February 2014

By Sarah MacLeod, Executive Director

In less than a month, the association will hold its annual meeting and symposium. It is with great pride that ARSA welcomes its members and friends to the nation’s capital for a day with lawmakers and then a full program of regulatory compliance issues. This event ensures a full complement of the “things that matter” to an aviation maintenance business. It has elements of national and international import, networking, and knowledge. It reminds folks of why we are proud of what we do and why we do it. Our programs provide the opportunity to learn from national and international regulators, customers, innovators, and each other.

Activities commence on March 19 with Legislative Day, when attendees hear from senior House and Senate staffers about the threats and opportunities for the aviation industry on Capitol Hill, the importance of political engagement, and the process for the next Federal Aviation Administration (FAA) reauthorization. Throughout the day, ARSA members will meet with their lawmakers to educate them on critical issues impacting their businesses.

The Repair Symposium gets underway on March 20 with valuable sessions on the association’s agenda for the coming year, maintenance, certification, the evolution of FAA oversight, customer collaboration, and cloud-based MRO solutions.

March 21 opens with breakfast and a state-of-the-association address from ARSA President Gary Jordan. Attendees will then pick one of three breakout sessions including change management, non-FAA regulatory activities, and maintenance manual accessibility.

Visit ARSA.org to see the complete agenda and to register for this year’s premier aviation maintenance industry event. I look forward to seeing you there!

FAA Proposes Production Rules Modernization

ARSA Urges TSA to Reconsider Repair Station Responsibility

BY Daniel Fisher, ARSA VP of Legislative Affairs 

Security Rule Compliance Checklist Released

ARSA Asks FAA to Clarify EASA Data Acceptance

By Zach Bruckenstein, Advocacy Manager

On Feb. 7, the European Aviation Safety Agency (EASA) Rulemaking Directorate released Notice of Proposed Amendment (NPA) 2014-04, which concerned technical records.

The NPA seeks to clarify requirements for the maintenance and retention of technical records for use in airworthiness assessments of products and components and to develop relevant guidance on the use of new technologies for record-keeping.

The deadline for submission of comments is May 7. ARSA staff is reviewing the NPA and determining whether to submit comments to EASA. Stay tuned to ARSA for further developments.

By ARSA Staff

On Feb. 3, ARSA sent a letter to the Office of Information and Regulatory Affairs asking it to withdraw generic approval of a Federal Aviation Administration (FAA) information collection request. The approval gives the FAA unfettered authority to require reporting through Airworthiness Directives, contrary to Paperwork Reduction Act (PRA) requirements and established Office of Management and Budget standards.

The association’s objection was based on contradictory statements in the FAA’s approval request, which included an inaccurate justification and false assertion that the agency had “no other way to require reports of information.” ARSA stressed that the approval can easily be removed since the FAA uses it in limited circumstances. The association believes the FAA would have sufficient time to apply for an approval number under the standard PRA clearance process. Stay tuned to ARSA for further development. 

Specifically, the NLRB proposes to decrease the amount of time required before employees can vote on unionizing their workplace. If finalized, the new rule will permit organizing elections to take place 10 days after a union representation petition has been accepted by the NLRB, making it more difficult for employers to make the case against unionization.

Originally issued in December 2011, the regulation was successfully challenged on procedural and constitutional grounds by business groups. Rather than continuing to appeal court decisions, the Board withdrew its ambush election rule earlier this year and reissued a notice of proposed rulemaking (NPRM), nearly identical to the prior proposal. The NPRM also enables union organizers to have access to the names, addresses, telephone numbers, and company email addresses of employees.

Comments to the rule must be made before April 7. Stay tuned to ARSA for further developments.

In February, ARSA’s legislative team has been in contact with TSA officials and Capitol Hill regarding the new security rule’s implementation and the regulation’s “real world” implications.

The association is beginning preparations for the next FAA reauthorization bill. Congressional leadership is starting to lay the groundwork for the next FAA bill and ARSA is in the early stages of formulating proposals for the legislation. Is there an issue that the association should address in the reauthorization bill? Send us a note at arsa@arsa.org.

In February, ARSA was represented at a discussion hosted by the U.S. Chamber of Commerce with House Ways & Means Committee staff regarding comprehensive tax reform.

With pivotal mid-term elections slated for November, the association has been actively engaging with congressional candidates during visits to Washington. We are also implementing a PAC strategy that focuses on supporting lawmakers and candidates who have demonstrated leadership on the industry’s top priorities and are poised to shape the next FAA reauthorization process. Is there a candidate we should be supporting? Let us know!

