THE MORNING RANT: Sacrificing Air Safety for Higher Margins – The Expanding Jet Engine Fake-Parts Scandal

Amidst this business environment, executives at multiple airlines have stumbled onto a clever new way to reduce costs – some of their jet engines contain fake parts from a virtual company.

“Fake Jet Engine Parts Ground American, Southwest, United Planes as Scandal Grows” [Yahoo / The Drive – 9/25/2023]

American Airlines, Southwest Airlines, and United Airlines are among a growing list of air carriers that have grounded aircraft in the wake of a fake jet engine parts scandal that has rocked the aviation industry. Multiple airlines have already replaced the uncertified parts and returned their planes to service, but close to 100 planes may still be affected worldwide.

It seems every day the scandal gets worse, and more airlines find themselves party to the scandal.

“Delta says some overhauled engines contain parts with improper documentation” [Reuters – 10/02/2023]

Delta Air Lines on Monday said it had been informed by one of its service providers that a "small number" of overhauled engines contain parts that do not meet documentation requirements. The company is working with the engine service provider to replace the affected parts and to remain in compliance with the Federal Aviation Administration's (FAA) guidelines, Delta said.

I apologize for being pedantic, but if Delta’s engines contain parts that “do not meet documentation requirements” the immediate problem isn’t remaining in compliance with FAA guidelines, rather the problem is to become compliant with FAA guidelines.

Beyond that, why are so many airlines flying airplanes with engines containing prohibited parts?

Most airlines are not run by pilots or engineers or those with a passion for aviation. They are run by business school graduates who focus on cost cutting. Did any executives intentionally make the decision to use fake parts? Of course not. But did they relax their due diligence by reducing personnel expenses in that critical area? Quite possibly. Did an obsession with expense control allow a fake company’s fake parts to find their way into these airlines’ engines? Almost certainly.

Individuals and business units will be incentivized to make dangerous choices if the consequences of not achieving their goals are worse than the consequences of relaxing due diligence and compliance. Do you remember the Wells Fargo Bank fraudulent account scandal? The employees didn’t simply choose to engage in fraud. They were responding to the goals, incentives, and disincentives set for them. Fraudulent actions were necessary to hit their goals and save their jobs.

A company named AOG Technics is at the center of the fake airplane parts scandal. This Fortune article dated 9/22/2023 did some excellent reporting on the story. Of course, the scandal has continued to expand since then to other airlines.

“Escalating scandal grips airlines including American and Southwest as nearly 100 planes find fake parts from company with fake employees that vanished overnight” [Fortune – 9/22/2023]

About 100 planes around the world have been caught up in a scandal that would be cartoonish if it weren’t so terrifying. It saw a dubious company, with fake employees and an address that was a glorified PO box, sell and distribute fake airplane parts that ended up in planes belonging to some of the world’s biggest airlines.

Regulators, airlines, and parts suppliers around the world are scrambling to track down possible bogus parts as the AOG Technics scandal spreads from the U.S. all the way to Australia. The mysterious London-based firm stands accused of falsifying certain documents and shipping the suspect parts to airline repair shops around the world. Companies like AOG Technics are middlemen that supply parts to independent firms that airlines contract to do repairs on their planes.

“Parts are accompanied by a lifetime of paperwork,” said Robert Mann, president of the airline industry consulting firm R.W. Mann and Company. In the aviation industry, every part of a plane is carefully tracked to ensure its provenance and quality are accounted for. A single faulty part could have catastrophic safety consequences. CFM, the engine manufacturer, became aware of the issues in June when a Portuguese repair shop alerted it to the existence of allegedly forged documents bearing its name, according to Reuters.

By August of this year, the EU and UK’s equivalent of the Federal Aviation Administration were issuing notices that parts distributed by AOG Technics might have forged documentation, and that their origin might not have been from legitimate manufacturers. Original parts manufacturers confirmed that the attestations for certain parts were forged and did not come from those suppliers.

“While there have always been gray and black markets in aircraft parts, mostly purchased by questionable customers, this is a case of a “deep fake” company masquerading as a legitimate supplier that deceived many legitimate buyers,” Mann said.

How does a “deep fake” company pull off such a such a fraud against the major airlines?

Mann also laid some portion of the blame at the buyers’ feet. “It is also disturbing that sophisticated customers who should have been able to properly vet the supplier were nonetheless duped, potentially placing safety of customers, employees, and aircraft at risk,” he said.

But it’s all worth it if those “sophisticated customers” succeeded in cutting costs and achieving their “stretch goals.”

Fortune also did some digging into just who/what AOG Technics is. Forgery and falsification seem to be the policy at the company.

AOG Technics was founded by Jose Alejandro Zamora Yrala in 2015, according to public filings in the UK. In addition to allegedly forging documents for airplane parts it appears that AOG Technics created several fake LinkedIn profiles claiming to be company executives, according to Bloomberg. The profiles listed for its chief commercial officer Ray Kwong and an executive sales representative Johnny Rico featured stock photos and employment histories that couldn’t be verified by any of their purported former employers.

Mr. Yrala founded other companies including an online kitchen appliance company (“Sunwave Solutions”) that may or may not be still be in operation, and a real estate holding company (“Kensho”) that folded in early 2023.

Yrala’s filings offer some insight into businesses that were run in an unusual fashion. Several of the filings are riddled with typos, including misspelled executive titles and oddly capitalized words that appear to have happened when someone hit caps lock instead of the “A” key.

Within the upscale, gleaming office tower [the North Nova building in London] AOG Technics rented a “virtual” address from coworking space The Argyll Club for $100 a month, according to Bloomberg.

AOG Technics’ website and LinkedIn profile are no longer active and a Google search for the company lists it as “permanently closed.” The company did not respond to a request for comment.

As this story continues to unfold, it is likely that there are still many airplanes flying right now with uncertified parts of unknown provenance that made it into jet engines due to fake documentation.

The fraud that allowed the fake parts into commercial jets isn’t the problem - it’s a symptom. The problem is the corporate culture that allowed and incentivized this dangerous fraud to occur.

Your Parcel May Be Late

Was this 757 crash landing in Chattanooga on Wednesday night related to the parts scandal? Probably not. This was a landing gear failure, and Fedex is not caught up in the AOG Technics scandal, at least so far.

“FedEx 757 with landing gear failure crash lands, skids off runway in Chattanooga”

Here is a video of the fiery landing.

Safe travels if you are flying anywhere this Columbus Day weekend.

[buck.throckmorton at protonmail dot com]

posted by Buck Throckmorton at 11:00 AM

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