UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

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FEDERAL AVIATION ADMINISTRATION

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2^ND^ ANNUAL FAA INTERNATIONAL AVIATION SAFETY FORUM

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FRIDAY

OCTOBER 21, 2005

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The forum came to order at 9:00 a.m. in Washingtonian Salons I, II, and
III of the Westfields Marriott Conference Center, 14750 Conference
Center Drive, Chantilly, Virginia, Nicholas A. Sabatini, Associate
Administrator for Aviation Safety of the FAA, presiding.

I N D E X

[AGENDA ITEM]{.underline} [PAGE]{.underline}

Opening Remarks, Nicholas Sabatini 3

*The Evolving Aviation Business Model Discussion*

[Moderator]{.underline}:

The Honorable Jeffrey Shane, Under Secretary

for Policy, U.S. Department of Transportation 4

[Panel Members]{.underline}:

Duane E. Woerth, President,

Air Line Pilots Association, International 12

Charles Barclay, President,

American Association of Airport Executives 20

Will Ris, Senior Vice President, Government Affairs, American Airlines
24

*Future Safety Models*

[Moderator]{.underline}:

William O. McCabe, Global Managing Director,

Dupont Aviation 62

[Panel Members]{.underline}:

Bruce R. Gemmell, Deputy Chief Executive Officer, Civil Aviation Safety
Authority of Australia 67

James J. Morris, Vice President, Engineering and Manufacturing, Boeing
Commercial Airplanes 80

Henry P. Krakowski, Vice President,

Safety, Security, and Quality Assurance,

United Airlines 71

Patrick Goudou, Executive Director,

European Aviation Safety Agency 72

Worth W. Boisture, Jr., President,

NetJets Aviation 73

Closing, Administrator Marion C. Blakey 125

P-R-O-C-E-E-D-I-N-G-S

9:12 a.m.

MR. SABATINI: Good morning, everyone. Okay. If you would encourage your
colleagues to join you here. Wonderful. Good morning. I trust everyone
had an informative and productive day yesterday. I know I did. And you
know what? We continue to keep our promise of \"no death by
PowerPoint\".

I also hope you got to see the RNP and ADS-B demonstrations. Today\'s
displays are open until 2:00 p.m. After the forum ends and after lunch,
you can be sure to have a chance to see the displays on the Next
Generation Air Transportation System and on our world-renowned Civil
Aerospace Medicine Institute, better known as CAMI.

This morning\'s session is on the evolving business model. Our moderator
has quite a bit of experience observing and studying this evolution from
his current position at the Department of Transportation, and from his
long involvement in aviation.

Our moderator\'s public service career began at the Department of
Transportation. He also served at the Department of State as Deputy
Assistant of State for Transportation Affairs. He now serves as
Principal Policy Advisor to the Secretary of Transportation, with
oversight responsibility for the Office of Transportation Policy and the
Office of Aviation and International Affairs.

Ladies and gentlemen, Undersecretary of Transportation for Policy, Mr.
Jeffrey Shane.

(Applause).

MR. SHANE: Thank you. Thanks very much, Nick, for that very kind
introduction. Good morning, everybody. We - first, before we do
anything, I just - I wanted to congratulate the FAA for pulling together
so many luminaries from the industry in such an important conference,
and to congratulate all of you for understanding the importance of being
here.

This really does - it creates a tremendous spirit around the most
important issue in this industry of ours, which is, of course, safety.

We\'re going to depart a little bit from the discussion, which you\'ve
had thus far yesterday. Safety, of course, is a backdrop for everything
we talk about in aviation, but this morning, the panel that we have
assembled is going to take a look at the future and try to give all of
us some sense of where the industry is likely to be heading, what the
shape of the industry will be in the future, and hopefully, to inform
safety regulators as they attempt to accommodate changes that are
necessarily going to be taking place in what is increasingly a
market-driven business.

We have assembled a panel for you representing a variety of different
facets of the industry, and I\'m very proud of the fact that they\'ve
all agreed to show up, because I don\'t know four more astute observers
of the industry than the ones that are arrayed before you today.

Let me briefly introduce them. I believe you have biographies for almost
all of them in your materials.

Starting on your left, Will Ris, who is Senior Vice President for
Government Affairs for American Airlines, and of course, its parent
corporation, AAR Corp. He is an attorney. He\'s got broad experience in
government and transportation. He\'s been American Airlines\' principal
government affairs representative since 1996, and directs all government
relations activities on behalf of American and its parent company.

Next to Will is Captain Duane Woerth. Duane is President of the Air Line
Pilots Association, the largest association of airline pilots in the
world. He\'s a Northwest Airlines Pilot, has extensive experience in the
field of international aviation. He is serving right now in his second
four-year term as the President of ALPA.

He has also done some public service in his time. Secretary Mineta
looked to Duane to lead an aircraft security rapid response team
immediately after the terrorist attacks of September 11, 2001. He\'s a
747 Captain and has flown with Northwest Airlines for 21 years and had
some flying experience, both in the military and other airlines, before
then.

To my immediate left is Steve Taylor. Steve - I apologize for this - is
not in your materials. He is the Vice President for Regulatory Affairs
of FedEx Express, the world\'s largest express transportation company.

His responsibilities include all regulatory affairs worldwide, including
international aviation matters, aviation bilateral negotiations, and
traffic rights issues. He\'s been in this position only since September
of 2004, but he\'s got a much longer career at the Federal Express
Corporation, even in the FedEx Ground Company.

Last, but not least, Charles Barclay, known to all of his friends as
Chip, the President of the American Association of Airport Executives.
He has been President of the AAAE since 1983. AAAE, as I think everybody
knows, is the largest professional organization for airport executives
in the world, representing thousands of airport management personnel at
public use airports across the country.

He has a lot of public service under his belt, spent a lot of time on
Capitol Hill, and brings a tremendous breadth of knowledge to all of the
issues that we want to discuss.

So we have a representative of what I might call a passenger airline,
although the secret is that American Airlines has a lot of airplanes in
the sky at any one moment, and most of them have a lot of cargo in the
bellies, and they make money with the cargo. I think they make more
money with the cargo than with the people on the upper deck.

Duane represents the pilots, Steve is representing the cargo side of the
industry, and Chip, of course, the airport sector. I want to apologize,
too, that Vaughn Cordle, who I asked to join us, representing the
financial analyst sector, was unable to be with us this morning. He had
urgent family business to attend to and he expresses his regrets.

In preparing for this, we decided we would not do a lot of speeches. We
would try to engage each other, and hopefully engage you, in a
conversation about the future of this industry. The way I thought best
to prepare for this sort of roundtable discussion was to send to my
colleagues on the panel a variety of sample questions, just food for
thought, trying to get the juices flowing.

We had a number of e-mail exchanges. We had a conference call in
preparation for this. It was all very enjoyable. Then I received an
e-mail from Chip Barclay, saying the questions are all very good,
they\'re very comprehensive - he was being very polite - I like all the
questions, but I have another question that I think you ought to ask. He
sent it to me by e-mail, and I will now read you the question.

The question is as follows: What on earth is going on with this
industry? Passenger airlines comprise an industry that is critical to
our economy and culture, and yet, they are net destroyers of capital
over the entire history of the industry. Other industries are
labor-intensive; they are hypercompetitive; they are, in many ways, less
essential to the overall economy than the airlines, but they haven\'t
achieved the unique status of passenger airlines, which is that losses
exceed earnings over the industry\'s entire history, and that they have
anemic returns even in the good times.

Almost the entire industry is junk bond rated. Over 40 percent of the
industry capacity is being managed by the courts, the bankruptcy courts.
Expert financial analysts question the long-term viability of all the
longest-term companies in this sector. Why is the passenger airline
industry such a seemingly unique picture of long-term financial
distress, considering the high demand for, and essential nature of, its
service?

Then the last thing that Chip added in his e-mail was, I think you
should ask this question of Will. Will, would you like me to read the
question again?

MR. RIS: Chip should answer his own question. I have to tell you, I - in
many, many years ago, I used to work for Chip, and as we were both
leaving Capitol Hill, we were talking to each other about what we wanted
to do in our lives.

Chip asked me what I wanted to do and I said, what I\'d really like to
do is really two steps in my career. First, I\'d like to get a really
high-paying, challenging job that will let me amass enough money that
someday, I could retire early and move into a low-paying,
not-for-profit, organization. Little did I know that I was going to be
able to do that and not actually change companies. It\'s just amazing.

I think the answer - the question that Chip asked is a question that we
actually continue to ask ourselves. I mean, the airline industry is
really not as much a business as it is a disease. I don\'t know why we
all stay in it, but the fact is that we have so many structural
challenges that we have to face and so much continued challenges from
the legacy of previous years.

But I have to say that I think the changes that are occurring today are
phenomenal, they\'re monumental, they\'re permanent, and that if we ever
got a break along the way and today, particularly, a break with respect
to energy prices, that the evidence of the changes that have taken
place, certainly in the traditional airline industry, would be quite
amazing.

The fact is that today, every airline, on an operating basis,
essentially, is losing money. Even Southwest, while they\'re making
money, has said publicly that but for fuel hedges, they would not be
making money. This is really a dangerous formula here.

But we have a shot at getting out and we have a shot at getting out
because there is a tremendous amount of understanding now, I think,
particularly on the labor side, that we are all in this game together.

I would commend Duane Woerth and his folks, and particularly at American
Airlines, I have to say we are in accord in ways that we never thought
we would be with our labor unions in terms of trying to right our ship
and trying to increase the productivity that will get us in a place
where we need to be.

But with that said, we have a lot of challenges, and some of the
challenges have to do with the relationship between the government and
the private sector. A lot of the challenges have to do with the way that
the industry is financed. It is harder to go out of business in this
industry than to get into business, and we can talk about that.

Some of these are very unnatural. This is a business that is unlike any
other. We\'re subject to more taxes and fees than any other. We\'re
actually, I think, subject to more generic regulation than any other. We
have a structure where it\'s virtually impossible to go out of business
and we also have a structure in which we are about the only industry in
this country that is, by law, not able to become global, not able to
receive investment from outside the country, and that\'s not
particularly healthy.

So that\'s a whole bunch of problems, but this is certainly not a time
that we are ignoring our problems. We are working very vigorously to get
on top of that.

MR. SHANE: Actually, I think you\'ve set a nice agenda for the panel. We
can talk about all the different facets that you\'ve discussed. Duane
will refer, of course, to the relationship between management and labor.
What is your perspective on the future of the industry?

MR. WOERTH: Well, my perspective is that there\'s been a lot of blame
game going on for an awful long time. What we\'re struggling still
with - and it\'s worldwide, but it\'s particularly focused on North
America, and we should - some of your - what was Chip\'s fake question
through you - was that most of the losses in the world are focused on
North America.

It\'s not like Asia\'s losing tons of money, or Europe\'s marginally
profitable, and even South America. So there\'s something about North
America that is a little different than the rest, and we\'ve been
deregulated longer.

We\'re still adjusting to - the aviation industry is thought of in
both - a lot of people\'s minds as a public utility that it\'s trying to
operate like a commodity business. It\'s not - you can\'t quite have the
public utility aspects of a national transportation system that provides
service to all small communities and balance fares and all those things
we expect a public utility should operate, versus a commodity business,
that people come and go out of business and you can merge, you can
consolidate, you can do all those different things.

We\'re kind of in a purgatory. We\'re not adjusted - we\'re not - we\'re
out of the regulatory public utility business and accommodating what the
reality is of a pure commodity business hasn\'t been achieved yet.
Early, especially after September 11^th^, there was a lot of focus on
labor costs and a lot of labor restructuring Will alluded to.

That times three has been obliterated by a 500 percent increase in fuel
costs. Fuel was \$27.00 a barrel on September 11, 2001. With the crack
spread of refining, it\'s over \$100.00 a barrel today, and everything
we\'ve done has just been obliterated by fuel.

Also, one of the main things we\'re adjusting to, it\'s very difficult
in this business to make changes in fleet plan. Right now, we\'re in the
middle of a major restructuring in the fleet plan and how network
carriers do things, and it\'s - when it takes ten years to get in, it
also takes ten years to get out of fleet plan.

One of the things we\'re going to do is I understand that we\'ve been
going to inefficiencies. But the customers like it because they want
nonstop service to small communities with small airplanes at the highest
unit cost possible, and airlines have been trying to accommodate the
public once, but the public doesn\'t want to pay what it costs to do
that.

As we are learning the hard way, we\'re not going to be able to do all
those things for everybody. It\'s kind of remarkable. I think one of the
things it\'s going to go back to is when people say, be like Southwest.
Well, Southwest doesn\'t fly a lot of 50-seat airplanes. They don\'t
have unit costs of \$0.20 a seat mile prior to labor just because
that\'s the capital cost of the airplane and the fuel.

I think this industry will consolidate. I think it has to. I mean,
banking, telecommunications - everything out of the business - it\'s
just part of business cycle - needs to consolidate, take the
redundancies out of the system.

There will be fewer big network global carriers. We don't need eight or
nine; we only need a few. There\'s only three global alliances. There
will be still good jobs.

We\'ll haul everybody, but I think we\'re going to have to do it with a
more efficient fleet. I\'m not talking about fuel efficiencies, I\'m
talking about unit cost, more big airplanes, less wingtip flying, hourly
service to everywhere, and I think that\'s about to happen.

Again, it took a long time to get here. You order the airplanes; they
come online. Now, you know that costs are too high and now you\'re going
to simplify the fleet and are going to start having to have more big
airplanes in the system.

MR. SHANE: Before I move on to others, Duane, one thing that I think a
lot of people in this audience would be particularly interested in
hearing your views on is whether, with the difficulty that the industry
has been in for so long and the number of concessions that workers
throughout the industry have had to give, is there a level of
demoralization taking place that actually could have a negative impact
on safety or performance?

MR. WOERTH: So far - I\'ll speak certainly to the pilot ranks - is thank
goodness there\'s a natural compartmentalization skill that pilots
either - you can\'t do this if you can\'t compartmentalize - and we\'ve
been able to withstand that.

I am - even in the best of times, we have very high professional
standards with people, worrying about people\'s individual depression,
family problems, family crises, and everything, so we\'ve been screening
for those, but we\'re more diligent than ever, so we are worried about
it.

I\'m actually more - but part of it\'s like going away to the circus.
Some of us have just got this in our blood and should probably be doing
something else, but we seem to stick with aviation.

But I\'m actually more concerned about one of the things that we\'ve had
in the margins of safety. In the margins of safety, we had a lot of
contractual rules that build in well above the regulatory framework.
Let\'s just take flight and duty time for example. There\'s the
minimalistic rules, whether it be ours or ICAO\'s, that are bare bones
essentials for flight and duty time standards.

Well, contracts were substantially above those minimums before. Not
anymore. And a huge portion of the bankruptcy court has wiped out a lot
of those work rules, so a very high percentage of pilots now are flying
closer to the bare bone minimum regulatory standards provided by the
government.

As we\'re data driven with the FAA, we\'re hearing more and more and
more complaints and human errors happening, due simply to fatigue. So I
think we\'re going to have to watch that very carefully, and as
companies and as pilot unions and regulators, make sure that some of the
aftermath of what we\'ve just gone through doesn\'t have us running at
bare bone minimum standards.

