Signs of Airline Financial Trouble
The exact timing of an airline’s cessation of operations is very difficult to predict, but travelers can discern some obvious signs that an airline is in serious financial trouble. While almost all airlines experience financial losses periodically, reports of missed payments to suppliers or lessors, aircraft groundings, and airlines missing payroll are all indicators that an airline is undergoing severe financial distress that exceeds normal financial issues. Other signs that an airline’s future may be in jeopardy include financial problems with an airline’s parent company, the withdrawal of a major investor, or the breakdown of an attempt to sell the airline. It should be noted, however, that such issues do not indicate that an airline’s bankruptcy is inevitable, as some airlines have experienced these issues and recovered from their precarious financial situations.
Missed payments to suppliers, employees, lessors, and authorities are clear signs that an airline may not be able to maintain its operations. Ensuring such payments is a top priority for an airline’s leadership; missing payments can result in suppliers or airports denying service to an airline, which can cause flight cancellations and other operational disruptions. Lessors may also repossess aircraft from airlines that miss payments. If airlines fail to pay maintenance providers or become unable to afford spare parts, they may be forced to ground aircraft for safety reasons, another sign that an airline may be unable to continue operations for much longer.
Financial problems at an airline’s parent company or the withdrawal of a major investor can also jeopardize an airline’s operations. Notable examples of this trend include the shutdown of Belgian flag carrier Sabena (SN) in 2001 after its parent company Swissair (SR) collapsed, and the shutdown of major Australian carrier Ansett Australia (AN) in the same year amid financial challenges at parent company Air New Zealand (NZ). Air New Zealand ultimately survived the crisis, but Ansett did not. More recently, several subsidiaries of Abu Dhabi’s flag carrier Etihad Airways (EY) have experienced major financial difficulties as a result of their parent company’s challenges. While Etihad itself is highly unlikely to cease operations thanks to strong financial backing from Abu Dhabi’s government, its subsidiaries Darwin Airline (F7), Air Berlin (AB), Niki (HG), and Jet Airways (9W) have all ceased operations in the last three years after Etihad withdrew funding for the carriers.
Travelers should take special notice if an airline they are flying on stops selling tickets, or if a bid to secure a last-ditch loan or investment for the airline fails. While some airlines have gone through such situations and survived, most have ceased operations shortly afterward. Thomas Cook’s failure occurred immediately after a deal to secure additional investment in the company collapsed and the British government rejected the company’s bid for a last-second loan. French carrier XL Airways France (SE) announced Sept. 19 that it was suspending ticket sales; the carrier has indicated that it will cease operations in the coming days unless it can secure a rescue deal.
A country’s bankruptcy laws and a government’s ability to assist financially distressed airlines can also impact airline shutdowns. US law allows bankrupt airlines to continue operating without interruption while they reorganize. Many other countries, however, do not have laws allowing bankrupt businesses to continue operating. The lack of such a law in Switzerland played a major role in Swissair’s downfall in 2001. Some struggling airlines can also turn to their countries’ governments for assistance in maintaining operations in the face of financial challenges, especially if they are one of the country’s main airlines or are state-owned. Some governments, however, are unwilling or unable to assist ailing carriers. EU laws prohibiting governments from providing unfair aid to private companies have played a direct role in multiple airline shutdowns in the past two decades.
Operational and Travel Impacts of Airline Failures
The impacts of airline failures on passengers depend on how prepared authorities are for the shutdown. A well-organized civil aviation authority who is prepared for an airline to cease operations can often accommodate all passengers relatively quickly. An unexpected shutdown, however, can force passengers to fend for themselves, both for getting to their destinations and obtaining refunds for canceled flights.
Civil aviation authorities that know in advance an airline is likely to cease operations can provide significant assistance to passengers. The UK government was aware of Thomas Cook’s likely demise several days in advance and developed a plan to immediately assign almost all Thomas Cook passengers stranded abroad to alternative flights, including special charter flights that authorities had arranged in advance. The UK government followed a similar plan when Monarch Airlines (ZB) ceased operations in 2017. The German government took even more extreme steps when Air Berlin failed in 2017; the government provided the carrier with a loan that allowed it to continue operations for another two months before shutting down in a controlled manner. In cases where governments aid passengers after an airline ceases operations, most of a government’s efforts focus on repatriating passengers stranded abroad; such operations generally do not provide flights to passengers who have yet to start their trips.
