Sunday, May 27, 2018

Thoughts on the Cuban Air Disaster and the Tragedy of Managing Accountability Within Global Service Chains: Is it Time for an OECD Due Diligence Guidance for Responsible Supply Chains in Air Leasing and Chartering?

(Pix from "Cuba plane crash leaves more than 100 dead" BBC News (19 May 2018))

"Three women were pulled alive from the wreckage, but are said to be in a critical condition. The plane, which was nearly 40 years old, was carrying 105 passengers and six crew members. Urban authorities have launched an investigation, and two days of national mourning have been declared. The Boeing 737-201 crashed at 12:08 (16:08 GMT) on Friday, shortly after taking off from Havana on an internal flight to Holguin on the east of the island." ("Cuba plane crash leaves more than 100 dead" BBC News (19 May 2018)).

So begins the usual coverage of this recent tragedy in Cuba. The focus is on the dead and their suffering, their number, and other statistics, prominent among these are the age of the aircraft.  In the case of Cuba from the perspective of a segment of the U.S. media, it also touches on the political situation that sets the context for blame.  That blame, in the case of the New York Times coverage (not unexpected of course) echoes the political line of an important sector of global society that has seen in the pullback of normalization of relations between the United States and Cuba a larger tragedy of which the air disaster can only be a symptom.
A Cuban state airliner crashed and burned moments after takeoff from Havana on Friday, killing nearly all 114 people aboard the nearly 40-year-old plane. It was one of the worst airline crashes in Cuba, which has been struggling to operate with a decrepit fleet of planes that it has blamed partly on the longstanding economic embargo imposed by the United States. (Rick Gladstone and Frances Robles, "More Than 100 Die as Aging Cuban Airliner Crashes," The New York Times (18 May 2018)).

All that may well be true--or not. And both the tragedy and its causes are important stories.  Yet that obsession (as worthy as it might be) also distracts from an equally important element of the story that will receive scarce attention.  That element centers on the way that the diffusion of authority in the global production of goods and services makes it much more difficult to assess and apportion liability (and to trace responsibility) under law across the domestic legal orders within which this diffusion is distributed.  This is particularly the case where liability and responsibility chains may not align across nations or where they may not be coordinated between, for example, financial liability to convictions versus responsibility for supervision under corporate responsibility frameworks.

This essay briefly turns to a consideration of some of those issues in the context of this tragedy. It suggests that it may be time for an OECD Due Diligence Guidance for Responsible Supply Chains in Air Leasing and Chartering.

Michael Wiesssenstein and Bert Wilkinson, reporting for the Associated Press, noted the scope of the issue (“Company Behind Cuba Plane Crash Was Subject of 2 Previous Performance Complaints,” Time (20 May 2018). The reporting does a nice job of sorting through what the conventional practices of service delivery tend to blur: the quite significant aggregations of interlinkages among firms that ultimately appear to the world as an aircraft with the logo of a Cuban aviation SOE painted on its body.
The plane that cashed, a Boeing 737, was barred from Guyanese air space last year after authorities discovered that its crew had been allowing dangerous overloading of luggage on flights to Cuban Guyanese Civil Aviation Director Capt. Egbert Field told the Associated Press . . . The plane and crew were being rented from Mexico City based Damojh [Airlines] by EasySky, a Honduran based low cost airline. Cuba’s national carrier, Cabana de Aviación, was also renting the plane and crew in a similar arrangement known as a ‘wet lease’ before the aircraft veered off on takeoff to the Eastern Cuban City of Holguin. . . . Cuban Transportation Minister Adzel YzquierdoRodriguz told reporters . . . that Cubana had been renting the plane for less than a month under an arrangement in which the Mexican company was entirely responsible for maintenance. (Wassenstein and Wilkinson, supra).
This arrangement among a group of enterprises using several methods of control to develop and operate a service production chain is not unique to aviation. The complex does two things well: (1) it makes it possible to diffuse responsibility, and (2) it does so by disaggregating the various parts or tasks of operation that together constitute what may appear to outsiders looking in as a single act (the delivery of transport services).

1. Diffusion of responsibility. Let’s start by disaggregating the actors. Beyond the manufacturer, Boeing, whose almost 40 year old plane will be at the center of the inevitable administrative and remedial actions taken by those grated the right to do so in the circumstances of Cuba’s domestic legal order, there were a number of commercial service providers situated in three distinct nation-states. The first is a Mexican private corporation which owned the aircraft and provided the crew. Damojh Aerolíneas S.A. de C.V., based in Guadalajara and also known as Global Air (see here), in this aspect of its operations, did not engage in the business of operating a commercial airline; rather it was in the business of providing all of the critical materials necessary (aircraft and crew primarily) so that another (any other) appropriately licensed entity could provide such services. It is not clear whether Damojh was also renting maintenance personnel, services and facilities, or any one of them, or whether Damojh was responsible for purchasing such services for the account. But Damojh apparently did deal directly with the Cuban state operating through its aviation SOE. The second might be the Honduran carrier, EasySky, which has operated recently in Latin America mostly. It also used the plane that was involved in the crash, though it is still unclear what the arrangement was between the plane, EasySky, Damojh and Cabana Aviación. 

