Document ID: FAA-2021-0419-0001
Agency: faa
Document Type: Proposed Rule
Title: Safety Management Systems
Posted Date: 2023-01-11T05:00Z

[Federal Register Volume 88, Number 7 (Wednesday, January 11, 2023)]
[Proposed Rules]
[Pages 1932-1972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28583]

[[Page 1931]]

Vol. 88

Wednesday,

No. 7

January 11, 2023

Part VI

Department of Transportation

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Federal Aviation Administration

14 CFR Parts 5, 21, 91, et al.

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Safety Management Systems; Proposed Rule

  Federal Register / Vol. 88 , No. 7 / Wednesday, January 11, 2023 / 
Proposed Rules  

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Parts 5, 21, 91, 119, 121, and 135

[Docket No.: FAA-2021-0419; Notice No. 23-05]
RIN 2120-AL60

Safety Management Systems

AGENCY: Federal Aviation Administration (FAA), Department of 
Transportation (DOT).

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: The FAA proposes to update and expand the requirements for 
safety management systems (SMS) and require certain certificate holders 
and commercial air tour operators to develop and implement an SMS. This 
proposed rule would extend the requirement for an SMS to all 
certificate holders operating under the rules for commuter and on-
demand operations, commercial air tour operators, production 
certificate (PC) holders that are holders or licensees of a type 
certificate (TC) for the same product, and holders of a TC who license 
out that TC for production. The FAA also proposes this rule in part to 
address a Congressional mandate as well as recommendations from the 
National Transportation Safety Board (NTSB) and two Aviation Rulemaking 
Committees (ARCs). Additionally, the proposed rule would more closely 
align the United States with Annex 19 to the Convention on 
International Civil Aviation. This proposed rule is intended to improve 
aviation safety by requiring organizations to implement a proactive 
approach to managing safety.

DATES: Send comments on or before March 13, 2023.

ADDRESSES: Send comments identified by docket number FAA-2021-0419 
using any of the following methods:
     Federal eRulemaking Portal: Go to www.regulations.gov and 
follow the online instructions for sending your comments 
electronically.
     Mail: Send comments to Docket Operations, M-30; U.S. 
Department of Transportation (DOT), 1200 New Jersey Avenue SE, Room 
W12-140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Take comments to Docket 
Operations in Room W12-140 of the West Building Ground Floor at 1200 
New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday 
through Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at 202-493-2251.
    Privacy: In accordance with 5 U.S.C. 553(c), DOT solicits comments 
from the public to better inform its rulemaking process. DOT posts 
these comments, without edit, including any personal information the 
commenter provides, to www.regulations.gov, as described in the system 
of records notice (DOT/ALL-14 FDMS), which can be reviewed at 
www.dot.gov/privacy.
    Docket: Background documents or comments received may be read at 
www.regulations.gov at any time. Follow the online instructions for 
accessing the docket or go to the Docket Operations in Room W12-140 of 
the West Building Ground Floor at 1200 New Jersey Avenue SE, 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.

FOR FURTHER INFORMATION CONTACT: For technical questions concerning 
this action, contact Scott Van Buren, Office of Accident Investigation 
and Prevention, AVP-4, Federal Aviation Administration, 800 
Independence Avenue SW, Room 300 East, Washington, DC 20591, telephone 
(202) 494-8417; mail [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
    A. Purpose of This NPRM
    B. Summary of the Proposed Rule
    C. Summary of Costs and Benefits
II. Authority for This Rulemaking
III. Purpose of This Rulemaking
IV. Background
    A. SMS Aviation Rulemaking Committees
    B. National Transportation Safety Board Recommendations
    C. Safety Management System Rulemaking Efforts
    D. Aircraft Certification, Safety, and Accountability Act
    E. International Movement Toward SMS
V. Discussion of the Proposal
    A. Applicability
    B. General Requirements and Definitions
    C. Components of Safety Management Systems
    D. Implementation of SMS
    E. Proposed Changes to Sections 119.8, 91.147, 21.135, and 
21.147
    F. Scalability
    G. Examples of Real World Scenarios
    H. Data Reporting and Protection
VI. Guidance Material
    A. Guidance for Aviation Service Providers
    B. Guidance for Design and Production Approval Holders
VII. Regulatory Notices and Analyses
    A. Regulatory Impact Analysis
    B. Regulatory Flexibility Act
    C. International Trade Impact Assessment
    D. Unfunded Mandates Assessment
    E. Paperwork Reduction Act
    F. International Compatibility
    G. Environmental Analysis
    H. Regulations Affecting Intrastate Aviation in Alaska
VIII. Executive Order Determinations
    A. Executive Order 13132, Federalism
    B. Executive Order 13211, Regulations That Significantly Affect 
Energy Supply, Distribution, or Use
    C. Executive Order 13609, International Cooperation
IX. Additional Information
    A. Comments Invited
    B. Confidential Business Information
    C. Request for Comments
    D. Availability of Rulemaking Documents

List of Abbreviations and Acronyms Frequently Used in This Document

AC--Advisory Circular
ACSAA--Aircraft Certification and Accountability Act
ANPRM--Advance Notice of Proposed Rulemaking
ARC--Aviation Rulemaking Committee
CBI--Confidential Business Information
CFR--Code of Federal Regulations
EASA--European Union Aviation Safety Agency
FAA--Federal Aviation Administration
FOIA--Freedom of Information Act
ICAO--International Civil Aviation Organization
IRFA--Initial Regulatory Flexibility Analysis
LOA--Letter of Authorization
NAICS--North American Industry Classification System
NPRM--Notice of Proposed Rulemaking
NTSB--National Transportation Safety Board
OMB--Office of Management and Budget
PC--Production Certificate
RFA--Regulatory Flexibility Act
RIA--Regulatory Impact Analysis
SBA--Small Business Administration
SMS--Safety Management System
TC--Type Certificate
U.S.C.--United States Code

I. Executive Summary

A. Purpose of This NPRM

    A safety management system (SMS) provides an organization-wide 
approach to identifying safety hazards, assessing, and managing safety 
risk, and assuring the effectiveness of safety risk controls. An SMS 
provides a set of decision-making processes and procedures that can 
improve safety by assisting an organization in planning, organizing, 
directing, and controlling its aviation-related business activities. 
Currently, the SMS requirements of part 5 of Title 14 of the Code of 
Federal Regulations (CFR) apply only to air carriers certificated under 
part 119 and conducting operations in accordance with part 121 (part 
121 operators). In this Notice of Proposed Rulemaking (NPRM), the 
Federal Aviation Administration (FAA) proposes to expand the 
applicability of the SMS requirements to include additional entities in 
an effort to enhance safety, respond to a Congressional mandate,

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and more closely align the FAA's SMS requirements with International 
Civil Aviation Organization (ICAO) Annex 19.
    Historically, the approach to aviation safety was based on the 
reactive analysis of past accidents and the introduction of corrective 
actions to prevent the recurrence of those events. An SMS, however, 
helps organizations to proactively identify potential hazards in the 
operating environment, analyze the risks of those hazards, and mitigate 
those risks to prevent an accident or incident. In 2015, the FAA 
promulgated 14 CFR part 5, which required part 121 operators to develop 
and implement SMS and set out the basic requirements for those systems. 
The FAA believes that the next step in improving aviation safety is to 
extend SMS requirements to additional organizations that play a 
critical role in the design, manufacturing, and operation of aircraft 
(i.e., part 119 certificate holders operating under part 135, Letter of 
Authorization (LOA) holders operating commercial air tours under Sec.  
91.147, and certain certificate holders under part 21). These 
organizations are in the best position to prevent future incidents and 
accidents because they are closest to the hazards, and they know the 
most about their operations and products. An SMS provides a structured, 
repeatable, systematic approach to proactively identify hazards and 
manage safety risk. With implementation of an SMS, these organizations 
would be better able to develop and implement mitigations that are 
appropriate to their environment and operational structure. The FAA 
believes the implementation of SMS can be used to avoid or mitigate 
future accidents. Representative examples of accidents that the FAA 
believes could be avoided can be found in sections V.G. and VII.A of 
this proposal. This proposal is based on the recommendations of two 
previous Aviation Rulemaking Committees (ARCs),\1\ the National 
Transportation Safety Board (NTSB),\2\ and the Joint Authorities 
Technical Review of the Boeing 737 MAX Flight Control System.\3\
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    \1\ The SMS ARCs are discussed in Section IV.A.
    \2\ NTSB recommendations are discussed in Section IV.B.
    \3\ Joint Authorities Technical Review (JATR), Boeing 737 MAX 
Flight Control System: Observations, Findings, and Recommendations, 
Washington, October 11, 2019.
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    Further, the Aircraft Certification Safety and Accountability Act 
(Pub. L. 116-260, 134 Stat. 2309, hereafter referred to as ACSAA), 
enacted on December 27, 2020, mandated the application of SMS 
regulatory requirements to holders of both a Type Certificate (TC) and 
a Production Certificate (PC) issued under part 21.\4\ ACSAA further 
mandated that the FAA include certain requirements in its implementing 
regulations. The FAA proposes amendments to part 5 in accordance with 
this legislation.
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    \4\ Section 102(a)(1) of ACSAA.
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    Lastly, requiring SMS for certain commercial operators, and design 
and manufacturers would more closely align the FAA's SMS requirements 
with ICAO Annex 19; therefore, this proposed rule would increase U.S. 
alignment with other civil aviation authorities that are also 
implementing SMS requirements in accordance with ICAO Standards and 
Recommended Practices.\5\
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    \5\ Several major civil aviation authorities have established or 
are in the process of establishing SMS requirements for air 
operators, air traffic management, airports, and maintenance 
organizations, including the European Union Aviation Safety Agency 
(EASA), Brazil, Canada, Japan, New Zealand, and Australia. Fewer 
countries have design and manufacturing organizations and, 
therefore, they have not established SMS requirements for those 
entities. However, New Zealand, Japan, and EASA have established SMS 
requirements for design and manufacturing organizations.
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B. Summary of the Proposed Rule

