Did Alaska Airlines' `can-do' ethic go too far?

Copyright 2000, The Seattle Times Co.

A corporate-training video touting the colorful history of Alaska Airlines tells the story of a 1940s-era pilot who routinely loaded his plane with freight in Anchorage, hopped to a nearby frozen lake, unloaded his cargo onto the ice and returned.

After taking on another load of freight in Anchorage, he flew back to the lake. There, he repacked the first load with the second and took off to a remote village - having successfully sneaked the excessive cargo by federal safety inspectors.

"The way we figured it," explains a gravelly voiced actor who plays the pilot, "if you can get it off the ground, it ain't overloaded."

The video highlights how Alaska Airlines' bush pilots, scornful of rules drafted by distant bureaucrats, provided a lifeline to isolated residents of their far-flung state.

That legacy is ingrained in the carrier's corporate culture.

Today, the Seattle-based airline takes every opportunity to evoke the bush pilots' swagger. Instead of standard-issue blue blazers, its 1,270 pilots wear leather bomber jackets. Its in-house newsletter touted an executive who ordered 25 bottles of vodka in Siberia to de-ice a plane's wings - something the Federal Aviation Administration would never approve.

The maverick image is one Wall Street has embraced. Alaska's do-whatever-it-takes ethic helped the airline become the nation's 10th largest.

Alaska Airlines "has performed magnificently in terms of revenue growth and earnings growth, and the ability to stay competitive and maintain a dominant market share in West Coast markets," said aviation-industry analyst Peter Jacobs.

But in recent years - and particularly since the crash of Flight 261 in January - many people in the aviation industry, even some Alaska employees, wonder whether the "can-do" approach has gone too far. Critics say Alaska's heritage has been perverted by modern-day managers into a culture that condones sidestepping safety regulations.

Those critics cite example after example in which, they say, company managers have manipulated regulations and work rules to drive down expenses.

"They see themselves as being above any moral or ethical code," said Deby Bradford, a 10-year Alaska flight attendant who recently left to become an instructor pilot. "And they're used to making their own rules."

The FBI and the National Transportation Safety Board (NTSB) are examining whether negligence by Alaska contributed to the Jan. 31 crash off the Southern California coast, in which all 88 aboard perished. Meanwhile, a federal grand jury continues its nearly two-year investigation of practices at Alaska's Oakland maintenance facility, a probe that has been expanded to include questions about Flight 261.

Since the crash, news reports have abounded about safety issues at Alaska:

-- In an emergency nationwide inspection ordered by the FAA in February, Alaska turned up with the highest percentage by far of MD-80s flying with worn stabilizer jackscrews, the part suspected as a cause of the crash. Six of Alaska's 34 planes failed the check (17.6 percent), while only 16 of the other 1,073 inspected at 20 other carriers (1.5 percent) failed.

-- In March, 64 Alaska mechanics delivered a letter to Chief Executive Officer John F. Kelly saying they had been "pressured, threatened and intimidated" by a supervisor to cut corners on repairs.

-- In April, a veteran, respected Alaska pilot told a company vice president in a widely circulated letter that he was concerned about Alaska's approach to safety and maintenance. "I feel that at some point our company needs to strive for a higher level than this," Captain David Crawley wrote. "I'm really afraid that this attitude is so ingrained at this point that it will not be easy to change."

-- And last week, an FAA audit of Alaska's maintenance system found it had "little depth, limited internal monitoring and no effective backup system."

Supporters insist Alaska's executives have done only what they've had to do to remain financially viable in a viciously competitive air-travel market. While most major regional airlines have been swallowed up by bigger carriers, Alaska has survived.

Besides, they point out, this year's crash was the airline's first in nearly 30 years, and most of the concerns about safety have emerged as the airline has been placed under an intense spotlight of media scrutiny. Put other airlines under the same spotlight, they say, and similar blemishes would be revealed.

