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Date: 29 November 2007

Federal Aviation Administration International Safety Forum, Washington

Washington - It is a pleasure to be here. Congratulations to Bobby Sturgell and the FAA team for organising another very relevant event. It continues a tradition started by Marion Blakey for the FAA to be more engaged internationally. We are global industry, and this is a valuable forum to discuss global solutions for safety - our number one priority.

Improving Outlook
Since last year, the financial health of the industry has improved. For the first time since 2000, the industry will turn a profit of US$5.6 billion this year. After US$40 billion in losses that is good news. It reflects tough leadership decisions that improved productivity 56%, reduced sales and distribution costs 13% and cut non-fuel unit costs15%.

US carriers have gone from  “industry sick-man” to the most profitable. US carriers will return US$2.7 billion as a result of strict cost control and careful capacity management. Europe has had stable profits at US$2.1 billion, largely as a result of strong long-haul markets, particularly for premium traffic. Asian carriers have seen profits fall to US$700 million. Capacity expansion of 42% since 2001 made yields weaker.

Growing Challenges
For 2008, we expect even better results, but the challenges are not getting any easier. The credit crunch throws a shadow over the economic expansion that underlies our good performance. Airlines are still US$200 billion in debt and we could be heading for a downturn with little cash in the bank to cushion the fall. At the same time cost control is getting more difficult. Labour is now 23% of our costs. With profitability, their expectations are high; already we see crew strikes from France to Japan. Management must be tough, reminding them that there is no free lunch. Fuel is now 28% of our costs - the bill is US$132 billion and there is no good news on the horizon. So running an airline continues to be a tough business.

Safety - The Regional Picture
Safety is also a growing challenge. It is our number one priority and without public confidence in safety we don’t have a viable business. With an industry growing at 5-6% per year, we must reduce the accident rate. Just to keep the same absolute numbers, our targets are much more ambitious - like cutting the accident rate in half over the decade from 1996 to 2006. We achieved that, and 2006 was our safest year ever. But this year looks like it will be a big step backwards.

Preliminary results for 2007 show an accident rate of 0.9, taking us back to 2002 levels. Some areas are doing very well with zero accidents in the Middle East and North Africa. IATA’s work in Russia and the CIS helped to turn the worst safety record of 2006 into zero accidents so far this year. Europe and North America also saw improvements. North Asia saw its perfect safety record come to an end with one hull loss, but at 0.72 it is still better than the global average. China still has zero accidents so far.

So where is the problem? It is concentrated in three main areas: in Brazil, where some tragic accidents pushed the Latin American hull loss rate to 2.52; in Asia-Pacific, where accidents in Indonesia increased the accident rate to 3.27; and in Africa where a more dispersed and unrelated set of accidents increased the accident rate from 4.31 to 6.04.

We are a global industry and flying must be safe everywhere. We established transparent partnerships with Brazil and Indonesia to help improve the situation with practical measures. The issues are similar in Africa - we are opening an office in Nigeria to assist the government. But the problem crosses more borders. So we are working multi-laterally to help airlines move forward on the agenda set by ICAO’s Safety for Africa conference. The common theme in our tactical approach to safety is cooperation between industry and government. We are in this together: A safe industry is our shared top priority.

Today
Your conference theme is: Safety Without Borders—Meeting Global Challenges. Today I will address three strategic safety areas where cooperation is critical to producing better results: Auditing, Safety Management Systems and Training and Qualifications. And I will conclude with a few words on environment, our biggest political and technical challenge. Our approach to all three is businesslike, based on transparency, so we clearly understand what we need to achieve, and accountability, so we understand the targets and how we are going to achieve them.

Auditing
Let’s start with auditing. The IATA Operational Safety Audit – IOSA – is the key part of our six-point safety strategy that covers everything from operations to cabin safety to training. IOSA is changing the industry. Over 175 airlines are on the public registry, covering 80% of scheduled international traffic. Our member airlines are committed to safety best practice and IOSA is a condition of IATA membership.

IOSA is the global standard for airline safety management. It has nearly 1000 standards that are transparent and freely available to any commercial airline. By working with regulators, IOSA standards combine the highest level of ICAO standards, Federal and Joint Aviation Regulations and industry best practice.

Targets
While we constantly improve the IOSA standards, the other challenge is
to make sure they are implemented consistently and effectively. Here we are taking a very business-like approach with targets and a strong quality assurance programme. IOSA has three target deadlines for IATA’s member airlines: end of 2006 to commit to an audit; end of 2007 to complete the audit; and end of 2008 to close findings and join the registry.

If a carrier fails to meet any of the deadlines, they are out of IATA. 97.5% of our carriers met the first deadline and in January 2007 I terminated the membership of the 6 carriers that did not.

Partnership for Safety
Naturally, our goal is not to reduce our membership. We want to have all of our members on board. That is why our Partnership for Safety Programme provides targeted assistance to airlines, with gap analyses to find weaknesses and develop action plans to address them. The programme is active in Africa, Latin America, Russia and the CIS and Asia-Pacific—specifically Indonesia. Already 70 airlines underwent a gap analysis, and re-alignment of our International Airline Training Fund allowed us to fund 29 safety related training courses in 2007 alone. More broadly, 25 awareness seminars around the world brought IOSA and SMS to over 700 participants, including airlines, manufacturers and governments. Why governments? Because it is an effective tool to enhance your safety oversight programmes.

A growing list of governments makes use of IOSA. The FAA was supportive from the beginning. The latest commitments are from Costa Rica, Turkey and Mexico, where IOSA is now part of national regulation. To be frank, the list is growing too slowly. The airlines are committed, there is no cost to government and the results are clear, so I hope that with your support we will have many more countries on board.

