On August 2 MARPA joined a petition signed by 12 other industry groups seeking the extension of FAA Notice 8900.380. This effort was spearheaded by the Aviation Suppliers Association (“ASA”), the trade association that represents aircraft parts distributors. The policy serves to formalize a repair station’s ability to receive, inspect, and approve for return to service new articles that are not accompanied by an 8130-3 tag. Yesterday, the FAA responded to the petition by agreeing to reissue the policy for another year.
The FAA-EASA Maintenance Annex Guidance revision 6 (“MAG 6”) made the 8130-3 tag a requirement for new parts received into a dual-certificated repair station, even though the 8130-3 tag is not required by the regulations. Not only was this requirement contrary to the actual regulations, it also had the effect of making it difficult for distributors to sell many new parts received from a PAH, and for repair stations to receive new parts released from a PAH, because many PAH’s do not issue 8130-3 tags for new parts (something that is also not required under the regulations).
Notice 8900.380 provided a temporary solution to this issue by ensuring industry knew that repair stations could receive and inspect new parts within their ratings without an 8130-3 tag. This was particularly important for low-dollar value parts for which obtaining a tag from a designee was economically infeasible. This solution is expected to be permanently memorialized in MAG 7, but with only weeks before the expiration of the Notice no draft of MAG 7 has yet appeared on the horizon, and so a different solution was required. Notice 8900.380 was scheduled to expire on August 26 before a permanent solution to this tag problem was reached.
In order to support industry the FAA responded to the petition initiated by ASA and signed by MARPA by reissuing the policy in the form of Notice 8900.429. This notice continues the policy established by Notice 8900.380 for another year, until August 9, 2018. Hopefully this will give the FAA, EASA, and industry time to develop a permanent solution to the 8130-3 problem created by MAG 6 and memorialize that solution in MAG 7.
MARPA is thankful to ASA for leading this effort, as it allows our members–and the PMA community generally–to continue operating our business in the ways we deem most effective, whether we choose to issue 8130-3 tags with our parts or not. Implementing the optional procedures to issue 8130-3 tags described in 14 C.F.R. § 21.137(o) comes with inherent costs, and so it is valuable to not have that requirement forced onto PMA manufacturers by a de facto requirement arising from MAG 6.
You can read the full Notice 8900.429 here.
The purpose of this trade mission is to introduce air carriers and MROs in Southeast Asia and China to the concept of PMA, and to the significant advantages that they can recognize by doing business with PMA manufacturers from the United States. We hope that this will help increase PMA sales into these regions.
The mission will begin for MARPA at MRO Asia in Singapore, November 3 through 5. We are planning to set up a few pre-scheduled meetings as well as allowing members to interact with the MRO attendees. After MRO, we will fly to Hong Kong to meet with air carriers on Friday. We plan to transfer to Guangzhou over the weekend in order to meet with Gameco and China Southern on Monday. Then we will spend Tuesday-Wednesday in Shanghai and Thursday-Friday in Beijing meeting with air carrier and MRO sales targets.
If you aren’t yet selling into Asia, then this is a wonderful way to start meeting potential customers. If you already have business in Singapore, China and Hong Kong, then you won’t want to miss this exceptional opportunity to renew acquaintances and build more business.
MARPA has been planning this 2015 trade mission since late 2014, and we’ve enjoyed incredible support from our US government contacts. This trade mission is undertaken in partnership with the US Department of Commerce, and we are being assisted by the International Trade Administration and the Commercial Foreign Service officers in the embassies and consulate offices. This is a valuable membership benefit that is available to help MARPA members increase their export business so make sure you take advantage of it!
If you are interested in participating or want more information, then please contact the Association. We’d love to hear from you.
We hope to soon be able to offer a specific itinerary and price for the mission. Once this is announced, we will take firm commitments from members on a first-come-first-served basis until the program is full.
Wondering if you can sell PMA parts into China? Tomorrow we will start addressing the legal standards for PMA acceptance in China!
The customers will be there in Istanbul in twelve days – will you?
MARPA and the Association of European Airlines (AEA) will co-host a PMA meeting in Istanbul on May 25-26. By my count we have 29 customer-personnel attending the conference – these are air carriers and MROs that are interested in PMA solutions. You can see the current “early registration list” online to see who has already committed. And we are hoping to confirm a few more European carriers before the end of this week.
“29 customer representatives in an intimate setting like that? Unlimited access to air carrier and MRO purchasing representatives? I can’t think of a better networking opportunity for a PMA company that wants to sell into Europe”
Customer attendees will include (but not be limited to):
Why are they gathering? To learn more about PMA and to network with PMA companies that can provide them with solutions. Why have AEA and MARPA gone to the effort to bring these air carriers together? To help educate the world about PMA and to help our members make sales to air carriers in the region!
