Monday Insight – April 10, 2023

The System & Aviation – Political Go Along To Get Along.
It Was A Lot More Ugly In The Past.

Just thinkin’

In light of the political involvement and sometimes rancorous discord regarding the Phil Washington nomination, maybe a quick look back can put things in perspective.

In this matter, there were strong opinions. In the past, sometimes the then-regulated airline industry would get tossed into the nasty maw of real political extortion. Thought it might be instructive to look at one such event.

To start, aviation is an industry that is completely subject to regulation.

Regulation means the humans running aviation-related businesses need to be cognizant of the wishes and demands of those in control of oversite and in administering regulations. In the real world, these considerations are often based on the need to get along with politically involved oversight.

This part of the equation is still reality. As long as it doesn’t get anybody tossed into the Big House, the process is one of collaboration with political realities.

Today, it may not be outright extortion, but it does mean that aviation entities must recognize political realities. Nevertheless, what goes on today isn’t corrupt, but it ain’t like a sequel to Mr. Smith Goes To Washington, either. (Google it, if you must.) It’s more a case of Say It Ain’t So, Joe. (And Google that, if you must.) It is rough-and-tumble.

It’s not necessarily a system based on pristine motives and righteous intents. To some degree or another, the ugly bacteria of political self-interest is involved.

It sounds somewhat cynical, but we all know how the system works. There are special interests, and most are honorable. But when it comes to powerful deals, well, let’s not be naive. Arm-twisting is sometimes in play. In the past, however, breaking an economic kneecap or two was probably a potential.

This Is Nothing New. It’s part of what any government system inherently represents. Been that way for thousands of years. Probably, the Dead Sea Scrolls will eventually reveal that the Pharaoh’s brother-in-law got the pay phone concession at the Pyramids on a rigged no-bid deal.

Or something like that.

So let’s recount how it used to be, sometimes. The FAA administrator situation was actually one that represents open discussion, instead of backroom political deals. It was clean.

Aviation Is Historically Vulnerable. The process wasn’t always clean. In ancient times, say, back in the 1960s, there was a situation where a high-level operative of the Nixon campaign casually and quietly approached airline leaders. He supposedly made clear that there would be a lot of exciting new international route authorities under consideration, and all had to be approved and signed by the president. Being a supporter of the president was, well, a nice thing when these decisions were made.

Now, as the discussions apparently outlined, wouldn’t it be expedient to show the airline’s support for the president with a contribution, albeit through channels that might be outside of the realm of the law?  Translation: contribute or your CAB proposal for that Tokyo route will end up in a landfill. Guaranteed.

It’s all  pretty fuzzy in regard to exact details. Close to half a century ago, and most of the players are long gone. We don’t know how many airlines were approached, nor how many saw the wisdom of the suggestion. But from subsequent events, it appeared that both American and Braniff might have gone along with the program. It was the equivalent of political extortion.

All was fine. Money was probably channeled, based on what we know now.

But then a few years later things stared to unravel. The Israeli Air Force bombed Beirut. (Stay with me on this one.)

A couple of Convair 990s were blown to bits. Convair 990s that were previously owned by American. Convair 990s, where the insurance follow-up illuminated strange financial ties that seemed to indicate that some long green got funneled back, like, maybe to the Nixon campaign. Not sure.

Braniff, which back then was one of the most internationally savvy airlines, was also accused of moving money in the direction of Nixon. But Braniff was far more sophisticated than American. The dough theoretically was moved in and out and back again within currencies and accounting of countries where Braniff operated in South America. Real complicated stuff. Maybe moving through Argentine pesos, to Paraguayan guaraní, to ticket sales in Panama, to complex refunds in Peru, maybe miscellaneous charge orders (MCOs) based non-passenger revenues in Columbia, and all sorts of other mechanisms.  Maybe.

When interrogated by the feds, the Braniff financial folks were highly cooperative, volunteering a tour through the byzantine world of airline revenue accounting. How the process of ticket revenues involved things like paid-less-used, population-minus-sample, projected exchange rates, maybe presentations regarding how international ticketing was affected by the Maui Fence and the global fare break point at Denpasar. Then there was the computation of unearned revenue, complying with CAB-standard 2160-01 requirements, establishment of quarterly trial balances adjusting prior estimates, and all sorts of other parochial stuff.

What exactly went down is not clear, but it was likely close to this. Data softballs in all directions.

If they had presented this in fluent Northern Swahili it might have made as much sense to the investigators. The congressional investigators were left clueless. And very frustrated. A comment made to one BN executive: “We know you did it. We just can prove it!”

The feds knew this type of situation quite well, as it was intellectually consistent with a lot of their own activities.

In the end, no convictions. No admitting guilt. Nevertheless, both American and Braniff agreed to take necessary actions to make sure that any untoward financial shenanigans in the future would never take place. No admission of guilt. Just good intentions to cooperate with the feds.

Braniff agreed that it would never – never – provide anyone free things, even down to upgrades to customers without payment, which could represent bribery. (‘Course, any gate agent in Lubbock knew how to get around this stuff, to take care of prime customers.)

American did the same type of changes, among which were assurances that all passenger refunds would be absolutely in compliance with tariff rules, and any that were outside of these would need executive approval and sign-off. So, naturally, AA assigned that function to a first-level supervisor in the depths of the refund department, who every morning spent ten minutes drinking coffee and initialing a few dozen such documents, and then went on with his day.

The point here was that the administration was extorting political contributions. And like the small bar owner in Queens getting squeezed for a twenty every week by guys in dark shirts and white ties, trying to report the situation wouldn’t have seen the light of day. It was “the system.”

These types of political interventions in airline operations may or may not have been widespread. They don’t exist today.

But in the context of this past, the recent brouhaha regarding the FAA administrator was open, free and above-board. The facts were on the table. The facts were discussed.

Regardless of what stand on my have in the matter, the system worked.