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.

“Last Certificated Agency” on Spec 106: What does it Mean?

One of ASA’s members wrote to me with a Spec 106 question.  It is a question that I have heard before.  At its root, the question is, “What does block 13C on the ATA Spec 106 form (“Last Certificated Agency”) mean and whose name do we put into that block?”

In this case, a distributor was planning on purchasing aircraft parts from a non-US air carrier.  The carrier in question is a foreign regional carrier (FRC) with no Part 129 certification from the FAA.  The distributor was wondering whether the FRC could be “Last Certified Agency” of Block 13C of their ATA-106?  The answer to that question depends on whether the FCC has performed a maintenance activity on the part.

The Spec 106 instructions for block 13C very simply say:

“Name the last certificated agency and its certificate number who last performed maintenance on the part.”

Although this sentence likely anticipated FAA-certificated agencies (because it was written over 20 years ago by US air carrier representatives), that limitation is not specified in the instructions.

Something that is specified in the instructions is that suppliers of surplus parts that have been inspected shall include a document from a FAA 121, 135, 129 or 145 certificate holder indicating condition.  This would be in addition to the Spec 106 form.  This is not a regulatory requirement, but it is a requirement of the specification in section 3-7, and it shows us what was considered appropriate when the specification was developed.

Back to our fact pattern; the distributor indicated that the FRC employs certified inspectors.  These inspectors perform inspection at the time of receipt (receiving inspection) and issue documentation stating that the part is considered airworthy.   Inspection is typically considered a maintenance activity that must be reflected in an approval for return to service or other maintenance release.  Typically receiving inspections are not considered to be maintenance activities in their own right, but are part of the maintenance organization’s activities.  But if receiving inspection is treated as a separate maintenance activity in this FRC, and receiving inspection is documented as such, then this activity coul dbe a maintenance activity performed by a certificated agency.

So now we have to look at what kind fo parts are being transacted in this case.

If the parts are new parts that are surplus to the FRC’s needs, then the inspectors could inspect them to new condition, issue appropriate approval for return to service verifying that the parts have been inspected to new condition, and then the Spec 106 form could list the FRC as the last certified agency in block 13C.  This may be subject to the same section 3-7 caveat mentioned above if the parts are received by a company with a Spec-106 compliance receiving inspection system.  But the idea of issuing an air carrier approval for return to service is not a new one.  Northwest Airlines used to issue 8130-3 tags for their surplus parts indicating that the parts had been inspected to verify the condition in which they were sold.  For new surplus parts, this meant that their new, unused, status has been confirmed.  An FRC could use whatever maintenance release form they typically use (such as the ANAC SEGVOO-003, CAAC AAC-038, EASA Form One, TCCA Form One, etc.) in order to document the inspection.  They should be careful to describe what inspection was performed in the remarks block of the maintenance release form.

But what if we are talking about parts in ‘as removed’ condition?  In such a case, the FRC could still be the last certificated agency if it performed an activity like an inspection.  For example, a post-removal inspection that verifies atht the part is unairworthy could be a maintenance activity.  In this case the activity would be the inspection, and the unserviceable tag could be the record of the work performed (to meet this requirement, it typically needs to state what work was performed, e.g. the inspection).

Just because the part is not serviceable does not negate the fact that an inspection was performed and documented.  But of course, the FRC must have appropriate maintenance capabilities to perform the inspection in question – if they do not (e.g. because all of their maintenance work is performed by contractors) then their ‘inspection’ might represent unauthorized maintenance – in such a case the maintenance contractor might the appropriate party to perform and document the inspection in question.  In that situation, the maintenance contractor may be the last certificated party.

OPPORTUNITY FOR IMPROVEMENT

One of the issues with the Spec 106 form is that the instruction set is not very well suited to non-US operations (it was written for A4A in the 1990s).  IN today’s industry, global operations and global sources fo supply have become the norm.

