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.

 

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.

Got Outside Sales Personnel? You Have a Chance to Tell the Labor Department When You Should be Required to Pay Them Overtime

The Labor Department is seeking comments on an overtime rule – one that affects overtime payments to outside sales personnel and to administrative and executive personnel.  This is a rule that could dramatically change the pay structure of certain distributors, and is worth the attention of ASA members.

Background

The Fair Labor Standards Act (FLSA) generally requires covered employers to pay their employees overtime premium pay of not less than one and one-half times the employee’s regular rate of pay for any hours worked over 40 in a workweek. But there is an important exception that exempts “any employee employed in a bona fide executive, administrative, or professional capacity … or in the capacity of outside salesman ….”  These perosnnel are known as “exempt” personnel, and they are not subject to the FLSA protections.  Thus, outside sales personnel do not have to be paid overtime.  This allows outside sales personnel to be paid based on productivity rather than hours of effort (e.g. commission) where that compensation mechanism is appropriate.

The Issue

In May 2016, the Labor Department under President Obama issued a new rule that would extend overtime benefits to many employees who did not previously enjoy those benefits.  The Administration had bragged that this will automatically extend overtime pay protections to over 4 million workers who did not previously have this entitlement.

The Obama Administration proposed to add new tests that would have extended overtime pay to many categories of personnel (including outside sale personnel).  The new tests included a salary-level test and an automatic updating mechanism which would have extended the standards found in FLSA.  In November, a Federal Court stopped the rule from being implemented.  The Court concluded that the overtime exemption statute (29 U.S.C. § 213(a)(1)) was plain in its language, and did not permit the Department of Labor to add tests that undermined those exemptions.

The Trump Administration has pledged to dismantle many of the programs established by the Obama Administration, and this is the next one to potentially face the chopping block.

What Now?

On February 24, 2017, President Donald Trump signed Executive Order 13777, “Enforcing the Regulatory Reform Agenda,”  that directed federal agencies to identify regulations for repeal, replacement, or modification.

The overtime rule has been enjoined from enforcement, but it is still on the books.  It makes sense to revoke it, consistent with the  Executive Order.  But you cannot just waive a magic wand and be rid of a regulation – it must be rescinded using the same Administrative Procedures Act process that was used to enact it.  The Department of Labor has potentially started this process.

The Department of Labor has put out a request for information in which they are seeking comments on the overtime provision.  The call for comments includes a list of questions, but any comments on the overtime provisions are welcome.  The list of questions includes questions about reforming the overtime provisions in order to make them acceptable.

Written comments should be sent to the Department on or before September 25, 2017.  Please let ASA know your concerns, as well, so our comments can reflect your concerns.

Responding to an Administrative Subpoena

Many administrative agencies have subpoena power.  This means that they can send you a subpoena insisting that you give testimony, or (more commonly for administrative subpoenas) provide documents.

The first step in responding to an administrative subpoena is to issue a “litigation hold” within the company.  This is a written notice to your staff directing them to preserve any documents, records, or other information that may be responsive to the subpoena.  Rather than relying on the staff to identify what is responsive, companies typically want to prevent the staff from destroying any records, except under the direction of an attorney.  This also may mean turingin off systems that automatically dispose of records.  For example, if your system automatically deletes emails after a certain period, or if you periodically purge records, then those mechanisms should be turned off until a legal review can determine the right course of action (and don’t be surprised if the legal review insists that those purging systems stay off for the duration of the investigation).  Litigation holds can include both electronic records and paper records and can even apply to handwritten notes.

The second step in responding to an administrative subpoena is to talk to a lawyer (this is interchangeable with step one – they should happen at about the same time – the lawyer’s help may be quite useful in issuing the internal hold message).  There are many reasons for this, but one of them is that not all subpoenas are created equal.  It is possible that you might not need to respond, or that the right course of action could be to file a formal motion to quash.

I have encountered both valid and invalid administrative subpoenas over the years.  Validity can turn on a wide variety of factors.  Sometimes the subpoenas are issued by parties who were not authorized to issue them (rending the subpoena invalid). Sometimes they are overly broad; talking to the administrative agency about their investigative focus can sometimes help narrow the scope of the request to a more reasonable scope.  If you do this, though, make sure you record any such agreement about a change in scope in writing, with the government inspector’s written concurrence.

If the administrative subpoena is invalid, then you may wish to move to quash the subpoena.  Remember that one remedy for an invalid subpoena is to withdraw it and reissue a valid one, so discuss strategy carefully with your lawyer.

If the administrative subpoena is valid but needs to be amended (needs to be more specific, less overbroad, etc.) then you may want to have your lawyer negotiate an amendment with the issuing agency.  Sometimes the subpoena calls for an avalanche of records when the government only needs a small trickle, but the agent who issued the subpoena did not know how to describe the narrow category of records that he or she really wanted.

Remember that you are not always the target of the investigation.  An attorney can start to gauge the focus on the investigation by talking with the agency that issued the subpoena.  Many aircraft parts distributors have received subpoenas from export agencies because someone else in the chain of commerce is being investigated.  But if you are the target of an investigation, your rights in an administrative proceeding may be different than your rights in a criminal proceeding.

Having your attorney speak with the issuing agency is frequently a good move.  The investigator who caused the subpoena to be issued has a lot of power to modify the terms of the subpoena in order to (1) make it easier to comply, and (2) by easing compliance, make it more likely that the investigator will get the information that he or she desires.

Do not ignore the subpoena!  One aircraft parts distributor did and it cost them $225,000.  I know this claim sounds like part of an old-fashioned chain letter (or the modern email version), but in 2010 a distributor settled a claim that they had failed to comply with a subpoena, and it cost them nearly a quarter of a million dollars.

The facts of the case showed that the aircraft parts distributor had submitted 260 pages of responsive documents, but it failed to submit a copy of a post-sale e-mail.  The facts also showed that aircraft parts distributor had provided a copy of that email to its lawyer (the public documents did not reveal whether the lawyer was sanctioned for withholding that document).  The government even recognized that the company had relied in good faith on the advice of the lawyer in determining not to produce the e-mail.  Nonetheless, the company was accused of an egregious violation and ultimately settled the matter for $225,000.

Talk to ASA’s Lawyers at ACPC

Have you wondered what is the inside scoop on ASA and its government relations programs?  Well, wonder no longer!

ASA counsel Jason Dickstein and Ryan Aggergaard will be at ACPC this year, and they will be meeting with ASA members to find out what business hurdles you are facing, and what ASA can do to help.

Jason and Ryan will be setting up times during the Meet & Greet sessions at the hospitality suite.  They will also be available through the entire ACPC event.

Jason will also be teaching a class on how aircraft parts documentation is changing (and changing rapidly) and what the industry and FAA are doing about it.  If you are buying or selling aircraft parts, then you can’t afford t o miss this session!  His class takes place on Monday August 28 at 3:15.  As a bonus, George Ringger will appear immediately after (at 4:30) to discuss strategies for responding to the changing marketplace.

Want to set aside a special time to talk to ASA’s lawyers?  Just email us and we can make arrangements to meet during ACPC.  We look forward to seeing you there!

FUNCTION CODE 56 UPDATE: Airline Sourcing is OK; but PAH Trace Must be Established

Recent confusion about the use of function code 56 has caused some consternation in the industry.  The focus of this issue has been on parts obtained from air carriers (which represents a significant portion of the industry’s surplus parts).

The issue arose from an FAA email that incorrectly stated that articles obtained from an air carrier were ineligible for 8130-3.  This was not a correct statement, and the FAA is planning to issue a follow-up email to correct this statement.

Our FAA contacts says that they have seen at least one case where Limited DAR-F’s are issuing 8130-3 tags for parts that were not traceable to a PAH in accordance with the criteria FAA established in the DAR 56 policy memo of October 14, 2016.  The FAA reports that a function code 56 designee had issued tags based solely on paperwork from an airline, in the absence of paperwork or markings from the PAH. While some DAR function codes permit reliance on air carrier evidence (e.g. to identify new surplus parts), function code 56 does not permit that to be the sole basis of an airworthiness decision.

Recently the FAA sent an email to the entire Limited DAR-F community to warn them about this issue.  The intent of the email was to make it clear that the paperwork or the physical part markings had to be traceable to a PAH in order to issue an 8130-3 tag under DAR function code 56.

The recent emailed guidance suggested that function code 56 does not allow 8130-3 tags for articles from Part 121 air carriers.  This description was not an accurate portrayal of FAA policy, because the statement was truncated.  We have discussed this matter with Scott Geddie, who heads up designee policy for the FAA, and he confirmed that the correct statement should have looked like this:

This program DOES NOT allow issuance of an 8130-3 tag for:

….

  • Parts or articles obtained from an FAA Part 121 air carrier, unless proper documentation exists from the PAH or there are part markings traceable to the PAH

The italicized text (above) was not in the original FAA email, but the FAA has pledged to send a follow-up email with the italicized text, and has confirmed that italicized text represents the intent of the FAA.

For comparison purposes, the original October 14, 2016 policy memo makes the function code 56 requirements very clear.  To issue an 8130-3 under function code 56, you need one of the following:

  1. Certificate of Conformity/Statement of Conformity from a Production Approval Holder (PAH); or
  2. Certificate of Conformity/Statement of Conformity or shipping document from a PAH supplier with verification of direct ship authorization; or
  3. Part Markings made under 14 C.F.R. § 45.15.

If you have other evidence of airworthiness (like valid air carrier trace), then an 8130-3 may still be issued – but it must be issued by a DAR with a different function code.

Receiving Inspectors are Not Performing Maintenance

In a victory for common sense, the FAA has issued a legal interpretation that confirms that receiving inspectors who are receiving articles for stock are not performing maintenance activities, and therefore they are not among the personnel who are required to be subject to DOT-regulated drug and alcohol testing.

This effort was spearheaded by our industry colleagues at ARSA, but the final request for interpretation was jointly filed by 15 organizations (including ASA).

The root of the issue is that the Part 120 requirements require air carriers to ensure that their maintenance subcontractors are tested under the drug and alcohol rules.  This requirement is applied to those who perform aircraft maintenance duties – but those who do not perform such duties are not subject to the testing requirement.

During development of the request for opinion, we pointed out that distribution had been excluded from the scope of drug and alcohol testing in a federal register preamble (at the request of ASA).  Receiving inspection is generally performed in a uniform manner across the aviation industry, so the receiving for stock that is not maintenance in a distribution facility should be treated the same as the receiving for stock in an air carrier or repair station facility.

The FAA agreed with our logic, and yesterday issued a legal opinion letter confirming that receiving inspectors who are receiving articles for stock are not performing maintenance in a way that would make them subject to DOT’s drug and alcohol testing requirements.

%d bloggers like this: