ASA Petitions FAA for Extension of DAR-56 Program

Last week ASA submitted a petition to the FAA formally requesting the indefinite extension of the Limited DAR-F Program for Accredited Distributors–commonly known as the DAR-56 program–that is scheduled to expire September 30, 2017.  ASA further requested an expansion of the program to better reflect the needs of the distribution community.  You may also recall that ASA recently led an industry effort that secured the reissuance of FAA Notice 8900.380 for another year. Both of these efforts are in response to the 8130-3 tag requirements arising out of MAG 6, which put billions of dollars of distributor inventory at risk.

ASA explained in its petition to extend DAR-56 indefinitely that the facts that gave rise to the need for the DAR-56 program have not changed and that the need for the program to continue was therefore very important to distributors.  The DAR-56 program permits Limited DAR-F’s to issue 8130-3 tags for parts on the basis of specific indicia of sourcing from the PAH.

As attendees of the ASA conference heard from members, distributors have so much inventory that needs to be tagged under the DAR-56 program that it could literally take years to tag every part.  This includes vast numbers of small, low-dollar-value parts for which hiring an independent designee would be economically infeasible.  ASA therefore proposed an indefinite extension of the program with semi-annual meetings between the FAA, ASA, and interested parties to discuss the ongoing need for the program so that it can be discontinued after a permanent solution is developed.

In addition to proposing an indefinite extension of the DAR-56 program (rather than annual extensions requiring yearly petitions and discussions), ASA also recommended changes that would improve the effectiveness of the program and help distributors.

At present, the DAR-56 program permits Limited DAR-F’s to issue 8130-3 tags under the following criteria:

  1. The aircraft part was received by the distributor prior to November 1, 2016 and
  2. The aircraft part must bear specific indicia of production under 14 C.F.R. Part 21:
    1. A certificate or statement of conformity that was issued by the production approval holder (any documentation part numbers and serial numbers, if applicable, must match any part markings); or,
    2. A certificate or statement of conformity that was issued by the production approval holder’s supplier, and a verification of direct shipment authorization; or,
    3. Markings regulated under 14 C.F.R. 45.15 and describing the PAH’s name or other identification (for parts, this would typically be limited to PMA, TSOA or critical parts).

ASA recommended that the program be extended as follows:

  1. The program be expanded to include any aircraft part that was received by the distributor at any time when the distributor was accredited under the AC 00-56 program.
  2. Expand the acceptable indicia of production under an FAA production approval to include other documentation the FAA has previously recognized:
    1. For an aircraft part that was accepted into an air carrier’s inventory system as new article, and then subsequently released from that air carrier’s inventory system, a document from the air carrier identifying the part by part number, and by serial number where appropriate, and identifying the part as new (including new surplus); or
    2. A maintenance release document showing (i) that the part was inspected under 14 C.F.R. Part 43 by a person authorized to approve such work for return to service, (ii) that the part was found to be in new condition, and (iii) a part number that matches a number known to be a PAH part number, and that matches the part number on the part, where applicable.

These proposed expansions reflect the fact that the November 1, 2016 receipt date appeared wholly arbitrary and neither supported nor required by any regulatory basis, and that the two additional forms of documentation are commonly accepted in the industry under Part 21 of the regulations.  This would solve the problem of those parts that are currently still being received without tags (as they continue to be released from PAH’s who do not issue tags, or as new surplus from air carriers without tags) and those parts that currently have PAH documentation but are nonetheless excluded under the terms of the current program.

ASA appreciates the FAA’s collaborative efforts to work with us to extend the DAR-56 program as we work toward a permanent solution to the MAG 6 8130-3 tag issue.  We will keep our members updated as we hear more from the FAA.

 

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FAA Extends Policy Patching MAG Tag Challenges

Today the FAA notified ASA that it will extend for another year the MAG policy patch, Notice 8900.380, which allows repair stations to inspect and approve parts for return to service that are not accompanied by the MAG-mandated documentation. The extension technically cancels notice 8900.380 and reissues the policy as Notice 8900.429 (as opposed to literally extending 8900.380).

