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Should MARPA Support Repeal of the Estate Tax?

MARPA has been asked to sign onto a letter supporting a bill that would repeal Subtitle B of the Internal Revenue Code of 1986 that relates to estate, gift, and generation-skipping taxes. The Bill is entitled the Death Tax Repeal Act of 2017.

Although it is typically thought of as only affecting the very wealthy, the estate tax can also have an effect on small and family-owned businesses; particularly those that are land- or asset-rich but cash poor. One oft-cited example is that of the family farmer, whose is land-rich (the value of his real property is high) but operating on very thin margins and doesn’t have a large amount of cash saved or other liquid assets. The family of the farmer may be forced to sell off a piece of the farm land in order to raise the money to pay the estate tax assessed against the total value of the farm upon the farmer’s death.

More close to home, in the aviation industry, companies may have millions of dollars in inventory that would be counted toward the value of a family business owner’s estate. This sort of inventory often cannot be quickly liquidated upon a business owner’s death to cover an estate tax assessed against the value of the business (that includes that inventory). Additionally,  because many companies rely on their inventory as collateral against which to take out loans or lines of credit, they cannot simply depreciate the value of the inventory to zero to minimize the value of the business for estate tax purposes, or they risk also minimizing the apparent value of the business as a whole.

On the other hand, many people feel that the estate tax is something that only effects the very wealthy and thus repeal should not be a high priority (or a priority at all).

I would like to hear what our members think. Is a letter supporting the Death Tax Repeal Act of 2017 something MARPA should sign on to? We have been asked to respond by Monday, January 23, so please let us know what you think before then.  You can email your thoughts to MARPA’s VP of Government and Industry Affairs Ryan Aggergaard at ryan@washingtonaviation.com.

Will the New FAA Manufacturing Rules Lead to a “Quicker Approval Process”?

Twice in the preamble to the new part 23 rule, the FAA explains that “many part suppliers may benefit from this performance-based rule through an expected quicker approval process.”

This seems to suggest that the parts approval process will be expedited because it will be easier for an applicant for a Part 23-based PMA to demonstrate compliance under the performance-based regulations.  The question on everyone’s lips is whether that will turn out to be true.

While the majority of our members are focused on parts for commercial aviation, a sizeable minority of our members produce parts for Part 23 airplanes.  It is important to MARPA that these members continue to be able to obtain PMAs on a equitable and safe basis.  It is equally important that they be able to enter the marketplace on an even playing field.

The new rules will facilitate use of non-standard mechanisms for approval.  Under current policy (which is supported by the rule change), manufacturers may build Angle-of-Attack indicator systems according to standards from the American Society for Testing and Materials (ATSM).  They may apply to the FAA for approval of the design via a letter certifying that the equipment meets ATSM standards and was produced under required quality systems. The FAA’s Chicago Aircraft Certification Office (ACO) processes all applications to ensure consistent interpretation of the policy.  This sort of model may be used more often under the new rules.

One approach for MARPA members might be to identify other articles that could be described by industry consensus standards, and to help develop those standards in partnership with the FAA.

For PMA projects for Part 23 airplanes, the certification basis might be a prior revision level of Part 23, so be careful that you choose the right certification basis for your project.  Because of this, the direct effect on PMA applications of the rule changes may not be fully understood for many years.  But to the extent that the new rules permit competitors to enter the marketplace more easily (but always with adequate showings of airworthiness), the rules could represent a benefit to an industry where competition and safety innovation have gone hand-in-hand.

The new rules go into effect August 30, 2017.  We are eager to hear your experiences with them.

“Expected Operating Conditions” as a PMA Parts Design Metric

The FAA has revised part 23 (the regulations for non-transport airplanes), and PMA applicants seeking approvals for parts that meet Part 23 requirements will need to pay attention to these changes (but remember that your certification basis might be a prior revision level of Part 23).

One change is the addition of a design metric related to ” the expected operating conditions of the airplane.”

The current rules (which are being revised) state that a designer must “take into account the effects of environmental conditions, such as temperature and humidity, expected in service.”

§ 23.603 Materials and workmanship.

(a) The suitability and durability of materials used for parts, the failure of which could adversely affect safety, must –

(1) Be established by experience or tests;
(2) Meet approved specifications that ensure their having the strength and other properties assumed in the design data; and
(3) Take into account the effects of environmental conditions, such as temperature and humidity, expected in service.

(b) Workmanship must be of a high standard.

The new Part 23 rule will require applicants for PMA for part 23 airplane parts to “design each part, article, and assembly for the expected operating conditions of the airplane.”

Sec. 23.2250 Design and construction principles.

(a) The applicant must design each part, article, and assembly for the expected operating conditions of the airplane.
(b) Design data must adequately define the part, article, or assembly configuration, its design features, and any materials and processes used.
(c) The applicant must determine the suitability of each design detail and part having an important bearing on safety in operations.
(d) The control system must be free from jamming, excessive friction, and excessive deflection when the airplane is subjected to expected limit airloads.
(e) Doors, canopies, and exits must be protected against inadvertent opening in flight, unless shown to create no hazard when opened in flight.

A related regulation continues to use the “likely environmental conditions” language of the prior regulations:

Sec. 23.2260 Materials and processes.

(a) The applicant must determine the suitability and durability of materials used for parts, articles, and assemblies, accounting for the effects of likely environmental conditions expected in service, the failure of which could prevent continued safe flight and landing.
(b) The methods and processes of fabrication and assembly used must produce consistently sound structures. If a fabrication process requires close control to reach this objective, the applicant must perform the process under an approved process specification.
(c) Except as provided in paragraphs (f) and (g) of this section, the applicant must select design values that ensure material strength with probabilities that account for the criticality of the structural element. Design values must account for the probability of structural failure due to material variability.
(d) If material strength properties are required, a determination of those properties must be based on sufficient tests of material meeting specifications to establish design values on a statistical basis.
(e) If thermal effects are significant on a critical component or structure under normal operating conditions, the applicant must determine those effects on allowable stresses used for design.
(f) Design values, greater than the minimums specified by this section, may be used, where only guaranteed minimum values are normally allowed, if a specimen of each individual item is tested before use to determine that the actual strength properties of that particular item will equal or exceed those used in the design.
(g) An applicant may use other material design values if approved by the Administrator.

What does this “expected operating conditions” language in section 23.2250 mean for test & computation applicants?  This phrase is used in AC 25-25A in the context of returning a stall protection to non-icing setting.  It is also used in AC 20-151 for approval of TCAS units.  But neither of these resources describe what this phrase means in the context of a meeting regulatory requirements.

The FAA explains in the preamble to the rule what it means when it says “expected operating conditions.”  The FAA’s explanation is not perfectly illuminating, but at least it provides some guidance about what sort of operating conditions should be anticipated and accounted-for in the design process:

“The FAA did not intend to limit this requirement only to the normal operational environment because, if the failure conditions are an expected environment, then an applicant should consider those conditions and protect the structure.  Deterioration or loss of strength due to corrosion, weathering, and abrasion are all examples of failure conditions because capability has been degraded. For many years, the rule has expressly required consideration of these causes. It was an expected environment for items to be corroded, weathered, and abraded, but applicants had to consider any other causes too.”

New FAA Manufacturing Rule Permits Greater FAA Flexibility in Building Approval Programs

One of the problems that industry identified with the 2009 manufacturing rule changes was that 14 C.F.R. § 21.8(d) allows an article to be approved using any method approved by the FAA, but the rule at 14 C.F.R. § 21.9(a) limits the FAA’s ability to use that provision by stating that a replacement or modification part may not be produced unless it is produced under one of the six categories listed under § 21.9(a).

This is a real issue.  The FAA has used the “approved in any other manner approved by the FAA” in the past – for example, to support the 1995 enhanced enforcement program which grandfathered non-PMA parts when the applicant applied for PMA within a certain time limit.  Use in that circumstance and others has demonstrated that sometimes the FAA needs a ‘safety valve’ in order to approve articles using non-standard methods.  and that safety valve was closed in 2009.

This is an issue that a number of us have raised before the FAA.  The solution is simple – amend 21.9(a) to feature language analogous to the 14 C.F.R. § 21.8(d) “approved in any other manner approved by the FAA” language.

In December, the FAA published a significant final rule that made major changes to Part 23.  It also provided some spot-fixes to other regulatory parts.  One of those changes implemented the requested 21.9(a) change.

