**INITIAL REGULATORY EVALUATION** 

**NOTICE OF PROPOSED**  **RULEMAKING PART 145: REPAIR STATIONS** 
**OFFICE OF AVIATION POLICY AND PLANS R**  **EGULATORY ANALYSIS DIVISION** 

**Allen M**  **attes January 2011**  U.S. Department of Transportation
**FEDERAL AVIATION ADMINISTRATION**  Office of Aviation Policy and Plans Washington, D.C. 205912 **TABLE OF CONTENTS** Page EXECUTIVE SUMMARY 1 I. IN TRODUCTION 5 II. COSTS OF COMPLIANCE 7 III. BENEFITS 3 0 IV
. COMPARI SON OF COSTS AND BENEFITS 3 31 EXECUTIVE SUMMARY CHECKLIST
**Summary of the Total Costs and Benefits of this Rulemaking**  As seen in Table 1, there are 4,105 affected US repair stations of which 1,838 are small repair stations with 10 or fewer emplo ye es, 1,913 are medium
- sized repair stations with between 1 1 and 199 employ ees, and 354 are large repair stations with 200 or more employ ees. During the 10 y ear period of this analy sis, i t w ould also affect 1,060 future repair stations o f which 680 will be small repair stations, 350 will be medium
- sized repair stations, and 30 will be large repair stations. T he proposed rule would impose total compliance costs of $ 14.493 million , which would have a present value of $ 13.045
m illion using a 7 percent discount rate and a present value of $ 13.836 million using a 3 percent discount rate. TABLE 1 TOTAL AND PRESENT VALUE COMPLIANCE COSTS BY REPAI R STATION SI ZE (Millions of $) (2011

– 2020) COMPLIANCE COSTS REPAIR STATION SIZE NUMBE R OF REPAIR STATIONS PRESENT VALUE (Number of Employees) TOTAL 7 PERCENT 3 PERCENT SMALL (1

– 10) 1,838 $ 1.949 $ 1.738 $ 1.852 MEDIUM (11
- 199) 1,913 $ 5.226 $ 4.699 $ 4.987 LARGE (200+) 354 $ 7.318 $ 6.608 $ 6.997 **TOTA L**  **4 ,105**  **$14.493 $13.045**  **$13.836**2 As seen in Table 2, the FAA estimates that t he average one
- time compliance cost would be $ 1,146 for a small repair station, $ 2,848 for a medium
- sized repair station, and $ 21,474 for a large repair station. TABLE 2 AVERAGE ONE
- TI ME COMPLIANCE COSTS FOR A REPAI R STATION BY REPAI R STATION SIZE (2011

– 2020) Repair Station Size One
- Ti me Compliance Costs Sm all $ 1,146 Medium $ 2,848 Large $21,474 The proposed rule would adopt a National Transportation Safet y Board (NTSB) recommendation to enhance the overall safety of repair station operations. **Who is Potentially Affected by this Rulemaking**  All 4,105 existing US FAA certificated repair stations and the 106 annual new repair stations w ould be affected b y the proposed rule. **Our Cost Assumptions and Sources of Information** Discount rate s
– 7% and 3% Period of anal ys is

– 20 1 1
- 20 20 Monetary values expressed in 20 10 dollars Labor compensation rates: T ABLE 3

P ERSONNELCOMPENSATI ON RATES

(20 10 Dollars)

Average Compens ation Rates by Repair Station Size Labor Category Sm all Average Large3

Value of 1 hour of Repair station General Manager tim e $45.58 $68.45 $105.62 Value of 1 hour of Repair station 1 st Line Supervisor tim e $29.91 $38.90 $ 49.40 Value of 1 hour of Repair station Mechanic and Service Technicians time $23.69 $29.19 $ 35.79 Value of 1 hour of Repair station Office Manager tim e $18.95 $24.65 $ 32.18 Value of 1 hour of Repair station Clerk time $17.69 $22.15 $ 27.72 **Compliance Costs** As seen in Table 4, the estimated total compliance costs of the proposed repair station manual revision ($12.869 million) would be approximately 88 percent of the total compliance costs. TABLE 4 SUMMARY OF TOTAL AND PRESENT VALUES OF THE COMPLIANCE COSTS

BY PROVISION AND BY REPAIR STATION SIZE

(2011

– 2020) (Millions of 2010 Dollars)

Compliance Costs

Present Value PROVISION Total 7 Percent 3 Percent RATING SYSTEM APPLICATION $ 1.624 $ 1.412 $ 1.524 REPAIR STATION MANUAL REVISION $12 .869 $11.633 $12.312 **TOTA L**  **$14.493 $13.045**  **$13.836**
**Benefits** M aking the ratings current with today ’s aviation technolog y rather than with the 1940’s technolog y would align repair station ratings with their capabilities as well as enhance the FAA’ s supervisory authority and ability
. The proposed rule would also make it possible to prevent a repair station person in authority whose previous repair4

station privileges had been revoked from automatically receiving another FAA approval
. Thus, the prop osed rule would adopt a NTSB recommendation and enhance the overall safet y of repair station operations. Consequentl y, the FAA believes that the proposed rule would improve aviation safet y with benefits greater than the costs of compliance.5 I. IN TRODUCTION

I. A. BACKGROUND The FAA regulates and certificates all repair stations (both in the United States and in foreign countries) that repair and maintain aircraft that are registered in the United States (N
- Registered aircraft). The F ederal A viation Administration (F AA ) published a Notice of Proposed Rulemaking (NPRM ) in 1999 to revise the Part 145 repair station regulations. Among the several proposed regulations were ones to revise the rating s sy stem and to establish a quality a ssurance p ro gram . Some commenters disagreed with the need for new ratings. Other commenters agreed that new ratings were needed, but they opposed the FAA’s proposed ratings sy stem. Most c ommenters generall y opposed the proposed quality assurance program requirem ents
. Nearl y all of them stated that the proposed requirements were too rigid and involved too much paperwork for small repair stations. In response to these comments, the FAA did not include the se proposed
r egulations in the 2001 f

inal r ule , although the final rule did include a quality assurance provision that is a key

element of a qualit y s ys tem. O n October 15, 2001, the FAA tasked the A viation R ulemaking A dvisory C ommittee (ARAC) to address these two issues. ARAC sent its technical reports and
r ecommendations to the FAA on August 13, 2002. On December 1, 2006, the FAA propos ed a rule based on the ARAC recommendations and on the public comments to the1999 NPRM. The FAA received6

156 mostly

negative comments on the 2006 proposal. Subsequently , th e FAA withdrew its proposal on May

7, 2009. This revised proposal is based on the FAA review of the public comments and its further anal ys is of the repair station industry
.