Alaska's top executives declined to be interviewed on their corporate culture and safety, but CEO Kelly provided written answers to written questions from The Seattle Times.

"Is there a culture here that condones cutting corners? Absolutely not," Kelly wrote. "It makes no sense - business or otherwise - to operate an airline in an unsafe manner. Period. No cost is worth cutting, no shortcut worth taking, if it compromises safety."

Ultimately, a federal grand jury, FBI agents, safety investigators and the justice system will determine whether Kelly or the critics are correct.

Bush-pilot origins

Alaska Airlines traces its roots back to a handful of bush pilots in the 1930s. Consolidation into its present form began in 1957, when a brash World War II hero and inveterate promoter named Charles Fountain Willis Jr. took the helm.

As jet travel became more common in the '60s and '70s, the hard-working, hard-partying Willis let it be known he would fly anything, anywhere, anytime for anybody. Alaska flew supplies to GIs in Vietnam, racehorses to England, drilling equipment to Ecuador, food to starving Biafrans, spare jet engines to Europe and tourists to Siberia.

The airline also lost a lot of money. Creditors, who derided the company as "Elastic Airlines," often had to run hard to catch Willis. Employees were paid late or not at all.

Financial difficulties opened the door for Anchorage real-estate partners Ron Cosgrave and Bruce Kennedy to take over. In 1972, with the airline on the brink of insolvency, Cosgrave and Kennedy got enough votes from the board of directors to oust Willis and gain control.

They introduced strategic planning and professionalism. Cosgrave began as chairman and chief executive, with Kennedy taking over in 1979 just as the Airline Deregulation Act of 1978 was turning the industry upside down and intensifying competition.

Kennedy had to find a place for a small regional airline on a landscape suddenly crowded with cut-rate carriers, emerging hub-and-spoke routes, complex ticketing systems and untried frequent-flier programs. He focused on dominating the lucrative routes into and around Alaska, then using those profits to expand south, all the way into California and Mexico.

And he sought to differentiate the airline by offering premier service. Alaska pampered its passengers with extra legroom, complimentary wine, free newspapers and quality meals, which senior managers themselves ate once a week to ensure quality. Alaska earned plaudits from travel writers and cultivated a loyal customer base.

By the time Kennedy retired in 1991 to pursue Christian service, Alaska was in the big leagues - having grown from a 1,300-employee company with $98 million in sales when he took over to an 8,200-employee company with sales of $1.1 billion.

Eye on the bottom line

Kennedy's successor was Raymond Vecci, a no-nonsense native New Yorker and 30-year airline-industry veteran. When he took Alaska's top chair, it was a hot seat.

The Gulf War had driven fuel prices up and travel demand down at a time when new no-frills airlines were luring away passengers on the West Coast corridor.

Trying to imitate the success of Dallas-based Southwest Airlines, new carriers Morris Air, Reno Air and Mark Air launched flights up and down the coast for as cheap as $39. Southwest intensified the competition by acquiring Morris Air at the end of 1993 and starting West Coast runs of its own in the summer of 1994.

Alaska matched the low fares, and saw its revenues - and its stock price - drop precipitously. Vecci saw losses of $85 million in 1992 and $31 million in 1993, and moved decisively to cut costs.

The free wine and newspapers vanished. Meals got skimpier. Flight attendants stopped offering full cans of pop. Plastic spoons disappeared from place settings.

Some of the savings came at the bargaining table, where Vecci told unions representing pilots, flight attendants, mechanics, ground workers and office staff that if the company didn't get concessions, it wouldn't survive. He slashed salaries, once telling pilots he would find their "fair-market value" by cutting pay until they started quitting. He cut cabin staffing from four - the number of flight attendants typically used by carriers that offer two-class service - to the legal minimum of three.

And he brought in new executives to focus on saving money in two other key areas: maintenance and training. He hired John Fowler from Pan American World Airways as vice president of maintenance and recruited Ed Duchnowski from the Federal Aviation Administration to oversee safety and training.