But the state is also involved, and principally there are the regulating bodies in Mexico, Honduras, and Cuba, They will serve as the mediators between action and liability and sort through the meaning of the complex arrangements that brought aircraft and crew to Cuba. But neither the Mexican nor Cuban administrative organs are entirely free from conflict of interest. Cuba, of course, stands on three sides of the investigation; first it is the “owner” of Cubana, a Cuban SOE; second, is ministries regulated the arrangements that it also approved after review; and third, it operates the investigative and executive organs that will investigate, and ultimately seek to assign responsibility and liability under its criminal and civil laws. At the same time Cuba is entangled with Mexico under the treaties that made arrangements like these possible, to which both states adhere. Mexico will have some responsibility for investigation which other organs of its state apparatus made possible and approved. Though difficult to understand for the moment, the Honduran state appears to perhaps have a stake in this as well.  There appears to be some relationship between the Mexican delivering the aircraft services and the Honduran corporation and Cuban state organs that were consuming them.

Putting this together one can already see that the partitioning of the provision of a service (air travel to individual consumers and groups) operating through global service supply chains in the provisions of aircraft and crew, can create a situation in which the disjunctions between the seamless economics of the provision of the service across jurisdictions  and the advantageous of dis aggregating its components among a number of sovereign territories might produce advantage for suppliers and difficulties in apportioning responsibility--not just for maintenance, but for accountability and compliance.   Here one has an operation in which virtually every aspect of the provision of the service can be aggregated and responsibility delegated.  Aircraft, aircraft maintenance, flight crew, food services, parts, reservations, marketing, scheduling, and the like can all be assigned to different entities and then only aggregated as needed.   Thus, for example, though Damojh might have been responsibility for crew and maintenance, it could easily have subcontracted for both with yet other entities regulated in other territories or housed in other subsidiaries or provided through the subsidiaries of other enterprises with whom Damojh might have contracted.  The possibilities are limitless. But constructing a unifying structure for accountability and standards grounded in the ideal of a single provider than makes for difficult regulatory enforcement, and for even greater problems when end users, like the victims of the crash, seek to figure out where to vindicate rights or seek punishment for those who broke laws (whose laws?).

And, of course, because the economic issues involve Cuba, the United States always lurks in the background.  In this case, and again as usual, the Cubans tend to foreground that somewhat perverse relationship to their own ends.  Thus, in this case, it is the longstanding sanctions imposed by the U.S. that tend to be identified as the root cause. 
Yzquierdo said it was routine for Cuba to rent planes under a variety of arrangements because of what he described as the country’s inability to purchase its own aircraft due to the U.S. trade embargo on the island. Cuba has been able to buy planes produced in other countries, including France and Ukraine, but has pulled many from service due to maintenance problems and other issues.

“It’s normal for us to rent planes,” he said. “Why? Because it’s convenient and because of the problem of the blockade that we have. Sometimes we can’t buy the planes that we need, and we need to rent them.” (Wassenstein and Wilkinson, supra).
Yet, that explanation is deeply unsatisfying.   It is true enough that it is more difficult for the Cubans to buy aircraft.  At the same time many states with no such restriction find such arrangements sometimes necessary as well (for reasons of financial calculation or advantage). Moreover, Cuba has been able to purchase aircraft (again suggesting the gratuity of the embargo bashing in this case), just not from the U.S. and yet they have chosen to rent in any case for the same reasons that might have produced the crash in this case--maintenance problems and "other issues."   And thus, of course, even Yzquierdo, after the momentary and obligatory sanctions pointing, noted both that plane leases were common, and indeed, in some cases advantageous for states, like Cuba, operating a national airline. 

This brings us back to the problem.  Globalization has made efficient the construction, across borders of profitable enough global service chains in air travel that a sufficient number of transnational actors create a large enough demand to support this business. The business continues to grow (See here ("Operating lessors today manage 40% of the commercial jet passenger fleet and are a key player in the aviation industry")). The political ideology of consumers does not appear to shape the form of extent of this service supply chain, the terms of which have developed in transnational spaces.  As such, the organization of the economics of the service--to provide aircraft, maintenance and crew services for rent--are dependent on global markets and to that extent (that is to the extent that the service is desired) imperious to national regulation.  That last point is probably much more true for the smaller player (Cuba, Honduras, etc.) than it might be for larger national players, or larger economic entities that have more bargaining power. Yet that is the point, the regulatory elements of this service supply chain is more responsive to management through custom and tradition (and the accumulation of bargaining in transactions over time) than it might be to traditional regulation (except, again at the margin, and more likely, built into contracts securing services).

In this  context, then, it is no surprise that legal regimes appear to impede rather than to enhance, the ability to develop accountability and responsibility systems that match the characteristics of the service supply chain.  And that is the real tragedy of this crash.  By the time the sovereign states of Mexico and Cuba get done with each other and with those entities they might reach, the value of the process to those who died, or those whose deaths in the future might be minimized, will likely be reduced.

Here is a place where the OECD's supply chain guidance might serve some useful purpose. Is it time for an OECD Due Diligence Guidance for Responsible Supply Chains in Air Leasing and Chartering?  This tragedy might suggest that there is certainly room for the development of a multi-stakeholder approach to guidance in the air leasing and chartering business to provide states and enterprises with necessary guidance on the apportionment of accountability and responsibility and to guide states and enterprises on the construction of internal management rules for the responsible operation of chartering, and to states for the regulatory framework that would make such markets work both efficiently and responsibly. Air service supply chains are necessary to ensure that air travel is made available widely and to spread the benefits of such travel.  This is especially important in places where migrant communities are widely dispersed--as in Africa and Latin America, among other places. Air travel ought to be accessible.  But it also ought to be provided in a way that does not require consumers to choose between price provision and safety.  That is a responsibility of states and enterprise--and neither appears to have has done well in this instance to meet their responsibilities.

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