Aviation Industry Must Prepare For U.S. Financial Shocks

WASHINGTON, D.C. – Like the outbreak of a deadly virus in Southeast Asia, the eruption of a volcano in Iceland or a devastating tsunami in Japan, the global aviation industry faces another sudden and apparently uncontrollable financial shock.

Only this time the economic calamity – which, thankfully, endangers no lives – comes not from the natural world, but from within a democratic political system.

A domestic squabble over how to administer health insurance policies in the USA now threatens to entangle a separate debate over deficit spending – and with it destabilize the global economic system.

It is too soon to tell how an increasingly likely default on U.S. public debt payments on 17 October will harm the global economy, but there is no doubt that the aviation industry will feel some of the pain.

So far, the impact of the government shutdown has been minimal. Keeping air traffic controllers and Transportation Security Administration workers on the job spares airlines from immediate suffering.

Thanks to a controversial self-certification programme, it will be at least several weeks before the major original equipment manufacturers, such as Boeing and Gulfstream, feel the impact of a government shutdown on efforts to certificate the airworthiness of new aircraft programmes, such as the 787-9.

In the meantime, defence contractors may feel a pinch. The lack of government inspectors during the shutdown means no new aircraft products can be delivered to customers.

Where the shutdown will hurt most is anywhere that the aviation industry depends solely on the government to keep commerce moving.

In such a highly regulated industry there are many such intersections – and nowhere more numerous than the web of repair stations and completion centres around the USA. Populated mostly by small businesses, this industry depends on frequent intervention by FAA inspectors to keep parts and products moving through the process.

As bad as the shutdown is, the impact still pales in comparison to the prospect of a debt default by the U.S. Federal government. Few industries are more governed by global economic growth than the aviation industry, and a shock to the financial system as seismic as a government default could wreak havoc.

The question remains what can the aviation industry do to minimise the risk of such politically-driven economic instability?

The experience may push industry leaders to press harder for more outsourcing of government functions, such as airworthiness certification and repair station inspections. If a broken political system makes government an unreliable partner, maybe it’s time to re-think who’s in charge.