China Aviation Parts Management Forum Releases Draft 2019 Agenda

Many Americans are pessimistic about business with China because of the rhetoric between President Trump and President Xi, and the tariffs that have arisen from that rhetoric.  But neither the tariffs nor the fiery rhetoric will last forever; now might be just the time for Americans to reach out to their Chinese colleagues and to develop the relationships that will lead to business in the near future.

As we said in December, one of the best conferences for meeting Chinese air carriers and MROs is the Aviation Parts Management Forum.  This year, it will be help in Xiamen, China on March 28-29.

The Forum has released their first draft agenda for the 2019 event.  While it is not yet complete, it gives you a good idea of what topics will be covered.

If China is a part of your business strategy, or if you are wondering whether it should be a part, then you should examine the agenda and consider joining ASA in attending the Forum.

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International Court Requires U.S. to Sell Aircraft Parts to Iran

The International Court of Justice (ICJ) has ruled that the United States must remove all sanctions that would prohibit the export of aircraft parts to Iran.  The ruling also directs the United States to “ensure that licences and necessary authorizations are granted and that payments and other transfers of funds are not subject to any restriction in so far as they relate to the goods and services.”

The Iranian Complaint in this matter was bought on or about July 16.

The Decision was issued on October 3.  It is a preliminary ruling in the case.  The court describes it as a “provisional measure[] responding to humanitarian needs [that] would not cause irreparable prejudice to any rights invoked by the United States.”  This is analogous to preliminary injunctions issued by U.S. courts (including a finding of irreparable harm, likelihood of success on the merits, and a weighing of the equities).

In response, the United States announced that it would withdraw from the Treaty of Amity that serves as the legal basis for the Iranian claim.  Article XXI of that agreement explicitly granted jurisdiction over US-Iranian disputes to the ICJ.

What effect will this ICJ ruling have?  In the United States, the Administration has already been critical of the decision, and has announced plans to withdraw from treaties that serve as the legal basis for elements of the court’s jurisdiction over the matter.  This is a strong signal that the US intends to ignore the ICJ ruling.  For US exporters, this is likely to mean that US law will continue to apply sanctions prohibiting export of aircraft parts to Iran.  But there is a stronger likelihood that the United States may stand alone in these sanctions, and other nations will continue to follow the Joint Comprehensive Plan of Action (JCPOA) that permitted nations to begin exporting certain aircraft parts to Iran.  US exporters will have to be especially vigilant about compliance in international transactions, to ensure that they are not inadvertently made parties to exports with a forbidden final destination.

For now, US exporters should continue to forbear from exporting aircraft parts to Iran unless the exporter has a valid export license covering the transaction, from the United States government.

Doing Business With Iran Under a JCPOA License? Get Your Transactions Completed by August 6, 2018.

As we reported on May 8, the United States’ decision to end the JCPOA agreement with Iran means that existing JCPOA-based licenses will be revoked on August 6.  A number of ASA members have these export licenses, which permit aircraft-parts-business with the specified Iranian parties.

On May 8, the President announced his decision to discontinue the United States’ participation in the Agreement with Iran, and to reimpose sanctions against Iran.

The Treasury has published a document explaining the wind-down process, including answers to frequently asked questions.  The wind-down document explains that the United States government plans to revoke JCPOA-related authorizations, such as the aircraft and aircraft parts-related export licenses that were issued pursuant to the US-Iran Agreement.  Those export licenses are scheduled to be terminated as of August 6, 2018.

Those ASA members who hold JCPOA export licenses (which are being terminated) may consider applying for replacement licenses under the safety of flight statement of licensing policy found in 31 C.F.R. § 560.528. That provision permits licenses on a case-by-case basis for exporting to Iran in order to ensure the safety of civil aviation and safe operation of U.S.-origin commercial passenger aircraft.  Historically, the United States government has not issued many of these licenses, but if the transaction is valuable to the United States then the transaction might be considered for licensing.

Unapproved Parts Notice – Update

We’ve gotten a number of phone calls and emails about a recent Unapproved Parts Notice (UPN) known as UPN 2018-2017-0001120.  This UPN claimed that several parts (Clamp Loop, Cushion, part number TA025030-06; Filter Element, part number 26570; Base Plate, part number 232012; and Bushing, part number S700B0455-6C011) were distributed without traceability to a FAA Production Approval Holder.  As many of you know, U.S. law does not require this sort of traceability as a regulatory condition for distribution of expendable parts like these.

This purported traceability-basis for the UPN has confused many ASA members who are extremely familiar with both the law and the industry practice concerning traceability.

Two weeks ago, we sent an email to the FAA that explained:

On February 15, the FAA issued a UPN on some expendable parts (UPN 2018-2017-0001120).  The claim in the UPN was that the parts were “distributed … without traceability to a FAA Production Approval Holder.”  This appears to be the sole violation described in the UPN.

