United States General Accounting Office

GAO 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

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

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

Purpose 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 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 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

Page 2 GAO/RCED-95-24 International Aviation
Executive Summary

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

Obstacles Overseas Raise

U.S. Airlines’ Costs and

Reduce Efficiency

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.

Page 3 GAO/RCED-95-24 International Aviation
Executive Summary

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

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

Page 4 GAO/RCED-95-24 International Aviation
Executive Summary

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 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 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.

Page 5 GAO/RCED-95-24 International Aviation
Contents

Executive Summary 2

Chapter 1 

Introduction

8

International Operations Are Increasingly Important to U.S.

Airlines

8

Bilateral Agreements Govern International Aviation 11

Problems in Doing Business Can Inhibit Airlines’ Ability to

Exercise Traffic Rights

12

DOT and the State Department Are Responsible for Addressing

U.S. Airlines’ Doing-Business Problems Abroad

12

Objectives, Scope, and Methodology 13

Chapter 2 

Doing-Business

Problems Reduce the

Competitiveness of

U.S. Airlines Overseas

15

Limited Access to Slots Reduces Commercial Value of U.S.

Airlines’ Traffic Rights

15

Inadequate Airport Facilities Impair U.S. Airlines’ Ability to

Provide Quality Service

17

Restrictions on Ground-Handling Services Contribute to

Increased Costs and Poorer Service

21

Cargo Restrictions and Processing Delays Raise U.S. Airlines’

Operating Costs

24

Other Issues Affect U.S. Airlines Overseas 26

Foreign Airlines Face Fewer Problems in Doing Business in the

United States

27

Conclusions 27

Agency Comments 28

Chapter 3 

DOT and the State

Department Have Had

Mixed Success in

Resolving U.S.

Airlines’ Problems in

Doing Business

Overseas

30

U.S. Government Has Greater Success Resolving Problems

Found to Violate Bilateral Accords

30

DOT and State Department Have Several Tools to Resolve

Problems but Face Constraints

35

Agencies’ Ability to Overcome Constraints Is Hindered by

Insufficient Analysis and Limited Expertise

40

Conclusions 42

Recommendation 43

Agency Comments 43

Page 6 GAO/RCED-95-24 International Aviation
Contents

Appendix Appendix I: Major Contributors to This Report 44

Tables Table 1.1: Scheduled U.S. Airlines’ Operating Profit or Loss From

Domestic and International Services, 1989-93

11

Table 1.2: Selected Scheduled U.S. Airlines’ Operating Profit or

Loss From International Services by Region, 1993

11

Table 2.1: U.S. Airlines’ Problems Obtaining Commercially Viable

Slots at Selected Airports in Europe and the Pacific Rim

16

Table 2.2: U.S. Airlines’ Problems With Airport Facilities at

Selected Airports in Europe and the Pacific Rim

19

Table 2.3: U.S. Airlines’ Problems with Ground-Handling

Restrictions at Selected Airports in Europe and the Pacific Rim

22

Table 2.4: Problems With Delays in Cargo-Processing and

Freight-Forwarding at Selected Airports in the Pacific Rim

25

Table 3.1: Status of U.S. Airlines’ Problems in Doing Business in

Europe and the Pacific Rim

33

Figures Figure 1.1: Scheduled U.S. Airlines’ RPMs in International

Markets by Region, 1993

9

Figure 1.2: Scheduled U.S. Airlines’ International Revenues by

Region, 1993

10

Abbreviations

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

Page 7 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

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

International traffic is increasingly important to U.S. airlines, accounting

for 28 percent of their revenue passenger miles (RPM) in 19931

—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

1

A RPM is one paying passenger transported one mile.

Page 8 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

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

45.5% • Atlantic

39.1%•

Pacific

•15.4%

Latin America

Source: FAA.

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.

Page 9 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

Figure 1.2: Scheduled U.S. Airlines’

International Revenues by Region,

1993

37% • Atlantic

46%•

Pacific

•18%

Latin American

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.

Page 10 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

Table 1.1: Scheduled U.S. Airlines’

Operating Profit or Loss From

Domestic and International Services,

1989-93

Dollars in billions

Year Domestic International 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) $(2.896)

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

Airline Atlantic

Latin

America Pacific

Total

International

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 (TWA) (185.3) N/A N/A (185.3)

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 $(919.7) $173.0 $97.9 $(648.9)

Note: “N/A” denotes that a carrier does not serve that region.

Source: DOT.

Bilateral Agreements

Govern International

Aviation

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

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.

Page 11 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

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.

Problems in Doing

Business Can Inhibit

Airlines’ Ability to

Exercise Traffic

Rights

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.

