Risk management

This research paper introduces the importance of risk management for air carrier managers and aviation in general. Examples from real aviation mishaps will be used to emphasize the importance of risk management. Furthermore this paper will explain how risk management can be assessed with the help of a risk management plan. The plan includes three main goals; the evaluation of potential loss, the utilization of risk management techniques and the actual establishment of a risk management plan.

There are four risk management techniques used, which are elimination, reduction, transfer and retention. This paper explains in detail on how the risk is being evaluated and divided between the airline and the insurance carrier using these techniques. In conclusion, the paper will show in form of examples from air carriers such as Continental airlines or Finnair, how good risk management works and how the airlines implement their risk management plan into their overall business strategy. Any business enterprise is exposed to some sort of risk.

The attack happened at 9/11 was a wake-up call for the aviation industry to improve the security measures and improve their risk management. Yet it was inevitable to stop the 2002 Tampa plane crash where a youngster stole an airplane and crashed it into a building. The incident that killed the teen was inspired by the 9/11 attack. Using the example above in addition to the worldwide economic development, the aviation industry started to become increasingly vulnerable to threats and other potential dangers. (Godara, 2009)

The integration and improvement of the air carrier risk and safety departments introduced new duties and responsibilities for aviation managers. Usually the CEO, vice president, and the board of directors are responsible for the airlines risk management principles and strategy but the planning, execution, and maintenance of the aviation companies risk management plan falls in the hand of the risk manager. (Finnairgroup, 2011) Risk managers are generally affected in many aspects of the aviation industry. They have to be aware of any situation that might occur or cause aviation hazards.

This could be weather related incidents such as natural disasters or storms, human conflicted incidents such as human error, hijackings or terrorism as well as technical discrepancies on airplanes that are a cause of concern. (FAA-11-8083-2, 2009) After the deregulation in 1978, the role of the airline risk manager changed from not just managing costs but preparing for a crisis as well. The broad range of aviation risk is so immense, especially their costs and liabilities, risk managers are facing the challenge to prevent accident from happening while on the ground or in the air.

The best way to fulfill such demand is to maintain aviation facilities and the equipment by surpassing Federal Aviation Administration standards and working with aviation insurance companies to establish a continuous operation. (Sala & Maurino, 2010) Why is Risk Management important? An example of why risk management is important is the incident of American Airline Flight 965 that occurred on December 20th, 1995. The airplane, which flight was scheduled to fly from Miami, Florida to Cali, Columbia crashed 13 miles off course while approaching its destination.

The cause of the crash was miscommunication between the control tower in Cali, Columbia and the American Airline Pilots. Cali did not have a radar, and so unable to detect the approaching airplane. Over radio communication the Control Tower lead the airplane into a nearby mountain range which killed the crew and passengers on board. The Columbian government blamed the airline’s pilots due to the deviation on its approach and therefore causing the accident to be an international dispute. (Flouris & Lock, 2008) Despite the issue of blaming one another, the one thing learned from the incident is to reduce the unnecessary risk factors.

The airline should have known about the missing radar and be prepared for an eventual language barrier but the experienced American Airline pilots continued the approach and therefore determined their own fate and those of the passengers as well. (Flouris & Lock, 2008) With a growing population and industry, millions of people fly everyday on commercial airliners, including the transport of goods on commercial freight carriers. That is a concern for the increasing factors of risk that eventual lead to air accidents. However, considering the increase in air traffic, the rate of accidents will rise as well.

Yet this type of thinking could be a risk concern and eventually lead to an overhaul of new risk management and crash investigation techniques that involve air carriers, insurers and regulators. (Stolzer, Halford & Goglia, 2011) What is Aviation Risk Management? When talking about risk management, the first thing that comes to mind is the purchase of liabilities or first party insurance coverage. Yet many businesses are in the need of some sort of risk management strategies, plan or a department by itself that covers the subject in detail. (Gheorge, 2005)

Main responsibilities include the decision making process of purchasing the best suited insurance with the right amount of coverage for the applicable air carrier or airport. Furthermore, to increase safety, the establishment of a general risk management plan is advised or in many cases required by the insurance agencies covering the air carrier. (Gheorge, 2005) An inclusive risk management plan attains three general goals which include the evaluation of potential loss, the utilization of risk management techniques, and the establishment of a risk management plan. (Gheorge, 2005)