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### CHANGES TO PRODUCTION CERTIF ICATES AND APPROVALS (Final Rule)—Regulatory Evaluation, Regulato ry Flexibility Analysis, International Trade Assessment, and U nfunded Mandates Assessment

Daniel Leach, APO-300 FTC Draft 2-March 12, 2015 (Final draft) A. Regulatory Evaluation Changes to Federal regulations must undergo several economic analyses. First, Executive

Orders 12866 and 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulati on justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354), as codified in 5 U.S.C. § 603 et seq., requires agencies to analy ze the economic impact of regulat ory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits agen cies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the ba sis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), as codified in 2 U.S.C. § 1532, requires agencies to prepare a written assessment of the costs, benefits, and other eff ects of proposed or final rules that include a Federal mandate likely to result in the expenditu re by State, local, or tr ibal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA’s analysis of the economic impacts of this final rule. Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, a nd review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full ev aluation, this order permits that a statement to2 that effect and the basis for it be included in the preamble if a full regulatory evaluation of the costs and benefits is not prepar ed. Such a determination has been made for this final rule. The reasoning for this determination follows. As summarized in the table below, the provisi ons of this final rule (1) are minimal cost, (2) will impose no additional costs because th e provisions will clarify only, or are current practice, or (3) are voluntary and therefore inhere ntly cost-beneficial. Our determination has not changed from that made in the NPRM regulatory evaluation. And the FAA received no comments to the docket on the NPRM regulatory ev aluation. More detailed explanations follow

the table.

Provision Costs/Benefits Require Identification of Accountable Manager Minimal cost—Requires identification of an existing manager, who is responsible for and has authority over a Production Approval Holder (PAH)’s operations, as a PAH’s pr imary contact with the FAA. Allow PC Holders to Manufacture and Install Interface Components Codifying the practice, previously allowed by exemption, will reduce regulatory compliance costs.

Modify Supplier Control Requirements No additional cost—Clarifies existing requirement that PAHs are responsible for conformity throughout their supply chains and gives PAHs flexibility in establishing a supplier-reporting process for nonconforming releases. Allow PAHs to Issue Authorized Release Documents for Aircraft Engines, Propellers and Articles Voluntary, so expected benefits will exceed expected costs.

Exclude Fixed-Pitch Wooden Propellers from Fireproof Marking Requirements The FAA found the exemption provides an equivalent level of safety. Codifying the practice, previously allowed by exemption, will reduce regulatory compliance costs.

1. Require Identification of an Accountable Manager Under this provision, the FAA will require each applicant for, or holder of, a Production Certificate (PC), Parts Manufact urer Approval (PMA), or Tec hnical Standard Order (TSO)3 authorization to identify an accountable manager, who is respons ible for, and has authority over, a PAH’s operations, as a PAH’s pr imary contact with the FAA. Th is provision is not intended to require the PAH to create a new position within its organization and will not mandate that an individual in a specific positi on be identified as the accountable manager. Consequently, the costs, if any, associated with this requirement are minimal.

2. Allow Production Certificate Holders to Manu facture and Install In terface Components PC holders previously could not install interface components (IC s) on their type-certificated products without an exemption. Previous regula tions governing the prod uction limitation record

and the amendment of PCs restricted the PC holde r to the manufacture of pr oducts only (aircraft, aircraft engines, or propellers) and did not author ize installation. 1 The FAA has granted exemptions to engine manufacturers, allowing them to manufacture and install airframe components that interface between the engine and the airframe provided th ey own or are licensed to use the IC type design and installation data. In granting these exemptions, the FAA found that allowing engine manufacturers to produce and in stall ICs improved safety and efficiency by eliminating disassembly, reassembly and retesting, as well as related scoring of fatigue sensitive parts; damage to critical pa rts; and air/fuel/oil leaks. 2 This provision will codify the practice, previously allowed by exemption, of allowing PC holders to manufacture and install ICs, and will apply to any articles designated by th e TC holder that interface between products. Therefore, this provision applies to the inte rface between propeller a nd aircraft engine and between propeller and aircraft, as well as between aircraft en gine and aircraft.

1 Before 2010, §§ 21.142 (production limitation record) and 21.147 (amendment of production certificates) were codified at §§ 21.151 and 21.153, respectively.

2 The production and installation of ICs by engine manufactu rers also increase efficiency by allowing delivery of quick-change replacement engines to end users such as air carriers and charter operators. Some piece parts (or kits), such as the engine buildup unit (EBU), rather than being installed by the PC holder, may be shipped separately to an aircraft manufacturer for the purpose of just-in-time manufacturing operations, or to an airline that may want kits on hand for routine maintenance operations or to replace hardware damaged during operations.4 Codifying the previous practice of allowing PC holders to manufact ure and install ICs implies no change in safety or efficiency bene fits. Codifying the practice, however, will reduce regulatory costs since paperwork requirements in volved in periodic application for and granting of exemptions will be eliminated.