Disorganized airline shutdowns can leave passengers on their own to arrange travel back home. When Spanish carrier Primera Air (PF) ceased operations in 2018, the carrier simply stopped all flights, withdrew all staff from airports, deactivated its email addresses and phone numbers, and told passengers to not contact the airline. Passengers who do not receive government-arranged flights after an airline shuts down should arrange alternative transportation as quickly as possible. Alternative flights tend to book quickly after an airline ceases operations, especially if the number of alternative flights is limited. In some instances, airlines will add extra flights or use larger aircraft to accommodate the surge in passengers from a competitor’s demise, but travelers should not count on this, especially in the first day or two after their carrier ceases operations.
A traveler’s ability to get compensation or refunds for their canceled flights after an airline ceases operation depends on local laws. Some airlines will offer passengers refunds immediately after they cease operations or offer to compensate a passenger for tickets bought on a different carrier. In some countries, however, passengers will simply become creditors for the bankrupt airline. In such instances, passengers generally are among the last to receive money from the sale of the bankrupt carrier’s assets, as secured creditors such as banks and other lenders receive priority over customers in most jurisdictions.
Looking Ahead
While the airline industry has experienced some of its most prosperous years, several large airlines have failed. As the global economic conditions that allowed airlines to thrive show signs of change, airline failures are likely to be more common, especially in several major markets including India, Indonesia, and Argentina. The more challenging economic environment, including rising oil costs and an increase in the number of low-cost carriers, is likely to put financial pressure on airlines. The impacts of airline failures can vary considerably depending on how authorities in the airline’s home country react.
About WorldAware
WorldAware provides intelligence-driven, integrated risk management solutions that enable multinational organizations to operate globally with confidence. WorldAware’s end-to-end tailored solutions, integrated world-class threat intelligence, innovative technology, and response services help organizations mitigate risk and protect their people, assets, and reputations.
What Really Matters
The most important factors in an airline’s safety standards go well beyond the airline’s safety record. An airline with strong safety standards should have a management team composed of experienced airline industry professionals. A safe airline needs to have a strong safety culture – the idea that safety comes before everything else, including profits and customer service. Safe airlines avoid risks. Aviation is one of the most risk-averse industries out there, and that’s a big reason why it’s also one of the safest. Finally, a safe airline needs to follow the rules. Aviation is a very by-the-book industry. There are rules for everything, and those rules often in place because of lessons learned in past accidents.
Evaluating an airline based on these factors requires dive deep into an airline’s operations to see how the airline performs on these issues, and most travelers don’t have the time or expertise to perform that deep dive. Fortunately, travelers aren’t the only ones who are interested in an airline’s safety. Governments, industry groups, and other international organizations regularly assess airlines’ safety standards; their findings can offer travelers a quick and easy understanding of whether their airline meets appropriate safety standards.
The Tools
There are six freely-available tools that travelers can quickly use to evaluate an airline’s operational and safety standards. Three of these tools are based on direct audits of the airline, while three are based on evaluations of the government that certifies and oversees the airline.
In order to fully understand these tools, a traveler should understand the importance of a civil aviation authority (CAA), the government body responsible for regulating all the airlines registered in its country. An example of a CAA is the Federal Aviation Administration (FAA) in the US. An effective CAA will set appropriate operational and safety standards for airlines under its jurisdiction, will have the capacity to inspect airlines and ensure they follow those standards, and will have the authority to ensure that airlines that do not meet the standards are not allowed to operate.
Not all CAAs are created equal. Some do a very good job, but others have major shortcomings. Travelers looking at an airline regulated by effective CAAs can have high confidence that the airline has appropriate safety standards, because the CAA won’t allow them to operate if they don’t have those. An airline from a country with an inadequate CAA can still have good safety standards; the airline just has to self-regulate, because the CAA isn’t going to do it. In those countries, travelers cannot assume that an airline has appropriate safety standards, because the CAA may let airlines with inadequate safety standards operate. Travelers therefore need more evidence that the airline’s safety standards are up to par.