Duchnowski's charge as the FAA's principal inspector for Alaska's crew training and flight operations had been to make sure the airline obeyed all safety rules. His new job required him to find ways to do that as economically as possible.

Duchnowski wasn't the first government regulator to slide into a job at Alaska. Another FAA inspector, Tom Cufley, had joined the airline in 1987 as assistant chief pilot and was promoted in 1991 to chief pilot and vice president of flight operations.

These hires were part of what has been a cozy - critics say too cozy - relationship between Alaska and the federal agency assigned to police it. The history of the airline in the 1990s was entwined with the history of the Seattle regional office of the FAA.

Those years drove home, in incident after incident, how the FAA wrestles with its dual assignments of protecting the flying public and promoting the U.S. aviation industry. In short, the agency's Seattle office - which referred to Alaska Airlines as its "customer" - repeatedly enabled Alaska's approach to training and maintenance.

Ex-inspectors irk replacements

When Duchnowski crossed over to Alaska, the FAA brought in Bob Lloyd, a veteran inspector and supervisor from the agency's Miami office. It wasn't long before Lloyd was battling with the two former inspectors now on the other side.

A major area of contention: Whether Alaska pilots and maintenance workers too often decided to "carry" defective equipment. Under this practice, which occurs at all airlines, pilots and maintenance officials allow planes to continue flying with malfunctions deemed to be minor, scheduling them for later repairs.

The FAA allows for judgment calls on many problems but specifies strict procedures for others. Lloyd felt Alaska was playing loose with the rules and cited this case in point:

On July 8, 1992, Alaska pilot Rex Gray was flying a Boeing 737 with passengers to Prudhoe Bay, north of the Arctic Circle. Sometime during the flight, a red warning light illuminated, indicating that the jet's landing gear might not be locking securely into place.

Federal regulations gave Gray two choices after landing: Fix the problem immediately, or ferry the plane with no passengers back to a maintenance facility - Anchorage in this case.

Gray radioed a dispatcher for advice. He was patched through to a company official in Seattle, who told him it was OK to return to Anchorage with passengers on board.

Gray did. When Lloyd learned about it, he was outraged at what he saw not only as a rules violation, but a decision that put passengers at risk.

As he looked around the airline, Lloyd found other irregularities:

-- Some pilots claimed to have received flight-simulator training in dealing with wind shear, a dangerous weather condition. But Lloyd found that Alaska's simulators were not equipped with software on wind shears.

-- Some pilots had been improperly designated as "check airmen," meaning they were authorized to assess fellow pilots' skills.

-- Alaska used some training procedures that hadn't been reviewed or approved by the FAA, as required. Lloyd said one manager told him Alaska considered FAA approval "a formality."

"Alaska Airlines had an attitude of complying with regulations when it was convenient to comply," Lloyd said. "But when it wasn't convenient, they just wouldn't comply.

"Their attitude was: `These regulations are a thorn in our side, and we do what we have to do to get on with business.' And they had evidently gotten away with it for a long time."

Another new inspector

Lloyd grew increasingly frustrated by his inability to change things and transferred to another office. His successor as the FAA's chief inspector for Alaska Airlines' pilot training and flight operations was Mary Rose Diefenderfer.

Diefenderfer has a remarkable pedigree, having graduated from Embry Riddle Aeronautical University, the nation's premier aviation college, at the age of 19. In 1978, at age 22, she became one of the nation's first female DC-9 pilots, flying for Texas International Airlines.

In 1988, Diefenderfer signed on with the FAA "because it was steady, honorable work and I thought I could make a difference."

In 1989, Diefenderfer became the first woman pilot certified to fly the Airbus A320, the first of a new generation of highly computerized commercial jets. She helped develop FAA safety rules for the planes and trained pilots at Braniff Airlines to operate them.