This month, ARSA’s legislative team also participated in PAC events for Rep. Frank LoBiondo (R-N.J.), chairman of the House Aviation Subcommittee, and Rep. Sam Graves (R-Mo.), chairman of the House Small Business Committee and House Aviation Subcommittee member.

Ensuring our friends get through an increasingly difficult primary process is a crucial aspect of our plan. ARSA is launching its PAC fundraising for the year during Legislative Day on March 19. In order to learn more about ARSA PAC, please fill out solicitation consent today!

By Larry Richards, Senior Manager, CAVOK, A division of Oliver Wyman, Inc., 720 Whitley Road, Keller, Texas 76248. © 2014 Larry Richards ALL RIGHTS RESERVED.

The Impact of the Airline Deregulation Act (ADA) 1978

In 1978, Congress passed the Airline Deregulation Act (ADA), which immediately allowed airlines to set their own fares and apply for new routes. The ADA also gradually curtailed the Civil Aeronautics Board’s (CAB) authority, culminating in its dissolution in 1985. In September 1982, the Federal Aviation Administration (FAA) attempted a similar approach to safety oversight by introducing the regulation by objective (RBO) concept, which proposed replacing detailed rules with broad objectives. The FAA withdrew the proposal in the face of criticism. Thus, economic deregulation took place while the safety oversight regime remained similar to the one in place prior to 1978.

The era included many initiatives to update safety regulations and refine the oversight process as economic deregulation created new challenges:

• The number of commercial carriers doubled between 1979 and 1983, creating an additional workload for FAA inspectors.
• Many of the new carriers contracted their maintenance, further complicating the oversight process.
• This increased concerns that carriers in financial trouble would skimp on maintenance and other safety requirements.
• Increases in aircraft leasing also created incentives for carriers to defer maintenance.
• Emphasis on precise flight schedules necessary for efficient hub-and-spoke operations increased pressure on pilots and mechanics to avoid delays.

The agency’s safety oversight system underwent investigations and inquiries initiated by management at the FAA, the Secretary of Transportation, and Congress. In June 1980, the Committee on FAA Airworthiness Certification Procedures released a report on the crash of American Airlines flight 191. The NTSB determined that the probable cause of the crash was the separation of an engine during takeoff and attributed the incident to improper maintenance procedures. The crash raised questions about the initial certification of the DC-10, which occurred despite known vulnerability to this type of failure, as well as the FAA’s systems for maintenance oversight. The Committee’s report found “nothing … that would lead us to conclude that confidence gained in the airworthiness of our nation’s transport aircraft is unwarranted,” but that nonetheless “the airworthiness system can and should be improved.

The FAA initiated the Aviation Safety Analysis System (ASAS) to support its safety oversight and decision making using computer technology. A component of the system, the Work Program Management Subsystem (WPMS), was designed to reduce the paperwork burden of inspectors. Other steps included adopting the lead region concept, where certain regions would perform headquarters functions for different aspects of aircraft certification, and promoting self-audit and self-disclosure programs.

In March 1984, DOT Secretary Elizabeth Dole initiated a review of all transportation modes. The review included additional inspections of airlines supported by a 25 percent increase in the inspector workforce. Subsequently, the 90-day National Air Transportation Inspection (NATI) program began with across-the-board inspections of all major and commuter airlines, followed by in-depth inspections of identified deficiencies. Of the 237 airlines and 25 other firms inspected, 16 had sufficient safety deficiencies to warrant enforcement actions that ranged from decertification to temporary grounding of aircraft or pilots. The program expanded to pilot schools, repair stations, on-demand air taxis, and other elements of the system where safety vulnerabilities might exist. NATI inspections continued under the National Aviation Safety Inspection Program (NASIP) and targeted certain airlines each year for in-depth inspections. In 1987, a special inspection program, called Operation Snapshot, targeted the aircraft manufacturing industry to ensure that manufacturers followed proper procedures and used up-to-date techniques.

The FAA also addressed internal flight standards issues through the Safety Activity Functional Evaluation (SAFE) project. The project called for increased standardization of inspection procedures and rule applications, improved training and inspector guidance, greater use of ASAS, the establishment of performance standards for FAA regional offices, and expedited rulemaking procedures. The review emphasized the need for improved communications within the FAA and with its customers. The FAA issued the National Work Program Guidelines (NPG), which identified 41 critical types of inspections and requirements for minimum numbers of such inspections for each airline within a region. A 1991 General Accounting Office (GAO) report concluded that, in 1990, 30 of the 83 Flight Standards District Offices had not completed all inspections required under the NPG, and that, among these 30, 28 percent of required inspections had not been completed. The completion rate improved to nearly 100 percent during the early 1990s, mainly as the result of a sharp decrease in the number of required inspections, from 103,000 in 1990 to 46,300 in 1996.

