SAN FRANCISCO — Emery Worldwide Airlines agreed to ground its 37-plane fleet Monday after the Federal Aviation Administration confronted the cargo carrier with more than 100 apparent violations of government safety regulations.
The suspension runs the next 30 days, but Emery Worldwide’s planes probably won’t fly for two to four months, said FAA spokesman Les Dorr Jr.
In the mean time, Emery, which delivers freight to 200 countries, will stay in business by using airplanes flown by Wichita, Kan.-based Ryan Aviation and other contractors.
With its planes on the ground, Emery said it will furlough about 800 of its 1,100 employees. The airline’s main hub is in Dayton, Ohio. It also operates nine regional hubs in: Los Angeles; the Sacramento area; Dallas; Chicago; Atlanta; Poughkeepsie, N.Y.; Charlotte, N.C.; Nashville, Tenn.; and Orlando, Fla.
Emery, owned by Palo Alto-based CNF Transportation Inc., had been under FAA scrutiny since January 2000.
In February 2000, an Emery DC-8 crashed after taking off from Mather Field near Sacramento, killing the three-member crew. Monday’s suspension prompted the National Transportation Board to postpone Aug. 22-23 hearings on the Mather Field crash.
Emery specializes in delivering freight weighing at least 70 pounds and accounted for nearly half of CNF’s $5.6 billion in revenue last year. The company lags well behind the leading rapid shipping service, FedEx, which had revenue of $19.6 billion last year.
Both Emery and its contractor, Ryan, are named in a whistle-blowers’ lawsuit alleging that the carriers have been forcing their pilots to fly unsafe planes for years so freight deliveries arrive on schedule.
In a 1997 complaint filed in an Ohio federal court, attorneys for former Ryan pilots Eugenia Smith and Carlton R. McLain allege that Emery and Ryan “fly a fleet of aging aircraft which require substantial maintenance and often suffer equipment failure. Some of the aircraft are severely corroded.”
The case is still open, and most of the documents produced so far remain under court seal, said Ann Lugbill, a Cincinnati attorney representing McLain and Smith, who were fired by Ryan in 1996 and 1997, respectively.
Ryan and Emery have denied the allegations in the whistle-blowers’ suit, which seeks a 25 percent cut of any civil penalties and damages that the government receives from the carriers.
Regulators decided to crack down on Emery after concluding the airline’s management was unlikely to address widespread safety problems.
“The FAA is not in the business of putting an air carrier on the ground,” Dorr said. “We only do it when it gets to the point where a carrier can’t find and fix their own problems.”
Dorr said Monday’s action represented the FAA’s largest suspension of a carrier’s fleet since the government grounded ValuJet in 1996 following a crash that killed 110 people in Florida Everglades.
Emery regards the FAA’s action as “unnecessary and unwarranted,” said CNF spokeswoman Nancy Colvert.
“We knew we had issues with the FAA, but we really thought we had remedied most of these things,” she said.
CNF’s stock fell $1.19 to close at $30.31 in Monday trading on the New York Stock Exchange.
The suspension is expected to drive up CNF’s expenses substantially during the next few weeks as Emery pays contractors for air freight.
But the crackdown could be a plus if it pushes the company to improve its safety procedures or results in a decision to cut long-term costs, said industry analyst John Barnes of Deutsche Banc Alex Brown.
In announcing the suspension, the FAA cited Emery for making improper and inadequate repairs to “mechanical irregularities” that had been flagged by the airline’s pilots. The FAA said Emery also made unapproved alterations to its aircraft and chastised Emery for inadequate record keeping and failing to follow the policies in its manuals.
Monday’s suspension represented the latest setback for Emery, which suffered an operating loss of $377 million on revenue of $1.1 billion during the first six months of this year. At the same point last year, Emery registered an operating profit of $20 million on revenue of $1.2 billion.
This year’s first-half loss stemmed mostly from a $340.5 million charge Emery took to reduce its operating fleet from 54 to 37 planes. Emery attributed the cutbacks to the slowing economy and the loss of contracts to handle priority and express mail for the U. S. Postal Service.
Emery lost the contracts to Federal Express in January, triggering a federal lawsuit against the Postal Service. In March, the U.S. Court of Federal Claims upheld the Federal Express contract, but Emery is appealing.
Emery generated an operating profit of $28 million on revenue of $229 million from the express mail contract last year, according to CNF’s annual report.
Emery is continuing to deliver express mail for the Postal Service in the eastern United States until Aug. 26. The carrier already had contracted with other airlines to handle the express mail delivery before Monday’s suspension, Colvert said.
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