Airlines And Outsourcing

Airlines, a business regulated to death, when they’re not self-immolating due to mismanagement, face a lot of pressures and not a lot of answers. Like other businesses which are procured as a commodity (i.e. most travelers fly whatever airline is cheapest on Orbitz, Travelocity, etc), there is constant pricing pressure and cutthroat competition, and always a search for lower, lower costs.

The airlines have taken advantage of some liberal FAA practices, where the FAA certifies offshore repair/maintenance/service firms to perform work on airplanes. And they’ve been saving lots of money:

Southwest Airlines planned to begin flying planes to this small Central American nation this year — but not with passengers aboard. The carrier wanted to outsource some of its maintenance to a Salvadoran repair shop called Aeroman.

Aeroman already services jetliners operated by U.S. carriers JetBlue and America West. The airlines fly empty planes hundreds of miles from the United States to have them refurbished, repaired and inspected. It’s like driving across town for a cheaper mechanic — except that airlines can save millions of dollars over the life of their rides.

[Aeroman] Chief Executive Ernesto Ruiz said two U.S. carriers had contacted him about grabbing Southwest’s spot in El Salvador, where they can cut their maintenance bills by 30% or more.

In the process, they’re actually getting a hell of a product. Much of the article goes on to applaud these service firms, who are providing quite excellent outcomes at a very decent price. The article also points out that the recent lapses in Southwest & American Airlines’ maintenance are not in any way related to these outsourced operations. In fact, the purchasers of the service are quite happy:

He described the Salvadoran operation as “an absolutely first-class facility.” Customers agree. Mitch Sine, a maintenance representative for JetBlue, was in El Salvador recently checking one of his company’s planes. He said Aeroman beats U.S.-based maintenance contractors, not just on price but on performance and on-time delivery.

“I can’t buy this kind of quality in the United States,” he said. “These people really have pride in their work.”

But, predictably, some people aren’t happy. And I think it’s no surprise that one of those unhappy people just happens to have the last name Hoffa:

“We’ve been trying for years to get the FAA to pay attention to how dangerous it is to outsource maintenance overseas,” Teamsters General President Jim Hoffa said. Unionized mechanics at United Airlines voted this month to leave the Aircraft Mechanics Fraternal Organization and join the Teamsters, largely on promises by Hoffa to try to stem outsourcing.

I’m sure Hoffa is an objective, disinterested party, right? He’s not beholden in any way to the behavior that Milton Friedman described a long time ago?

The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.

There is no reason to believe that we are less safe than we were before. In fact, we appear to be getting a safer total product at a lower cost. Anyone who argues against things being safer and better usually has their own interest, not that of the consumer, at heart.

  • Ben

    Thank you for the informative post, I wasn’t aware of this practice by airlines and its pretty interesting that the service they get in El Salvador is superior to that here in the US. Unions have long gone from being a champion of the rights of the working man to being just another mafia-like gang.