The guidance for completion of the FAA Form 8130-3 tag makes some substantive changes in an effort to align with the results of ongoing harmonization efforts between the United States and the European Union, as well as the completion of the Technical Implementation Procedures that correspond to the U.S.-EU bilateral agreement that went into effect May 1, 2011.  We offered our comments on three issues we identified in hopes of clarifying issues that have become, or may become, stumbling blocks to the documentation and traceability system.

Some participants in the aviation industry have been running into problems with obtaining export approvals on products also granted domestic airworthiness approval.  We observed and commented that the guidance for obtaining domestic airworthiness approval had transitioned, without explanation, from a permissive rule requiring additional steps to ensure export approval, to a rigid forbidding of export approval.  We commented that such a reading was improper, and that although a domestic airworthiness approval did not by itself constitute an export approval, neither did it preclude the possibility of obtaining export approval, as some had interpreted.

We also commented that with the implementation of the U.S.-EU bilateral, the requirement that an exporter comply with a “specific country’s special import requirements” had become misleading.  This is because under the Bilateral, EASA assumes oversight over the EU Member States’ import requirements.  This has the effect of both improving uniformity and harmonization, but also of rendering specific countries’ import requirements illusory.  We recommended clarifying this by adding an “agency’s” special requirements are satisfied.

Finally, we commented that the new classification of Rebuilt Engines as a manufacturing practice instead of a maintenance release not only swept an issue of zero-timing rebuilds under the rug, but also worked a disadvantage against small businesses by encouraging European customers to seek out only major manufacturers—the only ones allowed to do rebuilds—at the expense of smaller businesses providing equally effective overhauls.  Most importantly, the proposal ignores the existing regulatory authority for rebuilding, which is derived from Part 43 (the maintenance regulations) and not from Part 21 (the manufacturing instructions).  Our comments were designed to avoid a mismatch between the guidance and the regulations.

These new rules are meant to help companies distinguish between expenses and capital expenditures related to property.  It also provides guidance on depreciating materials and supplies (guidance that may change the tax treatment of some inventory held by your customers).  Aircraft Parts distributors may find themselves affected by several elements of this rule, including guidance distinguishing “materials and supplies” from inventory, as well as new guidance for the tax treatment of rotable parts.

One purpose of the new (proposed) regulations is to clarify that if an expenditure merely restores the property to the state it was in before the work (like a repair), then situation prompting the expenditure arose and does not make the property more valuable, more useful, or longer lived, then such an expenditure is usually considered a deductible repair. In contrast, a capital expenditure is generally considered to be a more permanent increment in the longevity, utility, or worth of the property.

For example, if you decide to repair weather-related damage to your warehouse, this should be treated as a repair that does not need to be capitalized.  On the other hand, if you decide to construct a new bay door on your warehouse to accommodate larger trucks, then this adds to the utility of the property and it should be treated as a capital expenditure.

The new rules also address the tax treatment of materials and supplies. They clarify that the costs of acquiring or producing units of tangible property are required to be capitalized.  This means that if a company purchases and /or produces goods for resale, the amount paid to acquire or produce those goods must be capitalized.  So if you are supplying a manufacturer, the manufacturer may not deduct the cost of the inventory that goes into the final product until the product is actually sold.  This provides a firm tax basis for just-in-time manufacturing and discourages manufacturers from carrying a substantial raw materials or parts inventory.

The new rule also clarifies that an exception exists for materials and supplies that are not considered inventory.  Amounts paid for such materials and supplies are deductible in the year in which the goods are used in your company’s operations.  However, incidental materials and supplies for which no records of consumption, or for which beginning and end of year inventories are not taken, may be deducted in the year in which they are purchased (yes, this will provide a tax inventive to avoid keeping metrics on items, but the value of tracking such materials usually exceeds the tax inventive to not track them).  In all cases, the materials and supplies do not need to be capitalized into the value of the larger items on which the materials and supplies are used.