As you know, back-to-birth traceability is a norm for life limited parts, but several Chief Counsel’s Opinion Letters have confirmed that it is not required under the regulations.

For expendable parts like the ones in the UPN, the FAA’s published policy states that it is acceptable to distribute such parts with a “statement as to identity and condition.”  E.g. AC 00-56B.  Thus, FAA published policy comports with FAA Chief Counsel’s Opinion Letters in clarifying that back-to-birth traceability is NOT required.

We are very concerned that this UPN appears to set the wrong standard – a standard that is legally wrong, that contradicts published FAA policy, and that would be unmanageable for current expendable inventories.  This concern is shared by many of ASA’s members and we have fielded a significant number of phone calls this week from concerned members.

It is possible that the real issue for these parts is different from what the MIDO published in the UPN.  If this is the case, then we trust that the FAA will reissue the UPN with the correct information.  But if the identified problem truly was a lack of back-to-birth traceability, then we trust that the FAA will rescind this UPN in the grounds that back-to-birth traceability is not required, and that it is an industry norm for expendable parts purchased from many distributors that they may not have back-to-birth traceability.

Once your staff has looked into this, I would appreciate an update on your plans, if any, to remedy this UPN guidance.

We’ve been talking with the FAA in the intervening two weeks, and they have been diligently investigating this matter. The FAA management people who now have charge of this project are the sort who like to do something once, and do it correctly the first time; so we have a great deal of confidence that they will come to the right decision: a decision that protects the integrity of the industry’s safety focus without imposing unworkable documentation standards.

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.

Export Alert: New Destination Control Statement Required

Under current law, the US regulations require exporters to include a destination control statement (“DCS”), on each commercial invoice that accompanies an export shipment.  The export control documents that are required to show this statement include the invoice, the bill of lading, the air waybill, and any other export control document that accompanies the shipment from its point of origin in the United States to the ultimate consignee or end-user abroad.

This is sometimes known as the ‘non-diversion statement’ because the current version includes language stating that “diversion contrary to U.S. law is prohibited.”  The purpose of the DCS was to alert parties outside the United States that the item is subject to the US export regulations.

The rules have always held that compliance with the comparable ITAR requirement was an acceptable means of compliance where the shipment included both ITAR and EAR-controlled articles.  The comparable ITAR requirement requires slightly different language.  Many people nonetheless found the different language in each regulation to be confusing.

The Commerce Department has changed their DCS language to harmonize it with the ITAR-required-language.  This is meant to make compliance easier.  Starting on the implementation date of the rule (November 15, 2016), exporters of articles subject to BIS jurisdiction (those with ECCNs) should use the following destination control statement on all exports:

“These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations”

In addition, the DCS should show the Export Commodity Classification Number (ECCN) for any 9×515 or ‘600 series’ (nx6nn) items being exported.

There are exceptions to this DCS requirement for EAR 99 exports and also for exports under license exceptions BAG (baggage) and GFT (gift parcels and humanitarian donations), but typically these do not apply to exports of aircraft parts.

Another important change that will take effect with the November 15th implementation affects where the DCS goes.  Under the old BIS rules, it went on the export control documents.  Now the DCS only needs to go on the commercial invoice.

MAG Threatens to Prevent Parts from Entering Repair Stations

FAA and the European Aviation Safety Agency (EASA) have been discussing new ways to document and transfer aircraft articles across international borders.  This ends up affecting the rest of the world, because it sets standards for how both of those authorities will operate that they then incorporate into their other international relationships.

Some issues have arisen in the industry that find their roots in the FAA-EASA Maintenance Annex Guidance (MAG).  This MAG document is meant to reflect the working procedures for shared maintenance oversight between FAA and EASA.  In theory, it should not add any new legal requirements – those are supposed to already exist in the regulations.  But in practice, the MAG has recently evolved into a document that is setting new legal standards that do not exist in the regulations of either FAA or EASA.  Because inspectors for the two authorities are requiring compliance to the MAG, it is important to review it and understand what new standards are included in that document.

The MAG changes are motivated in part by a recent change in US law that has permitted US production approval holders (PAHs) to issue their own 8130-3 tags for their articles.  This is found at 14 C.F.R. 21.137(o).  Those who take advantage of this option would no longer need to rely on the legal fiction of designees.  This was meant to ease the process of creating 8130-3 tags, which have recently been viewed by the FAA as an administrative matter that merely documents a finding of airworthiness that is made whether the tag is created or not.  This change also helps to harmonize with EASA, which has permitted European manufacturers to issue EASA Form One since EASA’s inception.

Although this new privilege should permit more manufacturers to issue 8130- 3 tags, thus creating a wider pool of articles documented with 8130-3 tags, the fact remains that many existing aircraft articles do not bear EASA Form One or 8130-3 tags.  Real-world implementation hurdles have mean that manufacturers needed some time before they could start issuing the tags.  In addition, there is a huge quantity of existing articles in distributors’, air carriers’, and repair stations’ inventories.  Many of those existing articles do not bear EASA Form One or 8130-3 tags.

The industry has struggled for the last twenty years to obtain these documents, or in the alternative to find ways to receive aircraft articles into inventory without these magic documents. In many cases, the easiest path has been to find a way to determine airworthiness without the Form One or 8130-3 documentation – this is a path that remains legal under United States law because we have no general documentation requirements for articles under the FAA regulations.

Historically, repair stations with EASA 145 credentials have taken advantage of the EASA regulatory clause that permits articles to enter the repair station’s systems when they are unserviceable (EASA 145.A.42(a)(2)).  The definition of unserviceable includes articles with inadequate documentation (M.A. 504(a)(3)):

M.A.504 Control of unserviceable components

(a) A component shall be considered unserviceable in any one of the following circumstances:

3. absence of the necessary information to determine the airworthiness status or eligibility for installation;

These articles are not required to have any specific documentation and could enter a repair station undocumented.  The repair station would then perform an analysis / inspection of the article to confirm its airworthiness (such as an inspection to a serviceable condition – an inspection is defined as a species of maintenance under both the EASA system and the FAA system).  Repair stations could therefore receive new articles without a Form One or an 8130-3, so long as the repair station independently evaluated airworthiness of the article.

The MAG appears to put an end to this practice by distinguishing new parts and specifically requiring them to have specific documentation even when received under EASA 145.A.42(a)(2) – thus closing the industry’s normal safety valve for receipt of articles that typically do not bear 8130-3 tags.

FAA Solution Rejected By EASA

The FAA was open to the idea of a grandfather clause for existing inventory.  Such a grandfather clause would have extended to all articles produced before October 1, 2016 (the date by which the FAA believes many US PAHs will issue their own 8130-3 tags).  They were also open to the idea that a distributor could certify that the article existed before October 1, 2016 on the grounds that it existed in the distributor’s inventory before October 1, 2016 (the installer would still need to make a determination of airworthiness prior to installation – the distributor’s certification would merely have indicated eligibility for treatment under the grandfather clause).

Remember that distributors typically pass along documents, packaging and markings that can help the installer make his or her own determination of airworthiness. So the sole purpose of the distributor’s certification would have been to show that the article existed  before October 1, 2016 and was thus eligible for treatment under the grandfather clause.  Nothing more.

This grandfather clause has been rejected by EASA.

Unfortunately, EASA did not agree with the FAA’s interpretation of a grandfather clause.  In the FAA-EASA-Industry meeting that took place on June 17, the EASA senior representative disagreed, and insisted that the grandfather clause could only extend to parts in a repair station’s inventory by October 1, 2016.  This made the grandfather clause meaningless, because articles already in inventory no longer need to be tested under the EASA 145.A.42 receiving standard.  More importantly, it meant that existing inventory in distributor’s warehouses – inventory that in some cases was produced before EASA existed – could be precluded from entering EASA 145 repair stations in the US and in Europe.  Over a thousand US repair stations bear EASA 145 credentials, and this includes nearly all of the major MROs handling commercial transport category aircraft, so this is a very serious issue.

Disappointingly, the EASA representative admitted that he knows that European repair stations accept undocumented parts, but expressed that he could not recognize those transactions because they did not fit within the EASA ideal.  He suggested that airlines and MROs could bypass distributors and buy direct from manufacturers.  This ignores a host of real-world issues, including the fact that many necessary articles are not in active production and cannot be obtained from anywhere unless they are purchased from existing distribution inventories.  Expecting manufacturers to instantly be able to produce each part that they have ever produced in the past ‘on -demand’ in simply unrealistic.

ASA and FAA Working Toward a Solution

If taken at its face value (including the EASA interpretation), the MAG could render a huge chunk of existing inventory valueless.

We have been working with the FAA to stave off this possibility.  The FAA is taking a realistic approach to this issue.  The FAA realizes that this has both financial implications (rendering existing inventory valueless) and safety implications (certain necessary parts would become unavailable, making aircraft maintenance impossible).  Because the FAA’s primary focus is on aviation safety, they are acting to ensure that demonstrably airworthy articles can be documented appropriately, so that paperwork does not get in the way of safety.

The solutions are still being discussed and developed, but industry should expect to see changes in the way that 8130-3 tags are issued for aircraft parts.  This change needs to happen very quickly in order to make sure that good inventory is not rejected because it has the wrong paperwork.

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