She then put in two years overseeing pilot-training programs at Chicago-based Midway Airlines before winning a promotion in 1993 to the job watchdogging Alaska Airlines.

Lloyd warned Diefenderfer what she was in for. Diefenderfer felt confident she could hold her own.

"I knew Bob knew what he was talking about, but I always wanted to do this and I thought it couldn't be that bad," Diefenderfer said. "I thought I could work with anybody."

Before too long, though, she was butting heads with Alaska executives - and with her own bosses.

"The problem was that my team of inspectors and I kept bringing up safety issues," Diefenderfer said later. "Alaska didn't like us bringing up these safety issues so they complained to the FAA management. And when Alaska Airlines was not happy, FAA management was not happy."

One surprising place Diefenderfer discovered a problem: Alaska's in-house newsletter. She was astounded by the lead story in the June 1993 issue:

Problem solved with vodka on the rocks

An unexpected cold snap had caused ice to build up on the wings of an MD-80 ready to depart from Magadan, Siberia. The airport was out of de-icing fluid. On board were dignitaries hosted by Bill Boser, Alaska's assistant vice president of flight operations.

Boser ordered 25 bottles of vodka from a local liquor store and authorized the liquor to be sprayed on the jet's wings.

"It just goes to show how innovative Alaska Airlines employees can be," the newsletter quoted Boser as saying. "When push comes to shove, we get the job done."

But the vodka, with its high concentration of alcohol and sugar, could have caused a fire or gummed up the engines. Diefenderfer began an enforcement action against Alaska.

Chief Operating Officer Pat Glenn acknowledged in a subsequent newsletter that using vodka to de-ice airplane wings "sent the wrong message," but claimed no real harm was done. "Safety was never compromised," Glenn insisted.

John Kelly takes the helm

Meanwhile, in his first two years on the job, Alaska Chief Executive Vecci had cut costs by $80 million and had returned the airline to profitability.

"It was a trying time," said Vecci, now an executive for Northwest Airlines. "But once we came through it, I'd like to think everybody felt good about it, even though what we went through was painful for everybody."

Including Vecci himself. Along the line, he lost favor with Alaska's board of directors. On Feb. 9, 1995, the board issued a statement saying Vecci had been asked to resign over "a growing difference in management style."

A few Alaska-based directors felt Vecci had neglected the state of Alaska, where the airline originated. The board named as Vecci's replacement John F. Kelly, former president of Horizon Air, Alaska's commuter subsidiary.

Kelly, a marketing whiz who likes to be called "JFK," immediately reinstated flights Vecci had cut to Alaska's Dutch Harbor and the Aleutian Islands, as well as to the Russian Far East.

He benefited from good timing. In early 1995, fuel prices were on the decline and the economy was heading into an extended period of prosperity.

Though the business environment improved, Kelly continued the belt-tightening started by Vecci. And during that time, some mechanics say, the pressure to keep planes in the air and out of the repair shop intensified.

In February 1997, a Seattle-based mechanic named John Gustafson traveled to Spokane to help repair the malfunctioning engine on a Boeing MD-80. Despite toiling for several hours, mechanics were unable to get the engine to run properly.

They began receiving phone calls from managers in Seattle telling them to send the plane back to Seattle, with passengers, on the one good engine. Gustafson refused. The managers then ordered the plane ferried back with no passengers. Gustafson objected. But the managers got their way.

Gustafson quit over the incident, complaining in a letter to Kelly that the managers had pressured the mechanics into falsifying records to clear the one-engine flight. Kelly disputed Gustafson's claims that records were falsified.

FAA overrules its inspectors

The cost-cutting mindset wasn't restricted to Alaska's hangars. Diefenderfer and two of her assistant inspectors uncovered evidence that Alaska was cutting corners on pilot training:

-- In 1994, Diefenderfer found that five pilots had falsified records indicating they had taken classes required before flying to the Russian Far East. She called for their licenses to be revoked, as recommended in her inspector's handbook.

