Crypto News: Beleaguered US airline passengers deserve a bill of rights

Have thoughts or feedback? Anything I missed this week? Email me at bsutherland7@bloomberg.net Also, a programming note: Industrial Strength will publish as normal this month but will be going on a temporary hiatus beginning in August while I'm on maternity leave. There may be a few special editions here and there, and you can follow me on Twitter (@blsuth), but for the most part I expect to be busy learning to be a mom. Thanks as always for reading. Try not to have too much fun without me, but I'm sure there will be plenty to talk about once I'm back.

It's time for US airline passengers to have a more explicit bill of rights.

Travel demand is roaring back in the US, with the number of passengers crossing Transportation Security Administration checkpoints reaching the highest levels since the pandemic over the course of the Fourth of July weekend. Unfortunately, tens of thousands of those travel experiences were marred by delays and cancellations. While airlines actually handled the deluge moderately better than similar surges surrounding Memorial Day and the Juneteenth holiday weekend, patience for pileups is wearing thin.

So far this year, US carriers have canceled almost 3% of flights and delayed more than a fifth by an average of 48 minutes, according to data compiled by FlightAware. That compares with just more than 2% of flights canceled by US carriers during the same stretch of 2019 and about 17% delayed — a reminder that flying wasn't exactly stress free before the pandemic, either.

The forced hiatus from traveling during the pandemic has cast a new light on inconveniences that were previously considered a fact of life. Just as the daily commute to the office is coming in for a reevaluation, so too are the hassles of air travel. There's no reason passengers who paid good money for airline tickets should have to simply grin and bear a 10-hour airport adventure when their flight is delayed again and again. Stranded travelers shouldn't have to spend hours on hold to negotiate accommodations that are more comfortable than an airport floor. Such headaches seem particularly unfair after US taxpayers fronted more than $50 billion in Covid payroll aid for the purpose of preserving air travel as vital national infrastructure. No other industry received the kind of special Covid dispensation that the airlines did, although many asked for it, including restaurants and bus operators.

Many airlines will try to make things right for passengers whose flight plans go awry, but they are obligated to do so only in certain scenarios and the reality of travel disruptions — as many of us know all too well — is anything but the customer-service gold standard. Under US Transportation Department regulations, passengers are entitled to a full cash refund (including bag and service fees) if an airline cancels their flight. They are also owed the difference in fare if they get downgraded to a lower-class cabin. But beyond that, the rules are vague. A customer can seek a refund if there is a "significant" schedule change or delay, but there's no definition for "significant," and the Transportation Department makes determinations case by case. From a practical standpoint, this is a giant pain. Most passengers probably don't bother as long as they eventually reach their destination.

The patchy airline consumer protections in the US contrast with the European Union, which requires carriers to compensate passengers up to 600 euros if their flight arrives more than three hours late for reasons apart from weather and other extraordinary circumstances. The amount varies depending on the length of the journey. Delays of more than five hours at departure warrant a refund, and airlines are also required to offer meals and refreshments under certain circumstances. If a flight has to be rescheduled for the following day, passengers are entitled to overnight accommodation. Europe is far from immune to post-Covid flight disruptions, but these are better policies than the American way of forcing passengers to play a glorified game of roulette when their flights are delayed.

"Over-congested airports, staffing shortages, and unprecedented demand levels have all contributed to cancellations. We believe if these issues persist the U.S. Department of Transportation may weigh new protective airline passenger policies," Scott Group, an analyst at Wolfe Research, wrote in a report this month. "Passengers clearly have more protections in Europe."

Democratic Senator Bernie Sanders of Vermont urged the Transportation Department to require airlines to provide refunds and alternative transportation for passengers whose flights are delayed between one and four hours and to also cover meals and lodging in the event of a delay of more than four hours. Sanders also called for $15,000-per-passenger fines for domestic flights that are delayed more than two hours and international ones that are delayed more than three hours for non-weather reasons, with the penalty jumping to $55,000 if airlines schedule and then cancel flights they know they can't staff. These proposals are fairly extreme, and it seems unlikely the Transportation Department will go quite that far, but there is more that the government can do. Secretary Pete Buttigieg has been particularly vocal about travel disruptions in recent weeks, calling on the airlines to improve reliability and advertising passengers' right to refunds for canceled flights.

