<B> Readiness Up In The Air</B>
By Jay Campbell
As corporate travel managers are asked by their information services departments to ensure that travel suppliers will beat the Year 2000 reprogramming deadline, speculation abounds about whether the airline industry will be ready--and at what cost.
Year 2000 also is heightening concern over safety, with the public discourse ranging from sensationalism to proper caution. One unsubstantiated story has surfaced about an airline that already has decided not to fly on Dec. 31, 1999. Elsewhere, a United Nations telecommunications expert claimed the airlines could be threatening the public safety by not taking the Year 2000 issue seriously enough.
It's true that the Federal Aviation Administration is behind schedule on air traffic control systems, which has prompted the Senate to create a committee to get to the bottom of things. And it's true that the airline industry has a lot of work yet ahead.
But as for midnight crashes on the last night of the millennium? Not a chance, insiders said. "This is not a safety issue, it's a capacity issue," said Thomas Browne, executive director of the Air Transport Association's Year 2000 Program. "Anything we can get off the ground is safe. It's a matter of whether the air traffic control system can handle as much traffic in January 2000 as it does today."
<TABLE BORDER="1" width="438"><tr><TD VALIGN=TOP ALIGN=CENTER COLSPAN=3><b>THE MAJORS AND THE MILLENNIUM BUG</B>
Year 2000 Computer Costs And Cutovers</center></td></tr><tr><td><B>Airline</B></td><td><B>Estimated completion date</B></td><td><B>estimated cost (millions)</B></td></tr><tr><td>Alaska</td><td>NA</td><td><$1</td></tr><tr><td>American</td><td>6/30/98</td><td>$160</td></tr><tr><td>America West</td><td>NA</td><td>NA</td></tr><tr><td>Continental</td><td>3/31/99</td><td>$12</td></tr><tr><td>Delta</td><td>NA</td><td>$100</td></tr><tr><td>Northwest</td><td>12/31/98</td><td>$55</td></tr><tr><td>Southwest</td><td>3/31/99</td><td>$19</td></tr><tr><td>TWA</td><td>mid-'99</td><td>$18.7</td></tr><tr><td>United</td><td>3/31/99</td><td>$15</td></tr><tr><td>US Airways</td><td>12/99</td><td>$25</td></tr><tr><td><B>Total</B></td><td>
</td><td><B>>$305.7</B></td></tr><tr><TD VALIGN=TOP ALIGN=CENTER COLSPAN=3>Continental excluded internal payroll costs. United excluded aircraft avionics, flight simulators, airport operations and relations with business partners.</tr></td><tr><TD VALIGN=TOP ALIGN=CENTER COLSPAN=3><I>Sources:</I> Airlines 8-K SEC filings. Delta estimate by Lehman Bros.</tr></td></table>
Likening the potential worst-case scenario to a snowstorm, computer outage or labor strike, Browne said, "The airplanes will not fall out of the sky. It's just that some of them may not be allowed to take off."
But even the possibility that capacity suddenly will drop is hugely important to Corporate America--and clearly, airlines are taking the issue seriously.
A recent International Air Transport Association membership survey found that among 43 airlines, 93 percent considered Y2K to be a "serious" or "critical" issue and 96 percent said they have initiated action. IATA determined that the total cost to the airline industry to prepare for the changing millenium will be $1.6 billion. In the United States alone, major airlines have estimated a cost of over $300 million (see chart, this page).
Reprogramming for the Year 2000, also known as Y2K or the Millennium Bug, requires the adjustment of millions of lines of code in just about everything that has a computer chip. Without such programming adjustments, computers could have glitches or even shut down completely because they read the last two numbers of dates ending in 00 as 1900, or something else other than 2000. Most organizations are addressing Y2K in a three-stage approach: assess the situation, fix or replace, then test.
While the carriers appear to be on their way to making the turn-of-the-century deadline, they are not quite as sure about other suppliers, airports, the Department of Transportation and the FAA. In filings with the Security and Exchange Commission, almost every major U.S. airline said "there can be no assurance" that FAA and others government agencies will be ready. Obviously, in SEC financial filings, airlines are taking the most cautious possible approach for the sake of investors. But even in interviews, airline executives are exhibiting a tone of uncertainty.
"As for the FAA, the way we're monitoring what they're doing is through the Air Transport Association," said Lutha Grigsby, lead project manager for Southwest Airlines' Y2K team. "But in reality, we cannot have control."
"I can't make the FAA compliant, but I can certainly set up contingency plans in case they aren't in certain regions," said Janet Wejman, chief information officer at Continental Airlines. On the plus side, she said, "We've been working with Ray Long of the FAA. I think he's going to get things in order--he's definitely the right person for the job."
The DOT's inspector general, Kenneth Mead, last month said the "FAA was seven months late completing the assessment phase. Now they're proceeding to fix the problems. I think they've got it in hand now. In 1998, they'll fix; in '99 they'll test."
The most serious issue for the FAA, Mead said, is the host system for high altitude en route traffic, which is so old there are no longer available parts or even people at IBM trained to fix it. As are most entities, FAA is preparing a contingency plan. But Mead said the agency hasn't yet completed that plan, which somehow got the acronym DARK. FAA has targeted Jan. 1, 1999, as the compliance deadline for all mission-critical systems.
While the Year 2000 issue obviously affects things like computer reservations systems--and soon, since travelers book as much as a year in advance--it also touches "an unbelievable amount of stuff," according to AMR Corp.'s CEO as of this week, Don Carty.
"We found a firetruck that has a chip that tracks its maintenance. If that's not fixed, then the airport has inadequate fire and rescue. If that happens, then the airport has to shut down. So this has made us aware that we really have to find out who else's chips we have to talk to," Carty said.
Carty in mid-April said that AMR was 60 days away from completing most of its software reprogramming. "This is a problem that you just have to throw money at. But we feel good that starting early next year, we can begin using our money for more productive things, and we know we're ahead of our competitors on Y2K."
In its SEC filing, AMR said it "believes its Year 2000 date conversion program to be completed on a timely basis." The company's most liberal estimate of the program's total cost is $250 million, of which $90 million will be incurred by the Sabre Group.
Sabre also is responsible for Y2K compliance for Canadian Airlines International, which is part-owned by AMR, as well as US Airways, with which Sabre signed an information technology contract (<I>BTN</I>, Sept. 8, 1997). US Airways said it "expects to spend approximately $25 million" and believes it will achieve compliance "by the end of 1999, or earlier where necessary." A spokesman said much of the work will be complete by November of this year, when US Airways will implement a partial cut-over to Sabre along the way to full integration.
Continental Airlines also has outsourced the task, to Dallas-based Electronic Data Systems, at an estimated cost of $12 million. The carrier said most of its work already is in the test phase.
In addition to whether or not the carriers are taking care of the problem themselves or outsourcing it, there are a number of reasons why the carriers' cost comparisons vary so widely. Continental, for example, is not allocating the cost of the time spent by its full-time employees to its total. "A lot of people are counting employee time, for example 25 percent of the chief information officer's salary," said Continental's Wejman. "But they're not going to fire 25 percent of me in the year 2000."
United, meanwhile, said reprogramming its mainframe- and network-based programs will cost about $15 million. "United has determined that 40,000 computer programs used by the airline need to be checked, and about 11,000 of these must have changes made to them," the carrier said in a Y2K fact sheet issued last week. It also noted that 60 percent of that work is complete and will be tested throughout 1999. These programs run critical functions such as scheduling, revenue accounting, seat inventory management, reservations and the frequent flyer program.
But United will not tally until September the costs of retooling aircraft avionics, flight simulators and airport operations. It is currently identifying which of those programs will require modification and said it is on track to be compliant in those areas by March 31, 1999.
Alaska Airlines estimated it will incur a total cost of under $1 million, mainly because it already had planned to upgrade most of its systems after the business community became aware of the Y2K issue and, so made sure its new software was compliant. Other airlines, too, are accelerating system upgrades that may have been originally planned for after 2000.
Being a younger airline, Southwest also has equipment that is newer than many of the majors and "tends to be less problematic," said systems vice president Ross Holman. "Also, we have very little integration with other airlines for things like baggage transfer and interlining, so we're not as dependent on some of the systems that need work."
While Delta has yet to make an estimate of cost or timeline, an April Lehman Brothers report by airline analyst Brian Harris approximated it's total Y2K tab at $100 million. A Delta spokesman promised the airline will be operational "into and through the year 2000, and it will be seamless for our customers."
Northwest, which will spend about $55 million in total on Y2K, is aiming for the end of 1998 for full compliance. The carrier has updated over 20 million of its 34 million lines of code, which spreads across three platforms and 488 computer systems.
"Y2K is the number one issue that every company in the world is dealing with--and if they're not, they should be," said Bob Dufek, program director for Northwest's Year 2000 Program. "For Northwest, our biggest issues right now are dealing with international airports and airspace."
All of the carriers are working with IATA, and ATA in the United States, to ensure that airports, commercial suppliers and government agencies around the world will be ready "so airlines can set up contingency plans if they're not," said ATA's Browne. As of late April, ATA had assessed 15 of the nation's 145 larger airports. ATA also is surveying the 5,000 suppliers common to over 20 percent of its 25 airline members to determine how seriously they are taking the problem and when it will be fixed. IATA is doing the same on an international level, and individual airlines will be responsible for checking on any airports they serve that ATA and IATA don't cover.
Asked what kind of contingency plan might be in place if certain suppliers are found to be non-compliant, Southwest's Grigsby said, "If they were a sole provider, critical or vital to our business, we would identify another vendor we could use."
Unfortunately, if airlines cannot operate for whatever reason, corporate travel managers have little choice for alternative methods of travel. "Y2K compliance comes into play when we're choosing suppliers," said Charles Braswell, manager of Chrysler's business travel department, "and we have to ensure the companies we're dealing with are working toward compliance. To me, the primary issue is the FAA."
But Browne noted that the issue is far more pervasive than just the FAA. "In the end, the worst case could have nothing to do with the airlines or the FAA," he said. "What if the power goes out? That's doomsday.