Despite the large increase in oil prices, most of the big airline stocks are at or near their 5-year highs. Even more striking to me is how far away they are from their lows in the first quarter of 2003. Of course, this doesn’t really apply to Delta or Northwest who are now trading on the pinksheets, but for the airlines that managed to beat down their unions into concessions, offload pension obligations or make it through the bankruptcy process, it’s been a great ride for the stocks. Travel demand has been strong and until there is another terrorist attack in the US, I don’t see that changing. For anyone that flies a lot, it’s no secret that flights are packed and if you make it onto a plane that is not oversold, it is almost impossible to find a seat that you don’t feel like you are sitting on your neighbor’s lap. I guess that’s all good for the airline financial statements, but the numbers are not that impressive. From a fundamental analysis perspective, I have a tough time with airlines. They just don’t make money and that is a historical fact, except for Southwest which has not had good stock performance compared to the others who consistently lose money. So go figure! As much as you may want to rely on Price-to-Sales or multiples of EBITDA, there are good reasons why many investors, financial advisors, or portfolio managers categorically refuse to buy airlines. But as it relates to portfolio performance, those reasons have not worked out too well.

Clearly, there has been an appetite to buy them, but I am rather conflicted on whether I want to fly them. Not that I have much of a choice, but after I spoke to an airline captain for a major carrier on my most recent trip, I am certainly thinking twice. There’s something about pilot experience that comforts me. After the bumpiest rides due to bad weather or mechanical failures, I have appreciated seeing an older captain thanking passengers on the way off the plane. For the most part, we only hear about pilots when its time to strike or when there’s an accident or if they get caught having a few drinks before takeoff. None of those images are good, but they are very rare and for obvious reasons of sensationalism in financial media, they get a lot of airtime. Amazingly, the story people should be hearing about hasn’t caught much attention so I am going to give it a shot.

Since 1959, the FAA has sanctioned age discrimination of commercial airline pilots according to the “Age-60 Rule.” The rule is actually part of a law called Federal law, FAR 121.383 (c) that says if you are 59 and 364 days, you are fit to fly and the next day you are not. Defenders of Age 60 say its not forced retirement and that the pilots are still able to stay in the aviation industry as trainers or anything else outside the cockpit. That’s as ridiculous as telling a 60+ brain surgeon that he cannot save lives anymore, but he can stay in the medical profession as an orderly. I get the whole thing about a pilot having a lot of lives in his hands, but I wonder how many times we worry about cruise ship or ferry captains over 60, or bus drivers, or cab drivers. It’s not as dramatic as imagining a plane crash but nonetheless, there appears to be a safety issue there just as well.

Unions are notorious for protecting the rights of their members, especially for issues like discrimination. So you might think that the two big unions, the Air Line Pilots Association and Allied Pilots Association, would be out there fighting against Age 60. In this case, the unions have been long-time supporters of the discrimination and are fighting to keep it in place. They cite safety as the main concern, but after reviewing the various studies and experts offered up by both sides (most of which can be found online), there appears to be minimal-to-no evidence that there is a health safety issue. However, since the law was put in place in 1959, it actually appears to have worked - no air catastrophe has been caused by an old pilot having a heart attack, forgetting to turn up his hearing aid, dropping his coke-bottle glasses, arthritically slowed reaction times, or going senile. But that is a stupid argument given that in the past 46 years, EVERY accident, near miss or other air traffic problem caused by “operator error” has been due to pilots under 60 years old. It is impossible to know how many accidents would have occured with over 60 pilots and it is equally impossible to know how many problems could have been avoided with more experienced aviators.

I doubt there is a single pilot facing premature retirement that would advocate that weakened physical or diminished mental capacity should be tolerated for anyone commanding a plane with so many lives at stake. Look around the terminal and try to find a pilot (young or old) that appears to be out of shape. Every six months airline captains must complete grueling physical exams administered by FAA-certified medical examiners and proficiency tests in the simulator. Bad vision, poor hearing or elevated blood pressure and you are likely grounded regardless of age. Older pilots don’t want special treatment, but they don’t want to lose their jobs without justification other than their number of days on the planet. The FAA has continuously opposed statistical facts and in the various legal challenges, have preferred to use a “common knowledge” argument, which says every sensible person knows that as people get older, especially after 60, there is a decline in performance. I understand how this resonates with many people who prefer to disregard evidence in favor of personal experience. We all know people over 60 who are not fit, either physically or mentally. So what? - we also know quite a few under 50 who are not fit. Oddly enough, the FAA gives exemptions for pilots who have had head injuries, alcohol and drug dependency, and some heart conditions, as long as they are under 60. Does that make you feel safe relative to a fit pilot that happens to be over 60? By the way, if you are over 60, you can still fly any plane in the same airspace, many of which are of higher performance levels than airliners. You just cannot fly for domestic airlines that carry passengers.

Air travel is global and you might wonder what the rest of the world is doing about this issue. Since Thanksgiving Day, the majority of the world’s non-US pilots are following a new standard of the International Civil Aviation Organization which allows a pilot to fly until 65, as long as the other pilot in the cockpit is younger than 60. So we now have a situation that permits foreign carriers to have over-60 pilots flying into US airspace, but not domestic airlines. If safety is really the issue for the FAA and the “young” pilots unions, I wonder how much less “safe” I will be the next time I fly a non-US airline. In fact, some of our forcibly-retired pilots might actually be jumping cockpits to command one of those planes. Over time, we will be able to count the number of accidents involving an over-60 pilot of the international airlines. I expect that just one will set off a great debate and yet, the ones involving less experienced pilots will likely not even mention their age. Time will tell.

If you think the Age 60 Rule has to be unconstitutional, you might be right, but each time a relevant case has made its way to the Supreme court, it was not acted upon for one reason or another. You might also wonder why Congress has not taken action to update this law. Both Democrat and Republican politicians have authored new legislation in the House and Senate, but they just don’t gain traction. In the political mess we call Congress, saving a few jobs every year for older pilots probably isn’t exciting enough. There are so few consequences for keeping this law in place and quite a lot of bad PR if an older pilot crashes. Even the AARP and ACLU have not provided enough pressure to get this discrimination off the books.

But the law really has about as much to do with politics as it does with safety. The real issue is money. More experienced pilots get better and more lucrative routes on larger planes that command higher salaries. With the cutback in planes and routes during the consolidation and financial restructuring that has occured since 9-11, these jobs are much more in demand. 2001 was one of the last times that a political effort made some progress to abolish the Age 60 rule and back then, there was a shortage of pilots - now there is a glut. Just use the “common knowledge” argument and any “sensible” person will see what this is all about -getting rid of the older pilots has to do with financial “safety”. Even the retired pilots would likely not pretend that much of the reason they want to continue flying has to do with money. Just remember all those salary concessions from the pilot unions and then the shattered retirement plans of several carriers which are now in the hands of the federal government’s Pension Benefit Guarantee Corporation. It’s about the money for both sides, so let’s not pretend it’s for the safety of approximately 750 million passengers that will fly in the US this year.

Enjoy the friendly skies!!! Pilots of all ages are amazing and should not be discriminated against. I hope you spend more time worrying about buying them than flying them.