Because the human error is a real thing and fatigue definitely drives
the numbers of human errors.

MR. SHANE: Steve Taylor, we need some cheering up. Can you offer us a
little from the cargo sector? I think, last time I checked, FedEx was
profitable. No?

MR. TAYLOR: We - FedEx makes money on occasions. We\'ve had - and I
understand our competitor, UPS, makes money on occasions. Last year -
our last fiscal year - was actually the most successful year that FedEx
has ever had, in terms of revenue, in terms of margins, in terms of
profit.

So I always listen with great interest when people talk about the dismal
state of the industry, because our all-cargo piece of the industry is
probably as strong as it\'s ever been. We often are forgotten.
Frequently, that\'s a good thing. Sometimes, it\'s not a good thing.
We - if you look at some of the differences between what we offer and
what the passenger carriers offer to their passengers, we tend to have a
consolidated industry.

In the U.S., in terms of express business, there\'s really three
players: UPS, FedEx, and DHL. If you look around the world, you can add
TNT to that mixture. So it tends to be a consolidated industry. We tend
to have great value-added services that go well beyond the
transportation piece.

When people watch commercials, they see that they can drop their package
off in New York at 10:30 and it will show up in Los Angeles the next
morning by 10:30, and they never really think about how it gets there.
The truth is, we have very large ground networks that move a lot of our
freight.

We have incredible technology assets that track packages and provide
information and give great value to customers, so they can make their
supply chain smaller. One of the secrets, I think, for express carriers,
has been that the transportation piece is not really where we make our
money and where we add value to the customer. It really is in all the
other things that go along with it.

The other facet which you do see similar to the passenger carriers is
that from us on the aviation side, the domestic business is not an
extremely - is not growing at a large pace. It\'s really the
international business where FedEx, on the aviation side, sees its
future.

There are great opportunities in Asia. There are good opportunities in
Europe. We have many challenges, but we believe that we think that the
international piece of our business is where our future is, over the
next ten or 15 years, like the passenger carriers, and where we hope to
continue to be successful.

MR. SHANE: Thanks, Steve. We\'ll come back to the international sector
shortly, and I\'m particularly interested in hearing your view of
whether or not the structure of bilateral agreements that we have works
for the all-cargo sector; whether or not it works for combination
airlines, as well.

Chip, I\'ve heard a couple of things about the airline industry that are
worrisome. One is that, of course, there\'s a lot of trouble in the
industry, and of course, they pay fees to airports. Airports have to pay
debt and interest on their borrowings.

Also, we seem to be moving to smaller and smaller airplanes, as Duane
was pointing out, not something that you would think is a sensible thing
to do in a time of growing traffic.

From the vantage point of your airport operator members, how do you see
things evolving, and what are we going to do about if, in fact, this
proliferation of smaller aircraft is a feature of the future of this
industry, how will we accommodate them, particularly at our busiest
airports?

MR. BARCLAY: Well, airports have the advantage that it\'s really not
what color are the airplanes, it\'s how many passengers do you have
flown through the facility, that drives their economics and backs their
bonds. It does make a difference if you\'re a hub airport, obviously,
where one carrier\'s made a marketing decision to flow traffic through
you.

But airports in the U.S., because of the way they\'re structured as
entities of local governments, I think have some of the - we\'ve got
plenty of challenges and problems in the future, but not nearly as many
as the restructuring airlines.

If I could just go back to the question that I posed for a second to
make the point that Will and I tease each other a lot because of our
long-term friendship, but that question was not intended in any way as a
zinger on airline management.

Some of the smartest people I\'ve ever met in my life have tried to run
United States airlines and yet you look at this history of the field
scattered with losses and smart people who\'ve tried to make sense, and
then you compare it with other industries that have the same
characteristics, and it makes you step back and say, gee, what is this
here?

I think that\'s a question that\'s necessary for us all, in industry and
government, to take a fresh look at. Particularly, if you look at it by
saying, what if we had a magic wand and tomorrow, we waved it and gave
every airline in the U.S. the lowest unit cost possible, wave it again,
and get rid of all taxes that really are taxes that are unrequired.

If you did all that and you took care of all your cost problems, if you
still had too many seats chasing too few passengers, you\'d still -
you\'d just ratchet down the level at which you have destructive
competition. That seems to be - I\'m convinced in the short term, we are
going to fix the cost problems and we\'ll have consolidation.

But if you take a look at the industry and look on it at a sort of
fundamental level of supply and demand, we\'ve got a lot of barriers to
getting seats out of this business, everything from bankruptcy laws and
PBGC and GE Capital and lots of other incentives for seats not to leave
the business, and it\'s very easy to bring seats into this business.

I mean, you don\'t - the capital costs of entry are leasing airplanes
and hiring staff. You don\'t pay for your fixed cost the way other
industries do, because the plant, which is the airports, and the
production line, which is air traffic control, are all paid for by
government and you get to pay for them as you get a customer. Very few
major industries where that\'s the deal.

So you have lots of seats rushing into the market and very few leaving,
and that\'s sort of a fundamental question I don't think we\'ve wrestled
with enough as both government and industry, and it\'s - we probably
don\'t want to spend much time on it here, because it\'s sort of a
macroeconomic 30,000 foot level, and a lot of people are about to be
executed in a fortnight because they haven\'t got their costs down, so
you need to focus on that.

But there\'s a worry that we\'ve got a disincentive in our current
environment to balance supply and demand in this industry in the U.S. I
think the foreign carriers are an excellent point, because you still do
have a lot of capacity control going on within international flying.
That\'s part of the reason a lot of the network carriers are shifting
their capacity over there.

MR. SHANE: Well, I\'m interested in this challenge of the need to
consolidate, the need to get seats out of the market, as an essential -
or what is increasingly seen as an essential element of driving revenues
and profits to where they need to be.

Will, can I ask whether you have a government policy agenda? What would
you like to see government to do facilitate some of this rationalization
that it is not doing today and that it can, in fact, do within its
purview?

MR. RIS: I think in the simplest terms, the best thing the government
can do is do everything possible to treat the airline industry like any
other business. That goes from the way that investment laws are done,
bankruptcy laws are done, consumer protection laws, and so on and so
forth.

We have to really face up to the fact that, as Duane said, it\'s
interesting that it is really only the North American carriers that are
in this major crisis, and what is different about the North American
carriers? North American carriers operate in a regulatory regime that
prohibits investment from the outside.

We operate in a regime - in one of the last regimes in which the
government has complete control in financing over the air traffic
control system. We operate in a regime where some people operate in that
system without paying, and others could pay a lot. There\'s all sort of
aspects to it - as well as a regime in which some entities stay in
almost perpetual protection under the bankruptcy laws, which is a
strange phenomenon.

Now, I\'m not saying that anybody should be forced out of business, but
these are all unnatural phenomena, and as you look internationally -
which is something that obviously, I know, Jeff, you and your team are
working on, particularly with the transatlantic agreement - you see that
the kinds of things that we have done, like code sharing - which is
really an unnatural act between consenting adults, if you will it\'s - I
don\'t know many industries where they have something like this, and it
becomes a surrogate for the fact that we are not able to be a global
industry.

So there\'s a whole - that\'s a whole litany of things, but all of
which, under the general umbrella, to the extent that we can be treated
as just regular, ordinary business, I think we\'ll be a lot healthier.

MR. SHANE: Do you think that the government\'s competition law or
approach to antitrust enforcement is an impediment?

MR. RIS: I think it - I think, not only the U.S. Government competition
law, but I think actually, the philosophy and the approach that the
commission is taking in Brussels is problematic. We are still - we all,
I think, in this room, understand completely the network concept of this
business. These are global networks. We all understand that.

And yet we have a regulatory regime on the antitrust side that is
basically - evaluates all proposals on a point-to-point city pair
competition kind of traditional analytical approach that just doesn\'t
make any sense. It doesn\'t make any sense at all, and we have to change
that.

It\'s not just enough to say, okay, we need to eliminate the foreign
investment laws and so on. We need to come back and say, this is an
industry that\'s a network industry. You have to treat it as a network
industry.

As Duane said, there are three networks globally that compete against
each other. You can\'t be fixated on the competition between carriers in
the Frankfurt-Atlanta market. That just doesn\'t make any sense. And
yet, the regulatory authorities basically have that sort of view of the
world.

MR. SHANE: I wonder if any member of the panel has a view about what the
mix of business models within the industry is likely to be going
forward. We have, of course, the traditional scheduled commercial
airline as the centerpiece of our commercial air transport industry
today, but we\'re all aware that new kinds of aircraft are being
designed, and indeed, developed - very small, very light aircraft, a
much lower cost than traditional aircraft, suggesting that there could
be an expansion of general aviation, an expansion of business aviation,
air taxi, on-demand operations that would become, in some ways, an
in-road to the traditional scheduled airline services.

I don\'t have to put this in particular to anybody. Duane, I mean,
you\'re a long-time observer of where the industry is heading. What is
your expectation with regard to some of these new models that are being
discussed?

MR. WOERTH: Well, I think there will be fewer big, global network
carriers, because the industry can only really tolerate so many people
trying to provide large, international, global networks through major
hubs.

It\'s so expensive to do, and as our colleagues from the cargo side
showed, even globally, there\'s only like four companies that do this,
and they do it very well, but the efficiencies and the seamless stuff
that we want can be done, and it doesn\'t seem to be a problem with
oligarchy problems. They seem - the customers seem to think they get
value-added value. So I think we could have - there will be fewer global
networks attempting that.

Europe\'s already consolidating. They started with Air France and KLM. I
think there will be more there. We\'ll have more here, probably more
within Asia and we\'ll - and as things look more from code-sharing to
other ownership structures, I think we\'ll see more of that.

In the United States and other places, there will be solid - just like
there\'s a Southwest and AirTran and JetBlue, there\'s EasyJet, there\'s
equivalents in - Ryan Air in Europe. There will be major carriers who do
not attempt to be a global network, but are very concentrated on
point-to-point, high-density markets where they can be profitable. And
there will be - there will be always the niches.

The challenge will be, I think - the biggest challenge is going to be,
how do the smallest communities and the smallest airports participate in
a commodity-type business when the cost of providing service there will
be higher.

If it isn\'t going to be essential air services at all, or if some of
those airports will still get service, but it will be only for one or
two carriers with bigger airplanes and it won\'t be 35 flights a day.
You\'re going to leave Pierre, South Dakota four times, and that\'s all.
You can go everywhere when you do that, but it\'s not going to be hourly
service to Pierre like it is today.

One of the biggest limitations, though - and you and I have been on the
same panel, or at least another one following the next generation of air
traffic control services, that will be a major determinant of what\'s
possible, of what you can do - are the limitations of the infrastructure
to accommodate it.

The joke, \"If you have time to spare, go by air\" is not funny, but
it\'s a reality, and some of the challenged proposals, if we don\'t have
an infrastructure that can accommodate it or fairly tax it or treat it
fairly, we\'re going to have congestion that will make the beltway look
like - in a snowstorm, like a good day.

I think we need to - and we\'re dealing with it, but a lot of the
solutions are farther downstream than the business proposals are, or the
solutions to the air traffic control system are in the distant, and
business plans are being ready to implement in the next couple years
that will put severe challenges on air traffic.

MR. SHANE: I want to talk a little bit more about the capacity issue and
particularly, the advances in technology that we\'re working on, but I
wonder if any other panelist has a comment on this basic question about
what the future fleet mix is going to look like, what the future
business model is going to look like.

MR. TAYLOR: Yes. On the cargo side, we keep getting larger planes.
We\'ve ordered the A380.  UPS has ordered the A380. I think I saw where
they ordered additional 747s.

On the domestic side, because we can put packages on the ground that the
passenger carriers can\'t do, we can increasingly use the efficiencies
that come out of our highways, our bridges, our tunnels, and all the
other things that the DOT does for us.

So from our needs, we see increasingly larger airplanes, increasingly
international airplanes, and an increasing need to be able to move from
country to country, within countries, picking up freight and dropping
freight.

Passenger carriers and cargo carriers are fundamentally different in
that a passenger carrier picks up 200 people in New York and carries
them to Paris and eventually, those 200 people are going to come back.
In the cargo business, we pick up a lot of packages in China and they
come to the U.S. and very little goes back.

So, consequently, we have to have the ability to move around and drop
off and do different things to make that system efficient.

MR. BARCLAY: Yes, I would say I\'m skeptical of the impact on mass
transportation. I do think the very light jets are going to have big
ramifications for air traffic control, along with some ramifications for
the highest-yield customers of the airlines.

But in a business that\'s carrying 700 million passengers a year, if you
start dividing them up in 1s and 2s, the sky\'s going to be black with
airplanes before you make a major dent in mass transportation.

I do think the thing that you\'ve got to focus on in the U.S. is that
while people talk about the low-cost carriers, point-to-point model, we
have to have healthy network carriers. We have 500 markets in the
country that support single-plane shuttling service, single-plane
service being point to point.

We have 60,000 domestic city fair markets. So the vast majority of
people are only getting service between Fort Wayne and Pasco,
Washington, because you\'ve got a hub system that you need the network
efficiencies in order to have a national transportation system. Light
jets may fit in there in small places, but I can\'t see them overtaking
need for network airlines, as well as the low-cost carriers and the
high-density carriers.

MR. SHANE: Well, that\'s interesting, because I\'ve seen this - maybe
it\'s an urban legend, but there seems to be some currency within the -
among the commentators that the hub and spoke system is dead; that the
costs associated with running a network system are simplify too high to
compete with the point-to-point, low-cost carriers and therefore,
everybody\'s going to be a point-to-point carrier pretty soon. Will?

MR. RIS: I think that\'s really nonsense. I mean, the fact is, when we
talk about business models, I\'m always frustrated, because we\'re
really talking about two different things. There\'s a structural model,
and there\'s a cost model.

Sometimes, we get them confused and we say we should have the Southwest
business model. Well, the Southwest business model to which we aspire is
the Southwest cost model, not the structural model, and the fact is, hub
and spokes are very efficient ways of transporting lots of people and
the hub and spokes are nothing new.

The hub and spokes were the essence of the railroad industry in the
1880s. That's why we - Chicago was the first transportation hub, where
tracks came in and trains were unloaded and redistributed around the
country - very efficient way of doing business.

All we need to do is figure out how can we get our costs below the
level - just a little bit below the level that we can actually charge
for the tickets. We\'re getting there, but I think the notion that the
hub and spoke system is dead is just a ridiculous notion.

The other thing is just - I mean, it\'s so clear, when you look at all
the new entrants in this business, there is not a single new entrant
that is using the \"Southwest Model\". They\'re all using something
different, and that doesn\'t mean they\'re not going to be successful.

The way they\'re going to be successful is they\'re well capitalized. If
you\'re well capitalized and you have very low costs of production, high
productivity or low labor costs, then you\'re going to be able to make
it under almost any \"structural model\".

