Opinion ID: 781005
Heading Depth: 3
Heading Rank: 2

Heading: Outsourcing of Aircraft Maintenance & Related Operational Problems

Text: 10 On January 1, 1994, Defendant William A. Franke became Chief Executive Officer (CEO) of America West. Plaintiffs allege that aircraft maintenance deteriorated dramatically during his term as CEO and later as President of the company. Plaintiffs assert that Franke instituted a policy known as don't gold plate the plane (i.e., maintenance workers should only do the minimum) and discontinued open-door and self-disclosure practices with the Federal Aviation Administration (FAA). 11 In December 1995, America West fired 375 aircraft mechanics, half of the maintenance work force, and out-sourced its maintenance to Tramco. In an internal email dated June 22, 1998, an FAA officer described the maintenance saga that began in December 1995. The FAA officer stated that Tramco was not properly doing maintenance and that the FAA was fighting an ongoing battle to educate [the] upper management of America West that it was, in fact, responsible for oversight. The FAA began an aggressive enforcement program, which included inspections, warning letters, and meetings. Some of these efforts included: 12 &#x2022;A December 27, 1995 letter from the FAA to America West stating that Tramco was not in compliance with the Maintenance Policies and Procedures Manual; 13 &#x2022;A series of incident reports regarding use of improper lubricant, failure to complete all maintenance check requirements, and operation of aircraft without installation of needed equipment such as hydraulic system pressure lights; 14 &#x2022;A February 20, 1996 meeting between Thomas Derieg, America West's Senior Vice President of Operations, and the FAA to discuss concerns regarding Tramco; 15 &#x2022;Subsequent meetings between America West, Tramco, and the FAA regarding Tramco's failure to follow proper procedures; 16 &#x2022;A July 18, 1996 FAA report, in which the FAA discussed the results of its in-depth main base inspection of America West and cited faulty procedures and multiple violations; and 17 &#x2022;A December 10, 1996 FAA letter to Aramini, Senior Vice President of Operations of America West, stating that Senior Management of America West must understand and take seriously their complete and total responsibility for the administration, oversight, and control of their continuous airworthiness maintenance program. 18 Throughout 1997, the FAA continued to conduct inspections, find violations, and issue warnings to America West regarding its maintenance operations. In a meeting with America West, the FAA described these maintenance issues as a systematic problem. America West's incident rate 5 was above average for the industry in the second and third quarters of 1997. By the fourth quarter of 1997, the number of Service Difficulty Reports (SDRs) 6 had increased from 50 to 80 per quarter, in contrast to other major carriers' average of 40 SDRs per quarter. 19 America West's maintenance issues led to operational problems, including canceled or delayed flights and slower maintenance cycles, and resulted in sub-level performance compared to the S & P index of other airline stocks. For example, America West suffered a third-quarter loss of $45.7 million in 1996. During this quarter, the company's stock fell to $11-1/4, half the previous value of the shares. By October 1997, the stock was trading at about $14 to $15 per share. 20 Throughout this period, America West assured investors that the maintenance issues were being addressed. In its 1996 Annual Report, the company reported that it had improved its operational reliability by establishing two new overnight maintenance facilities operations, hiring approximately 60 new mechanics and acquiring an additional spare aircraft, as well as committing additional funds for parts. In June 1997, Goodmanson, then President and CEO of America West, assured investors that the company had explored in great detail what went well and what went wrong, and we have fixes in place.