Airplane Maintenance is Offshored

Where are most airplanes fixed? In foreign countries where the price of skilled labor is lower than in the United States.

US Airways and Southwest fly planes to a maintenance facility in El Salvador. Delta sends planes to Mexico. United uses a shop in China. American still does much of its most intensive maintenance in-house in the U.S., but that is likely to change in the aftermath of the company’s merger with US Airways.

Vanity Fair had a piece on this “Disturbing Truth” a few years ago. The VF piece presents a few anecdotes of safety violations at foreign maintenance facilities to stoke up fear. Naturally, no comparison to safety violations at US maintenance facilities is given. More serious data doesn’t bear out the worries of Vanity Fair. Worldwide airline safety is at an all time-high. Consider this amusing bit:

Even engine repairs and overhaul—the highly skilled aircraft-maintenance work that has remained largely in the U.S. and Europe—may follow heavy maintenance to the developing world. Emirates, the airline owned by the Gulf states, is constructing a $120 million state-of-the-art engine-repair-and-overhaul facility in Dubai.

Amusing because the world’s safest airline according to the German JACDEC (Jet Airliner Crash Data Evaluation Centre) is Emirates based in Dubai. Etihad the UAE’s second largest airline follows up closely. Chinese and South American airlines such as Sichuan Air score above most US airlines and Avianca, the El Salvador-Columbia airline, also scores highly. Of course, crashes are so rare that none of these rankings should be taken very seriously except in the sense that all of these airlines are very safe. Thus, I don’t worry much about where maintenance occurs. Indeed, if maintenance can be done for less we ought to buy more, so less expensive can mean safer.

Rather than fearing the offshoring of airplane maintenance we ought to ask how we can expand the concept. Medical tourism, for example, is growing. If foreign airplane maintenance is good enough for Delta then foreign human maintenance is good enough for me. Why don’t more US health insurance companies pay for medical procedures performed abroad? If a major medical insurer started to test and rate foreign providers and count some of them as in-service this could great alleviate fear increasing demand, lower costs, and put price pressure on US providers. Of course, we could also let in more foreign trained physicians and airplane mechanics.

Hat tip: Connor.

Comments

"Of course, we could also let in more foreign trained physicians and airplane mechanics."

I'm guessing those fella's in ICE custody ain't all foreign trained doctors and aircraft mechanics, though.

Quickly; let's conflate limited high skill and massive low skill immigration again! That will put those nationalist rubes in a quandary!

Usually, the people who want less low-skilled immigration also want less high-skilled immigration, and vice versa.

Let them repair the airplanes in third world countries but require that they post a warning on all tickets and beside every seat that the plane was repaired and maintained by third world mechanics.

I also think that when services are offshored taking away American jobs that a tax/penalty should be assessed to compensate for the economic impact to this country. 50% of the value of the service would seem fair.

What, exactly, is an "American job"?

Well, first I don't think this is true. But even if it were, I don't care of what other people think. It is obvious to me that immigration of high skilled works is a benefit to the country so we should favor that. Also, the main issue here is (at least for me) whether we have people cheating the system or not. We should strive to follow the law, and when needed, change the law. To defend selective anarchy is insane.

So which side in the culture war is afraid of foreign labor today? It's hard to keep track.

It's possible that this is a con by VF to trick conservatives into arguing for the benefits of foreign labor. More likely is that VF doesn't care about foreign labor except when it impacts a good they consume.

It's remarkable how "efficient" it is to offshore every job except the c suite. Who's making that decision again?

> It's remarkable how "efficient" it is to offshore every job except the c suite.

Senior management isn't measured by its productivity, but rather for its "effectiveness". That's why it is so full of deadweight.

> It's remarkable how "efficient" it is to offshore every job except the c suite.

Academic tenure is - of course - works against productivity just like occupational licensing and restrictions on foreign labor.

Tenure should be gutted, so that this privileged class (who are funded by taxpayers) can instead have the benefit of participation in the capitalist labor market.

So you just admitted that high skill immigrants are locked up by ICE. Do you have a point or do you enjoy acting like a damn fool?

