GAO-21-412T, COVID-19 PANDEMIC: Preliminary Observations on Efforts toward and Factors Affecting the Aviation Industry’s Recovery
- Issuer
- Government Accountability Office
- Document type
- PDF source document
- Date
- 2021-03-02
Summary
Testimony GAO-21-412T by the U.S. Government Accountability Office, delivered March 2, 2021 before the Subcommittee on Aviation of the House Committee on Transportation and Infrastructure by its Director of Physical Infrastructure. The statement gives preliminary observations on actions aviation businesses took in response to reduced passenger demand, factors that may affect recovery, and considerations for federal support. It cites Department of Transportation statistics that passenger traffic was down 60 percent system-wide in 2020 compared to 2019, and states that the CARES Act appropriated $88 billion for the aviation industry and airports. It reports that Treasury provided $28.2 billion through the CARES Act Payroll Support Program and executed loans totaling up to $21.2 billion to 24 aviation-related businesses. It sets out three principles for considering future assistance.
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United States Government Accountability Office
Testimony
Before the Subcommittee on Aviation,
Committee on Transportation and
Infrastructure, House of Representatives
COVID-19 PANDEMIC
For Release on Delivery
Expected at 10:00 a.m ET
Tuesday, March 2, 2021
Preliminary Observations
on Efforts toward and
Factors Affecting the
Aviation Industry’s
Recovery
Statement of Heather Krause, Director,
Physical Infrastructure
GAO-21-412T
March 2021
COVID-19 PANDEMIC
Preliminary Observations on Efforts toward and
Factors Affecting the Aviation Industry’s Recovery
Highlights of GAO-21-412T, a testimony
before the Subcommittee on Aviation,
Committee on Transportation and
Infrastructure, House of Representatives
Why GAO Did This Study What GAO Found
International flight restrictions, local Aviation businesses took a range of actions to respond to the dramatic reduction
stay-at-home orders, and a general in passenger demand caused by the COVID-19 pandemic. Airlines, airports, and
fear of contracting and spreading others leveraged federal assistance, such as payroll support and grant funding,
COVID-19 through air travel had a provided in two 2020 federal relief laws. In 2020, for example, Treasury awarded
sudden and profound effect on the $28.2 billion in payroll support assistance for aviation to help airlines and
aviation industry. According to contractors keep employees on their payroll. Industry association and credit
Department of Transportation rating agency representatives said that federal assistance, in addition to
statistics, passenger traffic was down providing direct support, also increased confidence in the aviation industry, which
60 percent system-wide in 2020
enabled aviation businesses to raise money in private debt and equity markets to
compared to 2019. This reduction in
strengthen their cash reserves. Some aviation businesses have also reduced
demand has affected airlines, airports,
and the entire aviation supply chain.
labor costs through various means, including through early retirement programs
and furloughs. Further, aviation businesses reduced non-labor operating
This testimony is based on ongoing expenditures and certain capital costs. For example, airlines reduced capacity
work and provides preliminary and accelerated the retirement of older aircraft to lower maintenance costs.
observations on the: (1) actions that
businesses across the aviation industry The recovery of the aviation industry to pre-pandemic passenger levels depends
have taken to respond to reduced on factors outside the industry’s control—including declines in COVID-19
passenger demand, (2) factors that infections and the recovery of the U.S. and global economies—as well as on
may affect industry recovery, and (3) industry dynamics in how airlines respond to financial pressures and the
considerations for federal support to changing demand for air travel. Moreover, the effects have been uneven across
the aviation industry. the commercial aviation industry with certain sectors faring better or worse
depending on their business model, customers, and location. For example,
GAO examined industry reports and
statistics from 2019-2020 and reviewed according to representatives from an aviation manufacturer, airlines are likely to
GAO’s body of work on the CARES Act continue to postpone the delivery and purchases of long-haul aircraft over the
and past financial assistance efforts, next few years to better align with passenger demand. In turn, this would affect
including those directed to commercial demand for aviation manufacturing and aircraft maintenance services.