DOT and the State

Department Are

Responsible for

Addressing U.S.

Airlines’

Doing-Business

Problems Abroad

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

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.

Page 12 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

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

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

Page 13 GAO/RCED-95-24 International Aviation
Chapter 1 

Introduction

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.

Page 14 GAO/RCED-95-24 International Aviation
Chapter 2 

Doing-Business Problems Reduce the

Competitiveness of U.S. Airlines Overseas

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

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.

Page 15 GAO/RCED-95-24 International Aviation
Chapter 2 

Doing-Business Problems Reduce the

Competitiveness of U.S. Airlines Overseas

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-Main Assigned departure slots for one U.S. airline’s

flights were spaced too close together; airline

cannot obtain arrival slots to accommodate

substitution of slower aircraft on one route.

Greater concentration of operations and

increased costs for staff and facilities

London-Heathrowa One airline was offered slots for a route at

inconsistent times.b

Incompatible with connections with domestic

flights; airline postponed inaugurating the flight,

thus losing potential market share and

passenger revenues to competing airlines

London-Heathrow One airline’s departure slots were scheduled at

less favorable times than those of competing

airlines.

Increased risks of passengers’ missing

connecting flights in the United States

Paris-Charles de Gaulle One cargo airline was assigned inconsistent

daily slots; applying for and receiving approval

for slots is time-consuming.

Reduced ability of airline to meet express

shipment deadlines

Paris-Orly Noise curfew makes it difficult for one cargo

airline to obtain slots during nighttime hours.

Reduced ability of airline to meet express

shipment deadlines for next-day delivery

Pacific Rim

Tokyo-Narita Five U.S. airlines had difficulty in obtaining

competitive landing and take-off slots at varying

times.

Cannot offer additional services or adjust

schedules

aThe U.S. bilateral agreement with the United Kingdom specifies that only two U.S. airlines may

serve London’s Heathrow.

bAccording 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

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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

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-à-vis the national flag carrier in each of these

countries.

U.S. Airlines Are Provided

With Inadequate Facilities

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

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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.

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Table 2.2: U.S. Airlines’ Problems With Airport Facilities at Selected Airports in Europe and the Pacific Rim

Airport Problem Alleged impact

Number of

U.S.

airlines

affected

Europe

London-Gatwick Insufficient number of check-in counters;

no check-in counters dedicated to airline

Delays in processing passengers

1

Cannot move to more modern, convenient

terminala

Service improvements prevented

1

Madrid-Barajas Insufficient number of check-in counters;

no check-in counters dedicated to airlineb

Delays in processing passengers

2

Insufficient number of gates or jetways Inconvenient for passengers who must be

transported to and from terminals by bus 3

Milan-Malpensa No check-in counters dedicated to airlinesc See above 1

No jetways See above 1

Paris-Charles de Gaulle Located in older, inefficiently designed

passenger terminal

Congestion and delays in processing

passengers 3

Insufficient number of check-in counters See above 2

Cannot move to more modern and

convenient terminald

Service improvements prevented

2

Cannot move to airport from Paris-Orly

airport

Operating improvements prevented

1

Paris-Orly Insufficient number of check-in counters See above 1

Paris-Orly Insufficient number of gates Inconvenient for passengers who must be

transported to and from terminals by bus 1

Rome-Fiumicino Insufficient number of check-in counters;

no check-in counters dedicated to airlines

See above

2

Insufficient number of gates or jetways See above 1

Pacific Rim

Seoul-Kimpo Insufficient number of check-in counters See above 2

Insufficient warehouse space for cargo;

construction of new warehouse has fallen

behind schedule

Higher operating costs; prevented from

expanding services to meet demand

6

Tokyo-Narita Located in old, overcrowded passenger

terminal

Impaired efficiency of operations

3

aOne U.S. airline was permitted to move to a more modern terminal.

bTwo U.S. airlines have dedicated check-in counters.

cOne U.S. airline has dedicated check-in counters.

dThe Paris airport authority, Aéroports de Paris, said that capacity constraints prevent it from

allowing all airlines to operate at the newer terminal.

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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

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.

Tokyo’s Narita Airport 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.

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.

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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

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

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.