    An SMS requires four essential components--safety policy, safety 
risk management, safety assurance, and safety promotion. Additionally, 
an SMS requires that an organization document the system itself and 
maintain any records produced under that system. In this NPRM, the FAA 
proposes to expand the applicability of the SMS requirements to include 
additional entities, add new requirements to part 5, and amend existing 
regulations in parts 5, 21, 91, and 119. Several of these proposed 
amendments respond to the statutory mandate in ACSAA.
    Specifically, the FAA proposes to expand the applicability of part 
5 beyond part 121 operators to include part 135 operators, Sec.  91.147 
air tour operators, and certain certificate holders under part 21. 
These entities would receive the greatest safety benefits of an SMS as 
they are best situated to prevent future incidents and aviation 
accidents.
    In response to the statutory requirements in ACSAA, the FAA 
proposes to add a requirement for each SMS to include a code of ethics 
that applies to all employees and clarifies that safety is the highest 
priority. Consistent with ACSAA, the FAA also proposes to revise the 
existing requirement for a confidential employee reporting system by 
adding a provision to ensure that employees can report without concern 
of reprisal.
    Additionally, the FAA proposes several amendments to part 5 that 
are intended to increase the effectiveness of SMS, including several 
new requirements. The FAA proposes to require organizations to develop 
a system description, which is a summary of aviation-related processes 
and activities and a description of interfacing persons that contribute 
to the safety of the organization's aviation-related products and 
services. The FAA proposes to add information that must be considered 
during the system analysis, which is conducted when a person applies 
safety risk management. Specifically, the FAA proposes to require 
persons to consider the interfaces of the system in conducting the 
system analysis. The FAA also proposes to require persons who identify 
hazards to notify interfacing persons who are best able to address or 
mitigate the hazard. To account for these new requirements, the FAA 
proposes conforming amendments to the SMS documentation and 
recordkeeping requirements to ensure organizations document the system 
description and retain all communications concerning the notification 
of hazards to interfacing persons. Furthermore, the FAA proposes 
several amendments to part 5, including a revision to the definition of 
``hazard'' to ensure it encompasses aviation incidents as well as 
accidents, the relocation of the definitions to the beginning of the 
subpart to facilitate readability of part 5, and the removal of all 
references to the term ``certificate holder'' to conform to the new 
applicability proposed by the rule. The FAA also proposes amendments to 
certain regulations in parts 21, 91, and 119 to conform with, and 
enable the implementation of, the proposed requirements in part 5.
    The following table summarizes the proposed provisions and provides 
the proposed section(s) of the Federal Aviation Regulations that 
contains the provisions.
    Table 1 provides a summary of the major provisions of this proposed 
rule.

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                                      Table 1--Summary of Major Provisions
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                                               Proposed 14 CFR Sec.
                Provision                            affected                 Summary of proposed provision
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Applicability of part 5..................  5.1, 21.55, 21.135, 21.147,  Expand the applicability of part 5
                                            91.147, and 119.8.           (currently limited to part 121
                                                                         operators) to make SMS requirements
                                                                         applicable to part 135 operators, Sec.
                                                                          91.147 air tour operators, and certain
                                                                         holders of a TC \6\ and PC issued under
                                                                         part 21 for the same product.\7\
Definition of ``Hazard''.................  5.3 \8\....................  Revise the definition of ``hazard'' to
                                                                         also mean conditions or objects with
                                                                         the potential to cause or contribute to
                                                                         an incident.
General Requirements.....................  5.5(b).....................  Add a new requirement to develop and
                                                                         maintain a system description that
                                                                         includes information about the aviation
                                                                         products or services provided by the
                                                                         person and a description of the
                                                                         interfacing persons that contribute to
                                                                         the safety of the person's products or
                                                                         services.
Part 121 operators.......................  5.7(a).....................  Require part 121 operators to revise
                                                                         their current SMS in accordance with
                                                                         the new requirements of part 5 and to
                                                                         submit revisions no later than 12
                                                                         months after effective date of final
                                                                         rule.
Applicants seeking to operate under part   5.7(b).....................  Require applicants seeking to operate
 121.                                                                    under part 121 to develop and implement
                                                                         an SMS in accordance with part 5 and to
                                                                         submit a statement of compliance as
                                                                         part of the certification process.
Part 135 operators and Sec.   91.147 air   5.9(a).....................  Require part 135 operators and Sec.
 tour operators.                                                         91.147 air tour operators to develop
                                                                         and implement an SMS in accordance with
                                                                         part 5 and to submit a statement of
                                                                         compliance no later than 24 months
                                                                         after the effective date of final rule.
Applicants seeking to operate under part   5.9(b).....................  Require applicants seeking to operate
 135 or Sec.   91.147.                                                   under part 135 or Sec.   91.147 to
                                                                         develop and implement an SMS in
                                                                         accordance with part 5 and to submit a
                                                                         statement of compliance as part of the
                                                                         certification or LOA process.
Holders of PC and TC for the same product  5.11.......................  Require any person that holds a PC and
                                                                         TC \9\ issued under part 21 for the
                                                                         same product to develop an SMS in
                                                                         accordance with part 5; to submit an
                                                                         implementation plan for FAA approval no
                                                                         later than December 27, 2024; and to
                                                                         implement the SMS no later than
                                                                         December 27, 2025.
TC holders applying for a PC for same      5.13.......................  Require TC holders \10\ who apply for a
 product.                                                                PC for the same product to develop an
                                                                         SMS in accordance with part 5, to
                                                                         submit an implementation plan for FAA
                                                                         approval during the certification
                                                                         process, and to implement the SMS no
                                                                         later than one year after obtaining FAA
                                                                         approval.
TC holders who have a licensing agreement  5.15(b)....................  Require TC holders, who have a licensing
 to allow other persons to obtain a PC.                                  agreement to allow other persons to
                                                                         obtain a PC, to develop an SMS in
                                                                         accordance with part 5; to submit an
                                                                         implementation plan for FAA approval no
                                                                         later than December 27, 2024; and to
                                                                         implement the SMS no later than
                                                                         December 27, 2025.
TC holders who enter into a licensing      5.15(c)....................  Require TC holders, who enter into a
 agreement to allow other persons to                                     licensing agreement to allow other
 obtain a PC.                                                            persons to obtain a PC, to develop an
                                                                         SMS in accordance with part 5, to
                                                                         submit an implementation plan for FAA
                                                                         approval when providing written
                                                                         licensing agreements to the FAA, and to
                                                                         implement the SMS no later than one
                                                                         year after obtaining FAA approval.
Implementation plans.....................  5.17.......................  Require implementation plans filed under
                                                                         Sec.  Sec.   5.11, 5.13, and 5.15 to
                                                                         include a description of how the person
                                                                         intends to comply with part 5, and for
                                                                         the person to make available, upon
                                                                         request, all necessary information and
                                                                         data that demonstrates that the SMS has
                                                                         been or will be implemented in
                                                                         accordance with the implementation
                                                                         plan.
Safety policy............................  5.21(a)(7).................  Add a new requirement for the safety
                                                                         policy to include a code of ethics that
                                                                         is applicable to all employees,
                                                                         including management personnel and
                                                                         officers, which clarifies that safety
                                                                         is the organization's highest priority.
System analysis and hazard identification  5.53(b)(5).................  Add a new requirement for the person
                                                                         conducting the system analysis to
                                                                         consider the interfaces of the system.
Safety performance monitoring and          5.71(a)(7).................  Revise the requirement for a
 measurement.                                                            confidential employee reporting system
                                                                         by adding a provision to ensure that
                                                                         employees can report without concern of
                                                                         reprisal.
                                           5.71(c)....................  Add a new requirement for holders of
                                                                         both a TC and PC for the same product
                                                                         to submit a summary of the confidential
                                                                         employee reports to the FAA every 6
                                                                         months.
Notification of hazards to interfacing     5.94.......................  Add a new section to: (1) require the
 persons.                                                                person who identifies a hazard to
                                                                         notify the interfacing person who, to
                                                                         the best of their knowledge, could
                                                                         address the hazard or mitigate the
                                                                         risk; and (2) require procedures for
                                                                         reporting and receiving hazard
                                                                         information with interfacing persons.
SMS documentation........................  5.95(c)....................  Add a new requirement for SMS
                                                                         documentation to include the system
                                                                         description.
SMS records..............................  5.97(d)....................  Add a new requirement for persons to
                                                                         retain records of all communications
                                                                         provided under new Sec.   5.94 for a
                                                                         minimum of 24 consecutive calendar
                                                                         months.
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C. Summary of Costs and Benefits
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    \6\ As discussed in Section V.A.3 of the preamble, the FAA 
considers a licensee of a TC to be equivalent to a holder of a TC. 
For purposes of this table, each reference to ``TC holder'' or 
``holder of a TC'' is intended to encompass ``licensee of a TC.'' 
Thus, part 5 would also apply to a person who holds a PC and is a 
licensee of a TC for the same product.
    \7\ Part 5 would also apply to applicants seeking to operate 
under part 135 or Sec.  91.147, and to an applicant for a PC who is 
the holder or licensee of a TC for the same product.
    \8\ The definitions and general requirements currently exist in 
Sec. Sec.  5.5 and 5.3, respectively. The FAA proposes to relocate 
the definitions to Sec.  5.3 and the general requirements to Sec.  
5.5.
    \9\ See footnote 7.
    \10\ See footnote 7.
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    The FAA estimated quantified annualized costs of $51.3 million 
using a 7 percent discount rate over a 5-year period of analysis. The 
costs represent resources to develop and implement an SMS. Mitigation 
costs to reduce or eliminate any hazards identified by an SMS, which 
are yet to be identified and thus unknown, are not quantified in the 
analysis. The FAA evaluated benefits qualitatively. The benefits are 
the value that would result from avoided fatalities, injuries, aircraft 
damage, and investigation costs. Please see Section VII. for more 
information.

