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Tail section of Gulfstream Jets at sunset; learn about distressed air carriers

5 Ways To Know You’re Dealing With Distressed Air Carriers

Many industries are impacted by the coronavirus pandemic, and aviation is no exception. While some distressed air carriers seek relief from the recently passed CARES Act, there are still several issues they may need to address during these unprecedented times. If you’re exploring private jet travel (perhaps for the first time) or if you typically charter with a different company on a trip by trip basis, here are five things you need to know about dealing with distressed air carriers.

Distressed Air Carriers: 5 Things You Need To Know

1. Significant Changes to the operating environment

According to FAA Order 8900.1, air carriers may become distressed when there are “significant changes in the operating environment.” In such cases, these conditions may affect their “ability to balance resources, size, and organizational structure with operational requirements.”

Examples include financial distress and adopting new codeshare agreements. There’s also the growth or downsizing of operations, labor unrest and/or managing operations during off-hour operations. Unfortunately, these “extremely complex and dynamic” conditions can lead to lapses in safety.

As the FAA writes, struggling parts 121, 135, and 91K certificate holders “may knowingly or unknowingly accept, or even generate, an undesirable level of safety risk.” These environments force inspectors to be on the look for “potential hazards” and take measures to make sure distressed air carriers are doing what’s required to manage any risks. Additionally, businesses and individual private jet travelers must do their research as well to ensure their safety when flying-especially during times of uncertainty.

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2. Evaluation Triggers

In order to determine whether actions need to be taken over distressed air carriers, there are several triggers. These may prompt evaluations by managers at certificate-holding district offices (CHDO).

There are formal notifications made by certificate holders through documentation. Also, other agencies can give formal notifications on distressed air carriers, such as the U.S. Securities and Exchange Commission (SEC), courts, banks and creditors, etc.

In addition, “informal channels” are helpful as well. In particular, the FAA writes that these include “information obtained from certificate holder meetings or correspondence, conversations with knowledgeable certificate holder personnel, press or industry publications, or any other credible sources that raise concerns about the certificate holder’s ability to balance resources and operational requirements.”

Overall, private jet travelers should be aware of these warning signs and do their due diligence to get the facts before working with an operator.

3. Leading indicators of change

However, CHDO managers must not wait for these formal or informal notifications before tackling possibly hazardous situations. Specifically, they must stay aware of less overt indicators of change while monitoring possibly distressed air carriers.

One aspect includes monitoring leading indicators. These are “observable conditions or events that tend to exist before the inability to balance resources and operational requirements has occurred.”

As the FAA outlines: “Leading indicators can be significant changes in the competition along key routes or changes in costs or pricing policies. Leading indicators are those observations that may indicate that organizational changes are occurring, although readily observable problems may have not yet surfaced.” To clarify, these occurrences aren’t inherently problematic, but may prompt inspectors to make “more in-depth inquiries or conduct targeted surveillance.”

Some examples are changes made to support positions and/or large turnover in staff. Inspectors also monitor major departmental reorganization, changes to arrangements with contractors as well as alterations in the level of experience, training or proficiency with personnel.

Although some of these examples may happen due to the course of regular business, the FAA states that “inspectors should be aware” since there are “possible impacts on safety of operations” during times of change.

4. lagging indicators of change

Less overt indicators, or lagging indicators, are used if leading indicator warnings aren’t available. Often, as the FAA writes, “these are conditions or events that develop after the inability to balance resources and operational requirements has occurred.”

Examples include nonpayment on debts or expenses and Altman Z-score deterioration. Also, they look for major shifts in a company’s stock prices or negative changes to a certificate holder’s credit rating. Other red flags include bankruptcy or systemic problems with operations or maintenance.

When these situations happen, the FAA has suggestions. “Inspectors should evaluate the overall certificate holder’s ability to mitigate the safety impacts of these changing conditions.”

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5. General Stressors for Distressed Air Carriers

Finally, there are general stressors that businesses and private jet travelers should be aware. In combination, these occurrences can lead to distressed environments for air carriers.

Here are just a few of the major stressors, as outlined by the FAA:

-Labor unrest, difficult contract negotiations or work slowdown

-Merger/takeover or change in corporate structure, personnel, or culture

-Competition changes in key routes

-Reductions in the workforce, significant layoffs or retirement buyouts

-Changes in operational control systems, programs or subsystems

-Reduction in route structure and/or flight schedules

-Increase in the frequency of complaints against the operator

-Media reports of an airline’s financial difficulty

-Changes in the operational and financial performance

-Changes in aircraft equipment and/or parts inventories

Whether you’re interested in a private jet membership or an on-demand charter flight, be sure to watch out for these red flags of distressed air carriers. Always do your research and only work with verified and trusted operators. Here at Magellan Jets, our decades of growth and experience coupled with our commitment to health, safety and excellence are just a few of the reasons why businesses and individuals put their trust in us during these uncertain times.

Get a quote now or call Magellan Jets today at 877-550-5387.

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