or withdraw the licenses of foreign
airlines.
FORMAL COMPLAINT PROCESS HAS
LIMITED APPLICATION IN
ADDRESSING NONDISCRIMINATORY
DOING-BUSINESS PROBLEMS
-------------------------------------------------------- Chapter 3:2.3
Although complaints filed by U.S. airlines under 49 U.S.C. section
41310 have been used to resolve several problems in doing business
abroad, many U.S. airlines believe the process is not a good way to
resolve problems. First, because such complaints are
confrontational, several airlines view the process as a last resort
when other means fail. These airlines prefer using cooperative
methods to resolve problems out of fear that a foreign government
will retaliate or to preserve good relations with the host country.
Second, most of the airlines we spoke with believe that formal
complaints should be filed only to resolve major issues, such as
clear violations of traffic rights. They believe that overuse of the
complaint process will undermine its effectiveness. DOT interprets
its authority under the statue as requiring a finding of a violation
of a legal obligation under the relevant bilateral agreement or other
clear instance of unfair or discriminatory treatment before it may
approve a complaint and impose sanctions. Because many problems in
doing business do not discriminate against U.S. airlines or are not
specifically addressed in a bilateral agreement, many airlines
believe their complaints are not covered by the statute.
Nevertheless, the formal complaint process is a valuable vehicle for
addressing doing-business problems that clearly violate bilateral
agreements. Of the 21 complaints filed between August 1986 and
August 1993, 13 involved doing-business issues. Of these 13
complaints, 6 concerned CRSs and 8 concerned ground-handling,
operating hours for cargo airlines, cargo warehousing, and currency
remittance issues.\11 DOT denied only one of these 13 complaints. In
the other 12 cases, an agreement or accommodation was reached and DOT
dismissed the complaint.
--------------------
\11 One of the complaints addressed both ground-handling and CRS
issues.
OTHER FACTORS AFFECT DOT'S
ABILITY TO RESOLVE
DOING-BUSINESS PROBLEMS
-------------------------------------------------------- Chapter 3:2.4
DOT's efforts to resolve doing-business problems are complicated by
several factors. These include (1) negotiating with foreign
governments that are often protecting their own flag carriers from
increasing U.S. competition, (2) weighing the elimination of these
problems with attempts to obtain valuable traffic rights for U.S.
carriers, (3) balancing the competing commercial interests of various
U.S. airlines, and (4) addressing these problems with significantly
fewer resources in DOT's Office of International Aviation.
First, DOT faces a difficult task in resolving these problems because
it must negotiate with foreign governments that are not inclined to
make the environment easier for more efficient U.S. airlines. These
governments are often protecting national flag carriers that have
lost market share to U.S. airlines over the last decade. In an
effort to protect Air France, for example, France renounced its
bilateral accord with the United States in May 1992 because the U.S.
share of traffic between the United States and France had risen from
49 percent in 1980 to 70 percent in 1992.
Second, traffic rights tend to take precedence over issues of doing
business because such rights determine fundamental access to foreign
markets. Almost all U.S. airlines recognize and support the
priority of traffic rights because of their desire to gain greater
access to international markets. Given the growth in these markets
and their potential for profit, U.S. airlines want to expand their
international operations. In recent years, negotiations of traffic
rights with 6 of the 13 countries we visited--Australia, France,
Germany, Hong Kong, Japan, and the United Kingdom--have consumed much
of DOT's and State's negotiating resources and attention. As a
result, the two agencies have been unable to give priority to several
doing-business issues. Moreover, the U.S. government must sometimes
trade valuable traffic rights to foreign airlines to serve the United
States in exchange for adding specific provisions in bilateral
agreements to address otherwise intractable doing-business problems.
U.S. negotiators cannot simply offer enhanced doing-business rights
in the United States because foreign airlines already enjoy
comparatively unrestricted rights. Furthermore, many countries are
reluctant to agree to such provisions, especially if their flag
carriers or airports benefit from restrictive doing-business
practices.
Third, in formulating strategies to resolve problems, DOT must
reconcile the diverse, often competing and conflicting interests of
U.S. aviation constituencies--airlines, airports, communities,
travelers, and shippers. For example, U.S. airlines often have
competing commercial interests, and actions taken to resolve one
airline's problems may jeopardize the interests of another airline.
Thus, a U.S. airline experiencing no problems in doing business at a
foreign airport might resist imposing sanctions to resolve the
problems of another U.S. airline in an effort to avoid retaliation
by the foreign government that might affect all U.S. airlines.
DOT must also accommodate other interests. For example, almost all
U.S. airlines we spoke with want the right to provide
ground-handling services to other airlines at foreign airports.
