ValuJet’s Growth Under Scrutiny After Crash

The fatal crash of a ValuJet Airlines flight in Florida not only raises questions about the future of ValuJet--a young carrier that’s been expanding at breakneck speed--but also about whether its troubles will be felt 3,000 miles away at Douglas Aircraft’s jetliner plant in Long Beach.

Federal regulators, industry analysts, the airline and the flying public will now step up their scrutiny of whether ValuJet’s growth during its brief 2 1/2-year history has in any way compromised the carrier’s safety.

No one is saying ValuJet’s existing 51-plane fleet--composed mostly of older DC-9s built by Douglas--is unsafe, particularly with the crash’s cause as yet unknown. Moreover, airplanes flown by venerable full-service carriers have crashed.

Nonetheless, the crash Saturday of Flight 592 in the Everglades, killing all 109 on board, followed a series of less serious accidents involving ValuJet’s fleet and therefore is likely to add to doubts about whether ValuJet can safely maintain its rapid growth.

“It stands to reason they might have to scale back” in light of recent events, said Hal Chrisman, senior associate at the aviation consulting firm Canaan Group Ltd. in Park City, Utah.

ValuJet, based in Atlanta, may be unknown to some Californians because its service is concentrated in the East, where it flies to 31 cities in 19 states. But there are thousands of other Californians working for Douglas Aircraft who are partly dependent on ValuJet’s long-term prosperity.

That’s because ValuJet placed a $1-billion order last fall for 50 of Douglas’ new MD-95 jetliners--the first and, so far, only order for the 120-seat plane. The order enabled Douglas, a struggling unit of McDonnell Douglas Corp., to formally launch production of the aircraft.

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ValuJet, eager to upgrade its aging fleet, is scheduled to start taking delivery of the planes in 1999. The order is expected to add about 1,900 jobs to Douglas’ existing work force of 9,500.

But if fallout from the Florida accident should significantly slow ValuJet’s growth or otherwise hurt its financial performance, concerns are likely to increase about whether ValuJet will be able to afford the planes.

Even before Saturday’s crash, ValuJet was feeling growth pains. Last month it announced plans to “take a hiatus” from its heady expansion because, in the aftermath of its prior accidents, the Federal Aviation Administration had increased its oversight of ValuJet’s safety standards.

Douglas Aircraft spokesman Tom Downey declined comment Sunday on the MD-95’s outlook, except to say ValuJet has made no changes to its original order. “We’re really not thinking about anything now except the folks whose lives have been touched by this event,” he said of the crash.

Douglas officials have said they expect to sell more MD-95s by the end of the year, and one aerospace analyst, Wolfgang Demisch of BT Securities in New York, said Sunday that the ValuJet crash is unlikely to dissuade other airlines who want the new airplane.

“I would assume the MD-95 would find additional customers as the year progresses,” he said. “The MD-95 is clearly aimed at more than just ValuJet.”

Ever since the airline industry was deregulated in 1978, dozens of start-up airlines have tried to become lasting players in the field--and failed. ValuJet has appeared to be one of the exceptions.

The carrier began service in October 1993, with two airplanes flying between its home base of Atlanta and three Florida cities. It was founded on the idea that it could provide low-cost, low-fare service to, among others, the millions of leisure travelers who were driving to Florida every year.

The airline, which features a cartoon character named “Critter” on the fuselages of its white-and-blue planes, later set up a second hub, at Dulles International Airport near Washington.

ValuJet’s low costs, achieved by spartan offices, lack of on-board meals, relatively low employee pay scales and limited daily flights, have paid off handsomely. The airline’s profit last year tripled to $68 million from $21 million the prior year, and its revenue soared to $368 million from $134 million.

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Investors were enthralled. ValuJet’s stock, which began trading publicly two years ago for $3.125 a share (after adjusting for two stock splits since then), shot up as high as $34 in November.

But it has since dropped amid concerns about ValuJet’s safety and scaled-back growth plans, and it closed Friday at $17.875 on the Nasdaq market.

And maintaining safety isn’t ValuJet’s only challenge: The nation’s leading low-cost carrier, Southwest Airlines, recently entered the valuable Florida market. Also, the much larger Delta Air Lines--the dominant presence in Atlanta--is thinking of starting a low-fare “airline within an airline” that also would vie with ValuJet.