II. Authority for This Rulemaking

    The FAA's authority to issue rules on aviation safety is found in 
Title 49 of the United States Code (U.S.C.). Subtitle I, Section 106 
describes the authority of the FAA Administrator. Subtitle VII, 
Aviation Programs, describes in more detail the scope of the Agency's 
authority.
    In 2010, Congress mandated that the FAA conduct rulemaking to 
require part 121 operators to implement an SMS in the Airline Safety 
and Federal Aviation Administration Extension Act of 2010 (Pub. L. 111-
216, 124 Stat. 2366).\11\
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    \11\ See Sec. 215(a).
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    Subsequently, Congress enacted section 102(a)(1) of the Aircraft 
Certification, Safety, and Accountability Act (Pub. L. 116-260; 134 
Stat. 2309, hereafter referred to as ACSAA), on December 27, 2020. 
Section 102, titled ``Safety Management Systems,'' requires the FAA to 
initiate a rulemaking to require manufacturers that hold both a TC and 
a PC issued pursuant to 49 U.S.C. 44704 have an SMS consistent with 
Standards and Recommended Practices established by ICAO and contained 
in Annex 19 to the

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Convention on International Civil Aviation (61 Stat. 1180), for such 
systems. Section 102 of ACSAA requires the implementing regulations to 
include a confidential employee reporting system through which 
employees can report hazards, issues, concerns, occurrences, and 
incidents, without concern for reprisal for reporting, and a code of 
ethics. This rulemaking proposes regulations in accordance with those 
requirements.
    Additionally, given this clear Congressional support for SMS as a 
safety concept, the FAA is proposing to use its discretion under the 
following authorities to proactively extend SMS requirements to part 
119 certificate holders authorized to operate under part 135 and LOA 
holders operating under Sec.  91.147.
    This rulemaking is promulgated under the authority described in 49 
U.S.C. 106(f), which establishes the authority of the Administrator to 
promulgate regulations and rules. This rulemaking is also promulgated 
under 49 U.S.C. 44701(a)(5) (``The Administrator of the Federal 
Aviation Administration shall promote safe flight of civil aircraft in 
air commerce by prescribing regulations and minimum standards for other 
practices, methods, and procedure the Administrator finds necessary for 
safety in air commerce and national security''); 44701(a)(2)(A) (``The 
Administrator of the Federal Aviation Administration shall promote safe 
flight of civil aircraft in air commerce by prescribing regulations and 
minimum standards in the interest of safety for inspecting, servicing, 
and overhauling aircraft, aircraft engines, propellers, and 
appliances''); 44702(a) (``The Administrator of the Federal Aviation 
Administration may issue airman certificates, design organization 
certificates, type certificates, production certificates, airworthiness 
certificates, air carrier operating certificates, airport operating 
certificates, air agency certificates, and air navigation facility 
certificates''); and 44704(a)(1) (``The Administrator of the Federal 
Aviation Administration shall issue a type certificate for an aircraft, 
aircraft engine, or propeller, or for an appliance specified under 
paragraph (2)(A) of this subsection when the Administrator finds that 
the aircraft, aircraft engine, propeller, or appliance is properly 
designed and manufactured, performs properly, and meets the regulations 
and minimum standards''). Additionally, this rulemaking is consistent 
with the requirements of 49 U.S.C. 44701(d)(1)(A) (``When prescribing a 
regulation or standard under [49 U.S.C. chapter 447], the Administrator 
shall consider the duty of an air carrier to provide service with the 
highest possible degree of safety in the public interest.'').
    Finally, 49 U.S.C. 44701(c) directs the Administrator to ``carry 
out this chapter in a way that best tends to reduce or eliminate the 
possibility or recurrence of accidents in air transportation.'' This 
rulemaking is intended to require certain entities that are regulated 
under the foregoing statutory authorities to develop and maintain an 
SMS to improve the safety of their operations. The development and 
implementation of SMS may enhance safety in air transportation and 
design and manufacturing so that persons can proactively identify and 
mitigate safety hazards, thereby reducing the possibility or recurrence 
of accidents in air transportation consistent with the mandate in Sec.  
44701(c). For these reasons, the proposed regulations are within the 
scope of the FAA's authority and are consistent with Congress's mandate 
that the FAA exercise its authority to proactively--not just 
reactively--promote safe flight of civil aircraft and to reduce or 
eliminate hazards that could result in accidents in air transportation.

III. Purpose of This Rulemaking

    An SMS is a formal, top-down, organization-wide approach to 
managing safety risk and ensuring the effectiveness of safety risk 
controls. It includes systematic procedures, practices, and policies 
for the management of safety risk. An SMS is a management system 
integrated into an organization's operations that enforces the concept 
that safety should be managed with as much emphasis, commitment, and 
focus as any other critical area of an organization.
    The purpose of an SMS is to reduce incidents, accidents, and 
fatalities by aiding organizations in identifying hazards and 
mitigating those hazards before they lead to an incident or accident. 
Anecdotal evidence from SMS voluntary program participants indicates 
that SMS improves the safety of organizations.\12\ Although the authors 
of a 2012 study by the Australian Transport Safety Board acknowledged 
the prevalence of earlier studies that were inconclusive, they 
ultimately concluded that ``recent studies have demonstrated that well-
implemented SMS, especially those where the organisation invests effort 
into the SMS, are associated with enhanced safety performance.'' \13\ 
Research by Tinsley, Dillon, and Madsen \14\ suggests that the 
attention an SMS would bring to seemingly smaller events, or near 
accidents, could prevent catastrophes. Tinsley, Dillon, and Madsen 
studied near accidents in dozens of companies across industries and in 
laboratory simulations. They determined that multiple near accidents 
preceded and foreshadowed every disaster and business crisis they 
studied, and that most near accidents were ignored. The authors found 
that identifying near accidents and correcting root causes are good 
investments for an organization. Similarly, in examining large U.S. 
commercial airlines that operated from 1990 to 2007, Madsen, Dillon, 
and Tinsley \15\ found that for airlines to continue to improve safety 
they must attend to the yet undiscovered or unrecognized risks in the 
system without waiting for an accident to bring attention to them. 
Additionally, the FAA contends that expanding the implementation of SMS 
in the aviation industry would increase overall safety for each entity 
using an SMS, as well as requiring communication across the aviation 
industry with respect to identified hazards.
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    \12\ As described in the Regulatory Impact Analysis for the 
rule, for example, one participant noted that the compressed 
executive awareness time of new safety related issues resulted in 
formal management actions occurring in less than 90 days for low-
risk issues and within hours for high-risk issues. Another 
participant noted that they have a seen a substantial drop in the 
major risk categories that they track.
    \13\ Thomas, Dr. Matthew J.W.; A Systematic Review of the 
Effectiveness of Safety Management Systems, Australian Transport 
Safety Bureau, 2012, p. 27. https://www.atsb.gov.au/sites/default/files/media/4053559/xr2011002_final.pdf.
    \14\ Tinsley, Catherine H. et al., How to Avoid Catastrophe. 
Harvard Business Review, Brighton, 2011. https://hbr.org/2011/04/how-to-avoid-catastrophe.
    \15\ Madsen, Peter et al., Airline Safety Improvement Through 
Experience with Near-Misses: A Cautionary Tale. Risk Analysis, May 
2016, Vol. 36, No. 5.
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    The FAA previously forecasted a reduction in fatalities as a result 
of implementing SMS for part 121 certificate holders.\16\ The FAA still 
expects an overall reduction in fatalities, however quantifying the 
effects of part 5 requirements on part 121 certificate holders cannot 
be done at this time due to inadequate data. The data available for 
2020 and 2021 is both significantly reduced and atypical due to the 
COVID-19 pandemic.
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    \16\ See Section V (Regulatory Notices and Analysis) starting on 
page 1318 of 14 CFR part 5 final rule published January 8, 2015, 80 
FR 1308.
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    Over the last few decades, accidents involving commercial aviation 
operators

[[Page 1936]]

have decreased.\17\ Despite an overall reduction in accidents, the FAA 
has determined that many of the accidents involving part 135 and Sec.  
91.147 operators could have been effectively mitigated by the presence 
of an SMS. These accidents highlight the systemic improvement 
opportunities to safety as described in the Regulatory Impact Analysis 
(RIA) for this rulemaking. According to NTSB data, from 2015 to 2019, 
there were 215 accidents involving part 135 operators, with a total of 
121 fatalities,\18\ as well as 33 accidents involving air tour 
operators operating under Sec.  91.147, with a total of 16 
fatalities.\19\ The FAA identified 35 of these accidents involving part 
135 operators and four accidents involving Sec.  91.147 operators which 
involved fatalities and serious injuries that could have been mitigated 
had those operators implemented an SMS. Additional accidents not 
involving fatalities or serious injuries may also have been avoided. 
The FAA also identified several accidents across parts 91, 121, and 135 
involving design and production issues that resulted in fatalities and 
serious injuries that could have been mitigated or prevented if the 
design and manufacturing organizations involved had implemented an 
SMS.\20\ A full listing of each accident used to inform the analysis of 
this rulemaking (including a brief description of the accident, a 
quantified estimate of the probability of mitigation through the 
adoption of SMS, and a rationale for estimated probability) is included 
in Appendix A to the RIA.
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    \17\ U.S. Air Carrier Safety Data, https://www.bts.gov/content/us-air-carrier-safety-data. Accessed March 22, 2022.
    \18\ National Transportation Safety Board. U.S. Civil Aviation 
Accident Rates. 2022. Available at: https://www.ntsb.gov/safety/Pages/research.aspx.
    \19\ Data file of sightseeing accidents provided by the NTSB 
April 2020.
    \20\ These accidents include those identified by NTSB accident 
numbers: DCA19MA086, ERA18LA199, DCA18MA142, ERA18FA120, DCA17FA021, 
WPR16FA153, DCA16FA199, ERA16FA185, WPR16FA055, DCA16FA013, 
CEN15MA290, ERA15FA254, and DCA15FA073.
---------------------------------------------------------------------------