Although this doesn’t solve all of the problems wrought by MAG 6, it gives distributors and repair stations another year while the FAA works with EASA on a permanent solution to the documentation problems created by MAG 6.

On August 2, ASA spearheaded a petition joined by 12 other industry groups to seek an extension of the policy, which was scheduled to expire on August 26, 2017.  ASA is thankful to have the support of industry in seeking to solve the challenges of MAG 6’s 8130-3 tag requirements, and is appreciative of the FAA’s efforts to work with us.

We previously wrote on the blog about the ways in which notice 8900.380 (now notice 8900.429) helps distributors with un-tagged inventory sell to repair stations by explicitly recognizing repair stations’ right to receive, inspect, and approve for return to service any article for which they are rated.

The inspection authority in the notice still recognizes the original October 1, 2016 date distinguishing between parts already in inventory, and parts received on or after that date, but as we are well beyond 2016, that should not change any procedures or outcomes:

b. Inspections. For the purposes of this notice, inspections may be performed on:
(1) New parts received before October 1, 2016, that are not accompanied by FAA Form 8130-3, a dated certificate of conformance, or similar documentation issued by a U.S. PAH or supplier with direct ship authority in accordance with the notes in the MAG CHG 6, Section B, Appendix 1, subparagraph 10k)(1)(a) and Section C, Appendix 1, subparagraph 7c)(1)(a); and
(2) New parts received on and after October 1, 2016, that are not accompanied by FAA Form 8130-3.

We encourage you to review Notice 8900.429 to re-familiarize yourself with the policy, its requirements, and its limitations.  The notice has a duration of one year and is set to expire August 9, 2018.  It is the expectation of the FAA that this policy will ultimately be incorporated into MAG 7 when that document is ultimately issued.  ASA will continue to work with industry, the FAA, and EASA to craft a permanent and workable solution to this issue.

Should ASA Support a Repeal of the Estate Tax?

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

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

More close to home, in the aerospace distribution community, companies may have millions or even billions of dollars in inventory on the shelf that would be counted toward the value of a family business owner’s estate. This sort of vast parts inventory cannot be quickly liquidated upon a business owner’s death to cover an estate tax assessed against the value of the business (that includes that inventory). Additionally,  because many businesses rely on their inventory as collateral against which to take out loans or lines of credit, they cannot simply depreciate the value of the inventory to zero to minimize the value of the business for estate tax purposes, or they risk also minimizing the apparent value of the business as a whole, thus making it difficult to borrow in the future.

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

I would like to hear what ASA’s members think. Is a letter supporting the Death Tax Repeal Act of 2017 something ASA should sign on to? The deadline to sign on to the letter is Monday, January 23, so please let us know what you think before then.  You can email your thoughts to Ryan Aggergaard at ryan@washingtonaviation.com.

BIS Revises Sudan Licensing Policy

The U.S. Department of Commerce Bureau of Industry and Security (BIS) issued a final rule today revising its policy for review of applications for the export of parts in support of Sudan’s civil aviation industry from a policy of presumptive denial to one of presumptive approval.  This change makes it possible for exporters of aircraft parts to obtain a license to export parts “intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft.”

Prior to this rule change BIS maintained a general policy of denial of export license applications for “[a]ll aircraft (powered and unpowered), helicopters, engines, and related spare parts and components.” 15 C.F.R. § 742.10(b)(1)(iv).  The rule revision replaces that policy “to a general policy of approval for parts, components, materials, equipment, and technology that are controlled on the CCL only for anti-terrorism reasons and that are intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft.” The new rule goes into effect January 17, 2017.

The rule explains that these changes are being made “in connection with ongoing U.S.-Sudan bilateral engagement, and with the aim of enhancing the safety of Sudan’s civil aviation” in furtherance of U.S. goals to improve regional peace and security. The support and enhancement of safety in civil aviation was one of the carrots the United States used during its negotiations of the Iran nuclear deal as well.

