South-Western College Publishing - Economics  
Inflammatory Insulation Recommendation Insulates FAA From Public Criticism But Inflames Airlines
Subject Opportunity Cost
Topic Scarcity, Choice, and Opportunity Cost
Key Words Cost
News Story

In the wake of the September 1998 Swissair crash, the Federal Aviation Administration (FAA) is recommending that airlines replace the flammable insulation around the fuselage. Most industry officials said that they agreed and would comply. The cost may be as much as millions of dollars for each jet.

The FAA is reacting quickly although the exact cause of the Swissair crash is not certain. It reports that other fires have occurred due to the insulation. The new culture at the FAA takes a more aggressive stance toward air safety since the ValuJet crash in 1996 when the agency was under heavy criticism. The danger of quick reactions is that unnecessary and costly changes may be required--such as additional baggage checks and delays for passengers--following the TWA 800 crash in 1996, first believed to be caused by a terrorist bomb.

(Updated December 1, 1998)
Questions

1. The FAA has recommended that airlines replace the fuselage insulation.
  a) What is the best alternative to replacing the flammable insulation?
  b) What are the direct costs of compliance with the recommendation?
  c) Might there be any indirect cost? Give an example.
  d) Given these costs, why do you think the airlines are willing to agree to make the improvements?
2. Opportunity costs vary according to whose viewpoint is taken. Take the FAA first.
  a) What is the best alternative to issuing the recommendation?
  b) What are the direct and indirect costs to the FAA of the recommendation? What are the benefits?
  c) Does this explain why the FAA is acting quickly?
3. Put yourself in the position of a traveler
  a) What are the direct and indirect costs to you of the replacement of the insulation? What are the benefits?
  Is the FAA overreacting in your opinion, given your answer to (a)?

Source Alan Levin, "FAA changes worry airlines", USA Today, October 16, 1998.

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