The formal definition of materials and supplies is:

Definitions—(1) Materials and supplies. For purposes of this section, materials and supplies means tangible property that is used or consumed in the taxpayer’s operations that is not inventory and that—

(i) Is a component acquired to maintain, repair, or improve a unit of tangible property (as determined under § 1.263(a)–3T(e)) owned, leased, or serviced by the taxpayer and that is not acquired as part of any single unit of tangible property;

(ii) Consists of fuel, lubricants, water, and similar items, that are reasonably expected to be consumed in 12 months or less, beginning when used in taxpayer’s operations;

(iii) Is a unit of property as determined under § 1.263(a)–3T(e) that has an economic useful life of 12 months or less, beginning when the property is used or consumed in the taxpayer’s operations;

(iv) Is a unit of property as determined under § 1.263(a)-3T(e) that has an acquisition cost or production cost (as determined under section 263A) of $100 or less (or other amount as identified in published guidance in the Federal Register or in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter)); or

(v) Is identified in published guidance in the Federal Register or in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter) as materials and supplies for which treatment is permitted under this section.

Finally, the guidance specifies that rotable and temporary spare parts are used or consumed in the taxpayer’s operations in the taxable year in which the taxpayer disposes of the parts.  This new guidance may drive some interesting recordkeeping among air carriers that carry rotable inventory.  Under this new rule, there is a distinct tax advantage to being able to show that you are using rotables in the year purchased (so they can be treated as ordinary and necessary business expenses in the year that they are purchased).  This may encourage air carriers to keep fewer rotables in their inventories, relying more heavily on distributors to provide rotables on a just-in-time basis.

Rotables in a distributor’s inventory will usually be treated as inventory, rather than under the new rotable rule, because the new rule defines rotables as

“rotable spare parts are materials and supplies under paragraph (c)(1)(i) of this section that are acquired for installation on a unit of property, removable from that unit of property, generally repaired or improved, and either reinstalled on the same or other property or stored for later installation”

Obviously, distributors typically do not use rotables in this way; however repair stations may find some of their parts inventory being treated as rotables under the new rule.

The temporary regulations can be found online here:

http://www.gpo.gov/fdsys/pkg/FR-2011-12-27/pdf/2011-32024.pdf

The purpose of the temporary regulations is to implement the rule immediately before going through notice and comment.

The permanent version of the regulation is subject to notice and comment.  The proposed permanent rule can be found online here:

http://www.gpo.gov/fdsys/pkg/FR-2011-12-27/pdf/2011-32246.pdf

Comments on whether these temporary rules should be made permanent are due by March 26, 2012.

SUBJECT: Annual International Traffic in Arms Section 129

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It also provides guidance on depreciating materials and supplies (guidance that may change the tax treatment of some inventory held by your customers).

The proposed guidance is known by its title “Inappropriate DAH Restrictions on the Use and Availability of ICA.”

ASA explained that it supports the Policy Statement and welcomes the FAA’s efforts to improve safety by establishing clear guidelines for its acceptance of ICA distribution mechanisms.

Historically, the aviation parts distribution industry has only been interested in one element of the ICAs: the Illustrated Parts Catalogs (IPCs). This has changed with recent changes in the regulations.

ASA’s member have an interest in seeing consumers, like air carriers and repair stations, have an opportunity to choose the right parts to support safe flight. To this end, ASA has championed traceability paradigms in the industry that help to ensure that customers know what they are getting and get what they need. These traceability paradigms have helped to address suspected unapproved and counterfeit aircraft parts issues in the industry.  An important element of modern aircraft parts distribution is the transparent ability of anyone in the system to be able to review the appropriate documentation for an aircraft part and identify its approval basis from that documentation.

It is normal in the industry for distributors to buy parts in need of overhaul, and manage the overhaul process. These parts are then made available for use in the aviation community (the distributor may be managing the logisitcs for an air carrier or other operator, or the distributor may own the parts and then offer the overhauled parts for exchange or for outright sale). ASA members rely on the maintenance community to inspect and repair rotable parts and they need them to have the right data to support those efforts.

The FAA’s recent changes to the Part 21 manufacturing regulations implemented a new definition for the term “commercial parts.” This new definition is different from the common industry usage of that term in the past. Under the new definition, the only “commercial parts” are those parts listed in the commercial parts list of the ICAs.

Recent Unapproved Parts Notices have listed distributors who have handled the unapproved parts as if the distributors were ‘guilty parties.’ The FAA has admitted in the Federal Court system that UPNs are “orders.” Avia Dynamics, Inc. v. FAA, 641 F.3d 515, 519 (D.C. Cir. 2011). Therefore, it is a matter of compliance that distributors must forbear from selling unapproved parts. See FAA Advisory Circular 21.29C change 2, Detecting and Reporting Suspected Unapproved Parts (August 17, 2011). The only way to identify whether a part is or is not a “commercial part” is to have access to the commercial parts lists published as part of the ICAs.  Therefore, distributors of aircraft parts now have a practical need to comply with certain elements of the ICAs (the commercial parts lists).

