FAA Financial Tools to Detect Regional Airline Distress INADEQUATE and the Nine Dot Problem

9 dot puzzleConnect all 9 dots. Use only 4 lines. Do not lift your pencil from the page after you begin drawing. Figure 7.9a from: Kassin, S. (2001). Psychology, third edition. Upper Saddle River, NJ: Prentice Hall.
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Report Faults FAA Oversight of Regional Airlines

Faults FSDOs’ knowledge and keys for carriers

Flight Standards Service moving oversight away from field

OIG’s audit skills could have identified correlative factors

The Google machine brought the above headline form CFO Newsletters Daily alert. A quick perusal of the article and then the OID Audit immediately brought to mind the Nine Dot problem.

OIG masthead

First, the OIG’s analysis, pages long, is well summarized by its author:

FAA’s process for identifying periods of transition and growth at regional air carriers is ineffective in key areas. FAA’s tools to evaluate air carrier risk are confusing and subjective, and limit the Agency’s ability to be proactive and weight specific risks. Furthermore, inspectors are hesitant to use the tool designed to detect potential financial problems because they do not have the knowledge or information they need to evaluate carriers’ financial conditions. FAA inspectors also do not adjust air carrier surveillance in response to changes because their risk assessment tools are ineffective. Additionally, even when inspectors are able to identify areas of risk, Agency guidance is vague regarding how inspectors should adjust surveillance. Finally, the new oversight system relies heavily on inspector judgement. While sound inspector judgment is crucial for effective oversight, inspectors also need adequate tools and guidance to aid their decision making.

This conclusion is so right, so obvious and so superficial. Yes, absolutely, the FAA field is devoid of Harvard or Stanford Business School graduates. Their training is the airworthiness of aircraft, the competence of pilots, maintenance systems, etc. The irony of finding this report from CFO newsletters is that even financial experts have trouble accurately predicting such dire events. Unless the FAA could create a multivariate algorithm, which would deliver to the field green, yellow or red codes, training inspectors how to read SEC 10K forms is not a helpful recommendation.

Somewhere in 1200 New Jersey Ave., SE near the OIG’s suite of office is the Air Carrier Fitness Division. According to its website, this organization monitors on a regular basis the operations and OIG bldgfinancial conditions of all licensed U.S. airlines to ensure that they continue to be fit to hold their operating authority and to serve the U.S. public.

This involves analysis of the applicant’s managerial capabilities and experience, the financial resources available for the proposed operations, its service plan, and the ability of the management personnel to comply with U.S. laws, as well as the ownership of the applicant.

Not completely outside the Nine Dots, because this answer lies within the DOT, should the OIG have recommended that the FAA rely on the Air Carrier Fitness Division? They are skilled at the complex analyses which are the predicates for the conclusions at issue! The analysts down the hall from the OIG are in contact with industry contacts like CFOs and would be the best available resource to signal greater FAA scrutiny!!!

Thinking inside the box – People impose constraints on the

Second and this is the better reference to the Nine Dot solution, the OIG would have provided real benefits to aviation safety and the FAA’s surveillance if they would have looked outside of the FAA’s past, admittedly poor, financial test.

Though the report acknowledges that the Flight Standards Service is moving towards SMS, the audit really does not identify the relevant criteria which the FAA should use to assess operational frailty of a carrier. [ NOTE: The audit was performed between January 2016 and November 2017 {Appendix A} but there is no mention of the reorganization of this service—see Launching a More Agile and Efficient FAA Flight Standards Service, thus making the audit’s assessment of local FSDOs irrelevant if not an anachronism.]

 

 

 

A core competence of the OIG is analysis of data, which might encompass finding significant correlations. Instead of labeling the FAA tools as inadequate, applying those accounting skills might reveal warning signs for operational frailties. A couple of computer runs of historical data of now bankrupt airlines (the Bureau of Transportation Statistics maintains the voluminous Form 41 reports which captures thousands of possible correlative factors) might have discovered what operational trends are the best predictors of increased risks, like:

  • decreased part inventories
  • deferred maintenance
  • reduction of line and major maintenance staff overtimes

1OIG shelves

 

 

 

 

 

  • increases in class size for required training
  • cancellation of internal records audit
  • a spike in late departures
  • closure of employment office while there are increasing operational vacancies,

or

  • something which has little causative connection like cancellation of inflight food contracts

 

The OIG prides itself as a forwarding thinking, analytical organization. Sometimes its “Investigator” name allows it to see what may be wrong, rather than looking for what might improve the point of its audit.

 



 

 

 

 

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