I think the number of high-skill immigrants actually locked up by ICE could almost be counted on one hand... doctors and airframe engineers are not sneaking across the border to mow lawns.

'let's conflate limited high skill and massive low skill immigration again'

Well, Brexit will likely provide a natural experiment involving both high and low skill emigration, at least the way things are currently going. A significant and seemingly growing number of EU doctors and fruit pickers do not want to continue living/working in the UK, so all will be able to see what happens when concerns about immigration result in effective measures being implemented that then cause significant to large scale emigration. (British citizens returning to the UK from the EU would not be immigrants, regardless of age or skills.)

And you can enjoy your expanded budget contributions after we're gone, Prior.

Oh, absolutely, it will be a disaster. If it wasn't for the UK, the EU would have collapsed decades ago, right? After all, look at how the EU is falling apart in response to Brexit already, But as a dedicated believer in the value of Brexit, those expanded budget contributions will be cheap at the price of getting the City out of EU politics (though I expect that group of people to do their very best to undo Brexit in their own financial interest).

And you will undoubtedly be enjoying that bonus 350 million pounds a week for the NHS in return. Oops, maybe not - 'Theresa May has finally admitted the £350 million a week the Leave campaign promised would be saved by leaving the EU will not go to NHS.

She suggested the extra money going to the health service - a pledge plastered on the side of the Leave campaign’s big red battle bus - wasn’t really what people voted for.' https://www.mirror.co.uk/news/politics/theresa-admits-350-million-pledged-10124021

No, I think destroying the EU is a job for you Germans. You are making an excellent go of it. Keep it up! Perhaps some more budget discipline for southern Europe, or another ethics lecture for Italy would help?

In the meantime...enjoy finding that £10Bn. :-)

Sadly, most state regulations on the health insurance (particularly limits on incentives for choosing lower cost providers and definitions of access) don't allow for more innovative uses of medical tourism.

"Indeed, if maintenance can be done for less we ought to buy more, so less expensive can mean safer."

I would think that airplane maintenance is an area where the returns to quality are far greater than quantity.

Excellent comment. The quoted sentence is surely up there with the dumbest sentences written this year.

Usually and unless it’s on patents, if AT is the author, I skip it. Of course that means I miss nuggets of wisdom like the sentence quoted.

In fact, the opposite is true. More maintenance will make you less safe. See: https://blog.aopa.org/aopa/2014/01/14/the-waddington-effect/

A circumstance that contributes to the issue is found here.

The link doesn't seem to be working, but I am curious. Personally, I find it amusing that Dr. Tabarrok would jump to the conclusion that a shortage of mechanics is a relevant factor. Sure, there is a retirement wave affecting the industry, but job growth is projected to be average and there would appear to be an ample pool of candidates for training programs given the numbers of young men outside the labor force that we are so often asked to decry. Given that the FAA certifies aircraft maintenance technician programs, one might consider whether other nations have a comparative advantage in regulatory regimes. But of course, Dr. Tabarrok, as he often brags, has proven beyond all doubt that federal regulations are wholly munificent and have no impact on the economy whatsoever. Whatever.

via Tyler, not one week ago:
https://marginalrevolution.com/marginalrevolution/2018/08/dan-wang-technology-grows-2.html

https://danwang.co/how-technology-grows/

"When firms and factories go away, the accumulated process knowledge disappears as well. Industrial experience, scaling expertise, and all the things that come with learning-by-doing will decay. I visited Germany earlier this year to talk to people in industry. One point Germans kept bringing up was that the US has de-industrialized itself and scattered its production networks. While Germany responded to globalization by moving up the value chain, the US manufacturing base mostly responded by abandoning production."

---

So yes Alex, let's outsource all of our accumulated knowledge and expertise. Good for "business," and backed by Republican and Democratic party policies for decades, but as Trump has perceived, bad for America. If you expect that there will never be another war, perhaps this is a good policy. But that seems rather naive. As we deindustrialize and growth slows (pretty much describes the last 40 years according to TGS, yes?), the US becomes less and less able to maintain the peace. When war comes we will pay dearly for this loss of knowledge and expertise and pure physical capacity.

