By Byron Dorgan and James Hunter, Arent Fox LLP
Congress scored a rare and underreported bipartisan victory earlier this year when it passed legislation to reauthorize programs and set funding levels for the Federal Aviation Administration (FAA) through 2015.
Policy disagreements and partisan politics had delayed the bill since 2007, but, its passage is a notable achievement in a Congress that has struggled to pass significant bipartisan legislation.
There are several reasons why the FAA bill is important to the business community. First, our air transportation system is outdated and inefficient, which increases the cost of traveling and transporting goods. It is estimated that air traffic delays now cost the economy more than $40 billion annually.1
To address this, the FAA has been working for years to transform its World War II-era, ground based, radar-air traffic control system to a satellite-based system through its NextGen program. NextGen will ultimately require most aircraft to carry sophisticated surveillance and communications systems that will track flights more accurately and allow them to fly more directly to their destinations.
The FAA bill helps advance NextGen in several ways. It creates a leadership position within the FAA to oversee and manage all aspects of NextGen and to report directly to the FAA administrator to Congress. Although NextGen is thought of as one program, it is actually a combination of many different initiatives within the FAA, which will benefit from direct oversight.
The bill also requires the FAA to develop a plan to respond to the expected increase in applications from manufacturers to certify NextGen-related technologies, which have to be approved in a timely manner to ensure the program stays on track. In addition, the bill requires the FAA to establish performance metrics and advanced navigation procedures for NextGen operations, with priority given to airspace surrounding the busiest airports that are responsible for the majority of delays.
Despite these advancements, the bill does not resolve the question of who pays for all the sophisticated new equipment that will be in the cockpit. The airlines and private operators have argued that the government should foot the bill (which could be as high as $6 billion), since much of the surveillance technology that was once on the ground will now be in the aircraft. The administration has said that aircraft operators are responsible for these costs, and has already set a deadline requiring aircraft to be equipped with an essential surveillance technology by 2020.
Given the high cost of “equipage,” it is unlikely that the federal government will end up footing a portion of the cost. However, the FAA bill includes language authorizing “public-private partnerships” to help incentivize early equipage, including the use of federal loan guarantees to leverage private sector capital. This, along with better management of the program, should provide an opportunity to complete NextGen ahead of schedule. There are more than 230,000 aircraft registered in the United States,2 a majority of which will have to be equipped with NextGen technologies. That means a steady stream of business for avionics manufacturers that produce this equipment and maintenance providers that must retrofit aircraft with the new technologies.
Although much remains to be done to fully modernize our air traffic control system, the policy advancements made in the FAA bill are important, and they demonstrate the federal government's commitment to improving our aviation system and its understanding of the role aviation plays in our economy.
Victories for Manufacturing Sector
The bill also includes provisions that will bolster the aerospace manufacturing sector, which consistently provides the largest trade surplus of any domestic industry. For example, the bill reinforces the FAA's authority to negotiate bilateral safety agreements that cover the certification of products and aircraft maintenance and provide expedited and streamlined market access to U.S. manufactures and maintenance providers.
Previous versions of the bill included language that would have nullified a major bilateral safety agreement with the European Union, which calls for the reciprocal oversight of aircraft certification and maintenance on U.S. and EU registered aircraft. This agreement allows U.S. aircraft manufacturers to sell their products in Europe once they have been certified by the FAA, rather than going through a long, expensive, and redundant certification process in Europe. In addition, it has allowed more than 1,200 U.S. aviation repair businesses to work on EU registered aircraft, which in turn has led to a trade surplus in repair work for the United States. Without this agreement, these repair businesses, the majority of which are small, independent shops, would be shut out of the market.
It is hard to overstate the importance of this provision; it endorses bilateral cooperation on safety issues and will help facilitate market access for U.S. aerospace manufacturers and maintenance providers. The FAA, which was forced to maintain a low profile on bilateral agreements while the bill was being drafted, should now feel more confident about its ability to seek agreements that increase safety and benefit U.S. manufacturers.
Notably, the bill is also a major victory for Unmanned Aircraft Systems (UAS) manufacturers, which are pushing the FAA to integrate UAS, such as surveillance drones, into the national airspace system. Although most Americans think of UAS as a military tool in the wars in Iraq and Afghanistan, the demand for UAS civilian applications is growing exponentially. The bill pushes the FAA to develop the systems that will allow integration and the safe use of unmanned aircraft in civilian airspace by 2015. This will provide an outlet for the fastest-growing sector of the aerospace industry, which is dominated by the U.S. manufacturers and suppliers.
Overall Benefit to the Economy
Like the highway bill, the FAA bill is a multiyear infrastructure bill that authorizes federal funding and user-fee derived revenue to support our national transportation system. It helps fund runways, airport expansions, technology upgrades, surveillance systems, and other parts of our aviation infrastructure. This, in turn, helps employ engineers, construction workers, technology specialists, researchers, and many other Americans in jobs tied directly and indirectly to aviation.
To be sure, there are limits to what the FAA bill will accomplish. Funding for the FAA through 2015 will likely be flat, or at best achieve minimal growth, and there are major regulatory and financial hurdles to overcome before NextGen can be completed. Still, the bill makes significant changes to aviation policy that will have positive consequences for the aviation industry and the economy at large, and it stands as a good example of what lawmakers can accomplish if they work together cooperatively.
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
To view additional stories from Bloomberg Law® request a demo now