The FAA had an additional rationale for the change we requested.  The disparity between 14 C.F.R. § 21.8(d) and 14 C.F.R. § 21.9(a) inhibited the Small Airplane Directorate fro implementing a policy that they wanted to implement to support a streamlined approval process for low-risk articles (like angle-of-attack indicators for general aviation aircraft). It also opens the door to future FAA streamlining in areas where risk analysis suggests that streamlining is appropriate.  The new language states:

(a) If a person knows, or should know, that a replacement or modification article is reasonably likely to be installed on a type-certificated product, the person may not produce that article unless it is –

(1) Produced under a type certificate;

(2) Produced under an FAA production approval;

(3) A standard part (such as a nut or bolt) manufactured in compliance with a government or established industry specification;

(4) A commercial part as defined in § 21.1 of this part;

(5) Produced by an owner or operator for maintaining or altering that owner or operator’s product; or

(6) Fabricated by an appropriately rated certificate holder with a quality system, and consumed in the repair or alteration of a product or article in accordance with part 43 of this chapter; or

(7) Produced in any other manner approved by the FAA.

As you can see, the simple addition on the end of the regulation aligns it with section 21.8(d), and permits the FAA to approve articles using non-standard mechanisms where circumstances demand such flexibility.

Minor Change to the Instructions for Continued Airworthiness Rule

Happy Tuesday!  This week we are offering five new features of the FAA’s recent rule changes that alter the small airplane rules, but have some minor effects on all other aircraft as well.

The FAA has made very minor changes to 14 C.F.R. § 21.50(b).  This is a very important rule to many of our readers because it establishes the design approval holder’s obligation to provide and make available Instructions for Continued Airworthiness.

Here are the changes (marked with strike-through for deletions and underlined for additions):

(b) The holder of a design approval, including either the a type certificate or supplemental type certificate for an aircraft, aircraft engine, or propeller for which application was made after January 28, 1981, must furnish at least one set of complete Instructions for Continued Airworthiness to the owner of each type aircraft, aircraft engine, or propeller upon its delivery, or upon issuance of the first standard airworthiness certificate for the affected aircraft, whichever occurs later. The Instructions for Continued Airworthiness must be prepared in accordance with §§ 23.1529, 25.1529, 25.1729, 27.1529, 29.1529, 31.82, 33.4, 35.4, or part 26 of this subchapter, or as specified in the applicable airworthiness criteria for special classes of aircraft defined in § 21.17(b), as applicable. If the holder of a design approval chooses to designate parts as commercial, it must include in the Instructions for Continued Airworthiness a list of commercial parts submitted in accordance with the provisions of paragraph (c) of this section. Thereafter, the holder of a design approval must make those instructions available to any other person required by this chapter to comply with any of the terms of those instructions. In addition, changes to the Instructions for Continued Airworthiness shall be made available to any person required by this chapter to comply with any of those instructions.

The article “the” is changed to “a” in the first sentence.  This clarifies that there may be more than one TC/STC for a design, and that each design approval holder has an independent obligation with respect to Instructions for Continued Airworthiness.  The phrase “for Continued Airworthiness” as added to the second sentence of this subsection to clarify that the reference is to Instructions for Continued Airworthiness (and not to any other instructions).

As you can see, these changes are fairly insignificant and they are clearly meant to help the reader correctly interpret the existing language.

New Small Aircraft Rules May Change the Standards for PMAs

This week you can look forward to five new features of the FAA’s recent rule changes that alter the small airplane rules, but have some minor effects on all other aircraft as well.

The new Part 23 rules become effective on Wednesday, August 30, 2017.  All PMA applications subject to Part 23 and submitted on or after that date should ensure that they show compliance to the proper regulations.  Your certification basis might be a prior revision level of Part 23, but as time marches on more and more projects will fall within the new Part 23 rules.

In some cases, the new Part 23 rules may make some significant changes.

One example is found in the changes involving instruments.  The old rules required an airspeed indicator, an altimeter, a magnetic direction indicator, and a speed warning device for turbine engine powered airplanes.  14 C.F.R. § 23.1303 (2011).  The new corollary rule does not require any specific flight instrument – instead it requires:

Sec. 23.2615 Flight, navigation, and powerplant instruments.