Even Tyler expects war:
https://marginalrevolution.com/marginalrevolution/2012/04/exponential-economist-meets-physicist.html
"...I expect war to intervene at some point to break the exponential growth."

Careful - that Wang post apparently contains information which only a select few should read, apparently. Quoting from it can lead to a disappearing trick being performed.

Apparently, apparently is apparently easily repeated

It's the sharpest tool in the passive-aggressive troll toolbox, sometimes you get carried away.

Yes, along with "oddly," "strangely," "though," and "admittedly," all favorites of Prior.

You left out seemingly and well, and that old stalwart putatively.

Oddly, he did indeed leave those out apparently.

The Wang post somehow seemed to me to propose the idea that 'everything' should be done everywhere, so that everybody knows everything. Somehow this doesn't sound quite reasonable...

So what non-insane things can be done to preserve this well of technical knowledge in the US? It's next-to-trivial to fly a plane overseas so distance is irrelevant.

Are there domestic regulations that should be relaxed? I can't fully process the answer to this without knowing how well domestic regulations are enforced when the work is done overseas.

Firms could advertise that they use only domestic labor, but people will pick the other airline if it is $3 cheaper.

What I've got left is government subsidy of the local repair facilities.

Have you bought an airline ticket lately? There's a ton of fees some of which require a law degree to decipher. Do you then want to add even more fees for "process knowledge" when you know most of the cash will go to the CEO? I know its difficult for some people but try to think critically before you open your mouth, Brian.

Yeah, you're right. We should just outsource everything until we are a country of financial services, IT services and, ahem, consumer services. That way, when Russia and China seek to expand their spheres of influence, we won't be able to lift a finger. But at least we'll have supported "free trade" and will have kept airline ticket prices down - phew!

"Thus, I don’t worry much about where maintenance occurs. Indeed, if maintenance can be done for less we ought to buy more, so less expensive can mean safer."

Not so fast with the assumption that buying more maintenance is safer.
I used to work with Tom Matteson one of the United Airlines creators of Reliability Centered Maintenance in the 1970s. RCM showed that a lot of the age/usage based preventive maintenance that was being done by airlines actually DECREASED reliability. It actually takes a lot of disciplined analysis to identify and only implement maintenance tasks that actually increase vs decrease reliability. When I knew him in the early/mid 1980s, Tom was working with the Navy to extend RCM to ship maintenance.

Reliability Centered Maintenance is a concept that largely escapes or is ignored by Americans regarding health care.

Think of the money Medicare could save.

Would it be worth the increased administrative costs and increased fraud? Probably, but don't forget to factor those into the equation. Texas and Florida have long had a reputation for high incidence of Medicare fraud.

Dean Baker and Hye Jin Rho at CEPR proposed turning Medicare and Medicaid into a voucher-like system where recipients can "buy into" the health care systems of other countries, and split the cost savings with the U.S. Government. http://cepr.net/documents/publications/free-trade-hc-2009-09.pdf
I think it's worth considering, though take-up would probably be quite limited given that people would have to move to another country..

However, consider the same proposal for single services such as heart bypass, which average about $75,000 in the U.S., but only $16,000 in the Netherlands. I think many people would consider getting their surgery done abroad if they could pocket $25,000 after travel expenses..

Maybe the US could set laws where Medical tourism paid for by Medicare and Medicaid would only be for countries that scored above a certain score on indices of transparency and corruption? There might be substantial cost savings in sending people to places like Japan, South Korea, or Scandinavia, and the administrative headaches might be greatly reduced by a nation's general culture of honesty in business dealings.

Sure. Baker and Rho propose vouchers for the 26 countries with higher life expectancy than the U.S. (and I believe populations greater than 1M), which includes countries with mediocre Corruption Perception scores like Cuba (47), Italy (47), and Greece (44). If the concern is that it's either hard to negotiate agreements with these countries, that patients would be taken advantage of, or some other administrative headache, one could only pursue these agreements with countries above a certain corruption score, but note that South Korea is pretty close to Italy and Cuba in terms of CPI score (53).