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Table 2.3: U.S. Airlines’ Problems With Ground-Handling Restrictions at Selected Airports in Europe and the Pacific Rim

Airport Restriction

Number of U.S.

airlines affected

Europe

Frankfurt-Maina Cannot handle ramp operations themselves or freely contract for services until

Nov. 1997; cannot provide handling services for other airlines 3

Madrid-Barajasb Cannot handle ramp operations themselves or freely contract for services 3

Cannot provide handling services to other airlines 4

Milan-Malpensac Cannot handle cargo, passenger, or ramp operations themselves or freely

contract for services; cannot provide handling services for other airlines 4

Paris-Charles de Gaulled Cannot handle ramp operations themselves or freely contract for services; cannot

handle cargo, passengers, or ramp operations for other airlines 4

Paris-Orly Cannot handle ramp operations themselves or freely contract for services; cannot

provide handling services for other airlines 1

Rome-Fiumicinoc Cannot handle passenger or ramp operations themselves or freely contract for

services 1

Cannot handle ramp operations themselves 2

Cannot provide handling services for other airlines 3

Pacific Rim

Hong Kong-Kai Tak Cannot handle cargo or ramp operations themselves or freely contract for services 3

Singapore-Changi Cannot handle ramp operations for other airlines 1

Seoul-Kimpo Cannot provide handling services to other airlines 2

aAlthough 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.

bAlthough 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.

cThe 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.

dOnly 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

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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

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.

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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

Cargo Restrictions

and Processing Delays

Raise U.S. Airlines’

Operating Costs

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.

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.

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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 transit facility for

express packages and free trade area for

transit packages; customs inspection is

slow.

Delays in clearing customs

Airlines cannot handle their own cargo. Loss of custody of express packages

Costs for customs clearance are excessive. Increased overall operating costs

Seoul-Kimpo Airlines cannot operate domestic trucking

companies.

Delays in cargo processing, loss of

custody of express packages, and

increased costs; prevents direct delivery of

freight to customers

Tokyo-Narita Airlines must use off-airport warehouse

facilities and must use a trucking company

owned by a competing Japanese airline to

transport cargo between the airport and the

warehouse.

Increased costs, which must be passed on

to customers, making U.S. services less

competitive; cannot offer same-day

delivery service

Customs inspectors work short hours; fees

for overtime work by customs inspectors

are excessive.

Delays in cargo-processing and increased

costs

One airline was denied a business license

comparable to those held by other

integrated carriers in Japan.

Increased operating costs

Duties and taxes for freight-forwarding

include the cost of transportation.

Trans-Pacific cargo carried by U.S. airlines

subject to higher duties and taxes than

intra-Asian cargo carried by Far East

airlines

Clearance system for packages is

outdated; fees for use of automated

clearance machines are excessive.

Delays in clearing customs and increased

costs

Number of packages that can be cleared

during overtime shift of customs inspectors

is limited to 900.

Delays in clearing customs

Value threshold for customs inspections is

only $80.

Increased proportion of shipments that

must be inspected; slower clearance

process

Customs application form is limited to only

three airway bills; each form must be

accompanied by $14 fee.a

Delays in clearing customs and increased

operating costs

aIn 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

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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

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

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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

Foreign Airlines Face

Fewer Problems in

Doing Business in the

United States

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 The presence of U.S. airlines in the international marketplace is steadily

increasing. However, their success is limited by a range of problems in

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).

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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 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.

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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.

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DOT and the State Department Have Had

Mixed Success in Resolving U.S. Airlines’

Problems in Doing Business Overseas

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

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

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

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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.

Many Other

Doing-Business Problems

Remain Unresolved

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.

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.

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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.

10U.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.

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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-handlinga: 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)

(continued)

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Airport Action and status

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-handlinga: 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 Takb 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-Kimpoc 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)

(Table notes on next page)

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aThe 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.

bAccording 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.

cThe 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.

DOT and State

Department Have

Several Tools to

Resolve Problems but

Face Constraints

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

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.

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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.

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Legislative and Regulatory

Tools Are Available to DOT

in Its Attempts to Resolve

Doing-Business Problems

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

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

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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.

Other Factors Affect DOT’s

Ability to Resolve

Doing-Business Problems

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

11One of the complaints addressed both ground-handling and CRS issues.

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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

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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.

Agencies’ Ability to

Overcome Constraints

Is Hindered by

Insufficient Analysis

and Limited Expertise

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

12The Civil Aeronautics Board previously had regulatory authority over the airline industry.

13Change, Challenge, and Competition, The National Commission to Ensure a Strong Competitive

Airline Industry (Washington, D.C.: Aug. 1993).

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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

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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.

Conclusions 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,

Page 42 GAO/RCED-95-24 International Aviation
Chapter 3 

DOT and the State Department Have Had

Mixed Success in Resolving U.S. Airlines’

Problems in Doing Business Overseas

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 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 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.

Page 43 GAO/RCED-95-24 International Aviation
Appendix I 

Major Contributors to This Report

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

(341402) Page 44 GAO/RCED-95-24 International Aviation
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