However, U.S. negotiators cannot guarantee reciprocal treatment for
foreign airlines at U.S. airports because the vast majority of U.S.
airports are locally owned and operated. Although many U.S.
international airports allow third-party handling, as a group they
are opposed to including this right in bilateral agreements because
they want to protect the proprietary rights of airports. In fact,
the Airports Council International-North America--an airport trade
association--does not want doing-business issues addressed in
bilateral accords at all. The need to reconcile conflicting
interests makes it difficult to develop a policy to address such
problems that satisfies all parties. By contrast, because foreign
governments in many cases have an ownership interest in their
airlines, they may be more concerned with representing the interest
of their national flag carriers than with the interests of other
aviation constituents.
Fourth, DOT must address an increasing workload related to
international aviation with diminishing resources. In addition to
negotiating bilateral aviation agreements and addressing U.S.
airlines' problems in doing business abroad, DOT's Office of
International Aviation is responsible for processing all U.S.
airlines' requests for authority to serve specific foreign markets
and all foreign air carriers' requests for authority to serve the
United States. In 1993, approximately 93 million passengers traveled
to or from the United States on U.S. and foreign airlines--an
all-time record. According to DOT officials, this growth in traffic
has led to a corresponding increase in their workload. However,
staffing in the Office of International Aviation has sharply declined
during this period. For example, while 23 staff members at the Civil
Aeronautics Board conducted aviation negotiations in 1982, DOT's
negotiating team in 1993 consisted of only 11 staff.\12
Recognizing these constraints, U.S. airlines attempt to resolve most
of their doing-business problems themselves by negotiating directly
with foreign airport authorities, airlines, and government agencies.
This approach is often appropriate because many problems are
primarily commercial disputes. Similarly, U.S. airlines have
successfully used airline operator committees, consisting of
representatives from airlines serving an airport, to address their
concerns about doing-business problems overseas. For example, the
Italian antitrust commission recently ruled against the Milan and
Rome airport authorities' ground-handling monopolies in a case filed
by the Italian board of airline representatives with substantial
support from U.S. airlines. In addition, several U.S. airlines
have not reported their problems to DOT or the State Department
because these airlines did not believe that U.S. government
assistance would be sustained or vigorous enough to resolve the
problems.
--------------------
\12 The Civil Aeronautics Board previously had regulatory authority
over the airline industry.
AGENCIES' ABILITY TO OVERCOME
CONSTRAINTS IS HINDERED BY
INSUFFICIENT ANALYSIS AND
LIMITED EXPERTISE
---------------------------------------------------------- Chapter 3:3
The majority of the U.S. airline officials we interviewed emphasized
that DOT and the State Department could be more proactive in
resolving those doing-business problems reported to them. However,
because it does not collect and analyze information on these
problems, DOT is limited in the extent to which it can overcome the
constraints that it faces. Likewise, according to U.S. airline
officials as well as a recent study,\13 the State Department's policy
of frequent staff rotations limits the expertise that the agency's
staff can bring to bear in attempting to resolve U.S. airlines'
problems.
In documenting the problems that U.S. airlines encounter overseas,
we found that DOT's Office of International Aviation did not collect
and analyze information on doing-business problems, with the
exception of formal complaints filed by the airlines. DOT officials
noted, for example, that our report would provide the only current
compendium of information on U.S. airlines' doing-business problems
overseas. Because it does not collect and analyze such information
on a regular basis, DOT cannot determine the extent to which certain
problems are pervasive among different countries or identify trends.
Noting that DOT staff had difficulty compiling such information
during our review, the Assistant Director for Negotiations stated
that a centralized "clearinghouse," in which information on the
status of airlines' problems is collected and analyzed, would provide
the agency with a better overview of the problems and allow it to
better develop solutions to those problems.
Likewise, representatives of several U.S. airlines complained that
problems that do not violate bilateral accords or overtly
discriminate against them often linger because of a lack of
monitoring and oversight by DOT. Although these representatives
complimented DOT for its successes in resolving problems that clearly
violate bilateral accords, they suggested that DOT could better
monitor and develop solutions to doing-business problems not
specifically covered in such accords by placing one person in charge
of resolving them. Currently, DOT's officers assigned to deal with
specific countries are responsible for negotiating both traffic and
doing-business rights, and they often find that there is a stronger
constituency among U.S. airlines for resolving traffic rights issues
than for addressing doing-business issues. In making their
suggestion, the airline representatives noted that giving one person
responsibility for resolving doing-business problems would allow that
person to develop independent expertise in the technical aspects of
the problems and find solutions to them. They emphasized that such a
"focal point" could ensure that (1) problems receive sustained
attention, (2) problems pervasive in various countries are
identified, and (3) DOT staff have the information they need to be
fully prepared when entering bilateral negotiations so that if
necessary, specific provisions addressing a given problem can be
negotiated into the relevant bilateral accord.
Finally, many airline representatives we interviewed were concerned
about the level of expertise among State Department and DOT staff.
They maintained that the State Department's staff rotates too
frequently, diminishing the agency's ability to effectively negotiate
the resolution of doing-business problems. One airline
representative noted, for example, that during the course of the
10-year renovation of their terminal at Tokyo's Narita Airport, U.S.
embassy officials monitoring the situation will be reassigned, and
the new officials will likely be unfamiliar with the issues
surrounding the renovation. Similarly, the President's Commission to
Ensure a Strong Competitive Airline Industry concluded that the State
Department's practice of rotating staff limits its expertise on
aviation. To improve the level of such expertise at the State
Department, the Commission recommended that State strengthen its
aviation career track. Acknowledging such criticisms, the State
Department has taken action to do this. As of September 1994, the
agency has converted one of its aviation positions at headquarters
into a nonrotational civil service assignment and plans to convert
additional positions in the future. In addition, the State
Department has developed a 3-day aviation training course--in which
nearly 1 day is devoted to U.S. airlines' doing-business
problems--for U.S. embassy staff serving in aviation-related posts.
U.S. airline representatives also noted that DOT, while its staff
are long term, often lacks the technical expertise required to
understand and negotiate doing-business issues successfully. As a
result, according to these representatives, DOT staff often do not
appreciate the economic impact of doing-business problems. DOT
officials acknowledged that DOT staff sometimes do not have technical
expertise but said that they rely on airline representatives to
educate them on technical issues and assist them in resolving
specific problems.
--------------------
\13 Change, Challenge, and Competition, The National Commission to
Ensure a Strong Competitive Airline Industry (Washington, D.C.: Aug.
1993).
CONCLUSIONS
---------------------------------------------------------- Chapter 3:4
The U.S. government's record in resolving U.S. airlines' problems
in doing business abroad has been mixed. Most successes have
involved eliminating problems that violate bilateral accords. To
their credit, DOT and the State Department have negotiated the
inclusion of specific provisions governing particular doing-business
problems in several bilateral accords. We believe that continuing
this practice, where practical, will facilitate the resolution of
some problems, such as ground-handling restrictions, because it
provides DOT with a firm legal basis from which to deal.
The track record is less favorable, however, for those problems that
do not violate bilateral accords. As a result, a variety of
problems--such as inadequate facilities--persist. Several factors
contribute to these mixed results. For example, DOT and the State
Department must negotiate with sovereign nations that are often
protecting their national flag carriers from increased U.S.
competition and at the same time balance the need to resolve
doing-business problems with attempts to obtain valuable traffic
rights for U.S. carriers. However, by not collecting information on
the status of these problems and analyzing their nature, severity,
and trends, DOT cannot effectively identify which problems are
pervasive, which should be specifically addressed in bilateral
accords, or which have lingered without sustained government efforts
to resolve them. This lack of data has led several U.S. airline
representatives to complain that no one in DOT is monitoring their
problems and to call for the establishment of a focal point. DOT is
in the best position to decide whether a focal point, additional
resources, or some other mechanism would be the most effective way to
better address doing-business problems. Nevertheless, examining the
range of these problems should help DOT resolve some of them while
increasing the knowledge-base of its staff. Such an examination
would also complement the State Department's initiative to increase
staff expertise through training.
RECOMMENDATION
---------------------------------------------------------- Chapter 3:5
To ensure that U.S. airlines' doing-business problems receive
sustained attention in an era of increasing U.S. airline activity
overseas and declining government resources, we recommend that the
Secretary of Transportation collect and analyze information on the
status, nature, and severity of U.S. airlines' doing-business
problems overseas.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:6
We discussed a draft of this report with senior DOT and State
Department officials, including DOT's Acting Assistant Secretary for
Aviation and International Affairs and State's Director, Office of
Aviation Programs and Policy. They stated that U.S. airlines'
doing-business problems overseas are real and often persist but
emphasized that they had resolved numerous problems for U.S.
airlines over the last several years. Furthermore, DOT
representatives commented that inadequate resources prevented them
from providing the sustained attention that such problems deserve.
DOT and State Department officials stated that they did not think it
wise to designate a single staff member to serve as a focal point for
doing-business problems, as several U.S. airline representatives
suggested. However, they noted that they could improve their efforts
to solve doing-business problems through better analysis of the range
of problems that U.S. airlines encounter. On the basis of their
comments, we revised this report where appropriate. We also
incorporated several wording revisions suggested by these officials.
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Allen Li, Associate Director
Francis P. Mulvey, Assistant Director
Timothy F. Hannegan
Howard F. Veal
Venecia R. Kenah
EUROPEAN OFFICE
Barry J. Deweese
David G. Artadi
FAR EAST OFFICE
Michael D. Rohrback
Robert E. Sanchez