[Federal Register Volume 62, Number 207 (Monday, October 27, 1997)]
[Rules and Regulations]
[Pages 55696-55703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28467]
[[Page 55695]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Federal Aviation Administration
_______________________________________________________________________
49 CFR Part 187
Fees for Providing Production Certification-Related Services Outside
the United States; Final Rule
Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 /
Rules and Regulations
[[Page 55696]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 187
[Docket No. 28967; Amendment No. 187-10]
RIN 2120-AG14
Fees for Providing Production Certification-Related Services
Outside the United States
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This document establishes fees by voluntary agreement for
production certification-related services pertaining to aeronautical
products manufactured or assembled outside the United States. In
addition, the document outlines the methodology for determining the
fees, describes how and when the FAA will provide these services, and
describes the method for payment of fees. This rule will allow the FAA
to recover certain costs incurred in providing requested production
certification-related services abroad and will help to ensure that such
services are provided in a responsive and timely manner.
EFFECTIVE DATE: October 22, 1997.
FOR FURTHER INFORMATION CONTACT: Ramona L. Johnson, Production and
Airworthiness Certification Division, AIR-200, Aircraft Certification
Service, Federal Aviation Administration, 800 Independence Avenue, SW.,
Washington, DC 20591, telephone: (202) 267-7145.
SUPPLEMENTARY INFORMATION:
Availability of Final Rule
This document may be downloaded from the FAA regulations section of
the FedWorld electronic bulletin board (telephone: 703-321-3339) or the
Federal Register's electronic bulletin board (telephone: 202-512-1661).
Internet users may access the FAA's web page at http://www.faa.gov
or the Federal Register's web page at http://www.access.gpo.gov/
su__docs to download recently published rulemaking documents.
Any person may obtain a copy of this final rule by submitting a
request to the Federal Aviation Administration, Office of Rulemaking,
ARM-1, 800 Independence Avenue, SW., Washington, DC 20591, or by
calling (202) 267-9680. Communications must reference the amendment
number or docket number of this final rule.
Persons interested in being placed on the mailing list for future
Notices of Proposed Rulemaking and Final Rules should request a copy of
Advisory Circular (AC) No. 11-2A, Notice of Proposed Rulemaking
Distribution System, which describes the application procedure.
Small Entity Inquiries
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) requires the FAA to report inquiries from small entities
concerning information on, and advice about, compliance with statutes
and regulations within the FAA's jurisdiction, including interpretation
and application of the law to specific sets of facts supplied by a
small entity.
The FAA's definitions of small entities may be accessed through the
FAA's web page http://www/faa.gov/avr/arm/sbrefa.htm, by contacting a
local FAA official, or by contacting the FAA's Small Entity Contact
listed below.
If you are a small entity and have a question, contact your local
FAA official. If you do not know how to contact your local FAA
official, you may contact Charlene Brown, Program Analyst Staff, Office
of Rulemaking, ARM-27, Federal Aviation Administration, 800
Independence Avenue, SW, Washington, DC 20591, 1-888-551-1594. Internet
users can find additional information on SBREFA in the ``Quick Jump''
section of the FAA's web page at http://www.faa.gov and may send
electronic inquiries to the following Internet address: 9-AWA-
[email protected].
Background
Statement of Problem
Under Title 49 U.S.C. 44701, the FAA is responsible for the
regulation and promotion of safety of flight. Title 49 U.S.C. 44704(b)
authorizes the FAA Administrator to issue production certificates.
Section 44704(b) provides, in part, that:
The Administrator shall issue a production certificate
authorizing the production of a duplicate of any aircraft, aircraft
engine, propeller, or appliance for which a type certificate has
been issued when the Administrator finds the duplicate will conform
to the certificate. On receiving an application, the Administrator
shall inspect, and may require testing * * *.
The production certification-related services that the FAA provides
to fulfill its statutory responsibilities may be generally described as
follows:
1. Processing applications for the following: production under a
type certificate only, production under an approved production
inspection system, production under a production certificate or
extension of a production certificate, production under a technical
standard order authorization, and production under a parts manufacturer
approval. The processing of applications includes a review of data,
response to the applicant, and evaluation of the applicant's further
responses as necessary.
2. Certificate management of the manufacturing facility quality
assurance system.
3. Witnessing tests and performing conformity inspections of
articles.
4. Managing designees.
5. Investigating incidents, accidents, allegations and other
unusual circumstances.
These FAA services are provided to Production Approval Holders
(PAH). A person who holds a parts manufacturer approval (PMA), a
Technical Standard Order (TSO) authorization, or a production
certificate (PC), or who holds a type certificate (TC) and produces
under that TC, is referred to as a PAH. The regulatory services
provided to a PAH include: initial PAH qualification, ongoing PAH and
supplier surveillance, designee management, conformity inspections; as
well as initial PAH qualification and ongoing surveillance for
production certificate extensions outside the United States. The
specialists who perform these functions on behalf of the FAA are
Aviation Safety Inspectors, Aviation Safety Engineers, and Flight Test
Pilots.
Currently, the FAA performs production certification-related
services both domestically and internationally. It does not issue
production approvals outside of the United States. However, in some
situations, the FAA allows a PAH to use suppliers outside the United
States if parts or sub-assemblies can be 100 percent inspected by the
PAH upon their receipt in the United States or if parts or sub-
assemblies are produced under a PAH's supplier control system that has
been approved by the PAH and accepted by the FAA. Under certain
circumstances, production outside the United States of complex parts,
sub-assemblies, or products is approved by the FAA on a case-by-case
basis.