I. B. SUMMARY OF THI S PROPOSED RULE The FAA proposes to revise the part 14 5 repair stations regulations . The significant proposed changes would : 1. revise the repair station ratings s ys tem ; 2. revise the certification requirements ; and 3. provide a bas i s to reject a repair station certificate application from an applicant that had h ad a certificate revoked or under investigation
.7 II. COSTS OF COMPLIANCE II.A. INTRODUCTION The FAA estimates the costs of compliance of this proposed rule in this chapter. We first summarize the estimated compliance costs for individual repair stat ions by repair station size
. We then summarize the total and present value compliance costs for the repair station industry , first by repair station size and then by the individual proposed provisions. After the summary

section, we describe the repair station industry . We then proceed to calculate the individual repair station compliance costs and then the total and present value compliance costs by repair station size for each of the proposed requirements expected to impose compliance costs. We concl ude with a summation in which all of the compliance costs are aggregated by repair station size and by proposed requirement. II. B . COMPLIANCE COST SUMMARY II. B .1. Time Frame of Analy sis The FAA anal yz ed the expected costs of this proposal for a 10
- ye ar period. To simplify the computational anal ys is, we assumed that the final rule would be issued on January 1, 201 1
. Thus, th is analy sis covers the y ears 201 1 through 20 20
. II.A.2. Compliance Cost Summary Tables As seen in Table 1, using numbers o f emplo yees as the basis for repair station size, the one - time compliance costs for an existing repair station would be $ 1, 146 for a small repair station, between $ 2,576 and $ 4,277 for a medium
- sized repair station, and $ 21, 474 for a large repair station. T h e one - time compliance costs for a future repair8

station would be $ 169 for a small repair station, between $ 344 and $ 452 for a medium
sized repair station, and $ 1,296 for a large repair station. TABLE 1 ONE
- TI ME COMPLIANCE COSTS AND L ABOR HOURS FOR A N E XI STI

NG AND A FUTURE REPAIR STATION BY REPAIR STATION SIZE

One
- Ti me Incremental Compliance Costs and Labor Hours Repair Station Size Existing Repair Stations Future Repair Stations Number of Employees Cost Labor Hours Cost Labor Hours **Small** 1
- 10 $ 1,146 41 $ 169 5 **Me dium**  11
- 49 $ 2,576 63 $ 344 7 50
- 99 $ 3,373 83 $ 344 7 100
- 199 $ 4,277 105 $ 452 9 **Large** >199 $21,474 354 $1,296 18
As seen in Table 2 the FAA estimates that the total compliance costs would be $ 14.493 million , of which small repair stations would incur $1 .949 million , medium
sized repair stations would incur $ 5.226 million , and large repair stations would incur $ 7.318 million
. Using a 7 percent discount rate, the present value of the total compliance cost s would be $ 13.045 million, of which small repair stations would incur $1 .738 million , medium
- sized repair stations would incur $ 4.699 million , and large repair stations would incur $ 6.608 million. Using a 3 percent discount rate, th e present value of the total compliance cost s would be $ 13.836 million, of which small repair stations would incur $ 1.852 million, medium
- sized repair stations would incur $ 4.987 million, and large repair stations would incur $ 6.997 million.9 TABLE 2 TOTAL AND PRESENT VALUES OF THE COMPLIANCE COSTS BY REPAI R STATION SIZE (2011

– 2020) (Millions of 2010 Dollars) Repair Station Size Compliance Costs Number of Employees Present Value Total 7 Percent 3 Percent **Small** 1
- 10 **$ 1.949 $ 1.738**  **$ 1.8 52**  **Me dium**  **$ 5.226 $ 4.699**  **$ 4.987** 11
- 49 $ 3.136 $ 2.815 $ 2.990 50
- 99 $ 1.064 $ 0.959 $ 1.016 100
- 199 $ 1.026 $ 0.925 $ 0.981 **Large** >199 **$ 7.318 $ 6.608**  **$ 6.997 Total**  **$14.493 $13.045**  **$13.836**
As seen in Table 3 , th e estimated total compliance costs of the proposed repair station manual revision ($12.869 million) would be approximately 88 percent of the total compliance costs. TABLE 3 SUMMARY OF TOTAL AND PRESENT VALUES OF THE COMPLIANCE COSTS

BY PROPOSED PROVISI ON AND BY REPAIR STATION SIZE (2011

– 2020) (Millions of 2010 Dollars) Compliance Costs

Present Value PROVISION Total 7 Percent 3 Percent RATING SYSTEM APPLICATION $ 1.624 $ 1.412 $ 1.524 REPAIR STATION MANUAL REVISION $12.86 9 $11.633 $12.312 **TOTA L**  **$14.493 $13.045**  **$13.836**
II. C . REPAIR STATION INDUSTRY10

II. C
. 1. Number of Existing US Repair Stations The proposed rule would affect every repair station allowed to work on N
Registered aircraft. As seen in Table 4 , as o f March 2010 , th e FAA has certificated 4,105 repair stations in the United States to work on N
- Registered air craft
. The FAA has also certificated 739 repair stations located in 67 foreign countries with 46,131 employ ees to work on N
- Registered air craft
. The country in which the repair station is located does not dictate its ownership because US owners operate r epair stations in both the United States and in foreign countries and foreign owners operate r epair stations in both the United States and in fore ig n countries
. This Initial Regulatory Evaluation (IRE) estimates the proposed rule’s economic impact on ly on repair stations located in the United States because that is the requirement under Executive Order 12 86 6. The FAA has classified repair stations into size categories using the criterion of number of employ ees. T he costs to comply with the proposed rule would generall y increase with repair station size and the number of employ ees is the best basis to distinguish among repair station size s . 1 Further, mechanic and technician wage rates are positively correlated with repair station size
. Larger repair stations tend to do more high ly tech nical and complex work (e.g., repairing and maintaining turbojet and turboprop engine s , landing gear s , etc .) than do smaller repair stations . Correspondingl y, large repair station mechanics and technicians are generall y paid more than are small repair station mechanics and technicians. Thus, this analy sis reflect s that both the average number of labor hours for compliance and the average cost of those labor hours

1 There will be cases in which the type of work done by the repair station may result in instances where the number of labor hours for compliance may not be perfectly correlated with the number of employees. However, on average , the number of employees is a good proxy for the number of labor hours needed for compliance.11

would increase with repair station size. Based on our anal ys is of the repair station industry , the following 5 categories based on number of employ ees appropriately delineate the qualitative and quantitative differences among repair stations with respect to the compliance costs of the proposed rule: 1. Small (One class of 1 to 10 employ ees) 2. Medium
- Sized (Three classes of 11 to 199 employ ees) A. Class A. (11 to 49 employ ees) B. Class B. (50 to 99 employ ees) C. Class C. (100 to 199 employ ees) 3. Large (One class of 200 + employ ees) Of the 4,105 repair stations in the United States , 1,838 (44.8 percent) are small repair stations with an average of 5 emplo ye es, 1,913 (46.6 perc ent) are medium
- sized repair stations with an average of 47 emplo ye es, and 354 (8.6 percent) are large repair stations with an average of 874 employ ees. 2 Th is is a segmented industry in which s mall repair stations have a total of 9,130 employ ees ( onl y 2.2 percent of total industry employ ment), medium
- sized repair stations have a total of 90,240 employ ees ( 22. 1 percent of total industry employ ment) and large repair stations have a total of 309,307 employ ees ( 75. 7 percent of total industry employ ment). TABLE 4 NUMBER S AND PERCENTAGES OF EXI STING REPAI R STATIONS AND EMPL OYEES ( March 2010)

2 The FAA has used the SBA
- defined categories of "small" (fewer than 1,500 employees) and "non
- small" (more than 1,500 employees) in this industry for our Regulatory Flexibility Analysis.12 Repair Station Size Number of Em ployees Number of Repair Stations Percentage

of Repair Stations Total

Number of Em ployees Average

Number of Em ployees Percent age

of All Em ployees **Small** 1
- 10 **1,838 44.77%**  **9,130 5**  **2.2 4**  **% Me**  **dium 1,913**  **46.60% 90,240**  **47 22.08%**  11
- 49 1,321 32.18% 30,718 23 7.52% 50
- 99 337 8.21% 23,933 71 5.86% 100
- 199 255 6.21% 35,589 1 40 8.71% **Large** >199 **354 8.62%**  **309,307 874**  **75.68% Total**  **4,105 100.00%**  **408,677 100**  **100.00%**
II. C .2. Number s of Future US Repair Stations The number of future US repair stations equals the existing number minus the
number of repair stations that leave or are absorbed plus the number of new repair stations . As the compliance costs differ between existing and for new repair stations, we calculate separate cost estimates for these groups. T he number of US repair stations declined from 4,204 in 2006 to 4,105 in 20 10 ; a 0.6 percent annual net decline. The FAA assumes that the 0.6 percent annual rate of decline will continue between 2011 and 2020. The FAA also assumes that the future distribution of the repair stations by size will be the same as the 2010 distribution seen in Table 4. 3 The forecasts for the next 10 years b y repair station size are seen in Table 5. TABLE 5

3 While nearly all of the future new repair stations will be the smaller repair stations (see Table 5), the number of repair stations going out of business will similarly be disproportionally found among smaller repair stations. Over time, some of the existing medium
- sized repair stations will become large repair sta

tions while some of the existing small repair stations will become medium
- sized or large repair stations. Consequently, the FAA assumes that the repair station size distribution will be constant over this time period of analysis.13 FORECASTED NUMBERS OF REPAI R STATIONS BY YEAR (2011

– 2020) Repair Station Size YEAR Number of Em ployees 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
**Small** 1
- 10 **1,827 1,816**  **1,805 1,794**  **1,784 1,773**  **1,762 1,752**  **1,741 1,731**  **Me dium**  **1,902 1,890**  **1,879 1,867**  **1,856 1,845**  **1,834 1,823**  **1,812 1,801**  11
- 49 1,313 1,305 1,29 7 1,290 1,282 1,274 1,267 1,259 1,251 1,244 50
- 99 335 333 331 329 327 325 323 321 319 317 100
- 199 253 252 250 249 247 246 244 243 242 240 **Large** >199 **352 350**  **348 346**  **344 341**  **339 337**  **335 333**  **Total 4,08**  **1 4,056**  **4,032 4,007**  **3,98 4**  **3,959 3,93**  **5 3,912**  **3,88 8**  **3,865**
II. C
. 3
. Number of N ew US Repair Stations The FAA certificated 423 new US repair stations during the 4
- year time period of 20 0 6
- 200 9 . Of these 423 new repair stations, 271 had 10 or fewer employees, 110 had between 11 and 49 employ ees, 16 had between 50 and 99 employ ees, 13 had between 100 and 199 employ ees, and 13 had 200 or more employ ees . The F AA assumes that th e 4 y ear average s of these numbers of new repair stations will continue during the next 10 ye ars. Based on that assumption, a s seen in Table 6 , the FAA forecasts it will annually certificate 106 new repair stations, of which 68 will be small repair stations, 35 wil l be medium
- sized repair stations, and 3 will be large repair stations.
TABLE 6 FORECASTED NUMBER S OF NEW US REPAIR STATIONS BY YEAR (2011