"If we do anything other than what is in the sanction guide," she argued in a memo, "we are doing ourselves an injustice because the airline will no longer respect us. They will know that we can easily be swayed to inaction."

Instead, her superiors chose to suspend for six months the pilots' authorization to captain a flight. During that time, they were allowed to continue flying as co-pilots.

-- In 1997, FAA assistant inspectors Jewett Gibson and Les Martin found Alaska was cutting corners on "line checks," the equivalent of a driver's road test for newly promoted captains.

Gibson and Martin documented that about 30 Alaska pilots were flying as captains without ever having passed the final test.

Alaska's chief pilot, Dave Strelinger, acknowledged the line checks weren't being done. The inspectors wanted Alaska punished. Martin recommended a $400,000 fine.

The FAA ultimately dropped the case.

-- Also in 1997, Gibson discovered Alaska was breaking rules with a training program called Line Observation Flight Training (LOFT).

Under LOFT, the FAA requires pilots to periodically confirm their skills during a 4 1/2-hour session in a flight simulator. Gibson learned Alaska had been using the LOFT sessions to double up on other types of training to save time and money - a violation of FAA rules.

Rather than being penalized, Alaska was allowed to alter the LOFT testing criteria.

In June 1997, Diefenderfer was removed as principal inspector and barred from further contact with Alaska. She was even told not to brief her successor. Her boss said she was "not a team player."

Within four months, both Gibson and Martin voluntarily moved on to other assignments. Each said he felt pressured into leaving.

Brad Pearson, FAA regional flight standards division manager, declined to be interviewed about his office's relationship with Alaska during the 1990s. The agency, instead, issued this written statement:

"Our oversight of Alaska has been conducted according to regulation and in concert with best practice over the years. That oversight has been consistent with size and complexity of the operation."

Kelly's years of profit

As the inspections-furor subsided, Kelly moved to capitalize on market conditions any airline executive would relish. Fuel prices were falling; demand for seats on airplanes was rising.

Kelly cut unprofitable routes and increased the frequency of popular ones. He forged alliances with larger airlines, including Northwest and American. He employed new technological tools. And he sought to squeeze more productivity out of Alaska's equipment and employees.

His primary goal: to keep airplanes off the tarmac and in the air, generating revenue.

"Block hours" represent the time a jet is in active service. The average block hours for Alaska's fleet climbed from 8.2 hours per day in 1993 to 11.5 hours by 1998 - a 40 percent increase. Over the same period the industry average rose from 9.4 to 9.9 hours - a 5 percent increase.

This allowed Alaska to add more routes, and generate more revenue, without having to expand its fleet commensurately.

But, as experienced by many Internet-based companies recently, rising sales don't necessarily translate into rising profits. The trick to making money lies in disciplined management of expenses, and in this area Kelly matched his predecessor, Vecci.

Alaska's available seat-miles, the industry's capacity measurement, more than doubled over the course of the decade - from 8.4 billion in 1990 to 17.3 billion in 1999.

Expenses rose too, but not nearly as much as revenue. The difference represented profits.

"The real key over the past years is that while unit costs have risen, unit revenues have increased even more," Kelly said in his written comments to The Seattle Times. "We've been able to attract more and more customers with our differentiated service and low fares. And we have also benefited from industry fare increases over that time period."

Flying its jets longer and harder in a robust economy, the company enjoyed a five-year run of rising profits. From 1995 through 1999, Alaska earned $17.3 million, $38 million, $72.4 million, $124.4 million and $134.2 million.

Rising block hours kept Alaska's airplanes and employees busier than ever. It also tightened the time available for routine maintenance and repairs between flights.

`Squeezing the golden goose'

It is there that the heart of the conflict between Alaska's detractors and its supporters now lies.

