New White House Policy on Anti-Competitive Behavior Could Affect Aviation

The President is expected to sign a new Executive Order on competition, today. Although the Order is not yet available,the Administration has already released a Fact Sheet about the planned Executive Order. The title of the new Executive Order is expected to be “Executive Order on Promoting Competition in the American Economy.”

The official purpose of this Executive Order is to promote competition. The Administration says it is taking aim at large companies that adversely impact competition. But every new policy has the potential for unintended consequences, so we will be carefully watching this Executive Order and the regulations that are generated to implement it.

Here are some highlights from the Fact Sheet of items that could potentially affect aviation businesses:

  • The Executive Order encourages DOT to issue rules requiring that air carriers offer certain ancillary fee refunds to consumers.
  • The Executive Order encourages DOT to issue rules requiring greater clarity and disclosure of ancillary fees (including baggage, change, and cancellation fees).
  • The Executive Order encourages the FTC to ban or limit non-compete clauses that affect the labor market. Such clauses are fairly normal for employees who have access to economically-sensitive confidential information in our industry. A ban on such clauses could affect existing relationships and cause companies to pursue other strategies for protecting sensitive data.
  • The Executive Order encourages the FTC and DOJ to prevent employers from sharing wage and benefit information with one another.
  • The Executive Order encourages the FTC to establish rules on surveillance and the accumulation of data. This is meant to apply to “Big-Tech” but it could easily spill-over into obligations on anyone who collects data and uses the internet (i.e. everyone).
  • The Executive Order encourages the FTC to issue rules against restrictions on using independent repair shops. This is meant to apply to cell phones, but this could set a precedent that applies to aviation repair.
  • The Executive Order calls for passage of the “Protecting the Right to Organize Act.” This Act would expand the reach of the Fair Labor Standards Act, would permit secondary strikes (under which a union can strike in support of someone else’s rights, even when it does not have a direct interest in the issue), and expanding whistleblower protection.
  • The Executive Order describes an Administration policy of greater scrutiny of mergers, including acquisition of small companies. This is meant to apply to internet service companies but it could easily be applied to other industries (including aviation).

It often takes several days after an Executive Order is announced for it to be published in the Federal Register. We will be watching carefully for this one, as well as watching the regulations and policies that are generated in its wake.

Chinese Aerospace Strategic Priorities

Many people in the ASA Community have asked me about how to get into the Chinese market.  One important tool for getting into the market is understanding the market. 

The Chinese government has a tremendous influence on the Chinese commercial market – more so than many European or North American governments.  Thus, having an understanding of Chinese government priorities can be valuable to those seeking to enter he Chinese market. 

China publishes an “Industrial Structure Adjustment Guidance Catalog” that serves as a blueprint for Chinese industrial development.  The most recent version of the Catalog is the 2019 Edition. This document is intended to identify the strategic path for ensuring that China’s economy is focused on high-quality development.  The 2019 Edition of the Catalog was adopted by the government on August 27, 2019, and went into effect on January 1, 2020.

The Catalog has three categories of industries: “encouraged”, “restricted”, and “obsolete” (industries that are not listed in the Catalog are “permitted”).  The “encouraged” category refers to industries and industry subsectors that China believes will play an important role in achieving the high-quality economy that is part of China’s strategic plan.  China has identified these as industries that need to be encouraged. 

Aerospace is listed as one of the “encouraged” industries.  There are seventeen sectors under the aerospace category that have been identified as encouraged sectors:

  1. Development and manufacturing of trunk lines, branch lines, general aircraft and parts and components;
  2. Development and manufacturing of aero-engines;
  3. Development and manufacturing of airborne equipment, mission equipment, air traffic control equipment and ground support equipment systems;
  4. Overall helicopter, rotor system, transmission system development and manufacturing;
  5. Development and production of new materials for aerospace;
  6. Manufacturing of gas turbines for aerospace use;
  7. Manufacturing of satellites, launch vehicles and parts;
  8. Application of aviation and aerospace technology and system software and hardware products, terminal product development and production;
  9. Aircraft ground simulation training system, test system development and manufacturing;
  10. Aircraft ground repair, maintenance, and testing equipment development and manufacturing;
  11. Satellite ground and application system construction and equipment manufacturing;.
  12. Aircraft special emergency rescue equipment development and application;
  13. Aircraft, equipment and parts repair;
  14. Advanced satellite payload development and production;
  15. UAV development and manufacturing of general, materials, communications, control systems, etc;
  16. Design of civil aircraft and helicopters; and
  17. Development and production of solar cells for aerospace use.