– 2020) Repair Station Size Year14

Number of Em ployees 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8 201 9 20 20 **TOTA L** 
**Small** 1
- 10 **68 68**  **68 68**  **68 68**  **68 68**  **68 68**  **680 Me**  **dium 35**  **35 35**  **35 35**  **35 35**  **35 35**  **35 350**  11
- 49 28 28 28 28 28 28 28 28 28 28 **280** 51
- 99 4 4 4 4 4 4 4 4 4 4 **40** 100
- 199 3 3 3 3 3 3 3 3 3 3 **30 Large**  >199 **3 3**  **3 3**  **3 3**  **3 3**  **3 3**  **30 Total**  **106 106**  **106 106**  **106 106**  **106 106**  **106 106**  **1,060**
II. C
. 4
. Number of US Repair Stations Projected to Go Out of Business or Merge T he FAA estimate d the number of repair stations that will go out of business or merge in each ye ar 2010, 2011, and 2012 by add ing the net negative change s in th e forecasted number of total repair stations from Table 5 (24 in 2010, 25 in 2011, and 24 in 2012) to the forecasted number of new repair stations from Table 6 (106 in each of 2010, 2011, and 2012). The FAA assumes that all of the out of business repair s tations in 201 0 , 201 1 , and 2012 would be culled from repair stations existing in 2010 . The FAA then assumes that none of the 391 existing repair stations (130 in 2010, 131 in 2011, and 130 in 2012) that would go out of business would apply for a new ratin g from the FAA , and, consequentl y, would incur no compliance costs. After 201 2 , repair stations that would go out of business c ould also come from new repair stations. As seen in Table 7 , of the 391 existing repair stations that will go out of business in 2010 , 2011, and 2012, 237 will be small repair stations, 139 will be medium
- sized repair stations, and 1 5 will be large repair stations. Thus, 3,714 existing repair stations (4,105 minus 391) would incur compliance costs , of which 1,601 would be small repair15

stations, 1,774 would be medium
- sized repair stations, and 339 would be large repair stations. TABLE 7 FORECASTED NUMBERS OF EXI STI NG US REPAI R STATIONS THAT WOUL D GO OUT OF BUSINESS AND THE NUMBERS THAT WOUL D INCUR COMPLIANCE COSTS (2010

– 2 01 2 )

II. C
. 5 Compensation Rates for Various Repair Station Labor Categories Table 8 contains the hourly compensation rates for various repair station labor categories. As published in the 2006 I RE, the original data were from the U.S. Dept. of Labor 2001 National Industry Specific Occupational Employ ment and Wage Estimates

– SI C 372

– Aircraft and Parts median hourl y rate, which were then multiplied by 1.2345 for benefits 4 and b y 1.0239 to account for inflation from 2001 to 2003. The 2006 I RE used the 25th and 75th compensation rate percentiles as the corresponding costs for the “Small ” and “Large” repair station categories
.

4 The benefits adju stment is based on FAA, Office of Aviation Policy and Plans, Economic Values for Evaluation of FAA Investment and Regulatory Programs (FAA
- APO
- 98
- 4 : June 1998) Table 4
- 5. p.4
- 22. Repair Station Size Year Number of Repair Stations Number of Em ployees 2010 2011 2012 Total Out of Business Total Incurring

Compliance Costs **Small** 1
- 10 **79 79**  **79 237**  **1,601 Me**  **dium 46**  **47 46**  **139 1,774**  11
- 49 36 36 36 108 1,213 51
- 99 6 6 6 18 319 100
- 199 4 5 4 13 242 **Large** >199 **5 5**  **5 15**  **339 Total**  **130 131**  **130 391**  **3,714**16 The FAA cannot use the same source to update those data for this anal ys is
. In 2004, the U.S. Department of Labor (DOL) jettisoned the Standard Industrial Classification (SI C) codes in favor of the North Americ an Industry Classification Sy stem (NAICS). The NAICS now subsumes employ ment and wage data for the former SI C 372 within a larger NAICS category that also includes aerospace manufacturing employ ees. The FAA determined that this NAI CS category labor wage i s inappropriate for the repair station sector because aerospace manufacturing employ ees earn sufficiently more than do repair station emplo ye es that using the ir combined average would upwardl y bias repair station employ ee compensation. As a result, the FA A uses the 2003 compensation data from the 200 6 IRE and update s it to 20 10 dollars. 5 T ABLE 8 REPAI R STATION P ERSONNELHOURLY COMPENSATI ON RATES BY

COMPENSATI ON RATE PERCENTILES 6

(20 10 Dollars) Compensation Rate Percentile and Repair Station Size Lab or Category 25% Sm all 50%

Medium
Sized 75%

Large Value of 1 hour of Repair station General Manager /Owner tim e $45.58 $68.45 $105.62

5 The IRE 2003 dollar values were increased by 17 percent (see www.westegg.com/inflation/infl.cgi ) to update the values to 2010 numbers. 6 The 2006 IRE used data from the U.S. Dept. of Labor 2001 National Industry Specific Occupational Employment and Wage Estimat es for SIC 372 “ Aircraft and Parts ” median hourly rate multiplied by 1.2345 for benefits and by 1.0239 for inflation. The 2006 IRE “Small” and “Large” labor cost estimates were calculated by using the 25th and 75th percentiles , respectively, for the total occupational title to the average SIC 372 salary for that occupation. The b enefit multiplier was from Table 4
- 5 FAA
- APO
- 98
- 4 . However, the 2004 U.S. Department of Labor revision of the SIC codes now subsumes the specific employment and wage data for air craft and parts employees within larger categor ies that include higher
- paid aerospace manufacturing employees. Th e higher average wage rates resulting from including higher
- paid aerospace manufacturing employees are inappropriate to represent the average w age rates for the repair station sector (particularly for small repair stations)
. As a result, the FAA adj usted the 2006 IRE data to account for inflation to update its information to 20 10 dollars
.17 Value of 1 hour of Repair station 1 st Line Supervisor

