Southwest Airlines gets $10.2 million black eye

The Federal Aviation Administration will fine Southwest Airlines, the top in-country carrier, as $10.2 million or more for failure to inspect its planes for a variety of possible structural cracks, an FAA requirement for older planes. The fine is the largest ever against an airline. (This is updated from a previous post.)

Per its regulations, the FAA could have sought a penalty of $25,000 per violation, as much as $36 million.

When the fine was first announced, Southwest said it planned to fight any fines and the FAA assessment, claiming it has\d complied with regulators’ requests:

A spokeswoman for Southwest, Beth Harbin, said the airline brought the issue to the FAA's attention and believed it had handled the matter to the agency’s satisfaction. Harbin said the airline believed the case was closed last year.

“We brought in 46 airplanes to take another look at them,” Harbin said. “These are preventive inspections. On six of the 46 we found the start of some very small cracking. That’s the intent of the inspection schedule — to find something before it becomes a problem. These are safe planes.”

However, the FAA alleges Southwest failed to comply with follow-up AFTER bringing the issue to the attention of the agency:

From June 18, 2006 to March 14, 2007, the FAA alleges that Southwest Airlines operated 46 Boeing 737 airplanes on 59,791 flights while failing to comply with a September 8, 2004 FAA Airworthiness Directive (AD) that required repetitive inspections of certain fuselage areas to detect fatigue cracking.

The FAA alleges that after Southwest Airlines discovered that it had failed to accomplish the required repetitive inspections, between March 15, 2007 and March 23, 2007, it continued to operate those same 46 airplanes on an additional 1,451 flights. The amount of the civil penalty reflects the serious nature of those deliberate violations.

An AD is a legally enforceable rule issued by the FAA to correct an unsafe condition in an aviation product.

Sorry, Ms. Harbin, but it sounds like Southwest got caught with its pants down, badly down.

Whether Southwest beats the rap or not, this is a black eye. Combined with most of its fuel hedges having expired, and so it having lost most of its price advantage edge, this could be a challenging year for Southwest to maintain its profitability streak. And, worries about that probably will not help Southwest’s Wall Street bottom line.