MR. WOERTH: I think going to Steve\'s point, a little blends
consolidation also in terms about mass, the hubs that make money are
really the big hubs. Unfortunately, we\'ve got four or five of those,
and we\'ve got about 11 miniature hubs or attempts to be hubs, and
they\'re not working, and all they\'re really doing is cannibalizing the
bigger hubs and part of consolidation will eliminate some of those.

Along the way, some of the major carriers - American was one who saw
that they had a mini hub system and they started taking them all down.
They said, we\'re detracting from Dallas. We\'re hurting ourselves in
Chicago. I think that will go forward.

So as a concept, the hub is absolutely vital to a national
transportation system. We have to have them. Right now, we have too many
of them, and especially the smaller ones aren\'t really effectively - or
profitable, and I think a question that you - that Will asked before,
what can the government do besides lowering the tax burden on the
country for security and some other things, I really do think it\'s kind
of a signal. Maybe it\'s wrong, maybe it\'s right, but there\'s a lot -
there\'s a perception.

A lot of it followed the United/US Airways two years to evaluate if they
could merge or not. If some of this is going to take four, whether the
Department of Transportation competition policy - actually, more the
Department of Justice - to say, we actually think that we are going to
pretty much like to be a free fire zone or the Failed Carrier Doctrine
pretty much applies everywhere, so why don\'t we - we can pretty much
promise you, if you make an application within six months, you\'ll have
your answer, and then with that, we may see some capital.

I already - I know just about every investment banker in America, and in
between London and Japan, so I\'m pretty sure there are some interested
people, but they see the need to do some of this stuff and they\'re
afraid, well, I\'m not going to invest a lot of time in energy and two
years from now, be told I can\'t do it, whether it be Europe, whether it
be in Brussels, or whether it be in Washington.

I think the capital markets are crying out to see, are you going to let
us be like telecommunications and banking and all. If you will, I think
we can see a capital force of all these changes that will be good for
consumers, it will be good - actually, in the long term - for workers.

There may be a lot of turmoil and redundancies that will be placed. I
accept that, but the jobs that remain will be better. There will be
careers that will be sustainable. I wish I had more FedEx's. I have 41
airlines. I only got one profitable one.

So I would like to see the model that focused on profitability, because
that\'s a career field that - it\'s a career. It\'s not just in-between.

MR. SHANE: Well, somebody said that the international markets have
become perhaps the last refuge of profits, or at least some
profitability. Let\'s segue and talk a little bit about the way we - the
framework that we have established for international air services.

Of course, everybody is familiar with the system that we have, which is
predicated on bilateral agreements between countries. We have a great
many trading partners represented in this audience, trading partners of
the United States.

It is well known that the United States and the European Union have been
negotiating a somewhat different model, an open-skies model done on what
I might call a block basis.

What do panel members think of the future of international aviation and
the future of this framework? Are we evolving to something that is far
more open, even than the open-skies model that we have been looking at
for the last dozen years?

Steve, cargo is an interesting crucible within which to look at this
framework.

MR. TAYLOR: Let me tell you a little bit about what we try to do on the
international stage, and then I\'ll address your question. As Will
mentioned, passenger carriers, whether it\'s because of the current
regulatory structure or not, tend to use code sharing with other
airlines to provide their customers international transportation
services.

We don\'t do that, and if we had our way, we would fly everywhere in the
world with our own network, using our own airplanes. We have a hub in
Subic Bay in the Philippines. We have announced a very large - it will
be our second largest hub in the world in Guangzhou, China. We have a
very large hub at Charles de Gaulle in France.

So for us to be able to implement our strategy, we would like to be able
to fly anywhere we wanted to, anywhere in the world. We would like to
have the least amount of economic regulation that\'s possible.

We would like to be able to pick up freight in Paris and take it to
Italy and drop off freight and take it to the Middle East, where we
would pick up freight and drop it off, or we would take it to China,
where we would drop it off and take it up, or we would take it to India.
We would like to be able to travel the world, letting supply and demand
drive whether there\'s a market for that.

Now, if this were 1944, I think everybody would agree that we wouldn\'t
have a bilateral system, but because we have a very large and
increasingly successful bilateral system, because of the really fine
work that\'s been done by Jeff\'s group and the people of the Department
of State, the idea of just scrapping the bilateral system and going to
some sort of WTO approach, it does not seem to be the best way to really
advance economic liberalization.

What we would like to see is just increased focus on open-skies
agreements throughout the world, increased use of multilateral
agreements, like the agreement with the EU.

Anything that allows markets to open up and be freer, anything that
allows carriers to fly and move freight or people based upon what supply
and demand is, and based upon the service they provide and the cost that
customers are willing to pay, we\'re in favor of.

MR. SHANE: Well, a lot of critics out there say that the open-skies
model is good, as far as it goes, but it doesn\'t go far enough, and
that it doesn\'t do what Will was suggesting we need to have done, which
is - and also Duane - really open up the market for the flow of capital,
for example, but there are - even in the context of an open-skies
agreement - serious constraints on the ability of investors to flow
capital across national borders.

Is there support for those restrictions anywhere on this panel? Would
anybody like to argue in favor of continuing to restrict the flow of
capital?

MR. WOERTH: Well, I think I\'ll put up a caveat. It is, I think that to
talk about - just in the form of capital - the world\'s capital markets
have been unrestricted a very, very long time. A lot of United\'s debtor
equity was German. A lot of Northwest was in yen.

I mean, for a very long time, investments - because actually, it\'s been
very little equities, and mostly debt - but most of the money in the
airline business is actually global capital. So it\'s a myth that
there\'s no global capital, that we\'re only using banks in Kansas City
and Chicago. I mean, that\'s just simply not true.

But what we\'re - I think the real debate, if we\'re going to make
progress in this, needs to get it all on the table - we\'re really
talking, is it okay to absolutely control - and not just 49 percent,
you\'re wasting my time. The debate is about, is it okay to control an
airline? Are there other implications? Are there legitimate job
implications? It was this auto industry, before Nissan and Honda
invested, they had to make job guarantees to states and the countries.
Make my life interesting. Make me a proposal that talks about job
security and/or a willingness to employ Americans and not have - because
one of the things that\'s - we\'re - I\'m like a plant. I shouldn\'t
have probably gone to the automobile - you\'re building something in
Tennessee. You\'re probably going to employ Americans.

But the maritime trade gives airline workers pause. Why? Because the
maritime industry used - only employs ten percent of what it used to.
It\'s mostly foreign employment and foreign-owned, and so we\'re a
little cautious that we don\'t want to be the next maritime industry,
where there\'s really no -very few American jobs. It\'s mostly foreign
ships.

The flag is the convenience problem with safety, which this is a safety
conference, and I don\'t think we want a model where people can forum
shop. So there\'s a way, I think, to do this, but we\'re - I think it\'s
appropriate for regulators just to worry about forum shopping and
international safety standards and compliance.

It\'s important to know, can Brussels really enforce anything, or is it
really still states that have the only enforcement? There\'s legitimate
public policy questions beyond that question: who\'s the enforcement,
what\'s the insurance for the consumers, for workers, for investors,
that there\'s really international standards that are enforceable?

We still have government ownership in this business, and not just 100
percent ownership, we\'ve got golden shares. So it\'s - I think if we
can - I think we can talk our way through and resolve these things, but
I don\'t think it\'s simply a question of dropping it down and let the
chips fall where they may. I think we\'ll end up in a maritime industry
in the United States if we just did that.

But I\'m more than willing to entertain a discussion, what are the
parameters necessary to help move forward and talk about those things?

But I\'m very cognizant of the serious threats, through job losses or -
and in a safety conference, I don\'t want to end - and I don\'t think
anybody here wants the maritime trades to be the airline industry, where
there\'s forum shopping and you register your aircraft, because somebody
there has the minimalist ICAO standard and the least ability to enforce.

We built this industry by having higher standards and I want to make
sure, as we globalize, we keep those standards at the best practices,
not the minimalist practice.

MR. RIS: Just one thought about this. I have sort of a parochial thought
and a principal thought. From a parochial point of view, how could I be
against a flow of capital? Since I have none, it would only be flowing
in one direction, so that would be good.

But the fact is, it is - the talk about changing the ownership laws is
not just about capital, per se. One of the things is, we\'ve talked
about the U.S. industry and why is it different? The U.S. industry needs
equity ownership. We have - we are an industry that is basically owned
by secure debt holders.

This is one of the problems. One of the reasons you can\'t go out of
business is because the people who would be most adversely affected are
the people who own secure debt, who own - if you liquidate and all of
the sudden turn 200 airplanes over to an aircraft lessor, they don\'t
want them.

They can\'t do anything with them. They don\'t - they can\'t even come
pick them up. They don\'t have pilots. They don\'t have - how are they
going to do anything with these things? So it is better, if you\'re a
lessor and you have secured debt, it is better to get zero rent on that
debt than have somebody all of the sudden one day hand you 200
airplanes, for which there is no market, for which you have nothing,
where you - literally, it\'s going to cost you to take possession of
them.

What we need in this business ore than anything are equity owners, and
that\'s one of the things coming back is to say, okay, now, why would
anybody invest equity into this business, and it comes back to Chip\'s
original question, and until we get to a position where, again, the
business is treated more like any other and an equity investor can come
in and say, okay, now I have an idea.

I\'m not going to have to have a different set of antitrust laws. I\'m
not going to have a different set of regulatory laws or consumer
protection laws, and I\'m not going to have an onerous amount of taxes
or fees and so on. Now, I\'m willing to invest in this.

I think that that\'s the value. It\'s not just about changing an
ownership, but it\'s changing a whole concept of who owns and what are
the incentives to own and how do get into this and does it really make
sense from an equity investor point of view, not a hedge fund, but a
long-term equity investor point of view, to get into this business? When
we have that, when we reach that point, we\'re going to be in a whole
lot different place.

MR. SHANE: If we could just fast-forward, let\'s assume that the United
States and the European Union actually achieve a breakthrough and have
an agreement and that we are in a position to advance the ball at some
point, in terms of the possibilities for cross-border investment.

What does the industry look like in the next decade, the next couple of
decades? Are we going to be talking about multi-national companies in
the airline business? Is it going to look like investment banking or
telecommunications, other services industries that are equally
networked, equally globalized?

It is a highly nationally organized industry today, for all the reasons
that we\'re aware of, and after all, the United States is not the only
country in the world with restrictions on foreign investment. Most
countries have them. Are we looking at a true globalization of the
industry going forward?

MR. RIS: I don\'t mean to - I think we\'re going to look a lot like the
express business. I think we\'re going to look - we\'re going to have
two or three global networks with a whole lot of other niche players
that are going to fill in the areas.

I mean, obviously, one of the keys for FedEx or UPS or DHL is
universality of service, so that I - as a customer, I know I can come in
and I can ship a package from here to Manchuria, that\'s - I know I
don\'t even have to ask. You can do it.

So we need - I think on the passenger side, we\'re going to see,
eventually, the development of these networks, where I can feel pretty
comfortable that I can come to One World or the SkyTeam or whatever and
say, okay, I want to go from Toledo to Nairobi, and I\'m pretty sure you
can get me there.

But, with that said, there\'s going to be a whole lot of other little
niches, and that doesn\'t mean that there\'s not going to be tremendous
opportunity for other people to fill in the blanks and there will always
be the Ryan Airs and Southwest and others that can fill in those blanks
and I think we\'re going to - that\'s a very robust and desirable
outcome, I think.

MR. BARCLAY: Jeff, I think that if you look at history, it\'s inevitable
that economics always overcomes legal barriers to things, and that\'s
what you - if the world economy keeps going global the way it is, as
long as nothing like terrorism or something else stops that progress,
the vision Will pointed out has to happen.

It just - there will be lots of reasons to slow it down or throw hurdles
in its way. Duane\'s points are very good about, you\'ve got to sit down
and reason this through, not just use slogans and say, let\'s go to
global capital. But it just - it has to happen, because that\'s the way
global businesses go.

MR. SHANE: We are approaching the end of our hour. I wanted, before we
close, to talk about the capacity issue, to some extent. There are so
many different ways one could look at it. We just spent a lot of time
talking about financing the system.

The United States, of course, is right now in the throes of reinventing
the way we finance our system, and I imagine that\'s a problem around
the world. But I wanted to look quickly at the technology side of it.

One of the very large ideas, and most important initiatives, frankly, to
come out of the Bush Administration, is the Next Generation Air
Transportation System initiative. I know there was a breakout session
yesterday at which some members of the audience may have learned about
it.

I think every member of the panel is familiar with it. We expect to have
three times the number of operations, roughly speaking, in the sky in 20
years from now, if not sooner, and the conviction is, therefore, the
current mechanism for handling air traffic is simply not going to
accommodate that level of demand. That\'s without pretending to know
what those airplanes are going to look like.

That\'s what we\'ve been talking about up to now. Do members of the
panel have any confidence that we are going to be able to handle that
demand? Are we on the right track? Should we be moving faster? Are we
moving in the right direction? Are there views about what government is
doing right now?

MR. WOERTH: Well, since I\'m on the Executive Committee of NGATS, I can
speak to some of that. I am confident, but I\'m more confident - the
near term is going to be difficult, because we can\'t implement this
thing by 2008, 2010.

Downstream, if I thought we were waiting for something to be invented,
I\'d be worried. All the stuff we need has been invented and military\'s
used some of this stuff for 15 years. The stuff, then the technology -
the airplanes, right now, can do all this stuff already. What we need is
a ground system that we can safely work with each other and not have it
be like the telephone system.

Right now, we need - it\'s like the old telephone. We need somebody to
talk to every - human intervention between every aircraft, for every
movement, for every descent, for every climb, for every speed change.
When we - I think what\'s going to happen, when we finally - some of
these things go forward, it\'s going to be - each leap will be big.
It\'ll be a big leap.

You\'ll increase a lot of capacity. But it requires a commitment and
that Congress is going to have to fund long term. We started to do this,
but it\'s - some of these monies have been cut and you can\'t have ten
programs 80 percent funded and have anything. You have ten nothings.

Then hopefully, one of the things of NGATS was to help the industry,
which fights amongst itself a lot. We are the worst industry in agreeing
on anything, between business aircraft, airlines, which don\'t agree
amongst themselves about anything, let alone anybody else.

When we can come up with, what do we want, and then the government has
to make a policy decision, this is what we\'re going to do. These
things, we\'re going to implement and everybody\'s in and this is the
way it\'s going to be, and when those decisions are made, I think the
hardest thing is pulling the trigger and committing to a program and a
process and everybody\'s going to have to do this.

I\'m hopeful this helps and - I\'m certainly - I hope the industry can
do what it hasn\'t done before, support 12 different ideas and attack
every one. It traps the FAA, it traps the Department of Transportation,
it traps Congress.

If we can break out of that, I'm feeling - like I said, if we had to
invent things, I\'d be worried, but technology already exists. We have
to be able to make decisions about implementation, and when we do,
we\'ll be able to accommodate the traffic.

MR. SHANE: Our European friends, of course, are no less cognizant of the
growth of air traffic and the importance of moving to a more intelligent
system. SESAME is the name that they have given to their NGATS, if you
will.