aviation. GAO also interviewed As the recovery unfolds, Congress may contemplate additional ways to support
representatives from domestic the aviation industry’s recovery. The challenges facing the aviation sector are
passenger, cargo, and regional
unprecedented and many uncertainties remain as to the pace and extent of
airlines; large and medium-sized
recovery. GAO’s previous work on federal assistance to the private sector
airports; businesses that maintain and
manufacture aircraft and engines; and
identified three fundamental principles that can serve as a framework for
aviation industry and labor groups. considering future assistance to the aviation industry. These principles are (1)
identifying and defining the problem; (2) determining the national interests and
What GAO Recommends setting clear goals and objectives that address the problem; and (3) protecting
the government’s interests. In applying these principles, the following issues
GAO will continue to assess these
emerge and may help inform how best to design any response:
issues as part of ongoing work, and
make recommendations as • identifying which type of assistance would best help achieve a defined
appropriate. GAO has previously made goal;
recommendations related to oversight
of payroll support assistance for • targeting support to sectors that have been the most affected;
aviation and the development of a
• helping small communities stay connected to the national transportation
national aviation preparedness plan for
communicable disease outbreaks. system; and
• addressing the longer-term public health impacts of the pandemic on
View GAO-21-412T. For more information, aviation.
contact Heather Krause at 202-512-2834 or
krauseh@gao.gov
United States Government Accountability Office
Letter Letter
Chairman Larsen, Ranking Member Graves, and Members of the
Subcommittee:
I am pleased to be here today to discuss our ongoing work assessing the
effects of the Coronavirus Disease 2019 (COVID-19) pandemic on the
aviation industry.
The COVID-19 pandemic has resulted in catastrophic loss of life and
substantial damage to the global economy. International flight restrictions,
local stay-at-home orders, and a general fear of contracting and
spreading COVID-19 through air travel had a sudden and profound effect
on passenger air carriers, airports, and the entire ecosystem of
manufacturers, repair stations, and other businesses that comprise the
U.S. commercial aviation industry. According to Department of
Transportation (DOT) statistics, passenger traffic was down 60 percent
system-wide in 2020 compared to traffic levels in 2019. The ripple effect
from this unprecedented and sustained reduction in demand has affected
airline business models, employment, and the entire aviation supply
chain. For example, according to the Bureau of Labor Statistics (BLS), as
of November 2020, an estimated 122,600 jobs in the air transportation
sector—over 23 percent—have been lost since peak employment levels
of 516,900 in February 2020. 1
As an immediate response to the public health and economic crises,
Congress and the administration took a number of actions to provide
funds for pandemic relief to aviation businesses. Notably, in March 2020,
Congress passed, and the President signed into law, the CARES Act, 2
which appropriated, among other things, $88 billion to help the nation’s
aviation industry and airports respond to and recover from the economic
effects of the COVID-19 pandemic. This included:
• $32 billion in payroll support to passenger air carriers, cargo air
carriers, and certain aviation contractors to continue paying employee
wages, salaries, and benefits;
1According to BLS, the air transportation sector includes scheduled air carriers that fly
regular routes on regular schedules and operate even if flights are only partially loaded,
and non-scheduled carriers that provide chartered air transportation of passengers, cargo,
or specialty flying services and often operate at nonpeak time slots at busy airports.
Among others, these numbers do not include activities such as airport operations and
aerospace manufacturing or repair activities, if conducted by companies other than
airlines.
2Pub. L. No. 116-136, 134 Stat. 281, 470.
Page 1 GAO-21-412T COVID-19 Pandemic
• Up to $46 billion for loans and loan guarantees to provide liquidity to
aviation and other eligible businesses; and,
• $10 billion to support U.S. airports of all sizes experiencing severe
economic disruption caused by the COVID-19 pandemic.
The Consolidated Appropriations Act, 2021 appropriates an additional
$16 billion to the Department of the Treasury to provide payroll support
for passenger air carriers and certain aviation contractors, and $2 billion
for eligible airports and certain tenants. 3 Together, the CARES Act and
Consolidated Appropriations Act, 2021 provided certain parts of the
aviation sector with economic relief and in return required recipients to
generally maintain their employment levels, among other requirements. 4
At the beginning of 2021, the outlook for U.S. aviation remains uncertain.