One important caveat to the rule change is that a general policy of denial of export (or reexport) license applications has been retained if the transaction would “substantially benefit a sensitive end user.” Sensitive end users include (but are not limited to) Sudan’s military, police, and intelligence services, or persons owned or controlled thereby. Should you be contacted by a potential customer from Sudan it is therefore important to ensure that you follow your export compliance procedures to establish the identity of the ultimate end users.

The relevant text of the new rule is as follows:

15 C.F.R. § 742.10(b)(3)(ii) General policy of approval. Applications to export or reexport to Sudan the following for civil uses by non-sensitive end-users within Sudan will be reviewed with a general policy of approval.

(A) Parts, components, materials, equipment, and technology that are controlled on the Commerce Control List (Supp. No. 1 to part 774 of the EAR) only for anti-terrorism reasons that are intended to ensure the safety of civil aviation or the safe operation of fixedwing commercial passenger aircraft.

. . .

Note to paragraph (b)(3)(ii). Applications will generally be denied for exports or reexports that would substantially benefit a sensitive end user. Sensitive end users include Sudan’s military, police, and intelligence services and persons that are owned by or are part of or operated or controlled by those services.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has simultaneously amended its Sudanese Sanctions Regulations to authorize these exports.

Remember, this policy change does not mean that you can ship to Sudan without a license; rather, it means that as a general rule an export license will be granted for the export of aircraft parts in support of Sudan’s civil aviation industry. Sudan remains the only country on the Commerce Country Chart controlled under column Anti-Terrorism 1 (AT1), and AT1 applies to ECCN 9A991.d, under which most aircraft parts are categorized.

As always, anyone seeking to engage in new, complex, or unfamiliar export transactions should consult an export compliance attorney.

New ITAR Export Reporting Requirements Now in Effect

For those who may have missed it over the busy holiday season, a new method for submitting export and temporary import reporting information for ITAR-controlled articles went into effect as of December 31, 2016.  This change was part of the DDTC’s efforts to conform reporting requirements to the International Trade Data System “single window” administered by  U.S. Customs and Border Protection in accordance with the SAFE Port Act and Executive Order 13659.

Readers should already be familiar with the “single window,” better known as the Automated Commercial Environment (“ACE”) that has subsumed AESDirect for the purpose of most of your export filings.  Exporters will have been using ACE for their export filings for several months now, so the change to your systems and procedures should be minimal.  The revision to the ITAR effective December 31 harmonized those regulations by removing references to AESDirect and replacing them with references to CBP electronic filings and systems.

In theory this should make filing the appropriate reports for export of ITAR-controlled articles easier. Using the single window, an exporter of ITAR-controlled goods reports the required information to CBP via ACE, and CBP relays the relevant and necessary information directly to the DDTC. There is no need for the exporter to notify DDTC directly. This should help to eliminate confusion as to which reports must go to which government entity, and also eliminate the cost and burden of duplicative reporting requirements.

Exporters should note, however, that this does not eliminate all your requirements to correspond with the DDTC. You will still need to ensure you are obtaining the appropriate licenses for your ITAR-controlled exports, and ensuring your registration remains current. The new rule also did not amend any part of 22 CFR part 130, so your reporting requirements related to fees and commissions remains unchanged, for now.

As always, when in doubt, consult your export compliance attorney to ensure you are acting in accordance with the ITAR and all other export compliance laws and regulations.

 

License Issues for Distributors of Explosive Materials

We often receive questions from distributors about their obligations to comply with regulations beyond those of the FAA or industry standards specifically addressing the aerospace distribution community. In many of these cases, distributors may not be perfectly clear on how to comply with certain regulations, or that those regulations even exist. Some examples of these scenarios include export licensing requirements, export reporting requirements, and hazmat or dangerous goods shipping requirements.

Recently, we have received a number of questions regarding regulatory requirements surrounding explosives regulated by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).  Some people are not even aware that regulated explosive materials are present in a variety of aircraft parts or that they may be handling these parts or that the ATF imposes license and permit requirements on a wide range of people who handle such explosives. It is therefore important to understand what ATF licensing obligations apply when distributors are handling explosive materials.