Are you familiar, as a member of the Executive Council for NGATS, with
what\'s happening Europe, and do you see that moving in concert with
what we\'re doing? Do you see cooperation emerging there?

MR. WOERTH: I do, and between the whole efforts of EUROCONTROL just
generally, but besides that, I like their - I call their program shazam,
because it sounds pretty good to me.

But - and I think there is - we need more of that, but I think the
bigger challenge is, it\'s going to be easier to deal with
trans-Pacific, trans-Atlantic, and some of that. North America is going
to be a nightmare. It\'s kind of like it is right now. They have 19
different systems that they\'re trying to consolidate, but I think they
actually may be farther ahead with a fix than we are.

MR. RIS: Jeff, can I just say one thing, as I never want an opportunity
pass to compliment the administrator when she\'s sitting right in the
front row, but I really mean this. I don\'t think we\'ve ever had an FAA
that has spent as much time in consultation with the industry in terms
of looking ahead and trying to anticipate these problems in advance and
doing it in a very collegial and constructive way, and I think that\'s a
huge sea change.

One of the things that\'s going to happen, though, that\'s going to be
very tricky, is we\'re - next year, we\'re going to be in the middle of
an FAA reauthorization, and this is - for those outside the country, I
apologize - but it\'s going to be a very big deal, because we\'re going
to get all tied up in governance issues and fees and who pays for what.

Those are hugely important, as we - I mean, what we have to do is, we
have to keep the focus on that, which is hugely important, and at the
same time, not lose focus on the need to, as Duane said, to get a
consensus on the technology, and if we can do both of those things at
the same time, we\'re going to come out the other end very successful,
but much in thanks to - we hope the - not only the current leadership,
but the continued leadership of the FAA on this.

MR. SHANE: Thanks. Nick, according to my watch - I\'m sorry? Ten-thirty?
Oh, I didn\'t look at the revised program, I guess. That\'s great. Can
you tell me whether or not we have a facility - I\'m sorry? Yes, that\'s
what I was going to ask you, whether we have a facility - yes, there is
Oprah Winfrey standing right in the aisle with a microphone.

So let us see if anyone has questions that we haven\'t thought of in
advance.

MR. RIS: There\'s one over there.

MR. SHANE: Say again, please? 10:10 to 10:30. Oh, we are in the break.

MR. FELL: Yes, my name is Ed Fell. I\'M Vice President of Safety and
Regulatory Compliance at Pinnacle Airlines out of Memphis, Tennessee.
There\'s a lot of talk about what\'s happening with the major carriers
and their future in the world as we\'re evolving.

The question I have is how do the regional airlines play into that
process, and what do you see their future being?

MR. WOERTH: I could barely hear the question, so \--

MR. SHANE: We\'re getting a big echo effect up here.

MR. WOERTH: The regional carriers and where they are in the business,
was that essentially the question?

MR. FELL: Right, where do the regional carriers play in this whole
process that you\'ve just described?

MR. WOERTH: Incidentally, that\'s probably the biggest sea change
that\'s taking place right now in the whole relationship, in that if
people weren\'t watching the United bankruptcy, out of that, people look
at United, but the consequences to Atlantic Coast turning into
Independence Air, that Air Wisconsin, in the fee-for-departure world, is
leaving.

It changed from fee-for-departure to pay-to-play. Now you have - it\'s a
very different dynamic that\'s going on down there. I think the first
challenge will be the new - regional airlines are mostly in a vendor
relationship right now, which was very good for you, because that was
profitable.

I think that one of the most challenging aspects right now, obviously,
that we\'re not going to have what we talked about, a network system.
There will not be service to small communities and we\'ll not be able to
have a national transportation system without them and the kind of
aircraft they fly.

I mean, what their relationship is with the network carriers, how costs
and revenues are allocated, is going to be - is one of the biggest
things that\'s in flux right now, and I think it\'s going to be -
there\'s an awful lot of people trying to provide service.

There\'s huge competition to get contracts now with the mainline
carriers and bankruptcy only makes it more challenging, because
Pinnacle, this - are all being drug into Northwest bankruptcies and
Comair and Atlantic Southeast being spun out. I think the turmoil in
that part of the business is going to be pretty dramatic over the next
several years.

MR. SHANE: Anyone else?

MR. KISS: Thank you very much. I\'m Laszlo Kiss, President of ECAC, of
Hungary, and I\'d like to ask that - how you see these massive
operational losses affecting the aviation safety level.

MR. WOERTH: I really couldn\'t understand that. The speakers are going
that way, and we can\'t hear.

MR. RIS: Say it without the - can you repeat it?

MR. KISS: How these massive operational losses affect the aviation
safety level.

MR. RIS: Okay. The question was, how do the massive operational losses
affect the aviation safety level?

MR. WOERTH: I\'ll take the risk of jumping right in there. I know for
sure that employees are doing - whether you be a mechanic or a pilot or
flight - everyone is doing everything they can to maintain a safety - in
our business, it\'s not a - we\'re not a third party vendor to safety.
We\'re the first person to the scene of the accident, so everybody is
pretty focused there.

But I do think that it\'s a perfectly good question, because it puts a
very - an additional challenge on a regulatory environment to always ask
that question and need to be - have extra - how many extra supervisors
in oversight do we need?

It is human nature, when you get to cost-cutting, sooner or later, you
get to the point to where that wasn\'t really a good idea. Cost-cutting
got to the point where risk is added, and I think that\'s just a fact
that we have to accept, and the challenges to the industry to ensure
that it doesn\'t happen are there.

We\'ve got tremendous support in the regulatory agencies to ensure that
it doesn\'t. We\'ve got a culture of safety in this industry, because
the truth of the matter is, most of the regulatory oversight is provided
in-house. I mean, that\'s just the way our industry is done. We have our
in-house check airman, our maintenance supervisors. The FAA couldn\'t
possibly employ enough people to supervise all that.

But as long as - I think we\'re going to have to watch very closely the
operational certificates and the fitness as a real standard. I think
that not everybody who applies qualifies, and we have to continue to -
the Department of Transportation - be very careful that we - that people
who are the owners and operators here don\'t - aren\'t the type of
people that cut corners.

As long as we do that, I think, even in these stressful times, we\'re -
I think we\'ve seen, we\'ve had the worst times ever in four years, and
we\'ve had one of the best safety records ever in the last four years,
so I think that\'s a testament to the employees and management and the
regulatory people who have never lost focus on safety.

MR. RIS: Can I just add - because it\'s a really important question -
there\'s two aspects. One, as Duane said, we fight with each other all
the time, but on safety, we - the culture in this industry on safety is
completely different.

There\'s no place where we cooperate more readily with each other than
on safety and exchanging information and ideas and so on. But there\'s
something counterintuitive about - in the level of safety and economics,
because first, on the big picture level, you\'re always one accident
away from total disaster, liquidation, so in some ways, you need to pay
more attention.

But the interesting thing is, because of the economic problems in our
industry - the economics of having downtime on your planes or having
planes out of service or so - are so bad that there is more intense
effort to maintain higher levels of maintenance and higher levels of
safety, so that you don\'t take the planes out of service and so they
don\'t break down, and that perversely ends up having net positive
effects.

I\'m not saying it\'s good from a safety point of view to have an
industry in crisis, but there are countervailing factors that actually
are mitigating and that are positive.

MR. SHANE: There\'s a question over here.  I know who it is. It\'s
Charles Schlumberger of The World Bank

MR. SCHLUMBERGER: Charles Schlumberger, The World Bank. I have a
question about the distance of margin in the developing world as well,
because we finally see that many poor countries give up their state-run
airlines and their flag carriers -- I have their flag carriers in mind
actually - and now that we\'re - what is their business model?

They need that transportation. They have no access to capital. They have
old Russian airplanes as we saw yesterday, dumped in their markets.
What - maybe there\'s different models, but there are basically three
things we could think of.

The big network carriers go into these countries eventually, if there\'s
a market, a big yield still; or you have extensions of smaller airlines,
which could integrate into a larger corporation; or we develop capacity
in those countries.

But I\'m speaking to the issue that access to capital is draining
development in those markets, and we end up with very extensive service
of the network carriers, and that is a hindrance in developing the
capital countries.

MR. SHANE: I\'m going to break the rule and actually offer an answer to
a question, as opposed to a question. One important answer, Charles, to
that very important question is the Cape Town Convention.

I\'ve got to make a pitch. Anybody who is in a position to get their
government to ratify the Cape Town Convention should do so at the
earliest possible opportunity. The problem with financing aircraft in a
great many developing countries in particular is a lack of confidence by
the investment community and the legal systems in those countries.

If there should be a default on an aircraft, will I be able to get that
airplane back? Will I be able to put it into a different market and
continue the flow of return on my investment?

The Cape Town Convention is designed to overcome that impediment to
investment in developing country airline fleets. It simply sets up an
international registry, and it trumps the local legal system, so that
investors need not worry about the ability to repossess an airplane, if
payments should not be made.

It is so important because it lowers the cost of capital dramatically.
It is precisely in these countries that people pay more for airplanes
than they do anywhere else. It\'s the countries that need aviation most
acutely that are paying the most for it, and it\'s an absolute anomaly.

The Cape Town Convention overcomes that. We have seven signatories right
now. We need eight for the convention to take force, and one more
country is desperately needed, so that\'s my little pitch on behalf of
the Cape Town Convention.

MR. RIS: Are you asking for volunteers?

MR. SHANE: Ready for the break? This was - I predicted to my colleagues
on the panel that this would be the fastest hour we had ever
experienced, and indeed, it proved to be that way, at least for us. I
don\'t know about all of you. But thank you very much for giving us this
opportunity.

MR. SABATINI: Thank you, gentlemen, for a wonderful, stimulating, and
informative conversation. Thank you, Jeff, for leading that great
conversation. Please return at 10:40. Okay?

(Whereupon, the above-entitled matter went off the record at 10:23 a.m.
and resumed at 10:46 a.m.)

MR. SABATINI: Well, now it is time for our last session. We just may
have saved the best for last, since we all realize that a systematic or
a systems approach to safety is imperative. This is how we build in the
appropriate layers of defense to mitigate risk.

At the same time, we have the mechanisms in place to find and flag
potential issues. I\'m looking forward to this discussion, led by Bill
McCabe. Bill, who has 25 years of distinguished service in the United
States Air Force, is Global Managing Director of Dupont Aviation. Dupont
Aviation is a multi-aircraft fleet, which provides Dupont\'s businesses
with domestic and international air transportation.

Our moderator is a leader who believes in a strong operating discipline,
and the safety results at Dupont show it. Ladies and gentlemen, Bill
McCabe.

MR. MCCABE: Thank you, Nick. Since this is the wrap-up panel for the
session, and we realize that we\'re in between you and lunch, we\'ll try
to make this as interesting and productive for you as we can.

I\'d like to start off by just reading out some words that come from
yesterday and today and what we\'ve heard. Our panel has an interesting
past, which is to kind of postulate some ideas about what a future, or
some future safety models can be.

There are a lot of extenuating factors that play on that model, and they
came out during the discussion over the course of this session. So I\'m
just going to read out just a bunch of words, and then we\'ll go from
there, and then I\'ll introduce the panel to you.

Virtual airlines, political will, accountability, transparency,
leadership, technology, bankruptcies, trust, communications, risk
management, sea change and oversight, access to capital.

Safety is the bedrock of the infrastructure, from Norm Mineta yesterday,
a safe and seamless aviation network, global safety systems, stop
developing and implement, broken windows.

That\'s a range of things you could talk all day about. We\'re going
to - what we\'re going to do is take some of these things and take a
look at maybe the beginning of a discussion about what could be a true
global safety environment - not necessarily a global safety system, but
a true global safety environment.

We have the opportunity to look at things like safety management
systems, and is that a small \"s\", small \"m\", small \"s\", or in your
mind, is it a capital \"S\", capital \"M\", capital \"S\"? Leading
indicators, operating discipline, communications, commercial aviation,
business aviation, regulations.

In all those towards Marion\'s broken windows, in Dupont, we have a
pyramid of safety where for every fatality, at the top of the pyramid,
we tend to consider that there are about 30,000 things going on at the
bottom of the pyramid - 30,000 potential broken windows. The job is not
just to fix the window, the job is to keep the window from getting
broken.

I recall one point, going to a new command assignment in the Air Force
and this general told me, he says, Bill, every day, there\'s somebody
out in your wing who\'s trying to get you fired, and it\'s your job to
find them.

He probably doesn\'t know that he\'s trying to get me fired. And so when
you talk about leadership and discipline and safety management systems,
we\'ll get into that.

What I\'d like to do now is introduce the panel, because we have a very
eclectic mix to approach this, from a regulatory standpoint, from a
heavy iron standpoint, from a Bill Boisture of NetJets standpoint, and
he\'ll explain exactly what we do there. So we have a very good mix
there.

I\'d like to start by - on my right - introduce you to Bruce Gemmell.
Bruce is the Deputy Chief Executive Officer for the Civil Aviation
Safety Authority of Australia, a very interesting job right now. Bruce
has been in the public sector for about 30 years. He comes into this job
as the Chief Operating Officer and Deputy Chief Executive Officer of
Aviation Safety in CASA, so he\'ll have a particular vantage point.

Jim Morris comes from the manufacturing perspective. Jim is the Vice
President for Engineering and Manufacturing for Boeing Commercial
Airplanes out in Seattle. As the Vice President for those
responsibilities since February of this year, he\'s been responsible for
improving the efficiency and the quality of the processes, tools,
technologies, and skill utilization across the commercial airplanes
enterprise. So a very good background there.

Hank comes from United Airlines. Hank Krakowski is the Vice President
for Safety, Security, and Quality Assurance. He directs all the
corporate safety, security, and quality for United Airlines, and he
serves as the Co-Chair of the Commercial Aviation Safety Team, or CAST.
It\'s an FAA safety initiative.

Interestingly, he is also the Chair of the Star Alliance Safety Advisory
Group, and a member of the IATA Safety Group, so he brings a very good
perspective to the question here.

Patrick Goudou. By the way, he flew in last night and is flying back out
tonight. This guy\'s a trooper. He\'s the Executive Director of the
European Aviation Safety Agency, EASA.

He was appointed to that position in September of 2003 and prior to that
appointment, he was the Chief Executive of the Aeronautical Maintenance
Agency, an industrial body responsible for engineering and carrying out
the industrial maintenance and repairs to aircraft engines and aircraft
equipment.

So he brings both the regulatory standpoint, and he understands the
maintainer\'s perspective.

And Bill - Bill Boisture is the President of NetJets Aviation, and
he\'ll explain exactly to some people who don\'t know what that may be,
what it is. He\'s responsible for NetJet operations in North America. He
was most recently the Executive VP of General Dynamics Aerospace, and
the President of Gulfstream Aerospace, and he led a turnaround in the
safety culture there.

Bill brings both the manufacturer\'s perspective - in his life before
that, he was involved in other aspects of corporate aviation, and now,
is responsible for running a pretty good fleet there.

What I would like to do is start on your side, Bruce, and briefly, just
describe a little bit about what you do and what your perspective is on
going forward with the safety models.