If you’ve been dying for an opportunity to have one-on-one time with air carriers and MROs that are eager to learn more about PMA, then this is the conference for you. If you aren’t yet registered for the conference, then you should be.
Looking for more opportunities like this one? Take a look at everything that MARPA is planning for the remainder of the year to help promote YOUR export sales.
PMA manufacturers who are exporting their parts from the U.S. need to ensure that they remain in compliance with the U.S. export regulations. In addition to the BIS and DDTC regulations that apply to aircraft parts, exporters also need to remain in compliance with Treasury Department regulations.
Some of those Treasury Department regulations include lists of people and entities that you ought not to do business with. Every agency has multiple lists that you need to examine, but Treasury is doing something to consolidate its lists and make it easier to review them. This consolidation should make it easier to search to ensure compliance, whether you are searching on line or using a computer program to automatically research your business partners.
The Treasury Department office with jurisdiction over export programs is the Office of Foreign Asset Control (OFAC). OFAC has a list of Specially Designated Nationals (SDNs) as well as other (non-SDN) sanctions lists. OFAC is now offering all of its non-SDN sanctions lists in a consolidated set of data files called the Consolidated Sanctions List. This consolidated list will include the following:
OFAC announced that it plans to discontinue some of these lists as separate lists, so they will only be available as part of the consolidated list.
Persons seeking to check whether there are OFAC sanctions that might apply to their transaction should be sure to check their export business partners (by personal name and company name) against the Specially Designated Nationals List and the Consolidated Sanctions List.
One can also use the Sanctions List Search which consolidates both lists into a single searchable database. This tool is useful because it can automatically search for names that are close (bot not exact matches) and can be set to find matches with different levels of confidence (which will then be reviewed by a human to assess whether they actually match).
Exporters should also check the details of their transaction (including destination country) against the Sanctions Programs and Country Information page, which list sanctions programs based on country and on certain other criteria.
Over the past few months, I have encountered a number of PMA exporters, and European PMA importers, who have asked for clear guidance on how to distinguish a “critical” PMA parts from a “non-critical” PMA part.
This is an important distinction because under the Bilateral Airworthiness Safety Agreement (BASA) that was signed between the United States and the European Union, there are three types of PMA parts that are accepted in the European Union (for installation on products certified or validated by EASA) without further showing. Those three “acceptable” situations, as described in the BASA Technical Implementation Procedures (TIP) are:
(1) The PMA part is not a “critical component”; or
(2) The PMA part conforms to design data obtained under a licensing agreement from the TC or STC holder according to 14 CFR §21.303; or
(3) The PMA holder is the holder of an EASA STC which incorporates the PMA part.
Thus, non-critical PMA parts are directly acceptable (and they should have text on their export 8130-3 tag that states “This PMA part is not a critical component”). So there is a significant advantage to having a clear understanding of when a PMA part is critical and when it is not critical.
This can be a little confusing if you don’t know where to look. The FAA has used the term “criticality” to define different categories of parts for approval purposes, and to set differnt levels of FAA involvement in the approval process. The distinct use of the term means that we need to look in the right place for the definition of “critical” that applies to our export/import transactions.
For purposes of US exports of PMA parts that are imported into the European Union, the controlling guidance is found in the BASA’s Technical Implementation Procedures for Airworthiness And Environmental Certification (BASA TIP). The definition of critical component for purposes of that document is found in Section 1.6(i) of the BASA TIP:
“Critical Component” means a part identified as critical by the design approval holder during the product type validation process, or otherwise by the exporting authority. Typically, such components include parts for which a replacement time, inspection interval, or related procedure is specified in the Airworthiness Limitations section or certification maintenance requirements of the manufacturer’s maintenance manual or Instructions for Continued Airworthiness.
Don’t fall for the temptation draw a semantic difference between a “critical component” and a “critical part.” The PMA acceptance procedures found in section 2.8.2(a)(1) of the BASA TIP explicitly cross reference the definition in section 1.6(i).
In light of this definition found in the BASA TIP, the question of whether a PMA part is “critical” will be based on the decision of the FAA (the exporting authority) about whether it was critical at the time of approval.
The regulatory guidance for critical parts is found in the marking requirements discussion in section 45.15(c) of the FAA’s regulations. That section makes it clear that an article is “critical” if it has a hard time specified in the Airworthiness Limitations section of the manual (instructions for continued airworthiness), like a life limit, then it is a critical part (or critical component).
Under normal circumstances, there are two methods for specifying such a limit on a PMA part. The first is during the FAA approval process (usually as an airworthiness limitation published in the instructions for continuous airworthiness), when the airworthiness limitation section associated with the part would be approved. The second is by an FAA airworthiness directive issued after initial approval in response to an identified safety issue.
