International Aviation: Implications of Ratifying the Montreal Aviation Protocols

Published by the Government Accountability Office on 1990-06-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                       United States General Accounting       OlTice   WLJ3
v ‘GAO                 Testimony

    For Release         International       Aviation:        Implications      of
    on Delivery         Ratifying     the   Montreal      Aviation     Protocols
    Expected at
    10:00 a.m. EDT
    June 19, 1990

                        Statement   of
                        Kenneth M. Mead
                        Director,   Transportation          Issues
                        Resources,   Community,          and Economic
                        Development    Division
                        Before the
                        Committee on Foreign            Relations
                        United States Senate

    GAO/T-RCED-90-83                                                        GAO Form 160 (12/fJV
Mr. Chairman and Members of the Committee:

        We appreciate           the opportunity                  to    testify       on how the Montreal
Protocols       would affect            the level          and timeliness               of compensation
for victims         of international                aviation           accidents        and whether           the
Protocols       might       also    affect         the safety            of international            air
trave1.l        The U.S. government                  has long been dissatisfied                        with     the
low levels        of compensation             permitted               under international
agreements,         and the Montreal                Protocols            are designed           to address
these deficiencies.                 Our work has shown the following:

        -- The Montreal             Protocols         would more fully                  compensate
             Americans        for    economic and non-economic                          losses      because the
             Protocols        increase        the current                limit      on an airline
             liability        to about        $130,000 per passenger,                          and provide          for
             a plan to supplement                   compensation             above this          limit.2

        -- They would provide                 for more timely                    restitution       by not
             requiring        claimants            to prove the fault                  of the airlines              and
             by furnishing           incentives            for        airlines       to settle       claims

lThe Montreal            Aviation       Protocols          were transmitted                to the Senate in
2Economic losses             include,        for     example, lost income and the imputed
value      of household        services.             Non-economic losses are based on
such considerations    as mental                     anguish, pain and suffering, and
loss of companionship.
            --   The Protocols            would increase                the likelihood              that       Americans
                 will      be able to bring               suits        in U.S. courts,              if
                 compensation            offers        are unsatisfactory,                 because they add
                 the country           where the passenger                     resides     as a new basis                of

            --   It     is unlikely           that     ratification              of the Protocols                would
                 adversely           affect     airline            safety.        Although      the Protocols
                 would eliminate               the civil            litigation        of fault,            the
                 available          evidence         indicates          that      litigation         has not had
                 an effect          on airline          safety.

        The Montreal                Protocols          raise        the liability          limits          of the
airlines          and provide            a mechanism for                getting       compensation               to
claimants             more in line            with     that        received       in domestic            aviation
accidents             and in a less expensive                       and more expeditious                   manner.           The
Protocols             represent        a marked improvement                      over the current
international               agreements          that      govern compensation                  of claimants,                 and
offer        better        chances of recovering                     damages to Americans                   traveling
abroad.           They also offer               a foundation             upon which to increase                        the
liability             of the airlines             and to amend the liability                         rules        as

        After           briefly       recounting          the chronology              of events           that        led up
to the Montreal                   Protocols,         we will         describe       the principal                elements
of the Protocols                   and their         likely        effect        on the level            and


    timeliness        of compensation          for U.S. victims            of international
    aviation      accidents.

              In 1929, delegates            from 22 nations           meeting      in Warsaw, Poland,
    signed      an agreement,        the Warsaw Convention,                creating         a global      set
    of rules      governing        the international           air     transportation           of
    passengers,          baggage,    and cargo.           A uniform       set of rules          was needed
    because the nations             of the world          had different           legal     systems and
    customs.        The Warsaw Convention,                among other       things,         established
    the bases for          determining        jurisdiction           in the case of an accident
    and set limits          on the liability          of airlines.               The drafters         of the
    Convention       wanted to protect            the infant          aviation      industry         at a time
    when a single          catastrophic        accident       could     have financially
    devastated       an airline.            The United       States     ratified          the Convention
    in 1934, and over the years                  124 countries          have adopted the

