Causes for Concern & Worry: Exorbitant Airline Executive Compensation; Outsourcing of Aircraft Maintenance

Airline companies are difficult businesses to operate. Despite the challenges airline executives face in the airline industry, airline executives are not begging at street corners for food being rewarded handsomely. The employees, who cut their pay and benefits (wage concessions) for the sake of helping the company regain profitability, do not receive any share of the good fortune. The employees rightfully become offended with being left out:

American Airlines executives should have been celebrating last week during their annual stockholders’ meeting, the first in six years at which they could spotlight an annual profit.
Instead, chief executive Gerard J. Arpey spent much of the session fending off questions from irate employees. After agreeing to accept massive pay cuts in recent years to keep American flying, the employees said they were upset that the carrier’s top officers have been given stock-based bonuses worth millions of dollars. One employee at the meeting called Arpey and other executives “arrogant, greedy, selfish and heartless individuals.

The goal of a firm is to increase the price of its common stock. Simply put, the labor union’s wage concessions helped increase the price of the airlines’ common stock (and the value of airline executives’ stock options), thus, there is little chance that employees will see their former wage rates again. Indeed, employees may be asked for more wage concessions.

The common stock price goal ignores the fact that airline executives cannot operate the airline businesses they manage (imagine a CEO preparing ticket holders to board a flight as a gate agent). Skilled, devoted, and fairly compensated employees are necessary to run the day-to-day operations of an airline: the pilots, the flight attendants, the ground crew, the ticket and gate agent crew, and the aircraft mechanics. [I’m not an expert on airline operations, so I hope I got all sectors of the vital airline labor pool.] All of these jobs require skill and talent, some have the additional responsibility of safeguarding human lives (pilots, aircraft mechanics, in particular).

A disconcerting related issue: airline maintenance is being increasingly outsourced to mechanics outside of the airlines in the United States and also outside the United States to reduce costs (and increase common stock prices). Where does safety of the persons flying in the airplanes fit in the equation?

The Federal Aviation Administration (FAA) stated that outsourcing airline maintenance in and outside of the United States does not pose a safety risk. The Inspector General of the Department of Transportation (DOT) stated in testimony that the FAA has to have more vigorous oversight [DOT OIG testimony].

I am already equivocal about flying (it’s disconcerting to be so high above the ground), so this move to increase outsourcing by airlines without a equally robust inspection system only makes the situation worse. I prefer well-paid, skilled mechanics who work for the airlines for such a vital job.