In light of the fact that distributors now need to comply with the Commercial Parts Lists (CPLs) of the ICAs, this guidance should make it clear that distributors are now among the parties who need access to the ICAs/CPLs. We specifically recommended to the FAA that the following paragraphs be added to the policy:

Making ICA Available to Aircraft Parts Distributors
One of the elements of an ICA is a detailed description of the product and its components. E.g. 14 C.F.R. Part 33 App’x A33.3(a)(2). This is generally accomplished by publishing an illustrated parts catalog.

Distributors of aircraft parts rely on the illustrated parts catalog (IPC) in the ICAs to help identify parts and to ensure, at the time of receiving inspection, that parts appear to be genuine and correctly labeled.

The recent rule change permitting manufacturers to create commercial parts lists (CPLs) makes it clear that the CPLs are part of the ICAs. Aircraft parts distributors need access to the CPL in order to ensure their continued compliance with approved parts obligations.

The FAA maintains a list of accredited aircraft parts distributors pursuant to the requirements of Advisory Circular 00-56 (Voluntary Industry Distributor Accreditation Program). Aircraft Parts Distributors identified on this list are among the class of parties who must have access to the CPLs and IPCs. Unless the distributor is entitled to other parts of the ICAs for other reasons (such as qualification under Order 8110.54), a distributor’s entitlement to the ICAs is limited only to the IPC and CPL.

An owner/operator or repair station also has the right under §21.50(b) to obtain the ICA from the DAH and then provide the IPC and CPL to the parts supplier(s) of its choice.

Annual Brokering reports to DDTC are required for all companies and individuals that were  registered as a broker at any time during the previous year.

The Broker’s Report is required under 22 CFR 129.9.  It must enumerate and describe the broker’s brokering activities by quantity, type, U.S. dollar value, and purchaser(s) and recipient(s).  For each activity, license(s) numbers for approved activities and any exemptions utilized for other covered activities must be specified.  When specifying exemptions, they ought to specified by ITAR section reference if based on an ITAR section.

Brokering is distinguished under the regulations from exporting. Thus, those who might negotiate a deal as an agent, or finance a deal, but who never get involved in the actual exporting of ITAR-controlled articles and services, are nonetheless subject to the State Department’s regulations.

Under the current rules, persons who broker exports of ITAR-controlled articles and services are required to register, and also in many cases to obtain licenses before they engage in brokering. This is meant to curb arms-dealing, but in practice it affects export of many aircraft parts that are controlled under the ITARs.

The recently-proposed changes to the ITARs would help by removing many dual-use parts as well as defense-related parts that do not serve a unique defense purpose from the scope of the ITARs.

The proposed rule would change (“clarify”) the definitions of the terms “broker” and “brokering activities.” It would also provide additional exemptions from the regulations for certain brokering activities. Here are the proposed new definitions:

§ 129.2 Definitions.
(a) Broker means any person (as defined by § 120.14 of this subchapter) who engages in brokering activities.

(b) Brokering activities means any action to facilitate the manufacture, export, reexport, import, transfer, or retransfer of a defense article or defense service. Such action includes, but is not limited to:

(1) Financing, insuring, transporting, or freight forwarding defense articles and defense services, or
(2) Soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service.

(c) For the purposes of this subchapter, engaging in the business of brokering activities requires only one action as described above.

(d) The activities subject to part 129 include brokering activities:

(1) by any U.S. person wherever located;
(2) by any foreign person located in the United States;
(3) by any foreign person located outside the United States involving a U.S.-origin defense article or defense service;
(4) by any foreign person located outside the United States involving the import into the United States of any defense article or defense service; or
(5) by any foreign person located outside the United States acting on behalf of a U.S. person.

(e) Brokering activities do not include:

(1) Activities by a U.S. person in the United States that are limited exclusively to U.S. domestic sales or transfers (e.g., not for export, which includes transfer in the United States to a foreign person);
(2) Activities by employees of the U.S. Government acting in an official capacity; or
(3) Activities that do not extend beyond administrative services, such as providing or arranging office space and equipment, hospitality, advertising, or clerical, visa, or translation services, or activities by an attorney that do not extend beyond providing legal advice to a broker.