Demand for air travel remains far below pre-pandemic levels with the
exception of certain leisure markets. Notably, the most profitable
segments of the aviation industry—international and corporate air travel—
have only minimally recovered. Leisure travelers have focused more on
domestic and shorter-haul international destinations that are less
profitable. Some businesses have relied more heavily on virtual meetings,
which has led to a substantial reduction in business trips.
Unlike past disruptive events in aviation, including September 11, 2001,
and the economic recession of 2008-2009, passenger airlines entered
this crisis in a relatively strong financial position, with 10 consecutive
years of industry profit from 2010 through 2019. 5 Nonetheless, some
industry analysts have forecast a long, multi-year recovery before aviation
passenger traffic returns to 2019 levels. According to several forecasts,
multiple uncertainties—ranging from vaccine distribution to additional
government-imposed restrictions as a result of new COVID variants—
3Pub. L. No. 116-260, 134 Stat. 1182.
4GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: June 25, 2020). Conditions of the two financial
assistance programs include prohibitions against involuntary layoffs or furloughs. Some
airlines took action to offer early retirement. In addition, through attrition and hiring
freezes, airlines were able to reduce headcount. As authorized by the CARES Act and the
Consolidated Appropriations Act, 2021, DOT has required scheduled passenger air
carriers receiving financial assistance to maintain minimum scheduled passenger service
to points in the United States served prior to the pandemic, with some exceptions. Pub. L.
No. 116-136, § 4005, 134 Stat. at 477; Pub. L. No. 116-260, § 407, 134 Stat. at 2058-59.
5Prior to September 11, 2001, a weakening U.S. economy affected passenger airlines.
Throughout the 2000s volatile fuel prices, among other things, also led to financial
difficulties and some bankruptcies.
Page 2 GAO-21-412T COVID-19 Pandemic
suggest that a return to 2019 traffic levels may not occur until 2023 or
later.
My statement today is based on our ongoing examination of the effects of
the COVID-19 pandemic on selected aviation sectors—including airlines,
airports, manufacturers, and repair stations—and on our extensive body
of work on past financial assistance efforts, including those directed to the
commercial aviation industry. This statement provides preliminary
observations on the: (1) actions that businesses across the aviation
industry have taken to respond to reduced passenger demand, (2) factors
that may affect industry recovery, and (3) considerations for federal
support to the aviation industry.
As part of our ongoing work, we reviewed a range of aviation industry
reports, financial data, government statistics from 2019-2020, and
documentation from selected businesses. We also interviewed a range of
entities, including representatives from domestic passenger, cargo, and
regional airlines; large and medium hub airports; manufacturers of
commercial and general aviation aircraft and engines; repair station
operators that perform inspections and maintenance on aircraft; and
multiple industry associations and labor groups representing a cross-
section of aviation interests. Interviews with selected businesses provided
insights on the effects of the pandemic and the actions certain businesses
and sectors have taken in response. Furthermore, we interviewed
representatives from credit rating agencies and several industry analysts
to gain insight on the uncertainties the industry faces as it looks toward
recovery. The results of these interviews are not generalizable to the
entire commercial aviation industry. When completed, our ongoing work
will include actions DOT and the Federal Aviation Administration (FAA)
have taken to help the industry respond to the pandemic and the effects
of those actions on industry businesses, as well as aviation stakeholders’
perspectives on the effects of the CARES Act. We plan to complete this
work by summer 2021.
The ongoing work on which this statement is based is being conducted in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Page 3 GAO-21-412T COVID-19 Pandemic
In response to reduced passenger demand brought by the COVID-19
Aviation Businesses pandemic, aviation businesses quickly implemented measures to reduce
Took a Range of financial losses and position themselves for recovery to pre-pandemic
levels. These actions included leveraging federal assistance, raising
Actions to Respond to money in private markets, and reducing labor, operating, and capital
Reduced Passenger expenditures.
