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Government Industry

'A New Industrial Code' Needed for Airline Industry,Expert Proposes

Air Safety Week, Feb 9, 2004

The majority of U.S. airlines teeter on the razor's edge of survivability, and it's impossible to determine in the present environment if safety has deteriorated, according to a new study of the reigning chaos in the airline industry which proposes a new public-private partnership to stabilize the situation.

Matthew Andersson, a 30-year industry veteran and chief executive officer of Aviation Development Holdings of Phoenix, Ariz., prepared the industry overview. In a telephone interview, Andersson said the current situation could be likened to a destructive "industrial comedy" almost certain to perpetuate the kind of overcapacity and poor service similar to the telecom industry, at least before its collapse.

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Wholesale re-regulation must occur and go far beyond superficial oversight to the creation of a true partnership between the public and private sectors in order to bring long-term fiscal stability to the airline industry, Andersson argued in his paper.

Signs of instability lie all around. For example, in its assessment of the state of the industry at the start of 2004, Texas-based Frank Jay and Associates, an executive search firm for the transportation industry, observed:

"US Airways is on a 'downward slide.' With Southwest Airlines coming into Philadelphia this year and with US Airways' cost and labor problems, their viability becomes a real 'issue.' "

"United Airlines will probably make 'top level' management changes within several months after emerging from Chapter Eleven bankruptcy."

"Delta Air Lines looks like they are 'behind the curve' in getting their business together."

There are safety and security implications to the present fiscal crisis, Andersson maintained. "Safety is a responsibility of the carriers, and if they're operating at a loss, then fleet management and maintenance cannot be funded," he said.

"You cannot say that a carrier like United Airlines, operating at a loss, is unsafe, but there are signs of enormous pressure on the cost of safetyrelated activities throughout the industry," Andersson said.

To highlight some of the key points made in his paper:

* The current state is a jumbled mix of archaic, incomplete or conflicting rules and objectives.

* Labor laws perpetuate low productivity and tax laws discourage capital investment.

* The Lean Enterprise Institute calculates that a snail moves ten times faster than the sub-assembly routines of a major airframe manufacturer.

* Meanwhile, nearly every aircraft in the United States today may be flying with one or more bogus parts. As evidence, the Federal Aviation Administration (FAA) issued yet another of its periodic warnings about unapproved. Indeed, the unapproved parts problem is so pervasive that the FAA maintains a section on its website dealing specifically with unapproved parts notifications (see http://www2.faa.gov/avr/sups/upn.cfm ).

* The Transportation Security Administration (TSA) is perennially underfunded and security - its infrastructure, management and long-term funding - remains completely unsolved. The airlines object in front of Congress to additional security fees and taxes, while consumers demand low fares. In the meantime, travelers continue to fly on passenger jets with cargo this is not screened, while Congress and airlines argue over who will pay to screen it.

* Conflict and budgetary constraints horribly compromise the very charter of the FAA: oversight of technical and safety matters (for examples, see ASW, Jan. 19).

* Code-sharing is really nothing more than supply management in the face of regulatory constraints. Indeed, among Northwest, Continental and Delta Air Lines, over three thousand of their routes overlap (emphasis in original).

* The technology is at a plateau. Andersson maintained in his paper that Boeing, General Electric, and Pratt and Whitney "are peddling 40-year old airframe and propulsion technology against Airbus and Rolls Royce."

* The major carriers have so standardized and commoditized their service that only low-cost producers can win. Yet [the majors'] infrastructure and ubiquitous service is an enormous public asset.

* The U.S. Congress is willy-nilly imbedding patchwork funding in House resolutions, bills and ad hoc emergency support.

* Meanwhile, the customer in all of this chaos literally hates the service and consistently ranks airlines and air travel as one of the worst, most dreaded consumer experiences.

* The 1978 Airline Deregulation Act is creating the very same structural cycle as telecom and surface transportation de-regulation: overcapacity, loss of pricing power, operating losses, excess demand for scarce capital, profound waste, stagnating technology, an alienated customer base and, perhaps worst of all, a loss of pride by labor, management and, most of all consumers, in the potential and greatness of powered flight.

With this grim scenario as background, Andersson argues that the industry-government relationship must be restructured wholesale. The U.S. airline industry is largely "nationalized" already, he noted in his paper, in the sense that airports and air traffic control are federally funded. "A publicprivate partnership makes explicit and coordinated what has been understood for decades: certain industries are so critical, and financially and operationally intensive, that they require the broadest scope of support," he wrote.

Government Industry

'A New Industrial Code' Needed for Airline Industry,Expert Proposes

Air Safety Week, Feb 9, 2004

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