W44901

a Comptroller General f of the United States

Washisngtov D.0. 2054S

Decision

Hatter of: Fly America Act - Code Sharing - Transportation

by U.S. Carrier

File: B-240956

Date: September 25, 1991

DIGEST

Travel under a ticket issued by a U.S. certificated air

carrier which leases space on the aircraft of a foreign air

carrier under a "code-share" arrangement in international air

transportation is considered to be "transportation provided by

air carriers holding certificates" as required under 49 U.S.C.

App. § 1517 (1988), the Fly America Act. Thus, passengers may

properly use tickets paid for by the government under a "codeshare" arrangement if the tickets were purchased from the U.S.

air carrier.

DECISION

The question in this case, presented by the Department of

State, is whether a U.S.-flag air carrier's arrangement to

provide passenger service in international air transportation

on the aircraft of a foreign air carrier under a "code-share"

arrangement with the foreign air carrier would meet the

requirements of the Fly America Act, 49 U.S.C. App. § 1517

(1988) 1/ Since it appears that such service generally would

be considered to be service by a U.S. air carrier in

international air transportation rather than by a foreign air

carrier, that service should also be considered transportation

provided by a U.S. air carrier for purposes of the Fly

America Act.

BACKGROUND

The State Department's submission states that to allow

themselves access to markets for passengers which they would

prefer not to serve with their own aircraft, U.S. air carriers

have developed a technique called "code-sharing." Through the

technique, a U.S. air carrier leases space on a foreign air

carrier and intends this service to be considered as service

provided by the U.S. air carrier. The benefits of this for

1/ The question was submitted by the Assistant Secretary of

State for Administration.
the U.S, air carrier are stated to be developing new markets,

expanding sales and services to U.S and other customers, and

providing substantial new income without having to use their

own aircraft.

As we understand this arrangement, generally, code-sharing

between domestic and foreign airlines operates as follows;

1, The foreign air carrier and U.S. air carrier must each

have the bilateral rights and economic authority to serve the

city-pair markets in which they offer code-share service,

2, The U.S. air carrier and the foreign air carrier each uses

its own code on the tickets it issues for the flight between

the two cities in question, resulting in both air carriers

claiming responsibility for a portion of the passengers on a

single aircraft, For example, a U.S, certificated carrier,

Continental Airlines, has a code-share with a foreign

carrier, Scandinavian Airlines System (SAS), Under this codeshare, a ticket issued by Continental on its ticket stock for

a flight from Chicago, Illinois, to Copenhagen, Denmark, would

show flight CO 8912 for the portion of the flight from Newark,

New Jersey, to Copenhagen, Denmark, whereas a ticket issued by

SAS on its stock for the same portion of that flight would

show SK 912.

3. The U.S. air carrier and foreign air carrier each

advertises to the public that it is providing the service, and

each indicates responsibility for the service on the tickets

it sells, regardless of which air carrier's aircraft actually

provides the transportation. However, each selling/ticketing

air carrier must disclose, in all holding out, the operation

of any part of the trip by another air carrier.

4. In some code-share arrangements, neither code-sharing

carrier need commit in advance to purchase a specified number

of seats on the code-shared flight provided by the cooperating

air carrier; in others, each carrier has purchased a specified

number of seats.

5. A significant portion of the cost of the ticket goes to

the U.S, carrier (over 50 percent in the example above, but

this varies depending on the agreement and length of the route

flown).

The way the code-share flight from Chicago to Copenhagen in

fact operates is that a Continental Airlines aircraft picks up

the passenger in Chicago and flies to Newark where the

passenger is transferred to an SAS aircraft manned with an SAS

crew which departs from Newark and completes the journey to

Copenhagen. The Official Airline Guide (Worldwide Edition)

(OAG), the industry guide used by airlines to provide travel

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offices and passengers notice of scheduled flights, does not

list the flight from Chicago to Copenhagen as a through

flight, but lists it as a connecting flight through New Jersey

with one Continental flight number from Chicago to Newark

listed and another Continental flight number (the code-share

flight number) listed from Newark to Copenhagen, The OAG has

a star beside Continental's code-share flight number from

Newark to Copenhagen, indicating that tue actual flight is

operated by a different air carrier than Continental, Thus,

if the traveler buys a ticket from Continental, the ticket

Indicates that Continental is the air carrier responsible for

the entire flight between Chicago and Copenhagen, and the OAG

indicates that Continental is the responsible carrier for both

legs of the journey in which aircraft are exchanged at Newark,

Since the Fly America Act permits government-financed air

transportation to be provided by available U.S. air carriers

only, the question in this case is whether the part of the

flight from Newark to Copenhagent for example, on a foreign

aircraft is being provided by a U.S. air carrier.

