The Covid-19 crisis is a critical turning point in the history of aviation safety

Like 9/11, the current Covid-19 crisis is a critical turning point in the history of aviation safety. While public health care is not the industry’s primary responsibility safety is always a top priority.

Airline sick leave policies protect their employees and passengers from communicable diseases. Carriers do their best to quickly transport the sick and injured, move medical supplies and organ donations. They also are working hard to provide repatriation for those running the risk of being stranded abroad as international borders close.

At the same time, under a state of emergency, the independence granted to the aviation industry via decades of deregulation is slipping away. Government decrees are upending the previously unquestioned ability of a small number of companies to dominate a critical form of mass transportation. Loans from the government may have big strings attached. Protecting the industry’s valuable workforce is also a critical concern.

What happens when any common carrier, be it an airline, cruise line, railroad or bus is suddenly subject to unprecedented regulations designed to thwart a global pandemic?

The answer to this question is more complicated than you’d expect, especially when customers all over the world assume flying anywhere on a moment’s notice is their right. The idea of entire continents suddenly being off-limits to global air traffic was unthinkable a few months ago. For many passengers there simply is no alternative to flying. Not everyone is able to move to a virtual world of Skype calls and Zoom conferences. Loving families want to see each other, students need to study abroad and not every business wants to risk large sums of money on people they’ve never met.

With flights cut off to major destinations in Asia, Europe, Canada, Mexico, the Caribbean and other parts of the world our ability to travel internationally on demand has temporarily ended. No one knows when Draconian limits will be lifted. Even government agencies and research scientists are suddenly cut off. Medical conferences that might be central to finding an answer to the current pandemic are unthinkable.

Drastic domestic flight cuts are currently in motion. Passengers are reluctant to board a flight to Hawaii when they know they will be required to self-quarantine for up to two weeks after leaving the baggage claim.

No one wants to be stuck for hours at Chicago O’Hare with a sudden surge of passengers who must be tested for a virus prior to clearing customs. Common carriers are working hard to protect their crews and passengers against a threat that is not always easy to deter given the current lack of universal testing for the Covid-19 virus.

In many cases, as the cruise lines have demonstrated worldwide, contagious passengers don’t realize they are a threat until after they have exposed other people to a dangerous disease. Specific shelter in place warnings makes it difficult to plan any kind of air trip, a big blow to airlines that typically collect the cost of a ticket when it’s booked. Canceled flights mean refund obligations and lack of cash flow to pay for airline salaries, fuel and other operational costs.

Abroad some major budget carriers such as Britain’s Flybe have shut down. Norwegian Air, the popular leader of the international budget airline pack, is now limiting flights to its home country. Fighting to survive with billions in debt is a worst-case scenario for airlines forced to lay off workers, park planes, cut service and confront the possibility that their lines of credit could disappear in a New York minute.

In a forthcoming book, I am writing with Boeing 777 Captain Shem Malmquist, our focus is on how the aviation industry can rescue itself following the double jeopardy of the 737 MAX fleet grounding and the Covid-19 crisis. It doesn’t matter whether you are a captain of industry or someone who needs to get home quickly to Chico on a discount airline, this industry sea change impacts all of us, even people who don’t fly.

Let’s pause for a minute and turn back the clock a few months. Over the past decade the American airline industry, thanks in large part to billions realized from baggage and change fees, along with revenue from lucrative bank credit card partnerships, has never been more profitable. Net profits between 2010 and 2019 for America’s airlines were over $113 billion, music to the ears of high flying manufacturers such as Boeing and Airbus.

With a 4.5 percent jump in passenger traffic and a remarkable 83.7 percent load factor, the industry looked robust worldwide in 2019. In the United States, 926 million passengers boarded flight segments, up 13 percent from 2017.

Just a few months ago the industry was seriously worried about a pilot shortage that threatened canceling unprofitable routes. A halt to deliveries of the 737 Max forced some major carriers like Southwest and American to cut back service. Now airlines, their pilots and flight attendants are demanding compensation from Boeing in the hundreds of millions because the carriers couldn’t operate their full schedules.

Today, with global flight cutbacks triggered by a pandemic, that capacity problem is over. A more than 47 percent year to year drop in the price of fuel has cut another major expense. The cost of layoffs could be offset by a proposed government bailout that might go as high as $50 billion, more than three and half times industry profits last year.
All of this is complicated by the fact that 96 percent of the airlines’ free cash in recent years has been spent on repurchases of stock that have tanked (Bloomberg). Critics argue that this money should have gone to a rainy day fund that would protect the vulnerable industry in the event of a sudden downturn.

There is also a big challenge now on the manufacturing side. Boeing, which has already halted production of the new 737 Max designed to complete with the fuel-efficient Airbus 320 Neo, is facing both order delays and cancellations. Boeing’s stock continues to tumble despite the anticipated airline bailout.

Even with a green light from the FAA this year for the 737 Max, it’s likely that there will be further workforce cuts triggered by a lack of demand. Because of the current industry crisis Boeing is drawing down a $13.8 billion credit line originally aimed at covering unanticipated losses caused by the 737 Max fleet grounding.

Even if Congress, at the behest of President Donald Trump, a former airline CEO, and his Secretary of Transportation Elaine Chao (the wife of Senate Majority Leader Mitch McConnell), approves a $50 billion bailout/loan package, there is no guarantee the industry will survive in its present form. If the airlines can’t rapidly rebuild their market, they may struggle to repay government loans.

Without government support in terms of incentives, tax breaks and other subsidies (such as the Essential Air Services program that helps pay for flights to small airports) fares could jump to a point where air travel would be less competitive with cars on short and medium-length domestic trips.

Another problem is the public perception that international air travel could be the common carrier for the rapid worldwide spread of the COVID-19 virus. This may explain why the current pandemic has moved so much faster than the 1918-1920 Spanish Flu transmitted via ship and ground travel.

At the heart of this challenge are two unexpected safety issues. Passengers must have confidence in the ability of the air transportation system to protect them from COVID-19. This is a tall order given the uncertainty around the world on the extent and duration of this pandemic.

In addition, fearful flyers, people who don’t want to board in normal times, now have another reason to remain home or switch to ground transportation once the international emergency ends.

Playing into these fears is widespread criticism of the regulatory process that led to the licensing of the Boeing 737 Max. Crashes of that new aircraft in Indonesia and Ethiopia in 2018 and 2019 have raised the possibility that the Department of Transportation’s controls used to license new planes via the FAA don’t work the way they should in our current automation age.

Together all of these factors add to uncertainty about a way out of this transportation crisis that could outlive the pandemic. A bailout is not necessarily the best way to restore faith in the industry in the midst of this pandemic. A future article will look at promising ideas that may help the industry recover.

By Roger Rapoport, he is the coauthor of Angle of Attack with Captain Shem Malmquist now available in its second edition at https://www.amazon.com/dp/B07SVNPJ5T Shem Malmquist’s new book with Rapoport, The Future of the Aviation Industry: How 737 Max and Covid-19 Exposed the Underlying Structural Problems in Aviation will be out this spring from Lexographic Press.