[UPDATED 2]
The industry shutdown has been a series of hard bumps. As airlines saw their bookings drop off a cliff, they cut back service on a day to day basis. Bookings were so abruptly cut, that airlines were caught doing U-turns. An example of how the confusion played out, see this story about the world’s largest international traffic carrier, Emirates.
Parking aircraft across airports has clogged taxiways that would normally be nose to tail with aircraft jostling to reach a gate or moving to the runway to take off. Just as we saw on 9/11, getting the system to halt and effectively shut down is technically easy.Â
But doing a restart is going to be much harder than doing a shutdown. 9/11 saw the US system shut down for three days. The rest of the world’s commercial aviation kept going. This time the shutdown is going to take weeks – perhaps three months. For a business that runs to a rigorous schedule, this is very damaging. The disruption runs from the traveler all the way through to the aerospace supply chain. It’s a long line that is about to show its fragility. A well-articulated statement reflects the industry: “The entire aviation industry cannot be healthy until all parts of it are healthy.”Â
A Necessary Public Policy Debate
The move to “save” or “help” the airline industry comes with all sorts of awkward questions, such as put forward by John M. Griffin at McCombs School of Business at The University of Texas Austin and James M. Griffin at the George Bush School at Texas A&M University:
- Rather than using their profits from the past five years to pay off debts and save for a rainy day, the big four — American, United, Delta, and Southwest — instead grew their combined liabilities to $166 billion, all while spending $39 billion on share repurchases. That number, which is only from the big four, is almost 80% of what they’re asking for now from U.S. taxpayers.
- Had these companies paid down liabilities instead of using stock repurchases to bid up their stock prices, they would have been far better prepared to weather this emergency. Of course, higher share prices made their stock options more valuable. This allowed top airline executives to pay themselves $666 million in compensation over the five-year period.
The public policy debate is going to create, one hopes, some fundamental changes.  Restrictions such as no stock buybacks that enrich shareholders will be allowed if the carrier expects a government to be the backstop. The FT published an interesting article pointing out that “Stock buyback and issuance programmes are an overlooked transfer of wealth”. This post is not focused on the issue of state support for the commercial airline industry or commercial aerospace, but it is important to acknowledge this issue as a critical one to consider as we move through this crisis.Â
- Pilots require landing currency: 3 landings and takeoffs in the last 3 months. And every 9 months recurrent training simulators. That’s training in emergencies and low weather approaches. Airline feedback: “A series of qualifications and checks need to be administered at varying intervals. Depending on where individual pilots are in their currency cycle, it will be necessary to update certain requirements. We estimate a one- to two-week ramp up to ensure enough pilots are ready to fly prior to a set date.” Another airline offered this: “For pilots, if longer than 90 days, a pilot would need to regain their currency for landings – day and night. It’s just three landings to regain currency. Captains require a check ride every six months and would need one if that timeframe was exceeded.”
- For pilots who slip outside this – The actual simulators are a 4 hour period with 2 hours of pre-brief. The restriction will be the training pipeline as there are a limited number of simulators. So to schedule and run pilots through could take 2-3 months depending on how many pilots. Which also clogs the system for routine training of pilots currently flying.Â
- Aircraft – Once an airplane is parked, how long to get it back ready to fly again? That depends on how long it gets parked. And it depends on what kind of storage the aircraft is placed in. Keeping aircraft inactive in storage requires unique maintenance work, including lubricants and keeping certain parts with seals and gaskets from losing lubrication. If the maintenance staff is furloughed there may be no one available to do that work, particularly if aircraft maintenance isn’t an “essential” function in locked down states. Â That will extend the difficult and time frame for the eventual system reset. One airline provided this “Have prescribed protocols for extended ground time to ensure that they are ready for service. In our case, we will run the engines at scheduled intervals and perform other required tasks, so that final checklist items are minimized just prior to ultimately returning to service.”
Flight attendants have a highly articulate leader in Sara Nelson. Reading the link provides additional thoughts about the public policy debates mentioned above. The poor reaction from the government highlights how the industry support might play out. Airline feedback: “Certain annual training is required, such as first aid, fire fighting and dangerous goods (online). We don’t envision this being a problem.”
What about airports? This includes the Air Traffic Control which is increasingly getting hit with the same Covid infection. If airports and associated vendors (like food and fuel suppliers) layoff their airside crews, this poses a problem. All airside people require security clearances. When they are needed to get back to work, how long do these security approvals take? Security screening is no longer taken casually. To get an airside badge requires an FBI fingerprint background check and TSA security threat assessment. Do these agencies have the staff to handle a veritable flood of applications?
The process to get the system restarted could thousands of more words as we reach down, further into the industry down the supply chain. In summary, it should be clear that delaying any support to commercial aviation as an industry will cause longer delays in it being able to stand up again. The focus of the support should be on the people that keep the industry functioning. That is neither Wall Street nor shareholders.
Wall Street benefitted along with management via the now clearly awful stock buybacks. The stockholders (internal and external) are risk capital. They got the benefits to date, now its time to swallow the risk. The myriad other staffers are the ones that move the gas, planes, and bags. They deserve protection. They are the ones that will be needed to get the industry to stand up again.
