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Major U.S. airlines are using unlicensed, lightly supervised contractors to perform safety-critical work such as replacing jet engines, a new report finds.

The report, issued Monday by the inspector general of the U.S. Department of Transportation, raises concerns about the extent to which financially squeezed airlines are cutting costs by relying on repair contractors that are unsupervised by the Federal Aviation Administration.

U.S. Rep. James Oberstar (news, bio, voting record), D-Minn., who requested the report, called the findings "very troubling." The report is "a warning signal about what's going on in the airline industry in this financially troubled time."

Inspector General Kenneth Mead's report finds carriers are using unlicensed firms for more work, and for more sophisticated work, than was previously known by the FAA. The practice of using unlicensed contractors is legal, but Mead recommends that the FAA begin immediately to track unlicensed contractors.

Mead's report reviewed maintenance practices at airlines including American, American Eagle, Continental, Continental Express, Frontier and AirTran. Investigators visited contractors in Florida, Mexico and El Salvador.

Mead's agency began its investigation following the fatal 2003 crash of an Air Midwest plane in Charlotte. Investigators blamed faulty repair work by an unlicensed contractor.

FAA officials had believed airlines used unlicensed contractors mainly for minor repairs at small airports where no licensed shops exist. In fact, the report finds:

• Airlines are using unlicensed repair stations for safety-critical work that normally would be done by airlines' in-house mechanics or licensed contractors.
• Thirty-nine percent of maintenance contractors used by one large unnamed airline are unlicensed.
• At one unnamed airline, 74% of safety-critical repairs over three years were done by unlicensed firms.
• Five of six airlines reviewed rely mainly on phone contact to monitor work.

The report recommends the FAA immediately start tracking unlicensed maintenance contractors, identify which ones are doing safety-critical work and decide whether to limit the types of work they do. FAA spokesman Greg Martin said the agency will consider the recommendations. He noted mechanics at unlicensed firms must have FAA certificates.

Under intense cost pressure, major airlines as a group now outsource more than half of annual maintenance spending.

The report says lower cost is a key reason airlines are relying more on unlicensed contractors. Because they aren't required to meet federal standards, unlicensed shops tend to have lower overhead costs.

Airline consultant Nick Lacey, a former FAA official in charge of maintenance oversight, said he's not surprised airlines are turning to cheaper providers.

"What surprises me is the FAA didn't know the scope of what these companies are doing," he said.

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