The Catalog also encourages development of aerospace ceramics, specialized aerospace aluminum alloys, and aerospace instruments and avionics (all of these are encouraged sectors under other headings).

There are a lot of factors to consider when considering entry into any foreign market, but if you are a non-Chinese businesses thinking about entering the Chinese aerospace market, then identifying ways that your project supports the Chinese Government’s strategic plan, may help facilitate your efforts.

Payroll Grants for AS9100 Businesses

If your businesses designs, develops, or provides an aviation product or service – including a part, component, or assembly – and that process is certified under AS9100, then you may be eligible for a payroll grant from the US government.

As we discussed last week, the Aviation Manufacturing Jobs Protection (AMJP) program opened up this morning at eight am. The program provides payroll grants for the aviation industry and the scope goes beyond manufacturing. Qualified businesses include:

  • Production Approval Holders (PC, PMA, TSOA) who’ve produced or shipped articles in the last 12 months;
  • MROs holding Part 145 certification;
  • Part and service providers who operate under an AS9100 certification.

Application details can be found in yesterday’s Federal Register. Please review this for eligibility details as well as the application process.

This is not a “first-come, first-serve” program, so you should not rush in your effort to apply. This will be a single-round solicitation process in which any application that is filed by the deadline will be treated the same as the other timely applications. So take your time, collect your data, and make sure your application is complete.

The application period will be open for four weeks.  All applications are due by 5:00 p.m. Eastern time on Tuesday, July 13. Please don’t wait until the last minute to file!

ASA members and ASACB clients should reach out to the Aviation Suppliers Association for more details.

Grant Opportunity For AS9100 Companies Opens Next Week – Don’t Miss It!

The Department of Transportation will publish a Federal Register Notice next week announcing the Aviation Manufacturing Jobs Protection (AMJP) application process. 

The AMJP offers grants to companies that provide aviation parts and/or services under an AS9100 system (the program also applies to production approval holders and MROs). The grants are intended to support payroll.

The application system is expected to go live on Tuesday morning, June 15, for a four-week application period that will end on Tuesday, July 13. If you do not file your application during this period, then you will likely lose your opportunity to apply.

You can find more details about the program – and about eligibility – in our past articles:

Details about the program can now be found SAM.gov assistance listing for the AMJP.

The Federal Register Notice will also invite questions. You send copies of your questions to ASA as well so we can follow-up and make sure everyone gets answers. The government will ask for questions about the application process to be submitted by Tuesday, June 22, so that they will have enough time to address the questions.

Government Information Webinar on New Funding Opportunity

If you’ve been waiting for an update on our April 6 post about the government payroll grant program for AS9100 companies, then here it is!

The Department of Transportation will hold a webinar next week to discuss the AMJP and to answer the questions that industry has about the program. This introductory webinar will be held on Wednesday, May 26, 2021, starting at 3:00p Eastern time.  The webinar will provide a brief overview of the AMJP program, and address basic questions submitted by participants.

The Department has established a registration page for their webinar. They sent out about 11,000 emails today inviting companies to register on the registration page. If you didn’t get the email, then you can still register here: https://www.transportation.gov/AMJP-webinar-registration.

Remember, AMJP is the Aviation Manufacturing Jobs Protection (AMJP) program.  The AMJP program can provide financial assistance to eligible businesses, paying up to half of the compensation costs for certain categories of employees, for up to six months. Businesses who provide aircraft parts or services under an AS9100 certified system may be eligible for the program.

DOT plans to authorize funding under the AMJP program through a single-round, expedited application process. This will allow them to identify all eligible requests before beginning the award process, but it also means that we may only get one shot at applying.

Likely AMJP Application Elements (from the Federal Register)

These are the items that you will likely need to have available when you register for the AMJP program:

  • Legal name of the applicant
  • Address, telephone, and email contact information
  • Legal authority under which the applicant was established (e.g. incorporation)
  • Name and title of the authorized representative of the applicant
  • Identity of those assisting in the application, including outside accountants, attorneys, or auditors
  • Which of the three statutory criteria does the applicant meet and how (including copies of FAA certificates or authorizations or AS9100 certificates):
    • FAA production approval holder
    • FAA Part 145 certificate holder
    • Operates a process certified to AS9100 related to the design, development, or provision of an aviation product or service, including a part, component, or assembly
  • Location where the applicant was legally established, created, or organized to do business
  • Other identification numbers, including but not limited to:
    • Employer/Taxpayer Identification Number (EIN/TIN)
    • Data Universal Numbering System (DUNS) number
    • Unique Entity Identifier under 2 CFR part 25, etc.
  • Description of the applicant’s business operations, demonstrating how the applicant meets the statutory requirement for US operations; this may include:
    • a listing of all business locations
    • the number of employees (and the percentage of their time) engaged in aviation-related versus other business activities at each location
  • Details sufficient to demonstrate how the applicant meets the requirement to have “involuntarily furloughed or laid off at least 10 percent of its workforce in 2020 as compared to 2019 or has experienced at least a 15 percent decline in 2020 revenues as compared to 2019. This is likely to be either:
    • Aggregate numbers of personnel as of April 1, 2019 and April 1, 2020, or
    • Total operating revenue figures for the applicant’s fiscal years ending 2019 and 2020.
  • Certification that the applicant has not received a credit against applicable employment taxes under section 2301 of the CARES Act (26 U.S.C. 3111 note) for the immediately preceding calendar quarter ending before such agreement is entered into, or financial assistance under section 4113 of the CARES Act (15 U.S.C. 9073) (providing payroll support to air carriers and contractors), and is not currently expending financial assistance under the paycheck protection program established under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)), as of the date the employer submits an application under the AMJP.
  • Definition of the applicant’s Eligible Employee Group.
  • The actual aggregate total cost of compensation for the Eligible Employee Group for the six-month period ending March 31, 2021 [note: this period could change because it does not appear to match the statutory requirement].
    • DOT anticipates requiring a breakdown of the compensation costs (e.g., aggregate base salaries versus other major benefit categories, including but not limited to medical benefits paid by the employer, paid leave, insurance premiums paid by the employer, employer match on employee retirement contributions, etc.).
    • Applicants will be required to provide supporting documentation in sufficient detail to substantiate the preceding aggregate costs, like financial reports and redacted payroll reports
  • Whether the applicant business entity is currently engaged in any legal proceeding that could jeopardize its ability to fulfill the legal commitments required in statute as conditions for receiving funds under the AMJP (e.g. Bankruptcy, potential merger or acquisition discussions, or current litigation against the applicant)
  • Whether the applicant is delinquent on any debt to any Federal agency, along with supporting details.
  • Certification by the applicant that they can and will enter into a legal agreement with DOT, that will require the applicant to:
    • provide the remainder of the payroll to the Eligible Employee Group, and
    • refrain from any involuntary layoffs, furloughs, or reductions in pay rates or benefits for the Eligible Employee Group

Note that all applicants will be required to have pre-registered with the System for Award Management (SAM) at https://sam.gov/SAM/.

UK and EU Ink Aviation Manufacturing Deal, Formalizing Acceptance of New Parts

Today, the UK CAA and EU’s EASA signed a Technical Implementation Procedure (TIP).

The purpose of the TIP is to establish the rules for UK and EU acceptance of articles and products produced under the production authority of the other authority. There are correlative agreements regarding design approvals issued by each authority, and the acceptance of each by the other.

This TIP will be important because it affects parts transactions involving third parties. For example, if a US-based distributor has Airbus parts in its US inventory, and those parts were produced under (and tagged under) the authority of EASA, then the sale of those parts for installation on a UK-registered aircraft will be subject to the UK-EASA TIP.

Under the Agreement, the importing authority will expect the following documentation to accompany aircraft parts:

  • For import into the EASA system: an Authorized Release Certificate (CAA Form 1) issued by an authorized UK CAA production organization approval holder [in other words, a UK CAA Form 1 properly signed on the left side]
  • For import into the UK CAA system: an Authorized Release Certificate (EASA Form 1) issued by (a) a production organization approval holder authorized to engage in such activity by an EASA Member State, or (b) a production organization approval holder authorized to engage in such activity by EASA [in other words, an EASA Form 1 properly signed on the left side]

One interesting point is a requirement that instructions for continued airworthiness and other maintenance manuals must be provided for articles to be acceptable for import into each authority. The language specifically states:

“The following documentation will be provided as a condition of acceptance of the civil aeronautical product being imported … ICA and maintenance manuals which include airworthiness limitation sections”

Technical Implementation Procedures for Airworthiness and Environmental Certification Between The Civil Aviation Authority of the United Kingdom And The European Union Aviation Safety Agency, section 6.5.1 (May 17, 2021)

The TIP does not address maintained parts. The authorities are expected to conclude a separate set of procedures for acceptance of maintenance.

U.S Announces new Russia Sanctions. What it means for Distributors.

