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“INTERNATIONAL AIR ROUTE SALES” mentioning the U.S. Dept. of Transportation was published in the Extensions of Remarks section on pages E1694-E1695 on Sept. 10, 1998.
The publication is reproduced in full below:
INTERNATIONAL AIR ROUTE SALES
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HON. JAMES L. OBERSTAR
of minnesota
in the house of representatives
Thursday, September 10, 1998
Mr. OBERSTAR. Mr. Speaker, airlines realize windfall profits, sometimes amounting to hundreds of millions of dollars, from the sale of international routes which they were granted, free of charge, by the Department of Transportation. This practice not only produces windfall profits; it also imposes substantial costs on the airline purchasing the route; these costs, in turn, must then be recaptured by higher fares. Moreover, the sale of international routes sometimes prevents DOT from awarding the route to the carrier which is best qualified and best able to serve the public.
Today, I am introducing legislation to prohibit this practice.
Under governing law, international routes are originally awarded on the basis of a public interest determination by the Department of Transportation, following an evidentiary proceeding in which all applicants for the route have the opportunity to present their operating proposals. However, once a route is awarded, DOT permits the incumbent airline to sell the route for substantial sums, sometimes amounting to hundreds of millions of dollars. DOT has been willing to approve these sales as long as a sale would not be seriously inconsistent with U.S. international policy.
The Department's approach has been to make this decision in a vacuum, without a comparative consideration of the proposals of other airlines which might be interested in the route. The effect of this policy has been that routes are frequently transferred to the largest U.S. airlines, which have the deepest pockets and are able to make the highest bid to the airline selling its routes.
This approach is bad public policy for several reasons. First, it takes an asset, which was originally given to the holder free of charge in the public interest, and allows it to be sold for the highest price. The American public is the loser because the new route holder will have to raise fares to recoup the cost of the route. Secondly, the sale is inconsistent with the original rationale under which the route authority was granted: that the carrier selected can best serve the interests of the American public. Relying on the highest bid means that, potentially, a better qualified applicant will be denied the ability to provide this service to the American public. The DOT policy of approving the sale of major routes, apart from mergers, began in 1986 when Pan American was allowed to sell its Pacific Division of United.
The policy of permitting routes to be sold has led to other disturbing results. Recently Northwest Airlines, pledged international route authorities as collateral to enable Northwest to draw down a
$2.08 billion line of credit syndicated by Chase Manhattan. The purpose of the draw down was to provide Northwest with sufficient funds to survive a strike until its employees agreed to Northwest's terms. I find it unacceptable for a company to use its international routes--
granted in the public interest--to support its ability to prolong a strike that denies many Americans basic air service. In addition, there have been rumors that Northwest threatened that if it did not get its way in labor negotiations, it would sell off the assets of the company, including the international routes. Again, I find it unacceptable that international routes be used for this purpose. It is way past time that we stop such activities.
My bill would end these abuses by prohibiting the sale of international routes. I recognize that this could be unfair if a carrier wanted to transfer a route it had previously purchased. In these cases, my bill would allow the carrier to recapture the price it originally paid.
Mr. Speaker, we need to restore the original public policy premise for granting international routes: to provide the best service in the public interest. I hope my colleagues will join me in supporting this common-sense legislation which will promote the economic interests of the American traveling public.
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