    Given the rapid development, growth, and increasing complexities of 
the airspace, the FAA believes that SMS requirements should extend to 
parties that play a critical role in the design, manufacturing, and 
operation of aircraft. ACSAA requires the FAA to include holders of 
both a TC and a PC among those organizations that should be required to 
implement an SMS. Applying SMS to commuter and on-demand air carriers, 
air tours, and the manufacturers responsible for design and production 
of products would continue to reduce incidents, accidents, and 
fatalities and improve safety in aviation by requiring these 
organizations to proactively identify hazards, assess risk of those 
hazards, and develop and implement mitigations, as necessary. The FAA 
anticipates that this systemic safety effort will have a measurable 
effect on the reduction in fatalities as described in the RIA for this 
rulemaking. ICAO, other civil aviation authorities, industry advisory 
groups, and the NTSB all agree that the use of an SMS improves safety. 
An SMS has been implemented by each part 121 operator, and many other 
organizations have implemented an SMS following the FAA's SMS Voluntary 
Program. The FAA has also implemented SMS within many of its own 
organizations. The FAA's own experience has shown that organizations 
that have an SMS may:
     Increase safety of products or services by identifying and 
addressing problems before they occur.
     Improve data-informed decision making to prioritize 
resource allocation.
     Enhance communication regarding safety by using common, 
consistent terminology within the organization and throughout the 
industry.
     Strengthen the organization's safety culture.
    Further, expansion of the SMS requirements would increase U.S. 
alignment with other civil aviation authorities that are also 
implementing SMS requirements in accordance with ICAO Standards and 
Recommended Practices. With an SMS, a U.S. company would have an 
improved ability to operate internationally due to better alignment 
with ICAO standards and recommended practices. Furthermore, a U.S. 
company without an SMS could even be barred from doing business in a 
country where the civil aviation authority requires them to have an 
SMS.
    To date, SMS requirements have mainly focused on internal 
identification and mitigation of risk within an organization. However, 
the FAA is proposing to augment these requirements to encourage a more 
collaborative approach in which persons required to have an SMS share 
hazard information with each other and work together to identify and 
address hazards and safety issues. To enable this more collaborative 
approach, this proposal includes requirements to share hazard 
information with other organizations, which are intended to ensure that 
relevant information is shared with the person in the best position to 
address the hazard. The expanded applicability and hazard information 
sharing among interfacing organizations would enable a network of 
organizations working collaboratively to manage risk, thereby enhancing 
the safety benefits of SMS by assuring that hazards are communicated 
and mitigated effectively.

IV. Background

A. SMS Aviation Rulemaking Committees

    The FAA chartered two ARCs composed of industry stakeholders to 
provide advice on implementing SMS in aviation regulations, including 
parts 21, 91, 121, 125, 135, 141, 142, and 145. The industry 
stakeholders on these ARCs included individual companies and 
associations representing operators, design and manufacturing 
organizations, repair stations, and training organizations. These ARCs 
expressed industry support for SMS and recommended that the FAA publish 
rules requiring use of SMS.
1. SMS ARC (2009)
    On February 12, 2009, the FAA chartered the SMS ARC with membership 
from across the aviation industry to evaluate the public comments 
submitted in response to an Advance Notice of Proposed Rulemaking 
(ANPRM) on potential rulemaking requiring certain part 21, 119, 121, 
125, 135, 141, 142, and 145 certificate holders to develop an SMS \21\ 
and provide its recommendations regarding further action the agency 
should consider in developing and implementing SMS requirements.\22\
---------------------------------------------------------------------------

    \21\ 74 FR 36414, July 23, 2009.
    \22\ Safety Management System (SMS) Aviation Rulemaking 
Committee; Order 1110.152, Washington, DC. Available at: https://www.faa.gov/regulations_policies/rulemaking/committees/documents/media/SMSARC-2122009.pdf (as of March 15, 2022).
---------------------------------------------------------------------------

    In its report, the ARC recommended the FAA issue regulations on SMS 
and that those regulations apply to certificate holders under 14 CFR 
parts 21, 119, 121, 125, 135, 141, 142, and 145, as well as operators 
under 14 CFR part 91 subpart K. This broad applicability would more 
closely align with ICAO Standards and Recommended Practices. The ARC, 
however, recommended phased promulgation of SMS regulations and that 
the FAA prioritize new SMS regulations based on the potential safety 
benefit, as well as industry experience and regulatory oversight 
readiness. The FAA addressed these recommendations by first focusing on 
part 121 by promulgating 14 CFR part 5 on January 8, 2015 and proposing 
a rule to require airports certificated under part 139 to implement an 
SMS. Although the SMS requirements in part 5 currently apply only to 
part 121 operators, the FAA

[[Page 1937]]

explained in that rulemaking that part 5 was designed for broader 
application and the FAA intended for the SMS requirements to apply to 
other FAA-regulated entities in the future.\23\ The rulemakings 
implementing SMS for part 121 operators and airports certificated under 
part 139 are addressed in more detail in Section IV.C. of this NPRM 
preamble.
---------------------------------------------------------------------------

    \23\ NPRM, ``Safety Management Systems for Part 121 Certificate 
Holders,'' 75 FR 68224, 68232 (November 5, 2010).
---------------------------------------------------------------------------

    When considering this proposed rule, the FAA explored applying part 
5 SMS requirements to additional certificate holders and operators 
consistent with the ARC recommendations, as well as any certificate 
holders and operators required by ICAO Standards and Recommended 
Practices in ICAO Annex 19 (i.e., parts 21, 135, 141, 142, 145, and 
some operators under part 91). However, in this proposed rule the FAA 
is choosing to address the most impactful parts to which ICAO Annex 19 
is applicable (part 135 [operators], part 21 [design and 
manufacturing], and Sec.  91.147 [air tours]).
    The ARC also recommended that the FAA provide additional 
protections for SMS safety information and proprietary data. As 
discussed in more detail in Section V.H., the FAA has addressed data 
protection in this proposal.
    The ARC recommended alignment with the SMS framework developed by 
ICAO in Annex 19, which would facilitate SMS requirement compatibility 
with States actively engaged in developing and adopting their own SMS 
requirements. The FAA designed part 5 consistent with this 
recommendation.
    The ARC recommended that the FAA recognize existing systems and 
processes. For instance, some operators have systems for internal 
auditing, employee reporting, and revising manuals, which could be 
leveraged in the development of their SMS. The FAA is incorporating 
this recommendation in this proposed rule by encouraging certificate 
holders and LOA holders to leverage their existing systems and 
processes to meet the requirements. In addition, the FAA is proposing 
guidance material that describes how existing systems and processes may 
align with SMS requirements.
    Further, the ARC expressed concern regarding the potential impact 
of SMS requirements on small businesses. The FAA addressed this 
concern. Just as existing part 5 requirements are performance-based and 
scalable, each revision proposed in this NPRM is also intended to be 
scalable. Scalability is discussed further in Section V.F. of this NPRM 
preamble. In addition, the proposed guidance accompanying this NPRM 
should assist certificate holders in appropriately scaling the 
implementation of SMS to fit their operations. The guidance material is 
discussed further in Section VI. of this preamble.
2. Part 21 SMS ARC (2012)
    The Part 21 SMS ARC, established on October 5, 2012,\24\ evaluated 
improvements to the effectiveness and efficiency of existing 
``certification procedures for products and parts,'' and the benefits 
of incorporating SMS in the design and manufacturing environment. The 
FAA received the ARC's final report in October 2014.\25\
---------------------------------------------------------------------------

    \24\ 14 CFR 21/Safety Management Systems Aviation Rulemaking 
Committee Charter. Available at: https://www.faa.gov/regulations_policies/rulemaking/committees/documents/media/Part21ARC-10052012.pdf (visited March 15, 2022).
    \25\ Part 21/Safety Management Systems (SMS) Aviation Rulemaking 
Committee to the Federal Aviation Administration: Recommendations on 
Certification Procedures for Products and Parts. October 5, 2014.
---------------------------------------------------------------------------

    The ARC recommended establishing regulatory requirements for 
implementing SMS for design and production approval organizations that 
would be consistent with the part 5 requirements.\26\ The ARC 
recommended that SMS requirements apply to organizations that design or 
manufacture products (under a TC or a PC) and to those that design or 
manufacture articles (under a technical standard order authorization or 
parts manufacturer approval), or that make changes to products (under a 
supplemental type certificate) that could directly prevent continued 
safe flight and landing if they fail.\27\
---------------------------------------------------------------------------

    \26\ At the time the ARC submitted its final report in 2014, the 
FAA had not finalized the proposed part 5 requirements. Part 5 
became effective March 9, 2015.
    \27\ Part 21/Safety Management Systems (SMS) Aviation Rulemaking 
Committee to the Federal Aviation Administration: Recommendations on 
Certification Procedures for Products and Parts, page 31. October 5, 
2014.
---------------------------------------------------------------------------

    The FAA analyzed the ARC's recommendation and developed an 
alternative (see Alternative 1 in Section VII.A.5.) to the current 
proposal that may have met the intent of the ARC's recommendation by 
extending SMS requirements beyond holders of both a TC and a PC for the 
same product. This alternative would require SMS for design and 
production approval holders who design or produce products typically 
used for compensation or hire with some exceptions (described in 
Alternative 1 in Section VII.A.5.). As part of this alternative, the 
FAA considered permitting design and production approval holders to 
apply to be excluded from part 5 requirements if the failure of the 
article or product alteration would have little or no impact on the 
continued safe flight and landing of the aircraft. After analyzing the 
costs and benefits, the FAA determined that there were costs to 
including these design and production approval holders, but was unable 
to estimate the magnitude of benefits. The analysis of this alternative 
is provided in Section VII.A.5. As a result, the FAA is not proposing 
to adopt the full scope of the ARC's recommendation in this NPRM at 
this time.