Yesterday, as you are no doubt aware, the United States announced a new round of sanctions against the Government of the Russian Federation for

efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; to engage in and facilitate malicious cyber-enabled activities against the United States and its allies and partners; to foster and use transnational corruption to influence foreign governments; to pursue extraterritorial activities targeting dissidents or journalists; to undermine security in countries and regions important to United States national security; and to violate well-established principles of international law, including respect for the territorial integrity of states.

The effect of the sanctions are to block the interests in property of certain persons (including both individuals and companies) in the technology or defense and related materiel sector, persons who have engaged in malign activities, and other persons and entities holding key roles in the Russian government or blocked entities (the full list is described in the Executive Order).

Sanctions against Russia are not a new concern for aircraft parts distributors. For many years, companies exporting to Russia have been required to review their customer and end users–as well as the individuals and entities that own or control the customers and end users–to determine whether they are subject to any of the existing sanctions regimes arising out of the situation in the Crimea region of Ukraine or other sanctions regimes imposed by the U.S. Treasury Department and administered by OFAC.

In limited cases, sanctioned persons have been corporations with a direct nexus to aviation, e.g., Rostec, Avia Group, and Avia Group Nord. In other cases, exports to entities like Aeroflot and United Aircraft Corporation may require a license depending upon facts of the transaction due to the ownership or control exercised by a sanctioned entity, like Rostec, or a high-powered individual.

The latest round of sanctions is likely to have both effects. A company called Unijet–which offers on-demand VIP business jet service–was added to the list, as well as a range of individuals and large institutions that could indirectly have a controlling interest in or position with aerospace and aviation companies.

What does all this mean for aircraft parts distributors? Unless you are doing business with one of newly listed parties, not much has changed. You already should be performing a review of your customer and obtaining detailed end user information when exporting aircraft articles to ensure compliance with OFAC sanctions (as well as BIS export regulations). When a customer, end user, or person or entity with control (more than a 50% stake) appears on the OFAC Sanctions List, you must obtain a specific license or identify an appropriate authorization prior to export.

Exports to persons in nations subject to U.S. sanctions can be tricky. Due to the nature of state-owned enterprises and monopolies, and the powerful individuals that control them, you must often dig through many layers of ownership and control to determine whether or not a blocked person is involved in the transaction. Such diligence should be memorialized in writing and kept with the other records retained for the transaction so that you can demonstrate the efforts you took to clear any red flags if the government ever asks.

Whenever you have questions about export compliance–and especially when you are dealing with customers in countries that have been subject to U.S. or international sanctions–we always recommend you consult with an export compliance attorney to help you .

NEW: US Gov’t Payroll Funding for Aviation Businesses

The US government has recognized the extreme hardship that has befallen many aviation companies and has passed legislation that will provide payroll support to aviation businesses.

This is a new program that has just been authorized and is in the process of being developed. It is known as the Aviation Manufacturing Jobs Protection (AMJP) program, but the actual scope includes more than just traditional manufacturing jobs.

The program is targeted to three categories of aviation business:

  • FAA production approval holders – this includes businesses that hold PC, PMA and/or TSOA;
  • MROs holding FAA Part 145 credentials; and,
  • Aviation businesses providing goods or services under an AS9100 system.

The ASA Community has members that fall into each of these three categories.

The legislation is found in Public Law 117-2 at sections 7201-7202. The Department of Transportation plans to publish a website with resources to facilitate application and compliance under the program (we will let you know once it is published).

What Are the Program Benefits?

In summary, under the AMJP program, the government provides money directly to program participants to subsidize a portion of their payroll

Businesses that participate in this program will have to identify an eligible group of employees who perform a targeted activity (see above). This group can be no more than 25% of your total workforce. The members in this group are limited to employees with a total compensation level of $200,000 or less per year (each).

You will commit to retain this eligible employee group, and in return the government will commit to paying up to 50% of their base pay and benefits (“total compensation“) for 6 months. The government has appropriated 3 billion dollars for this program and if the program is oversubscribed, then this amount could be reduced on a pro-rata basis (which might reduce the government’s potential commitment to each applicant).

This program is for the “retention, rehire, or recall of employees of the employer” so that means that you can use the money to rehire eligible furloughed/laid-off employees.

Example: Let’s say you are a small business that distributes aircraft parts kits under an AS9100 system and is otherwise eligible for the AMJP program. You only have 12 employees. Three of your employees are involved in the AS9100 kitting process, so you designate them as your employee group. The combined annual salary of this group is $300,000 (including base pay and benefits). This means that the government could commit to paying $75,000 (50% of the salary for six months).

