AMR: Is there really something special in the air?
Yesterday, I booked some tickets on American Airlines because I need to be in Dallas and Kansas City next month for speaking gigs. And it’s a good thing for parent-company AMR (AMR) that the tickets are non-refundable because the 10-K they filed yesterday raised some interesting concerns, like this one:
As part of that oversight, the FAA has implemented a number of requirements that the Company has incorporated and is incorporating into its maintenance programs. The Company is progressing toward the completion of over 180 airworthiness directives including enhanced ground proximity warning systems, McDonnell Douglas MD-80 main landing gear piston improvements, Boeing fuel tank safety directives, Boeing 757 and Boeing 767 pylon improvements, McDonnell Douglas MD-80 horizontal stabilizer, cargo door and aft pressure bulkhead improvements, Boeing 737 elevator and rudder horizontal stabilizer actuator and digital flight recorder improvements and Airbus A300 structural improvements.
What’s interesting here is that in last year’s 10-K, there were only 100 airworthiness directives that AMR was dealing with, something I was only able to find via 10KWizard’s Compare Wizard feature. It’s not clear to me why the number of airworthiness directives increased so dramatically over the past year. On the bright side, some of the directives mentioned in last year’s filing — McDonnell Douglas MD-80 main landing gear piston improvements, for example — seem to have been resolved.
There was also this new warning about the air-traffic control system:
In addition, the air traffic control (ATC) system, which is operated by the FAA, is not successfully managing the growing demand for U.S. air travel. U.S. airlines carry about 740 million passengers a year and are forecasted to accommodate a billion passengers annually by 2015. Air-traffic controllers rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes Company supports a common-sense approach to ATC modernization that would allocate costs to all ATC system users in proportion to the services they consume. The Company expects the U.S. Congress to address the reauthorization of legislation that funds the Federal Aviation Administration in 2008, which includes proposals regarding upgrades to the ATC system.
On the non-safety front, AMR warned about increased competition at Heathrow due to the Open Skies Agreement that goes into effect at the end of next month.
Finally, while the filing didn’t directly address the potential merger between Delta (DAL) and Northwest (NWA), the filing did offer some new perspective about additional merger activity in the airline industry: “We cannot reliably predict the impact regularly assess and explore the potential for consolidation in our industry, our strategic position and ways to enhance our competitiveness, including the possibilities for our participation in merger activity. Consolidation involving other participants in our industry could result in the formation of one or more airlines with greater financial resources, more extensive networks, and/or lower cost structures than exist presently, which could have a material adverse effect on us.”
RSS
February 21st, 2008 at 11:34 am
I think airworthiness directives are a function of civial aviation regulatory bodies. The number would reflect the current fleet more than the airlines maintenance practices. They are specific to a make and model of aircraft, and I’m not sure it’d be correct to read much into the magnitude of outstanding airworthiness directives the airline is tackling. They also vary in importance — some could ground an entire fleet of aircraft, like the Q400 earlier this year, and others might specify the work be done at the next heavy maintenance.
Here’s the wikipedia article on them:
http://en.wikipedia.org/wiki/Airworthiness_Directive
February 21st, 2008 at 11:40 am
Thanks, Bode. It’s always nice to hear from smart footnoted readers who know specifics about a particular industry and can give feedback on how significant various changes in the filings really are. Thanks, too, for including the link to Wikipedia, which I clearly should have done.
February 21st, 2008 at 12:19 pm
Michelle,
You give a curious perspective. I spent most of my career in the Air Force as a crew member as well as getting my BS in Aviation Safety and managing mishap prevention programs along with conducting several mishap investigations.
Your other reader presents a good link with the wiki. The perspective that could be taken is that an increase in airworthiness directives shows more aggressive enforcement / discovery of potential problems. A comparative example could be seeing an increase in DUI arrests in a state. Well, that state most likely does not have an increase in dangerous drinkers, but rather, an increase in enforcement.
Airworthiness Directives (A/D) result from incidents, inspections, etc., and a proper authority reviewing the cost / benefit return of taking such action. The FAA, by design, balances passenger safety with its other mission of promoting aviation. Each of these decisions is balanced against the cost to the parties involved versus the degree of safety returned. Various amounts of time to implement the A/D reflect the urgency of safety decision balanced with cost / impact on the airline’s fleet. Of note, is that some private aircraft overseas incur troubles when sold to parties back in America and certain other countries, as the owners may have chosen to not implement certain A/Ds, or improperly document them.
In one of my favorite business lessons in my aviation safety training, we discussed how an airline’s safety record, staff, programs, etc. could very effectively be used as a marketing program. They could spend slightly more than required and/or implement requirements faster then authorities require. This could be made note of in marketing materials and public relations. In many instances, A/Ds can provide an economic return for a small initial investment.
This official FAA link sheds even more light on the process for your curious readers: http://www.faa.gov/aircraft/air_cert/continued_operation/ad/
Your blog continues to be a valuable asset in the investing world. Continued success to you.
I hope this helps,
SMM