ASA is currently working on proposed revisions to spec 106.  we have formed a subcommittee from among our Quality Assurance Committee and that group has been working on proposed changes.

Our work plan, which we’ve coordinated with IATA and A4A, is that we will next share our proposals with IATA and then ASA and IATA intend to jointly present a set of proposed changes to A4A.  Because the ATA specifications belong to A4A, A4A is the final arbiter of any changes to ATA Spec 106.

If you have any interest in participating in this process, then please let ASA know; we are currently working on this project, and plan to have our proposals ready quite soon.  We will be briefing the Quality Assurance Committee on progress at the Annual Conference in July, so we would appreciate your input NOW to make sure it is included in the ASA proposal.

ACPC Registration is Coming Up!

Don’t forget to register for the Air Carrier Purchasing Conference (ACPC).

Registration begins on Monday morning, May 1, 2017, at 9:00 am eastern time.  You should register through their website at www.acpc.com.

This year’s ACPC will take place August 26 – 29, 2017 in San Diego, California at the Marriott Marquis San Diego Marina Hotel.

Opportunity to Find Aircraft Parts Partners in Taiwan

ASA is working with the Taiwan Trade Center to raise awareness about the Taipei Aerospace & Defense Technology Exhibition (TADTE), which will be held in Taipei on August 17 – 19.

The Taiwan Trade Center is offering generous subsidies to ASA members interested in attending the exhibition.  Here is their offer:

I would like to invite your ASA members to visit Taipei Aerospace & Defense Technology Exhibition (TADTE) August 17 – 19. For qualified buyers, we offer the following incentives:

  1. For companies with annual sales exceeding US$30 million that are related to the industries profiled in the show, TAITRA will offer 1 R/T economy-class ticket scheduled stay during two full show-day periods between August 17 and August 19, 2017, 1 room with a maximum allowance of NT$15,000 (tax included) to be used toward lodging (up to 4 nights being in August 16 to August19, 2017) and airport pickup to-from the accommodating hotel. Attending procurement meetings is requested.

  2. For companies with annual sales exceeding US$5 million that are related to the industries profiled in the show, TAITRA will offer 1 R?T economy-class ticket scheduled stay during two full show-day periods between August 17 and August 19, 2017. Attending procurement meetings is requested.

  3. For companies with annual sales  exceeding US$0.3 million that are related to the industries profiled in the show, TAITRA will offer 1 room with a maximum allowance of NT$ 15,000 (tax included) to be used toward lodging (up to 4 nights being in August 16 to August 19, 2017) and airport pickup to-from the accommodating hotel.

In order to accept this offer from the Taiwan Trade Center, ASA members must complete the 2017 TADTE Registration Form. The completed form should be emailed to Unice Wu from the Taiwan Trade Center – New York at unicewu@taitra.org.tw.  There are a limited number of subsidies available, so apply ASAP!

 

Taiwan Details:

Despite the ‘One-China-Policy,’ Taiwan has its own Civil Aviation Authority which is separate from the CAA of China.  Taiwan has processes for issuing TSOA and PMA.  Under a bilateral agreement, the US accepts new TSO appliances from Taiwan that meet the performance standards of an FAA TSO under an FAA letter of TSO design approval.  They also accept replacement parts for those TSOA articles.  The U.S. currently does not accept PMA parts from Taiwan.

EASA has a working arrangement with the Taiwan CAA for the validation of EASA certificates.  This appears to be a one-way arrangement; EASA does not appear to have a process for validating Taiwan CAA approvals.

In defense contracts, Taiwan is treated by the United States as a major non-NATO ally (22 C.F.R. § 120.32).

New Hazmat Rules for Shippers

Tomorrow, the Pipeline and Hazardous Materials Safety Administration (PHMSA) will publish a new revision to the United States Hazmat rules.  The new revision is intended to better harmonize United States Hazmat rules with the ICAO Technical Instructions for Shipping Dangerous Goods.  The Technical Instructions are republished by IATA as the IATA Dangerous Goods Regulations and are widely used in the aviation community.