B. National Transportation Safety Board Recommendations

    The NTSB first recommended in 1997 that transportation 
organizations implement an SMS, and early recommendations were aimed at 
improving safety in the maritime industry. Since then, a number of NTSB 
investigations related to various modes of transportation, including 
aviation, have cited organizational factors contributing to accidents 
and have recommended SMS as a way to prevent future accidents and 
improve safety. The NTSB issued 18 recommendations regarding SMS for 
aviation organizations over a 15-year period, spanning 2007 through 
2021.\28\ These recommendations covered commercial operations under 14 
CFR parts 121 and 135, revenue passenger carrying business operations 
under part 91, and certificate holders under part 21. Eight of the 18 
NTSB recommendations were issued to the FAA.\29\
---------------------------------------------------------------------------

    \28\ NTSB Safety recommendations: A-07-010 (2007), A-09-016 
(2009), A-09-089 (2009), A-09-098 (2009), A-09-106 (2009), A-12-062 
(2012), A-12-063 (2012), A-14-105 (2014), A-14-106 (2014), A-16-036 
(2016), A-19-028 (2020), A-19-036 (2019), A-19-038 (2019), A-20-025 
(2020), A-21-007 (2021), A-21-013 (2021), A-21-014 (2021), and A-21-
048 (2021).
    \29\ NTSB Safety recommendations: A-07-010 (2007), A-09-089 
(2009), A-09-016 (2009), A-16-036 (2016), A-19-028 (2020), A-21-013 
(2021), A-21-014 (2021), and A-21-048 (2021).
---------------------------------------------------------------------------

    The NTSB regularly publishes a Most Wanted List, which ``highlights 
transportation safety improvements needed now to prevent accidents, 
reduce injuries, and save lives.'' \30\ The NTSB 2021-2022 Most Wanted 
List recommended that the FAA, ``Require and Verify the Effectiveness 
of Safety Management Systems in all Revenue

[[Page 1938]]

Passenger-Carrying Aviation Operations.'' \31\
---------------------------------------------------------------------------

    \30\ 2021-2022 NTSB Most Wanted List of Transportation Safety 
Improvements, www.ntsb.gov/mwl.
    \31\ 2021-2022, NTSB Most Wanted List of Transportation Safety 
Improvements, Require and Verify the Effectiveness of Safety 
Management Systems in all Revenue Passenger-Carrying Aviation 
Operations, https://www.ntsb.gov/Advocacy/mwl/Pages/mwl-21-22/mwl-as-01.aspx.
---------------------------------------------------------------------------

C. Safety Management System Rulemaking Efforts

1. Safety Management Systems for Domestic, Flag, and Supplemental 
Operations
    On July 23, 2009, the FAA published an ANPRM to solicit public 
comments on whether certain 14 CFR part 21, 119, 121, 125, 135, 141, 
142, and 145 certificate holders, product manufacturers, applicants, 
and employers (product/service providers) should be required to develop 
an SMS.\32\ Subsequently, on August 1, 2010, Congress enacted the 
Airline Safety and Federal Aviation Administration Extension Act of 
2010 (Pub. L. 111-216, 124 Stat. 2366), which directed the FAA to 
conduct rulemaking to ``require all part 121 air carriers to implement 
a safety management system.'' \33\ To meet the rulemaking deadlines 
mandated by the Act, the FAA decided not to immediately address SMS for 
other product/service providers.\34\ The FAA limited the SMS rulemaking 
project to part 121 air carriers, issuing an NPRM on November 5, 2010, 
\35\ and subsequently withdrawing the ANPRM.\36\
---------------------------------------------------------------------------

    \32\ ANPRM, ``Safety Management Systems,'' 74 FR 36414. July 23, 
2009.
    \33\ See Sec. 215(a).
    \34\ See ``Safety Management System; Withdrawal,'' 76 FR 14592. 
March 17, 2011.
    \35\ 75 FR 68224.
    \36\ See id.
---------------------------------------------------------------------------

    On January 8, 2015, the FAA published the Safety Management Systems 
for Domestic, Flag, and Supplemental Operations Certificate Holders 
final rule (SMS for part 121 final rule) requiring operators authorized 
to conduct operations under part 121 to develop and implement an SMS to 
improve the safety of their aviation related activities.\37\ The final 
rule added part 5 to Title 14 of the CFR, creating the SMS requirements 
for part 121 certificate holders, modeled on the ICAO SMS framework in 
ICAO Annex 19 and consistent with the 2009 ARC recommendations. The 
requirements in part 5 were meant to be applicable to organizations of 
various sizes and complexities, as well as adaptable to fit the 
different types of organizations in the air transportation system and 
operations within an individual company. The final rule also modified 
14 CFR part 119 to specify applicability and implementation of the new 
SMS framework in part 5 for part 119 certificate holders authorized to 
conduct operations under part 121. Part 121 operators met the 
requirement to have an SMS acceptable to the FAA by 2018. The FAA has 
seen continuous improvement in 121 operators' use of SMS to manage the 
safety of their operations and, therefore, is proposing to expand part 
5 applicability with this rulemaking.
---------------------------------------------------------------------------

    \37\ 80 FR 1308. The FAA published technical amendments on 
January 13, 2015 (80 FR 1584) and May 25, 2017 (82 FR 24009) to 
correct a date and a reference in the rule, respectively.
---------------------------------------------------------------------------

2. Safety Management Systems for Part 139 Airports
    On July 14, 2016, the FAA published the ``Safety Management System 
for Certificated Airports'' supplemental notice of proposed rulemaking 
[(81 FR 45872)] (Airports SMS SNPRM). The Airports SMS SNPRM proposed 
to require airports that meet certain criteria to develop and implement 
an SMS in the airport's movement and non-movement areas. The FAA is 
working to finalize that rule.

D. Aircraft Certification, Safety, and Accountability Act

    The Lion Air and Ethiopian Airlines accidents involving the Boeing 
737 MAX resulted in several investigations, not only of the accidents, 
but also of the FAA's oversight and certification processes. One such 
investigation, convened by the FAA in April of 2019, was the Boeing 737 
MAX Flight Control System Joint Authorities Technical Review. The Joint 
Authorities Technical Review included representatives from the National 
Aeronautics and Space Administration, the FAA, and several foreign 
civil aviation authorities. One of the Joint Authorities Technical 
Review recommendations was that the FAA encourage applicants to have a 
system safety function, such as a safety management system, that is 
independent from their design organization.\38\
---------------------------------------------------------------------------

    \38\ Joint Authorities Technical Review (JATR), Boeing 737 MAX 
Flight Control System: Observations, Findings, and Recommendations. 
October 11, 2019.
---------------------------------------------------------------------------

    Subsequently, on December 27, 2020, Congress enacted ACSAA, which 
set forth a variety of reforms intended to address certain safety 
standards relating to the aircraft certification process. Section 102 
of ACSAA requires that the FAA promulgate rules to require holders of 
both a TC and a PC issued under 14 CFR part 21 to implement an SMS. 
ACSAA also establishes a timeline for those certificate holders to 
adopt an SMS (i.e., no later than four years after the date of 
enactment, December 27, 2024), and it establishes certain requirements 
for the rulemaking, including a confidential employee reporting system 
through which employees can report hazards, issues, concerns, 
occurrences, and incidents without concern for reprisal for reporting, 
and a code of ethics.

E. International Movement Toward SMS

    ICAO Annex 19, Safety Management, establishes a framework for 
member States to develop and implement SMS requirements within their 
State's rules. Several member States, including the U.S., started 
developing and implementing SMS requirements within their countries 
after Annex 19 First Edition was published in July 2013 and became 
applicable in November 2013.\39\ Annex 19 currently requires States to 
establish requirements for SMS for international commercial air 
transportation, design and manufacturing, maintenance, air traffic 
services, training organizations, and certified aerodromes, as well as 
SMS criteria for international general aviation operators of large or 
turbojet airplanes.
---------------------------------------------------------------------------

    \39\ The Second Edition of Annex 19 was published in July 2016 
and became applicable in November 2019.
---------------------------------------------------------------------------

    Member States continue to make progress in developing, 
implementing, and maintaining requirements for SMS that are aligned 
with ICAO's SMS standards and recommended practices, including 
certificating authorities in Canada, Brazil, the United Kingdom, Japan, 
Australia, and Europe (European Union Aviation Safety Agency (EASA)). 
In the EASA regulatory framework, SMS is mandatory for certificated 
operators of airplanes and helicopters authorized to conduct commercial 
air transportation. Additionally, as a result of recent EASA rulemaking 
efforts, SMS will also be applicable for continuing airworthiness of an 
aircraft and its components. The EASA also adopted a rule for design 
and production organizations (part 21), which will become applicable on 
March 7, 2023.\40\
---------------------------------------------------------------------------

    \40\ European Union Aviation Safety Agency Commission 
Implementing Regulation (EU) 2022/203 of 14 February 2022.
---------------------------------------------------------------------------

    FAA also notes that other civil aviation authorities and interested 
parties are initiating evaluations to determine the effects of SMS post 
implementation. Two evaluations of note are discussed as follows.
    In 2019 Transport Canada Civil Aviation published an evaluation of 
the impact of SMS on aviation safety 10 years after it was mandated for 
airline operators, private operators, approved

[[Page 1939]]

maintenance organizations that service airline operator aircraft, air 
navigation services, and aerodromes/airports/heliports.\41\ The 
evaluation findings were based on multiple lines of evidence, including 
a survey of nearly 1800 aviation industry stakeholders (operators, 
approved maintenance organizations, aerodromes), case studies involving 
eight enterprises and interviews. The evaluation found that many 
organizations have implemented policies and practices associated with 
an effective SMS, specifically, non-punitive reporting, executive 
commitment and hazard identification and mitigation. The evaluation 
found notable buy-in to SMS among those surveyed. Although accident 
trends declined over the 10-year evaluation period it was also noted 
that a lack of objective data limited ability to show safety 
improvement directly attributable to SMS because of the difficulty in 
separating other effects that may also benefit safety.
---------------------------------------------------------------------------

    \41\ Evaluation of Safety Management Systems in Civil Aviation--
Transport Canada, July 2019. Available at: https://tc.canada.ca/sites/default/files/2021-02/evaluation-safety-management-systems-civil-aviation.pdf.
---------------------------------------------------------------------------

    A Griffith University (Queensland Australia) doctoral thesis paper 
evaluated the impact of SMSs on safety performance for commercial 
aviation operations using two case studies.\42\ Legislation in 
Australia for the implementation of an SMS for regular public transport 
Air Operator Certificate holders was mandated by the Civil Aviation 
Safety Authority in 2009 with phased implementation to be complete by 
2011.
---------------------------------------------------------------------------

    \42\ The Impact of Safety Management Systems on Safety 
Performance: Commercial Aviation Operations--Griffith University 
thesis paper. April 2015. Available at: https://research-repository.griffith.edu.au/handle/10072/367145.
---------------------------------------------------------------------------