              In the event of an accident,                 under the Warsaw Convention,                    an
    airline      is presumed to be responsible                  for     a passenger's           death or
    injury      unless     the airline        can prove otherwise.                 However, the
    airline's       liability       is limited       to about $10,000 per passenger.
    Victims      or their       survivors      can obtain       additional          compensation          only

    3Cohvention          for the Unification    of Certain Rules Relating to
    International           Transportation   by Air, Warsaw, October 12, 1929.
if   they can show willful                misconduct              on the part           of the airline           or
if   the airline       failed       to deliver               a ticket         that,     among other       things,
included      a notice        of the airline's                   limited       liability.       Since the
Convention      went into         effect         in 1933, claimants                    have obtained        in
U.S. courts        verdicts       of willful             misconduct            for     the death and injury
of passengers         in only nine casese4                        In one case resulting               from an
aviation      accident        in 1974, the courts                    took      15 years     to find      willful
misconduct.5         Another       case resulting                   from an aviation           incident          in
1983 is still        in litigation               after        more than 6 years,             with     the
willful      misconduct        verdict          currently          under appeal.6


          In 1955, a number of nations                        adopted the Hague Protocol,                    which
increased      the limit        on an airline's                   liability           from $10,000 to
$20,000 per passenger.                   This     amendment has been ratified                       by 109
countries      but was not ratified                  by the United                States    because the
Congress believed             the liability              limit       was too low to fully

4See merican      Amines      v. Ulen 186 F.2d 529 (D.C. Cir. 1949); u
v. Tuller, . 292 F.2d 775 (D.C. Cir. 1961): Leroy v. Sabena Relaian
World  Airlines
   * 1nes,          344 F.2d 266 (2nd Cir. 1965); miner                v. Alitalia
             9 Av: Cas. 18228 (CCH) (1966); In Re Paao Pago Aircra
pf January 30, 1974, (unreported            decision)     (9th Cirr 1982); Tar::
v. Pakistan International        Airline        554 F. #Supp. 471, (S.D. Tex.
1982): Butler v. Aeromexico, 774 !:2d 429 (11th Cir. 1985); In Re
Korean AirLines     Disaster of Sentember * Bali.. 1, Indonesia
                                                        1983, 829
                                                                6 , F.2d  1171 (D.C.
Cir. 1989); and In Re Aircrash           in                         871 F.2d 812
 (9th Cir. 1989).
'See In Re Aircrash      in Bali. . Indonesia I-.
6Sed Jn Re Korean AirT,ines .        .
                                   Disaster     of Sentember 1, 1983, gunra.

compensate for the loss                     of American               lives.           Since most foreign
countries        ratified         the Hague Protocol,                     Americans              traveling              between
two foreign           points      are usually          subject            to the limit                it     defines            for
compensation           even though the United                         States          has not ratified                   this
Protocol.         For example,              a flight          between France and Spain is
subject       to the $20,000            liability             limit       of the Hague Protocol.

         Dissatisfaction            with      the low liability                        limits       of the Warsaw
Convention        and the Hague Protocol                       led the United                    States        to
announce in 1965 its                intention          to withdraw                    from the Convention.                        On
the eve of the withdrawal,                      air    carriers                serving          the United              States
signed       the 1966 Montreal               Agreement,           whereby they                   accepted           a
liability       of up to $75,000 per passenger                                  for     death or injuries,
regardless        of their         fault.        As a result,                   the United            States            agreed
to remain a party              to the Convention.                       The Montreal                Agreement
applies       to air     travel       to,     from,       or through              the United                States        on
both foreign           and domestic           airlines.                For example,                a flight             from the
United       States     to France is subject                     to the 1966 Montreal                         Agreement
limit       of $75,000.         Compensation              beyond $75,000                   still           requires
claimants       to prove willful               misconduct               by the airline.                      A few
countriew-        including         Italy,       West Germany, and the United                                   Kingdom-
have required           airlines       to accept              higher       liability               limits,          the
highest       of these being           $130,000.