Those who work with standards for cylinders, and those who fill, or service/requalify, cylinders, will want to review these changes carefully.

The changes also better clarify how to identify certain types of vehicles, including remote control aircraft.

Lithium battery special conditions (e.g. special conditions 181-182) are updated.  Section 173.185, which provides the packaging instructions for lithium cells and batteries, is also updated.  Be sure you follow the new labeling and marking requirements!

The new US Lithium Battery Label is authorized for use immediately in 2017

Shippers subject to U.S. jurisdiction are permitted to voluntarily comply with the new rules as of January 1, 2017 (yes, that is three months before the final rule was published).  The mandatory compliance date will be January 1, 2018.

What to Do Before I Sue: A Thoughtful Approach to Resolving Commercial Disputes

ASA members call us from time-to-time about commercial transaction issues.  They may tell us that a part is not good.  They may complain that someone did not pay for a part.

We appreciate knowing about these issues because it helps us recognize industry trends that reflect opportunities for ASA to help the industry improve.  For example, in response to concerns about non-payment by non-US customers we increased our education about Ex-Im Bank receivables insurance as a mechanism for mitigating this risk.  When calls reveal a pattern of fraud, we’ve been able to share that pattern with the FAA and/or Justice Department, which makes it easier for them to address the issue and protect safety.

We also appreciate the opportunity to assist our members.  When there is an airworthiness issue we share advice and where necessary we share FAA contact information.  When there appears to be a criminal issue we share appropriate law enforcement contacts.  And sometimes looking at the transaction in a different way reveals a solution that satisfies all of the parties

But occasionally I am asked to make recommendations about litigation.  I’ve been asked questions from time to time about how to balance the pros and cons of suing.  My opinion in this area is based not just on my trade association experience, but also on 25 years of experience as an industry lawyer who has been involved in both trial-level and appellate-level litigation.  The advice in this article is intended for those who feel that they have been wronged in a commercial transaction (defending an accusation brought against you represents a different analysis).

Protect the Innocent to Protect Your Relationships

I often recommend that you begin by examining what you need to do to mitigate your situation. Mitigation can help you but it can also help your innocent business partners.

For example, if you have a customer that is also an innocent victim of the transaction, then it can be a good idea to make sure that your customer is satisfied so that you do not lose a customer because of a business partner’s fault. Losing a customer in addition to being disadvantaged by the transaction imposes a double penalty on you.

And consider the possibility that your business partner may not be as “guilty” as you think.  Gather all of the facts before you decide on a course of action in order to make an educated decision about how to handle the issue.

Don’t Sweat the Petty Stuff (and Don’t Pet the Sweaty Stuff)

I also implore my friends to examine the cost-benefit relationship in the transaction.  How much would it cost to walk away from the issue, rather than suing?  And how much will it cost to obtain the remedy you want?  You should consider the value of your time as well as the value of the assets involved.  If you will invest more to fix the situation than you would recoup, then it might not be a worthwhile investment of your time and energy.

Make sure you know what remedy you are actually seeking before you pursue a particular course of action. Are you seeking financial remuneration? Seeking to protect your reputation? Fighting on principle alone?  Knowing what you want to achieve can influence the remedial path you follow.

There are often many options available in a transaction-gone-wrong.  Reporting, resolution, and suing are just three options – your actual fact pattern may suggest other options as well.

Reporting

If there is a safety issue then you can report the party to the FAA.  You can also report a party who engages in fraud or misrepresentation for selling articles using misleading information in violation of 14 C.F.R. Part 3.  One of the defenses to such a claim is airworthiness (of the article) so the FAA would need to find that the article was not airworthy as represented.

Aircraft parts fraud is a very serious offense.  It has its own statue: 18 U.S.C. § 38.  So the US Justice Department can become interested in any issue that threatens public safety.

