Safety and financial performance

Old Apr 27, 14, 9:14 pm
  #1  
txp
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Safety and financial performance

This is a serious, professional attempt to discuss a concern that's been on my mind for a while, and even more so after the latest Q1 financial results.

I worry whether the precarious financial condition could affect safety at UA. To be clear, I am not claiming that UA would do this on purpose; I am sure they would not. But sometimes the subconscious works in mysterious ways.

There is at least some evidence (new and old) of a correlation (not necessarily causation) between financial performance and safety.

See, for example:

http://dspace.mit.edu/bitstream/hand...luen00rose.pdf. The paper finds that lower profitability is correlated with higher rates of accidents and incidents during 1957-1986.

See also, "Financial Health and Airline Safety" by Noronha and Singal, Managerial and Decision Economics, 2004, 25, 1-16. Here is a relevant part of that paper's abstract "Using bond ratings to proxy for financial health and airline mishaps to measure safety, we find a significant correlation: airlines with higher quality bond ratings are less likely to experience mishaps than airlines with lower quality ratings." Their study period was 1983-1998.

I would appreciate if we can discuss this professionally. In fact, I would ask for nothing more than for someone to reassure me that my concerns are unfounded, because I have a number of flights scheduled on UA in the near future and, for now, I cannot stop but think "what if."

Thank you in advance for keeping this professional and impersonal.
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Old Apr 27, 14, 9:22 pm
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Originally Posted by txp View Post
This is a serious, professional attempt to discuss a concern that's been on my mind for a while, and even more so after the latest Q1 financial results.

I worry whether the precarious financial condition could affect safety at UA. To be clear, I am not claiming that UA would do this on purpose; I am sure they would not. But sometimes the subconscious works in mysterious ways.

There is at least some evidence (new and old) of a correlation (not necessarily causation) between financial performance and safety.

See, for example:

http://dspace.mit.edu/bitstream/hand...luen00rose.pdf. The paper finds that lower profitability is correlated with higher rates of accidents and incidents during 1957-1986.

See also, "Financial Health and Airline Safety" by Noronha and Singal, Managerial and Decision Economics, 2004, 25, 1-16. Here is a relevant part of that paper's abstract "Using bond ratings to proxy for financial health and airline mishaps to measure safety, we find a significant correlation: airlines with higher quality bond ratings are less likely to experience mishaps than airlines with lower quality ratings." Their study period was 1983-1998.

I would appreciate if we can discuss this professionally. In fact, I would ask for nothing more than for someone to reassure me that my concerns are unfounded, because I have a number of flights scheduled on UA in the near future and, for now, I cannot stop but think "what if."

Thank you in advance for keeping this professional and impersonal.
I can assure you this: The pilots of United do not make any compromises on safety. Our family rides on our airplanes, and we spend our whole careers on our airplanes. You can consider that to be an insurance policy that you don't pay an extra cent for. We cover the premiums for you.

FWIW, as much as I'd prefer to see a lot of things done differently at this company, one thing I have never felt pressure from above to do is make any compromises on safety. In fact, my experience is that our Flight Operations management has never pushed any issue that a captain, or first officer either for that matter, has ever raised in the safety arena. We have the authority to do what we need to do to make our flights as safe as possible, and we don't take that lightly.

FAB
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Old Apr 27, 14, 9:27 pm
  #3  
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Originally Posted by freshairborne View Post
I can assure you this: The pilots of United do not make any compromises on safety. Our family rides on our airplanes, and we spend our whole careers on our airplanes. You can consider that to be an insurance policy that you don't pay an extra cent for. We cover the premiums for you.

FAB
Thank you, sir. Much appreciated. I never doubted about the pilots. Never will.

I am more concerned of what goes on in maintenance. How much maintenance is outsourced? What are the odds that more maintenance would be outsourced to shops that are perhaps lower cost but also less experienced? These are the types of things that come to mind.
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Old Apr 27, 14, 9:27 pm
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Originally Posted by txp View Post
.... I worry whether the precarious financial condition could affect safety at UA. ...
This a debatable assumption.

Concern the precarious financial condition, UA earned money last year and is likely to earn money this year. UA is greatly underperformed but precarious -- not really.

