Aviation and Risk Management

Article excerpt

AT A NEW YORK airport, a jet carrying 90 passengers and crew members on route to Chicago taxis down the runway before takeoff. The passengers and crew are strapped into their seats; with a deafening whoosh, the plane lifts off the ground and into the air.

Suddenly, another jet, attempting to land on an adjacent runway, comes dangerously close - within 50 to 75 feet- of the Chicago-bound plane. The jet trying to land swerves to avoid the other plane and is forced to abort its landing. A "near mid-air collision," reports a spokesman for the Federal Aviation Administration (FAA), which immediately begins a thorough investigation into the causes of the near-miss collision.

For the aviation industry - broadly defined as airports, commercial airlines, smaller carriers, corporate flight departments, haulers of air cargo, manufacturers of aircraft and equipment and myriad support services order, safety and efficiency are essential in what can only be described as a catastrophe business. Risk managers charged with managing these monumental risks are concerned with potential disasters that lurk at every turn: from accidents both large and small, to natural hazards like electrical storms and bad weather conditions, to human-inflicted horrors such as terrorism and hijacking. An airline can expect to have a major accident every 8.5 years and a minor one every 4.5 years, according to figures cited by Associated Aviation Underwriters, based in Short Hills, New Jersey. "We're exposed to large shock losses as opposed to daily frequency-type losses," says Brian McBride, vice president and airline department manager.

In order to protect the property and assets of airline carriers as well as the safety of the passengers and crew, risk managers are involved in a broad spectrum of airline and aviation activities; they are concerned not only with the condition of aircraft, but also with hangars; they must think not only about the weather, but also about the type of fuel their aircraft uses. Not only is passenger safety foremost on their minds, but also that of flight and maintenance crews. They must ask such questions as: What chemicals are being hauled? Have the aircraft been properly de-iced? Are pilots in tip-top shape? And they must think of the worst-case scenario: In the event of an accident, are all procedures properly communicated?

This responsibility exists for when planes are in the air and on the ground. In effect, numerous hazards such as errors in maintenance procedures, alcohol or drug use among flight or maintenance crews, and the development of treacherous weather patterns can occur while planes are on the runway. Then there are also potential exposure problems from relatively minor sources, such as when a heavy object falls accidentally out of an overhead bin and injures a crew member or passenger.

Deregulation

WHILE THESE AND many other safety questions are foremost on the minds of risk managers in the aviation industry, recently there has been another major concern cost containment. Since deregulation, some say the airline industry has been run less like a public utility and more like a business. Since 1978, managing costs has been as much a part of an airline risk manager's job as preparing for crises.

According to a spokesman with the FAA, "deregulation" refers not to the relaxation of safety standards, but rather to the removal of federally mandated economic requirements. Until passage of the Airline Deregulation Act of 1978, the federally administered Civil Aeronautics Board (CAB) determined various rules governing aviation, such as certifying the credentials of new airlines, designating the air routes that carriers could fly and setting fares for certain flights. That year, most of those requirements, especially for domestic carriers, were eliminated, and in 1985 the CAB itself was abolished. The legislation resulted in more competition between airlines, leading to mergers and the expansion and alteration of certain airline flight routes. …