    The first case study examined SMSs in the international general 
aviation and charter operation sector while the second case study 
reviewed SMSs in the Australian airline sector. In the first case 
study, researchers conducted an analysis of de-identified Flight Safety 
Foundation general aviation and charter sector audit findings. A total 
of 7,625 audit findings were reviewed from 2011-2014 from a population 
of 117 operators. The determination of safety performance was not 
possible for this sample population using a conventional accident rate 
metric due to the lack of availability of flight departure data. 
However, the study concluded that safety performance had improved since 
SMS implementation, showing a uniform decrease in the number of 
negative audit findings. Although the study did not control for the 
number and thoroughness of audits performed during the years under 
study, the study did present qualitative findings by year and 
discipline, independent of the number of audits conducted. The study 
further concluded that a decrease in findings for the last two years of 
the study were likely due to the improvements brought about by growing 
and maturing safety management systems.\43\
---------------------------------------------------------------------------

    \43\ Yeun, Richard Chee Kin, The Impact of Safety Management 
Systems on Safety Performance: Commercial Aviation Operations, Ph.D. 
Thesis (Queensland Australia: Griffith University, 2015), See table 
6.5, pp 122-123. https://hdl.handle.net/10072/367145.
---------------------------------------------------------------------------

    In the second case study, researchers conducted a review of airline 
SMSs in Australia by comparison of Civil Aviation Safety Authority 
safety audit indicators for the sampled population before and after the 
implementation of SMS. The study concluded that the empirical evidence 
indicates that SMSs improve the safety performance of commercial 
aviation operations. The study also showed that SMS safety assurance 
plays the most critical role in an effective SMS; its associated 
subcomponents of continuous improvement, safety performance monitoring 
and measurement, and management of change have the highest net 
influence of all the SMS components. FAA notes that the Griffith 
University study conclusions and multiple correlation analyses are 
based on a short timeframe (three years of fully implemented SMS) and 
study of longer timeframes involving more mature SMSs is desirable.

V. Discussion of the Proposal

    The FAA proposes changes to part 5 to further the safety of flights 
for compensation or hire and passenger carrying operations. To that 
end, the FAA considers that overall aerospace system safety would be 
increased by requiring entities beyond part 121 operators to implement 
SMS, including other operators that fly for compensation or hire and 
the designers and manufacturers of products used in the system. The FAA 
envisions these safety management systems to be scalable to the size 
and complexity of the organization, and to not be unduly burdensome. By 
requiring entities that span the disparate sectors of aviation from 
manufacturing and design to operations to implement an SMS, the FAA 
seeks to create a network of organizations that speak the same language 
of safety management and can better communicate with one another and 
share information about any hazards they identify during the course of 
their business. Although some part 121 operators may communicate with 
one another voluntarily at this time, the FAA considers that there 
would be greater safety benefit if all aviation organizations, from the 
manufacturer to the operator, were to communicate hazard information to 
one another. The FAA considers that the benefits of safety management 
systems are derived from each of the components of an SMS and that the 
proposed changes to part 5 would assist in maximizing the potential of 
an SMS to increase safety across the aerospace system.

A. Applicability

    Part 5 currently applies only to persons authorized to conduct 
operations under part 121. The FAA proposes to amend Sec.  5.1 and 
expand the applicability of part 5 to: (1) any person authorized or 
applying to conduct operations under part 135 or Sec.  91.147; (2) any 
person that holds or applies for a PC issued under part 21 for a 
product for which they are the TC holder or licensee; and (3) TC 
holders who license the TC for production.
    Although the FAA recognizes the value of the variety of voluntary 
safety programs, their optional nature and lack of comprehensive 
application of all elements of part 5 may not yield as much safety 
benefit as a mandatory SMS that complies with all proposed requirements 
of part 5. Therefore, to ensure that the minimum standard is met, the 
FAA is proposing to broaden the application of part 5 SMS requirements.
1. Part 135 Operators
    As described in Section III, the FAA identified a number of 
accidents involving part 135 operators which resulted in fatalities and 
serious injuries that could have been mitigated through SMS. These 
accidents involved both passenger-carrying and cargo-only operations. 
Each of these accidents stemmed from different circumstances; however, 
the accidents analyzed were a representative cross section of the 
overall circumstances that were present in the balance of total part 
135 accidents that occurred. Therefore, the FAA considers that an SMS 
would have been effective in similar accidents among those not 
analyzed.
    The FAA proposes to require all part 119 certificate holders 
authorized to operate under part 135 and applicants for those 
certificates to develop and implement an SMS that meets the part 5 
requirements. This aligns the proposed part 5 applicability with ICAO 
Annex 19 and with other civil aviation

[[Page 1940]]

authorities that generally do not differentiate between size and 
complexity of air carriers. SMS is necessary for safety of air 
transportation generally because anyone who engages in air 
transportation must understand the hazards associated with their 
operation, effectively assess the risks, and understand how to mitigate 
those risks. The identification of hazards through SMS may include 
analyzing the potential risk associated with crewmember fatigue when 
compounded by variations in individual 135 operations, such as 
scheduling variances, frequency of operations, distance, and number of 
pilots.\44\
---------------------------------------------------------------------------

    \44\ See report from the Part 135 Pilot and Duty Rules Aviation 
Rulemaking Committee dated July 2, 2021, a copy of which has been 
placed in the docket for this rule.
---------------------------------------------------------------------------

    The FAA considered excluding part 135 operators who use only one 
pilot-in-command in their operations from the SMS requirements. 
Approximately 31 percent (594) of the part 135 operators use one pilot-
in-command. These operators have between 1 and 7 aircraft. Similar to 
most part 135 operators, these operators might also meet the size 
standard for small businesses (see Section VII.B for details). However, 
as all part 135 operators conduct air transportation of passengers and 
cargo, the FAA determined such exclusion would not be in the interest 
of safety as evidenced by the part 135 accidents discussed in Section 
III that could have been mitigated through an SMS (including those 
involving only one pilot-in-command).
    As a fundamental matter, the flying public expects safe carriage 
from operators offering flight services for hire. Irrespective of 
whether an operator employs one pilot or a thousand, that company has 
the same responsibility to conduct safe operations. Part 135 operators 
employing just a single pilot are not immune to accident or serious 
injury; the FAA's review of NTSB reports from 2015 to 2020 showed that 
part 135 operators employing just a single pilot were involved in five 
accidents involving a fatality or serious injury. This record 
demonstrates that very small and single pilot part 135 operators 
continue to face insufficiently addressed safety hazards that cause the 
loss of life. More importantly, the FAA concluded that these operators 
could have used basic components of SMS, such as establishing safety 
policies, performing safety risk management to assess risk and develop 
controls, and using safety assurance to verify risk control 
effectiveness to address hazards that contributed to these accidents. 
These SMS elements, which require the operator to proactively monitor 
its practices, procedures, and how it makes decisions, are especially 
important for small organizations Small organizations by definition 
have fewer people and, as a result, have fewer opportunities for checks 
and balances on decisions that can affect safety. SMS addresses this by 
requiring small operators to create a structure for proactively 
monitoring their decision-making processes and addressing deficiencies. 
Very small operators may implement SMS requirements differently than 
larger operators. For example, with respect to Sec.  5.93, small 
operators will have fewer employees to communicate with than large 
operators where personnel may have a more narrow set of 
responsibilities and less awareness of all operations. At one end of 
the spectrum, a one-person operator would have a system for documenting 
their own hazard information, actions, mitigations, safety performance, 
etc. for future reference. At the other end of the spectrum, a large 
organization would have a system capable of documenting and sharing 
information with larger groups of people. In particular, certain 
aspects of SMS such as developing more routine expectations for 
monitoring and responding to hazards may be particularly beneficial for 
smaller operators. The FAA requests comment regarding how SMS might 
present unique opportunities or challenges for smaller organizations.
    The five accidents involving single-pilot part 135 operators 
between 2015 and 2020 resulted in 5 fatalities and 4 serious 
injuries.\45\ Appendix A of the RIA describes how SMS could help avoid 
similar accidents in the future. The following discussion describes 
three of those accidents and identifies how having an SMS could have 
addressed the hazards contributing to the accidents. In each of these 
cases, if the operator had invested in an appropriately scaled SMS 
program on the front end, it could have avoided property damage, 
injury, and loss of life on the back end.
---------------------------------------------------------------------------

    \45\ NTSB accident numbers: CEN18FA215, ANC18LA046, ANC16FA017, 
ANC17TA015, and CEN17FA100.
---------------------------------------------------------------------------

    According to the NTSB, the probable cause of accident CEN18FA215 
was the pilot's decision to fly over the river at a low altitude and 
his failure to maintain clearance with wires during low-level flight. 
The FAA examined the effect SMS would be expected to have on this 
accident and determined that SMS would have enabled the operator to 
identify hazards along waterways. As a result of conducting safety risk 
management (Sec. Sec.  5.51-5.55) the organization would develop a 
safety risk control that would help prevent the accident from 
occurring. Specifically, the risk control might have established a 
minimum altitude above known or presumed obstructions (Sec.  5.55(c)). 
The operator might have also established a policy or control that 
whenever the pilot is operating around wires, the pilot would mark the 
location of the wires on a map. This risk control would have helped to 
mitigate the risk of the pilot inadvertently flying into the wires 
because these additional controls would help to ensure the pilot's 
situational awareness regarding the location of the wires in relation 
to the aircraft. In this case, the pilot would monitor the safety 
performance (Sec.  5.71), by validating the location of the wires on 
the map and updating the information as appropriate. This is one way 
that the operator could verify that risk controls were appropriately 
applied and effective. In a small organization the operator could 
communicate (Sec.  5.93) the control to others in the organization 
face-to-face, via email, or other methods that the company regularly 
uses to communicate with its employees.
    The probable cause of accident ANC18LA046 was the pilot's selection 
of an unsuitable takeoff area with unfavorable wind conditions, which 
resulted in the airplane's inability to maintain a climb. The FAA 
determined that the effect SMS would have had on this accident was 
similar to that of accident CEN18FA215. In this case, had the operator 
conducted safety risk management (Sec. Sec.  5.51-5.55), it would 
likely have developed risk controls to ensure safer operations (Sec.  
5.55(c)). For example, the operator could establish tools for a go/no-
go decision customized for its operations. This could include special 
procedures specific to the environment or operations. Another risk 
control might be establishing procedures to ensure that the equipment 
is appropriate for the environment. Both of these controls would be 
documented using standard information tools already in use within the 
company. Conducting safety risk management could have included 
identifying and evaluating company approved unimproved landing areas to 
include ingress/egress routes and minimum acceptable weather 
performance limits could mitigate these hazards. In this case, safety 
performance monitoring (Sec.  5.71) might include periodic review of 
operations in non-standard environments to ensure that the controls 
provide the intended effect.