/Quality Control Manager time $29.91 $38.90 $ 49.40 Value of 1 hour of Repair station Mechanic and Service Technicians time $23.69 $29.19 $ 35.79 Value of 1 hour of Repair station Office Manager time $18.95 $24.65 $ 32.18 Value of 1 hour of Repair station Clerk time $17.69 $22.15 $ 27.72 As previou sly

discussed in Section II.C.1., larger repair stations have higher compensation rates than do smaller repair stations. Inthis analy sis, the FAA uses the 25 th percentile labor compensation rates for small repair stations, the 50 th percentile labor compe nsation rates for medium
- sized repair stations, and the 75 th percentile compensation rates for large repair stations. II. D . BACKGROUND INFORMATION TO CALCULATE COMPLIANCE COSTS II. D
. 1
. Cost Assumptions II.D.1a
. Discount Rate As mandated b y the Office of Management and Budget (OMB) , 7 we use 7 percent as the primary

discount rate and 3 percent as a secondary discount rate for the sensitivity anal ys is. II.D.1.b. Time Frame of Analy sis The FAA anal yz ed the expected costs of this proposal for a 10
- ye ar period. To simplify the computational anal ys is, we assumed that the final rule would be issued on January 1, 2011. Thus, this analy sis covers the y ears 2011 through 2020. II.D. 1 .c. Base Year of Analy sis All monetary

values are expressed in 2010 doll ars. II. D
. 2
. Ty

pes of Compliance Costs

7 Office of Management and Budget, OMB Circular No. A
- 4, New Guidelines for the Conduct of Regulatory Analysis , Mar. 2, 2004.18

II. D
. 2 .a. Incremental Costs This analy sis is concerned only with the incremental costs; i.e., the costs in addition to those that a repair station currently incurs. The baseline for determining the incremental c ost is current industry practice; not compliance with the current rule. II. D
. 2
. b
. One
- Time Compliance Costs An existing repair station would incur a one - time cost to submit a ratings system application under the new FAA ratings, to review its training p rogram , to revise its manual, etc. A n existing repair station has two y ears after the effective date of the final rule to apply

for a new rating
. All existing repair station certifications would no longer be valid 2 ye ars after the effective date of the final rule , which for the purposes of this anal ys is is assumed to be January 1, 201 3
. W e assume that one half of the existing repair stations would submit their applications and incur one
- time compliance costs during 2011 and the other half would submit their applications and incur one
- time compliance costs during 2012. We assume that new repair station applications would be submitted and the one
- time costs incurred during the ye ar before they would enter the industry
. II. D
. 2
. c . Annual Compliance Cos ts Beginning in the year following FAA approval, a repair station would incur annual compliance costs such as maintaining a current list of the products on which it could work , enhanced training of new employ ees, etc
. W e have preliminarily determined tha t the se annual incremental compliance costs would be minimal. The FAA requests comments on this determination. II. E
. PROPOSED PROVI SI ONS IMPOSING COMPLIANCE COSTS19

II. E
. 1
. Rating S ys tem Application The proposed rule would create a new rating s sy ste m . An individual repair station’s application cost s would vary by a number of factors; i.e., the number of ratings , the complexity

of the work , the magnitude of the risk if the repair were to fail or if the maintenance were to be improperl y performed , etc
. For example, a repair station apply ing for a Category

2 airframe rating that would allow it to work on all transport category airplanes would need more labor hours to complete its application than would a repair station appl yi ng for a Category 1 airfram e rating with the intention of working on a limited number of general aviation aircraft model s . As w e do not know individual repair station plans, we assume that larger repair stations would apply for more numbers of and for more complex ratings than woul d smaller repair stations and that the average labor time to complete a ratings application would increase with repair station size
. As seen in Table 9 , the FAA estimates that the smallest repair stations would require 2 hours of general manager/owner t ime, 2 hours of first
- line supervisor/ quality manager time , and 1 hour of clerk time to complete an application
. The FAA then estimates that a medium
- sized repair station would require 3 to 4 hours of general manager /owner time , 3 to 4 hours of first
- line supervisor/ quality manager time, and 1 hour of clerk time. Finally , the largest repair stations would require 6 hours of general manager/owner time, 8 hours of first
- line supervisor/ quality manager time , and 2 hours of clerk time. Thus, a pply ing the h ourly

compensation data from Table 8 to the number of labor hours, the average compliance cost to appl y for the ratings would be $169 for a small20

repair station, between $344 and $452 for a medium

- sized repair station, and $1,296 for a large repair station
. TABLE 9 NUMBERS AND TYPES OF REPAI R STATION EMPL OYEE HOURS AND

COMPLIANCE COSTS TO APPL Y FOR A RATING Repair Station Size Number of hours by Labor Category Number of Em ployees General

Manager/ Owner First
- Line

Supervisor/Quality Manager Mechanic Cle rk Total Compliance Cost Per Repair Station 1
- 10 2 2 0 1 5 $ 169 11
- 49 3 3 0 1 7 $ 344 50
- 99 3 3 0 1 7 $ 344 100
- 199 4 4 0 1 9 $ 452 >199 8 8 0 2 18 $1,296 The majority

of the total application costs incurred by a new r epair station would b e caused b y existing rule requirements that the proposed rule would not alter. However, a new repair station would incur the same additional costs as those incurred by existing repair stations to modify

its application to the proposed requirements and to submit a letter describing how it would comply with part 145. It should be noted that although the category of new repair stations would incur
one - time costs in every

y ear, an individual new repair station would incur this cost only
once
– during its application ye ar. Hence, as far as an individual new repair station is concerned, its costs to appl y for rating s would be a one - time compliance cost. As seen in Table 10 , b ased on the number of existing repair stations by size
ca tegory reported in Table 4 minus the number of existing repair stations by size category that will go out of business between 20 1 0 and 2012 reported in Table 7 , the FAA estimated that the total one - time compliance cost s for existing repair stations would b e21