The IRS recently issued a notice entitled “Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage.”  The purpose of the notice is to provide guidance to employers on the informational reporting to employees about the cost of their employer-sponsored group health plan coverage.  This requirement is found at § 6051(a)(14) of the Patient Protection and Affordable Care Act of 2010, and is intended to provide useful consumer information to employees.  The reporting requirement is informational only and does not cause excludable employer-provided health care coverage to become taxable.

The guidance applies generally to the 2012 W-2 Forms.  These are the forms required for calendar year 2012 and are provided to employees, and filed with the Social Security Administration, in January 2013.  The guidance will be affect your actions in about a year, but the record keeping for 2012 starts now.

Those employers who wish to report cost of health coverage on 2011 Forms W-2 may also look to the notice for guidance, though reporting is not required for 2011.  The reporting requirement does not apply to Forms W-2 issued prior to 2011, and reporting is not mandatory for the 2011 calendar year.  Therefore, an employer will not be treated as failing to meet the requirements if it fails to include the aggregate cost of applicable employer-sponsored coverage on 2011 Forms W-2.

Note that this is interim guidance.  It is therefore applicable until further guidance is issued.  Any new guidance applies only going forward, and will not apply to any calendar year beginning within six months of issuance.  So if new guidance was issued in July 2012, it would not take effect until January 2014.

Employers generally must provide a written statement to each employee showing the amount paid to the employee during the calendar year, by January 31 of the following year.  This notice is provided on the Form W-2.  Section 6051(a)(14)  requires that aggregate cost of applicable employer-sponsored health coverage be reported to the employee on Form W-2.  Contributions to an Archer MSA, any health savings account of an employee of spouse, or salary reduction contributions to flexible spending arrangements do not fall under § 6051(a)(14) [they fall under other reporting requirements, though].  The guidance also explains that “applicable employer-sponsored coverage” means coverage under any group health plan made available to the employee by the employer which is excludable from the employee’s gross income.  Things that do not fall under “applicable employer-sponsored coverage” include liability insurance, workers comp, automobile medical payment insurance and other types of insurance under which medical care is secondary or incidental. These benefits are not subject to the new reporting requirement.  Part II of the notice also provides a number of other definitions with which employers will want to ensure they are familiar.

The new reporting requirement has a broad mandate.  All employers that provide applicable employer-sponsored coverage during the calendar year are subject to the requirement.  However, in the case of the 2012 Forms W-2, and pending further guidance, employers are not subject to the reporting requirement for any calendar year if they were required to file fewer than 250 Forms W-2 for the preceding year.  This means that businesses with fewer than 250 total employees (measured by number of W-2 Forms issued) will not need to perform this reporting exercise.  This is temporary transition relief – the statute does not provide for this exception – so eventually the reporting requirement will apply to everyone; but for now, the interim guidance has established that the earliest that smaller businesses will have to make this report is in January 2014 (for the 2013 W-2 Forms).

The aggregate reportable cost is reported on Form W-2 in box 12, using the code “DD.”  The total of the aggregate reportable costs attributable to an employer’s employees is not required to be reported on Form W-3.  When an employee terminates employment, the employer may use any reasonable method of reporting the cost of coverage provided under a plan, provided the method is used consistently for all employees receiving coverage who terminate employment during that calendar year. Each employer for whom an employee works during a calendar year must report the aggregate cost of coverage provided.  If an employee works for employers for whom there is a common paymaster, the common paymaster must include the aggregate reportable cost of coverage.  The related employers who are NOT the common paymaster must not report the cost of coverage provided.  If an employee transfers to an employer that qualifies as a successor employer, both the successor and predecessor employers must report the cost of coverage, unless the successor employer issues one Form W-2 reflecting all wages paid to an employee by both employers.  If an employer is not required to otherwise issue a Form W-2, it is not required to issue one solely for reporting aggregate cost.

Aggregate reportable cost generally includes both the portion paid by the employer and the portion paid by the employee.  The aggregate reportable cost includes any person covered under the plan because of relationship to the employee, including spouse, dependents, and adult children.  This includes cost that is includible in the employee’s gross income.

In general, the cost of coverage under all applicable employer-sponsored coverage must be included in the aggregate reportable cost. The guidance, however, provides a number of exceptions that are not included in aggregate reportable cost and must not be reported.  Employers should refer to § 6051(a)(14) and the interim guidance to familiarize themselves with these exceptions.