[[Page 1941]]

Similar to the previous example, the operator could communicate (Sec.  
5.93) the control to others in the organization face-to-face, via 
email, or other methods that the company regularly uses to communicate 
with its employees.
    The probable cause of accident ANC16FA017 was the pilot's 
inadvertent turn toward terrain that was higher-than-expected while 
trying to avoid poor visibility conditions and his subsequent attempt 
to clear terrain, which reduced the airspeed and led to the exceedance 
of the airplane's critical angle of attack and an aerodynamic stall and 
spin was the probable cause of accident. The FAA determined that SMS 
would have had an effect on this accident. In this case, with an SMS, 
the operator would have conducted safety risk management (Sec. Sec.  
5.51-5.55), and it would likely have identified hazards with low 
visibility hazards and mountainous terrain. The operator might develop 
safety risk controls regarding route suitability (Sec.  5.55(c)). These 
risk controls could include setting higher alternative weather minimums 
and selection of alternative routes that are consistent with the 
aircraft's performance, along with training to support these risk 
controls. The operator would also monitor its safety performance (Sec.  
5.71), by validating that the higher alternative weather minimums and 
alternative routes are appropriate mitigations. Similar to other 
examples, the operator could communicate (Sec.  5.93) the control to 
others in the organization face-to-face, via email, or other methods 
that the company regularly uses to communicate with its employees.
    In addition to addressing risk in this segment of the part 135 
population, the FAA considers that a part 119 certificate holder 
authorized to operate under part 135 with only one pilot-in-command 
receives the same privileges and authorization as any other size or 
complexity part 119 certificate holder authorized to operate under part 
135, and should therefore be subject to the same requirements with 
regard to SMS. The FAA recognizes that the implementation of part 5 
requirements, applicable to all part 135 operators, must remain 
scalable to the size and complexity of the organization. (For more 
information regarding scalability, please refer to Section V.F.).
    Some part 119 certificate holders may be authorized to operate 
under both parts 121 and 135. The proposal would extend the SMS 
requirements to operations conducted by those combination certificate 
holders authorized to operate under both parts 121 and 135. Certificate 
holders that already have an SMS in place for only their part 121 
operations would have to implement SMS for their part 135 operation.
2. Section 91.147 Letter of Authorization Holders
    The FAA is proposing to extend the SMS requirements to all holders 
and applicants of LOAs issued under Sec.  91.147 to enhance the safety 
of commercial air tour operations. Most operations for compensation or 
hire are conducted pursuant to a part 119 certification, however, 
nonstop commercial air tours operated under a Sec.  91.147 LOA conduct 
operations for compensation or hire without a part 119 certificate. 
Because air tours operated under Sec.  91.147 carry passengers for 
compensation or hire, the FAA is proposing to apply part 5 to these 
operations.
    The FAA considered excluding some smaller Sec.  91.147 LOA holders 
from this proposal (those conducting fewer than 100 flights per year). 
The FAA does not collect data on number of flights conducted under 
Sec.  91.147 LOAs; however, approximately 54 percent (373) have only 
one aircraft registration. These LOA holders might also meet the size 
standard for small businesses, but the FAA does not have data to make 
this determination either (see Section VII.B for details). Consistent 
with the approach proposed for part 135 operators who use only one 
pilot-in-command in their operations, the FAA believes such an 
exception would not meet the safety objective.
    FAA review of NTSB accident reports from 2015 to 2020 identified 
one accident involving a fatality or serious injury in the segment of 
Sec.  91.147 LOA holders conducting fewer than 100 flights per year. As 
discussed in Section V.A.1, small operators bear the same 
responsibility for safety as large operators.
    The Sec.  91.147 LOA holder accident resulted in 5 fatalities 
involving an operator conducting air tours.\46\
---------------------------------------------------------------------------

    \46\ NTSB accident number: ERA18MA099.
---------------------------------------------------------------------------

    The NTSB indicated that the probable cause of this accident was the 
operator's use of a passenger harness/tether system, which caught on 
and activated the floor-mounted engine fuel shutoff lever. As a result, 
the aircraft lost engine power in-flight and ditched into the East 
River. In addition, the operator allowed outside influence on company 
decisions. Moreover, they failed to address foreseeable safety risks 
associated with the harness/tether device.
    If the operator had an SMS in place the company would have 
conducted safety risk management prior to installing the harness/tether 
device. While conducting safety risk management, the hazard of the 
harness/tether device potentially shutting off the fuel lever would 
have been identified under Sec.  5.53(a) and analyzed under Sec.  
5.55(a). Based on that analysis, the company would assess the safety 
risk (Sec.  5.55(b)) and implement appropriate safety risk controls 
(Sec.  5.55(c)). After developing safety risk controls, the 
organization would communicate them to the appropriate flight crews and 
maintenance personnel (Sec.  5.93) face-to-face, via email, or other 
methods that the company regularly uses to communicate with its 
employees.
    In addition, all Sec.  91.147 LOA holders are authorized to provide 
the same service, regardless of their size. Improving aviation safety 
for all passenger-carrying operations conducted for compensation or 
hire would require all Sec.  91.147 LOA holders to meet part 5 
requirements for SMS, so long as the implementation of those 
requirements remains scalable to the size and complexity of the 
organization. (For more information regarding scalability, please refer 
to Section V.F.). As the requirements are scalable, so too will be 
compliance costs.\47\ And, as evidenced by the accident discussed, 
there are safety benefits to be achieved from implementation of SMS 
even among these smaller operators.
---------------------------------------------------------------------------

    \47\ For example, in Section VII.B, Regulatory Flexibility Act, 
the FAA finds that the annual costs as a percentage of receipts for 
smaller operators with 1 to 9 aircraft is about 0.1% to 0.4% 
compared to those with a larger number of aircraft between 100 to 
500 is about 0.2% to 0.3%.
---------------------------------------------------------------------------

    The FAA is aware that there are Sec.  91.147 LOA holders with low 
flight volume, as well as 135 operators who use only one pilot-in-
command in their operations.\48\ The FAA seeks supporting information 
and data regarding whether this applicability should be limited to a 
certain subset of Sec.  91.147 LOA holders and part 135 operators, and 
if so, how?
---------------------------------------------------------------------------

    \48\ There are some Sec.  91.147 LOA holders that conduct 
infrequent air tours even though that is not their primary business 
(e.g., flight schools, aerial applicators, or electronic news 
gathering, etc.).
---------------------------------------------------------------------------

3. Part 21 Certificate Holders
    The FAA is proposing to require holders of both a TC and a PC 
issued for the same product under part 21 to develop and implement an 
SMS that complies with the part 5 requirements. Section 102(a)(1) of 
ACSAA requires the FAA to initiate a rulemaking proceeding to require 
that, ``manufacturers that hold both a type certificate and a 
production certificate issued pursuant to section

[[Page 1942]]

44704 of title 49, United States Code, where the United States is the 
State of Design and State of Manufacture, have in place an SMS that is 
consistent with the standards and recommended practices established by 
ICAO.'' As discussed in Section IV.E., Annex 19 requires ICAO member 
States to mandate SMS for the management of safety risk in design and 
production of aviation products. To meet the statutory requirement and 
align U.S. aviation design and manufacturing organizations with safety 
management practices followed by other international organizations 
complying with Annex 19, the FAA proposes to require holders of both a 
TC and a PC issued for the same product under part 21 to develop and 
implement an SMS that complies with the part 5 requirements.
    Additionally, the FAA proposes to apply part 5 to: (1) persons who 
hold or are licensees of a TC and are seeking a PC for that same 
product, and (2) persons who hold a PC for a product for which the 
person is a licensee of the TC. This approach ensures that there are no 
gaps in SMS applicability for part 21 certificate holders because TC 
licensees have the same privileges as TC holders under Sec.  21.45 and 
the same reporting requirements as TC holders under Sec.  21.3 for 
failures, malfunctions, and defects. Therefore, in the context of an 
SMS, the FAA considers a licensee of a TC to be equivalent to a holder 
of a TC and should be required to comply with the requirements of this 
proposed rule.
    Through ACSAA, Congress intended for SMS requirements to apply to 
entities that design and manufacture products. The FAA further 
recognizes that critical decisions are made during design and 
development that impact the safety of aviation products. Consequently, 
companies that design a product and allow other companies to produce 
that product should be held to the same regulatory requirements as a 
person holding both the TC and a PC for the same product. Upon 
evaluating section 102(a)(1) of ACSAA, the FAA determined that the 
implementing regulations combined with the regulatory framework of part 
21 could enable certain persons to avoid the proposed requirements by 
licensing their TC to another person to obtain a PC.\49\ To address 
this gap, the FAA proposes to apply part 5 to TC holders who license 
their TC to other persons in accordance with Sec. Sec.  21.47 and 
21.55.
---------------------------------------------------------------------------

    \49\ Under Sec. Sec.  21.47(a) and 21.55, a person who holds a 
TC for a product may enter into a written licensing agreement to 
allow another person to use that TC to obtain a PC. As a result, the 
person obtaining the PC would be allowed to use the TC holder's 
design approval to manufacture the product. Therefore, some business 
relationships result in one person holding the TC and a different 
person holding the PC for the same product.
---------------------------------------------------------------------------

    The FAA notes that there may be persons who manufacture products 
under a TC in accordance with part 21 Subpart F. Section 21.123(g) 
requires these persons to obtain a PC within 6 months after the date of 
issuance of the TC. Therefore, these persons would be required to 
comply with the proposed rule because they have applied for a PC.
    The FAA also notes that there may be persons who hold a PC for a 
supplemental type certificate. A supplemental type certificate is a 
design approval for a modification to a product. A person who holds a 
PC for a supplemental type certificate may produce articles used to 
modify the product but cannot produce a complete product. Under the 
proposed rule, part 5 would not apply to either a supplemental type 
certificate holder or a PC holder for a supplemental type certificate 
because these design and production approvals are for modifications to 
a product and not for complete products. Similarly, there are persons 
who may hold a TC and a PC that is designated for the production of 
parts or articles only. The proposed rule would not apply because the 
PC is only for the production of a part or an article and not for the 
same product.
    The FAA considered applying part 5 to certain persons holding other 
design and production approvals such as technical standard order 
authorizations, parts manufacturer approvals, and supplemental type 
certificates, an approach that would be consistent with the Part 21 SMS 
ARC recommendation. Although there may be safety benefits to applying 
SMS to this larger population, the FAA could not substantiate these 
benefits. The FAA invites comments as to whether part 5 should apply to 
all holders of TCs, PCs, supplemental type certificates, technical 
standard order authorizations, or parts manufacturer approvals. The FAA 
requests that comments specify whether any exceptions should be made in 
the event that the FAA extends part 5 to these design and production 
approval holders and what those exceptions should entail. The FAA 
further requests information and data related to the safety benefits or 
impact of applying part 5 to additional design and production approval 
holders beyond the applicability in this proposed rule.