$ 1.346 million . Using a 7 percent discount rate , the present value of the one - time compliance costs for existing repair stations would be $1.216 million

. Using a 3 percent discount rate, the present value of the one - time compliance costs for existing r epair stations would be $1.287 million. TABLE 10 ONE
- TI ME COMPLIANCE COST S FOR EXI STI NG REPAI R STATIONS TO APPL Y FOR A RATING (Millions of 20 10 Dollars) Repair Station Size Number of Repair Stations Compliance Cost s Number of Employees Present Value Total 7 Percent 3 Percent **Small** 1
- 10 **1,601 $0.270**  **$0.244 $0.258**  **Me dium**  **1,774 $0.637**  **$0.575 $0.609**  11
- 49 1,213 $0.418 $0.377 $0.399 50
- 99 319 $0.110 $0.099 $0.105 100
- 199 242 $0.109 $0.099 $0.105 **Large** >199 **339 $**  **0.439 $0.397**  **$0.420 Total**  **3,714 $1.346**  **$1.21 6**  **$1.28 7** 
As seen in Table 11 (b ased on the number s of new repair stations in Table 6 and the unit compliance cost in Table 9 ) , the FAA estimated that the total one - time compliance cost s for new repair s tations would be $ 39 ,000 . Using a 7 percent discount rate, the present value of the one - time compliance costs for new repair stations would be $ 27 ,000. Using a 3 percent discount rate, the present value of the one - time compliance cost s for new repair sta tions would be $ 33 ,000
. TABLE 11 ONE
- TI ME COMPLIANCE COST S FOR NEW REPAI R STATIONS TO APPL Y FOR A RATING22 (2011

– 2020) (Millions of 20 10 Dollars) Repair Station Size Number of New Repair Stations Compliance Cost s Number of Employees Present Valu e Total 7 Percent 3 Percent **Small** 1
- 10 **680 $0.115**  **$0.081 $0.098**  **Me dium**  **350 $0.124**  **$0.088 $0.106**  11
- 49 280 $0.096 $0.068 $0.082 50
- 99 40 $0.014 $0.010 $0.012 100
- 199 30 $0.014 $0.010 $0.012 **Large** >199 **3 0**  **$0.039 $0.027**  **$0.033 Total**  **1,060 $0.278**  **$0.196 $0.237** 
As seen in Table 1 2 , the FAA estimated that the total one - time compliance costs for appl yi ng for a repair station rating would be $ 1.624 million , of which $ 385,000 would be incurred b y s mall repair stations, $ 761 ,000 would be incurred b y m edium
- sized repair stations, and $ 478 ,000 would be incurred b y l arge repair stations. Using a 7 percent discount rate, the present value of the one - time compliance costs would be $ 1.412 million , of wh ich $ 325 ,000 would be incurred b y small repair stations, $ 663 ,000 would be incurred b y medium
- sized repair stations, and $ 424 ,000 would be incurred b y large repair stations. Using a 3 percent discount rate, the present value of the one - time compliance
c osts would be $ 1.524 million , of which $ 356 .000 would be incurred b y small repair stations, $ 715 ,000 would be incurred b y medium
- sized repair stations, and $ 453 ,000 would be incurred b y large repair stations. TABLE 12 ONE
- TI ME COMPLIANCE COSTS TO APPLY F OR A RATING23 (Millions of 2010 Dollars) Repair Station Size Compliance Costs Number of Employees Present Value Total 7 Percent 3 Percent **Small** 1
- 10 **$0.385 $0.325**  **$0.356 Me**  **dium $0.761**  **$0.663 $0.715**  11
- 49 $0.514 $0.445 $0.481 50
- 99 $0.124 $0.109 $0.117 100
- 199 $0.123 $0.109 $0.117 **Large** >199 **$0.478 $0.424**  **$0.453 Total**  **$1.624 $1.412**  **$1.524**
II. D
. 2
. Repair Station Manual Revision Every repair station would need to revise its repair station manual . This revision would include the procedures to obtain new or modified ratings , a review of the training program, and the processes and documentation by which it will either self

- certify (and self
- decertify ) articles on its capabilities list or its proced ures to request that articles be added to its operations specifications. As seen in Table 1 3 , the FAA estimates that the smallest repair stations would require 12 hour s of general manager/owner time, 12 hours of first
- line supervisor/ quality manager tim e , and 4 hours of clerk time to revise its operating manual. A medium
- sized repair station would require between 16 and 24 hours of general manager/owner time, between 24 and 48 hours of first
- line supervisor /quality manager time, and between 6 and 10 hours of clerk time to revise its operating manual. A large repair station would require 96 hours of general manager/owner time, 192 hours of first
- line supervisor/ quality manager time, and 20 hours of clerk time to revise its operating manual.24 The FAA beli eves that this proposed rule would create minimal additional incremental compliance costs for a new repair station because it would develop its manual from the start to meet the proposed rule. The majority of the manual costs incurred b y a new repair stat ion would be to meet current rule requirements that the proposed rule would not alter. Instead, the proposed rule would redirect the repair station effort from meeting current rule r equirements to meeting the proposed rule requirements
. Consequently , the FAA determined that the total manual development time for a new repair station would not change, but it would be spent in different direction s . The cost to a repair station to revise its manual equal s the wage rate b y labor category (Table 8 ) times the estimated hours. A s seen in Table 1 3 , the cost to an existing small repair station would be $977, the cost to an existing medium
- sized repair station would be between $2,162 and $3,731, and the cost to an existing large repair station would be $20,178. TABLE 1 3 NUMBERS OF REPAIR STATION EMPLOYEE HOURS AND COMPLIANCE