The Safety Performance Analysis System (SPAS) resulted from the determination that flight standards personnel could do a better job analyzing and making decision if they had access to reliable data. SPAS was meant to help inspectors identify specific higher-risk areas and certificate holders, and plan inspection activities accordingly. Delays and problems with data quality caused full deployment of SPAS to take nearly six years.

Air Transportation Oversight System (ATOS)

On May 11, 1996, a fire in the cargo area of ValuJet Flight 592 cause an accident that killed all passengers. Experts think the crash was linked to the FAA’s failure to effectively oversee the airline’s operations. Indeed, FAA Administrator David Hinson testified before Congress and identified two mistakes that the FAA had made with ValuJet: failure to understand and deal with the effects of rapid growth and failure to foresee the difficulties created by virtually complete contracting of maintenance. Hinson also identified steps to strengthen oversight and assure the quality of contract maintenance. He proposed a 90-day safety review to assess the applicability of federal aviation safety regulations to contract services, staffing standards, workload distribution, and other related issues.

DOT Inspector General Mary Schiavo also criticized the FAA’s oversight system. During the same hearing when Hinson testified, Schiavo summarized the results of 10 reports containing 70 recommendations that her office had issued over the previous four years. She said “effective inspections organizations” share seven attributes:

• An inventory of the entities they are responsible for overseeing;
• A process for targeting high-risk activities;
• Well-defined inspection requirements that include the critical items that must be reviewed;
• Documentation showing what was inspected and the results of the inspection;
• A system for communicating identified problems to the entity inspected;
• A system to record, track and follow up on needed corrective actions; and
• A process to periodically analyze the results of the inspections to identify problems that need to be addressed systemically.

The 90-day safety review task force recommended:

• New carriers receive heightened surveillance during their first years of operation;
• Carriers demonstrate they have the necessary infrastructure prior to increasing the scale and scope of operations beyond certain predefined thresholds; and
• Air carriers adequately assure the quality of contracted training and maintenance work and include contractual arrangements in airline maintenance manuals.

The general message of the 90-day safety review was that the modern, deregulated airline industry posed very different oversight challenges for AFS. The past stability of the air transportation environment had become more fluid, expansive, and technology-intensive.

The review also identified, and proposed remedies for, inefficiencies in the process of certificating new carriers. A major issue was the lack of coordination between the Office of the Secretary of Transportation (OST), responsible for assessing the managerial and economic fitness of an applicant, and the FAA, charged with certifying that the applicant had the ability to operate safely. Additionally, differences among Flight Standards District Offices (FSDOs) in their interpretation of regulations and certification procedures lead to FSDO shopping, which is the process of taking advantage of these inconsistencies to make the certification process easier. Frequent problems with applications also consumed staff time and prolonged the application process.

On February 7, 1997, the Certification Standardization and Evaluation Team (CSET) was established. CSET was to provide expertise and support to FSDOs to ensure that new entrant carriers had proper oversight during certification and the subsequent five years, help evaluate new entrant carriers, and encourage communication and coordination between the certificate-holding district offices (CHDOs) and OST. Certification Process Document (CPD) was created to ensure all new entrant applicants faced the same certification standard. This tool captured the appropriate FAA regulations, orders, notices, and other guidance documents and sources. This improved consistency in application and interpretation, which helped reduce the incentive for FSDO shopping.

The 90-day safety review also called for the FAA to develop comprehensive plans for each individual carrier, rather than applying uniform standards for minimum levels of surveillance. These plans would use improved systems for collecting and interpreting surveillance and other safety data, along with assessments of risk derived from those data. Inspectors would be trained on the importance of data quality. Inspectors would also make use of a centralized information management function that would disseminate safety information and assist in the interpretation of safety data. The surveillance plans would make more effective use of geographic inspectors, whose work plans for a given carrier would come from the office holding that carrier’s certificate. Finally, responses to findings, including follow-up inspections and enforcement proceedings, would be systemized to improve both safety and efficiency.