            ON-           PRQTOCO&&

            At a meeting          of member states                 of    the International                    Civil
Aviation          Organization             (ICAO) in Montreal                 in 1975, four              amendments
(protocols)              to update the Warsaw Convention                          were introduced.
Protocols          No. 1 and 2 make the special                            drawing     rights         (SDRs) of the
International             Monetary          Fund the currency                of the Warsaw Convention
and the Hague Protocol,                         respectively.              The special           drawing             right       is
an international                 reserve         asset whose value               is based on the average
worth        of the world's              five     major currencies               (U.S. dollar,                 British
pound sterling,              French franc,              West German mark,                and Japanese yen).
Protocol          No. 3 is concerned                 with        an airline's         liability               for
passengers          and baggage.                 Protocol         No. 4 changes the rules                        governing
liability          for    cargo.          Since only             Protocol       No. 3 is controversial,
our testimony             will     concentrate              on its       provisions        for     passengers.7

         Montreal         Protocol         No. 3 increases                an airline's            liability              limit
to 100,000 SDRs, about $130,000,                                 and establishes           a policy             of strict
liability,          under which claimants                        have to prove only               that         damages
resulted          from an accident,                not that          the airline         involved              was at
fault.         However,          Protocol         No. 3 deletes             the provisions               of     the
Warsaw Convention                 that     allow      claimants           to recover        additional
amounts from the airlines,                         including            the willful       misconduct

7M6ntreal Protocol No. 3 sets an airline liability limit                                                       for     loss,
damage, or delay of baggage at 1,000 SDRs, about $1,300.
          In recognizing          that      the 100,000 SDR liability                          limit        would not
fully      compensate the citizens                    of some nations,              PrOtOCOl No. 3
allows      nations      to set up supplemental                      compensation              programs.
Accordingly,          the airline           industry         is developing               a supplemental
compensation          plan      following        guidelines           prepared           by the U.S.
Department         of Transportation                 to ensure that           Americans            traveling
abroad can be more fully                    compensated            for    loss     of life         or injury.
The plan will           cover both economic and non-economic                                   losses        and will
provide      for    total       compensation           of up to $500 million                      per aircraft
for     each accident.            By providing              higher       compensation             for       economic
and non-economic             damages, the proposed                    supplemental              compensation
plan addresses           the main objection                  raised       in the past             regarding           the
level      of compensation           provided          by the two previous                     versions         of the
plan.       The first        version        of the plan provided                   for     up to $200,000                 in
compensation,           while     the second version                  provided           for    unlimited
compensation,           but for      economic damages only.

          The supplemental           compensation             plan will           be funded through                   a
surcharge      on tickets          sold      in the United               States     for        international
flights      originating          here.        All     airlines,          both American                and foreign,
selling      these tickets          must collect              the surcharge.                   The plan will
cover all      U.S. citizens              and permanent              residents        on international
flights      whether        or not they pay the surcharge,                          as well            as
foreigners         who pay the surcharge                    when leaving           the United               States.
Americans      on domestic           flights         in foreign           countries            would not be

covered.         The amount of the surcharge                     will     be determined           by
competitive         bids       from potential        plan contractors.                  The plan        and the
contractor         of the plan must be approved by the U.S. Secretary                                        of

           Both the Protocol          and the U.S. plan                 contain      provisions         to
induce prompt            settlement        of claims.       If      no settlement             is reached
with       an airline         or the contractor          of the plan,             claimants       can bring
lawsuits        against        the airline      or the contractor                 to obtain
compensation            for    damages.       Under the settlement                 inducement
provisions         of the Protocol            and the plan,             the courts       may impose all
or part       of the claimant's              costs   of litigation            on the airline             or the
contractor.8             After    settling      a claim,      the contractor              has the right
to recover        damages from potentially                 liable         parties,       other     than the
airline,        to the extent         of their       culpability.

