Troubled airline industry in for more costs
By Reuters | March 4, 2005
NEW YORK -- The U.S. airline industry, already burdened with massive losses stemming from high costs and low fares, faces millions of dollars in additional costs as federal authorities push carriers to replace the insulation on some planes.
The Federal Aviation Administration in 2000 required that the insulation on certain models made by McDonnell Douglas be replaced, following the investigation of Swissair Flight 111, which crashed off the coast of Nova Scotia in 1998. The deadline is June 30, 2005.
U.S. airlines have to replace the insulation blankets covered with metalized Mylar on about 600 planes -- the Boeing MD-80, MD-88, MD-90, DC-10 and MD-11. Boeing Co. bought McDonnell Douglas in 1997.
In 2000, the FAA estimated the total cost of retrofitting 719 aircraft at about $368.4 million. Even with some of those planes sold or placed in long-term storage, the cost of retrofitting each plane would be more than $500,000.
The airlines have refused to comment on the cost of retrofitting the planes.
The deadline and the associated costs are looming over the industry at a time when every U.S. carrier except Southwest Airlines , JetBlue Airways and ExpressJet , has been posting quarterly losses while cutting costs drastically.
"Any expense right now is bad timing for airlines, since most of them are in a cash crunch," Calyon Securities analyst Ray Neidl said. "But safety comes first."
The U.S airline industry has lost more than $30 billion since the Sept. 11, 2001 attacks on New York and Washington, as fear of travel and a weak economy slowed demand for travel. Even though a recovering economy brought more travelers back onto planes, competition in the industry pushed fares lower and soaring jet fuel prices compounded problems for U.S. airlines, pushing five of them into bankruptcy.
American Airlines , which in January reported a wider quarterly loss than a year earlier and warned that 2005 was shaping up to be another tough year, said it is on track to meet the June 30 deadline. "We have a vast majority of the planes completed," spokesman Tim Wagner told Reuters.
Cash-strapped Delta Air Lines , which has narrowly avoided bankruptcy in the last few months, is also working to meet the deadline, spokesman Anthony Black said.
Midwest Express has completed the replacement process, a spokesman said.
Other airlines that have to comply with the regulation include Continental Airlines , Northwest Airlines , Alaska Airlines and World Airways . Officials at the carriers did not return calls seeking comment.
Continental and Northwest, both of which in January posted quarterly losses, reversing year-ago profits, have been in labor negotiations to cut hundreds of millions in costs.
The No. 1 air-express shipper, FedEx Corp. , also has to meet the compliance, said Laura Brown, an FAA spokeswoman.
Around the time that the CTSB (Canadian Transportation & Safety Board) was focusing on the volatile mylar insulation as the reason the fire spread throughout the sr111 aircraft and lawsuits were being filed against the makers (Dupont) by the victims' families, the following announcement was made. It goes without saying that it had been reported many times before due to other incidents that occurred prior to swissair 111, that mylar was a huge problem and shouldn't be allowed on any jet. Absolutely nothing was done about it until 229 human beings had to die a horrendous death. The FAA sat on the information. Wonder how those individuals that made that decision sleep at night?
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