The correlation of financial condition and safety of a couple decades ago somewhat flies in the face of the tremendous safety record of the domestic carries over the past few decades -- when there have been significant financial woes and bankruptcies.


I personally have zero safety concern with any of the legacy domestic carriers. The regulatory environment they operate in, the design redundancy of modern aircraft and the professionalism of the personnel is of great comfort to me.
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Old Apr 27, 14, 9:42 pm
  #5  
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Originally Posted by WineCountryUA View Post
This a debatable assumption.

Concern the precarious financial condition, UA earned money last year and is likely to earn money this year. UA is greatly underperformed but precarious -- not really.
OK, maybe precarious is a strong word. But consider this:

* Significant stock market under performance since the merger compared to DL.
* Credit rating "B" (junk bond territory)
* Significant insider sale of share in Q1 including over 40,000 shares sold by the CEO for which he raised close to $2 million (it looks like he was awarded 80,000 shares as compensation and then sold half of that amount within a week).
* A relatively large number of shares sold short, suggesting that hedge funds are betting against UA.

All this points to possible future financial troubles.

Last edited by txp; Apr 27, 14 at 9:49 pm
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Old Apr 27, 14, 9:45 pm
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As long as people like FAB and the guy I train (cycling) with are flying the planes, I'm not worried. There's a culture of safety in the cockpit at United (and AA) that isn't going to allow an unsafe plane to fly. I think sometimes we equate a lot of the run-down stuff that passengers interface with as an indication of unsatisfactory maintenance standards, and to the degree that an airline can get away with not replacing carpets, seat backs that are falling apart, interior cabins in need of paint... they will, if money's tight. But the most-expensive plane in an airline's fleet is the one that isn't flying, and FAB and everyone else in the cockpit have no fear of sidelining a plane that isn't safe to fly. It's in UA's best financial interest to keep up with maintenance.

Having said all that, was UA penny-wise and dollar-foolish 8 or or years ago when their planes were constantly going mx at SFO? Delayed for 30-90 minutes while waiting for someone to replace something in the cockpit or elsewhere? Can things deteriorate so badly that the airline no longer has the ability to do what benefits them financially in a 6-month window and start looking to save dollars "today"? Without the cockpit culture of safety working for you, yes, there could be problems.

Kinda waiting for FAB to point out that UX pilots might feel more pressure to fly a marginal plane... partly because they're young and concerned about their future, partly because they might be less risk-averse (also, because they're younger).
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Old Apr 27, 14, 9:47 pm
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Originally Posted by txp View Post
OK, maybe precarious is a strong word. But consider this:

* Significant stock market under performance since the merger compared to DL.
* Bond rating "B" (junk bond territory)
* Significant insider sale of share in Q1 including over 40,000 non program shares sold by the CEO for which he raised close to $2 million
* A relatively large number of shares sold short, suggesting that hedge funds are betting against UA.

All this points to possible future financial troubles.
As said, UA is under-preforming but what was the safety record of the domestic legacies as they went through BK?? A far, far more serious financial situation.

Appreciate why one would have concerns with their personal safety but your travel to/form the airport is a far greater safety risk -- the deterioration of our surface transportation infrastructure is a far more serious risk to you.
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Old Apr 27, 14, 9:51 pm
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Originally Posted by WineCountryUA View Post
Appreciate why one would have concerns with their personal safety but your travel to/form the airport is a far greater safety risk -- the deterioration of our surface transportation infrastructure is a far more serious risk to you.
Great point, of course, and hard to disagree with this!

Originally Posted by WineCountryUA View Post
As said, UA is under-preforming but what was the safety record of the domestic legacies as they went through BK?? A far, far more serious financial situation.
Good point. If memory serves me well, at least during this last round of bankruptcies (past 10 years or so), I cannot think of any higher accident rate for AA, DL, US, (old) UA, and the others as they went through reorganization.

Last edited by J.Edward; Apr 27, 14 at 10:51 pm Reason: Merge
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Old Apr 27, 14, 10:41 pm
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Originally Posted by txp View Post
Thank you, sir. Much appreciated. I never doubted about the pilots. Never will.