        Under the Warsaw Convention,                     claimants         could      elect      to bring
lawsuits        against       an airline       in any of four             jurisdictions--the
place       the ticket        was bought,       the destination,              the nation          of the
carrier,        or the nation         where the airline                 has its      principal         place      of

8The Protocol requires      that an airline     pay the legal expenses of a
claimant if, within six months of receiving           written   notice of the
claim, the airline     does not make a settlement        offer that is at
least equal to the final compensation awarded by a
court.     The plan requires    that the contractor      pay the legal
expenses of the claimant if the contractor          does not make a
reasonable settlement      offer within 90 days of whichever of the
following    occur later:    (1) the contractor    receiving    a notice of
the,claim    or (2) the airline     making payment equal to its limit       of
business.         Protocol        No. 3 adds a fifth          choice--the           country      of the
victim      if   the airline        has an establishment             there.         This provision
will      ensure that      most Americans         will      have access to U.S.               Courts          and
U.S. law if        they are dissatisfied             with     the    compensation         offers         and
choose to litigate               damages.

                 PROTOCQLNO. 3 Cm
   TH THE wTI=

          Senate action          on the Montreal         Protocols       may lead to one of the
following        outcomes:

          -- The Protocols          can be ratified:
          -- The Protocols          can be rejected,          leaving       in place      the
             current      Warsaw Convention          system;        or
          -- The Protocols          can be rejected          and the President            can
             denounce the Warsaw Convention.


         We believe       that     Montreal    Protocol      No. 3, in combination                     with     a
satisfactory        supplemental           compensation      plan,       would compensate
victims      of airline          crashes    more fully      than the other            alternatives
we considered.
          If    no international              agreement governed                  an airline's
liability,             many airlines          might        be sued for           full    damages in U.S.
courts.          But U.S. courts              have not fully              compensated victims                    of
airline         crashes         in the past.            According         to the RAND Corporation,
compensation             was generally              only    39 percent           of the actual                economic
losses.g          The amount of compensation                        for    economic losses                    governed
by the Warsaw Convention                      was even lower.               While American                    claimants
under the Warsaw Convention                          received       on average           about        $200,000         in
total        compensation           for    aviation         accidents       between 1970 and 1982,
American         claimants          under the domestic               system of compensation
received         on average          about $490,000.                As the study              concluded,          the
uncertainty             of the results              of litigation          was one factor                encouraging
victims         or their         survivors          to accept       compensation              that     was less
than the value                 of their      true     losses.

          Protocol        No. 3 and the proposed                    supplemental              compensation             plan
should         improve         the level      of compensation              for      three      reasons.           First,
in comparison             with      the Warsaw Convention                  and the Montreal
Agreement,             the Protocol          raises        an airline's           liability           limit      from
$10,000         and $75,000,          respectively,              to about         $130,000.            Second, the
supplemental             compensation          plan provides              a maximum of $500 million
per aircraft             for     each accident             to compensate claimants.                       This        $500
million        limit      exceeds the largest                   payout     for      airline          disasters

gKing, Elizabeth   M., and Smith, James P., Economic Loss and
Comsensation in Aviation    Accidents, RAND Corporation, The Institute
for Civil Justice,    1988.
involving        a single         aircraft     to date. 10       Third,      unlike        the Warsaw
Convention           or the legal        system that        would govern COmpWSation if
the United           States     were to denounce the Convention,                        the Protocol
eliminates           the need to show willful               misconduct       or fault          on the part
of the airline,               thus reducing       both the costs           and    the uncertainty             of

              ESS OF COMPENS&Z'ION

        Settling        airline       accident     cases can take a long time.
According       to the BAND Corporation,                   the average       case required             more
than 2 years           to settle       and cases that         went to trial              averaged      4.5
years.ll        Lawsuits          were filed      in almost     two-thirds              of the cases.
Some cases take considerably                     longer.      Litigation          for     willful
misconduct           cases that       have gone to trial          in U.S. courts               has taken
on the average           about 7 years.            For example,           the case resulting               from
the shootdown of EAL Flight                    007 has been in litigation                    for more
than 6 years.            A representative            of the plaintiffs             in this          case
estimated       it     may take about          10 years to recover               damages.