An employer may calculate the reportable cost in a couple of ways.  An employer may use the COBRA applicable premium method.  Under this method, the reportable cost for a period equals the COBRA applicable premium for the coverage period.  Alternatively, an employer may use the premium charged method.  This method may be used to determine the reportable cost only for an employee covered by an employer’s insured group health plan.  Under this method, the employer must use the premium charged by the insurer for the employee’s coverage as the reportable cost.

An employer may use the modified COBRA premium method with respect to a plan only where it subsidizes the cost of COBRA or where the actual premium charged by the employer to COBRA qualified beneficiaries during a period is equal to the COBRA applicable premium for each period the prior year.

Reportable cost under a plan must be determined on a calendar year basis.  If the cost for a period changes during the year, the reportable cost for the year must reflect the increase or decrease.  If an employee changes coverage during the year, the reportable cost for the employee must take into account the change in coverage by reflecting the different reportable costs for the coverage elected by the employee for the periods to which those changes apply.  If an employer is charging an employee a composite rate the employer may calculate and use the same reportable cost for a period for the single class of coverage under the plan or all the different types of coverage under the plan for which the same premium is charged to employees.  This will depend on the type of composite rate the employer charges.

At a manufacturing conference that I attended in October, I heard Kevin Cox of LarsenAllen discuss IC-DISCs as a way to minimize federal taxes on profits from exports. I though that this sounded like a fascinating way to reduce tax burden on exports and make American companies more competitive. I knew that this was a topic that would interest aircraft parts distributors.  After his presentation, I asked if his organization could provide me with more information. 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 sroark@larsonallen.com. To learn more about LarsonAllen, visit www.larsonallen.com.

• Section 1-1.c. adds a new note that states the use of the word “should” in the Order refers to a recommended practice.  When the word “should” appears, the associated activity is not a requirement; therefore a record of completion of the activity is not required.  Section 2-1.b. applies the word “should,” indicating use of FAA Form 8100-1 is a recommended practice, but not required.
• Order 8130.21H creates a new appendix, labeled Appendix A.  Appendix A collects all Sample FAA Form 8130-3’s and puts them in one place.  In the previous Order, the sample forms were dispersed throughout the Order.  The samples in Appendix A are re-numbered “Figure A-1,” “Figure A-2,” etc.  In the previous Order, the Figure number corresponded to the Chapter of the Order in which they appeared, e.g., Chapter 2, Figure 2-1; Chapter 3, Figure 3-1.
• The new Order also makes slight changes to the formatting of FAA Form 8130-3.  The new form eliminates “Block 9. Eligibility.”  Previously, this block remained but was “N/A” in most uses of the form.  All of the following Blocks are incremented, e.g., “Block 10. Quantity” becomes “Block 9. Quantity,” and so forth (so the comment block will become known as “block 12″).  The new Order re-numbers the signature blocks to be consistent with EASA Form One numbering format, so the left-hand signature blocks 14-18 become Blocks 13(a)-13(e), and the right-hand signature blocks 19-23 are renumbered as Blocks 14(a)-14(e).
• The new Order changes the Date format in Blocks 13(e) and 14(e) from Month-Day-Year format to Day-Month-Year format, which reflects EASA Form One norms, but represents the opposite  of ISO date format.
• Chapter 3 of the new Order removes a Note from Section 3-1.b. that explained why rebuilt products and articles might not be found acceptable by some European countries.  The Order adds a new Section 3-5 entitled “Approval for Return to Service Information Relevant to the European Union.”  Section 3-5.a. explains that European Civil Aviation Authorities may recognize approval for return-to-service FAA Form 8130-3 only from 145 repair stations or air carriers that also obtained an EASA part 145 approval appropriately rated for the product or article at the time it was approved for return to service.  Section 3-5.a.(2) gives specific instructions for completing FAA Form 8130-3 when a dual release is being applied to satisfy a European CAA (Euopean-created dual release) or EASA (extra-European dual release).
• Section 3-5.b. addresses FAA Form 8130-3 for rebuilt engines within the European Union.  Section 3-5.b.(1) gives brief background information on the aviation safety agreement between the U.S. and EU.  The agreement allows for reciprocal acceptance of FAA and EASA certification and oversight of civil aviation products and repair stations.  EASA now recognizes the term “Rebuilt Engines” as a manufacturing certification practice, not a maintenance release by the FAA.  The agreement also places the same import requirements on rebuilt engines that are on new aircraft engines.  3-5.b.(2) gives specific instruction for completing FAA Form 8130-3.
• Section 4-3 is renamed “Used Products and Articles” and updates the section to correspond to 14 C.F.R. § 21.331(c) & (d).  Export airworthiness approvals for used aircraft engines, propellers, and articles are issued in accordance with § 21.331(c). If a used engine or propeller does not meet the requirements, § 21.331(d) allows for deviation if the importing jurisdiction accepts the deviation in a form and manner acceptable to the FAA.  The deviation must be listed in Block 12. Remarks as an exception between the used aircraft engine or propeller from its approved design.
• Chapter 5 excises references to “ATA Spec 2000” and “Chapter 16, Electronic Product and Part Regulatory Documentation.”  Section 5-3 excises parts (c) and (d) that described technical aspects of extensible markup language (XML).  Section 5-4 “Data Requirements” is deleted.  Subsequent sections are re-numbered.  Section 5-7 excises XML code samples.
• Section 5-6.a. & b. replace “part/component/assembly” with “engine/propeller/article.”  Section 5-7 is reworded to reflect the elimination of XML code samples and direct the reader to Appendix A for examples of uses of Electronic FAA Form 8130-3.  Section 5-8 re-labels the sample letter of intent to use electronic FAA Form 8130-3 from Figure 5-5 to Figure 5-1.
• Appendix B (formerly Appendix A) Acronyms adds the acronyms APIS (approved production inspection system) and TIPS (Technical Implementation Procedures) and deletes the acronym TEI (Text Element Identifier).

