The Federal Aviation Administration’s tools for detecting financial risk at regional air carriers are inadequate and inspectors do not use them effectively due to a lack of financial knowledge, an internal investigation has found.
Congress had asked the the Transportation Department’s inspector general to assess the FAA’s ability to respond to the rapid growth of regional airlines, which now account for more than 40% of all commercial flights.
In its report, the inspector general gave the agency poor marks, finding that its “process for identifying periods of transition and growth at regional air carriers is ineffective in key areas.”
“FAA’s tools to evaluate air carrier risk are confusing and subjective, and limit the agency’s ability to be proactive and weight specific risks,” the report said. “Furthermore, inspectors are hesitant to use the tool designed to detect potential financial problems because they do not have the knowledge or information they need to evaluate carriers’ financial conditions.”
The FAA requires inspectors to use its Financial Condition Assessment Decision Aid to evaluate the degree of financial distress being experienced by an airline.
But according to the report, inspectors did not recognize the multiple indicators of financial distress at Republic Airways before it filed for bankruptcy last year. While they were aware of such indicators as a drastic decline in Republic’s share price and a decrease in scheduled flights due to a pilot shortage, “they did not believe they posed an increased risk at the carrier,” the IG found.
Moreover, not only did inspectors fail to identify the possibility that Republic was in financial distress but, after the bankruptcy filing, they did not make dramatic changes to their surveillance of the carrier because they did not believe the bankruptcy posed any increased risks to safety.
“FAA faces a challenge in overseeing regional airlines due to the highly competitive and dynamic nature of the industry, the magnitude of changes that regional carriers are making, and the rapid pace at which those changes occur,” the report concluded.