MR. GEMMELL: Well, thank you, Bill, and thanks to the organizers for the
opportunity to speak to you today. I\'m from the Civil Aviation Safety
Authority in Australia. Just so you understand what I do, I look solely
at the safety regulatory aspects of aviation. Well, no one can look
solely at safety.  I look at safety as the primary issue to deal with.

In Australia, we have separate agencies for the provision of air traffic
services and for government operations.

From my perspective, I can see that we\'re on the threshold of a major
change in the way safety is oversighted in Australia, and indeed, the
world. We\'re moving to a model built around safety management systems,
operating in major airlines and other operations, which involve the
operator taking a much greater responsibility for safety and the
residual of that is that the regulator has to actually take a different
role.

In Australia, we\'re quite technically competent as an organization, so
the Civil Aviation Safety Authority has lots of pilots and lots of
engineers and technically capable - they\'re much less capable of
dealing with the systems issues that are involved in major complex
operations.

As a result, we have to make a significant skill change, away - not
completely away, but away from being technically competent to being able
to deal with major systems developments. It\'s a major task for the
Australian authority. It\'ll be a major task for any authority around
the world.

But unless that occurs, we\'ll be - when we do our audits and our other
inspections and surveillance of operators, we\'re simply producing the
wrong results. It won\'t add to safety, it won\'t add to the safety
systems that are around.

MR. MCCABE: Thank you, Bruce. Jim?

MR. MORRIS: I like to think of my job with Boeing Commercial Airplanes
as about creating the future. Two major aspects to that is first,
continuously improving our quality and productivity as we\'ve produced
these wonderful airplanes.

When I talk about quality, that\'s the big \"Q\", Quality, versus the
small \"q\", quality, where we\'re continuing to move towards a
process-driven organization where we monitor those processes to make
sure that it produces the products and the quality that we desire.

The second part of it is creating the future in terms of the technology
for our new products and services, improving safety at all times, and
looking at new safety models so that we continue this wonderful
improvement that we\'ve made over the last several decades, looking at
our processes and tools, so that we can always use the latest and best
capability that the industry has to offer.

Then finally, the maybe most important, is to develop our team, because
our industry is changing, technology is changing, and so our team has to
continually improve itself so that it can support our business going
forward.

As I thought about this topic, I thought from yesterday, safety\'s
improving. We\'ve made great strides. Why should we change anything? But
then you think about our industry. Our industry is changing every day.
The business models are changing. We heard in the last panel discussion,
in terms of the airlines, in terms of the regulators, and in terms of
us, the manufacturers, safety is continuing to improve.

We\'ve had, over the last several decades, an order of magnitude
improvement in safety, which means there\'s fewer accidents, so the old
methods, the forensic methods of improving safety, aren\'t going to be
as effective in the future.

Then lastly, our environment\'s changing.  Increased traffic. It\'s a
great long-term market. Passenger traffic increasing at about five
percent a year, cargo at about six percent a year in the long term. We
have business jets, very light jets.

So our environment is changing, our industry is changing, and so we need
a new safety model to improve upon what we do today, and that\'s going
to take the leadership of each one of us to improve our defenses.

MR. MCCABE: Thank you. Herb - I heard Herb Kelleher say once at a
panel - it was back in the Spring, when Administrator Blakey was there -
he said, you cannot have a midlife crisis in the airline industry. The
airline industry is your midlife crisis. Hank?

MR. KRAKOWSKI: Yes, what a great segue, especially for my company. In
addition to being accountable for safety, security, and quality at
United, and working in some of the international areas that Bill
referred to, I still fly little airplanes. I also work on little
airplanes as a mechanic.

So as I go about my job, I try to see how the whole system lines up,
because we\'re all sharing the same airspace. We\'re essentially doing
the same types of activities in the approaches to safety that a major
airline does, as well.

The one statistic or the one word that I think you missed, which I\'d
like to talk about, is the one in 15 million success that we\'ve really
had here.

The reason I wanted to bring that up is, as we think about the future
safety model, going forward, let\'s not forget the foundation of success
that\'s already been laid here, the initiatives of CAST, the increasing
emphasis of driving safety toward quality programs and continuous
improvement programs, with kind of three pillars, as I think about it,
going forward: data, transparency, and more importantly, actionable
discussion.

So we\'ve got a - we can take a little victory lap, just a short victory
lap, for where we\'re at today as an industry, but let\'s make it very
short, get on with some really robust discussion on how we lever all the
good work we\'ve already done.

MR. MCCABE: Very good. Patrick, you\'ve heard from a compatriot over on
the other side of the world, and from a manufacturer and an operator.
Please give us your perspective from EASA.

MR. GOUDOU: Well, first of all, maybe you are not fully aware of the EU
system, and I would like to say just a few words about this EU system,
because it\'s brand-new and it\'s still building up.

Well, the agency is, for the time being, only involved in certification
and continuous airworthiness of aeronautical products, and in fact, we
will extend our remit, I hope soon, to operations and flight crew
licensing, and the oversight of some country\'s aircraft.

The major improvement given by the agency is that, in fact \-- in
Europe, and more largely than the member states, the 25 member states,
because we have also Iceland and Norway as members of the agency, and
soon, Switzerland \-- we provide uniformity of law in Europe, uniformity
of regulations, safety regulations, and it\'s very important, because it
provides also a level playing field for industry in Europe, as well.

So, I think that we have now the mission to promote the highest standard
of safety in Europe.  We think that we have, of course, good
achievements already in Europe, but we need to improve. My perspective
is certainly that we need globally very competent and very strong
authorities in Europe, but also worldwide, to improve safety in general.

MR. MCCABE: Thank you, sir. And Bill, why don\'t you tell us a little
bit about NetJets and how that colors your perspective on where we\'re
going?

MR. BOISTURE: Okay. Thank you, Bill. NetJets is the founder and leader
of an interesting business called fractional ownership of business
aircraft. That\'s the airplane-oriented definition. If we were to go to
a business school, we would probably find them describing it as a random
access, on-demand transportation system.

That transportation system is underpinned by slightly over 400 airplanes
of 14 different types, flown by 2,400 type qualified pilots in a 365 day
a year, 24 hour a day operation. We respond to the demands of over 5,000
owners here in America, and another 1,500 in Europe, and our fleet in
Europe is about 75 airplanes, at this point.

We\'ve built an Atlantic bridge, using our Gulfstream airplanes, to go
back and forth between the markets and from a marketing standpoint, the
owners in both markets enjoy the full benefits of reciprocity, as they
come across and use the systems, and our owners go to Europe and use
that system.

Virtual was mentioned - Bill mentioned - we\'re very much a virtual
company. If you ask me, we try to own nothing, except the intellectual
property and a strong commitment to management and execution of air
operations with an extremely strong safety orientation.

I think we\'re - probably as much as anybody represented in the room -
we\'re the classic centralized standard setting training, but
decentralized in execution. The 400 airplanes, we\'ll start using them
tomorrow, exactly where we\'ll leave them tonight, and when we\'ll know
where that\'s going to be will be sometime around 17:00 tonight. So the
airplanes are constantly floating, except when they\'re in dedicated
maintenance periods.

We\'re also, I think, an interesting animal from the standpoint that we,
in cooperation with the FAA, have just made an implementation of an
entirely new part of the Federal Air Regulation. We\'re nine months into
the implementation of \[Federal Aviation Regulation\] Part 91 Subpart K.

I think one of the significant things there that\'s a good model for the
future - and we\'re talking about the future here - is several of us
were asked, as far back as five years ago, to be part of a rule-making
committee that Kathy Perfetti chaired to basically say, how are we going
to regulate this emerging fractional business.

One way of looking at that right now is, we\'re getting to enjoy our own
poison. But collectively, we set the standards and now, we\'re
implementing them, and I think that\'s an important model for the
future. It gives everybody a commitment. It gives everybody some skin in
the game.

As far as the model for safety in the future, looked at through our
business eyes, anyway, starts with a very strong leadership and
responsibility focus from the top down. We\'re owned by Warren Buffett.
He basically said to us, make it the safest and keep it that way, and do
whatever it takes to keep it that way. In my mind, that\'s the kind of
commitment it takes to do entrepreneurial things in aviation, but yet
maintain this singular focus on the core issue of safety.

How do we do that? I think we make a commitment to be specific about
what we want to have happen - very first standards, then an expectation
from the top down that it be done right, an incredible focus on fidelity
and reporting. If we have a problem, let\'s learn all we can through
objective analysis about what happened.

Then I think where frankly, from my vantage point that we, as a
community, are the weakest, is timeliness in solution. From the time we
recognize a problem until we actually put the fix in, in my view, is too
long for a lot of reasons.

So that\'s our approach, Bill. That\'s our business.

MR. MCCABE: Thank you.

MR. BOISTURE: Yes.

MR. MCCABE: If you had a chance to be in Bill Voss\'s panel yesterday
afternoon, I think you came away from that impressed with the level of
dialogue, and particularly from a developing world standpoint. There
were some eloquent expressions of frustration and needs on that
continent, both talking with the players within themselves, and talking
to the players in the external world.

Jim Waugh reminded me this morning of a way that Jack Welch had in
managing his company. If you look at one in 15 million takeoffs, and you
turn that around and say, okay, that\'s a trailing indicator.

That\'s what\'s happened. It\'s in the past, and we\'re 95 or whatever
percent in the U.S. on the way to eradicating those things. If you turn
that triangle that I mentioned, with one fatality at the top, and turn
it on its bottom, so that the point\'s at the bottom, you still have
more than 90 percent of your work to do on your leading indicators of
the things that we can do to keep things from getting broken.

What I would like to ask Bruce first is from a regulator standpoint, how
do you see the cooperation that has to take place between the regulator
and the operator, and the regulator and the manufacturer?

MR. GEMMELL: Okay, well, from my perspective, there\'s got to be
something of a change in attitudes in the industry and indeed, beyond
the industry. We heard yesterday in Bill Voss\'s session quite a lot of
talk about safety really being the operator\'s responsibility, and I
fully believe that\'s the case. It\'s the operator\'s primary
responsibility to ensure safety.

But there has to be a lot of people to believe and support that before
it actually comes about. First of all, the operator\'s got to believe
it, and they\'ve got to take it on seriously.

In Australia, for example, we have some operators who - particularly,
the major airlines certainly believe it, certainly do it - as you move
down the system and get the smaller operations, actually, I think
perhaps it\'s the regulatory authority\'s responsibility, and we should
worry about their safety. It\'s an interesting attitude, which has got
to be changed.

The regulator\'s got to believe it, because if the regulator doesn\'t
believe it, I\'ll start to take actions to try and become the quality
control and safety department of the operator, and that\'s just the
wrong position for a regulator to be in. We can\'t service it.

The press has to believe it, so they actually know who to ask when
something goes wrong. If they believe it\'s the operator\'s
responsibility, they won\'t come rushing to the regulator to say, well,
why didn\'t you stop this happening, and they\'ll go to the operator to
try to work out what occurred.

Investigators have to believe it. In some of the enlightened areas in
the - in investigation, they do. Some other areas I\'ve seen,
investigations, because they\'ve worked out a no-blame environment -
they can\'t blame either the pilots and they can\'t blame the
maintenance engineers - so therefore, it was the system, the system that
was run by the operator and oversighted by the regulator, so we caught
all the flak about what went wrong.

The weakest element of the system, you has to believe this in
Australia - and possibly, elsewhere in the world - is the legal system.
The legal system that does look for blame is trying to apportion
liability.

In Australia, we have coronial inquiries when there\'s a death, and they
certainly look for blame and they drill down into the finest detail of
what went wrong, and then apportion a blame to the people that, often,
not to the people who made the errors, but in fact, were the regulatory
authority.

So there\'s quite a change we\'ve had in attitudes, if you go to get an
operator \--

MR. MCCABE: What would be one example of a change that you could
envision.

MR. GEMMELL: Well, one of the keys, I think it\'s almost a level of
thinking, which I\'ve seen occur in the investigators, is they sort
their way through.

The investigators used to have fairly narrow focus. They\'d narrow it
down to the very specifics of what happened - this wing nut failed - and
they would drive you - and then say, and therefore, you\'ve got to have
rules about wing nuts and the quality of wing nuts and you\'ve got to
have inspection regimes about those sort of things.

The level of thinking has improved a little from that. We get up to more
a systems basis, where we\'re not continually driven down. In Australia,
at the moment the investigators are going, the legal system is driving
us back down to very much detailed, very prescriptive rules, pages and
pages of very prescriptive rules, addressing problems that occurred in
accidents years ago.

It\'s very difficult to lift yourselves out of that.

MR. MORRIS: I think - we\'ll talk about examples, so I think we have a
great example in CAST, Commercial Aviation Safety Team. Maybe Hank can
add a little bit more to that. But what that has done is it made it a
collaborative environment with the manufacturer, the airline, and the
regulators working together to improve safety, and the commitment was to
get us 80 percent reduction in the accident rate by 2007.

With the commitments we\'ve made, we\'re at 73 percent now, so just
great progress. I think the reason why we have to do things like this is
if you look back in history, it\'s been technology, which has allowed
the huge improvements in the safety rate. Go way back to the beginning
of aviation, it was pressurized hulls, which allowed us to get - fly
above the weather.

The engine reliability improved the accident rate. The improved flight
decks, more recently, enhanced ground proximity warning systems which,
for those airplanes configured with it, it\'s eliminated controlled
flight into terrain accidents.  The wind shear sensors have eliminated
that as an issue.

So we\'re moving from the technology to a collaborative environment, as
represented by CAST.

MR. MCCABE: Let me ask, Patrick, does that describe your environment,
sir?

MR. GOUDOU: Well, I would say that I fully support the idea of
cooperation, collaborative action with the industry - between the
regulators and industry. In fact, regarding the regulations themselves,
the standards, the industry is the best place to discuss and to find the
new standards, because they know what are the new steps in designs and
in technologies.

So the regulators are there just to assure that the proposals from
industry are correct and satisfy the public interest. I am quite in
favor of collaboration between industry and the regulators.  I think
that, in fact, the regulators\' civil roles - of course, the role of
policemen - well, sometimes - but the main role is certainly to help and
to discuss with industry.

I think we are reflecting a lot in Europe about delegation, in fact, to
industry. We have already made a lot of things. In fact, our concept of
design organization approval is a very interesting, I think, delegation
to industry. We think of other delegations maybe in the future. It\'s
only if industry is able to cope with this new role and these new tasks
and these new responsibilities.

MR. MCCABE: EASA is still in the process of making its first
impressions, as people learn to understand that. Do you see that
there\'s an opportunity in Europe to use that first impression to
actually develop a proactive collaborative safety environment in Europe
that is different than it is today?

MR. GOUDOU: Well, I think that the regulations adopted in Europe first
in 2002 with the creation of the agency is a first step in this - in
that direction. The amendment to the regulation for operations, flight
co-licensing, etc. is a step further, because we have opened some doors
for self-regulation, for instance, and things like that. So it\'s quite
the way we are going.

MR. MCCABE: Now, Hank, from your perspective, in trying to envision what
could be, whether in conjunction with the regulatory bodies, or with
your industry, how do you look ahead? What do you see?

