9/11 as precursor to modern terrorism and risk management challenges

¶ … 911 and Beyond Presage an Era of New Terrorism? What Problems Does this Pose in Terms of Risk Management?

For airports and the airline industry worldwide, the events of September 11, 2001 were absolutely catastrophic, especially in the United States, and resulted in major changes in risk assessment and security procedures. In the United States, all airline security was removed from the hands of the airlines and private contractors and turned over to the federal government. Essentially, the Transportation Security Administration took control of the screening of passengers, cargo and baggage. Because it was the most influential country in the world and the largest market, the U.S. was also able to insist that other countries follow its revised security procedures as well, or be denied access to American air space. Security procedures that had been in place for decades were radically overhauled and intensified, since this generation of terrorists was far better trained, financed and organized than those in the past. Even worse, they were more fanatical and prepared to commit suicide in the belief that God would bless them as martyrs to the cause. No one had really anticipated that they would use aircraft as flying bombs to cause maximum death and destruction to ground targets. Prior to September 11th, the worst case scenario imagined by risk managers and insurance companies was that two passenger planes would collide, or that hijackers would take over planes and demand money or the freeing of political prisoners. After September 11th, they could imagine terrorists who would use nuclear, chemical or biological weapons to destroy a large city.

Several American airlines were driven into bankruptcy by the September 11th attacks, and this was in an industry that had long been in poor condition after deregulation in 1978. Stock values for all airlines worldwide fell by 30%, but in the U.S. they collapsed overnight, and had the government not responded with billions of dollars in emergency grants and loans the entire industry would have failed. Given these traumatic events, the airline industry has taken the position that it simply cannot survive any more attacks like these. They must always be prevented at all costs, and governments will have to pick up most of the costs rather than attempting to pass these on to passengers. This meant more money for new technology, including baggage screening equipment, explosive detectors, bomb and chemical sniffing dogs, microchips in identity documents and facial and iris recognition software. Within a few years, over 45,000 people were employed by the TSA, including thousands of armed air marshals, although other countries resisted this policy, as they did the arming of pilots and flight crew. Since the insurance industry was unwilling or unable to provide coverage for terrorist attacks, this meant that governments also had to take action in this area lest the air industry cease to function. Passengers have been profiled, particularly young Muslim and Arab males in ways that often seem racist and contrary to civil rights. Passengers have been inconvenienced by long lines and intensified screening, including hand searches, and inevitably security personnel have been accused of incompetence, racism, brutality of worse, all of which opens governments and airlines to lawsuits. For the airlines, though, who lost so many passengers after September 11th that they did not recover for four years, all of this intensified security is absolutely essential to prevent another such incident that would destroy public confidence in the industry.

MAIN BODY: THE TRAUMA OF SEPTEMBER 11TH and THE RESPONSE OF THE AIRLINE INDUSTRY

In counterterrorism policy, risk assessment can follow several different models, such as COSO, which includes assessment, response, governance, prevention and mitigation, as well as the development of metrics to assess all potential risks. RAND Corporation, on the other hand, "advocates events-based models that include detailed analysis of vulnerability and consequence of specific terrorist attack scenarios" (Kennedy and McGarrell 2011, p. 2). Its purpose is note to provide optimal security but to prevent major errors like the failure to anticipate the September 11th attacks. Risk assessment is probabilistic of necessity, and always considers a wide variety of factors such as information and intelligence about terrorists, surveillance and mitigation in determining the most likely threats and preventing them. Public support is essential in counterterrorism, especially because of the threat to "privacy and freedom of movement" (Kennedy and McGarrell, p. 3). In its own risk assessments, the U.S. government always combines analysis of threats, vulnerabilities and consequences, with resources applied to the most likely targets and most vulnerable areas, with big cities like New York and its iconic monuments at the top of the list. Airport and airline security, however, is based on the premise that "we need to be right all the time, the terrorist needs only to be right once" (Kennedy and McGarrell, p. 3). Their risk management policy is that all terrorist attacks must be prevented in humanly possible because the industry simply cannot withstand another catastrophe like September 11th.