One advantage to reporting your issue to the government and letting the government handle it is that your costs are minimal.  However, government lawyers are often overwhelmed with work, though, so there may be some cost on your end if you want them to be successful.  One good way to help them being successful is if you assemble data to support their efforts.  Asking your aviation lawyer to draft a white paper explaining the relevant peculiarities of aviation law and practice can help keep the government on the right track and can make it easier for them to bring the case efficiently.

Two problems with reporting to the government and expecting them to handle the case are (1) you do not have any control over the outcome because it is the government’s case and (2) a successful outcome for the government does not return your money; any fines go into the government coffers (a government victory may contribute favorably to the liability determination in your subsequent lawsuit to recover, but the government fines may also leave nothing to pay your subsequent judgment).

Other Resolution Options

You should examine whether your loss is something covered by an existing insurance policy.  In such a case, your rights typically are subrogated to the insurance company, meaning that the insurance company may have the right to pursue your rights in order to seek their own reimbursement.  Subrogation standards can vary based on the jurisdiction and the language of the insurance contract/policy, so it is important to work with an attorney to understand how your rights are affected if you accept a settlement under an insurance policy.

You should also examine whether mediation or arbitration is an option.  Do your standard terms and conditions include an arbitration clause?  Is the other party willing to consider alternative dispute resolution on a voluntary basis?  I have been involved in alternative dispute resolution both as an attorney and as a non-binding arbitrator.  I find that if the parties are both willing to engage in the process as a mechanism to settle the dispute, then there is a real chance at successful resolution.  But if one or both parties are not serious about the process then the process may be less likely to lead to resolution.

Lawsuit as a Last Resort

Unfortunately, it can the case that your business partner is unresponsive, or is otherwise unwilling to provide redress to your grievances.  The business partner might have good faith belief that it is not at fault.  The business partner might simply have a difficult personality.  In such a case, you may have no reasonable way to recover other than suing the business partner; but this doesn’t mean you have to sue (you can always move on).  You should weigh the decision carefully.

Before bringing a lawsuit you ought to consider these questions:

  1. Do you have a clear right to recovery (if you sue then are you likely to win)?
  2. Does the other party have legitimate counterclaims (it is rather disappointing to sue for $200,000, only to face a $1,000,000 counterclaim)?
  3. Is there another alternative available, like mediation or arbitration (including mandatory alternative dispute resolution required by a contract) and is it something that could yield a successful outcome?
  4. Is the other party the sort who will settle or who will make you go all the way through a lengthy litigation?
  5. Usually you need to pay your own attorneys’ fees:
    1. Will the attorneys fees be more than the potential recovery?
    2. Is there a fee shifting statute or clause in a contract that can permit you to recover your attorneys fees if you are successful?
  6. Where do I need to sue?  Can I sue in my home state or must I sue elsewhere?
  7. What is the timing on the suit?  Have I gone beyond the statute of limitations?
  8. Is the value of the case enough to justify my considerable investment (in terms of sleepless nights and worrying, and time spent supporting the lawyers with information, in addition to the legal fees)?
  9. What are your real goals?  Is there some specific settlement position that you would be willing to adopt to make the litigation go away?  Are you litigating over the principle?  I find that some principled litigants start questioning their own principles when the attorneys’ bills start to arrive; so consider how much you are willing to invest in your principles.
  10. If you win then does the other side have the resources to satisfy the judgment?  It is a hollow victory to win the lawsuit and then find that there are no assets to satisfy the judgment.

There is no magic combination of answers that will lead you down one path or the other; but answering these questions can hep you focus on what is important to you, and whether a lawsuit might be something to consider.  It is often the case that an experienced attorney can help you review the known facts in light of these questions, and can provide useful guidance on the weight that each of these questions might reflect in an analysis.  It is better to hire an attorney for the very limited purposes of analyzing whether a lawsuit is a reasonable option, than it is to jump into litigation with both feet and then find out that it was not the best course of action.

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