AFS formed a Surveillance Improvement Process (SIP) team of inspectors, other AFS personnel, and safety specialists from Sandia National Laboratories to create a plan for targeted surveillance. The SIP team’s proposal formed the basis for the Air Transportation Oversight System (ATOS) that exists today. ATOS focuses on safety attributes – responsibility, authority, procedures, controls, process measurement, and interfaces – that link together and form the foundation of a robust system. ATOS consists of two primary sets of tools for inspectors to use in their ongoing oversight. Safety Attribute Inspection (SAI) tools help verify that design requirements are met and Element Performance Inspection (EPI) tools help validate that performance requirements are met.

Fifteen months after the SIP report, AFS initiated ATOS at 10 of the nation’s largest passenger air carriers. Each airline was assigned a team of inspectors, which developed comprehensive surveillance plans that established the priority and frequency of different inspection tasks based on carrier-specific data and information. However, the component inspections were standardized, with each type of inspection structured around an inspection checklist that had to be completed, rather than a set of optional tasks that inspectors could perform at their own discretion. This approach lent more structure and uniformity to inspections and encouraged the collection of higher-quality, more standardized surveillance data. Specific personnel were also responsible for reviewing and analyzing the data on each ATOS inspection team. Finally, ATOS tightened the connection between the inspectors’ technical training and assignments.

Nonetheless, ATOS had design and implementation shortcomings. Many inspectors considered the inspection guidance vague, the training too rushed and inadequate, and the personnel assigned to inspection teams lacking experience or inconveniently located. Work assignments did not take adequate account of other job responsibilities, such as work related to airline initiatives or other inspection work assigned by local offices. Further, assignments were not based on the time required for ATOS inspections. Finally, data collection protocol standardization was done without appreciation for the information necessary to effectively monitor and improve air carrier safety.

Three years later, a DOT Office of Inspector General (OIG) report on ATOS raised additional complaints. The report found that “FAA inspectors are: (1) confused over how to conduct ATOS inspections; (2) unclear on the concepts of system safety and risk analysis; (3) frustrated by a perceived lack of management direction and support, and (4) concerned that ATOS does not give sufficient inspection coverage of air carrier operations.” An NTSB report on the crash of Alaska Airlines flight 261 cited deficient oversight, attributed by inspectors to the ATOS transition.

Between the initial deployment of ATOS in 1998 and early 2006, the ATOS program office made significant changes based on concerns from field inspectors, the OIG recommendation, and input from the certificate holders. By the end of 2007, all part 121 air carriers had transitioned under ATOS.

Today AFS oversight of certificate holders consists of two distinctly different programs. All part 121 air carriers (approximately 85) are under ATOS, which is based on design verification (SAI) and performance validation (EPI), and the remaining certificate holders (more than 13,000) are under NPG oversight based strictly on performance observations.

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The first in a series discussing import into the United States of aircraft parts, this article is meant to lay the ground-work by explaining some basic terms and notions that apply to U.S. import law.

U.S. import law applies to goods that enter the customs territory of the United States, which only includes the States, the District of Columbia, and Puerto Rico. Other U.S. possessions are not considered to be part of the customs territory of the United State.

Imports are regulated for a variety of reasons, but one of the most important historical reasons is to apply tariffs. The first U.S. Congress passed the Tariff Act of 1789 in order to raise funds to be able to operate the government. Until the federal income tax began in the early 20^th century, tariffs were the single most important source of revenue for the United States government.

Modern U.S. policy no longer relies heavily on tariffs as a major source of U.S. revenue – instead the federal government now uses tariffs to advance industrial, trade, and foreign policy issues. For example, where the United States believes that foreign goods are being subsidized, and that this subsidy is permitting them to be sold into the U.S. market at a below-cost price, the government may apply heavy tariffs in order to make the imported goods more competitive relative to U.S.-manufactured goods. Part of the reason for doing this is to protect the correlative U.S. manufacturing industry because if it were to disappear in the face of the subsidized imports, then the prices for the imports could be increased to supra-competitive levels since there would be no domestic competition to offer competition that could prevent such price increases.

Many of the countries that have significant aviation industries are signatories to the Agreement on Trade in Civil Aircraft, which addresses import tariffs on aircraft parts.  Most people in our industry know that aircraft parts are imported “duty-free” under the Agreement on Trade in Civil Aircraft.

But while duty-free treatment is the general rule, there are many exceptions.

Aviation industry personnel often do not realize that many aircraft parts are characterized as other things for import purposes. Some parts that appear to be aircraft parts are treated under other categories for import tariff purposes. This includes things like washers, certain rubber articles, certain bearings, brushes found in machines, and lamps and lighting fittings. These parts will all have special classifications, so learning how to identify the right classifications is important.

An important first step for importing goods is classification. The importer will be responsible for properly classifying the import goods, and this classification may drive the applicable tariffs.

Many nations have adopted the Harmonized Commodity Description and Coding System (HCDCS) which is a list published and maintained by the World Customs Organization (WCO). The HCDCS serves as the basis for the U.S. Harmonized Tariff Schedule, which is the list of goods used in the United States.

Classifications of goods are listed in the U.S. Harmonized Tariff Schedule, so you would find aircraft parts in this schedule; but you will also find exceptions. Next month we will look more closely at the harmonized tariff codes applicable to aircraft parts and will discuss the full list of exceptions. In future articles, we will discuss topics like:

• Process for importing into the United States a part that will be used to support a repair;
• Process for importing into the United States a component that is intended to be repaired; and
• Relationships between import and export laws (such as special rules that apply when an article is imported for servicing/overhaul and is intended to be exported back to the non-U.S. source).

This series is meant to support the ARSA community, so if you have questions, please feel free to email them to us at Jason@washingtonaviation.com.  We would love to have your questions help drive topics for future articles. (Please be sure to let us know whether you are suggesting topics for future articles or seeking legal advice so that we do not inadvertently treat your inquiry the wrong way!).

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Thursday morning, 10 a.m., a prospective client calls with an “opportunity”.  They need a proposal for services (or the supply of parts or equipment) before the close of business on Friday. If you are interested they will send a confidentiality agreement to be followed by the full Request for Proposal (“RFP”) including the technical scope and their terms and conditions. You have been down this road before and know the drill.  Your objective is to impress the client with your technical qualifications and offer a fair commercial proposal with few if any qualifications. You need a proposal that will get you to the table to work out the details and close the deal.

The dilemma above happens on a routine basis for most companies. So have a plan and be ready with a company blessed “savings” statement for use in certain proposals. If a client is not demanding that you take all exceptions to their standard terms and conditions or risk disqualification, then you should consider a minimal response to their contract terms that will preserve your right to discuss issues further if you get to the table.  This type of response is sometimes called a “savings” statement.

Presented below is a “short form” of company pre-approved “savings” language that may be included as part of a proposal in response to an RFP. The objective for this approved proposal text is to provide a consistent, easy to use statement that expresses the company’s basic contracting philosophy while at the same time preserving the ability to negotiate mutually agreeable contract terms and conditions. The short form statement below is intended for use when a minimal response to a proposed contract form will not lead to disqualification.

“The Company has reviewed the [terms and conditions of contract] included in the RFP. We have outlined below for your consideration the main conceptual comments stemming from our review of provisions including [name and/or enumerate them here]. These comments are intended to indicate the type of issues we anticipate discussing in the course of reaching final agreement on this important project.”

If necessary the short form may be supplemented with specific comments as appropriate to the company’s response to any particular RFP.

“We have identified for consideration and future discussion several provisions contained in the terms and conditions, including: [Indemnification; Standard of Care/Warranty; Limitation of Liability/Consequential Damages]. We are confident based on our review that we can arrive at a contracting structure that will promote the timely and proper completion of the project and provide for an appropriately balanced division of risks and responsibilities consistent with our proposed commercial offering. We are ready to work with your project team to achieve this goal and we look forward to doing so.”

Having a pre-approved company “savings” statement (blessed by your management team, legal counsel, and risk manager) will help you avoid reinventing the wheel for each RFP and allow you to focus on the technical and commercial aspects of a winning proposal.

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Q:  My repair station is not located on or adjacent to an airport; what revisions should this company make to its repair station quality manual (RSQM) to substantiate compliance with the new TSA security rule (49 CFR part 1554)?

While the new security rule applies to all FAA certificated part 145 repair stations, only facilities located on or adjacent to an airport must implement the regulation’s security measures (for more information, see ARSA’s security rule checklist).  However, all part 145 repair stations must comply with Security Directives when issued by TSA (see 49 CFR § 1554.103). Incorporate the following language in your RSQM to ensure compliance in the event a Security Directive is issued—

When a Transportation Security Administration (TSA) Security Directive is issued, the Accountable Manager will be responsible for its implementation; only persons who have an operational need to know its contents will review the document.

If required, the Accountable Manager will coordinate a response to the Security Directive, including—

• Acknowledgment of its receipt, either by certified mail, return receipt requested or e-mail with delivery notification, or as otherwise required by the Security Directive.
• Confirmation of the method by which security measures have been or will be implemented to meet the Security Directive’s effective date.
• Request to obtain alternative measures approval if unable to implement the Security Directive’s requirements.
• Any additional comments or objections as warranted.