Companies that do not engage in risk management today are in danger in collapse, and short of all-out war, no greater danger exists to airports and airlines than the risk of terrorism. For the airline industry, events like September 11, 2001 represent a catastrophic risk that could prove lethal, so much so that a repetition of these vents must be avoided at all costs. These attacks were devastating on the global level to the point where it is "now doubtful that the industry will survive in its present state" (Makinen 2002, p. 54). In the immediate aftermath of the attacks, governments were attempting to decide whether terrorism could even be considered an insurable risk or whether it was simply an act of war, as Congress classified the September 11th attacks. The damage to the American air carriers was without "precedent in aviation history," and it drove U.S. Airways and United Airlines into bankruptcy (Makinen, p. 4). It cost the insurance industry at least $40 billion and in its aftermath only a few insurers were "offering limited, restricted, and expensive insurance policies for terrorism" (Makinen, p. 5). Without these, airlines simply would not be able to operate in certain areas or have to fly at their own risk, unless governments step in and provide insurance. This event also caused "a once-and-for-all drop in productivity in the airline industry" as it had to devote more resources and money to heightened levels of security and increased passenger fees to cover it (Makinen, p. 13).

The main goal of terrorism is to promote fear and insecurity in the public mind all out of proportion to the actual military and economic damage that terrorist groups can inflict. This is why they depend heavily on mass media publicity to spread anxiety and fear, and if the perception of the threat is great enough then there will be greater "willingness to place restrictions on civil liberties to increase safety and security" (Breckenridge and Zimbardo 2007, p. 117). Terrorists also understand that dramatic televised images of their acts have a greater impact and shock value than print stories. Airline passengers will demand more intensive security screenings, while at the same time become irritated at the delays, long lines and invasion of privacy. Fear will also stimulate a "pessimistic assessment of risk," although airlines and passengers will generally assume that someone else is always more likely to be a victim of terrorism rather than themselves (Breckenridge and Zimbardo, p. 118). Those who have already experienced violent traumas like these will be the most likely to react with extreme fear and anxiety and to suffer from psychiatric disorders. On the other hand, genuine "mass hysteria and panic is rare," except in situations where the dangers are immediate and the chances of escape very limited (Breckenridge and Zimbardo, p. 119).

Airlines and passengers also tend to underestimate the risks because actual terrorist acts are still relatively rare compared to accidents and natural disasters. Michael Rothschild estimated that an individual has a one in 400 chance of dying of heart disease and a one in 600 chance of dying of cancer in any given year, the odds of airline passengers experiencing a terrorist attack are one in 500,000 (Breckenridge and Zimbardo, p. 119). Nevertheless the public perception of danger is much higher than that, so much so that after September 11th the airline and travel industry lost $60 billion in the U.S. alone and drove several major airlines into bankruptcy. Airline travel did not return to pre-September 11th levels until 2005, and the overall effects on the global airline and travel industry were catastrophic. For obvious reasons, then, airports and airlines follow a risk avoidance policy with terrorism and will take any steps necessary to prevent even one terrorist incident. A repetition of an attack like September 11th could very well destroy an airline, especially in recessionary times like these. This is simply not a risk that the industry or any individual airline can endure, even with governments ready to step in and prop up the entire sector. British Airways, for example, now has a very comprehensive risk assessment system at every level, with all risk leaders meeting quarterly with the head of Risk Management. It also uses a new system of risk assessment software called Aceptus. In dealing with terrorism, its policy is one of risk avoidance, and the company "will do everything to avoid this risk, for example, stricter security checks." Even if this means longer waiting periods for customers, BA still follows a "safety first" policy (Punzel 2008, p. 18).

Airlines are a business based on cash flow and lack the deep pockets to endure a prolonged loss of revenue, as was the case after September 11th. United Airlines had to lay off 20,000 workers and reduce its schedule by 20% after the attacks, while the total layoffs in the industry were over 100,000. Over 1,000 planes were parked or put in storage, while Boeing laid off 30,000 workers in 2002 (Fischer 2002, p. 17). During the days when all flights were cancelled, the entire airline industry suffered losses of $2-3 billion. Wall Street analysts had expected the industry to lose $1-2 billion even before September 11th, but the attacks themselves were almost fatal to the entire American airline industry. All airline stock prices fell after the attacks by an average of 30%, with those listed on the New York Stock Exchange falling 53%. Three American carriers never recovered their pre-September 11th share prices, although all the global airlines except British Airways recovered their share value after an average period of 84 trading days. Continental Airline shares fell 68%, Delta Airlines by 59% and United Airlines by 57%, while British Airlines fell 24%. On average, non-U.S. airlines were not hit as hard, with their share values falling 18% overall, and they also recovered more quickly (Drakos 2007, p. 110). Viewing the industry as a whole, however, the "systemic risk of airline stocks has significantly increased since the terrorist incident of 9/11," by a factor of at least 200%, and this reflects "increased uncertainty surrounding the airline industry" (Drakos, p. 118).