MR. KRAKOWSKI: Well, one of the things that I was struck with in
yesterday\'s session that you were referring to is the different
regulatory environments which occur globally. Some of the comments
yesterday reflected an old paradigm where the regulator used blunt tools
against the airline and it was a very difficult relationship.

I look to what we have done here in the United States as an evolution,
almost revolution, in terms of how we work with the regulator. I think
about the CAST product, which was probably the highest level of
cooperation between industry, labor unions, and management of the
different carriers.

But what\'s actually happened, in a company like United and many of my
colleagues here from the other airlines, is, this philosophy has gone
down into the very DNA of the corporation through programs like the ASAP
program, programs like joint auditing with the FAA, such that there\'s
full transparency.

When we went into bankruptcy, everyone was concerned that United would
cut corners or any company in bankruptcy would cut corners and there,
create some concerns for the traveling public. What we did with the FAA
right away was collaborate to watch the airline from both perspectives.

What ended up happening is by really ramping up our discussion and
leveraging the tools of the ASAP programs of joint auditing, the FAA
actually never really had to increase their workforce to audit my
company. They just got tens of thousands of employees doing it for them,
because every report that the employees would put in would be shared
with the labor union representatives, FAA representatives, and
management as well.

Then I got the benefit, as a company, of having FAA inspectors out
there, sending us their independent look at how the airline is operating
as well.

So the whole cooperative context works very, very well, not that we
don\'t have disagreements. Every once in a while, the principal
inspector will call me and tell me he\'s ornery about something, and I
will do the same. I like that. I think that the FAA and the regulator
provides a head pressure that\'s necessary to resolve issues in a timely
fashion.

But I\'ll tell you, I really believe that much of the future is going to
be dependent, particularly with the limited resources of government
funding and the airline industry situation that it\'s in, I think it\'s
the right way to lever what we\'ve done so far, going forward.

MR. MCCABE: Bill, I\'m going to throw you just a little bit of a curve
and knowing you, I know you can handle this. I want to go back to Bill
Voss\'s panel - and you didn\'t have the opportunity to see that - but
let me ask you to role play just for a second, and take on the role of a
representative from the Continent of Africa, listening to everything
we\'re talking about.

MR. BOISTURE: Yes?

MR. MCCABE: What are you not hearing that you would like to hear?

MR. BOISTURE: A connectedness between the business model and the
regulatory model. I think we\'ve proven, as a world community, that
we\'re very good at building aviation equipment. We\'ve also proven that
we\'re substantially poorer at making a business out of it - the use of
it.

If I were in that continent and beginning to develop that
infrastructure, to me, it\'s a dual development. It\'s a development of
not only the expertise of using the equipment and maintaining it, but
how do we make money with it?

Because the - and the reason I come back to that is, for it to go on and
on, it has to be able to attract capital, and it has to be able to
return on that capital. If you\'re setting up a new infrastructure,
doing it with that in mind in the long run would seem to me to be an
appropriate way to do it, and I think that means business collaborates
with regulation.

The regulators can\'t be worried about what the business is going to be
doing, because the end result is, to make a sustainable enterprise, we
have to do it safely. You can\'t get away from that.

MR. MCCABE: Right.

MR. BOISTURE: So if you start with the end in mind, which I think is
usually a pretty good idea - where do I want to be? What\'s the \"to
be\" - then you have to have both of those together, and you have to
figure out how 20 years from now, you\'re going to replace what you put
in place today, both from an air traffic control situation, and an
aviation equipment situation. That\'s what I\'d be missing in this
discussion, I think.

MR. MCCABE: Interesting. Do you have any thoughts on that?

MR. KRAKOWSKI: Well, I think that that\'s exactly right, because we
still have to fund everything we do. Everything is so financially driven
going forward that if we don\'t adopt a model that aligns the business
interests and the business necessities with the regulatory necessities
as well, we\'re going to waste a lot of money getting to the same place.

So just for the sake of efficiency, I think this is exactly the right
way to go.

MR. MCCABE: Do we have the gentleman that was here from the East African
authority yesterday in the afternoon? Is there anybody from that area
that would like to comment on what are you not hearing? Yes, sir?
There\'s a microphone right over here.

PARTICIPANT: Thank you very much, moderator. In fact, what we are
hearing is exactly what we were saying yesterday, that the way to go is
cooperation, because the industry is not that very strong. So the
regulators must help the operators to meet safety standards.

We actually support that model because of what we have learned from the
FAA and other operators. In terms of the equipment, obviously, we
believe that we need to develop our markets to the extent that we can
attract capital and have plans so that that capital is replaced within
20 years, ten years.

So that is the way to go, unless my colleagues would like to differ.

PARTICIPANT: Thank you very much. Basically, that\'s the view, because
the industry - and the Continent of Africa - is, of course, growing, but
is facing quite the number of challenges, one of which, of course, is
capital availability. We have to go across the continent to seek
capital.

In effect, in my - an input in the evaluation paper, I was suggesting
that the next meeting, we should include finding institutions like the
African Development Bank. What role does it play in providing capital to
African aviation industry, so that they can be part of a panel like the
one we have in front of us, to bring in some views in order to help out
the entrepreneurs on the continent to access the reasonably-priced
capital to develop aviation.

Lastly, the approach of regional cooperation, I think, is very, very
vital. We have to pull resources together in order to grow the industry.
There has been a tendency on the African continent to continue with this
concept of relying on national carriers, which are not properly
capitalized.

Our view in East Africa is that that concept should vanish and we\'ll go
into cooperative arrangement, partnerships, in order to tap on the
similarities of available resources within the nations of that region.
That\'s why we are here, as East African community. Thank you.

MR. MCCABE: With the goal of a robust, strong safety culture.

PARTICIPANT: Exactly. In fact, we have already a program, which is to
establish a single safety oversight institution to oversee safety
requirements the three East African states of Uganda, Kenya, and
Tanzania. Because you might find that these pictures - well, we might
have these pictures in Tanzania. They might not be available in Uganda.

The fuel might be available in Uganda, but they are not all competent to
handle particular types of aircraft, which are flying within that
region. So we have approaches to address that solution of developing
capacity to increase our oversight capability by looking at establishing
this single oversight safety institution to handle that kind of
approach.

MR. MCCABE: Thank you, sir. Thank you.  You know, there\'s technology
and there\'s regulations, but the big thing is human factors. human
factors is a term, again, that can be widely abused, and it\'s very
often viewed with a capital \"H\" and a capital \"F\" and they're
somebody\'s program. It\'s everything we do.

Leadership is integral, of course, to that, because it\'s people. I
would like to talk a little bit - or have the panel discuss that concept
of leadership and from a manufacturing standpoint, Jim, how do you see
the role of the leader and subordinate leaders throughout the
organization to really drive a safety culture?

MR. MORRIS: Well, just to start off, I think it\'s absolutely critical
that the importance of leadership and the importance of safety to the
leadership of a company or a corporation is known to everyone in the
corporation.

We like to say, as Hank says, that safety is in our DNA, and it\'s got
to be in every person in the organization. At Boeing, over the last
several years, we\'ve really changed our business model dramatically, as
we continue to improve our competitiveness and improve our products, so
that we\'re asking our supplier partners to do more for us in terms of
developing the design, as well as the production.

As we thought through that, we thought, we have to implement some
changes to our safety model to make sure that that DNA gets transferred
to them at the same level that\'s in each of our folks at Boeing. So in
the 787 program, we developed what we called the Partner Safety Working
Group, where all our partners get together periodically and we talk
about the importance of safety, what the requirements are, the process
for developing safety in the product.

It\'s not just following the regulations; it\'s more than that, because
you have to think about all the stakeholders, our customers, the
airlines, the passengers that fly on it, and everyone that works on the
airplane, that it\'s very important to them. So it\'s moving on and
making sure that safety is in the DNA of everyone on the team.

MR. MCCABE: Bruce, people would generally not use the term leadership
and government as something compatible. Tell me why you disagree.

MR. GEMMELL: Well, I\'m not sure I do disagree totally, but it can be
compatible, but even in government, there has to be leadership. We\'re
trying to lead our industry through some of these sea changes to get
them to understand what\'s required of them, because one of the
attitudinal changes that has to occur, apart from them understanding
it\'s their primary responsibility for aviation safety, is this question
of leadership in the CEOs in the organization, because it\'s actually a
make or break, where the systems will work.

It\'s deeper than just having a policy that safety is our priority, or
whatever it is. It actually - the CEO has to believe it, and then make
his team believe, that it\'s an important priority, because if he
doesn\'t do that, it\'ll just fade away, and I\'ll be chasing business
dollars and so on.

We find, in Australia - because we\'ve got a range of operators - for
the bigger businesses, it just makes so much sense. It\'s an easy and a
smart business decision. A bad accident record is - can destroy your
business.

But we have some people who are actually in the aviation business more
for love than money. One is about the North American airlines actually,
in that context. I\'m not sure they\'re in it for love, but in
Australia, it\'s definitely the love of flying that they\'re in it for,
and their attitudes can be quite different to that.

It\'s not a business decision for them. If they don\'t live and breathe
safety, it just doesn\'t happen in the organization, and we\'ve seen it,
and we\'re now having to deal with operators who are technically quite
competent, but just have poor attitudes to safety.

MR. MCCABE: Patrick, do you agree with that?

MR. GOUDOU: Yes, I agree with that, but I would like to come back to
what my neighbor said a few moments ago. If the reasoning is for the
long term, of course, safety is essential. But when you are an operator
and the short-term pressure, commercial or operational pressure, maybe
you have less care for safety.

That\'s where the regulators are very important, because they have to
intervene there and to assure that, for the weakest companies, for the
weakest airlines, and their short-term pressure, time critical pressure,
operational pressure, and so on, they can continue to have safety in
mind.

That is very important, I think, and the leadership of the regulator is
there also to explain the rules, to train the operators also to
correctly comply and apply with the rules.

MR. MCCABE: Thank you. Bill?

MR. BOISTURE: I think the leadership element of this is really
important, and when we have an event of unsafety, I think the leaders\'
response is extremely important, and I think the whole organization\'s
watching, and most often, our predilection is to want to know what
happened, and then the next one is, who did it, and that\'s absolutely,
in my judgment, the wrong question.

The reason I think that is until - when - we have an event of unsafety
at NetJets, I consider it my fault until I go through some fairly basic
questions. First of all, did we have standards established in that area?

If the answer is yes, I can progress to the next one. Did we train to
those standards? And three, were we actually - having set them, trained
to them - were we following them? If I get a \"no\" to any of those,
then the buck stops at me, and I think the organization has to see that
over and over again to understand that you\'re serious about it.

I understand the concern that the regulators must have when you\'ve got
a financially weakened operation that\'s trying to maintain some
momentum. Strictly, I think that\'s still a leadership responsibility.

I go back to, in a younger day, I stumbled into an investment that
Fidelity had made out of Boston in a 12-airplane airline out of Denver
that was operating 30-year-old 707s at that point. This is right after
the top came off of the 737 in Hawaii, and everybody was worried about
aging airplanes.

That\'s where the owner and the manager has to decide, you\'re either
going to do it right or you\'re not going to do it. I believe with
respect to safety, there is a point at which that has to occur,
regardless of the consequence for the shareholder, because the
consequence for the shareholder of unsafety at some point is not
something they signed up for.

MR. MCCABE: Well, how, on a day-to-day basis, with operations as
dispersed as you have, how do your people feel your personal leadership?

MR. BOISTURE: First of all, they know we\'re strongly committed fiscally
to training. We spend over 20 days a year on each one of our crew
members, so they know we\'re serious about that and it doesn't stop.

Then secondly, we have to commit the operation every day in a random
environment to being able to say no. That\'s the most powerful safety
word in our culture is the ability of the captain of - and we haven\'t
seen him for six months, and we may not have seen the airplane for three
months - me - but I\'ve got to know he\'s going to say no at the right
time.

MR. MCCABE: So there\'s a trust level?

MR. BOISTURE: Yes, there is, and he\'s got to know he\'s okay if he says
no. That\'s really - from an employment standpoint and from a
professional standpoint, he has to know he\'s okay - or she - has to
know they\'re okay when they say no.

MR. MCCABE: And do you resemble that in United today?

MR. BOISTURE: Well, I certainly hope so.  United has a great opportunity
as one of the IOSA auditing organizations, so we look at airlines
worldwide.

The one thing that we consistently see with well-running companies are
exactly what Bill was talking about, programs that are based on some
kind of continuous improvement of quality program, that goes right from
the CEO down to the very new hire employee, programs that are
continually evaluating themselves, how they\'re operating, what are
their opportunities to avoid failures or to make the operation better,
and how well it\'s communicated through the organization up and down is
absolutely critical, and we really see differences across airlines that
adopt this, and I believe that, as the FAA is moving in this direction
as a regulator, as more companies adopt continuous improvement or
ISO-9000 or 6-sigma type programs, I think this naturally rolls right
into the work that\'s going on at NetJets.

MR. MCCABE: Now, how would you package - not package that, but how would
you help people who are still growing as a new airline in a developing
world understand what that\'s all about?

MR. KRAKOWSKI: Well, there\'re a lot of models out there. In fact,
what\'s really interesting is if you were to certify as a new airline
here in the United States, that process is actually built into the
certification of a new airline.

To a degree, a new up-and-coming airline, wherever they are in the
world, has an opportunity to build their company with these very
foundational elements to that. It\'s really harder for an old company,
an old legacy company, to try to build that back in after many, many
years of siloed operations and things like that, but we\'re getting
there.

So I actually think the opportunity is golden for up-and-coming
countries, up-and-coming airlines in these new regions, to do it right
right from the beginning, and our observations are that they will have
good success if they do that.

MR. MCCABE: Do we have the mechanisms in place to help make that happen?

MR. KRAKOWSKI: Well, you have international organizations - IATA, ICAO,
our CAST organization is working across other CAST type organizations,
and initiatives across the world, COSCAP, a number of those - so
hopefully, a lot of these discussions are starting to essentially
envelop the globe, and I think the light bulb\'s starting to turn on on
a lot of areas.

MR. MCCABE: Because Gunther Matschnigg talked yesterday about IOSA as
being one of the things, at least for the airlines. On the business
aircraft side, there\'s a similar thing called ISBAO, the International
Standard for Business Aviation Organizations, and the whole idea is to
achieve some kind of a common culture.

Now, I should point out through most of the conference, in fact, we\'ve
talked about safety from the standpoint of not hurting people who are in
or flying airplanes. There\'s a similar challenge that the industry has
about the people who work in the industry.

I pointed out, according to the latest Bureau of Labor Statistics of the
United States that there\'s almost ten percent of employees in the
airlines who are not at work today because they\'re injured. They\'re
injured severe enough to where they have to take time off or go to the
hospital.

When you think about ten percent of your labor force that you\'re paying
are not there, that\'s a very serious challenge, too. So I guess my
question - and Jim, if I may ask you - is the industry or are certain
organizations - again, this is an airline thing - but can you have, on
the one hand, a really good safety culture, and then on the other hand,
on the ground, below the wing, a culture that\'s still working towards
that? Are you dyslexic?

