JETS: US Airlines Suffer FAA Technology Blow (NYSEARCA:JETS)

There is never a dull day it seems in the aerospace industry and yesterday was no exception. With the recent winter storm impact fresh in memory, which unveiled significant technology shortfalls at Southwest Airlines (LUV), US airlines faced another disruption to their operations. This time, technology was the culprit. In this report, I have a look at how big the disruption was.

Key System Failure

Southwest Airlines has been heavily criticized for the chaos that it landed in after winter storm Elliot affected its flight schedule and cascaded into days of flight disruptions as Southwest’s technology proved incapable of efficiently restarting operations. A lack of priority on modernization and a layer of bean counters on top of its operational departments was blamed. The chaos at Southwest caused strong reactions from politicians.

Just weeks later the FAA, which is the transport agency governing civil aviation, was plagued by an outage of its NOTAM system. NOTAM or Notice To Airmen provides safety information concerning flight operations, conditions and airports. So, having the system providing the NOTAMs functioning is of key importance. Somehow, this system failed overnight on the 11^th of January and it sparked a ground stop of domestic US operations something that I don’t recall happening since 9/11. The FAA has traced back the outage to a damaged database file. While the winter storm disruptions at Southwest and the outage at FAA are isolated events and differ materially, the common denominator seems to be technology and one can wonder whether regardless of being a publicly traded airline name the aviation industry as a whole is using technology that is just way too old for what it is supposed to handle. I would say it is because we see IT systems at airlines breaking over and over and we now see that even at the aviation regulator the technology is failing leading to downtime for critical systems. These days we see politicians going after big corporations and it is really the easy thing to do to gain popularity, but the NOTAM outage shows that also the regulator doesn’t have its technology sorted and it should give politicians some stuff to think about because at this point we are seeing that politicians only act when something happen rather than putting effort to continuously safeguard flight operations and flight safety in all involved layers.

Impact Relatively Limited

While a ground stop is a big measure that could have big impact, the impact was actually rather limited. The reason for that is that the failure occurred overnight and the ground stop took effect at 7:20AM EST and was set to last until 9 AM EST. So, the timing of the ground stop as well as the duration of the ground stop kept the disruption relatively limited. During the winter storm we saw nearly 26,000 flights cancellated and almost twice as many being delayed. The scale and dynamics of the NOTAM outage impact were different with 1,353 cancellations and nearly 11,000 delays. On the worst day of the winter storm, we saw nearly 6,000 flights cancelled and 10,400 flights delayed. So, while delays were comparable to the winter storm, the number of cancellations were much lower. As a result, I don’t expect there to be any significant adverse impact on airline results.

The US airlines part of the US JETS ETF had around 860 flights cancelled and over 7,500 flights delayed accounting for roughly 60 to 70 percent of all cancellations and delays. The big fear of course with Southwest Airlines in particular was that this could happen again. The NOTAM outage gives us some insight but nothing conclusive. What we do see is that American Airlines (AAL) and Southwest Airlines (LUV) topped the lists both in numbers of flights cancelled as well as delayed. I would say the good news is that there was no full meltdown, but this should not be considered as a sign that Southwest Airlines has improved as the changes that are required at Southwest Airlines do not happen overnight.

Conclusion: Good Timing For A Bad Event

While the impact of the NOTAM system outage was much smaller compared to the winter storm disruptions, this is caused by the timing of the impact as well as the duration. The ground stop lasted one hour and 30 minutes and so it was a major event with a short duration. However, in those 90 minutes it led to a day with nearly 11,000 flights delayed. So, I would say that what saved airlines including Southwest Airlines is the that a bad event happed at a good time keeping out of sync asset and crew effects near zero.

However, the criticasters that politicians are they should also reflect on their role as rulemakers to explain why technology is once again leaving passengers duped. The IT systems at airlines are complex and not easy to change or modernize, but if this happens at an organization tasked with overseeing airlines. One can wonder how capable that organization really is. The FAA has no dividends to pay or value to create for shareholders, yet their technology lacked in the same way it did at Southwest Airlines demonstrating a lack of redundancy, which ironically is also something that Boeing was slammed for. In some way, you would think that the FAA is a common denominator in airline operations as well as aircraft certification.