Thus the best source for identifying whether a PMA article is “critical” is the PMA manufacturer, who should be able to tell customers whether there were any such hard times associated with the article as part of the approval process (or review of the PMA manufacturer’s instructions for continuous airworthiness). If the FAA did not establish that the part was critical at the time of approval, and if they did not subsequently issue an airworthiness limit (such as through an airworthiness directive), then the part is not critical.
The U.S. Commerce Department will hold a webinar on November 29 to discuss the effect of European Evironmental Regulations on U.S. Aerospace companies.
The European Union has a regulation called the REACH regulation. REACH stands for Registration, Evaluation, Authorisation & restriction of CHemicals.
REACH imposes certain obligations on companies that manufacture certain chemicals in Europe, and on companies that import certain chemicals into Europe. Under REACH, the continued marketing of substances of Very High Concern (SVHCs) requires an authorization. Businesses active in the aerospace marketplace use a number of substances that are being considered for SVHC classification, and unauthorized import into Europe of such substances could violate REACH.
For more information, see the notice on the Commerce Department website.
At the MARPA Conference, Kevin Cox of LarsenAllen mentioned IC-DISCs as a way to minimize federal taxes on profits from exports. After his presentation, I asked if his organization could provide us with more information, because this seemed like a useful structure for MARPA members performing significant exports. In response, his colleague Steve Roark wrote us the following article describing the IC-DISC and the way that a US exporter can use an IC-DISC to reduce its tax obligation. Contact information for LarsenAllen is at the bottom of the article.
Manufacturers and distributors work hard to provide products and services competitive in the global economy. Now more than ever, generating foreign sales is a necessary component to growth. Competition for export sales is burdened by many factors including foreign competition, tariffs, fees, foreign taxes and so forth. Wouldn’t it be great if companies could get a break from this burden? The rallying cry by many companies is that Congress needs to act now to allow U.S. manufacturers to be more competitive in the global market. Well, Congress did act – they just acted about 30 years ago. Years ago, congress recognized the growing disparity in global competition and provided a way to help compete on a level footing in the face of these burdensome requirements. The vehicle to do this is through the tax strategy called an IC-DISC.
Organizations that have export sales can significantly reduce their Federal tax by creating an Interest Charge-Domestic International Sales Corporation (IC-DISC). It’s a long name, but the concept is quite simple. By creating a separate entity, a domestic organization with international sales can defer and/or reduce their overall tax burden related to the income on these international sales.
The IC-DISC reduces U.S. taxation on exports of property originating in the United States for direct use outside the U.S. There are two types of sales that qualify. The first is for products shipped directly outside of the U.S. The second is for products sold in the U.S. that ultimately are added to a product that is shipped internationally. Many contract manufacturers and distributors are part of a supply chain that serves large OEM’s whose products end up outside the U.S. Parts shipped domestically to these OEM’s may also qualify for this tax advantaged status, even though on the surface they aren’t what you think of as foreign sales.
An IC-DISC can be used in a number of ways. Some of the advantages and benefits provided by an IC-DISC include:
• Permanent tax savings on export sales. Although an IC-DISC is a tax exempt entity, any cash distributed out of an IC-DISC is taxed to the shareholders at the capital gains rate of 15 percent. This results in up to a 20% savings on Federal taxes on the income associated with foreign sales.
• Tax deferral on export sales. An IC-DISC also allows a company to defer up to $10 million dollars of taxable income to the future. This can be a significant benefit if cash flow is tight, or if you are a proponent of deferring the payment of tax to Uncle Sam.
• Means to facilitate succession planning. An IC-DISC offers a number of capabilities for executing a succession plan. An important feature of the IC-DISC is that shareholders can be corporations, retirement accounts, individuals or a combination thereof. This can result in an effective means to distribute cash to beneficiaries in a tax-advantaged manner.
It doesn’t take much for a company to benefit from an IC-DISC. Companies with as little as $500,000 of export sales have shown savings from establishing an IC-DISC. In addition, the set-up and recurring maintenance of this strategy is relatively minimal compared to the savings.
IC-DISC’s have been around for close to 30 years, yet they are not widely used in small to mid-sized organizations – why is that?
One reason is the misconception that they are too complicated or administratively burdensome. An IC-DISC strategy does require a company to establish a separate entity to report these international sales. The IC-DISC is a “paper” entity created to make the company more competitive. It does not require corporate substance or form, office space, employees, or tangible assets. It simply serves as a conduit for export tax savings. Customers do not need to know about the IC-DISC, and contracts remain as they are today. In addition, the transactions required to be reported in the IC-DISC can be summarized and reported once a year.
Another reason is that in the past this structure didn’t provide much benefit. There were other provisions in the tax code that provided deductions for international sales. These provisions expired a number of years ago resulting in the IC-DISC strategy once again becoming more advantageous.