Travelers can use three publicly-available tools to evaluate a country’s CAA: The International Aviation Safety Assessment (IASA), the List of Carriers Banned within the European Union, and the Universal Safety Oversight Audit Program (USOAP).
If a traveler still isn’t satisfied after evaluating the CAA that oversees an airline, the traveler can also look at the airline’s international certifications that are based on direct audits of the airline. The three audit-based tools are the IATA Operational Safety Audit (IOSA), the EU Third Country Operator (TCO) program, and an airline’s alliances and codeshares. Travelers should note, however, that these programs are voluntary, so a lack of such certifications is not necessarily a negative indicator for an airline’s operational and safety standards.
International Aviation Safety Assessment (IASA)
The IASA program run by the US Federal Aviation Administration (FAA) assesses whether the CAA in a country meets international standards; Category 1 is a pass, Category 2 is a fail. The IASA is updated continuously based on direct FAA audits of CAAs, and carries regulatory implications. Airlines from Category 1 countries can start new service to the US and new codeshares with US carriers, while airlines from Category 2 countries cannot, although they can continue existing services or to the US or codeshares with US carriers. The biggest problem with IASA is that is only lists countries with flights to the US or codeshares with US carriers, so there are numerous countries not listed in IASA. That doesn’t mean those countries have good or bad CAAs, it just means travelers need to look elsewhere for that information.
List of Carriers Banned within the European Union
The EU ban list is a frequently misunderstood tool. A lot of media sources refer to this as the “EU Airline Blacklist” and suggest that every airline on the list is there because the EU found major safety flaws with the carrier, but this perception is inaccurate. Instead of auditing airlines, the EU audits CAAs, and then bans all airlines from a country whose CAA fails the audit. There are a few airlines that are banned outside of those country-wide bans, but those are rare. An airline that gets caught up in a countrywide ban isn’t necessarily unsafe – it just means they don’t have an effective CAA overseeing and certifying their operations. Airlines from countries with blanket bans can request exemptions from the list, in which case the EU will perform a direct audit of the airline and will exempt it if the airline passes; an exemption is therefore a very positive indicator for an airline’s safety standards.
Universal Safety Oversight Audit Program (USOAP)
The USOAP program is run by the International Civil Aviation Organization (ICAO), the UN’s civil aviation arm. This program audits every CAA in the world and provides a breakdown of how each CAA scored in different categories of the audit. If a country performs particularly poorly in a safety-critical area, that country gets a red flag that designates them as a Significant Safety Concern. Unfortunately, the audits aren’t very frequent, and some of the data on the USOAP website is up to 10 years old.
IATA Operational Safety Audit (IOSA)
The IOSA program is run by the International Air Transport Association (IATA), the main global trade group for airlines. IOSA is a comprehensive audit program that airlines must pass in order to become IATA members. The program is based on direct audits of the airline, covers airlines around the world, and has been proven effective at ensuring strong operational and safety standards. Depending on the year, the accident rate for IOSA-certified carriers is usually about one-third that of non-IOSA carriers. Travelers should note that IATA gives such out two-letter IATA codes regardless of whether an airline is an IATA member; just because an airline has an IATA code does not necessarily mean that they’re an IATA member who has passed an IOSA audit.
EU Third Country Operator (TCO)
The TCO program is run by the EU’s European Aviation Safety Agency (EASA). For non-EU airlines to operate flights to EU destinations, they have to pass an EASA audit and receive this TCO authorization. Like IOSA, TCO authorization is based on a direct audit of an airline’s operations. The thoroughness of the audit depends on EASA’s confidence in the CAA of the airline’s home country. If EASA has confidence in the CAA, they may only do a quick review, but if they don’t have confidence they do a much more thorough audit.
Alliances and Codeshares
Membership in one of the big three airline alliances – oneworld, SkyTeam, or Star Alliance – is a very positive indicator for an airline’s safety standards, as the alliances put prospective members through safety audits. Codeshare agreements with major carriers are also a positive, as they show the major carrier trusts the other carrier’s safety standards enough to let their paying passengers fly on that carrier.
Conclusion
Air safety is the safest form of transportation available. In many operating environments, flying on an airline with inadequate safety standards is still the safest option for intercity transportation. However, travelers who put in the effort to seek out safer air travel options will reduce their chances of becoming victims of an aircraft accident, and the tools discussed above are a good way to start that effort.
