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.

Using Supplier Diversity in Air Carrier Supply

Are you a small business, woman-owned-business, minority-owned-business or veteran-owned-business?  If you are not making use of your customers’ supplier diversity programs then you could be missing out!

I attended a great airline panel at this year’s ACPC, and one of the topics discussed was supplier diversity programs.

I have always known that falling into certain criteria can provide some contracting advantages, but I did not recognize some of the hidden value that can come from an airline’s supplier diversity program.

Ruby McCleary spoke at the airline panel and I had an opportunity to chat with her about her job after the panel as well.  Ruby is the Director of Supplier Diversity for United’s procurement group.  She explained that United has always sought diversity because it s the right thing to do, but that in the modern era, diversity also presents a competitive advantage. United seeks out relationships with large corporate buyers (IBM was the example she used in our discussion) in order to secure their transportation business, and those buyers have supplier diversity programs as well.  United’s diversity helps to give the air carrier a competitive advantage when marketing to those customers.

So diversity is more than just a good idea for an air carrier – there is pecuniary value as well.

Knowing that a company like United really wants to maintain their diverse supplier base, what are they doing to maintain it?  New suppliers that meet a diversity criterion can contact the Ruby.  Her supplier diversity team will help guide the potential supplier through the ins-and-outs of United in order to make sure that you are speaking with the right people to get the business.  But their involvement goes deeper than that.  Because supplier diversity is part of United’s strategy, Ruby revealed that it was a consideration during the recent merger with Continental.  As the air carriers chose which suppliers to retain where there were multiple suppliers, they used a variety of factors to make initial cuts.  Any companies that were proposed to be cut, and that were also part of the supplier diversity program, would be given a second look to see how their removal might affect supplier diversity.  While this second look would not guarantee a that a supplier might be retained, it at least gave the diverse supplier a second chance to be retained.  Ruby explained that at the end of this process, the merged air carrier had a higher percentage of diversity than either of the predecessor air carrier had enjoyed, because diverse suppliers from both carriers were retained in order to reach that higher percentage.

United uses the following categories when it is looking for supplier diversity:

  • Women-owned business
  • Minority-owned business
  • Veteran and service disabled veteran-owned business
  • Business enterprises owned by Persons with Disabilities
  • Small business enterprises
  • Lesbian-, gay-, bisexual- and transgender-owned businesses

A few of the supplier diversity programs in the air carrier industry include:

Know about some other ways that suppliers can make use of the supplier diversity programs?  Let me know!

Ruby McCleary, whose explanation of United’s Supplier Diversity program was very helpful, can be reached at (872) 825-2684 or by email at ruby.mccleary@united.com.

New FAA Contract Maintenance Rules Fail to Live Up to their Promise

The FAA has published a proposed rule entitled “Air Carrier Contract Maintenance Requirements.”  This proposed rule would require air carriers to develop contract maintenance instructions that would be subject to the acceptance of the local FAA office in a way that opens up the air carrier’s business relationships to second-guessing and micro-management by the FAA.

Among other justifications, the proposed rule is meant to be a response to section 319 of the FAA Modernization and Reform Act of 2012.  That provisions requires the FAA to enact regulations that ensure the following:

(c) TERMS AND CONDITIONS.—Covered work performed by a person who is employed by a person described in subsection (b)(3) shall be subject to the following terms and conditions:

(1) The applicable part 121 air carrier shall be directly in charge of the covered work being performed.
(2) The covered work shall be carried out in accordance with the part 121 air carrier’s maintenance manual.
(3) The person shall carry out the covered work under the supervision and control of the part 121 air carrier directly in charge of the covered work being performed on its aircraft.

The Congressional Conference Report for this law explained the Congressional intent:

121 air carriers are responsible for ensuring that all maintenance, whether performed by the air carrier itself or performed by another entity under contract with the carrier, is conducted in accordance with the air carrier’s maintenance program. When maintenance is performed by another entity, the air carrier continues to be responsible for the oversight of these maintenance providers, who are considered to be an extension of the air carrier’s maintenance program. This provision will ensure that oversight responsibility for maintenance remains with the 121 air carrier recognizing supervision and oversight of individuals may be with a Part 145 repair station.

The FAA has proposed a rule that arguably goes beyond the intent of Congress.  Rather than merely requiring the air carriers to be directly in-charge of the covered work, the proposed rule would require them to develop complicated “policies, procedures, methods, and instructions” for the oversight of contract maintenance work, and then leaves the review and acceptance of these provisions to the unfettered discretion of the FAA inspector assigned to the air carrier. Despite stating that the rules must be acceptable to the FAA, the rule provides absolutely no guidance as to what will be acceptable or unacceptable to the FAA.