COSTS TO REVI SE THE REPAI R STATION MANUAL Number of Em ployees General

Manager/Owner First
- Line

Supervisor/Quality Manager Mechanic Clerk Total Compliance Costs Per Repair Station 1
- 10 12 12 0 4 28 $ 977 11
- 49 16 24 0 6 46 $ 2,162 50
- 99 20 36 0 8 64 $ 2,947 100
- 199 24 48 0 10 82 $ 3,731 >199 96 192 0 20 308 $20,178
As seen in Table 1 4 , the FAA estimate s that the total one - time compliance cost
w ould equal the compliance cost per repair station times the number of repair stations. F or existing repair stations the compliance cost would be $1 2
. 869 million, of which25

$1. 564 million would be incurred b y small repair stations, $4. 465 million would be i ncurred b y medium
- sized repair stations, and $ 6
. 804 million would be incurred b y large repair stations. Using a 7 percent discount rate, the present value of the one - time compliance costs for existing repair stations would be $1 1
. 633 million, of which $ 1.413 million would be incurred b y small repair stations, $4. 036 million would be incurred by medium
sized repair stations, and $6. 184 million would be incurred b y large repair stations. Using a 3 percent discount rate, the present value of the one - time compliance costs for existing repair stations would be $1 2
. 312 million, of which $1. 496 million would be incurred b y small repair stations, $4. 272 million would be incurred by medium
sized repair stations, and $6. 544 million would be incurred b y large rep air stations. TABLE 1 4 ONE
- TI ME COMPLIANCE COSTS TO REVI SE THE REPAI R STATION MANUAL (Millions of 2010 Dollars) Repair Station Size Compliance Costs Number of Employees Present Value Total 7 Percent 3 Percent **Small** 1
- 10 **$ 1.564 $ 1.4**  **13 $ 1.496**  **Me dium**  **$ 4.465 $ 4.036**  **$ 4.272** 11
- 49 $ 2.622 $ 2.370 $ 2.509 50
- 99 $ 0.940 $ 0.850 $ 0.899 100
- 199 $ 0.903 $ 0.816 $ 0.864 **Large** >199 **$ 6.840 $ 6.184**  **$ 6.544 Total**  **$12.869 $11.633**  **$12.312**
II. E . PROPOSE D PROVI SI ONS NOT IMPOSING COMPLIANCE COSTS II. E
. 1. One
- Time Costs to Create a Capabilit ies Li st26 The proposed rule would require each repair station that chooses to use a capabilities list rather than the operations specifications to list the articles on which it can work must be maintained on a standard FAA
- approved form that will be developed. Although the FAA intends that its form will generally follow the ty

pical formatting used by most repair stations, as this form does not y et exist, we cannot esti mate the potential costs of completing it. II.E.2. FAA Capability

to Deny an Application Currently , the FAA cannot deny a repair station license to a qualified applicant, regardless of its prior behavior. The proposed rule would give the FAA the authority to deny a repair station license to an applicant that has either had its certificate revoked for cause or has voluntaril y surrendered its certificate while it is being investigated for revocation. As the FAA revokes an average of 6 repair station licenses a y ear, the overall compliance costs of this proposed provision would be minimal. II. F . COMPLIANCE COSTS BY REPAI R STATION SIZE As seen in Table 1 5 , 8 the one - time labor hours and compliance costs for a repair station would be 33 hours and $ 1, 146 for a small repair station, between 53 and 91 hours and between $ 2,506 and $ 4,183 for a medium
- sized repair station, and 326 hours and $ 21,474 for a large repair station.
TABLE 1 5 ONE
- TI ME AND ANNUAL LABOR HOURS AND COMPLIANCE COSTS FOR A RE PAI R STATION (2010 Dollars) Repair Station Size One
- Ti me

8 Table 15 sums Tables 9 and 13.27

Number of Employees Labor Hours Cost **Small** 1
- 10 33 $ 1, 146 **Me dium**  11
- 49 53 $ 2,5 0 6 50
- 99 71 $ 3, 291 100
- 199 91 $ 4, 183 **Large** >199 3 26 $21, 474
II. G
. TOTAL A

ND PRESENT VALUE COMPLIANCE COSTS As seen in Table 16 , 9 the FAA estimate s that the total compliance costs would be $ 14.493 million, of which $ 1.941 million would be incurred b y small repair stations, $ 5.226 million would be incurred b y medium
- sized repai r stations, and $ 7.318 million would be incurred b y large repair stations. Using a 7 percent discount rate, the present value of the compliance cost would be $ 13.045 million, of which $ 1.738 million would be incurred b y small repair stations, $ 4.699 mil lion would be incurred b y medium
- sized repair stations, and $ 6.608 million would be incurred b y large repair stations. Using a 3 percent discount rate, the present value of the compliance cost would be $ 13.836 million, of which $ 1.852 million would be inc urred by small repair stations, $ 4.987 million would be incurred b y medium
- sized repair stations, and $ 6.997 million would be incurred b y large repair stations. TABLE 16 TOTAL AND PRESENT VALUE S OF THE COMPLIANCE COSTS (201 1

– 20 20 )

9 Table 16 sums Tables 12 and 14.28 (Millions of 20 10 Dollars) Repair Station Size Compliance Cost s Number of Employees Present Value Total 7 Percent 3 Percent **Small** 1
- 10 **$ 1.949**  **$ 1.738**  **$ 1.852**  **Me dium**  **$ 5.226**  **$ 4.699**  **$ 4.987**  11
- 49 $ 3.136 $ 2.815 $ 2.990 50
- 99 $ 1.064 $ 0.9 59 $ 1.016 100
- 199 $ 1.026 $ 0.925 $ 0.981 **Large** >199 **$ 7.318**  **$ 6.608**  **$ 6.997**  **Total $14.493**  **$13.045 $13.836** 
II. H . COMPLIANCE COSTS BY PROVI SI ON A s seen in Table 17 10 , the proposed repair station manual revision would account for about 88 percent of the estimated total compliance costs in both total costs and in present value costs at both 7 percent and 3 percent. TABLE 17 SUMMARY OF TOTAL AND PRESENT VALUE S COMPLIANCE COSTS BY PROVI SI ON (201 1

