Flying Through Chapter 11

The idea that an airline in bankruptcy can still fly safely isn't intuitive. That an airline carrier can't pay its bills is enough to make any savvy flier nervous, since that could logically mean they might not have enough funds for maintenance and training.

Certainly we've been seeing for years the effect of tight budgeting in the area called "passenger service," a function that's declined almost to the level of an oxymoron: meals few and far between, employees too often sharp and impatient if not angry, longer wait times for reservations, extra charges for just about everything that used to be provided, and many more small insults.

Why, then, wouldn't the act of filing Chapter 11 signal a slippage of operational safety to the same levels as passenger service attitudes? Because a Chapter 11 filing can actually relieve pressure on that airline's safety system.

Confused? Let's take a look at the basics of why an airline management goes to court.

Bankruptcy Court to Stay Afloat

First, a major legacy airline such as Delta even today generates a mighty river of cash. But when the high fixed expenses of owning and leasing aircraft, paying for employee benefits and retirement plans, airport facilities, maintenance and training bases (and much more) combine with the operational expenses (such as fuel) generated when airplanes move, the cash flowing in has to equal the amount flowing out, or the airline has to make up the difference from somewhere else.

In more financially healthy days, a losing quarter meant using extra available cash to make up the deficit. When the spare cash ran too low, airlines used money borrowed from existing credit lines before pressing employee groups for major reductions in salaries and benefits and then selling things (such as airline divisions and airplanes) to raise more cash. When there was no more outside cash or credit left, airline managements had two basic choices if they wanted to continue to operate: One, start cutting into the actual operational expenses of the airline, which can include cutting into the margins of safety. Two, remove the yoke of the airline's nonoperating fixed expenses by filing for bankruptcy protection under the provisions of Chapter 11 of the federal bankruptcy code, the basic aim of which is to give a financially troubled company the chance to breathe while trying to transform themselves into a going concern that can once again make money consistently.

From a safety point of view, the value of the bankruptcy choice is that the expenses the airline will be asking the court to suspend, block or eliminate are not the ones necessary to keep us safe. The operational expenses -- unfortunately, including the ridiculous prices of jet fuel -- can then be fully funded from the existing river of incoming cash.

Deregulation's Legacy

In the first decade after the naive and ruinous Airline Deregulation Act of 1978, large legacy airlines were essentially perplexed about how to handle themselves in a brave new world of competition with marginally financed upstart airlines who were leasing their maintenance and sometimes even their pilots and jumping into profitable routes to "skim the cream."

Deregulation spawned a frenzy of legacy carrier cost-cutting that -- despite the utterly blind denials of government and the industry -- also cut deeply into the ability of maintenance departments and training departments to keep the margins of safety where the public expected them to be.

The result, in part, was a bloody rash of accidents and hundreds more near-misses that plagued the industry through the 1980s until the growing prosperity of the '90s stabilized the equation.

By the mid-1990s, airline managements were able to not only fully fund the safety aspects of their operations, but to essentially wall off safety areas from future financial pressure. In part, the fact that we've gone nearly four years in the United States without a major airline accident is a direct result of that change in philosophy (coupled with the major change in the way pilots now cooperate with each other -- the human factors revolution), and the hard work of the Federal Aviation Administration.

But, when an industry loses more than $30 billion in just a few years (since 2001), something has to be done to prevent panicked cost-cutting from impacting the safety system in ways the FAA can't stop. That's where Chapter 11 has, in effect, become part of the safety buffer.

How we got to this sorry state of affairs in the first place is a tale of congressional ignorance in the 1970s: the refusal to regard the airline industry as a vital public utility.

Few of us would deny we needed to free the airlines from a benevolent government dictatorship called the Civil Aeronautics Board, but by failing to put a floor under the prices airline management could charge, we've permitted the industry to consistently price its product below cost in frantic pursuit of every last passenger.

There is a role for government beyond just regulation of safety, and with four of our legacy companies now in Chapter 11 (and complete airline deregulation clearly a failed experiment), it's past time for Congress to protect airline leaders from their own lemming-like tendencies by outlawing suicidal, below-cost pricing of this vital public service, as well as remove the massive security surcharges that are a national responsibility.