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Outsourcing Severely Compromises Airline Safety, Say Industry Insiders

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One senior mechanic says he "won't fly on an American Airlines' 757 and will not allow [his] family to, either."

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"With foreign labor costs less than 50% of those in the US, it is easy to see why many air carriers have shifted their HMV (Heavy Maintenance Visits) to overseas providers, with estimated savings at $1 million per aircraft each year," the authors of the paper wrote. A 2008 audit by the Department of Transportation's Office of the Inspector General identified nine carriers -- Continental Airlines (NYSE:UAL), Delta Air Lines (NYSE:DAL), JetBlue (NASDAQ:JBLU), Southwest (NYSE:LUV), United, AirTran, Alaska Airlines (NYSE:ALK), America West (PINK:AWSR), and Northwest -- that outsourced 71% of their heavy airframe maintenance checks in 2007. About 27% of these heavy airframe repairs were outsourced overseas. Drilling down a bit deeper, approximately 20% of airplanes are being maintained in developing countries – like El Salvador, where mechanics start at under $5,000 a year, compared to the US average of $52,000.

However, as the authors of the Journal of Aviation Technology and Engineering study also noted, "Outsourcing of aircraft maintenance is a business critical activity with regard to strategic importance and finances. What makes outsourcing of aircraft maintenance unique is that lives are potentially at risk if maintenance is not done properly."

Unlicensed Mechanics Part of the Business Plan

Louie Key, an Airframe and Powerplant technician since 1979 and the National Director of the Aircraft Mechanics Fraternal Association, agrees that money is the primary driver behind maintenance outsourcing.

"The airlines find it easier to write a check to a vendor than managing their own workforce," Key tells me. "They're saving money in the short-term, but at what cost in the long-term? It's a business decision the airlines made and I think it will ultimately prove to be a bad one."

One cost-cutting measure involves having teams of unlicensed mechanics working under the tutelage of one supervising licensed mechanic -- and again, substandard oversight is a front-and-center concern.

"There's no oversight, that's the biggest problem," Larry Pike tells me. "The airlines think they can get one licensed guy to oversee like, 20 unlicensed guys and sign off on their work. There's no way we're going to be able to do that and be safe."

Louie Key says the powers that be in the industry have their heads in the sand.

"The airlines can sit back and say, 'Well, the FAA has signed off on this,' but when you talk to the FAA inspectors, they say they're raising alarm bells within the FAA, that they can't do what they're tasked with doing," Key tells me. "But talk to the higher-ups at the FAA and they talk about their glowing safety record. When you tell them that their margin of safety is being eroded, they point to statistics."

Key believes it will take an "event" (industry-speak for "catastrophe") before changes are made -- or not.
No positions in stocks mentioned.
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