In general, anyone who imports, manufactures, or deals in explosive materials must obtain a license from the ATF. Because “dealing” under the regulation means distributing explosive materials at wholesale or retail the license requirement casts an extremely wide net that encompasses any type of sales model.

The ATF explosives license is obtained by applying to the ATF using forms ATF F 5400.13, ATF F 5400.28 to identify employees authorized to possess explosive materials as applicable, and submitting the appropriate fee. Each license is valid for three years.

So where do regulated explosives appear in aircraft parts? Frequently explosives will appear in safety apparatus.  Fire suppression systems may contain explosive actuators (or “squibs”); similarly, emergency escape systems like door slides may also contain explosive squibs. Other articles that may contain explosives include the flares or other signaling devices found in survival kits. These explosives may be present in certain assemblies and components, so it is important to identify and ship them properly once they have been identified.

Although regulated explosive materials generally required the distributor to have a license in order to deal in those products, certain aviation articles may be exempted from the regulations. These exemptions are typically sought by the manufacturer of a particular article and when granted are specific to the article by part number. One common example of articles often subject to exemption is signaling devices.

Unfortunately, the ATF does not offer a searchable database of issued exemptions, but instead recommend that manufacturers provide a copy of the exemption with their exempted products. As a matter of practice, however, this is not always done, whether because the manufacturer is unaware that they are permitted to do provide the exemption, are unaware that the exemption follows the product, or even possibly for competitive reasons.  The net result is that some distributors may be handling exempt materials as though they were subject to the ATF licensing requirements. When dealing with exempt materials it is important to remember that it is the article itself that is exempted, and the exemption is not limited only to the manufacturer, so everyone can take advantage of the product’s exemption.

Finally, it is important to remember that the ATF licensing regime is separate from DOT hazmat shipping regulations.  An explosive article can be exempt from the ATF licensing provisions but still be regulated as a class one explosive for the purposes of hazmat shipping. It is always necessary to ensure compliance to each applicable regulatory regime, and that separate regulatory regimes are not necessarily consistent.

Overlapping regulatory regimes—ATF, DOT, FAA, BIS, DDTC, OFAC—can become quite confusing.  When in doubt about your licensing and compliance regulations always remember to consult an attorney who can help you make sense of these conflicting regimes and develop systems to help your business ensure ongoing compliance.

If you have questions about your compliance obligations be sure to visit us while you are at the ASA conference in Las Vegas, June 26-28!

Treasury Continues to Clarify Policy on Iran

U.S. Treasury Department licensing policy with respect to Iran continues to gain clarity as the Office of Foreign Assets Control issues new licenses.  On March 24, 2016, OFAC  issued under the Iranian Transactions and Sanctions Regulations General License I – Authorizing Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services.

In relevant part, the General License states

U.S. persons are authorized to enter into, and to engage in all transactions ordinarily incident to the negotiation of and entry into, contracts for activities eligible for authorization under the [policy for commercial aviation exports to Iran], provided that the performance of any such contract is made expressly contingent upon the issuance of a specific license by [OFAC] authorizing the activities to be performed.

In layman’s terms, the General License permits the ancillary processes that go into negotiating and finalizing a contract. The caveat is that the performance of the contract itself must be made conditional on issuance by OFAC of a Specific License covering the terms of the deal.

The benefit of General License I is to allow parties to bid on contracts and attempt to hammer out deals without having a Specific License already in place. But they must remember to make clear that the execution of any agreed-to contract is contingent upon issuance of a Specific License by OFAC.

Remember, General Licenses are those licenses that apply to everyone without any additional action required as long as you stay within the scope of the General License.

It remains important to exercise additional diligence in undertaking transactions with Iranian customers; but we can expect transactions to get easier as both Treasury and industry gain experience and familiarity with the process.  And as always, if in doubt, consult an export compliance attorney.

 

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