Congress responded to the crisis with the Air Safety and System Stabilization Act on September 22, 2001 which provided an unprecedented $15 billion in emergency assistance, and classified the attacks as an act of war. In addition, the airline industry requested $24 billion in "direct and guaranteed loans and tax relief" for 2001-03 as well as immunity from antitrust laws as it coordinated fares and schedules (Fischer, p. 18). Up to 1978, airlines had been one of the most heavily regulated and government-controlled industries in the United States, and there was considerable fear within the industry and Wall Street that these regulations would be imposed and again, and even that some airlines would have to be nationalized. Given the severe decline in schedules and revenues, the entire industry might have become "dependent on government largesse for its long-term financial survival" (Fischer, p. 19). Congress did in fact establish an air transportation stabilization board that oversaw the industry and the distribution of grants and loans to various airlines. This might be less of a risk for airlines that are still state-owned or controlled, although it reverses the liberalization and free market trend of the last thirty years.

Terrorism was not considered a catastrophic insurance risk before September 11th, and since that time few underwriters have been willing or able to assume that risk. Indeed, insurance coverage of all kinds was inadequate after the attacks, and airlines and airports were unable to obtain it except at "drastically increased premiums" (Nell and Richter 2005, p. 333). In assessing risks before this time, the insurance industry assumed that the collision of two large passenger planes was the worst case scenario. If the industry could not obtain insurance, however, it would simply not be able to exist at all. Terrorism insurance policies tend to be excessively priced and offer only limited coverage, and some risks are so high that they cannot be covered at all, such as "aviation war risks" (OECD 2005, p. 94). No effective terrorism risk analysis exists as it does for accidents, human error or natural disasters like floods and typhoons. Within the insurance industry, "there is a misperception that major terrorist attacks may occur entirely at the whim of militants, and that therefore the frequency of attacks is beyond quantification" (OECD, p. 95).

Nevertheless, with the Patriot Act and similar legislation worldwide, governments to have some degree of control over terrorism, and can deport or confine suspects, for example, close down suspicious Muslim charities and cut off terrorist financing. Al Qaeda also profited from September 11th by short selling airline and insurance stocks, although new laws prevent terrorists from gaining "financial advantage in perpetrating an act of terrorism." Joseph Stiglitz has pointed out that they could literally buy "futures in a violent act" since they have insider knowledge that it will take place (OECD, p. 96). In assessing the risk against terrorism, then, moral hazards like these should always be made illegal so that security standards are upheld and incitement of terrorist acts is prevented. Germany also established a new insurance company called Extremus, which offered 13 billion Euros in coverage for airlines and airports, with only the first three billion paid for by private insurers and reinsurers. This company did not "apply any premium discrimination based upon major risk factors such as location and type of building" (Nell and Richter, p. 334).

There are over 28,000 flights each day in the U.S. alone, and 850,000 each month, which arrive and depart from over 400 major airports. In these facilities there are "thousands of skilled and unskilled workers who pass, unsecured, in and out of employee entrances as they provide routine and ongoing access to hundreds of catering and service vehicles" (Seidenstat 2009, p. 3). Obviously the potential risk of terrorist infiltration through this route alone is enormous. Terrorists and hijackers today are far more skilled and sophisticated than their counterparts from forty years ago, when most airport and airline security systems were put in place. Contemporary terrorists like Al Qaeda are well-funded, well-trained, well-financed, and prepared to die for their cause. Security under these circumstances is a relative concept rather than an absolute one, since even with "unlimited resources" some terrorists are always going to get through the multiple layers of security (Seidenstat, p. 4). At some point, the law of diminishing returns will also become applicable to expenditures on security, and risk assessment in airline security is a "minimization problem, requiring an effort that will match overall security benefits with security costs consistent with allocation of resources that will convey a sense of security to the population" (Seidenstat, p. 4).

All security systems must be continually evaluated and improved to account for new risks and threats, and function as a dynamic rather than a static system. Once passenger and baggage screening in place and the targets have been secured, avoiding damage becomes increasingly expensive. Airport and airline security measures involve access, the airport perimeter, screening passengers, luggage and cargo, and intelligence information on passengers. Security has as many as twenty layers, including fourteen for pre-boarding and six in-flight, which include intelligence, customs, no-fly lists, security vetting of aircrew and ground personnel, use of canine inspections, behavioral observation, travel documents, bomb inspection officers and screening checked baggage. In-flight security includes air marshals and flight deck officers, hardened cockpit doors, police and flight crews (Seidenstat, p. 5). In 2008, a government report described this as a "multi-layered, multi-modal, total security system," although the Government Accountability Office found that more security measures were required for airport perimeters and restricted areas, vetting of airport workers, detection of explosives at checkpoints and foreign air cargo screening (Seidenstat, p. 6). Risk assessment specialists have more information today than ever before about how to protect airlines, but not about "the most effective mix of aircraft screeners, air marshals, reinforced cockpits, control or airport access, and so on," and in the U.S. At least no single officer controls all these aspects of security (Seidenstat, p. 8).

Before September 11th, airline security concerns mostly involved hijacking and sabotage rather than risk that the planes would be used as bombs in suicide missions. New risk assessments had to consider not only passengers and crew, but the danger of aircraft being turned into flying bombs that would cause "massive loss of lives and property on the ground" (Tan 2005, p. 226). Airports and airlines provided most of the security, and private security firms had a "low-quality labor force" with contracts going to the lowest bidders (Seidenstat, p. 7). In November 2001, the U.S. Congress passed the Aviation and Transportation Security Act that was followed by similar measures in other countries, which included new security measures such as air marshals, armed pilots, fortified cockpit doors, passenger profiling, and intensified passenger, baggage and cargo screening. Because of this law there are now thousands of armed air marshals on both U.S. international and domestic flights, but far fewer in the European Union because of opposition from pilots and member state governments. In the U.S. airports still provide perimeter and tarmac security, while over 45,000 federal air marshals and ground screeners are responsible for the rest. Germany, Austria and Switzerland do have air marshals on some high risk flights, but EU nations are concerned that gunfire on planes may cause cabin depressurization or hit passengers and crew. In addition, there have been stories of "over-zealous marshals holding innocent passengers at gunpoint at the slightest provocation" (Tan, p. 230). For these reasons, some countries only allow marshals to be armed with Tasers and stun guns, while the International Air Transport Association (IATA) and International Civil Aviation Organization (ICAO) have not gone as far as the United States and have agreed only that member states "shall consider" the use of armed police and military personnel on flights (Tan, p. 230).

Since air marshals are police or military members rather than employees or the airlines, private carriers do maintain that governments should assume the cost and risks for these personnel. Employing marshals on all U.S. flights would cost at least $20 billion a year, which is far more than the airline industry could afford even by passing the costs on to passengers. In 2020, Congress also passed the Arming Pilots against Terrorism Act (APATA) which instructed the Transportation Security Administration (TSA) to train, arm and supervise pilot volunteers, who often have a military background. This action would probably be more acceptable in the United States with its very large and well-armed police and security forces, as well as a long tradition of large-scale ownership of firearms by civilians. All screening of passengers, baggage, cargo and mail in the U.S. is now under the control of the TSA as well, who are all federal workers rather than employees of the airlines. In fact, only U.S. citizens are allowed to be members of the TSA or to be involved in security screening at all, while all non-citizens were removed from these positions in 2001. Explosive detection systems were installed in all major airports in 2002 as well, although these were found to have a 22% failure rate (Tan, p. 237). EU regulations require all checked baggage to be locked in secure rooms and removed if passengers do not board the planes, while it is also illegal to leave vehicles or baggage unattended in or near airport terminals. In the U.S. And EU, all baggage and passengers are screened by X-ray, metal detectors, explosive detectors and at times by hand, and this is also the policy of the ICAO and IATA. From a risk management perspective, these security procedures are by far the most effective for preventing weapons and explosives from being smuggled on planes, and deterring potential terrorists. Airlines that do not follow these security procedures risk being banned from the U.S. market, and the government also has the power to "ban flights from foreign airports which do not maintain adequate security standards" (Tan, p. 243).