Demand To obtain needed funding to respond to impacts from the pandemic, a
wide range of aviation industry businesses leveraged the federal financial
support from the CARES Act and the Consolidated Appropriations Act,
2021. According to representatives from airlines and credit rating
agencies, the federal government’s early support via the CARES Act
helped to quickly provide stability to the aviation industry. For example:
• As of October 2020, Treasury provided $28.2 billion in financial
assistance from the CARES Act Payroll Support Program to help
airlines and contractors keep employees on their payroll. Treasury is
currently providing another $16 billion in financial assistance for the
Consolidated Appropriations Act, 2021 Payroll Support Program. 6
• Treasury executed loans totaling up to $21.2 billion that allowed 24
aviation-related businesses to bridge revenue declines and pay for
ongoing expenses, including payroll and rent. 7
• Airports received approximately $10 billion in grants under the
CARES Act, and FAA is currently allocating another $2 billion
provided under the Consolidated Appropriations Act, 2021. 8 These
6Treasury executed Payroll Support Program agreements with 352 passenger air carriers,
38 cargo air carriers, and 220 aviation contractors. Total demand by cargo air carriers for
these funds was far below the $4 billion authorized for these carriers, so about $3 billion of
funds in this category were not awarded.
7Of the $21.2 billion in loans, most of the loan assistance—nearly $20.8 billion—was
provided to seven major passenger air carriers.
8Both the CARES Act and Division M of the Consolidated Appropriations Act, 2021—also
known as the Coronavirus Response and Relief Supplemental Appropriations Act, 2021—
give FAA the authority to retain up to 0.1 percent of the funds provided for Grants-in-Aid
for Airports to fund the award and oversight by FAA of grants made under the respective
Acts. Pub. L. No. 116-136, 134 Stat. at 597; Pub. L. No. 116-260, div. M, tit. IV, 134 Stat.
at 1941.
Page 4 GAO-21-412T COVID-19 Pandemic
grants allow airports to fund their operations and meet their ongoing
debt payments. 9
• Some aviation businesses, such as air carriers and contractors,
applied and were approved for Paycheck Protection Program loans to
help sustain them through the period of decreased demand. 10
Representatives from airlines and manufacturers also reported using the
tax provisions in the CARES Act to bolster their liquidity. 11 In addition,
commercial aviation operators benefited from the CARES Act provision
suspending certain commercial air transportation taxes, including those
on passenger tickets, cargo, and fuel. 12
Industry associations and credit rating agencies told us that assistance
from the CARES Act provided a degree of assurance in the stability of the
market that enabled private lenders to invest in the aviation industry with
greater confidence that they would be able to recoup their investments.
For example, major U.S. passenger airlines added an estimated $59
9FAA has begun to collect data from airports on general spending categories for CARES
Act funding through grant close-out reports, but officials said that they have limited
information until airport sponsors draw down all funds for reimbursed costs. While FAA
collects these data, officials said airports are generally using CARES Act funds on payroll,
utilities, minor maintenance, and debt service. Although FAA officials have not yet
obligated or expended any Consolidated Appropriations Act, 2021 funding, airport
associations said that airport sponsors generally plan to use these grants to pay for
operational expenses and costs related to mitigating effects of the COVID-19 pandemic,
such as cleaning and sanitation, social distancing measures, and upgrading heating and
cooling systems.
10The CARES Act and the Paycheck Protection Program and Health Care Enhancement
Act appropriated a total of $670 billion for the Paycheck Protection Program (PPP) under
the Small Business Administration’s 7(a) small business lending program. PPP loans are
made at 1 percent interest and will be fully forgiven if certain conditions are met. These
loans can be used for payroll and certain non-payroll costs. In general, small businesses
with 500 or fewer employees, including tax-exempt nonprofit organizations, veteran’s
organizations, and tribal businesses were eligible. Businesses in certain industries with
more than 500 employees were eligible for loans.
11Airlines and aviation manufacturers reported using tax provisions of the CARES Act,
including deferring employer payroll taxes, claiming employee retention credits, and
carrying back five years net operating losses arising in tax years beginning in 2018, 2019,
and 2020. Pub. L. No. 116-136, §§ 2301-2303, 134 Stat. at 347-56. The Consolidated
Appropriations Act, 2021 made a number of changes to these provisions, including
extending the availability of credits, among other changes. Pub. L. No. 116-260, div. N, §§
206-207, 134 Stat. at 3059-3066.
12Pub. L. No. 116-136, § 4007, 134 Stat. at 477. In October 2020, Congress moved $14
billion from the Treasury General Fund into the Airport and Airway Trust Fund. Continuing
Appropriations Act, 2021 and Other Extensions Act, Pub. L. No. 116-159, § 1205, 134
Stat. 709, 728.