I am more concerned of what goes on in maintenance. How much maintenance is outsourced? What are the odds that more maintenance would be outsourced to shops that are perhaps lower cost but also less experienced? These are the types of things that come to mind.
Glad you mentioned that because it's part of the "insurance policy" I mentioned in my last post. I have huge respect for and confidence in the folks that maintain our planes. Not just because I know them as a group after flying the planes they maintain for the past quarter century and more, but because I know what they do and even how they think, having been an aircraft mechanic myself. We see these folks every day in our work. We interact with them almost daily.

They have no more desire to hand us an unsafe piece of machinery that we have to fly one. Also, there are no new guys around here. We and they have been around forever, it seems, and we have respect for each others' jobs, and a common respect for the absolute requirement for safe airplanes.

And while I'm at it, I'm going to point out that the first and most important mission of the Air Line Pilots Association has and will always be as an advocate, watchdog, and active participant in air safety. Without it, I don't even want to think of what the safety aspect of the industry would be like. ALPA is one of the go-to sources for not only the FAA and airline managements, but even the non-union carriers. ALPA is the template that is used industry-wide.

Everyone can (and do, and will) say whatever they want about ALPA but the industry is safer because of it. It's what most people on FT consider a thorn in the side, but it's a necessary thorn.

FAB
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Old Apr 27, 14, 10:47 pm
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Originally Posted by freshairborne View Post
Glad you mentioned that because it's part of the "insurance policy" I mentioned in my last post. I have huge respect for and confidence in the folks that maintain our planes. Not just because I know them as a group after flying the planes they maintain for the past quarter century and more, but because I know what they do and even how they think, having been an aircraft mechanic myself. We see these folks every day in our work. We interact with them almost daily.

They have no more desire to hand us an unsafe piece of machinery that we have to fly one. Also, there are no new guys around here. We and they have been around forever, it seems, and we have respect for each others' jobs, and a common respect for the absolute requirement for safe airplanes.

And while I'm at it, I'm going to point out that the first and most important mission of the Air Line Pilots Association has and will always be as an advocate, watchdog, and active participant in air safety. Without it, I don't even want to think of what the safety aspect of the industry would be like. ALPA is one of the go-to sources for not only the FAA and airline managements, but even the non-union carriers. ALPA is the template that is used industry-wide.

Everyone can (and do, and will) say whatever they want about ALPA but the industry is safer because of it. It's what most people on FT consider a thorn in the side, but it's a necessary thorn.

FAB
Thanks for being so reassuring -- and gentleman in your approach also. Let's hope that the guys you know will continue to be in charge of maintenance instead of some offshore facility in the future.

Thanks also for highlighting the role played by ALPA on safety; I was not aware of that angle, plus this helps me get a different perspective on the role of labor unions. Please keep up the good work!

Hope to see you up in the air one of those days...
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Old Apr 27, 14, 10:50 pm
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While I respect the professionalism of the UA pilot who posted, it is concerning that the CEO and this management team is largely CO, and CO has had some publicized items that may have some safety concerns.

A couple I can think of:

1. CO solicited and received approval for some pilot training in stationary simulators rather than full-motion sims.

2. Excessive minimum fuel declarations on TATL inbounds to EWR on CO 757s. This launched an FAA investigation into the matter, which revealed a memo where management was pressuring pilots not to overfuel planes. This raised concern with the FAA.
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Old Apr 27, 14, 10:55 pm
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I don't think safety is directly related to financial performance, and I'm sure there's no conscious safety degradation, but financial performance can affect employee satisfaction, but I don't think you can deny that unsatisfied and demoralized employees (in any industry) tend to make more mistakes than happy ones. As we all know, incidents are never a single occurrence, but a chain of events. Nobody wants to be part of the chain, but it would make sense to me that this research could reflect some contribution to that chain.
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Old Apr 27, 14, 11:24 pm
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This is just a finger-in-the-air guess, but I would expect to see an increase in safety for flights with UA flight numbers as a result of the reduction in express flying. (This is happening, right? Express flights are getting more expensive and so we're seeing a higher fraction of UA flights being mainline? I am not making this up?)