3. Modification of Supply Control With this provision the FAA intends to clar ify existing requirements that the PAH is responsible for (1) conformity throughout the supply chain and (2) establishing a supplier reporting process for nonconforming releases. As there was no definition of supplier in the previous regulations, the final ru le defines supplier as “a person that provides a product, article, or service at any tier in the s upply chain that is used or consumed in the design or manufacture of, or installed on, a product or article.” The final rule changes the language to § 21.137(c) as shown in the following table:

Previous Rule Language Final Rule Language Supply Control—Procedures that (1) Ensure that each supplier-furnished product or article conforms to its approved design; and (2) Require each supplier to report to the production approval holder if a product or article has been released from that supplier and subsequently found not to conform to the applicable design data. Supply Control—Procedures that 1) Ensure that each supplier-p rovided product, article, or service conforms to th e product approval holder’s requirements; and (2) Establish a supplier repor ting process for products, articles or services that have been released from the supplier and subsequently found not to conform to the production approval holder’s requirements.

As provision (1) just clarifies the FAA’s inte nt and current practice, while provision (2) gives PAHs greater flexibility, there will be no additional cost resu lting from these provisions.5 4. Allow Production Approval Holder s to Issue Authorized Rel ease Documents for Aircraft Engines, Propellers, and Articles

Previously only the FAA was allowed to docum ent that an aircraft engine, propeller, or article conforms to its approved design and is in condition for safe ope ration. The FAA provides documentation with an airworthiness approval, using FAA Form 8130-3, “Authorized Release Certificate/FAA Form 8130-3 Airworthiness Appr oval Tag.” This provision allows, but does not require, qualified PAHs to issue authorized release documents, using FAA Form 8130-3, for aircraft engines, propellers, and articles for which the PAH has a production approval. We refer to the issuance of Form 8130-3 by a PAH as an “authorized release document” because, as defined by 14 CFR § 21.1(b)(1), only the FAA is allowed to issue an airworthiness approval. PAHs choosing not to issue these authorized release documents may continue to obtain approvals from the FAA. Although such airworthiness documentation is required only when requested by a foreign civil aviation authority, it has become increasingly valued in the aviation industry. Several U.S. manufacturers have requested the privilege to issue such documentation, which is already enjoyed by their European and Canadian counterpa rts. As it is voluntary, this provision is inherently cost beneficial. 3

5. Marking of Fixed-Pi tch Wooden Propellers As noted in the preamble above, the F AA granted an exemption to Sensenich Wood Propeller Company from the regula tions requiring that a propeller, propeller blade, or propeller hub be marked using an approved fireproof me thod. In granting the exemption, the FAA found

3 For aircraft, an export airworthiness approval will contin ue to be issued only by the FAA, using Form 8130-4, “Export Certificate of Airworthiness.”6 that stamping the hub of the propeller with the iden tification markers will achieve an equivalent level of safety to the rule. Th e FAA maintains that finding in th is final rule and, in any case, codifying the practice, previously allowed by ex emption, implies no change in safety benefits. 4 Codifying the practice, however, will reduce re gulatory costs since th e costs of paperwork requirements involved in periodic application for and granting of the exemptions will be

eliminated.

B. Regulatory Flexibi lity Determination The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consis tent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and govern mental jurisdictions subject to regulation.” To achieve this principle, agencies are require d to solicit and consider flex ible regulatory proposals and to explain the rationale for their actions to a ssure that such proposals are given serious

consideration.” The RFA covers a wide-range of small entities, including small businesses, notfor-profit organizations, and sm all governmental jurisdictions. Agencies must perform a review to dete rmine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency de termines that it will, the agency must prepare a regulatory flexib ility analysis as described in the RFA. However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of sma ll entities, sec tion 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required.

4 Variable-pitch wooden propellers do not require exception from the fireproof marking requirement since they have metal hubs.7 The certification must include a statement providi ng the factual basis for this determination, and the reasoning should be clear. As discussed above, the provisions of this final rule (1) are minimal cost, (2) would impose no additional costs because the provisions w ould clarify only, or are current practice, or (3) are voluntary. And we received no comments on our determination in the NPRM that there was no significant impact on a substa ntial number of small entities. Therefore, as provided in section 605(b), the head of the FAA certifies that this final rule will not have a significant impact on a substantial number of small entities.

C. International Trade Impact Assessment The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federa l agencies from establishing standards or engaging in related activ ities that create unnecessary obstacl es to the foreign commerce of the United States. Pursuant to these Acts, the esta blishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protec tion of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, wher e appropriate, that they be th e basis for U.S. standards. The FAA has assessed the potential effect of th is final rule and determined that the rule’s provision allowing PAHs to issue export airworthiness approvals would be in accord with the Trade Agreements Act as this provision uses European standards as the basis for United States regulation. The remaining provisions have a mi nimal domestic impact only and therefore no

effect on international trade.8 D. Unfunded Mandates Assessment

Title II of the Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires each Federal agency to prepare a written statement a ssessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tr ibal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a "significant regul atory action." The FAA currently uses an inflation-adjusted value of $143.1 million in lieu of $100 million. This final rule does not contain such a mandate; therefore, the requirements of T itle II of the Act do not apply.