Page 5 GAO-21-412T COVID-19 Pandemic
billion in private and federal long-term debt by the end of 2020, with their
expected interest expenses to more than double in the next few years,
according to one industry association. In some cases, businesses
pursued private refinancing instead of pursuing government financial
support options. For example, Boeing was able to issue $25 billion in new
long-term debt in April 2020 to bolster its liquidity and thus did not pursue
any CARES Act loans.
At the same time that some airlines and other aviation businesses were
strengthening their cash reserves through federal support and private
financing, they also implemented broad cost-cutting measures, including
reducing their labor costs. Airlines and airports sought to reduce their
payroll expenses by, among other things, offering early retirement and
voluntary separation programs, voluntary unpaid leave programs, freezing
non-essential hiring, reducing executive and management compensation,
and in some cases, involuntary furloughs and layoffs. For example, Delta
Air Lines reported that 50,000 employees took unpaid leaves of absence
and approximately 18,000 employees participated in its early retirement
and voluntary separation programs from April 1 through December 31,
2020. American Airlines reported reducing its management and support
staff team by approximately 5,100 positions (30 percent) and that more
than 20,000 of its employees opted for an early retirement or long-term
paid leave. Manufacturers and repair station operators have also reduced
their workforces through reductions to employees’ hours, layoffs, and
furloughs, and in some cases, closing facilities. For example, one large
manufacturer of airplane engines permanently reduced its global
workforce by approximately 25 percent, while a general aviation aircraft
manufacturer told us that more than 600 employees were impacted when
it permanently closed a facility in California.
Airlines also took actions to reduce non-labor operating expenditures as
well as certain capital costs. For example, some passenger airlines
quickly reduced their capacity and the reach of their networks by reducing
flight frequencies, aircraft size, and the number of airports served. 13
Airlines also accelerated the retirement of older aircraft to reduce
maintenance costs and streamline their fleets. For example, American
13As noted previously, as authorized by the CARES Act and the Consolidated
Appropriations Act, 2021, DOT has required scheduled passenger air carriers receiving
financial assistance to maintain minimum scheduled passenger service to points in the
United States served prior to the pandemic, with some exceptions. For example, DOT has
been exempting carriers from serving certain points where it is not reasonable or
practicable to serve all points or all frequencies in their service obligations. Pub. L. No.
116-136, § 4005, 134 Stat. at 477; Pub. L. No. 116-260, § 407, 134 Stat. at 2058-59.
Page 6 GAO-21-412T COVID-19 Pandemic
Airlines accelerated the retirement of a number of aircraft including
certain Airbus A330, Boeing 757 and Boeing 767 models, and certain
regional aircraft. According to American Airlines’ publically available
financial reports, these aircraft retirements provide cost savings and
efficiencies associated with operating fewer aircraft types by removing
complexity from the airline’s operations. Airlines also placed aircraft in
temporary storage. For example, representatives from one airline told us
they parked 44 of their older Airbus A320 aircraft because they were less
fuel efficient than other aircraft in their fleet. Airlines also delayed and
deferred delivery of new aircraft. For example, according to company
reports, Spirit Airlines deferred some of its aircraft deliveries originally
scheduled for 2020 and 2021.
In addition to airlines, other aviation entities took similar actions to reduce
non-labor operating expenditures and capital costs. Many airports
reported deferring or delaying capital development projects. For example,
representatives from one medium hub airport told us the airport had
paused a $1.5 billion expansion project that includes the addition of 16
new gates, a seven-story parking garage, new cargo facility, and several
other improvements to the airport. Several airports accelerated the
timeline of some capital projects to take advantage of project savings that
could be realized as the result of reduced passenger traffic.
Representatives from a large hub airport said that reduced passenger
traffic allowed them to reduce costs and accelerate a taxiway
replacement and runway projects because they did not have to pay
overtime costs or costs for construction during the night. Some aircraft
manufacturer representatives told us they reduced spending on research
and development, marketing, and advertising, and deferred capital
expenditures. Representatives from repair stations told us they closed
facilities, delayed previously planned expansions, and deferred other
capital expenditures.
Page 7 GAO-21-412T COVID-19 Pandemic
The aviation industry’s recovery to pre-pandemic passenger levels
Aviation Industry depends on external factors, including pandemic-related public health
Recovery Depends outcomes and economic improvement, and how the aviation industry
responds to the financial pressures and changes in demand associated
on the Public with these uncertainties.
Response to the
As noted earlier, industry recovery is highly dependent on factors outside
Pandemic, Economic the aviation industry’s control, most notably pandemic-related public
Recovery, and health outcomes and the general recovery of the U.S. and global
economies. According to several industry forecasts, public health factors
Industry Responses include the pace and acceptance of COVID-19 vaccination; ongoing
to these Uncertainties public adherence to measures to mitigate disease transmission, such as
physical distancing and mask-wearing; the spread and impact of different
variants of the virus that causes COVID-19; the ability to standardize
international travel restrictions; and traveler sentiment and public
confidence in the safety of air travel. Airline representatives are optimistic
that air travel demand will pick up in the second half of this year as a
significant portion of the flying public become vaccinated. Similarly,
economists project that the economy will also recover in the second half
of 2021 as employment levels, consumers’ disposable income, business
growth, and the associated demand for corporate travel all rebound.
However, while many are optimistic for a post-pandemic economic
recovery, the speed and degree to which the aviation industry will be able
to rebound is likely to vary across different industry sectors. Credit rating
agency representatives told us that low-cost, leisure-oriented airlines are
likely to recover faster than network airlines that rely more heavily on
business and international travelers.
Airlines’ responses to financial pressures will also likely impact other
aviation businesses, including potentially delaying demand for their
services. For example, airlines are likely to continue to delay delivery and
defer purchases of new aircraft, especially long-haul aircraft, to better
align with anticipated demand for domestic travel over the next few years,
according to representatives from an aviation manufacturer. According to
the consulting firm Oliver Wyman, as many as 4,700 aircraft that had
been on the production schedule at the beginning of 2020 will no longer
be built as scheduled, which will have a significant impact on the midsize
and larger parts suppliers that supply larger airframe and engine
manufacturers.
Additionally, credit rating agency representatives told us that repair
station operators will likely be affected as airlines may conserve cash by
Page 8 GAO-21-412T COVID-19 Pandemic
using up existing inventories of spare parts and managing their fleet
where possible to limit maintenance requirements. Those representatives
told us this could cause demand for repair station services and parts to
lag a recovery in air travel.
Representatives from an aviation manufacturer also told us that changes
in demand for aircraft may result in the loss of key skill sets as
manufacturing businesses reduce employment and skilled aviation
workers migrate to other industries. We have previously reported on
industry concerns that an insufficient supply of certain aviation
professionals—including those involved in aviation manufacturing—could
develop as a result of retirements and a perception that fewer people are
entering aviation professions. 14
In response to past economic crises, we have recommended a framework
Considerations for the for evaluating federal assistance to an industry; this framework may be
Federal Role in useful to Congress in considering any future support to the aviation
sector. 15 We have identified three fundamental principles that should be
Assisting the Aviation considered when providing large-scale federal assistance.
Sector
• Identify and define the problem. The government should clearly
identify and define the specific problems confronting the industry—
separating out those that require an immediate response from those
structural challenges that will take more time to resolve.
• Determine national interests and set clear goals and objectives
that address the problem. After defining the problem, Congress
must determine whether a legislative solution best serves the national
interest.
• Protect the government’s interest. Because the pandemic
assistance programs pose a significant financial risk to the federal
14GAO, Aviation Workforce: Current and Future Availability of Aviation Engineering and
Maintenance Professionals, GAO-14-237 (Washington, D.C.: Feb. 28, 2014).
15See, for example, GAO, Auto Industry: A Framework for Considering Federal Financial
Assistance, GAO-09-247T (Washington, D.C.: Dec 5, 2008), Commercial Aviation: A
Framework for Considering Federal Financial Assistance GAO-01-1163T, (Washington,
D.C.: Sep 20, 2001), Troubled Financial Institutions: Solutions to the Thrift Industry
Problem, GAO/GGD-89-47 (Washington, D.C.: Feb. 21, 1989), Resolving the Savings and
Loan Crisis, GAO/T-GGD-89-3 (Washington, D.C.: Jan. 26, 1989), Options For Dealing
With Farm Credit System Problems GAO/T-GGD-87-11 (Washington, D.C.: April 7, 1987),
Guidelines for Rescuing Large Failing Firms and Municipalities, GAO/GGD-84-34
(Washington, D.C.: Mar. 29, 1984).
Page 9 GAO-21-412T COVID-19 Pandemic
government, appropriate oversight should continue to be included in
any future federal program to ensure that policy objectives are
achieved and to provide some level of protections for taxpayers. 16
As discussed earlier in this statement, the challenges facing the aviation
sector are unprecedented and many uncertainties remain as to the pace
and extent of recovery in the coming years. Congress has already
determined that the benefits of immediate federal intervention exceed the
costs of a potential industry collapse that could result in firm closures,
layoffs of highly skilled aviation workers, and the loss of critical
transportation infrastructure amid a pandemic. As we enter the second
year of the pandemic and the pace and duration of recovery becomes
clearer, Congress can use the principles outlined above as it considers
any additional steps to assist the aviation industry. Evaluating the
government’s response against these principles can help structure a
response that best supports the aviation industry, while simultaneously
protecting taxpayers’ interests.
As Congress contemplates future support to aid the aviation industry’s
recovery, the following issues emerge in light of the three aforementioned
principles and may help inform how best to design any response:
• Identifying the right type of assistance. Defining the goals and
objectives for future assistance would help Congress and program
administrators determine which tools are needed and most
appropriate to support an aviation industry recovery following the
pandemic. While Congress has already provided financial assistance
in the form of grants, loans, loan guarantees, and cost sharing
programs, other mechanisms could play a role in supporting the highly
skilled U.S. aviation workforce depending on the nature of the
recovery. For example, worker retention incentives, aviation workforce
retraining, and efforts to strengthen the pipeline of new applicants for
careers in aviation manufacturing and maintenance, among others,
could help prepare the workforce to be ready as air travel demand
returns. In addition, investing in research and development to support
16With respect to Treasury’s oversight of the Payroll Support Program, we recommended
in November 2020 that Treasury develop and implement a compliance monitoring plan
that identifies and responds to identified program risks and addresses potential fraud.
Treasury neither agreed nor disagreed with our recommendation but committed to
reviewing additional measures that may further enhance its compliance monitoring. See
GAO, COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal
Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020).
Page 10 GAO-21-412T COVID-19 Pandemic
the competitiveness and sustainability of the aviation industry can
help maintain U.S. leadership in civil aviation.
• Targeting assistance to sectors that have the greatest need. The
pandemic has resulted in uneven effects across the commercial
aviation industry with certain sectors faring better or worse depending
on their business model, customers, and location. For example,
domestic cargo airlines have experienced an increased demand for
service compared to the decreased demand for passenger service.
Recognizing this, Congress did not extend assistance to cargo airlines
under the second round of aviation financial assistance. Furthermore,
the pace of recovery for domestic passenger airlines has been
uneven, with some low-cost airlines returning to profitability much
faster than larger network airlines that rely more heavily on
international and business passengers. These dynamics are also at
play within the aviation supply chain as, according to one consulting
firm, suppliers that provide services to other industries may have an
advantage over those tied to aviation manufacturing. Suppliers with
military business may also be in a comparatively better financial
position. Finally, assistance should be directed to businesses or
sectors directly impacted by the pandemic over those that
experienced losses because of other unrelated events, such as safety
problems or declining market share.
• Ensuring access to the national air transportation system.