There is a lot for the industry to review and consider in this draft, and not all of the changes will be met with industry enthusiasm.  This is a draft on which ASA members are likely to see a need for comments.

Comments are due January 17, 2012.  They can be sent to the FAA by email to:  grant.schneemann@faa.gov  or by mail to:

Grant Schneemann
Federal Aviation Administration
950 L’Enfant Plaza SW (Fifth Floor)
Washington, DC 20024

Please send a copy of your comments to ASA, as well.

This is a critical time for the FAA.  This year the Press has finally started to take notice of the fact that the Agency ‘s strategic projects budget has been subject to four years of continuing resolutions.  This notice and the resulting pressure have actually made it possible that Congress might (someday) establish a longer-term strategic budget that would allow the FAA to implement some its important plans, like transitioning to a true NextGen infrastructure.

Without an Administrator, there is no Chief Executive to work with Congress on securing appropriate funding and there is no Chief Executive providing true strategic guidance to the Agency as a whole.

This is a tough time to secure a new Administrator.  With less than a year before Presidential elections, many potential FAA Administrators might be worried about the impending change in Administration.  The five year term for Administrators was supposed to insulate them from party politics but Washington, DC remains Washington, DC.

One candidate who might receive another look is Captain Duane Woerth, a former ALPA President.  Woerth was considered for the FAA Administrator position at a time when the White House was looking to throw a bone to organized labor.  They ultimately chose Randy Babbitt, who had labor ties but was considered to be better able to work with all of the FAA’s constituencies.  Woerth was ultimately appointed to be the US Ambassador to ICAO.  His labor ties and international experience would make him an qualified albeit controversial choice.

Another potential candidate is retired House Transportation Chairman James Oberstar.  Before chairing the full committee, Chairman Oberstar chaired the Aviation Subcommittee.  He was a long-time champion for the aviation industry and could do a good job representing the Agency on the Hill in its quest for a long-term strategic plan in the form of a multi-year authorization.

Retired AMR chief executive Gerard Arpey could be an interesting choice for the position.  Having just left American Airlines, he is available (he immediately joined a consulting organization after his exodus) and certainly has experience in leading large organizations (the factors that drove American to bankruptcy could not reasonably be blamed on his leadership).  But he has no real experience in working within government, and an understanding of the FAA would be critical to anyone who hopes to successfully lead the FAA.

As a commercial pilot, Babbitt was a very well qualified individual to lead the FAA.  As a pilot, though, he is also held to the highest standards of sobriety.  A conviction for driving while intoxicated could lead the loss of his pilots license.  Note that as a 65-year-old, he would not be eligible to fly for any air carrier in the United States, but the loss of this credential would tarnish his stellar reputation.

Babbitt was arrested after police spotted him driving on the wrong side of the street.