"There is more in the pipeline on the rulemaking side that will support passengers. And we'll start by using authorities that we have, and then continue looking at some of the authorities we might ask Congress to expand," Buttigieg said in an interview with the Wall Street Journal this week. If the Transportation Department were to impose fines of $200 per passenger for non-weather delays lasting more than three hours, this would result in a 1% drag on pretax income for most airlines, assuming these penalties are assessed on 0.1% of flights, Group of Wolfe Research estimates. A requirement that airlines provide hotel accommodation for stranded travelers could result in a bigger earnings impact, he says.

Airlines are sure to fight back against any proposed penalties for flight delays. Some executives have blamed air-traffic control logjams, rather than their own operations, for recent disruptions. United Airlines Holdings Inc. has estimated that about 50% of its delay minutes and 75% of its cancellations in the past four months were tied to Federal Aviation Administration actions to manage air traffic, such as ground delays, Bloomberg News reported this week, citing a memo from Chief Operations Officer Jon Roitman. Some of that is weather related, but there also aren't enough air-traffic control staff to support all scheduled flights, Roitman said. The FAA responded by pointing out it had no staffing issues on July 3 and 4 and airlines still canceled a rash of flights. FAA staffing isn't responsible for a majority of the recent delays and cancellations, the regulator said.

The current finger-pointing is somewhat irrelevant. I'll reiterate that cancellations and interminable delays aren't a new phenomenon for the airline industry. Better protections for passengers are long overdue. And onerous fines tend to be a powerful motivator: Instances of long tarmac delays plummeted more than 90% after the Obama administration announced in late 2009 that it would start fining carriers up to $27,500 per passenger for keeping passengers on the runway for an excessive period of time. A 2016 analysis by the Transportation Department found that while the tarmac delay rule led to increased cancellations in the first three years after its adoption, cancellation rates then returned to normal.

The more than $50 billion in payroll aid that Congress and US taxpayers provided to the airline industry during the pandemic provides ample leverage to push for better conditions. They should use it. Delays and cancellations may be most top of mind now but, as former American Airlines executive Robert Crandall told me in an interview last year, there's also an opportunity to regulate maximum seating density on airplanes and minimum service requirements for smaller airports.

"It was important for us that the agreement was open-ended. If there is health damage to civilians because of 3M, we can come back to charge them with that." — Andy Pieters, a spokesman for Flemish Minister of Environment Zuhal Demir

Pieters made the comments in an interview with Bloomberg News after the Flemish government announced an agreement with 3M Co. under which the industrial company will pay 571 million euros ($581 million) to support the community around its Zwijndrecht manufacturing plant in Belgium and carry out remediation efforts tied to its legacy manufacturing of per- and polyfluoroalkyl substances (PFAS). The total amount includes and builds on previous commitments by 3M to invest about 270 million euros in PFAS cleanup, treatment technology and local farm protections. 3M will take a $360 million pretax charge in connection with the additional spending in the second quarter. Certain forms of PFAS are known as forever chemicals because they accumulate in the body and break down slowly in the environment. The substances have been associated with a range of health problems, including cancer and immune system dysfunction. 3M's Zwijndrecht facility was closed for several months amid concerns about the level of PFAS in local residents' bloodstreams and a regulatory review of the company's compliance with discharge standards, but 3M was allowed to resume some production last month. This week's pact doesn't prevent residents from bringing civil claims against 3M, nor does it bring an end to an environmental crime investigation or signal a ceiling on 3M's ultimate liability for future health problems in the local community, Pieters told Bloomberg News. In short, like most of 3M's many and growing legal woes, this is far from over.