If you think this strategy may be an option for your company, it is important to act quickly. An IC-DISC is only allowed to provide benefit beginning on the date the IC-DISC is formed (benefits are not available retroactively). The sooner a taxpayer creates an IC-DISC entity the greater their benefits will be.
To maximize savings and ensure proper IC-DISC formation and administration, businesses that wish to create an IC-DISC should seek assistance from a qualified tax advisor. While the concept and administration are relatively simple, it is important that the initial set-up is done properly to maximize and protect this tax advantage status.
About the Author: Steve Roark is a Manager in the Manufacturing and Distribution group of LarsonAllen. Steve can be reached at 888.529.2648 or firstname.lastname@example.org. To learn more about LarsonAllen, visit www.larsonallen.com.
Today, MARPA filed Comments on the Proposed FAA ICA Policy (Policy Statement, PS-AIR-21.50-01: Inappropriate DAH Restrictions on the Use and Availability of ICA). MARPA’s comments supported the policy, and provided both a historical and legal context for the acceptance of the FAA policy.
The FAA policy was written in response to the growing practice of manufacturers licensing their manuals on the condition that the licensee repair station or air carrier/operator pledge to refrain from using competitive products like DER repairs or PMA parts. We have written about this practice in past blog posts.
The FAA retains the power to influence the method of distribution for ICAs, because the regulatory appendices that describe the minimum standards for such ICAs require the ICA-publisher to have a mechanism for distributing the ICAs and their amendments, and to submit that mechanism to the FAA. This permits the FAA to establish standards for what will be considered acceptable or unacceptable among such distribution mechanisms.
The FAA policy makes it clear that it is not acceptable for manufacturers to license their ICAs using restrictive licenses that preclude competition. For example, an engine manufacturer may not license its ICAs on the condition that the licensee agree not to purchase PMA parts for the engines.
MARPA has encouraged its members to make their ICAs available to the industry without inhibition. MARPA has also decried practices that would preclude access to PMAs as a condition of obtaining ICAs (when ICAs are already required to be made available under the regulations). Thus, MARPA is very supportive of the FAA policy.
MARPA exhorts the entire aviation community to file comments with the FAA supporting the FAA ICA Policy Memo. Comments may be filed by sending an email to John.Cerra@FAA.gov.
After months of warnings, it should have come as no surprise to anyone that yesterday, American Airlines parent company, AMR, filed for bankruptcy protection under Chapter 11 of the bankruptcy code.
This is a restructuring, so it is expected that AMR will emerge form the restructuring. Most aircraft parts are sold to airlines on credit, so many MARPA members may have concerns about their receivables owed by AMR.
It is normal during restructuring for post-filing transactions to receive a preference in the payment scheme. So if you sell AMR an aircraft component the day after the bankruptcy, then you are much more likely to get paid 100% of the transaction price than if you had sold the same part the day before the bankruptcy petition was filed. If the restructuring is converted to a liquidation, then liquidity problems could make the preference meaningless.
Existing creditors may receive only a percentage of the amounts owed them or they may receive all of their outstanding receivables from AMR depending on the nature of the debt and the negotiations with the bankruptcy trustee. The bankruptcy trustee has the power to terminate contracts that are not favorable to AMR, and it has the power to make deals with irreplaceable vendors who demand payment of prior receivables in exchange for continued service. If you have a very large receivable outstanding with AMR, or if you have an ongoing relationship with AMR, then you should seriously consider hiring bankruptcy counsel with experience in negotiating post-filing remedies.
Ongoing case information will be posted to the AMR restructuring website.
Supplier and vendor inquiries are being routed through the Trading Partners Response Center (TPRC). You can call that response center at (866) 736-9011 (toll-free from the United States) or (703) 286-2757 (international toll).
For questions pertaining to the administration of this Chapter 11 case, you can contact AMR’s bankruptcy claims administrator, GCG, at:
These contacts represent the best interests of the AMR estate, so if you have serious legal questions, or need to discuss strategies for defending your right to get paid, then you should seek the counsel of a qualified bankruptcy attorney.
The FAA has updated the advisory circular that provides guidance on detecting and reporting suspected unapproved parts (SUPs). This advisory circular is identified as Detecting and Reporting Suspected Unapproved Parts, FAA AC 21-29C CHG 2 (August 17, 2011).
The update provides new references to various sections in Part 21, to coincide with the October 16, 2009 changes in Part 21. It also makes reference to the new commercial parts definition (part of the 2009 rule change), and clarifies that commercial parts are approved parts.
All references to “fabrication inspection systems” are removed from the guidance in this change. The concept of “fabrication inspection systems” was removed from the regulations in favor of unified standard production quality system regulations for all production approval holders. Now, PMA regulations point to 14 C.F.R. 21.137 as the source for standard production quality system requirements for all production approval applicants and holders.
Finally, the guidance is updated to reflect changed addresses and telephone contact numbers.
The newest guidance can be found online here: