CREATIVE FAA ENFORCEMENT “SANCTIONS” IN AMERICAN BANKRUPTCY PROCEEDING COULD RESULT IN ENHANCED SAFETY

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ARTICLE:  FAA Tells Court It May Fine American Airlines Over Safety

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American Airlines’ economic viability is subject to the unusual powers of the US Bankruptcy Court. Unions and creditors have been compelled to concede millions of dollars of future contract earnings and to relinquish millions of future debt/lease payments, respectively, in order to contribute to the finances of the airline, post bankruptcy. All creditors must balance their claims against the bankrupt organization against what future income might result if reorganization is approved.

Now, comes the FAA with an assertion that American’s past violations of the Federal Aviation Regulations warranted substantial civil penalties. Unlike the unions and other creditors with investments in the bankrupt carriers, the federal interest is substantial, but symbolic. The FAA’s statement of a hard line approach of asserting a record claim, as much as $162.4M, is a matter of agency policy; the FAA enforcement guidance has varied over time. In the past, it allowed sanctions designed to address the problem; the current version places emphasis solely on the civil penalty as a means of deterrence.

Although the FAA head of Flight Standards has announced a modified enforcement policy, the agency’s current Handbook, FAA Order 2150.3B, contains 337 pages of guidance on sanctions. Chapter 7 of the Order provides criteria with which to assess penalties. There is even a Table of Sanctions (Figure 7-1) which would lead one to believe that the FAA’s decision as to the sanction is mechanical or ministerial. Suffice it to say that the actual administration is not as precise as this matrix would suggest.

The strict adherence to this policy in this case, however, appears to be inappropriate. Exacting a sanction of $162.4M in the context of a bankruptcy case may result in fewer jobs for the post bankruptcy carrier and/or fewer aircraft in the fleet post release by the magistrate. The FAA needs to be aware that jobs and economic growth are matters of important national concern. Perhaps a less rigid reading of Order 2150.3B would be appropriate.

The suggestion would not be to compromise safety, but rather, through administrative creativity, ENHANCE SAFETY. Rather than continue to demand the millions of dollars (NOTE: the civil penalty dollars are deposited in the general account, not the FAA’s operating funds), a more sagacious sanction might be designed.

The FAA’s investigation of American found faults in records, training, procedures and related systems. Why not compel American to spend the $162.4M on a variety of remedial actions that will insure that these problems do not reoccur? By specifying these positive “sanctions” in the bankruptcy court’s order, the FAA would be achieving a “preference” over other spending by American. The creative penalties might include requirements like:

  • Improved training;
  • Increased MX staffing;
  • Enhanced record keeping systems;
  • Innovative equipment on the hangar floor to assure that the proper techniques are followed by the Aviation Maintenance Technicians;
  • Additional staff dedicated to the careful adherence to the regulations and ADs,  and
  • Other specific actions that would address the problems which the FAA investigators found.

After leaving Chapter 11’s mandated restructuring, any company is faced with hard economic decisions; spend a dollar on advertising to attract revenue or to allocate that money on plant maintenance. To include remedial actions, like the above examples, in the court order, would assure that the safety dollar investment decision is mandated and removes any possible quandary. That would enhance safety, require expenditure of a sum equal to the proposed civil penalty and would not result in a reduction in the work force or capacity—ALL GOOD.

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