Perspectives on AIG, part 2: Cost Cutting and Saving the Company

Last week I outlined the lessons learned from the tragedy of Partnair Flight 394 with a focus on Wilhelmsen.  Now, I’d like to look at the lessons from the other company involved in this incident—Partnair.

Prior to the crash, Partnair made a few strategic decisions which contributed to this disaster.  Faced with economic and regulatory pressures, they decided to:

  • send the plane to Canada for servicing before the crash
  • use parts that were neither original nor within the specifications for the plane
  • have them installed and then used by untrained personnel

While none of these alone necessarily constituted anything illegal, the cumulative effect resulted in the crash that killed 55 people (50 from Wilhelmsen and the 5 crew).So what’s the significance of these three strategic decisions?

Sending the plane to Canada for repairs would seem okay except that Norway (where Partnair was located, chartered, and subject to aviation regulations) and Canada did not share the same regulations on aircraft repair, parts, and training.  It has been determined that Partnair intentionally made this decision to save costs and time.   

Hinges and bolts installed on the plane while being serviced directly caused the plane to crash.  This is the conclusion of both the Norwegian government and aviation investigations.  Both found that inferior and used parts were installed.  And while neither directly concludes that these actions were criminal, both agree that the actions were highly irregular and outside the normal operations for airlines.

The parts were installed by technicians not fully trained on the particular air craft.  Not only did the investigations determine the parts were inferior but that their installation was inferior.

And so the lessons from this disaster have implications for companies during today’s tough times:

  1. If you decide to ‘cut costs’ do so only in non-critical areas.  If you decide to substitute inferior parts, products, and suppliers understand the implications.  Think carefully and critically about such decisions.  If such cuts have the potential to sabotage your core business, think again.
  2. Choose your vendors and business partners wisely—particularly those who contribute directly to your operational excellence.  Ensure that they follow standard procedures, utilize proper parts, and meet accepted levels in their training and documentation.

And the ultimate lesson?  Several months after the crash, Partnair ceased operations.  Burdened by financial losses, they could not operate any longer.  That’s an interesting contrast to Wihelmsen, which survived this terrible ordeal.

In summary, the tragedy of Partnair Flight 394 teaches valuable lessons:

  • prepare your company for the future—people and processes to sustain any unforeseen event
  • create an environment within your company that shares leadership, encourages creativity, and breeds commitment
  • ensure decisions on costs, suppliers, and processes are aligned to your core business and do not have the potential to cause catastrophic outcomes for you, your company, or your customers

And these lessons cycle back to AIG and others who are paying big bonuses while operating in these tough times.  Keep a laser-trained focus on all aspects your business, trust your people, and plan for the future.  The bonus debate may prove to be a red-herring diversion from this focus.

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