(a) Installed systems must provide the flightcrew member who sets or monitors parameters for the flight, navigation, and powerplant, the information necessary to do so during each phase of flight. This information must–

(1) Be presented in a manner that the crewmember can monitor the parameter and determine trends, as needed, to operate the airplane; and
(2) Include limitations, unless the limitation cannot be exceeded in all intended operations.

(b) Indication systems that integrate the display of flight or powerplant parameters to operate the airplane or are required by the operating rules of this chapter must–

(1) Not inhibit the primary display of flight or powerplant parameters needed by any flightcrew member in any normal mode of operation; and
(2) In combination with other systems, be designed and installed so information essential for continued safe flight and landing will be available to the flightcrew in a timely manner after any single failure or probable combination of failures.

This new language leaves it up to the designer to identify the parameters for the flight that the flight crew must set or monitor.  This potentially undermines other related regulations, though.  For example, the instructions for continued airworthiness regulations require the design approval holder to publish instructions “for each appliance required by this chapter” [meaning the FAA’s safety regulations].  Under the old regulations, it was clear that the instructions for the airspeed indicator, the altimeter, and the magnetic direction indicator were required to be part of the instructions for continued airworthiness.  Under the new regulations, this linkage is less plain, and will likely lead to a need for additional FAA guidance.

On the other hand, the new performance-oriented standard may allow PMA applicants greater freedom in designing new improvements to instruments in order to give the flight crew greater information and greater control over the information.

FAA-AIR Transformation Process Continues

Those readers of the MARPA blog who have attended a MARPA Annual Conference in the past two years probably heard the FAA’s David Hempe give a presentation discussing the transformation currently underway at the FAA’s Aircraft Certification Service (AIR) division. As we have previously discussed here and elsewhere, the goal of this transformation is to shift AIR from a compliance-based certification strategy (wherein an applicant makes a showing and the FAA issues a finding on a one-for-one basis) to an oversight-based certification strategy (wherein the FAA focuses more broadly on standards and systems oversight in order to ensure applicants are remaining compliant).  Mr. Hempe’s presentations have provided a great deal of information and insight into this transformation, and MARPA is grateful for his participation and willingness to answer conference attendee questions over the course of the conference.

Obviously, such a transformation will require change by industry; but more importantly the FAA understands that it will also require a culture shift within the agency itself to reflect this change away from a compliance model toward an oversight model.  To that end, the FAA has offered a briefing to applicants and approval holders (those who will be affected by the AIR transformation) to offer an update on where the transition stands and what to expect as AIR reorganizes.

The briefing first notes the benefits of the AIR transformation. These are worth reiterating:

  • Encourage early industry engagement and risk-based monitoring to eliminate later unnecessary FAA involvement
  • Improve consistency and standardization
  • Foster innovation by engaging industry applicants early to understand new concepts and ensure path to compliance
  • Provide agility and adaptability
  • Establish practices for using metrics to determine efficacy

The next step in reorganization implementation will be the first step visible to industry. AIR will begin realigning the organization to shift the existing offices, like ACOs and MIDOs out of the current directorate structure and into alignment with AIR’s functional divisions. For instance, ACOs will all be aligned under the Compliance & Airworthiness Division, while MIDOs will align under the System Oversight Division.  Currently, both ACOs and MIDOs are spread across the Transport Directorate, Small Airplane Directorate, Engine and Propeller Directorate, and Rotorcraft Directorate. This creates significant unnecessary redundancy and confusion, particularly if a company designs and manufactures parts for different categories of products.

After realignment, the Directorate structure will no longer exist.

Because of the nature of the process, existing industry Points of Contact will be retained during realignment to ensure relationships are maintained and contact with appropriate employees is facilitated. This is an important feature because as with every transition there exists the possibility for confusion.

AIR will continue to brief industry on the transition and solicit industry feedback as it progresses. MARPA encourages you to maintain a consistent dialogue with your FAA contacts to let them know about any problems with the transition or implementation that you identify, particularly if it the transition messages don’t seem to be reaching the personnel you deal with regularly. MARPA would also be happy to hear feedback from our members so that we can bring any concerns or positive feedback from you to the FAA. Please feel free to email VP of Government and Industry Affairs Ryan Aggergaard at ryan@washingtonaviation.com if you have feedback on the AIR transformation process.