I didn't know that about South Korea. I was just trying to throw in some countries outside of Northern Europe that seemed like they shouldn't be very corrupt.

I assume that the recent spate of maintenance issues with Southwest Airlines and Jet Blue (window and engine failures) has nothing to do with where the maintenance is performed. The airport in my sunbelt city once had two very large maintenance facilities that employed highly skilled and paid worker, but are now closed. My sunbelt city once dominated backroom operations for large financial firms, with impressive large campuses built around the city. They are no more, after the backroom operations were shifted to places with lower costs and the once-impressive campuses converted to other uses, such as for profit schools to teach the skills that will eventually be shifted overseas.

Whoa there pardner! How does medical tourism quality follow from airplane maintenance quality? There are what? Dozens of (major) airlines? Seems to me compared to number of individuals, there's little similarities in the markets. Also, who compiles mortality, morbidity, etc. data on off-shore surgical outcome? Can we rely on the (obviously self-serving) data these foreign entities report? dubious. So, IOW, where are the checks and balances?

>foreign human maintenance is good enough for me.

Well, that's obviously a lie. Tell you what -- the day you head to Mexico for your surgery, post the receipt right here.

As for VF, it's yet another lefty organization stoking up fear and xenophobia for political purposes. Surprise, surprise.

I got a very minor surgery in Honduras once to save money.

Living overseas for the past 14 years, and as a dual national, I have to agree with TPM (and with Floccina). You can get minor surgery and minor medical care in a Third World country, no big deal, though they likely will botch something (as they did with my minor surgery, which turned out OK in the end), but keep in mind Third World standards is not equal to First World standards. For aircraft, they have 'built in safety redundancy' to such a high degree over the last two generations that AlexT is right, you can "skimp" and "go light" on maintenance, and likely, statistically, nothing bad will happen, but keep in mind many Third World airlines are banned from flying to the EU/USA precisely because they "skimp" a little too much on maintenance. Greek and Philippine airlines, which I'm familiar with, do this. The Emirates and Ethihad that AlexT cites only have a safe record because they have a new fleet. Essentially they can afford to skimp since the planes are new. Southwest airlines (USA) amazes me since they use old 737's yet have a perfect safety record--and they are based out of Texas, USA. If these same planes were in Africa or the Third World they would be falling out of the sky routinely.

Bonus trivia: just recently Cebu Pacific, the largest airline in the Philippines, was allowed to fly to the EU since their safety program has improved to EU standards; they are working on flying to the USA when and if they meet FAA standards. I have flown them many times but am not impressed by their service (they routinely overbook and are late) nor by their pilots (they avoid any sort of mildly bad weather than US pilots would fly into, such as slightly high winds, but maybe the Cebu pilots are inexperienced so it's a safety precaution?)

This sounds right. I work in the Medical Device industry...I'd say the top-tier OUS surgeons are probably on par with the US, and some countries (Australia, Germany, UK, France) have quite a few superstars that eclipse the US. On average though, and particularly in the 3rd world, even if skilled, they often lack the latest gear and training...and training of support staff to use said gear. Moreover, they re-use surgical supplies in ways no US hospital would consider (though the US does re-use some stuff). And then you have to consider those that aren't top-tier.

" the day you head to Mexico for your surgery, post the receipt right here."

"it's yet another...stoking up fear and xenophobia"

Hmmm...this is some solid irony right here.

Another example of the driving of wage convergence between the third world and the first world. The equilibrium is when there is no substantial difference between the two. That may be either Utopian or Dystopian depending on which way it goes.

" Chinese and South American airlines such as Sichuan Air score above most US airlines "

Well yes, but it's also noteworthy that "China Airlines" is dead last on that list.

Arnie Barnett is a long time analyst of aviation and airline safety, with technical and popular publications in this area. http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=41132

How crazy is it that airplanes are safer than cars, trains, and boats, despite being more complex than them? Kudos to all the people of whatever nationality they might be who make this possible, it's a marvelous accomplishment for humanity.

Most car accidents are because of driver error. When we let 95% of the adult population drive regardless of eyesight, inebriation, tiredness, or cell phone usage, compared to 0.1% of the population being pilots who are paid full-time wages to concentrate on their job.

It also helps when the nearest "car" is at least a minute of driving in front and behind you.

Also helps that the 'car' you are driving is surrounded by nothing solid that can damage it (as long as it is working correctly)

It helps that the 'road' you are driving on is 3 miles wide in all directions.

C'mon, msgkings, work the metaphor here :-)

How about we liberalize the buying of insurance across state lines first, and then start the conversation about medical tourism?

What's the mechanism by which this saves money? There are a bunch of different answers, but I'm wondering what yours is.

BintheD
Actually, several states have done this --Georgia,Maine, Wyoming, Kentucky, Rhode Island and Washington.

They completely failed to attract a single insurance company from another state. Selling health insurance is a little more complex than your simplistic, republican economic analysis shows. For example, the firm entering a new state would have to establish a network of doctors willing to work with them.

Never fear, all is not lost. You are perfectly free to buy health insurance from any firm anywhere in the US. Of course , if you wanted to have them cover your expenses, you would have to travel to the states they are in for all your medical treatment.

I think this last part of your response is what baffles me about the health insurance market, and perhaps it's due to my own personal ignorance. I fail to see why an insurance company needs to limit itself to a network of doctors, or why doctors would limit themselves to a single insurance company. It's not like we have networks of mechanics for our collision coverage, or repairmen for our home owners insurance. Why would a health-insurer be any different?

For one thing, it would allow people to bypass some of the egregious state mandates that are out there. Like mandatory port wine stain coverage, substance abuse coverage, etc. Some states have a lot of them (like California), while others have limited mandates. Ceteris paribus, it would seem that less mandates would result in a cheaper plan.

I think the question is whether a lower cost of labor is what's driving airline maintenance to these locations or if it's about looser regulations.

Panama and Liberia have cheaper labor than the United States but that's not why companies are flagging ships there.

As in this case.

So if the same incident had happened while the plane was being maintained in Qatar, it would have just been ignored because no one would have snitched to the FAA?

That's not necessarily the wrong answer. Fining companies for accidents during maintenance that are immediately caught and remedied would make me want to spend extra money to have it done elsewhere. It's like know-it-all pointy-haired boss who thinks he can improve worker productivity by fining them for every mistake they make.

I had always thought that airplane maintenance facilities were owned and operated by plane manufacturers, not airlines. People don't generally have their own repair shop for their cars.

Why do airlines have their own repair shop? There must be some good microeconomic explanation for this out there.

They don't want to be locked in to the airlines' repair network. As discussed elsewhere on this thread, there is value is having your own deep well of technical knowledge.

If they didn't have their own technical well of knowledge, they would be 100% dependent on the airlines and trying to boot-strap their own would be extremely difficult.

I don't think the relevant comparison is "people" or "folks". The relevant comparison is a taxi fleet, or a bus company, or a large delivery company, and many of these do indeed have their own mechanics for maintenance and repairs.

Matter of scale. If you owned a few hundred cars you might well have your own maintenance operation.

More control, real or perceived.

Not clear that a hypothetical Boeing Maitenance handling 5,000 planes would be cheaper than an airliner handling a couple hundred.

Boeing the Oligopolist, or Boeing the government contractor?

Neither inspire much confidence.

When aircraft maintenance shifts overseas, what happens to the suppliers? Sure, American companies still build aircraft in the U.S., but aircraft last for decades, and it's the maintenance of them which makes the long-term contribution to employment and output. Indeed, if the investment in maintaining aircraft is shifted overseas, why would companies continue to build them here? Will the aircraft industry and other industries follow the lead of the highly profitable Apple business model? https://www.nytimes.com/2018/08/06/opinion/apple-trillion-market-cap.html

Emirates has one of the youngest fleets in the world.

