My idea of rolling the dice and living dangerously: Flying to Ronald Reagan Washington National Airport on a United Boeing 737 MAX aircraft that’s maintained in China by a company owned by a U.S. private equity firm.
Fortunately, I don’t fly United but if you do, my scenario about United’s planes being maintained in China isn’t imaginary, and there’s a likelihood the company handling some of the repairs is controlled by private equity firms.
According to the Teamsters, approximately 85% of United’s heavy maintenance is outsourced to repair companies in China and South America. It’s a safe bet that one of United’s maintenance South American contractors is based in El Salvador.
I mistakenly associated El Salvador solely for its notorious Cecot prison and was blissfully unaware that’s where many of the most prominent US airlines now send their planes for repairs and inspections, including JetBlue, Delta, and Southwest. These airlines rely on a company called Aeroman, which is controlled by a company called MRO Holdings, which in turn is backed by powerful private equity masters of the universe.
What could go wrong?
“Private equity is not there for the long term,” former U.S. Representative Peter DeFazio (D-Ore.), who worked closely on federal aviation policy for decades, told The Lever. “They want to bleed cash and take out equity and then put a bunch of debt on the company. And that can lead to problems.”
The PE model could put the flying public at risk.
“Whenever financial pressure is exerted in an industry like (commercial aviation) very, very bad things can happen,” De Fazio said.
Talk about chutzpa
That America’s major airlines would offshore critical maintenance, particularly given they were bailed out by U.S. taxpayers, is particularly galling given the protections these companies and their managements enjoy.
Foreigners are restricted from owning and managing U.S. airlines, under longstanding federal law and regulatory policy designed to maintain American control over the nation’s air transportation system. As well, foreigners are restricted from owning and managing U.S. airlines because of national security concerns.
Yet airlines entrust lower paid foreign nationals to ensure the safety and reliability of their planes.
Of course, the airlines must fly their aircraft to offshore locales, a seeming disregard for their professed climate change concerns and vows to reduce their emissions.
If you are surprised and maybe even a tad concerned by United relying on Chinese and other foreign nationals for its critical maintenance, it’s time you got with the program and wake up to what’s happening in corporate America.
United CEO Scott Kirby’s 2024 compensation hasn’t yet been made public, but in 2023 he was paid $18.6 million, a 90% increase from the $9.8 million he received in 2022 when his payday was restricted because of the $3.5 billion donation and $1.5 billion low interest loan U.S. taxpayers gifted the airline during the pandemic in appreciation for all the great years of service it provided to the flying American public. U.S. taxpayers were so charitable they didn’t ask for anything in return, not even a free bag of stale peanuts.
Guess what United is doing with the embarrassment or riches the airline enjoyed in the ensuing years?
Although United had a blockbuster year in 2024 reporting a record $5.1 billion in operating profits, an increased profit margin to 8.9% from 7.8%, and its stock outperformed its rivals, Kirby isn’t one to rest on his laurels or leave the value of his stock options to chance. That’s why United last October earmarked $1.5 billion to buy back its shares, a once illegal form of stock manipulation whereby a company reduces its number of shares outstanding, making the price of an individual share more valuable.
United called its $1.5 billion share repurchase program “the beginning of a consistent and disciplined return of capital.”
If only U.S. taxpayers had someone providing a consistent and disciplined return of their capital.
Readers of this blog know where I stand on stock buybacks, and today I discovered some other folks who share my outrage. Here’s what Sara Nelson, president of The Association of Flight Attendants-CWA (AFA) International, and Ken Diaz, president of the United AFA, had to say after United announced its buyback.
“Stock buybacks are a sickness that hurts workers and consumers alike,” they said in a statement. “The airline industry was rid of them, but a greedhead hedge fund broke the seal in its efforts to gain control of Southwest Airlines and now United Airlines management is following their lead to manipulate the stock and cheat workers and passengers.”
“United management … are choosing to jump back in the greed pool with this century’s robber barons,” Nelson and Diaz added.
To be fair, Nelson and Diaz specialize in union representation and aren’t steeped in high finance and investing. Warren Buffett, considered one of the greatest investors of all time, declared in 2023 that “when you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
Although a professed Democrat, Buffett doesn’t appear to be a big supporter of unions or share concerns for workers’ rights. Berkshire Hathaway, the conglomerate he controls, has faced union busting allegations related to subsidiaries within his investment empire. In 2022, Sen. Bernie Sanders called on Buffett to intervene and avert a strike at a railway company BH owned, but the billionaire investor ignored the pleas of the multimillionaire Democratic Socialist.
U.S. commercial airlines have been steadily offshoring their heavy maintenance for years, a function they once managed in-house with their own employees at facilities owned, operated, and overseen by the airlines, according to a 2018 study by the Transport Workers Union of America. The TWU said the over reliance on non-certificated maintenance workers at foreign repair stations used by U.S. carriers is alarming.
From the 2018 study:
Without a requirement that foreign workers be certificated, the current regulations allow lower skilled workers — earning drastically lower wages — to repair U.S. aircraft. Other significant gaps between domestic and foreign repair stations exist as well: per FAA regulations, workers at domestic repair stations must undergo DOT drug and alcohol testing.
Violations of these testing standards ultimately can prevent a U.S. worker from holding a position as an aircraft maintenance employee. However, workers at foreign repair stations performing the same type of aircraft maintenance are not subject to the same drug and alcohol testing mandate.
Additionally, while mechanics at domestic repair stations are subject to Transportation Security Administration (TSA) threat assessments, no such requirement applies to foreign maintenance workers. This glaring discrepancy provides individuals, who may pose security risks, virtually unchecked and limitless access to U.S. aircraft.
Lastly, FAA inspectors perform periodic, unannounced, on-site inspections of domestic repair facilities to ensure operations comply with safety standards. This element of surprise helps ensure that facilities maintain compliance with regulations at all times – not only when an inspection is imminent. However, the FAA notifies foreign facilities of upcoming inspections, providing them time to take necessary actions to regain compliance before the inspector arrives.
As reported by the Lever, private equity has been expanding in the aviation “maintenance, repair, and overhaul” industry for the past five years, driving an increasing number of deals, including a record 24 last year.
If you didn’t before know what it means to fly on a wing and a prayer, you do now.