– 20 20 ) (Millions of 20 10 Dollars)

Compliance Costs

Present Value PROVISION Total 7 Percent 3 Percent RATING SYSTEM APPLICATION $ 1.624 $ 1.412 $ 1.524 REPAIR STATION MANUAL REVISION $12.869 $11.633 $12.312 **TOTA L**  **$14. 4**  **93 $13.045**  **$13.836**

10 Table 17 sums Tables 12 and 14.29 III. BENEFITS

I II.A. INTRODUCTION The proposed rule would make the classification sy stem current with today’s aviation technologies rather than with the 1940’s technologies , thereb y enhanc ing the FAA’s supervisory

authority and ability
. It would also adopt the NTSB
re commendations b y preventing a repair station person in authority that has had its previous repair station privileges revoked from automatically receiving another FAA approval without further FAA investigation . The FAA believes that this proposed rule woul d enhance the overall safety of repair station operations.

III.B. ABILITY TO DENY AN APPLI CATION Currently , the FAA must grant an application to every technically

qualified applicant

– regardless of previous conduct. This inability to refuse a t echnically

qualified applicant was noted b y the National Transportation Safety Board (NTSB ) during its investigation of a January 24, 2003, accident in which a Beech 95 (Travelair) lost control shortly after takeoff after a 2 1⁄2
- foot section of a blade sepa rated from a propeller installed on the No. 2 engine. The resulting crash killed the pilot. The owner of the repair station (T&W Propellers) that had completed the maintenance on the propellers immediately

before the flight , was also its chief inspector
. This person had previously been the chief inspector at another repair station , Southern California Propeller Service, In c. (SCPS). The FAA had revoked SCPS’s repair station for performing improper maintenance and overhauls on aircraft propellers and, af ter issuing a special airworthiness30

information bulletin to owners to have these propellers re
- inspected, found that 17 propellers (40 percent of those re
- inspected) were improperly overhauled by

SCPS. I n light of this, the NTSB issued its recommendation A
- 04
- 01 that the FAA Issue a regulation, similar to 14 Code of Federal Regulations 119.39, that applies to applicants for a Part 145 repair station certificate, so the FAA can prevent individuals who have been associated with a previously revoked repair st ation from continuing to operate through a new repair station. They also issued recommendation A
- 04
- 02 If an air carrier, operating, or repair station certificate is surrendered prior to completion of an enforcement investigation that is based on charge s that could be grounds for revocation, the FAA should nonetheless complete the investigation to the extent necessary

to document all available facts relating to the fitness of the involved individuals; these facts should be made available to all FAA perso nnel responsible for granting a future air carrier, operating, or repair station certificate when considering the fitness of the applicant. This proposed requirement meets these two NTSB recommendations.

III. C
. REVISED RATINGS SYSTEM The proposed ra ting s ys tem would change the current sy stem from one that reflected the reality

of 1940s and 1950s aviation technology and construction to a sy stem that reflects today ’s technologies. Aviation has significantly changed and categories that made sense then are no longer appropriate. By revising these ratings, repair stations and the FAA would have a s ystem that would more directly appl y to the current and foreseeable future repair station industry . Further, the proposed rule would establish criteria for th e FAA to uniform ly interpret and enforce the requirements across its offices. Although the FAA cannot quantify those potential benefits , we believe that they would
occur.31

III. D
. CAPABILITIES LIST As discussed in the NPRM, a repair station curren tly using a capabilities list can add “as needed” work as well as to add or change capabilities after a self evaluation without awaiting FAA approval. However, these additions are reported only to the local FAA. By requiring that these changes be reporte d on an automated form, the FAA would have national data concerning which repair stations are performing specific ty pes of repairs and maintenance

– information that is now difficult to obtain.32 IV . COMPARI SON OF COSTS AND BENEFITS The total costs of this proposal would be relativel y small ($14.493 million over a 10
- ye ar period, spread amongst approximately 5,000 repair stations), but it is difficult to quantify the benefits. We believe, however, that the potential benefits, which derive in part f rom (1) giving the FAA authority to (a) deny

a repair station certificate to an applicant whose past performance resulted in a revocation, and (b) revoke all FAA
- issued certificates held b y an y person who makes fraudulent or intentionally false entries or records; (2) defining what operations specifications consist of and providing a well
defined process for both industry and the FAA to amend them; and (3) updating the ratings s ys tem, justify

the costs of the proposed rule. The current rule provides that , with certain unrelated restrictions, an applicant who meets the requirements of the rule is entitled to a repair station certificate regardless of an y past regulatory non - compliance issues. The NTSB recommends, and the FAA agrees, that repair station ap plicant past performance should be a consideration , as is currentl y the case with air carrier applicants. We also believe the current rating s ys tem , dating to the 1930’s and 1940’s, hampers the FAA’s ability to appropriately

rate repair stations and imped es a repair station’s ability to accurately

describe the work it perform s . The repair station community and the FAA have struggled, and continue to struggle, with the application of current technology and business practices in an antiquated rule. The pr oposed rule would accommodate current technology and provide language to accommodate future technological development. With total present
- value costs over a ten - ye ar period of $14.493 million, this rule would be cost
- beneficial if it prevents accidents th at would result in at least three fatalities over 10 years . The FAA believes33

that one or more accidents are likel y to occur during that period and that this rule is necessary to prevent them. I f this proposed provision had been in place prior to the acci dent described above, the FAA would have denied the repair station certificate application, and the faulty propeller maintenance would not have occurred―thus, neither would the accident.