Example: Let’s say you are a larger distributor that distributes new aircraft parts under an AS9100 system and is otherwise eligible for the AMJP program. You have 600 employees who are substantially all involved in the AS9100 operations. Let’s say that you designate a group of 150 employees as your employee group. The combined annual salary of this group is $22,500,000 (including base pay and benefits). This means that the government could commit to paying $5,6255,000 (50% of the salary for six months).

As long as the program requirements are met, these funds would not have to be paid-back to the government. The funds would likely be treated like a grant.

What Can You Do Now, to Prepare?

The internal government mechanisms for managing this new program are still being developed, but while we wait for the program to be formally announced, there are some things that businesses can do now to ensure that they are prepared to take advantage of the program:

  • Read the legislation to make sure you understand the terms and conditions;
  • Assess whether you meet the fundamental requirements, which include:
    • US Aviation Business meeting one of the three categories described above;
    • in 2020, you laid off 10+% of your workforce or experienced a reduction in revenues of 15+% (each as compared to correlative 2019 numbers);
  • Read the ineligibility provisions of the law and make sure you are not ineligible (and avoid ineligibliity);
  • Obtain a DUNS number, if your business doesn’t already have one, because that is a likely prerequisite for application;
  • Register in the System for Award Management (SAM.gov) because that is the most likely mechanism for government distribution of the funds;
  • Obtain AS9100 certification, if you do not otherwise meet the qualifications.

Finally, you should be thinking of the questions that you may have and sending those questions to us. ASA is generating a list of Frequently Asked Questions and sharing it with the Department of Transportation in order to let them know what the community needs to know to make the program successful. This is an ongoing process, so please share your questions with us as you think of them.

Don’t Forget to Apply for Your PPP2 Funding

As we discussed in an earlier article, the second round of Paycheck Protection Program (PPP2) loans is open. If your business qualifies, then we highly recommend applying for this government funding; but do it soon, because the March 31 deadline is approaching quickly!

Under the PP2 loan program, a business can obtain a forgivable loan. The loan must be spent on eligible expenses (like payroll, mortgage interest, utilities, rent, and certain other expenses). As long as (1) the loan it was spent on eligible expenses, (2) at least 60% of the loan was spent on payroll, and (3) employee and compensation levels are maintained, then the loan may be forgivable, which means it does not need to be repaid. As an additional bonus, the loan forgiveness does not constitute taxable income.

To qualify for the PPP2, your business must:

  • have 300 or fewer employees;
  • have previously received a First Draw PPP loan;
  • have used the full amount of the prior PPP loan only for authorized uses; and
  • have experienced at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

To meet the final bullet-point, you need to show the reduction only on in one set of correlative quarters. Most aviation industry businesses experienced at least one quarter of harsh economic circumstances in 2020 so most aviation industry businesses should qualify under this element.

The small business administration has published guidance on how to calculate your maximum loan.

Applications can typically be submitted through your local bank. There are a number of financial organizations that are also processing these loans for businesses who don’t want to use their local bank. The deadline for applying for this program is March 31, 2021.

BIS clamps down on certain exports to Myanmar (Burma)

Yesterday we wrote about the easing of restrictions on exports of articles to Sudan. We also noted that is important to always review your export transactions in accordance with your export compliance system because things can change quickly. As if to illustrate our point, the Bureau of Industry and Security yesterday promulgated rules clamping down on certain exports to Myanmar, referred to by the U.S. as Burma. This is in direct response to the actions of the Burmese military, which “perpetrated a coup wresting control of the democratically-elected government of Burma.”

The restrictions imposed by BIS are targeted at certain entities: Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services. Sensitive items that require a license for export or reexport to these entities–previously reviewed on a case-by-case basis–will now be subject to a presumption of denial. Further, certain license exceptions–LVS, GBS, TSR, and APP–will no longer be available. (These exceptions are not commonly used in our industry.) This means that exports to those entities of articles that require licenses will be very challenging for the foreseeable future.

Fortunately, it appears that exports of articles to support civil aviation that do not ordinarily require an export license remain unaffected by this rule. Additionally, the more common license exceptions in our industry–RPL (Servicing and Replacement of Parts) and AVS (Aircraft, Vessels, and Spacecraft) remain available. If you are using a license exception to export remember to always review it carefully because they often have limitations.

If you are exporting to Myanmar it is very important to carefully review the facts of your transaction to ensure compliance with the latest export regulations. If you are currently exporting to any of the above-mentioned entities or otherwise shipping Myanmar pursuant to a BIS license, you should also review the special conditions on the license to determine whether the license has been affected by these regulations. As always, if you have questions you should consult your export compliance attorney.

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