This is exactly the sort of vague language that has historically lead to complaints about inconsistency in regulatory interpretation and allegations that FAA inspectors are adding new de facto requirements to the regulatory structure which were never intended a the time of the promulgation of the rule.  The same law that gave rise to this requirement also required the FAA to convene a regulatory consistency panel, which would “determine the root causes of inconsistent interpretation of regulations by the Administration’s Flight Standards Service and Aircraft Certification Service” [section 313 of the law].  The answer to the Congressional concern over regulatory consistency is right here: a rule that is so vague on its face as to be practically unintelligible, where the standard for compliance will be whatever your local inspector chooses to accept, is a recipe for inconsistency.

In some respects, the rhetoric of the preamble to the proposed rule fails to live up to the reality of the proposal.  For example, The preamble to the rule stresses the importance of sharing the air carrier’s maintenance manual with the maintenance contractor.  Current law requires a repair station performing work for an air carrier to follow the provisions of that air carrier’s maintenance program; but some contracts and licensing agreements have actually inhibited air carriers from sharing that data.  If a repair station must follow the air carrier’s manual in order to comply with this regulation, then the FAA has agreed (in the written preamble) that corresponding air carrier regulations should require the air carrier to provide the repair station that does the work with the applicable portions of the manual(s) that make up its maintenance program.  This would support the air carrier’s existing regulatory responsibility for the airworthiness of the work performed on the aircraft, and it would also be consistent with the FAA’s oft-stated concept that the maintenance provider is really an extension of the air carrier’s maintenance program.

Unfortunately, the proposed rule fails to provide explicit language in Part 121 or in Part 135 that would oblige the certificate holder to provide the repair station that does the work with the applicable portions of the manual(s) that make up its maintenance program.  This failure seems to be a major oversight on the part of the drafters of the rule.  The proposed language merely require the air carrier to have “policies, procedures, methods, and instructions” that will ensure that the maintenance is performed in accordance with the certificate holder’s maintenance program and maintenance manual.  By using this sort of indirect language, the FAA is inviting industry to circumvent the FAA’s clear intent, and they are inviting ad hoc re-interpretations of their intent.  This language should be redrafted to more directly require sharing of relevant maintenance instructions.

One concern that ASA has is that these provisions could be used to affect air carrier purchasing practices.  After drug-and-alcohol regulations were altered to “flow-down”to sub-tier contractors, many maintenance organizations asked their parts suppliers for evidence of their drug-and-alcohol testing programs.  These inquiries were only forestalled by FAA Federal Register language that specified that purchase or procurement of parts, absent contracted maintenance tasks, was not subject to that rule.  ASA intends to ask the FAA to include similar language in the preamble to this final rule.

Comments on the proposed rule are due to the FAA by February 11, 2013.  They should reference docket number FAA–2011–1136.

Required “Consent to Search” Could Result in Danger to Your Shipment

One of ASA members recently asked questions about the Consent to Screen letter, which is an obligation derived from TSA regulations.

TSA regulations require air carriers and freight forwarders to have security programs. The Consent to Screen letter authorizes an air carrier or freight forwarder to screen cargo as part of their TSA-required security program.

The member raised two sets of concerns about the unintended impact on aviation safety of these letters. First, a search of some aviation materials could result in damage that might airworthiness of the part, and the shipper could be held responsible despite the fact that the freight forwarder had actually occasioned the damage. The second concern is whether a shipper can impose burdens on the freight forwarder (like a duty to warn that cargo has been subject to search so we can warn our customer to inspect for damage) or whether the freight forwarder can impose burdens on a shipper (like freight forwarder language that seeks indemnification from the shipper or otherwise seeks to shift any legal burden or liability).  Under the current law, there are no clear answers to respond to either of these issues.

From TSA’s perspective, the form of the Consent to Screen letter appears to be a matter of commercial practice. They do not appear to have any specific instructions in the regulations for what must be included in the consent letter, only a requirement that consent (to the searches covered by the regulations) is required.

The regulations state that an aircraft operator “must refuse to transport any cargo if the shipper does not consent to a search or inspection of that cargo” in accordance with the security system established under the regulations. 49 C.F.R. § 1544.205(d); see also 49 C.F.R. § 1546.205(b); 49 C.F.R. § 1548.9(b). The regulations also provide that any certified cargo screening facility (this is the category in which many freight forwarders fall) must refuse to offer to another certified cargo screening facility or aircraft operator any cargo if the shipper does not consent to a search or inspection of that cargo. 49 C.F.R. § 1549.101(c).