MR. MORRIS: I think that whether it\'s the safety of your products or
the safety in the workplace, it has to be a similar message in both
places, that the safety is preeminent in the way we do business. Culture
is a funny thing. It\'s about behaviors and expectations and the way we
do business.

If you look at sort of the stages that you go through, whether it is in
workplace safety or in aviation safety, the first stage is thinking of
it as a cost of doing business. What that invites is regulation. People
have to look at you with a lot of scrutiny, because they know you\'re
only going to do the minimum that you can get away with.

But then you continue to move up, where it\'s an opportunity for an
economic benefit, where you look at safety as part of your business and
so that you can improve yourself by having a better safety culture.

Then finally, when you get to the - sort of the highest level, it\'s
completely integrated with your business, and just the way you do
business every day. Safety in the workplace, on the shop floor, in the
office, for your products, as well.

MR. MCCABE: Any observations, Hank, on that?

MR. KRAKOWSKI: No, I think that\'s exactly right. In fact, I think the
key question that you need to ask when you look at a system, is
management and the regulator, are we setting up the employee for
success? If not, it\'s your fault, basically.

MR. MCCABE: Yes.

MR. KRAKOWSKI: And what we find particularly, as we rebuild the legacy
carriers with the catharsis that\'s just going on in the industry is, we
are really asking that question a lot. A lot of that was kind of assumed
over the years because of experience and tribal knowledge and old
systems that were in place which were durable.

But as the industry is changing, if we do not pay attention to that very
fundamental question, we\'re going to start to lose the edge, and we
cannot let that happen.

MR. MCCABE: You have a total safety environment?

MR. KRAKOWSKI: Right.

MR. MCCABE: I\'d like to open it up to questions at this point. Somebody
have some views? Bill, I see way in the back - wait a minute, we have -
we\'ll go by the law of closest to the microphone to start with. Yes,
ma\'am?

PARTICIPANT: Thank you. I just wanted to add some more comments to what
my colleague had said from Uganda.

MR. MCCABE: You were very eloquent yesterday.

PARTICIPANT: Thank you. I think one of the main problems that we have is
there are some financial issues, issues with expertise and so on, but I
think mainly, it\'s just political will in our region. It\'s a problem.
I mean, it\'s very difficult.

You have a corrupt operator from somewhere. You know that this African
state doesn\'t have capacity, doesn\'t even have the established civil
regulations, doesn\'t have the required laws.  

Yet, still, you want a quick fix. You will go to the country, you\'ll
probably bribe an official, even if it\'ll add to your losses. Try the
politician, no, he is powerless. Even in some cases whereby you are
empowered by your legal act to resolve these issues, you\'re overtaken
maybe by your ministry or something.

But too bad, even if you\'re not a strong power, it is even worse. Then
you get all your paperwork and this country will end up having 40, 50
per cent, you can't give him the capacity to do the oversight. Now, this
enterprise will end up in your countries, our countries, and it will
cause a problem.

It is one of the main reasons why we have the Act.

MR. MCCABE: So five years from now, when everything is going just right,
what does that look like?

PARTICIPANT: Sorry? Could you repeat that?

MR. MCCABE: When - say five years from now - in the future - and say
every - the problems are solved, what does that look like when that\'s
happening? What is your life like at that point?

PARTICIPANT: Well, it would look good, because there are good prospects.
We have this initiative of the COSCAP, which I think is a blessing for
Africa.

MR. MCCABE: But you\'d have a closer partnership between the government
\--

PARTICIPANT: Oh, yes. Oh, yes. But the problem is that, you see, this
problem with interference from my government, and so we\'ll continue, as
long as governments refuse to give this autonomy they need to give to
the civilian authorities to do what they need.

Now, the answer, in my opinion, is that if we go in accordance with this
regional organizational concept of which some of these responsibilities
are taking away -- are taking away from civilian authorities, then that
could be a solution. For us, we certainly think that this is the future.
For aviation safety, we\'ll say in Africa, particularly in East Africa,
because then, you don\'t have the power to control the regional
organization.

I was glad to see and to hear what the experience of ACSA, what it used
to be before and what it is now. I don\'t see why it cannot work. It can
work. It\'s not sustainable for us to maintain single civilian
authorities is too expensive. It\'s very difficult \--

MR. MCCABE: That could be a model, for the international model.

PARTICIPANT: It\'s difficult for some people to say, no, I don\'t know
why. I tend to say, no, it\'s not a problem. If my minister comes to me
and tells me, you need the registration, I\'ll tell her, you know what?
Why don\'t you come access it and I will quit? You reserved my
authorization for me. What is my point? What is the reason for my
existence? And that\'s one of the - that is one of the things that we
need, strong leadership. People who can say no.

MR. MCCABE: Well, thank you very much, ma\'am.

PARTICIPANT: If you have that, then things will really change.

MR. MCCABE: Yes. Bill? In the back, right there.

MR. VOSS: Thanks. I\'m glad you liked the panel. Let me try to see if I
can give you the question I think you might have been fishing for,
because we have an interesting dichotomy here. We have the three regions
in the world, that don\'t have much of a safety issue right now.

We need to talk about the other regions of the world, where the lead
indicators are blinking red. So let me see if I can get - and I\'m not
just talking about Africa, I\'m talking about the future of the whole
world - and I\'ll try to put it in terms, because I\'m trying to bridge
two worlds here.

The fact is, the guys that are running illegal operations in the
developing world are making far more money than the U.S. carriers made
last year.

(Laughter).

MR. VOSS: Interpol would probably estimate - I don\'t know if I can find
the records, but I think it was around \$200 million last year. So it\'s
real - good ideas catch on.

So there\'s an interesting problem we have here, is we tell people how
to do this thing safe, and run an industry that will lose all the money
you can imagine. In the meantime, you\'ve got guys who are breaking all
the rules that are making \$200 million a year with 200 airplanes.

So this idea is bound to catch on and spread into other areas of the
world, just by the force of economics. So the question I really have for
you guys that I think is in your business terms, how do we make it so
that in the developing world, the good carriers make more money than the
guys that are breaking the law? Thank you.

MR. MCCABE: Patrick, would you like to ‑‑

(Laughter).

MR. MCCABE: Patrick, would you like to give your opinion on that?

MR. MORRIS: In the baseball world, that\'s called a high, hard one.
Thank you, William.

MR. GOUDOU: Well, of course, it\'s a very difficult question, because we
are not in a developing country, for sure, and we are not facing the
same problems. But we are also facing some kind of problems which are
maybe related and could be taken as example.

You know that after this series of accidents in summer, during summer,
we had a lot of citizens, customers, travelers, who refused to board
airplanes, in fact, and I\'m reflecting - it\'s not the solution, of
course, because the problem is too complex and too difficult to solve so
quickly.

But I think that in developing countries, we need certainly more
democracy and more customer pressure, demanding safety. People who say
no is also the customer. It\'s short - it\'s a short answer, but I can
offer more today.

MR. MCCABE: Thank you. Any other thoughts?

MR. GEMMELL: Well, if I could comment to me, it seems that sort of the
two ends of the spectrum are being discussed here. At the top end, when
you\'re dealing with the material, professional organizations, you work
in partnership with them, they\'re capable, you help them along the way.

But there\'s another end to the spectrum, which is those who are
unwilling to even be compliant with the minimal safety requirements.
That\'s another role for the regulator, and it\'s actually a very
difficult role for the regulator, but you\'ve just got to get in there
and you\'ve got to put them out of business. Particularly if they\'re
making money, they can\'t be allowed to continue that, because it will
just overwhelm what\'s going on in the industry.

So the regulator has to step forward and if the regulatory environment
is weak, they can get away with it; if it\'s strong, you can do
something about it, if it\'s happening and if it\'s happening in some of
these countries, I mean the key is the regulatory environment, and the
built-in panel of the authorities, to actually step in and stop it.

MR. MCCABE: Other questions? Yes, ma\'am?

INTERPRETER: Madame Anodina, Interstate Aviation Committee. She will be
using me as an interpreter, so it may take a little longer time.

The Interstate Aviation Committee was found about 15 years ago and the
main goal of the foundation was provision of their safety in the CIS
region.

And the understanding of safety was the main goal of our Interstate
Aviation Committee, and Interstate Aviation Committees, as
possibilities, are the baron thieves of the world. And if we speak in
terms of safety and cooperation with industry, here, as a main goal, as
a main thing, we can see the regulatory basis.

In this 15-year period, we have created new compliance requirements,
which are fully harmonized with American FARs and European requirements.
And for all our region, that contains 12 independent states. We have the
unified regulator basis.

And we face the problem, how to implement these unified regulations to
all 12 states, which are independent commonwealths. For this effort, we
used the support both from governments and heads of the states. We also
used, for this effort, financial and ecological resources, as well.

So to abolish those differences, which were between our requirements,
our recommendations, and ICAO relations, we follow the ICAO project to
which the Interstate Aviation Committee signed or the General Secretary
of ICAO, and for - to implement this, we use both support from Boeing
and Airbus.

We also concede the major elements to sustain safety, the cooperation
between airlines and industry, and this is legislatively reflected in
the laws and the regulations, which are applied on the territory of the
CIS countries.

We also do believe that of major importance - and this was stipulated by
the industry - that the investigations that are also responsibility of
our Interstate Aviation Committee, should be independent and this
investigation should be both independent from aviation authorities and
from the industry, but - so that this database should be transparent
and - it can be transparent and can be useful for both industry and
government authorities, and so that immediate corrective measures can be
taken, and some corrective measures should be taken by the industry, as
well.

We are also thankful to NTSB, as they provide us immediate information
concerning accidents. For example, the latest event took place in the
African continent - not Africa, in Venezuela - in Venezia and Greece. It
makes for a kind of nervous political situation.

And our government asked from the Interstate Aviation Committee so that
we make an immediate answer where a Boeing airplane can fly over our
territory, though it was quite obvious that it did not connect with our
concerns.

MR. MCCABE: Let me - in the interest of time, go ahead, just - you have
an ideal \--

MR. MCCABE: Okay.

INTERPRETER: But our responsibility was to provide this information.

MR. MCCABE: Okay. Well, you have an ideal opportunity right now. You
have two experts from around the world. Do you have questions for either
Patrick or for Bruce?

INTERPRETER: As for Patrick Goudou. I have every day - every day, I have
questions to him, and he provides answers almost every day.

(Laughter).

MR. MCCABE: Thank you.

INTERPRETER: I\'d just like - I took this just floor to express my - to
have an opportunity to express my thankfulness to those who organized
this group, organized such an interesting and fruitful meeting. But as
for the question - well, but my question is quite obvious and is simple
as this: What is the future safety model you propose?

(Laughter).

MR. MCCABE: Anybody want to take a stab at that?

MR. KRAKOWSKI: Yes. So one of the things that we are talking about in
the CAST meetings with industry, with labor, with the manufacturers, is,
when you look at the progress we\'ve made to date with CAST with all the
other initiatives, a lot of that was based on forensic looking at
accidents - deep dives into what happened in each of those accidents.

With the low accident rate that we now have before us, number one,
that\'s not going to give us the right kind of sampling, and it\'s not
the right place to go.

What I like to remind people is, when you have an accident, you get
access to all the data, cockpit voice reporter tapes, flight - air
traffic control tapes, aircraft performance, and what we need to do is,
this data does exist prior to accidents. It exists every day.

How do we, as an industry, and how do we, in cooperation with
regulators, with our labor unions, in a proactive way, use data as
precursors and leading indicators going forward so we can get to these
areas before they really cause a problem? Because waiting for an
accident to consolidate all these data sources is not the future safety
model I think anybody wants.

MR. MORRIS: If I could just add another thought to that, it is that with
the data and the data-mining techniques, that we\'ll understand what we
have to do to make improvements, but we\'ll have to change our
decision-making process.

Because today, our decisions, we have a laser-like focus on the
accident, and what it is we have to do to correct it, but when you
don\'t have an accident to force that consolidation, that consensus,
we\'ll have to figure out a new decision model.

MR. MCCABE: That\'s a good point. Nick?

MR. SABATINI: I\'d like to add to the conversation. Can you hear me
okay?

MR. MCCABE: Wait a minute

MR. SABATINI: A green light.

MR. MCCABE: The mic doesn\'t work over here. What did you do to the mic,
Nick?

(Laughter).

MR. MORRIS: It\'s a system failure.

(Laughter).

MR. SABATINI: I\'d like to add to the conversation, but I\'d like to
start with NetJets and something that Bill said and what they\'ve done
to really inject the DNA with safety culture in their organization. When
we talk about a well-established 121 operation - and I commend what is
going on in the 121 community for dispatch - there is a dual signature,
and certainly, the crews can refuse to take a flight.

That is embedded in - again, in the culture of the organization, and
required by regulation. But regulation is not sufficient. It requires a
safety culture. It\'s got to be embedded, as we\'ve been saying, in the
DNA.

There is a great difference between a 121 operation and on-demand. A
dynamic that is not experienced by a 121 crew is the dynamic between the
passenger and the crew.

Once the cockpit door is closed, they are isolated. There is no
discussion about whether we should go or not. That conversation does not
take place in 121, but it certainly takes place in on-demand. They have
addressed that in a very significant way.

Bill, I\'d like to tell this story, and I think it\'s a great story and
it is now part of the training for every single crew member who goes and
works for NetJets.

There is a story early on in their development where a gentleman who was
being transported and a fractional owner went to a location and when the
meetings were over and concluded, other friends were departing with
their airplanes, but not the NetJets airplane. This gentleman was very
irate, began to argue with the captain, and the procedure they had in
place was one where you do not engage in that conversation. You take
your cell phone, call back to dispatch, and you put the gentleman on the
line with the dispatch.

But this gentleman also said, I know Dick Santulli personally, and I
want to chat with him. What they did is they, in fact, put him in touch
with Dick Santulli, but first, the captain had an opportunity to discuss
with Dick Santulli what the issue was, and he said, this gentleman wants
to be transported and insists on it.

Dick said, well, put him on the line, and proceeded to support the
captain\'s decision that we are not going to go, because the conditions
are such that we will not operate under those conditions and, in fact,
on Monday, you will have a return of your share of the fractional
ownership.

Now, that is a very, very powerful message and when we talk about
leadership, that is what is embedded in that organization and they have
really addressed, in a very powerful way - and that lesson, that
scenario just played out for you is, in fact, taught at every ground
school for their crew members. They are empowered to say no, not only to
say no, but also to have a procedure behind them that supports that.

We\'ve talked about a safety culture, and the FAA, we are a community.
It\'s industry and government together to reach the highest levels of
safety. We\'ve talked about system safety cultures, etc. We are part of
that equation and as such, I\'m not exempt from probably being a cause
to an accident in a very small way. That probability exists in the
safety equation.

So we - I think it\'s critical for government to be introspective and
ask the question, can we stand the same test that we are applying in
system safety requirements for this industry? And we apply that question
to ourselves, and we are putting ourselves through an ISO-9001 process
such that by August of \'06, the FAA, the aviation safety organization,
will have a single ISO-9001 certification.

