MNeagle
19th August 2010, 06:49 PM
By ANDY PASZTOR
Federal regulators are ready to propose a record penalty of $25 million or more against American Airlines for maintenance lapses that prompted widespread flight cancellations in the spring of 2008, said people familiar with the matter.
The decision would come after more than two years of bad blood between the airline and regulators. It would cap months of internal government debate and extensive efforts by American to enhance its maintenance procedures and take other steps to head off such a penalty.
High-level Federal Aviation Administration officials, these people said, seem determined to seek a civil penalty against American that could be nearly three times as large as any ever levied against a U.S. airline. The penalty appears intended to send a signal about the FAA's demand for strict maintenance compliance by airlines.
No final decision has been made, American hasn't been officially informed about a punishment and last-minute changes could alter the amount. But since 2008 various outside experts have told American, a unit of AMR Corp., the FAA was bound to act.
FAA lawyers and headquarters officials "definitely are focused on numbers in the ballpark of $25 million and up," said one industry official close to the talks, adding that an announcement is likely in the next few weeks.
Other government and industry officials have said the total could be closer to $30 million. Some FAA managers initially considered a penalty of as much as $100 million, but that was rejected by senior FAA officials.
American is likely to challenge the size of the penalty and, as with most other airlines in the past, attempt to negotiate a settlement for a lower amount.
An FAA spokeswoman said "we can't comment on open enforcement cases." A spokesman for American, based in Fort Worth, Texas, said, "We haven't received any notification by the FAA about any pending action, nor do we believe any action is warranted." The statement added the company "has always maintained its aircraft to the highest standards."
The anticipated penalty stems from improperly fixed electrical wiring around landing gear that prompted American to temporarily ground its entire fleet of 300 McDonnell Douglas MD-80 jets for several days in early April 2008, until it satisfied FAA safety mandates.
Agency inspectors subsequently determined that more than 280 of the jets hadn't been in strict compliance, according to people familiar with the details, and that they had made a total of around 15,000 flights before all issues were corrected.
Each flight may be considered a separate violation. In theory, the FAA can impose a $25,000 penalty for each violation, though typically that formula isn't rigidly applied.
The wiring controversy created a furor among passengers and lawmakers because American, under pressure from the FAA, canceled thousands of flights. FAA officials publicly faulted the carrier for sloppy maintenance, with some arguing it could have led to fires or even fuel-tank explosions.
American countered that the lapses were minor and didn't pose any risk to passengers. The airline has consistently maintained that the FAA overreacted.
Still, American brought in consultants to help revamp quality controls over repairs, provided additional training for mechanics and brought in new senior maintenance and engineering officials.
American has argued that the quality of its maintenance, performed by its own mechanics, exceeds work other carriers generally outsource to independent facilities, many of them abroad.
But the FAA greatly stepped up scrutiny and enforcement against American, involving issues from improperly overhauled Boeing 777 engine parts to defective pressure bulkheads on several aging MD-80 jets to fuselage scratches on some Boeing 737s that allegedly weren't reported promptly to the FAA.
The clashes between the airline and agency became so pronounced that in one instance, American managers took the unusual step of ordering an FAA inspector off company property.
FAA Administrator Randy Babbitt months ago even raised the issue of American's cooperation directly with American's chairman, Gerard Arpey, according to several people familiar with the meeting. In recent months, however, relations have improved as both sides tried to find a middle ground.
With other enforcement cases pending, American could try to negotiate a settlement that would cover the 2008 wiring issues and other alleged lapses. That would take many months, and FAA officials may be unwilling to support the approach.
The largest penalty ever imposed by the FAA was the $9.5 million Eastern Airlines agreed to pay in 1987 for nearly 72,000 alleged violations, including improperly deferred maintenance. Eastern went bankrupt before it paid most of that amount.
In March 2008, the FAA proposed a $10.2 million fine against Southwest Airlines for knowingly operating 46 Boeing 737s on 1,400 flights without performing mandatory structural inspections. The carrier negotiated and agreed to pay $7.5 million.
American's tussles with the FAA have turned out to last longer and be more difficult. When the MD-80 wiring issues first popped up, American repeatedly assured agency inspectors the problems had been fixed. FAA managers lost faith in such assurances after spot inspections days later still revealed improperly repaired wiring on numerous aircraft. In late 2008, a blue-ribbon panel that examined the MD-80 wiring issues at the request of then-Transportation Secretary Mary Peters found that mistakes were made by both FAA and American managers.
The panel faulted the FAA, though, for allowing huge variations in enforcement practices among local offices. The group also concluded that the FAA office directly in charge of Southwest oversight "was dysfunctional." The final report submitted by these experts determined that some FAA maintenance directives were confusing, and it dinged the agency for using "an uncommonly literal interpretation" that effectively forced American to temporarily ground aircraft. FAA chief Babbitt, who was then an industry consultant, was one of the group's members.
Some FAA inspectors and managers have maintained that a rigid, by-the-book enforcement approach was necessary because American in the past generally wasn't forthcoming with timely information about potential safety hazards. In April 2009, FAA inspectors launched a special safety audit of American but didn't find any major systemic shortcomings, according to people familiar with the details.