If a larger fraction of UA service is mainline, I'd expect to see pilots, crew, and mechanics who on average have more experience, operating pretty safe aircraft, on more UA service.
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Old Apr 27, 14, 11:43 pm
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Originally Posted by mherdeg View Post
This is just a finger-in-the-air guess, but I would expect to see an increase in safety for flights with UA flight numbers as a result of the reduction in express flying. (This is happening, right? Express flights are getting more expensive and so we're seeing a higher fraction of UA flights being mainline? I am not making this up?)

If a larger fraction of UA service is mainline, I'd expect to see pilots, crew, and mechanics who on average have more experience, operating pretty safe aircraft, on more UA service.
You would think so. So would I. But there haven't been a lot in the way of accidents or incidents to prove or disprove this.

still, I'd honestly prefer to see every airplane that says United anywhere on it to be flown and maintained by United employees. There's a little selfishness in there, but I believe there are a lot of United passengers that feel the same as well.


FAB

I’ll quickly address the preceding few posts.

Originally Posted by txp View Post
Thanks for being so reassuring -- and gentleman in your approach also. Let's hope that the guys you know will continue to be in charge of maintenance instead of some offshore facility in the future.

Thanks also for highlighting the role played by ALPA on safety; I was not aware of that angle, plus this helps me get a different perspective on the role of labor unions. Please keep up the good work!

Hope to see you up in the air one of those days...
txp, I find myself passing through IAH quite a bit, so you probably have or will be on a plane with me.
ALPA has some differences from the standard labor union template. It was formed because the airline industry initially did not recognize things like adequate rest requirements, pilot judgment, and other safety-related things. ALPA basically has always been about that, and the part that most folks focus on is the thorn-in-the-side aspect, which is ALPA leaning on the managements of the airline companies to make working conditions better for flight crews. Money helps, so the detractors focus on spinning it into greed. But if you go to the public portal for ALPA, you can see what it’s about.


Originally Posted by channa View Post
While I respect the professionalism of the UA pilot who posted, it is concerning that the CEO and this management team is largely CO, and CO has had some publicized items that may have some safety concerns.

A couple I can think of:

1. CO solicited and received approval for some pilot training in stationary simulators rather than full-motion sims.

2. Excessive minimum fuel declarations on TATL inbounds to EWR on CO 757s. This launched an FAA investigation into the matter, which revealed a memo where management was pressuring pilots not to overfuel planes. This raised concern with the FAA.
channa, there had been a lot of noise about this whole stationary simulators thing. They are called Fixed Base Simulators. Sub-UA has had them for years. While nothing beats a full-motion sim, these things are basically the same as far as procedural training, but take up a lot less room and cost a lot less money. Pilots hired at UA have been very highly experienced in prior flying jobs, and frankly, while full-motion is better, the FBSs really do have their place, and while I’d always prefer to have the most luxurious (read: BEST) training known to man, there are things that a full-motion sim are overkill. There are times when we get in the sims and don’t ever look out the fake windows or turn on the motion, and it that way, they’re virtually the same as the FBSs in their function (The seats in the sims are better, though). Nobody wants full-motion to be phased out, and it will never happen because then we’d have to do some of the training in the real airplanes. As expensive as a full-motion sim is, an airplane is more…a LOT more. Sub-UA probably has more of it’s pilots in full-motion sims than most other airlines, but the pilots of other airlines aren’t necessarily getting lower-quality training because of it. But still….
Originally Posted by mahasamatman View Post
I don't think safety is directly related to financial performance, and I'm sure there's no conscious safety degradation, but financial performance can affect employee satisfaction, but I don't think you can deny that unsatisfied and demoralized employees (in any industry) tend to make more mistakes than happy ones. As we all know, incidents are never a single occurrence, but a chain of events. Nobody wants to be part of the chain, but it would make sense to me that this research could reflect some contribution to that chain.
mahasamatman, you are correct in your observation regarding the error chain. That is why our training has continually included more and more focus on this kind of thing. It becomes more and more important as the number and severity of distractions are potentially in our environment. We recognize this, and we train ourselves to minimize them. Pilots tend to be very good at compartmentalizing, but we’re not perfect at it. We are good at recognizing when we need to do more of it, and believe me, we are getting our share of distractions. But our profession is always evolving in the name of safety. I think our efforts are outpacing the problems.


FAB

Last edited by FlyinHawaiian; Apr 28, 14 at 5:30 am Reason: multi-quote
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