The regulations do not specifically state what form the consent to screen must take. However, the Certified Cargo Screening Program records keeping provision does provide that “[e]ach certified cargo screening facility must maintain records demonstrating compliance with all statutes, regulations, directives, orders, and security programs that apply to operation as a certified cargo screening facility.” 49 CFR 1549.105(a). Additionally, the Preamble to the Air Cargo Security Requirements Final Rule states that:

“While TSA does not state in which manner the shipper’s consent to search or inspect cargo be obtained, it does require that the consent be explicit and in writing. TSA allows aircraft operators, foreign air carriers, and IACs to manage the collection of consent to search in a manner consistent with individual operational needs.”

71 Fed. Reg. 30477, 30486 (May 26, 2006) (emphasis added).

So the requirement for a written consent comes from the preamble to the rule (not from the actual regulations).  Written consent is further implied (but not required) by TSA regulations that require the freight forwarder to retain records (thus implying that such records must be in a format that may be retained).

Any record keeping requirement that the government wants to enforce has to be first approved by OMB.  The OMB approval referenced in the TSA rule was limited only to creation of security programs and imposed no burden on shippers. This means that TSA may be precluded from bringing an enforcement action against a shipper for non-compliance with the record-keeping requirement; but this does not stop a freight forwarder from refusing to do business with a shipper who does not complete the consent form that the freight forwarder insists upon.

In the preamble to the rule that established the obligation for the consent letters, TSA notes that “[t]he regulations allow a shipper to provide a blanket authorization, as proposed by IBM.” IBM’s proposal was simply “We suggest that the best alternative would be to permit the shipper to give a blanket authorization to the IAC as part of their contract or other supporting document or instruction to the IAC.”  [‘IAC’ is an Indirect Air Carrier]  This TSA response sheds little light on the question of whether the freight forwarder or the shipper can impose commercial obligations on the other party through the blanket consent.

There is a very real danger of damage to the parts as a consequence of a search by TSA or by the freight forwarder. For example, avionics and other electronic equipment can be very sensitive to electro-static discharge. Most distributors of ESD-sensitive equipment have special workstations and infrastructure designed to protect ESD-sensitive equipment from ESD-related damage. It is likely that a freight forwarder lacks this ESD-protection infrastructure. Thus, a freight forwarder performing a search could damage ESD-sensitive equipment (and might not even know it).

This raises a strong argument in favor of the proposition that distributors should be able to seek notification when TSA or a freight forwarder performs an inspection of freight.  Such notification would afford the shipper an opportunity to ask the recieving party to confirm that the inspection has not resulted in damage that could adversely affect airworthiness.  But at present there is no means to obtain such notification short of making a part of the contract with the freight forwarder.

Unfortunately, some freight forwarders actually include, as part of their standard consent to search form, a commitment from the shipper to indemnify and hold harmless the freight forwarder from damages, including in situations where the fright forwarder itself damages the shipment during the inspection.  In some cases, these clauses may be unenforceable if there is no additional value provided in exchange for this indemnification, but in many cases the freight forwarders primary duties may serve as consideration to support enforcement of the indemnification clause.

Distributors should be vigilant about such clauses and should consider whether they should reasonably be part of the consent to search form that the distributor provides to the freight forwarder.

American Airlines Pilots Union Rejects Contract – Is this One Step Closer to Merger?

Labor negotiations within American Airlines may provide a clue as to the Air Carrier’s future.  A clue that may be quite valuable to companies who are doing business with the the air carrier.

American airlines is in bankruptcy proceedings as it attempts to reorganize.  A part of that reorganization includes striking new deals with the unions that represent the air carrier’s employees.  These deals are very important.  Even though the bankruptcy court can modify the agreements without a union vote, union support of the air carrier is considered important to its continued viability and therefore is important to the ultimate decisions made by the bankruptcy court.  American Airlines has said that they do not want to consider a merger until after they are out of bankruptcy; USAirways would like to emerge as a “white knight” that would purchase American out of bankruptcy.

US Airways has already promised American’s unions better terms and conditions than American is offering them in the proposed contracts.  In exchange, the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union had all agreed to support a merger between USAirways and American.

Thus, when American presented the Pilots union with a contract offer, the Air Carrier’s management had their work cut out for them to convince the pilots to accept it.

APA President David Bates had supported the measure and lobbied hard for it.  But in what appears to have been a referendum on the current America Airlines leadership, the union rejected the contract offer.  The pilot’s union rejected the proposed contract by a vote of 4,600 to 2,935.  The mechanic’s union narrowly approved their contract.

Two related reasons offered by pilots for voting against the contract were frustration with management, and a perception that ratifying the contract would strengthen management’s hand with respect to merger (or non-merger) decisions.

In the wake of the defeat of the contract, Bates has resigned his position within the union leadership.  Unsurprisingly, his replacement, Keith Wilson, supports a merger.

ASA members supporting American Airlines, US Airways, or both, will want to follow this story closely, as a merger could upset existing supply expectations, as the two seek to reduce redundancies.

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