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U.S. airlines outsource majority of repairs

Washington and the unions are scrutinizing the surge in outsourcing of airlines' maintenance to overseas shops.
/ Source: Business Week

Hangar No. 1 at San Salvador's airport is hopping. Technicians employed by jet maintenance contractor Aeroman swarm over Airbus planes belonging to JetBlue Airways, US Airways, and Ukraine's Donbassaero, checking electrical systems, replacing carpets, and examining engines and flaps for signs of corrosion or defects. Just outside, more jets from US Airways and Air Tanzania wait their turn. Why the rush to this tiny Central American country? Starting pay at Aeroman in El Salvador is around $4,500 a year, while veterans take home perhaps $15,000. In the U.S., airplane mechanics earn an average of $52,000 annually.

These days, Aeroman and companies like it have plenty of customers. As airlines scramble to cut costs, outsourced repair shops — both in the U.S. and abroad — now handle two-thirds of all maintenance for American carriers, the U.S. Transportation Department says, up from 30 percent in 1997. Airline maintenance has become a $42 billion-a-year business, with countries such as Dubai, China, Korea, and Singapore making enormous investments to attract such work. While there's some concern about the 4,181 maintenance operations in the U.S., the bigger worry is over the 700-plus foreign shops overseen by the Federal Aviation Administration. Beyond those, there are numerous other shops not certified by the FAA that offer airlines various maintenance services.

Irregular regulation
Unions, business-travel groups, and some members of Congress maintain that quality and regulatory oversight suffer when maintenance is sent offshore. Airlines are entrusting vital work, critics say, to companies abroad that the FAA doesn't have the resources to monitor effectively. "You can't keep track as these airline companies outsource to the Third World —there aren't enough FAA inspectors to cover El Salvador, South Korea, and China," says Jim Hoffa, president of the International Brotherhood of Teamsters, which represents United Airlines mechanics.

Even those overseas facilities that the agency visits don't have to conduct the criminal-background checks and random drug and alcohol tests on aircraft mechanics that are required at domestic facilities. And it's difficult for the FAA to stage surprise inspections, as it does in the U.S. Overseas outsourcing has gotten "truly out of control.… We've been very, very lucky that we haven't lost any airplanes," says Steve MacFarlane, head of the union representing mechanics at Alaska Airlines, Southwest Airlines, and US Airways.

The contractors' trade group, the Aeronautical Repair Station Assn., contends that its members' work is safe and points to recent aviation safety as evidence. Moreover, any new restrictions on overseas maintenance would harm relations with other nations, says Sarah MacLeod, ARSA's executive director. "There's going to be a backlash," MacLeod predicts, along with higher airfares and the demise of some smaller repair shops.

Maintenance requirements enforced
Now, the issue is coming under scrutiny in Washington. After Southwest was hit on Mar. 6 by a record $10.2 million fine for safety violations, the FAA stepped up audits of airline maintenance records, spurring American Airlines, Delta Air Lines, Alaska Airlines, and United to ground thousands of flights as they reinspected planes. So far this week, American has scrubbed about 2,400 flights to reinspect bundles of wires in the wheel wells of its MD-80 fleet. The move came two weeks after the carrier canceled hundreds of flights over the same issue.

The FAA has adopted a stricter approach on how maintenance work is completed. "Our mechanics felt they had complied but thought they had the ability to take certain latitudes; they did not," Daniel Garton, an American executive vice-president, told reporters in Texas. "In the past they have had certain latitude, and that is no longer the case." Alaska Airlines canceled 42 flights so far this week to inspect MD-80s. Midwest Airlines also canceled some flights Thursday after grounding its 13 MD-80 jets for inspection.

Pressure on airlines
While those issues aren't directly tied to overseas maintenance, members of Congress and industry watchdogs have stepped up calls for greater FAA inspections of repair shops abroad so they meet U.S. standards.

The House of Representatives has approved a bill requiring drug and alcohol testing for overseas maintenance workers, as well as twice-yearly FAA inspections. The Senate has yet to move on the issue, but Senator Claire McCaskill (D-Mo.), whose state has a large American Airlines maintenance operation, says the government is subsidizing the outsourcing and wants airlines to pay the cost of FAA certification abroad. "You can't put a gun to a corporation's head and say, "You're not going to outsource jobs," McCaskill says. "But you can make sure the taxpayer isn't paying to send jobs overseas."

In this environment, some airlines are reconsidering their maintenance operations. On Apr. 3, Southwest said it would keep all of its repairs in the U.S. rather than ship some of them, as planned, to Aeroman. Construction workers there had been racing to complete a new $15 million hangar to service part of Southwest's Boeing 737 fleet. Today the hammers are still swinging, but Aeroman is scouting for other airlines to occupy the facility.

Shipshape at Aeroman
No one is suggesting that Aeroman does shoddy work. Southwest and JetBlue both say they have confidence in the company, which is a subsidiary of ACTS, a Montreal-based airline maintenance company. ACTS is owned by two U.S. private equity firms, Sageview Capital and KKR Private Equity Investors, and ACE Aviation Holdings, the parent of Air Canada. And after a March visit, Representative Jerry Costello (D-Ill.), chairman of the House Aviation Subcommittee, said: "I was impressed by some of the things I saw there."

Aeroman CEO Ernesto Ruíz says that, all told, the company faces audits nearly every week — 47 last year alone — by regulators from the U.S., Europe, and eight Latin American countries, as well as airline customers, engine and equipment manufacturers, and quality inspectors who come to verify that the company is meeting its obligations.

A walk around the tidy shop floor indicates that Aeroman takes its job seriously. Documents carry the name and signature of every employee involved in any repair. Removed parts that are to be returned to the aircraft are stored in cellophane-wrapped racks and labeled with blue tags and part numbers. Damaged life jackets, window frames, and floor panels are marked with red tags indicating they should be destroyed. "We are very confident," says Ruíz, "that anyone who comes here won't find anything amiss."