If checking those six tools is still too much work, check out WorldAware’s Worldcue Airline Monitor, in which WorldAware’s analysts use 14 criteria to evaluate an airline’s safety and give it a Preferred or Not Preferred rating.
About WorldAware
WorldAware provides intelligence-driven, integrated risk management solutions that enable multinational organizations to operate globally with confidence. WorldAware’s end-to-end tailored solutions integrated world-class threat intelligence, innovative technology, and response services to help organizations mitigate risk and protect their employees, assets, and reputation.
Cabin pressurization incidents occur on a regular basis around the world, but the majority do not cause injuries. According to reports in The Aviation Herald database, nearly 50 incidents involving some issue with cabin pressure have occurred so far in 2018. Most of the depressurization incidents this year involved a failure to pressurize the cabin as the aircraft climbed or a gradual loss of cabin pressure while the aircraft was at altitude. Only three known incidents caused injuries, most notably, the April 17 incident on Southwest Airlines (WN) Flight 1380 that resulted in the death of a passenger.
Most cabin depressurization incidents do not cause long-term health impacts; however, rare instances can result in severe injury or death. The most serious health threat in cabin depressurization incidents is hypoxia, or a lack of sufficient oxygen. Hypoxia can cause numerous symptoms, including breathlessness, fatigue, and impaired decision-making and physical functioning. Sustained hypoxia can eventually cause loss of consciousness and death.
Cabin depressurization can cause injuries to passengers’ ears due to the sudden change in air pressure. Such injuries can be very painful, but generally, do not cause long-term health impacts. Nausea is another common symptom of cabin depressurization and usually subsides after the aircraft lands.
An explosive decompression that causes a large breach in the airliner’s fuselage can suck an individual out of a plane, either partially or completely. Such instances are very rare on commercial airliners. An individual sucked out of a plane faces a very high probability of dying, though some have survived.
Mitigation Measures to Protect Travelers
Passengers can take several steps to protect themselves in the event of cabin depressurization. The required steps are simple, but passengers must complete them quickly, especially if the aircraft suddenly loses cabin pressure.
Passengers must don oxygen masks quickly after an airliner loses cabin pressure, as the effects of hypoxia may impair their ability to do so after a short time. Studies have shown that hypoxia following a sudden loss of cabin pressure in an airliner at cruise altitude can begin impairing a person’s functioning and decision-making in as little as eight seconds. Within 30 seconds, passengers may become so impaired they are unable to perform simple tasks such as putting on an oxygen mask. Passengers should ensure that the oxygen mask is worn properly so that it covers both the nose and mouth.
One way passengers can ensure familiarity with oxygen masks in an emergency is to pay attention to the preflight safety briefing and review the safety information card provided by the airline.
Passengers should also heed the instruction to put on their own oxygen mask before helping others put on their masks. Passengers who have put on their own oxygen masks will be fully capable of helping others in nearby seats, but passengers who do not may become impaired before they are able to help others or themselves.
In the very rare instance of an explosive decompression, wearing seatbelts increases passengers’ chances of survival. Seatbelts do not provide absolute protection to passengers; media reports indicate that the passenger killed on Southwest Flight 1380 was wearing her seatbelt. However, seatbelts have protected passengers in some explosive decompression incidents. The most notable such incident involved Aloha Airlines (AQ) Flight 243 in 1988, in which all passengers who had their seat belts fastened survived an explosive decompression that blew off a large portion of the aircraft’s forward fuselage.
WorldAware’s Global Intelligence solutions are designed to help you protect your personnel and ensure you can operate globally with confidence. Our Worldcue® Airline Monitor and quarterly Airline Safety Newsletter provide business leaders with two powerful tools to make decisions about airline carrier safety and help reduce travel risk across the organization.
A more in-depth version of this piece was featured in our most-recent Airline Safety Newsletter.
About WorldAware
WorldAware provides intelligence-driven, integrated risk management solutions that enable multinational organizations to operate globally with confidence. WorldAware’s end-to-end tailored solutions integrate world-class threat intelligence, innovative technology, and response services to help organizations mitigate risk and protect their employees, assets, and reputation.