"At the end of 2016, the aircraft retirements and new deliveries will put Emirates’ average fleet age at 5.6 years, dramatically younger than the global average. A recent analysis shows the average fleet age for the top five airlines in North America is 13.6 years, while the average fleet age for the top five airlines in Europe is 10.7 years."

https://www.emirates.com/media-centre/emirates-announces-ambitious-fleet-retirement-schedule-for-2016-to-be-distributed-in-30-minutes

I think highly of both authors here, but this particular post is an extremely superficial take on airline maintenance used to score a more ideological point on free trade.

The author also forgets to mention that Emirates Airlines does get the full backing of their government (makes sense since they own the airline). Although it is a profitable company, being an integral part of your country's economic vision and not having to deal with your country's antitrust agency, sure helps.

Other points randomly taken from Wikipedia:
- Geographic advantage of its main hub
- No unions in Dubai
- cheap labor from India/Pakistan
- No night restrictions

"Thus, I don’t worry much about where maintenance occurs. Indeed, if maintenance can be done for less we ought to buy more, so less expensive can mean safer."

Why would an economists want to kill jobs in the US and cut US GDP?

Isn't it virtue to spend more in the US to increase US GDP?

I could understand trumpist nationalism if he advocated doing all maintenance in Canada, the country of his birth.

But then again, Canada's health care costs are significantly lower than in the US, and for those Alex is suggesting leaving the US to get health care, the wait time for treatment is longer in the US than in Canada.

Ie, if you have good employer insurance in the US, access to care is quick, but if not, then cost is the biggest obstacle and overcoming that obstacle for anything that isn't life critical will require months or years.

Note, the US already relies on imported labor for a third of minority, low income, rural doctors, a quarter over all, and one-sixth of all nurses. One in twenty US health care workers are Filipinos, but would likely be one in ten if visa limits were eliminated for that one nation within a decade, thanks to the long and deep ties to the US.

Note, one complaint is the costs are high for immigrant health care workers because they must pay the same prices as US citizens to become licensed to practice in the US. But for some significant share of US citizens, US governments pay for a significant share of these costs. But in Europe, et al, government pays most of the cost of being qualified/certified to practice.

Note, in airline maintenance, until the 80s, the US government paid almost all the costs of becoming an aircraft mechanic, and for becoming a pilot. Note, this socialism was acceptable to conservatives because it was called defense spending.

"Thus, I don’t worry much about where maintenance occurs. Indeed, if maintenance can be done for less we ought to buy more, so less expensive can mean safer."

It seems to me that airline maintenance is one of those products where it is difficult to judge its efficacy until time has past and also that it is a product where the "tail" can be quite harsh. Thus relying on current safety records seems irrelevant and judging the "value" based solely on what is spent also seems to be misguided.

Just because something has a price does not mean that it has value. i guess in a theoretical world where every investment expenditure represents a homogeneous and interchangeable item that produces some proportionate amount of "investment value" this may be true but in the real world this would not seem to hold true (although I guess "on average" it might?).

As my plane is crashing I can comfort myself that "on average" the product was the same. I just ended up in the wrong tail!

> "Why don’t more US health insurance companies pay for medical procedures performed abroad?"

Who would bear the cost if something goes south? Like the many plastic surgeries outsourced to India that'll get you a new nose, but also new MRSI.

Of course, crashes are so rare that none of these rankings should be taken very seriously except in the sense that all of these airlines are very safe. Thus, I don’t worry much about where maintenance occurs. Indeed, "if maintenance can be done for less we ought to buy more, so less expensive can mean safer"

Tabarrok, you're hilarious:

https://en.wikipedia.org/wiki/Qantas_Flight_32

I'm not sure what the uncontained engine failure on the Quantas 380 has to do with the subject of this post.

Most airlines regard equipment failures as bad pr. Their customers, riding in the aircraft, usually notice anything out of the ordinary and are quick to report it to fellow passengers, relatives and total strangers at the airport bar, should they survive the incident.

Airlines are very much interested in maintenance effectiveness as well expense. Maintenance failures increase insurance costs, airplanes are expensive and the people that ride in them have value as well.

If I understand it correctly, US airlines, and possibly airlines that fly to/from the US, have to meet FAA maintenance standards. This leads to the interesting situation where though the work is done outside of the US, it's done under a US regulatory framework.

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