My point is this. We\'re in this together. It\'s not we and them, it\'s
us, it\'s working together. Hank, you did a great - gave a great example
\-- of how we work together, in terms of joint audits, etc.,
collaboration, working together.  That is the future.

The future safety model as described in the end - in the JPDO - is one
where we are moving from forensics to prognostics, and we\'ve put
mechanisms and the right people in place to be sure that we are
continuing to be responsive to that future model. When we share data, we
work together.

MR. MCCABE: I think the very fact that you have us all in this room
right now is a great example of that, and I applaud you.

At this point, unless there\'s another question out there, what I would
like to do is have us just start, Bill, if you would, kind of take what
you\'ve heard and try to postulate your kind of feelings, from a future
standpoint, on what NetJets might be doing three or four or five years
from now, from a safety standpoint.

Is it building? Because we heard yesterday, stop developing and just
implement. Are we at that point? Are there things to learn?

MR. BOISTURE: Well, I think one of the major things we\'ve got to figure
out is how to operate in the air traffic control system five years from
now, and if we keep doing it the same way we\'re doing it right now, it
won\'t work five years from now.

So I don\'t think it\'s implementation time, I think it\'s - yes, we do
have to implement every day rigorously, but I think forward-looking, we
have to view the whole environment, the ground environment and the air
environment, and then put the right aviation solution in that, but I
don\'t think it\'s going to be the same one it is today.

I think that will start, frankly - and Nick brought up an interesting
thing - one of our key responses to this future we see is to educate our
owners on how to use the system, because the system is set up to do some
things and some things, it\'s not set up to do.

Nick brought up the point, we have the privilege, with no cabin doors in
business aviation, of hauling the wealthiest people in the world.
That\'s basically what we do.

So we get a lot of guidance if we listen, and so it\'s our
responsibility, as their transportation service company, to educate them
on how to use the transportation system. We\'re doing that more and more
proactively now, because the system is not necessarily on-demand.

It has to be use with care and respect, and I see that as one of our
major challenges.

MR. MCCABE: How about from an airspace standpoint, something like
pilot-shared separation, things like that? Do you see more of a
collaborative environment, where with all - with where we\'re going
right now, with technology, with air traffic management \--

MR. BOISTURE: It has to be. I think an operation like ours has to look
definitely at being a good citizen in our environment. We have to go
where the pressure\'s not. We have the flexibility to do that, in a way,
whereas the scheduled freight and airline carriers have to go where they
have to go.

We\'ve got some possibilities, and I think working creatively, using the
flexibility we have could take pressure off the system. Do it at the
right times of day. Try to, at the reservations point, ascertain if
it\'s really important to go Tuesday at noon, or could we do it
Wednesday at 3:00?

MR. MCCABE: Right.

MR. BOISTURE: We have some of that flexibility. So that\'s how we\'re
choosing to interact with the future system.

MR. MCCABE: Patrick, as the Executive Director of EASA, what do you see
for EASA in the years ahead?

MR. GOUDOU: Well, I think that we have put in place, or will put in
place soon, very good regulations regarding safety in Europe. We have
put it in place for everything else and we hope to have the future
amendment for Ops and so on very soon.

The major concern may be for us because you know that in the European
system, there are, in fact, two pillars, and the implementation of a new
law is made partly by the agency itself, centralized in Cologne, but
also, partly by the member states.

We have to be sure that this brand-new system verified standards for
safety are correctly implemented everywhere, so we need to have a strong
system of inspections and standardization all over Europe for this, and
this is certainly the main task for the future.

MR. MCCABE: Thank you, sir.

MR. GOUDOU: Thank you.

MR. KRAKOWSKI: If I were to make one comment, particularly to some of
the countries who may be struggling with safety, the programs that I
talked about, the FOQUA programs, the ASAP programs, all of these
programs, it took years - 15, 20 years - to develop, and they were
developed on trust. At some point, unions, labor, management,
regulators, have to start trusting each other or these programs will
fail.

You have to figure out how to work together, figure out how to not harm
each other, how to protect each other\'s interests, but do the right
thing. If you don\'t start with that premise, none of these programs,
which have been so effective for countries like the United States - will
not work.

MR. MCCABE: Good point. Jim?

MR. MORRIS: As we continue to work to improve our competitiveness in the
worldwide environment, continue to look to improve our productivity and
our quality and our products and services, and as a result of that,
we\'re going to have to have more collaboration in everything we do.

Part of our leadership for safety is to make that collaboration, safety
the first word that we mention, with the idea that Boeing has a long
history of having safety in the DNA, and what we want to do is for the
whole enterprise to have that same DNA.

MR. MCCABE: Bruce?

MR. GEMMELL: Well, I think the major change facing us -- I don't know
what we will have done in five years\' time -- but for the Asia Pacific
region is more regional cooperation. We are a bunch of nations down
there, doing our own thing. Even countries as close as Australia and New
Zealand have set regulatory authorities, separate regulatory regimes.

It just - the global aviation market, I think, is just simply driving
the fact that that won\'t last and you\'ll have to move towards regional
cooperation, mutual recognition, harmonization, whatever it is that
comes through, and that just stares me in the face as one of the
inevitables that\'s coming for the Asia Pacific region, at least.

The other part I\'d actually like to see, and I don\'t know whether it
will happen, would be, in fact, that amongst professionals, we actually
stop talking about safety and what we actually talk about is management
of risk.

I say that not from some philosophical point of view, but from a very
practical point of view, that I\'ve actually had conversations with the
press and with politicians and so on that were extremely difficult to
have, when you talk of safety, because they talk to you as, safe or
unsafe.

It\'s actually possible to have a sensible conversation when you talk to
the management of risk and how is risk management in this organization,
because I want a conversation turn from sort of silly to defensible, and
I think that would be a great improvement amongst the community.

MR. MCCABE: Thank you. One of the aspects of the Dupont safety culture
that is absolutely a critical part of this operating discipline is the
sense of interdependence. We\'re all in this together. We\'re our
brother\'s and sister\'s keeper, and we have to look out for each other
all the time.

I think what you\'ve heard today is a way that we\'re taking Marion\'s
broken windows and we\'re addressing the need to work across the globe,
from regulators to manufacturers, to operators, commercial business jet,
general aviation, the new challenge we\'re going to have with very light
jets, this all has to be something where we are comfortable enough to
work together.

Political will is a big part of that. Political will exists in
commercial companies as well as it does within countries. I think what
you heard this morning is a number of viewpoints from around the world
and disparate elements addressing that subject. I would like to thank
the panel for what you\'ve done.

(Applause).

ADMINISTRATOR BLAKEY: I\'ll ask our panelists to just remain where they
are for a few minutes, because what I have to say here at this point is
very short, but I want to certainly start by thanking this absolutely
terrific panel for the kinds of insights you\'ve given us for the
future.

Bill, wonderful job bringing it all together, and I\'m very grateful to
each of you for this. I have the unenviable task of trying to bring
together at the very end of this a bit of a synthesis of what we\'ve
heard for the last two days.

It would be an enormous challenge under any circumstances, but when I
think about the fact that we\'ve had 450 people engaging in debate,
discussion, and dialogue together, 45 different countries, a lot of
headsets being worn, so you can really tell that the international
dialogue is going on. People are truly paying attention.

It\'s very striking when you realize that the language that we\'re
really all engaged in, it\'s the international language of - I would
have said safety, but I might change that now to risk management,
because I think the very good point that actually, the management of
risk is a lot of what this is about.

Yesterday, terrific, with Minister Yang, the BASA signing, something
very concrete and tangible. Hearing about China\'s terrific growth in
terms of traffic, the plans that Minister Yang and the CAC have on deck
to really manage risk there, take a systems approach, develop the kind
of safety culture that will be imported into the second largest market
in the world very soon.

The perception and reality discussion - I see Don Phillips back there -
you all did a wonderful job of being provocative. I have to say, there
was a lot of pent-up feeling in the room on that topic, a lot of
left-brain people, and I do think, in a sense, that yes, we are victims
of our own success.

But I don\'t know how many of you all are going to be checking in with
the pilot on your way home and tapping on the door and asking whether or
not he\'s had a good night\'s sleep, etc. I thought that was an
interesting part of that discussion, as well as the new definition for
RVSM.

(Laughter).

ADMINISTRATOR BLAKEY: But I got to thinking about it last night and when
we were talking about the miracle of flight, from the standpoint of the
press and the public, we all know it\'s not a miracle at all. Safe
flight is a lot of hard and coordinated work among all of us.

I thought it was wonderful to hear the discussion about how we need to
convey that to the public, how we need to work with our reporters and
those who\'ve got to tell that story and, yes, use your acronyms. We\'ll
have to figure out something other than RVSM.

Dr. Cherif did a wonderful job yesterday at our luncheon. It was
terrific. When I thought about the upcoming conference that is going to
be held this spring in Montreal with all the DGs, what a great
opportunity to make some concrete progress together.

So I was delighted about that announcement, plus the fact that I thought
he had a wonderful concept for all of us, to think in terms of, by using
Buckminster Fuller's Spaceship Earth, with the idea that we\'re all
members of the same crew.

I think at the same time, it\'s probably worth saying, we could all use
a little more training in cockpit resource management as the crew, so
we\'ll have to work on that a bit, but that\'s part of what this
conference is all about, and having Argentina move into Category 1,
again, concrete progress.

The panel yesterday afternoon, on the seamless safety and how do we
approach that, Charles Schlumberger did a wonderful job, not only
conveying energy from the standpoint of a banker, but a
pilot.  Tremendous enthusiasm for how really can look at risk from a
standpoint of concrete ways, such as going to the insurance market and
having them remind us what risk is all about.

Northwest\'s Ken Hylander brought the operator\'s perspective to that
panel, and rightfully reminded us that the airlines are really the ones
that are responsible, the operators, day in and day out. For that front
line, they have to be a very strong part of this partnership.

The panel that - and, of course, you all heard enough of the discussion,
in terms of the kinds of challenges we are facing in certain parts of
the world, and the discussion, I thought particularly among some of
those who are here from Latin America, as well as from Africa, was
tremendously helpful in that panel.

The panel on the future of air traffic management, benefits of RNP
won\'t be fully realized until we are moving away from the ground-based
system that many of us have to own and operate today.

Charlie Keegan, who has challenged us to say, we\'ve got a lot of ideas
out there for help, but what does help really look like? We need
innovation as much as possible, not just on the issue of, what does the
system look like? Because, again, it was rightful pointed out today that
we know most of the technologies.

This is not a huge R&D effort, it\'s a question on innovation on how we
collaborate, move forward together, and pay for it, innovation on cash
flow, and the solutions need to be global. Particularly, when we\'re
hearing from some of the pilots in the audience, Karen and others saying
they weren\'t sure they were ready for unpiloted aircraft, where the
crew is all on the ground with these UAVs.

A lot of spirit in that. Certainly, the panel on space was terrific.
When you look at things really out in the future, how do you begin to
talk about passenger safety when you\'re going into space. What level of
risk are you really willing to tolerate there?

Elon Musk, when he says he wants to get an interplanetary Southwest
Airlines, the low-cost space travel. I tell you, it\'s a pretty exciting
prospect, but in the meantime, many of us in this room are going to have
to deal with the interaction between those spaceships and the airspace
as we know it and our more routine operations, and we\'re going to also
have to deal with risk in terms of not just those who are really willing
to push the envelope and go into space, where we must acknowledge, the
risk factor\'s greater, but also, of course, guaranteeing the safety of
those on the ground. So it was a great panel.

This morning, as we\'re talking about evolving aviation business models,
I have to admit, it\'s a little discouraging. You kind of slump over
when you hear the statistics about the financial challenges we have in
the United States.

Big difference in the U.S. and the rest of the world when it comes to
that, and we acknowledge, we\'ve got trouble with our business model. I
think that came through loud and clear. Even though cargo is thriving
and healthy, it was pointed out that virtually all of the U.S. carriers
right now, on an operating basis, are losing money, so we\'re going to
have to do something about this public utility, operating on a commodity
basis, as one of our panelists put it.

Problems of government restrictions on mergers and acquisitions,
ownership, all those issues were brought up, but I have to admit, I
thought it was fascinating, when you hear people say, look, the future
is likely to be three to four global network carriers, with niche
players filling in the gaps. That\'s what they see coming at us, and
what they said makes a lot of sense.

Good news on safety, too, coming from that panel, pointing out that the
economics of a downturn force a higher attention to safety. It is
imperative, from the standpoint of being able to sustain business in
tough times.

Then, of course, this panel. You all just heard so many important
insights from this group, but I have to admit, I was very, very happy to
hear that after talking about taking the short victory lap, everybody
focused on where we\'re going to be in the future, from a safety
standpoint.

The importance of collaboration between the industry and the regulator,
collectively setting the standards, as Bill said, so you have skin in
the game right from the beginning. It\'s a joint partnership to get
those standards in place.

I like very much that Patrick pointed out that industry is often the
best place, not only to find the advances, but also to find what those
standards should be, and that\'s why, as regulators, it\'s incredibly
important to have that robust collaboration.

The challenge is, we talked about developing parts of the world and what
we need to do from the standpoint of developing more regional
mechanisms. Yes, that\'s the future. That\'s one of the best ways we
know to develop not only that broad umbrella, but the kind of leadership
and the ability to say no.

I like very much that there was such an emphasis on leadership on this
panel because if, in fact, as we know, safety should be embedded in all
of our DNA, it\'s going to require the kind of continuous improvement
that at the FAA, we\'re working so hard for with the ISO-9000 process,
and so many up here are stressing the need for that.

Safety is embedded in the DNA here, and I think it\'s critically
important to recognize that we\'re all in it together.

So I\'d just like to close by thanking Nick Sabatini and his whole team
for putting together the two-day agenda that we\'ve had and the
wonderful level of discussion that was involved.

We\'ve had wonderful support. I have to single out a couple of people
who have worked so hard for so long for this. Virginia Krohn, Cecilia
Capistrani, Joe, the international team, with Cecilia Deramo, did a
wonderful job.

I would be taking too much time if I went around the room to thank so
many people, including our sponsors, and those who contributed
financially to help.

But I simply want to go back to the challenge, because I think the
challenge to us all is to return to looking at those broken windows a we
leave here, looking today at where those very small things are that we
know that we need to address.

I think that one of the great things about it is, I believe we\'re going
to be able to look with a great deal more insight, because we have the
benefit of the insights and the mutual support that comes from everyone
here being willing to come and pitch in together.

So the thanks goes to all of the individuals here in this room, for the
kind of evident commitment and support. Thank you all for being here.

(Applause).

ADMINISTRATOR BLAKEY: A tiny bit of administration right here at the
end. As you all know, we do have a buffet lunch that people certainly, I
hope, will take advantage of. We\'ve also got two demonstrations set up.
The joint program and development office has a demonstration of what the
future, from that standpoint, is all about, as we foresee it, and we
also have CAMI, a medical group, and all of the research that they are
doing out from Oklahoma city.

Both of them are available for all of you who\'d like to go by and take
a look at what\'s going on from that vantage point, as well.

Thank you all very much, We\'ll hope to see you next year.

(Applause).

(Whereupon, the above-entitled matter was concluded and went off the
record at 12:25 p.m.)