In recent months, FAA and American officials have clashed less and both sides agree the relationship has markedly improved.
http://online.wsj.com/article/SB10001424052748703791804575439732656356958.html?m od=rss_whats_news_us_business
Federal regulators are ready to propose a record penalty of $25 million or more against American Airlines for maintenance lapses that prompted widespread flight cancellations in the spring of 2008, said people familiar with the matter.
The decision would come after more than two years of bad blood between the airline and regulators. It would cap months of internal government debate and extensive efforts by American to enhance its maintenance procedures and take other steps to head off such a penalty.
High-level Federal Aviation Administration officials, these people said, seem determined to seek a civil penalty against American that could be nearly three times as large as any ever levied against a U.S. airline. The penalty appears intended to send a signal about the FAA's demand for strict maintenance compliance by airlines.
No final decision has been made, American hasn't been officially informed about a punishment and last-minute changes could alter the amount. But since 2008 various outside experts have told American, a unit of AMR Corp., the FAA was bound to act.
FAA lawyers and headquarters officials "definitely are focused on numbers in the ballpark of $25 million and up," said one industry official close to the talks, adding that an announcement is likely in the next few weeks.
Other government and industry officials have said the total could be closer to $30 million. Some FAA managers initially considered a penalty of as much as $100 million, but that was rejected by senior FAA officials.
American is likely to challenge the size of the penalty and, as with most other airlines in the past, attempt to negotiate a settlement for a lower amount.
An FAA spokeswoman said "we can't comment on open enforcement cases." A spokesman for American, based in Fort Worth, Texas, said, "We haven't received any notification by the FAA about any pending action, nor do we believe any action is warranted." The statement added the company "has always maintained its aircraft to the highest standards."
The anticipated penalty stems from improperly fixed electrical wiring around landing gear that prompted American to temporarily ground its entire fleet of 300 McDonnell Douglas MD-80 jets for several days in early April 2008, until it satisfied FAA safety mandates.
Agency inspectors subsequently determined that more than 280 of the jets hadn't been in strict compliance, according to people familiar with the details, and that they had made a total of around 15,000 flights before all issues were corrected.
Each flight may be considered a separate violation. In theory, the FAA can impose a $25,000 penalty for each violation, though typically that formula isn't rigidly applied.
The wiring controversy created a furor among passengers and lawmakers because American, under pressure from the FAA, canceled thousands of flights. FAA officials publicly faulted the carrier for sloppy maintenance, with some arguing it could have led to fires or even fuel-tank explosions.
American countered that the lapses were minor and didn't pose any risk to passengers. The airline has consistently maintained that the FAA overreacted.
Still, American brought in consultants to help revamp quality controls over repairs, provided additional training for mechanics and brought in new senior maintenance and engineering officials.
American has argued that the quality of its maintenance, performed by its own mechanics, exceeds work other carriers generally outsource to independent facilities, many of them abroad.
But the FAA greatly stepped up scrutiny and enforcement against American, involving issues from improperly overhauled Boeing 777 engine parts to defective pressure bulkheads on several aging MD-80 jets to fuselage scratches on some Boeing 737s that allegedly weren't reported promptly to the FAA.
The clashes between the airline and agency became so pronounced that in one instance, American managers took the unusual step of ordering an FAA inspector off company property.
FAA Administrator Randy Babbitt months ago even raised the issue of American's cooperation directly with American's chairman, Gerard Arpey, according to several people familiar with the meeting. In recent months, however, relations have improved as both sides tried to find a middle ground.
With other enforcement cases pending, American could try to negotiate a settlement that would cover the 2008 wiring issues and other alleged lapses. That would take many months, and FAA officials may be unwilling to support the approach.
The largest penalty ever imposed by the FAA was the $9.5 million Eastern Airlines agreed to pay in 1987 for nearly 72,000 alleged violations, including improperly deferred maintenance. Eastern went bankrupt before it paid most of that amount.
In March 2008, the FAA proposed a $10.2 million fine against Southwest Airlines for knowingly operating 46 Boeing 737s on 1,400 flights without performing mandatory structural inspections. The carrier negotiated and agreed to pay $7.5 million.
American's tussles with the FAA have turned out to last longer and be more difficult. When the MD-80 wiring issues first popped up, American repeatedly assured agency inspectors the problems had been fixed. FAA managers lost faith in such assurances after spot inspections days later still revealed improperly repaired wiring on numerous aircraft. In late 2008, a blue-ribbon panel that examined the MD-80 wiring issues at the request of then-Transportation Secretary Mary Peters found that mistakes were made by both FAA and American managers.
The panel faulted the FAA, though, for allowing huge variations in enforcement practices among local offices. The group also concluded that the FAA office directly in charge of Southwest oversight "was dysfunctional." The final report submitted by these experts determined that some FAA maintenance directives were confusing, and it dinged the agency for using "an uncommonly literal interpretation" that effectively forced American to temporarily ground aircraft. FAA chief Babbitt, who was then an industry consultant, was one of the group's members.
Some FAA inspectors and managers have maintained that a rigid, by-the-book enforcement approach was necessary because American in the past generally wasn't forthcoming with timely information about potential safety hazards. In April 2009, FAA inspectors launched a special safety audit of American but didn't find any major systemic shortcomings, according to people familiar with the details.
In recent months, FAA and American officials have clashed less and both sides agree the relationship has markedly improved.
http://online.wsj.com/article/SB10001424052748703791804575439732656356958.html?m od=rss_whats_news_us_business