Communities of all sizes seek access to air service as a driver for
attracting investment, generating employment, and providing mobility
for citizens. However, small communities were collectively losing air
service prior to the pandemic, and we have evaluated various
changes to existing subsidy programs. 17 As authorized by the CARES
Act and Consolidated Appropriations Act, 2021, DOT has required air
carriers receiving loans to maintain some service levels to small
communities. In addition, the Consolidated Appropriations Act, 2021
allocates up to $5 million of the $45 million appropriated for Grants-in-
Aid for Airports to carry out the Small Community Air Service
Development Program, and directs DOT to prioritize allocating the
funding to communities that have had air carrier service reduced or
17GAO, Commercial Aviation: Effects of Changes to the Essential Air Service Program,
and Stakeholders’ Views on Benefits, Challenges, and Potential Reforms, GAO-20-74
(Washington, D.C.: Dec 10, 2019), Small Community Air Service Development: Process
for Awarding Grants Could Be Improved, GAO-19-172 (Washington, D.C.: Mar 26, 2019),
and Commercial Aviation: Status of Air Service to Small Communities and the Federal
Programs Involved, GAO-14-454T (Washington, D.C.: Apr 30, 2014).
Page 11 GAO-21-412T COVID-19 Pandemic
suspended as a result of the coronavirus pandemic. 18 However, once
the CARES Act-related assistance ends, some small communities
may face a reduction in or complete loss of air service. Amid other
concerns, Congress could consider some additional near term steps
to preserve a minimum level of service to small communities until the
airline industry more broadly recovers.
• Addressing the longer-term public health implication of the
pandemic on aviation. As the aviation industry adjusts to current and
near-term demand, the federal government has an important role to
play in mitigating the effects of the pandemic and helping the industry
plan for a “new normal” in the years ahead. Much remains uncertain
at this point, but several airports we interviewed told us that they
expect a range of new technologies and processes to be implemented
across the air travel experience to make flying safer for the public,
some of which could benefit from federal government evaluation and
support. For example, airlines and airports have started—and are
expected to continue—to introduce touchless technology to reduce
opportunities for disease transmission at check-in and boarding.
Airports are also expected to grapple with new consumer habits and
expectations around social distancing that may have profound
implications for the design of air terminals as well as concession
businesses. The federal government is exploring the use of digital
vaccine certificates for use in international travel, but the standards,
solutions, and information security issues for digital health passports
or other measures are not yet defined. 19 Other aspects of the public
health response to the pandemic have only begun, including efforts to
develop robust contact tracing and data sharing between
governments and airlines. Finally, the entire aviation industry could
benefit from the development of a national aviation-preparedness plan
for communicable diseases, a recommendation we made to the
Department of Transportation in 2015 that has not been
implemented. 20
18Pub. L. No. 116-260, div. M, tit. IV, 134 Stat. at 1941.
19Promoting COVID-19 Safety in Domestic and International Travel, § 5(e), 86 Fed. Reg.
7205, 7207 (Jan. 26, 2021).
20In the absence of efforts to develop a national aviation preparedness plan, in June 2020,
we urged Congress to take legislative action to require the Secretary of Transportation to
work with relevant agencies and stakeholders to develop such a plan. See GAO-20-625
and Air Travel and Communicable Diseases: Comprehensive Federal Plan Needed for
U.S. Aviation System’s Preparedness, GAO-16-127 (Washington, D.C.: Dec 16, 2015).
Page 12 GAO-21-412T COVID-19 Pandemic
As part of our ongoing work, we will continue to assess how DOT and
FAA are supporting industry recovery. This work includes examining how
DOT and FAA are supporting research and development related to
protecting the health of air travelers during pandemics while also
maintaining aviation safety, security, and efficiency.
Chairman Larsen, Ranking Member Graves, and Members of the
Subcommittee, this completes my prepared remarks. We will continue to
assess these issues as part of our ongoing work, including making
recommendations as appropriate, and will be happy to assist the
Subcommittee as you work to support the aviation industry’s recovery
from the pandemic. I would be pleased to respond to any questions that
you or other Members of the Subcommittee may have at this time.
If you or your staff have any questions about this statement, please
GAO Contact contact me at (202) 512-2834 or krauseh@gao.gov. Contact points for
and Staff our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement.
Acknowledgments
GAO staff who made key contributions to this testimony are Jonathan
Carver (Assistant Director), Amy Abramowitz, Sarah Arnett, Paul
Aussendorf, Melissa Bodeau, Kim Bohnet, Jean Cook, Jessica Du,
Camilo Flores, Joanie Lofgren, Gail Marnik, Justin Reed, April Yeaney,
and Susan Zimmerman.
(105037)
Page 13 GAO-21-412T COVID-19 Pandemic
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