The submission states that it is the view of the Department of

State that a code-share agreement provides transportation on a

U.S. carrier notwithstanding the fact that the aircraft used

to provide some of the service may not belong to the U.S.

carrier, The Department recognizes that the purpose of the

Fly America Act as shown by its legislative history was to

help improve the economic and competitive position of the

US.S-flag carriers against the foreign air carriers. See

57 Comp, Gen. 401, 403 (1978). Therefore, so that U.S.

carriers might maintain a significant role in the transaction,

the Department suggests that it might be advisable to apply

the following restraints to a code-share agreement before it

may be considered service provided by a U.S. air carrier:

1. The entire ticket must be issued by and on the U.5.-flag

carrier (not necessarily the carrier operating the aircraft);

2. At least one leg of the journey must be on the U.S.

domestic service of the U.S. carrier beyond (or behind,

depending on the direction of travel) the U.S. gateway; and,

3. A code-share flight may not be used solely for travel

between the U.S. and foreign gateway or vice versa, unless no

other U.S. carrier participates in that market.

ANALYSIS AND CONCLUSION

The Fly America Act, 49 U.S.C. App. § 1517, requires U.S.

government-financed air transportation to be "provided by" air

carriers holding certificates of public convenience and

necessity under 49 U.S.C. App. § 1371, i.e., U.S.-flag air

carriers. We note that there is no language in the Fly

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America Act specifying that air transportation must occur "on"

aircraft of any particular registry, but. simply, that the air

transportation must be provided by a U.S. air carrier, We

have had no previous cases exploring the manner in which U.S,

air carriers holding such certificates may provide air

transportation and still be considered as U.S. air

carriers,2/ Also, our Guidelines for Implementation of the

"Fly America Act"3/ do not treat this issue,

When the Fly America Act was amended in 1980 to permit, among

other things, foreign air carriers to be used in addition to

U.S. air carriers for government-financed air transportation

as part of a negotiated bilateral agreement4/, a related issue

was whether or not the Federal Aviation Act would be amended

to grant U.S. air carriers new authority to lease foreign

aircraft with or without foreign crews to provide their own

service in interstate or overseas air commerce, Although the

act was not amended to provide this authority, the evidence in

support of the amendment showed that U.S. air carriers were

already allowed to lease foreign aircraft with or without

foreign crews in order to provide U.S. service in some

international air commerce. See Hearings on HIR. 5481 Before

the House Subcommittee on Aviation, Committee on Public Works

and Transportation, 96th Cong., 1st Sess, 133-139 (1979)

Presumably, U.S. air carriers are still leasing foreign

aircraft in international air commerce today.

Consequently, since apparently leasing an entire foreign

aircraft by a US. carrier is a permissible practice in

international commerce and is considered to be service by a

U.S. carrier, we see no reason why the same approach could not

apply to the more limited control of individual seat. on

foreign aircraft for which the U.S. air carrier sells its

2/ Our cases involving involuntary rerouting of a passenger

by a U.S. air carrier to a foreign air carrier involve the

rewriting of a ticket substituting a foreign air carrier for a

U.S. air carrier rather than a holding out that the service on

a foreign air carrier was provided by a U.S. air carrier. See

e.g., 62 Comp. Gen. 496 (1983).

3/ See Comptroller General's Guidelines, B-138942, Mar. 31,

1981, restated in the Federal Travel Regulations, 41 C.F.R.

§ 301-3.6(b) and (c) (1991).

4/ See section 21 of the International Air Transportation

Competition Act of 1979, 49 U.S.C. App. § 1517(c) (1988). We

informally inquired of the Department of State whether codesharing arrangements had been negotiated specifically under

section 1517(c), and the Department replied that they hadcnot.

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tickets under the code-share arrangement,5/ Although we have

not been provided any particular code-share agreements and

related documentation, we assume that the code-share

arrangement which is described here as the type engaged in by

U.S, air carriers and which has the endorsement of the

Department of State as service provided by a U.S. air carrier

is in effect similar to a lease by a US, air carrier of a

portion of a foreign air carrier's aircraft and crew, As

such, it is the U.S carrier that is responsible for the

travel service, Also, it is our understanding that the U.S,

carrier receives a substantial portion of the revenue; it does

not act as a mere booking agent on behalf of the foreign

carrier, Therefore, we conclude that such service is air

transportation provided by a U.S. air carrier for purposes of

the Fly America Act and an acceptable form of air

transportation service for government-financed travelers.

As to the three restraints that the State Department suggests

might be advisable, we agree that the entire ticket must be

issued by the U.S. carrier. It follows, in our view, that the

government's payment should be made to the U.S. carrier.

Concerning the other two suggested restraints, we recognize

that they are designed to insure that the U.S carrier

maintains a significant role in the transaction and that code

sharing is not used to undermine the competitive position of

other U.S. carriers. Thus, we agree that they would be

appropriate to consider incorporating into the agency's

travel management policies. We suggest that, in doing so,

the agency consult with the General Services Administration.

VILLA/

Comptroller General

of the United States

5/ An informal contact with a representative from the

Department of Transportation confirms this view.

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