loJapan Air Lines and Boeing paid $400 million       in total
compensation for the 500 victims     of a Boeing 747 crash in Japan.
Northwest Airlines     paid about $200 million  in total   compensation
for an airplane    crash in Detroit.
llKakalik,    James S.; King, Elizabeth    M.: Traynor, Michael:     Ebener,
Patricia   A.: , and Picus, Larry, Costs and Cowsation        Paid in
Aviation   Accident uticrat;ion   I RAND Corporation,  The Institute    for
Civil Justice,     1988.

          The Protocol             and the proposed             plan would provide                 compensation
more expeditiously                  because people             claiming     damages will                be
required              to prove only         losses     that     they suffered.             They will            not
have to prove that                  the airline         was at fault.           In     Contrast,              under
either      the current             Warsaw Convention             or the legal           system that                 would
prevail          if     we denounced the Convention,                  litigation           of fault            and
damages would still                   be necessary            in many cases.           In addition,
because the settlement                      inducement        provisions       force       the airline                and
the contractor                  of the supplemental             compensation         plan      to pay the
claimant's              legal     expenses if         they do not make settlement                        offers
that      are prompt and reasonable,                     they have an incentive                     to settle
claims      quickly.


          Under the Protocol                 and the supplemental              compensation                  plan,     the
costs      of securing             compensation         would be lower than they                        are under
the Warsaw Convention                      and lower      than they would be if                    no
international                agreement were in effect.                    The drafters             of the plan
recently              estimated     that     the surcharge          would be around $3 per
ticket.               This   is considerably           less     than the $10 travelers                       can pay
today      for         the more limited             coverage     of $300,000 under an individual
flight      insurance             policy     that     can be purchased          at U.S. airports.

          Because victims              and their        survivors         would not have to prove
airline          fault       under Protocol           No. 3, they would not incur                        the

financial         costs      associated      with    the civil              litigation            of fault.
According         to the research           by the RAND Corporation,                           about       20 percent
of the compensation              paid to victims              of airline              accidents            was
absorbed        by the costs        of litigation:                 the most common attorney's
contingency          fee is about 15 to 25 percent                          of total           COmpenSatiOn.

Under the Protocol              and the supplemental                  compensation                plan,
litigation          for    damages would still            be necessary                 if      the parties
cannot        agree on the amount of compensation.

       ELIHOOD OF GAINING JUR~ION                         IN A U.S. COW

        When plaintiffs            are dissatisfied                 with      the compensation                    offered
by the airline             or the contractor           of the supplemental                        compensation
plan,       they can file        suit      to win more acceptable                      compensation.
Legal experts             argue that       Americans      are usually                 better        off     if     their
cases are tried             in U.S. courts          applying          U.S. domestic                 law.          Under
the current          Warsaw Convention          rules,             Americans          flying       between two
foreign        countries       on a foreign         airline          might          be unable          to secure
U.S. jurisdiction              because the Convention                      limits      the options                where a
suit    for     damages can be filed.                That is,          Americans             might         find     it
difficult         to gain U.S. jurisdiction                   if     the accident               involving           a
foreign        airline      occurred       abroad because the requisite                            contacts
between the foreign              airline      and the United                 States         upon which
jurisdiction             is established       may be absent.                   If     the United            States
withdrew        from the Warsaw Convention,                    most,         but not all,              Americans
would be able to gain               access to U.S. courts                      and law.

            Because Protocol                No. 3 gives           claimants              the right      to bring
suits        in the courts             of their          countries          if     the airline          has an
establishment               there,         most,    but not all,             Americans           will    be able to
gain access to U.S. courts                          and have their                 damage awards decided
under U.S. law.                 If     Americans          file     suit          against      the contractor            of
the plan,           the plan guarantees                   all     of them access to U.S. courts                          and


          Airline          safety      is of paramount               importance              to passengers.
Opponents of Protocol                       No. 3 have contended                     that     removing        the
litigation           of fault          from the compensation                       process      would reduce the
incentive           for     airlines         to operate           safely.            Opponents have also
suggested           that     eliminating            the civil         litigation              of fault        would
remove a major mechanism for                          uncovering                 facts      about airline           safety

          The domestic              tort     system of compensation                         has not affected
airline        safety        because it            has not provided                  a financial         incentive           to
affect       airline         safety         practices,           according          to the RAND
Corporation.                The compensation               paid by airlines                   has been covered by
liability           insurance,             the premiums for which represent                             an
insignificant              portion          of an airline's               operating           costs.         According
to an International                    Chamber of Commerce study                            of the Warsaw

Convention,           liability           insurance      costs      were only          about two-tenths              of
1 percent        of airlines'              operating       revenues         over a recent          lo-year
period.12            Changes in premiums due to changes in liability                                      limits
would likely            be too small           to affect         airline       safety     practices.

          A number of parties                 are involved          in promoting          aviation         safety,
including        the airlines              themselves.          According        to the RAND
Corporation,            market      forces         and government           regulatory      agencies          are
the important            determinants              of airline       safety.       Market         forces     have a
major       impact      on airline           safety     because an accident               can
significantly            hurt      airline         revenues.       A recent       study     by researchers
at the Center            for      Policy      Studies      at Clemson University                  found that
an airline        suffers          significantly           lower     stock      prices     following          a
serious       accident          in which the initial                investigations          of safety
officials        indicate          that      the airline         is at fault.13            The Clemson
researchers          traced        the fall         in stock      prices      to the expectation                  that
airline       profits       would decline              due to a drop in consumer demand and
to higher        insurance          costs.          The expected           changes in demand were
found to be a greater                     factor      than the increase           in insurance             costs.
According        to the chairman               of Pan Am, the destruction                   of Pan Am
Flight       103 in December 1988 was the principal                              cause of a $248
million       increase          in Pan Am Corporationls                    operating      loss     in 1989.

12Brise, S., Studv an the Status and Future                                   of the WgEsaw Svstem I
International Chamber of Commerce, 1988.
13Mitchell, M.L., and Maloney, M.T., "Crises in the Cockpit?                                                The
Role of Market Forces in Promoting Air Travel Safety." w                                                      of
Law-and Economics, Vol. 32 (Oct. 1989), pp.329-355.


             Throughout         the world,         government             agencies        have primary
    responsibility             for    regulating         and overseeing               airline        operations            and
    safety       practices.           In the United             States,       the Federal            Aviation
    Administration             (FM)      and the National                 Transportation             Safety        Board
    (NTSB) have considerable                   influence            over an airline's                safety
    practices         through        their    regulations,               oversight,        and
    investigations.              FM      has a variety              of ways to enforce                its      safety
    regulations.           FM can amend, suspend,                         and revoke         certificates:              levy
    civil     and criminal            penalties;         and seize           aircraft.            The combination
    of safety         regulations,           oversight,           investigations,               and sanctions
    provides         a major     incentive         for    an airline            to operate           safely.
    Moreover,         government         agencies        that       investigate           aviation          accidents
    not only uncover             most of the facts                 revealed         during        the civil
    litigation         of fault        but they also make them public.                               In some cases,
    facts     uncovered         through       the discovery               process        during      the civil
    litigation         of fault        are not made public                  because,         as part         of the
    agreements settling                cases before             trial,      the records            are sealed.

             According        to the Presidential                  Commission on Aviation                     Security
    and Terrorism,            which recently             supported          the ratification                 of
    Protocol         No. 3, the U.S. government                      should      strengthen           current
    regulatory         enforcement           mechanisms to ensure airline                          accountability
    for     safety     violations,           notwithstanding               the powerful            market         forces

that      ought to deter              unsafe       or reckless           conduct       by the airlines.14
We believe        that         the Commission is right                    to emphasize that
government        agencies            be responsible             for     ensuring          aviation        safety.
We do not believe                that     victims       of aviation           accidents              should      bear
this      burden while           trying      to secure          compensation.

            TY UIT             DQES NOT

         Although        Protocol         No. 3 limits               an airline's           liability,           we do
not believe          that      this     situation           by itself        justifies           rejecting
Protocol      No. 3 and the supplemental                             compensation           plan,        given    the
benefits      that       they would provide                  to Americans            claiming            damages in
international            aviation         accidents.            If     the United           States        does not
ratify      the Protocol              and continues           to be a party                to the Warsaw
Convention,          the Convention             will        continue       to impose a heavy burden
in terms of cost               and time on American                    claimants.            Furthermore,            if
the Protocol            goes into         effect       without         the United           States'
participation,              many Americans             traveling          on foreign           airlines          between
countries        that       have ratified            the Protocol           would be subject                  to an
unbreakable          limit      on liability.                In the absence of adequate
foreign      plans       for    supplemental            compensation,               this     limit        would
usually      provide         considerably            less     compensation             to American            victims
of an aviation              accident.

14J?e,ort to th e President   bv the President's C nunission on Aviation
Security  and Terrorisa,    Washington, D.C., May y5, 1990.
         If     the United         States         withdraws             from the Warsaw Convention
altogether,             some Americans                 flying        on foreign                 airlines              between        two
foreign         countries         might     not secure                full          compensation                     because they
might be unable                to obtain          jurisdiction                 in U.S. courts                         or the
application             of U.S. law.              If     Americans             were to secure                         jurisdiction
and the application                   of U.S.           law,     they would still                            have to prove
fault        before      litigating         for         damages.             Proving             fault          can be a
lengthy,         difficult,           and expensive                  process,            particularly                      when the
accident         site     is overseas             or little             evidence            exists.                   In
international             aviation        accidents              that        are the result                          of terrorist
acts or unknown causes,                     proving             an airline's                    fault         may not even be

         Protocol         No. 3 raises             an airline's                     liability                limit         to 100,000
SDRs per passenger,                   but because this                      limit        was set in 1975, its
value        has been eroded by inflation.                                  To avoid             complicating                 the
ratification             process,       ICAO policy                  holds      that        this             limit         should be
increased         after        the Protocol              enters         into         force.             We believe                that
this    limit         should      be raised            to reflect              its       loss       of value                due to
inflation,            as well      as to increase                    the real           value           of airlines'
liability.              Raising       the limit           would not affect                        the total
compensation             paid to claimants                  in the aggregate;                           it      would increase
only the relative                 amount of compensation                             paid by the airlines.
Thus, the government                   should           immediately             seek to negotiate                            an
inqease         in the liability                limit.               This      objective                could          be

t       *


                 accomplished          by calling             for an international                 conference             under the
                 auspices      of ICAO.             The Presidential               commission on Aviation                       Security
                 and Terrorism           has also stated              that,        following         ratification               of
                 Protocol      No. 3, the U.S. government                          should commence a diplomatic
                 initiative          to increase             the limit         on airline         liability.

                         In summary, we believe                    that        Protocol        No. 3 and the proposed
                 supplemental          compensation             plan offer          a reasonable               solution         for
                 Americans       seeking           full      compensation          for       damages suffered              in
                 international           air       travel.       The proposed                supplemental          compensation
                 plan addresses           the main objections                    raised        in the past          regarding           the
                 level      of compensation                provided       by previous           versions         of the plan.
                 The Protocol          and the plan also provide                         a framework            within      which to
                 increase      the     liability             of the airlines             and to amend liability                       rules
                 as necessary.            Finally,            the Protocol          is unlikely           to affect
                 adversely       the safety               of international             air     travel.

                         Mr. Chairman,              that      concludes        my statement.              I would be happy
                 to answer any questions                      you might        have.