PAHs who choose to perform manufacturing outside the United States
receive significant and special benefits. These benefits often depend
on whether the PAH can obtain FAA oversight at the manufacturing site
when the PAH needs the service. Since it is FAA's responsibility to
prescribe and enforce standards in the interest of safety for the
design, materials, workmanship, construction, and performance of civil
[[Page 55697]]
aeronautical products, the FAA's oversight of manufacturing facilities
located outside the United States helps ensure safety and
marketability.
The Need for Rulemaking
Globalization of the aircraft manufacturing industry increases the
challenges to the FAA in carrying out its statutory mandate to ensure
that safety and airworthiness standards for civil aircraft are being
met during manufacture.
Limited resources make it difficult for the FAA to oversee these
diverse and complex international ventures by PAHs when and where the
services are needed. Congress recognized the impact of FAA's resource
limitations in the Federal Aviation Administration Authorization Act of
1994, PL 103-305 (108 State. 1569). As stated in Conference, H.R. Rep.
No. 103-677 on H.R. 2739:
Safety regulatory efforts to keep pace with the trend of
globalization can be hampered by resource constraints * * * the
Aircraft Certification Service should be able to offset expenditures
made in support of aircraft or airline safety regulatory programs of
both U.S. and foreign owned companies outside the United States.
In addition, under Title V of the Independent Offices of
Appropriations Act of 1952 (IOAA), 31 U.S.C. 9701, Congress authorized
agencies such as the FAA to establish a fair and equitable system for
recovering the cost for any service, such as the issuance of a
certificate, that provides a special benefit to an individual beyond
those that accrue to the general public. Title 31 U.S.C. 9701(a)
provides, in part, as follows:
It is the sense of the Congress that each service or thing of
value provided by an agency (except a mixed-ownership Government
corporation) to a person (except a person on official business of
the United States Government) is to be self-sustaining to the extent
possible.
Title 31 U.S.C. 9701(b) further provides:
The head of each Federal agency (except a mixed-ownership
Government corporation) may prescribe regulations establishing the
charge for a service or thing of value provided by the agency.
Regulations prescribed by the heads of executive agencies shall be
as uniform as practicable. Each charge shall be--
(1) fair; and
(2) based on--
(A) the costs to the Government;
(B) the value of the service or thing to the recipient;
(C) public policy or interest served; and
(D) other relevant facts.
The Rule
This rule allows PAHs to enter into a voluntary agreement with the
FAA for the provision of production certification-related services
outside the United States on mutually agreed terms and conditions. This
will be available to PAHs who elect to use organizations or facilities
outside the United States to manufacture, assemble, or test
aeronautical products after September 30, 1997.
An agreement for services between the PAHs and the FAA for
production certification-related services for products manufactured,
assembled, or tested outside the United States will allow the FAA to
provide services upon request in a more responsive and timely manner
than otherwise is available. By charging for its services outside the
United States when needed by the PAHs, the FAA will be able to support
the PAH's more complex manufacturing activities and provide acceptance
of parts, sub-assemblies, and products that would otherwise need to be
disassembled when received in the United States. Under this rule, when
production certification-related services are requested and provided
outside the United States, no duplication of FAA work or reinspection
of parts in the United States is anticipated, except as otherwise
required of domestic manufactured parts during the PAH receiving
inspection process.
The rule simply makes oversight resources available in a more
timely and effective fashion, permitting PAHs to pay for FAA oversight
services.
Guidelines for Cost Recovery
The FAA developed this rule consistent with the IOAA and with the
Office of Management and Budget's (OMB) Circular A-25, entitled ``User
Charges.''
Fees under this rule may be assessed to PAHs who agree to pay for
certain special benefits conferred by FAA's production certification-
related services outside the United States. These special benefits will
include, but are not limited to: (1) services rendered at the time and
location requested by an applicant; (2) services for the issuance of a
required production approval at the time and location requested by the
applicant; and (3) services to assist an applicant or certificate
holder in complying with its regulatory obligations at the time and
location requested by the applicant.
The FAA has determined that all services associated with the
issuance, amendment, or inspection of a production certificate or
approval as detailed in this rule will be subject to cost recovery. All
direct and indirect costs incurred by the FAA in providing the special
benefits outside of the United States as detailed by this rule will be
recovered. Each fee will not exceed the FAA's cost of providing the
service to the recipient. Calculation of agency costs will be performed
as accurately as is reasonable and practical, and will be based on the
specific expenses identified to the smallest practical unit.
To determine the smallest practical unit for the various FAA
services covered, a letter of application will be made by the PAH to
the FAA requesting FAA production certification-related services
outside the United States. The application procedure will apply to any
PAH; i.e., holders or applicants for production under a type
certificate only, under an approved production inspection system, under
a production certificate or extension of a production certificate,
under a technical standard order authorization, or under a parts
manufacturer approval. Based on the details provided in the
application, the FAA will estimate the cost and terms of providing the
requested services to the PAH outside the United States and detail
those costs to the applicant. If the applicant desires the services,
the applicant will then request the provision of those services from
the FAA. A written agreement between the applicant and the FAA will
then be entered into if the PAH and the FAA can mutually agree to all
terms.
Methodology for Fee Determination and Collection
Fee Determination
The FAA will recover the full cost associated with providing
production certification-related services by agreement outside of the
United States. Costs to be recovered include personnel compensation and
benefits (PC&B), travel and transportation costs, and other agency
costs.
PC&B: For the purpose of these computations, average PC&B rates for
participating Aircraft Certification Service employees will be charged
per each agreed activity. PC&B charges will reflect the actual hours
spent participating in the activity as well as preparatory time, travel
time, and the time spent on follow-up activities.
Travel and transportation costs: These charges will include all
costs pertaining to domestic, local, and international transport of
persons and equipment. These costs may include fares, vehicle rental
fees, mileage payment, and any expenses related to transportation such
as baggage transfer, insurance for equipment during transport, and
communications. FAA personnel will adhere to all U.S. Government travel
regulations.
[[Page 55698]]
Fees will be charged for lodging, meals, and incidental expenses in
accordance with U.S. Government per diem rates, rules, and regulations.
Incidental expenses include fees, tips, and other authorized expenses.
Other agency costs: Also included in these computations will be
other direct costs; for example, all printing and reproduction
services, supplies and materials purchased for the activity, conference
room rental, and other activity-related expenses. An additional
percentage charge, as established by the FAA in accordance with OMB
Circular A-25, will be added to the total cost of this activity to
compensate for agency overhead.
The Aircraft Certification Service of the FAA maintains a data
system to which employees submit periodic records identifying the
number of work hours used to provide service to customers. Travel
vouchers are also submitted and audited. This data will be maintained
for each applicant and project. The Aircraft Certification Service
tracks work hour records quarterly to determine the costs associated
with providing its services. This information will be used in assessing
and adjusting fees. In this manner, the FAA will be able to assure
applicants that they are paying only for expenses incurred in
connection with services provided to that specific applicant.
Fee Collection
All charges will be estimated and agreed upon between the FAA and
the applicant before the FAA provides services under the agreement.
Payment of estimated fees will be made to the FAA in advance for
all production certification-related activities scheduled during the
upcoming 12-month calendar period unless a shorter period is mutually
agreeable between the PAH and the FAA. The amounts set forth in the
cost estimate will be adjusted to recover the FAA's full costs. If
costs are expected to exceed the estimate by more than 10 percent,
notification will be made to the applicant as soon as possible. No
services will be provided until the FAA receives the full estimated
payment for the agreed to period. As activities are completed, the full
costs of the activities will be charged against the advance account.
Any remaining funds will either be returned or applied to future
activities as requested by the applicant.
Payment for services rendered by the FAA will be in the form of a
check, money order, draft, or wire transfer, and will be payable in
U.S. currency to the FAA and drawn on a U.S. bank. Bank processing
fees, when charged to the United States Government, will also be added
to the fees charged to the applicants.
In any case where an applicant has failed to pay the agreed
estimated fee for FAA services, the FAA may suspend or deny any
application for service and may suspend or revoke any production-
related approval granted.
In accordance with the agreement that will be signed by the FAA and
the applicant (Appendix C(d)(3)), this arrangement may be terminated at
any time by either party by providing 60 days written notice to the
other party. Any such termination will allow the FAA an additional 120
days to close out its activities.
The FAA plans to issue an Advisory Circular further detailing the
requirements of the application as well as providing other pertinent
guidance and information.
Correction to Notice
In Notice No. 97-11, (62 FR 38008), the authority citation is
revised to delete 49 U.S.C. 106(m) to properly reflect FAA's authority
to enter into agreements. That authority is 49 U.S.C. 106(l)(6). This
has been corrected in this rule.
In another correction, in Appendix C to part 187(c), Definitions,
``Production approval holder'' was listed as ``U.S. production approval
holder''. This was an error and is revised. Also this has been
corrected in the rule.
Finally, although used throughout the NPRM in discussing items to
be inspected, the word ``part'' was inadvertently omitted from the
definition of ``Manufacturing facility'' found in Appendix C (c). This
has been corrected in the rule.
Discussion of Comments
The FAA considered a total of 242 comments on the proposed rule, of
which 232 were identical or nearly identical. Of the total number of
comments, 38 were received before the comment period closed on August
14, 1997, and 204 were received after the comment period closed.
Comments were received from: the International Association of
Machinists and Aerospace Workers (IAM) (one from the IAM President as
well as 227 additional comments from its lodges and members), the
Aerospace Industries Association of America (AIA) (two comments), the
General Aviation Manufacturers Association (GAMA) and AIA (a joint
comment), the NORDAM Group (submitted twice), the Timken Company, the
Parker Hannifin Corporation, the Bureau Veritas of France, individuals
(seven), and from a law firm. For the purposes of responding to the
comments, the FAA has grouped together, for discussion, comments with
essentially identical analyses. All comments received were carefully
considered prior to the issuance of the final rule.
Several of the comments addressed multiple issues and some of the
issues were addressed by many commenters. As a result, the FAA
responses to the comments are organized, not by individual comment, but
by the following general issues: employment issues, safety and quality
issues, cost issues, and miscellaneous issues.
Employment Issues
IAM's President's comments, the local lodges' comments, and the
members' comments opposed the proposal for similar reasons. They state
that the proposal would facilitate the ability of PAHs to substitute
products manufactured by facilities and suppliers located outside the
United States for products manufactured in the United States. The
result would be a loss of high pay, high skill production jobs in the
United States.
The FAA disagrees with the analyses of these comments. The rule is
designed to allow the FAA to provide special production certification-
related services to PAHs and suppliers outside the United States when
and where these services are needed and paid for by the PAH. The rule
is not designed to, as claimed by the commenters, ``expedite the
manufacture of aerospace parts off shore.'' Nor do the commenters
provide any data that this rule will specifically have the effects
claimed.
For over 15 years, the FAA has performed production certification-
related services both domestically and internationally for PAHs that
have used facilities and suppliers located outside of the United
States. The use of these facilities and suppliers has increased over
time for several reasons; one reason is that customers outside the
United States have purchased U.S. aerospace products on the condition
that a share of the product be manufactured in their countries. These
conditions are known as ``offset'' agreements. This rule takes no
position on the use of offsets. However, the FAA is required by law to
provide production certification-related services outside the United
States to ensure that the product conforms to FAA's safety
requirements. As seen in more detail in the International Trade Impact
section of this Preamble and in the Final Regulatory Evaluation of the
rule, the FAA recognizes that the indirect effect of this rule may
increase
[[Page 55699]]
the use of facilities and suppliers outside the United States. This
increase may not be at the expense of production that would otherwise
occur in the United States. As explained in the International statement
and regulatory evaluation, it is anticipated that this rule may
indirectly result in an overall increase in the production of U.S.
aircraft due to expanded access to export markets.
The language of the final rule has been clarified in Appendix C,
paragraph (d)(1) to reflect the voluntary nature of the agreement.
Safety Issues
IAM also states that the rule will increase the use of repair
stations outside the United States. In conjunction with their
contention that the FAA will not be able to monitor overseas facilities
as effectively as it monitors facilities in the United States, IAM
suggests the possibility of an increase in the use of ``bogus'' or
unapproved parts into the aviation system. As a result, IAM contends
that this rule will adversely effect air transportation safety.
The FAA disagrees with this comment. In order to maintain the level
of safety required, the regulations specific to the manufacture of
commercial products (aircraft, aircraft engines, or propellers) and
parts thereof are contained in Title 14, Code of Federal Regulations
(14 CFR) part 21 (part 21), Certification Procedures for Products and
Parts. Products and parts manufactured anywhere in the world for use by
U.S. manufacturers under part 21 must conform to an FAA-approved type
design and be manufactured in accordance with an approved production
certificate or parts manufacturing approval (PMA). The type design
consists of drawings and specifications that define the configuration
and design features of the product. An approved production certificate
or PMA contains a manufacturer's quality/inspection control system that
describes the methods, tests, and inspections necessary to ensure that
each product or part produced conforms with the type design and is in a
condition for safe operation.
This rule does not change the basic FAA approach to meeting its
statutory responsibility. The FAA will continue to inspect parts
manufactured in the United States and the FAA will continue, as
resources allow, to inspect parts manufactured outside the United
States by PAHs. If resources are insufficient, the FAA will continue to
require that the parts be fully inspectable in the United States, or be
inspected by appropriate civil aviation authorities (CAA). The rule
adds the option of having the FAA perform safety assessments at non-
U.S. facilities to confirm compliance with FAA regulations if the PAH
desires to provide the financial resources and the FAA can accommodate
the PAH's request. This rule will continue the FAA's past and current
efforts to ensure both the safety of and the manufacture of aerospace
products wherever those products are manufactured.
Also, the comments regarding the use of foreign repair stations, as
well as repairs on products, are outside the scope of this rulemaking.
The regulations for maintenance and repair are covered under 14 CFR
part 43, Maintenance, Preventive Maintenance, Rebuilding, and
Alteration, and part 187, Fees, Appendix A.
However, one possible byproduct of this rule is that it could
result in a greater FAA presence outside the United States which could
deter, rather than encourage, the manufacturer(s) of ``bogus parts.''
Arguably, this could increase safety for not only U.S. aviation users,
but all aviation users.
Parker Hannifin Corporation suggests that the FAA adopt the ISO
9000 quality system as the ``worlds'' quality system, thereby,
eliminating the burden for the additional oversight needed to monitor
these suppliers. The commenter asserts that safety would not be
jeopardized, and the FAA could work with the ``foreign aviation
authorities'' to monitor the suppliers.
The FAA disagrees with this comment. United States law requires the
FAA to prescribe minimum performance standards for manufacturers. The
ISO 9000 series of quality standards do not provide the same level of
safety as the regulations promulgated by the FAA. Additionally, ISO
9000 is an industry developed quality standard subject to change in an
unpredictable fashion outside the authority of the FAA. The FAA could
not meet its statutory obligation through this standard and the
commenter provided no data in support of its view that FAA's adoption
of ISO 9000 in lieu of this and other existing rules could provide an
equivalent level of safety.
The AIA and an individual commenter suggest that the FAA recognize
that other CAAs could provide oversight and audits on behalf of the
FAA. Then, ``the requirement for the FAA to perform PAH certification
services could be waived and this would be more cost effective. This
solution should be allowed as mutually agreed to by the FAA and the
PAH.'' Also, Bureau Veritas of France (a private consulting firm)
states that it wants to contract for inspection services with the FAA.
The FAA agrees in part with this comment. Where possible, the FAA
has entered into bilateral airworthiness agreements with other CAAs to
perform, as appropriate, inspection services. However, it is not
currently possible to cover through bilateral agreements every needed
service at every desired location. Also, as to the suggestion that a
private company could provide these services, the FAA believes at this
time the agency is best suited to perform these services for PAHs under
U.S. law.
This rule allows for a voluntary agreement between the FAA and the
PAH to cover production that cannot be inspected in the United States
or through bilaterals by CAAs. This is an alternate method for the PAH
to obtain the production certification-related services they need to
comply with the regulations. Also, it should be noted most CAAs
currently charge a fee for their services when inspecting on behalf of
the FAA.
One individual commenter states that once the PAH has demonstrated
a satisfactory quality assurance system and the systemic and periodic
oversight in accordance with that system, the FAA could rely upon the
PAH's evaluation (audit).
The FAA agrees in part with this comment. Once PAHs and suppliers
have established and maintained an effective quality assurance system,
surveillance could be reduced. However, the FAA is mandated by law to
perform certain functions, including evaluations (auditing) and random
inspections, to assure that PAHs remain in compliance with regulations.
The rule allows for the FAA and the PAH to consider this type of
situation in agreeing what inspection services outside the United
States are needed to meet the goals of the PAH and the requirements of
the FAA.
The AIA and GAMA state that this rule should only apply to
``priority parts.''
The FAA agrees with this comment. The FAA expects to continue to
focus its resources on conducting surveillances at PAH and ``priority
part'' supplier facilities, unless safety concerns (e.g., supplier
control problems) mandate otherwise. However, the FAA will consider
each situation on a case-by-case basis as each PAH requests services.
Various commenters express concerns over ``a potential degradation
in part quality and air safety brought about
[[Page 55700]]
through low cost labor acquired in foreign countries.''
The FAA disagrees with this comment. In order to maintain the level
of safety required, the FAA promulgates regulations specific to the
manufacture of commercial products. Products and parts manufactured for
use by U.S. manufacturers anywhere in the world must conform to the
regulations by having an FAA-approved type design and be manufactured
in accordance with an approved production certificate or PMA. This rule
is not for the purpose of allowing PAHs to use low cost labor nor does
the FAA believe that this rule could increase FAA inspection of parts
outside the United States. In fact, it could increase the amount of
parts manufactured overseas under direct and appropriate FAA
inspection/surveillance resulting in enhanced safety.
Cost Issues
Parker Hannifin Corp., AIA, and GAMA are concerned that this rule
``initiates double taxation.'' ``We as taxpayers already pay for
government employee compensation and administrative overhead expenses
for services rendered'', and ``that services should be funded through
general revenues.''
The FAA disagrees with the comment. The FAA does not have the
resources to provide full production certification-related services by
agreement throughout the world. This rule affords the PAH an
opportunity to expedite the receipt of the services where and when the
PAH needs those services. This rule is a voluntary way for the FAA to
provide services to the industry in a more responsive and timely manner
using industry rather than taxpayer funds. But the FAA will continue to
provide inspection services overseas as resources permit. In addition,
the rule allows recipients of specific FAA services, rather than the
general taxpayer, to pay for those specific services.
Also, AIA and GAMA believe that only marginal (direct) costs should
be recovered.
The FAA disagrees with the comment. Pursuant to OMB Circular A-25,
the FAA is directed to recover the full cost associated with providing
production certification-related services outside the United States.
Costs to be recovered include personnel compensation and benefits,
travel and transportation costs, and other agency costs. Also, this
practice is consistent with the fees charged by other Federal agencies
for similar services.
The AIA and GAMA further state that for many industries, budgets
are established based on a different calendar year than that of the
government. They contend that this difference may create a difficulty
for the PAHs budgeting for future FAA services.
The FAA agrees with this comment. The FAA has designed its
procedures to accommodate differing accounting years between Government
and industry. Applicants for these services can request and arrange for
services on any mutually agreeable periodic basis.
The language of the final rule has been clarified in Appendix C,
paragraph (f), to reflect this change.
The AIA and GAMA are concerned that ``real time'' business
decisions would be constrained by the Federal budget process.
The FAA agrees in part with this comment. The FAA's goal is to
provide a flexible alternative which can quickly respond to ``real
time'' needs. However, there are limits to FAA's ability to respond to
every situation immediately. Nevertheless, the rule allows the FAA
greater flexibility to respond and, thereby, improve its coordination
with business.
Several commenters express concern regarding how the FAA will
manage the program under this rule.
The FAA is developing the necessary procedures to implement the
rule that will provide requirements for PAHs application, FAA/industry
memorandum of agreement, and accounting and reporting systems.
Concurrent with publication of NPRM No. 97-11, the FAA has published a
notice of availability of Proposed Advisory Circular 187-XX. The final
advisory circular will be issued in the near future.
The AIA contends that a statement in the preamble is incorrect
because some U.S. suppliers could lose business. The statement follows:
``This proposed rule would not impose any additional costs on any
members of society other than those requesting FAA production
certification-related services for manufacturing outside the United
States.
The FAA agrees with this comment to the extent that some U.S.
suppliers could be adversely affected, but does not agree with the
commenter that this effect will be substantial. The rule recognizes the
long standing U.S. industry practice of conducting manufacturing
outside the United States and, where possible, allows for FAA
inspection services by agreement.
The Timken Company estimates that the proposed rule, if enacted,
would cost his company $80,000 in the first year for no discernible
benefit to his company.
The FAA cannot agree or disagree with this comment, as the
commenter did not provide supporting data.
The AIA and GAMA state ``that cost recovery charges should not be
assessed at suppliers based on allegations, otherwise a PAH may suffer
considerable expense because of unfounded allegations (perhaps by a
competitor).''
The FAA disagrees with this comment. The FAA will not recover costs
associated with special investigations (e.g., investigations resulting
from accidents and incidents, suspected unapproved part). However, if
safety concerns should arise (e.g., supplier control problems) which
require changes to agreements, those agreements will be renegotiated or
terminated.
Miscellaneous Issues
The IAM questions whether FAA resources would be stretched too thin
to be effective and responsive under this rule.
The FAA disagrees with this comment. The FAA will increase its
staffing levels to accommodate additional work load if voluntary
agreements require such an increase. The final rule language has been
clarified (Appendix C, paragraph (d)(3)) to state the FAA will provide
services on request only when it can reasonably do so.
The AIA and GAMA suggest that ``any foreign cost recovery scheme
must apply only to new programs or supplier arrangements. Existing
arrangements must be undisturbed by its implementation.''
The FAA agrees in part with this comment. This rule does not
require existing arrangements to be changed. However, if companies with
existing international suppliers did not apply, they would have an
economic advantage over new entrants in the international market place,
thereby impeding international competitiveness. All PAHs have the
option to voluntarily apply.
The AIA and GAMA recommend that a policy be established to preclude
wasteful practices by FAA, such as: multiple visits to a single
country/area by FAA personnel, multiple visits to a supplier by various
FAA regions; increased audits of foreign suppliers over and above
normal FAA surveillance, etc.
The FAA agrees with the comment. Future voluntary agreements will
be incorporated into FAA planning to minimize inefficient practices.
[[Page 55701]]
The AIA and GAMA suggest that an appeal process be addressed as
part of the rule when the FAA revokes an approval.
The FAA agrees with this comment. Title 14, CFR part 13 provides
such an appeal process.
NORDAM Group expresses concern regarding FAA support to those PAHs
who made a voluntary agreement to pay for ``better services'' versus
those PAHs who did not.
The FAA disagrees with this comment. As stated previously, this
rule provides the option to PAHs to obtain inspection services by
agreement when the FAA does not have resources to perform these
services. The FAA will continue to provide services when and where
resources permit. The FAA will treat all requests in a fair manner,
consistent with its responsibilities.
The language of the final rule has been clarified in Appendix C,
paragraph (d)(1), to reflect that the agreement is an option available
to a PAH who chooses to use suppliers located outside the U.S.
NORDAM Group asks: ``if foreign-located sub-tier vendors
(suppliers) are covered;'' ``if the rule will constitute a way around
the Bilateral Aviation Safety Agreement (BASA) process;'' and ``does it
make a difference where their PAH is located? (U.S. or foreign).''
The FAA responds to the comments with the following: any FAA-
approved PAH who uses suppliers at any level outside the United States
will have the option to request services under this rule. Also, this
rule does not circumvent the BASA process. PAHs have the option to
utilize suppliers in any other country. However, it is not assumed that
the FAA can call upon another authority through the Bilateral
Airworthiness Agreement (BAA) or BASA process to assist with its
oversight responsibilities. While a BASA recognizes that a CAA has the
capability and authority to perform reciprocal services, a CAA may not
have sufficient staff and resources to support specific U.S. PAH
activities. The FAA can only ask for the CAA's assistance, not
guarantee it. If the PAH needs the FAA to perform services that a CAA
cannot perform due to the lack of resources, time, experience, or
authority (i.e., Aircraft Certification Service Evaluation Program
(ACSEP)), routine evaluations and surveillance), a voluntary agreement
may be needed. Also, as discussed in Advisory Circular, AC 21-20B,
Supplier Surveillance Procedures, the CAA may charge the PAH or it's
suppliers to perform services on behalf of the FAA. It does not matter
where the PAH is located. Again, this option is available to any PAH
who chooses to use suppliers located outside the U.S.
The AIA and GAMA state that if the PAH chooses to use a supplier in
a non-bilateral country then the FAA should not charge the PAHs for the
training provided to the other country's authority.
The FAA agrees with the comment. The training FAA may provide to
another authority is not applicable to the cost of production
certification-related services the FAA will provide.
An IAM Local, Air Transport District 143, has a concern that
employees of a foreign aircraft manufacturer are not randomly tested
for drugs and do not follow Occupation Safety Health Administration
(OSHA) standards similar to those in the United States.
This comment does not address matters within the scope of this
rule. Also, it should be noted that the FAA does not require aircraft
manufacturing employees to be randomly tested for drugs in the United
States.
NORDAM Group asks ``will the foreign PAH's agreement to pay before
the project begins, constitute a blank check and thus create an
incentive for the FAA to maximize its revenues?'
The voluntary agreements between the PAH and FAA include a detailed
schedule of services. This schedule will identify the types of
specialists needed and the number of hours projected for work on each
project. Payment to the FAA would only include funding for work agreed
to in the schedule of services. The FAA will not collect any funds for
which specific activities or work projects have not been identified.
The language of the final rule has been clarified in Appendix C,
paragraph (e), to reflect that only actual FAA costs of providing the
services will be charged. Also, the term ``prepaid'' has been replaced
with ``estimated'' to better reflect the terms of the agreement.
The AIA and the law firm of Winthrop, Stimson, Putman, and Roberts
both request an extension to the comment period in this rulemaking.
Both state they need additional time for distribution of the NPRM to
members for review, analysis, and return of comments.
The FAA did not approve this request. As noted above, the FAA has
considered, to the extent practical, comments received prior to the
issuance of the final rule. As over 200 comments were received and
considered, it is clear most commenters had adequate time to submit
comments and further delay was not in the public interest.
Meeting
At the request of the IAM, a meeting was held with OMB on October
20, 1997. The IAM representative stated that, while the aerospace
industry was in a boom right now, the IAM was concerned about the
future. The IAM foresaw a time when other countries would seek to
expand their share of aerospace production. The IAM's concerns extend
primarily to China, Japan, and third world countries. The IAM said that
the NPRM states that the rulemaking facilitates manufacturing outside
the United States, and urged that the government resist pressures to
permit or encourage this practice.
The IAM representative also stated that it was currently possible
to trace the materials and components of every aircraft part to ``when
it was born.'' The IAM representative expresses concern that this
ability would be diminished with respect to parts manufactured outside
the United States.
International Compatibility
The FAA has reviewed corresponding International Civil Aviation
Organization international standards and recommended practices and
Joint Aviation Authorities requirements and has identified no
comparable requirements applicable to this rule.
Paperwork Reduction Act
Information collection requirements in this rule have been approved
by the Office of Management and Budget (OMB) under the provisions of
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), and have been
assigned OMB Control Number 2120-0615.
Regulatory Evaluation Summary
Changes to Federal regulations must undergo several economic
analyses. First, Executive Order 12866 directs that each Federal agency
shall propose or adopt a regulation only upon a reasoned determination
that the benefits of the intended regulation justify the costs. Second,
the Regulatory Flexibility Act of 1980 requires agencies to analyze the
economic effect of regulatory changes on small entities. Third, the
Office of Management and Budget directs agencies to assess the effect
of regulatory changes on international trade. In conducting these
analyses, the FAA has determined that this rule: (1) will generate
benefits that justify its costs; (2) will not have a significant impact
on a substantial number of small entities; and (3) will not constitute
a barrier to international trade. These analyses, available in the
docket, are summarized below.
[[Page 55702]]
As previously stated, the fee will be that amount necessary for the
FAA to recover its full costs. The FAA has determined that an average
hourly fee will be about $120. On that basis, the FAA calculates that
the first year fees will total about $4.038 million (in 1997 dollars).
Due to an anticipated increase in the number of requests for FAA
production certification-related services outside the United States as
the aerospace industry grows, these annual fees will increase to about
$5.912 million (in 1997 dollars) in the fifth year, after which they
would remain stable.
In addition, the FAA has determined that it will take an applicant
60 hours of legal, management, and engineering time for a PAH to
complete the paperwork required for the first agreement. After that
first year, it will take 20 hours of legal, management, and engineering
time for a PAH to complete the paperwork for each succeeding agreement.
The primary benefit from this rule will be that it will allow the
FAA to perform its safety inspection functions in a more efficient,
cost-effective manner. The final rule allows the FAA to be more
responsive to PAHs; thereby reducing the time between when the PAH
requests the service and the time when the FAA provides it. This
enhanced responsiveness will increase the integration of new and
innovative safety technology developed outside the United States into
aircraft and enhance the safety of the aircraft fleet. Further,
although the rule's purpose is to facilitate safety inspections, not to
promote production outside the United States, it will allow the FAA to
fulfill its safety inspection functions for PAH offset agreements
(where a certain percentage of the aircraft must be manufactured or
assembled in the country). As a result, it will make the PAH more
competitive in the global aviation market. Finally, it will require
recipients of specific services from the FAA, rather than the general
taxpayer, to pay for these services.
Regulatory Flexibility Determination
The Regulatory Flexibility Act of 1980 (RFA) was enacted by
Congress to ensure that small entities are not unnecessarily and
disproportionately burdened by Federal regulations. The RFA requires a
Regulatory Flexibility Analysis if a rule has a significant (positive
or negative) economic impact on a substantial number of small entities.
The rule will primarily affect PAHs that have facilities and
suppliers located outside the United States. Although the rule may have
an indirect adverse effect on some small U.S. suppliers, it may also
have an indirect positive effect on other small U.S. suppliers. As a
result, the FAA has determined that the rule will not have a
significant impact on a substantial number of small entities.
International Trade Impact Analysis
The growing globalization of aircraft manufacturing has increased
competition among manufacturers. In order for PAHs to remain
competitive, they need to have the flexibility to compete on an equal
footing with their competitors located throughout the world. Further,
many overseas purchasers of a PAH product often contractually require
that some percentage of the product be produced in their own country.
The rule could affect international trade through: (1) the amount
of the FAA fee; and (2) facilitating the use of facilities and
suppliers outside the United States.
Charging a fee for the FAA's production certification-related
services for facilities and suppliers outside the United States could
slightly raise the costs of using them. One commenter stated that the
rule would cost his company $80,000 per year for no gain in benefit.
However, the rule will provide PAHs with more timely FAA provision of
those services, thereby reducing the time to manufacture the product.
Two commenters stated that the fees were needed to provide these
necessary FAA services when they are needed. After careful review and
evaluation, the FAA has determined that the amount of the fee will have
only a minimal affect on a PAH's decision to use a facility or supplier
located outside of the United States, and, therefore, have only a
minimal affect on international trade.
With respect to the use of facilities and suppliers outside the
United States, the rule will provide PAHs with more timely FAA
provision of production certification-related services. This enhanced
FAA responsiveness should reduce some of the production time lost as a
result of these facilities and suppliers waiting for the FAA service.
Consequently, the rule could increase the productivity of those
facilities and suppliers and, thereby, could lower costs to the U.S.
PAHs that use them.
An additional consideration is that many buyers outside the United
States require offset agreements through which an aerospace product
seller guarantees that a percentage of the product is built in that
country. If the U.S. manufacturer cannot guarantee that percentage,
then a non-U.S. manufacturer who can guarantee that percentage will
have a competitive advantage in selling its product. The rule will also
increase the productivity of these facilities and suppliers and,
therefore, lower costs to the U.S. PAHs that use them.
The effects of the rule on international trade are difficult to
predict and will also be influenced by FAA's implementation of the
rule. For the most part, FAA intends to direct its certification
activities, consistent with the practice of U.S. manufacturers, towards
the use of existing, experienced aviation manufacturers as opposed to
setting up new production facilities overseas. However, to perform its
safety responsibilities, FAA must be able to effectively provide
manufacturing oversight of these overseas manufacturers. To the extent
that services are not provided because of FAA budgetary and
administrative constraints, U.S. manufacturers and our country's
competitive position will be harmed.
By providing these existing services in a more timely, effective
fashion, FAA believes that the final rule will have the net effect of
improving our international competitiveness while minimizing any
adverse effects on domestic suppliers.
Federalism Implications
The regulations herein will not have substantial direct effects on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 12612, it is determined that this rule will not have sufficient
federalism implications to warrant the preparation of a Federalism
Assessment.
Unfunded Mandates Reform Act
This rule does not contain any Federal intergovernmental or private
sector mandate because all fees are entered into by voluntary
agreement. Therefore, the requirements of Title II of the Unfunded
Mandates Reform Act of 1995 do not apply.
Conclusion
For the reasons discussed above, in the preamble, and based on the
findings in the Regulatory Flexibility Determination and the
International Trade Impact Analysis, the FAA has determined that this
regulation is a ``significant regulatory action'' under Executive Order
12866, Regulatory Planning and Review, issued October 4, 1993. However,
the FAA certifies that this rule will not have a significant economic
impact, positive or negative, on a substantial number of small entities
[[Page 55703]]
under the criteria of the Regulatory Flexibility Act. This rule is
considered significant under DOT Regulatory Policies and Procedures (44
FR 11034, February 26, 1979) and Order DOT 2100.5, Policies and
Procedures for Simplification, Analysis, and Review of Regulations, of
May 22, 1980. Also, this rule is considered significant and has been
reviewed by OMB. Further, the requirements of Title II of the Unfunded
Mandates Reform Act of 1995 will not apply to this rule. A regulatory
evaluation of the rule, including a Regulatory Flexibility
Determination and International Trade Impact Analysis, has been placed
in the docket. A copy may be obtained by contacting the person
identified under FOR FURTHER INFORMATION CONTACT.
List of Subjects in 14 CFR Part 187
Administrative practice and procedures, Air transportation.
The Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends part 187 of Title 14, Code of Federal Regulations
(14 CFR part 187) as follows:
PART 187--FEES
1. The authority citation for part 187 is revised to read as
follows:
Authority: 31 U.S.C. 9701; 49 U.S.C. 106(g), 49 U.S.C.
106(l)(6), 40104-40105, 40109, 40113-40114, 44702.
2. Sections 187.15(a) and (b) are revised to read as follows:
Sec. 187.15 Payment of fees.
(a) The fees of this part are payable to the Federal Aviation
Administration by check, money order, wire transfer, or draft, payable
in U.S. currency and drawn on a U.S. bank prior to the provision of any
service under this part.
(b) Applicants for the FAA services provided under this part shall
pay any bank processing charges on fees collected under this part, when
such charges are assessed on U.S. Government.
* * * * *
3. Section 187.17 is added to read as follows:
Sec. 187.17 Failure by applicant to pay prescribed fees.
If an applicant fails to pay fees agreed to under Appendix C of
this part, the FAA may suspend or deny any application for service and
may suspend or revoke any production certification-related approval
granted.
4. Appendix C is added to read as follows:
Appendix C to Part 187--Fees for Production Certification-Related
Services Performed Outside the United States
(a) Purpose. This appendix describes the methodology for the
calculation of fees for production certification-related services
outside the United States that are performed by the FAA.
(b) Applicability. This appendix applies to production approval
holders who elect to use manufacturing facilities or supplier
facilities located outside the United States to manufacture or
assemble aeronautical products after September 30, 1997.
(c) Definitions. For the purpose of this appendix, the following
definitions apply:
Manufacturing facility means a place where production of a
complete aircraft, aircraft engine, propeller, part, component, or
appliance is performed.
Production certification-related service means a service
associated with initial production approval holder qualification;
ongoing production approval holder and supplier surveillance;
designee management; initial production approval holder
qualification and ongoing surveillance for production certificate
extensions outside the United States; conformity inspections; and
witnessing of tests.
Supplier facility means a place where production of a part,
component, or subassembly is performed for a production approval
holder.
Production approval holder means a person who holds an FAA
approval for production under type certificate only, an FAA approval
for production under an approved production inspection system, a
production certificate, a technical standard order authorization, or
a parts manufacturer approval.
(d) Procedural requirements.
(1) Applicants may apply for FAA production certification-
related services provided outside the United States by a letter of
application to the FAA detailing when and where the particular
services are required.
(2) The FAA will notify the applicant in writing of the
estimated cost and schedule to provide the services.
(3) The applicant will review the estimated costs and schedule
of services. If the applicant agrees with the estimated costs and
schedule of services, the applicant will propose to the FAA that the
services be provided. If the FAA agrees and can provide the services
requested, a written agreement will be executed between the
applicant and the FAA.
(4) The applicant must provide advance payment for each 12-month
period of agreed FAA service unless a shorter period is agreed to
between the Production Approval Holder and FAA.
(e) Fee determination.
(1) Fees for FAA production certification-related services will
consist of: personnel compensation and benefit (PC&B) for each
participating FAA employee, actual travel and transportation
expenses incurred in providing the service, other agency costs and
an overhead percentage.
(2) Fees will be determined on a case-by-case basis according to
the following general formula:
W1H1+ W2H2 etc., + T + O
Where:
W1H1=hourly PC&B rate for employee 1, times
estimated hours
W2H2=hourly PC&B rate for employee 2, etc.,
times estimated hours
T=estimated travel and transportation expenses
O=other agency costs related to each activity including overhead.
(3) In no event will the applicant be charged more than the
actual FAA costs of providing production certification-related
services.
(4) If the actual FAA costs vary from the estimated fees by more
than 10 percent, written notice by the FAA will be given to the
applicant as soon as possible.
(5) If FAA costs exceed the estimated fees, the applicant will
be required to pay the difference prior to receiving further
services. If the estimated fees exceed the FAA costs, the applicant
may elect to apply the balance to future agreements or to receive a
refund.
(f) Fees will be reviewed by the FAA periodically and adjusted
either upward or downward in order to reflect the current costs of
performing production certification-related services outside the
United States.
(1) Notice of any change to the elements of the fee formula in
this Appendix will be published in the Federal Register.
(2) Notice of any change to the methodology in this Appendix and
other changes for the fees will be published in the Federal
Register.
Issued in Washington, DC, on October 22, 1997.
Jane F. Garvey,
Administrator.
[FR Doc. 97-28467 Filed 10-23-97; 10:36am]
BILLING CODE 4910-13-P