ISAGO
In the meantime, we are applying our IOSA experience to ground operations. Good initial work has been done by FSF and Boeing. I reported to you last year that we were developing the IATA Safety Audit for Ground Operations - ISAGO. While improving safety, our goal is also to reduce the number of redundant audits, and the US$4 billion that ground damage costs the industry each year. The standards are nearly complete and the testing has started. We plan to conduct the first audits in early 2008. As regulators, I encourage you to use ISAGO as a tool and help us develop and strengthen the standards.

Effective auditing is critical to safety and working together is the only way to deliver the best results.

Safety Management System
Safety Management System - SMS - is another is another good example of where we need to work together closely. ICAO did good work in developing the concept of taking a systematic approach to safety culture by aligning the entire organisation of the airline beyond safety and operations. IATA incorporated this SMS thinking throughout the IOSA audit, effectively making it a requirement for all IATA airlines. Now it’s time to dig deeper. Although we all agree on the concept and are implementing it as best practice, there is no global standard to guide us, or targets to monitor progress.

SMS has the potential to be a powerful tool to align our safety efforts, but we must agree to a global standard that is measurable. I will closely follow your discussions on this topic that Guenther is moderating.

Training and Qualification
Our 5-6% growth per year brings challenges. Just look at the chaos in New York where politicians failed to invest in infrastructure. We are working closely with the FAA on solutions. Another major challenge of growth is the availability of qualified personnel. There are 16,000 planes on manufacturers’ order books; to fly them we must produce 17,000 new pilots a year. How do we train and qualify them, while continuing to improve safety?

Already we are seeing the first signs of strain with two worrying tendencies: lower standards for training and qualifications; and human factors cropping up in more accidents. It’s time to ring the warning bell - we must re-think pilot training and qualification. Today, there are no global standards for training concepts or regulation, not even a shared standard between EASA and the FAA. This must change. IATA’s Training and Qualification Initiative has five goals:

  1. 1. To raise awareness of the looming crisis
  2. 2. To coordinate a global approach to solutions
  3. 3. To maintain and improve essential standards
  4. 4. To Increase the pool of pilot candidates
  5. 5. And to improve training capacity

To achieve these we must work with regulators to develop global standards, harmonise their implementation and support them with effective oversight.
I will be frank, we failed with Foreign Operations Specifications so we cannot afford a similar mess with training. The first test will be the Multi-Crew Pilot Licence (MPL).

Pilot training has not changed in 60 years. We are still ticking boxes with an emphasis on flight hours. ICAO revised Annex 1 to allow for competency-based ab-initio training. We can produce better pilots more efficiently by focusing on real multi-crew working conditions and making better use of simulators. Some areas are moving fast, particularly those with a strong tradition of ab-initio training. Europe was an early adopter and last month the first four MPL cadets graduated in Denmark. Australia and China are on board and Japan and Canada are not far behind. The USA has been more cautious with 5,000 out-of-work pilots today. The need for more efficient training may seem distant but with growth, that will change quickly. This is an issue that will face all of us, so we must work together to deliver a global solution that supports improved safety and sustainable growth with better-trained pilots.

Environment
Environment is another issue of sustainable growth. Aviation is 2% of global carbon emissions according to the Nobel Prize winning IPCC. Efficiency gains will limit our global CO2 contribution to 3% in 2050. Aviation is and will remain a small part of the big problem of climate change, but our carbon footprint is growing and that is not politically acceptable for any industry.
IATA has a four-pillar strategy to address climate change:

  1. 1. Invest in new technology
  2. 2. Build and operate efficient infrastructure
  3. 3. Fly planes effectively
  4. 4. And once we have achieved all of that consider all economic measures from tax credits for re-fleeting to offset programmes and emissions trading.

The strategy is producing results. With shorter routes, best practices in fuel management and better operational procedures, IATA achieved up to 15 million tonnes of CO2 savings in 2006. And airlines are committed to doing even more to achieve carbon neutral growth in the medium-term with a long-term goal of a carbon-free future. Climate change is a global problem so we can only achieve this if governments support a global solution. We took our strategy and goals to ICAO, where all member states endorsed the IATA strategy. I particularly congratulate Secretary Peters who led a strong US delegation and Jeff Shane for skilfully chairing the debate.

One of the biggest satisfactions was the US acceptance, not just of the strategy, but also our fuel efficiency target to achieve a 25% improvement by 2020. The biggest disappointment was Europe: they supported the global strategy, but they are taking a unilateral approach to emissions trading that is irresponsible and politically motivated. Moreover, it does nothing to improve environmental performance. This is a breach of the Chicago Convention, and I fully support any challenges by states at ICAO, WTO or elsewhere.

Let me be absolutely clear: our goal is to improve the industry’s environmental performance with a target of zero carbon emissions. Economic measures will not achieve that goal; only technology can bring us to zero carbon emissions. Some potential building blocks for a carbon-free future are here today: solar power, bio-fuels and fuel cells. The manufacturing community backs the vision from Airbus and Boeing to GE, Pratt & Whitney and Rolls Royce and also our fuel suppliers. Nobody has all the answers but let’s remember that we went from the Wright Brothers to the jet engine in 50 years, and today—fifty years after that—we are a safe global mass transportation system for 2.2 billion passengers. With commitment and common goals I am convinced that a carbon-free future is absolutely possible.

Conclusion
We are a great industry built by turning dreams into reality, supporting 32 million jobs and US$3.5 billion in economic activity. We are putting our financial house in order, although significant challenges remain. We have achieved amazing results on safety, but every accident is a tragedy and the preliminary results for this year remind us of the need for constant vigilance - everywhere. Our common goal is an industry that is safe, secure and environmentally responsible. The only way forward is to work together as partners with transparency and targets.

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