The last two weeks of June were a vacation for me but not for the rest of the industrial world, which had a busy end to the second quarter. Here's what I missed:

Frontier Group Holdings Inc. at long last responded to pressure from JetBlue Airways Corp. in the battle for Spirit Airlines Inc. and raised its own offer for the discount carrier. Frontier boosted the cash portion of its proposal to $4.13 a share (up from $2.13 previously) for a total consideration of about $24 a share. The would-be acquirer also agreed to pay a portion of that cash payment as an upfront dividend and to increase the reverse termination fee to $350 million to provide better protection to Spirit shareholders in the event that antitrust regulators block the deal. Not to be outdone, JetBlue also raised its offer (again) to add a higher upfront payment and breakup fee and a so-called ticking-fee mechanism that would prepay some of its offer while the companies wait for regulatory approval. JetBlue says the revised terms increase the total consideration for Spirit holders to as much as $34.15 a share if the deal is consummated and provide $4.30-a-share in downside protection. But Spirit rebuffed this proposal (again) on regulatory concerns. A shareholder vote on the takeover saga was scheduled for Friday, but that was delayed (again) in a sign that the gap between JetBlue's offer and the Frontier bid that Spirit continues to back remains too wide for shareholders.
General Electric Co. Chief Executive Officer Larry Culp got a second job as CEO of the company's aviation unit. This is a bit weird. For one, as CEO of the entire company, Culp presumably already had some degree of oversight of the aviation division. Second, GE hired John Slattery from Embraer SA in 2020 to be the CEO of the aviation unit after the regional jet maker's plan to form a joint venture with Boeing Co. collapsed. Slattery was "somebody we've had our eyes on," Culp said in an interview at the time. "He clearly would have had a big role in all likelihood at Boeing with the venture if that had played out. But it didn't. And here we are." Slattery will stay at GE and become chief commercial officer of the aviation business, while Russell Stokes, a longtime company executive, will take on expanded operational responsibility for the division and become CEO of commercial engines and services. Still, such a shake-up isn't entirely unexpected: Since GE hired Slattery, the company has announced a three-way breakup that will eventually leave the aviation unit standing alone. The plan was for Culp to continue as chairman and CEO of GE until both the health-care and power businesses were spun off (in early 2023 and early 2024, respectively) and then lead the aviation-focused company going forward. This is to some degree just an acceleration of the process. It wasn't clear at the time what this plan meant for Slattery. Now we know.
In other interesting tidbits, GE hired Otis Worldwide Corp.'s Chief Financial Officer Rahul Ghai to take on the same job at GE Aviation. Otis is the former elevator division of United Technologies Corp., which broke itself into three after a merger with defense giant Raytheon Co. The executive ranks of United Technologies have become a particularly rich talent pool for aviation-related jobs lately, perhaps thanks to its relatively drama-free past. United Technologies' former CFO Akhil Johri joined Boeing's board in 2020, and the planemaker announced last month that Dave Gitlin — CEO of the United Technologies' air-conditioning spinoff Carrier Global Corp. — would also become a director.
Stanley Black & Decker Inc. agreed to sell its oil and gas business to Pipeline Technique Ltd. Terms weren't disclosed, but Stanley will take a pretax writedown of as much as $200 million in connection with the sale, which suggests the price is fairly nominal. Included in the divestiture are assets that the company acquired through the purchase of CRC-Evans International for $445 million in 2010. The oil and gas business had about $140 million of revenue in 2021. The divestiture follows deals for Stanley's security and automatic doors businesses and raises the question of whether the company might soon separate its remaining industrial assets from the tool and outdoor products segment that generates the bulk of its sales.
Parker-Hannifin Corp. appears set to win UK regulatory approval for its pending $10 billion acquisition of aerospace supplier Meggitt Plc. Business Secretary Kwasi Kwarteng is "minded to accept" Parker's proposed undertakings to safeguard national security and competition, the UK government said last week. Parker expects the deal to close in the third quarter. This news was overshadowed by other UK political drama in recent days, but there was a fair amount of skepticism as to whether this transaction would ultimately pass muster, and Parker was getting little credit for the deal in its share price, so this is an important step forward for the company.

Power is so expensive some companies are shutting metal mills
Volkswagen is so cheap holders are getting Lamborghini for free
Extreme heat is pushing humans to the breaking point
Boeing threatens to cancel extended 737 Max amid FAA holdup
Venture capitalists should back more battery startups
The Fed is pushing up the cost of driving, too