The transportation industry has been one of the hardest hit by the COVID-19 pandemic, and the United States is no exception. Implementing the CARES Act is among the U.S. Department of Transportation’s (DOT) highest priorities in this time of national emergency. The CARES Act provides DOT with over $36 billion to prevent, prepare for, and respond to COVID-19 across all modes of transportation.
There is still a long way to go before confidence returns and travel resumes to anything like normal levels. The International Air Transport Association (IATA) recently warned that the airline industry faces a hard winter and called on governments around the world to continue providing relief measures as the COVID-19 crisis continues. It is worth noting that the United States has led the way in support funding for the aviation industry.
Globally, airlines are expected to post a loss of $84.3 billion in 2020 and government financial relief is a lifeline to many airlines. The bulk of airlines make their money in the northern summer season, while the winter season, even in the best of times, is a struggle to remain profitable. For example, IATA statistics show the 2019 net profit margin for European airlines followed the normal seasonal pattern and was 9% and 17% respectively in Q2 and Q3 (northern summer). But it started at -1% in Q1 and finished the year at 2% in Q4 (northern winter). The winter season will be even more challenging amid the recovery from COVID-19.
Public opinion research in the first week of June 2020 showed greater caution among travelers in returning to travel. Only 45% of travelers surveyed intend to return to the skies within a few months of the pandemic subsiding. A further 36% said that they would wait six months. That is a significant shift from April 2020 when 61% said that they would return to travel within a few months of the pandemic subsiding and 21% responded that they would wait about six months. Whether this is due to the number of cases still being recorded, or whether people have simply become accustomed to the new normal, the outcome is the same for the aviation industry.
“People are returning to the skies but the horizon of uncertainty of the COVID-19 crisis is extending. Forward bookings are down, and people are hedging their travel bets by booking closer to the time of travel. Airlines in the Northern hemisphere rely on a strong summer season and a predictable booking curve to get them through the lean months. But neither of these conditions are in place and airlines will need continued help from governments to survive a hard winter. Airlines will also need much more flexibility to plan schedules around these changing consumer trends. Financial and operational flexibility equals survival,” said Alexandre de Juniac, IATA’s Director General and CEO.
A new report from the Pandemic Response Accountability Committee (PRAC) says DOT has acted quickly to distribute funds and has begun implementing the Act’s requirements to provide much-needed relief to American workers, families, and businesses.
However, the committee adds that the volume of CARES Act funds and the speed with which the funds have been disbursed creates oversight challenges. To help the Department in meeting its mission while promoting effective stewardship of significant taxpayer dollars, the DOT Office of Inspector General is providing a summary of five key risk areas for DOT’s consideration in bolstering its oversight of CARES Act grantees and contractors. These potential risk areas and the OIG’s suggested actions to mitigate those risks are drawn largely from the OIG’s prior work assisting DOT with oversight of a large influx of funds for economic stimulus and emergency relief.
The risk areas cover managing grants to support airports, adapting oversight in surface transportation, effectively executing contracts and grants, tracking and monitoring funding, and increasing outreach and education.
In accordance with the CARES Act, the Federal Aviation Administration (FAA) awarded $10 billion to about 3,000 commercial and general aviation airports through CARES Act formula grants and the Airport Improvement Program (AIP). These funds are intended to support airports’ continuing operations and replace lost revenue resulting from the sharp decline in passenger traffic and other airport business due to COVID-19. To promote effective stewardship of these grants, the Agency will need to enforce grant assurances to ensure recipient airports use the funds only for their intended purpose and meet CARES Act and AIP requirements. Moreover, FAA will be overseeing the vast number of grants with its limited resources. OIG underscores the importance of following a risk-based oversight approach, assigning the appropriate risk level to grantees, and adjusting the Agency’s oversight accordingly.
It is not just aviation which has taken a hit, of course. Surface transportation agencies received an extraordinary amount of funding through the CARES Act as well as the authority to temporarily waive existing federal regulations in specific areas. The Federal Transit Administration (FTA) was provided with $25 billion to help the nation’s public transit systems mitigate the impacts of COVID-19. The Act provided another approximately $1 billion to the Federal Railroad Administration to similarly support Amtrak, as well as smaller amounts to the Maritime Administration and the Federal Motor Carrier Safety Administration. Notably, the CARES Act authorizes using funds to support public transit agencies’ operating expenses. As a result, OIG says FTA and other CARES Actfunded surface transportation agencies may need to adopt new or alternative approaches to ensure recipients meet federal requirements and funds are used for eligible purposes. The CARES Act requires FTA, along with other agencies, to provide waivers to certain rules to account for conditions caused by COVID-19 and expedite the funding process. It will be vital to monitor the impact of these waivers closely and provide transparency, including meeting congressional reporting requirements under the Act for the use of waivers.
Given the large influx of funds the CARES Act provides, DOT will need to award and administer contracts and grants effectively, including ensuring required cost estimates and justifications are in place and fostering competition to the extent practicable. OIG says DOT could help mitigate these cost risks and ensure more effective use of CARES funds by assessing pricing and competition trends and sharing best practices across all Operating Administrations and their grantees. In addition, it is vital that DOT provides clear direction to contractors and grantees on desired outcomes along with requirements for supporting and reporting expenditures. Moreover, OIG says that a major challenge underscoring all of DOT’s CARES Act efforts will likely be ensuring that qualified, skilled, and appropriately trained personnel and support staff are available to manage the awarded funds.
Strong financial stewardship of CARES Act funds will depend on DOT’s ability to effectively disburse, track, and monitor them. However, OIG says DOT may face risks in enforcing grantees to submit quality data on their spending. To help mitigate risks and enhance accountability as DOT quickly disburses CARES Act funds, it will be critical to implement data quality procedures for tracking and monitoring. Additionally, to reduce the risk of improper payments, DOT can enhance its efforts to detect errors in tracking and monitoring grant activities. To better protect the availability, data integrity, and confidentiality of sensitive information and mitigate risks to its financial management information technology systems, DOT will need to effectively select, assess, and monitor its security controls and effectively detect and correct weaknesses.
The volume of CARES Act funds and the speed with which they must be disbursed puts them at a higher than usual risk for fraud, waste, and abuse. OIG says DOT can help mitigate this risk by increasing its outreach and education efforts to enhance understanding among DOT staff, grantees, and their contractors on how to recognize, prevent, and report potential fraud to the appropriate authorities, including the OIG. It will also be essential to take timely action to suspend and/or debar individuals or firms that have defrauded the government or are otherwise known to be irresponsible, while enhancing efforts to ensure these parties do not receive federal contracts in the future.
Across the world, overall passenger flight bookings are down 82% year-on-year compared to June 2019 with similar decreases reported for other modes of transportation. While more people are traveling, the industry is not yet close to sustainability and finiacial relief such as the CARES Act is still desperately needed.