Critics say the airline's managers pushed safety guidelines to the limit, and perhaps beyond, in order to keep planes in the air. They say staffing, safety and training expenditures did not keep pace with the growth in block hours and revenues.

"We've been squeezing a golden goose, spending the accumulated capital of reputation and hard work for the sake of tweaking the last nominal cent out of the operation without regard to the real costs of achieving it," Capt. Michael August, an Alaska pilot, wrote company executives recently.

Supporters insist, meanwhile, that safety, not profits, is the bottom line for Alaska as it is for any airline that intends to stay in business. Any suggestion otherwise, Kelly said in his written responses to The Times, is "offensive."

It is difficult, if not impossible, to evaluate the two conflicting viewpoints on a purely empirical basis. Take, for instance, statistics on how much Alaska spends on maintenance per block hour for the two types of airplanes it flies, MD-80s and 737-400s.

A Times analysis of financial and operational data shows that since 1993, Alaska has lagged significantly behind the industry average in maintenance expenses for those models. In 1999, Alaska spent $262 per block hour, nearly 20 percent less than the $322 average for the industry.

Critics see in such numbers stark evidence of a shortcoming. They can point not only to the historical anecdotal evidence, but recent revelations that Alaska had been lubricating the stabilizer jackscrew on MD-80s - the part implicated in the crash of Flight 261 - every 2,500 flight hours, as opposed to every 500 hours for some other airlines.

But Alaska officials have a ready defense for spending less on maintenance: Alaska has newer airplanes, which need less work. While the average age of MD-80s and 737-400s nationally is 11.2 years, for Alaska's fleet it is 6.9 years.

Whatever the reason for lower costs, Wall Street has loved the result: In 1990, Alaska's stock was worth $319 million. By the start of 1999, the company's total valuation was nearly three times higher - $928 million.

Since Flight 261 went down, the company's financial picture has darkened a bit, with the stock price edging downward.

And jittery customers are defecting to other carriers as questions about Alaska's safety and maintenance practices mount.

Among the most haunting remaining questions: Could the crash of Flight 261 have been avoided?

The whistle-blower

The message left on voice mail at the FAA's Oakland, Calif., flight-standards office Oct. 6, 1998, had a grave tone. Alaska Airlines, the whistle-blower said, was "pencil whipping" task cards.

Task cards are sheets of paper listing instructions for performing and verifying maintenance work. Mechanics use stamps and other notations to sign off tasks as being completed and inspected. "Pencil whipping" refers to someone signing off on work or inspections never performed.

The whistle-blower was a lead mechanic named John Liotine. He told FAA inspector Tom Tesseny that Alaska managers had encouraged shortcuts and had signed off on work that hadn't been done or that they weren't authorized to approve.

And he documented specific examples.

Tesseny validated Liotine's allegations, and in June 1999 proposed the airline be fined $8.7 million. He also called for the revocation of the mechanics' licenses of three managers.

Tesseny's bosses slashed the proposed fine to $44,000 and moved to revoke the licenses. Alaska appealed both actions.

Liotine's disclosures also triggered a federal grand-jury investigation of the Oakland maintenance facility. As the decade drew to a close, FBI agents began to look into more and more allegations of irregularities, and the grand jury asked for records of more Alaska jets.

Among the planes Liotine had worked on at the Oakland maintenance hangar was Alaska jet No. N963, an MD-80 that had come through for heavy maintenance work in September 1997. Liotine had signed a task card calling for a new part - a jackscrew assembly - to be installed in N963's horizontal stabilizer, which helps control the up and down pitch of the plane's nose.

Other mechanics on a later shift decided the replacement was unnecessary, and the work was never done.

Liotine would not realize that until after N963, flying as Alaska Airlines Flight 261, plunged into the Pacific Ocean.

Seattle Times database specialist Justin Mayo contributed to this report.

Byron Acohido's phone message number is 206-464-2352. His e-mail address is bacohido@seattletimes.com.