B. General Requirements and Definitions

1. Definitions
    The FAA is proposing to move the definitions in part 5 from current 
Sec.  5.5 to proposed Sec.  5.3 and to amend the definitions of 
``hazard'' and ``safety policy.'' Currently, the definition of 
``hazard'' in part 5 is ``a condition that could foreseeably cause or 
contribute to an aircraft accident as defined in 49 CFR 830.2.'' In 
Annex 19, ICAO defines ``hazard'' as ``a condition or an object with 
the potential to cause or contribute to an aircraft incident or 
accident.'' \50\ The FAA is proposing to amend the definition of the 
term ``hazard'' to ``a condition or an object with the potential to 
cause or contribute to an incident or aircraft accident, as defined in 
49 CFR 830.2,'' to further align with the internationally-recognized 
definition published by ICAO. Although the FAA previously did not 
include incidents in the definition of hazard,\51\ the FAA now 
considers that the definition of hazard should include anything that 
affects or could affect the safety of aviation operations, not just 
those conditions or objects that could result in serious injury, death, 
or substantial damage. This is because many of the same circumstances 
that result in an incident could just as easily result in an accident. 
As discussed in Section III, Tinsley, Dillon, Madsen studied near 
accidents in dozens of companies across industries and in laboratory 
simulations. They determined that multiple near accidents preceded and 
foreshadowed every disaster and business crisis they studied, and that 
most near accidents were ignored. The authors found that ``surfacing 
near misses and correcting root causes is one [of] the soundest 
investments that organizations can make.'' \52\ Therefore, the FAA is 
proposing to add to the definition of hazard, the term ``incident'' as 
defined in 49 CFR 830.2. The FAA believes that this proposed change 
would improve both international alignment and the identification of 
hazards. 49 CFR 830.2 defines ``incident'' as an occurrence other than 
an accident, associated with the operation of an aircraft, which 
affects or could affect the safety of operations. The FAA does not 
define a

[[Page 1943]]

threshold or de minimis standard for what could affect aviation safety. 
The FAA believes that organizations are in the best position to 
determine what occurrences would have the ability to impact the safety 
of their products or services, and as a part of developing their SMS 
they may define thresholds for what might entail a reportable incident 
that could affect aviation safety.\53\ They are also in the best 
position to determine the processes and tools they can use to 
communicate this information to their employees. Because safety risk 
management and safety assurance are ongoing and iterative processes, 
the organization will continually improve its ability to identify, 
communicate, and mitigate hazards, preventing them from resulting in 
incidents or accidents.
---------------------------------------------------------------------------

    \50\ International Civil Aviation Organization, Annex 19 to the 
Convention on International Civil Aviation, Safety Management, 
Second Edition, pp. 1-2. July 2016.
    \51\ 80 FR 1308.
    \52\ Tinsley, Catherine H., Robin L. Dillon, and Peter M. 
Madsen. How to Avoid Catastrophe. Harvard Business Review. https://hbr.org/2011/04/how-to-avoid-catastrophe. 2011.
    \53\ For additional discussion on hazard information sharing, 
please see section V.C.4.b. (Safety Promotion (Subpart E), Proposed 
amendments to subpart E).
---------------------------------------------------------------------------

    In addition, the FAA proposes two other modifications to the 
definition of ``hazard'' to more closely align with the ICAO 
definition: (1) while objects are a subset of the term ``condition,'' 
the FAA is proposing to add the term ``object,'' and (2) the FAA is 
proposing to change ``foreseeably'' to ``the potential to.'' These 
changes would align the definition more closely with the ICAO 
definition of ``hazard''.
    In addition, the FAA proposes to amend the definition of safety 
policy to change ``certificate holder'' to ``person.'' This proposed 
change would make the definition consistent with the revised 
applicability proposed by this rule, which includes persons who are not 
certificate holders (e.g., LOA holders).
2. Requirement To Develop and Implement SMS
    As discussed previously, the FAA is proposing to move the General 
Requirements for SMS currently contained in Sec.  5.3 to proposed Sec.  
5.5. For clarity, the FAA would reorganize proposed Sec.  5.5 into 
three subparagraphs: (1) general requirements for the components of an 
SMS, (2) a new proposed requirement for a system description, and (3) 
the requirement to maintain an SMS in accordance with part 5. 
Additionally, the FAA is proposing to remove certain provisions from 
current Sec.  5.3 as unnecessary.
    The FAA proposes to add a requirement for all persons subject to 
part 5 to develop a system description. A system description is a 
summary of aviation-related processes and activities and a description 
of interfacing persons that contribute to the safety of the aviation-
related products and services provided. The FAA considers that 
organizations that receive the aviation-related products and services 
could contribute to the safety of those products and services and 
would, therefore, be identified among the interfacing persons.
    A system description is important because organizations are often 
made up of a complex network of interactions involving different 
internal departments that also interface with external organizations 
that contribute to the safe operation of the organization. For an 
organization to have an effective SMS, it must fully understand its 
aviation-related business operations and activities that impact the 
management of aviation safety. Without that understanding, the SMS is 
unlikely to be clearly defined, adequately applied, or effectively 
executed. The use of an organization system description would also 
enable the organization to have a clear picture of its many 
interactions.
    Although the focus of this regulation is on aviation, some 
organizations might also extend their SMS to their non-aviation related 
activities, such as security and occupational safety and health issues. 
If an organization elects to do so, the FAA would only conduct 
oversight of the SMS related to its aviation functions. The FAA is 
proposing to limit the application of SMS only to the aviation-related 
activities conducted by the organization under 14 CFR.
    The FAA also proposes to add a provision in Sec.  5.5(c) to make 
clear that the SMS requirements in part 5 are continuing requirements. 
For example, the requirements of part 5 do not cease to apply the 
moment a person develops and implements an SMS. Rather, a person must 
also maintain SMS in accordance with part 5. The new provision in 
proposed Sec.  5.5(c) is not intended to impose a new requirement on 
the regulated community; it is intended only to clarify the existing 
requirements.
    Furthermore, to remove unnecessary rule text, the FAA proposes to 
remove the provisions that are currently contained in Sec.  5.3(b) and 
(c). Section 5.3(b), which requires the SMS to be maintained in 
accordance with the recordkeeping requirements of Subpart F of part 5, 
is unnecessary because the recordkeeping requirements of Subpart F 
apply irrespective of this provision. Additionally, Sec.  5.3(c), which 
requires compliance with the relevant regulatory requirements of 14 
CFR, is unnecessary because persons must comply with applicable 
regulatory requirements in 14 CFR irrespective of whether the FAA 
expressly requires compliance in Sec.  5.3(c).
    The FAA also proposes to remove two requirements from current Sec.  
5.3(a). First, the FAA proposes to remove the requirement for the SMS 
to be submitted to the Administrator for acceptance. The proposal to 
expand the applicability of part 5 has resulted in the FAA proposing 
new regulations to address the additional entities that would be 
covered by part 5, namely Sec. Sec.  5.7, 5.9, 5.11, 5.13, and 5.15. 
These proposed regulations would set forth the requirements for each 
regulated entity, including which documents the entity must submit to 
the Administrator for acceptance or approval. Second, the FAA proposes 
to remove the requirement for an SMS to be appropriate to the size, 
scope, and complexity of the organization's operation. The FAA has 
determined that this provision is unnecessary because the FAA's SMS 
requirements are performance-based and scalable. As such, persons that 
are required to develop an SMS under part 5 may scale their SMS to the 
size and complexity of their organizations. The FAA does not need to 
expressly require scalability in the regulations when the performance-
based requirements are designed for that purpose.

C. Components of Safety Management Systems

    An SMS is composed of four major components: (1) safety policy, (2) 
safety risk management, (3) safety assurance, and (4) safety promotion. 
Additionally, an SMS requires documentation and recordkeeping. 
Currently, part 5 contains a subpart for each major component and a 
subpart for documentation and recordkeeping. The proposed rule would 
retain these subparts but includes proposed amendments to each one.
1. Safety Policy (Subpart B)
    Safety policy is the foundation for an SMS and must be documented 
and communicated throughout the organization. All organizations must 
define policies, processes, procedures, and organizational structures 
to accomplish their safety objectives and goals. A documented safety 
policy ensures that all employees of the organization are aware of 
management's commitment to achieving the organization's safety 
objectives and are aware of their own role in meeting the safety 
objectives.

[[Page 1944]]

a. Summary of Current Requirements in Subpart B
    Subpart B of part 5 sets forth the requirements for the 
organization's safety policy. The safety policy component of SMS 
includes safety policy documentation, identification accountability and 
authority in regard to safety, designation and responsibilities of 
safety management personnel, and emergency response planning. Section 
5.21 currently requires a documented safety policy that: (1) 
establishes the organization's safety objectives, (2) includes a 
commitment to fulfill those safety objectives, (3) contains a statement 
concerning the necessary resources for implementation of the SMS, (4) 
contains a safety reporting policy, (5) defines unacceptable behavior 
and conditions for disciplinary action, and (6) establishes an 
emergency response plan for transitioning from normal to emergency 
operations.
b. Proposed Amendments to Subpart B
    The FAA is proposing to add a requirement to Sec.  5.21(a) that 
would require the safety policy to include a code of ethics that 
applies to all employees, including management personnel and officers. 
The code of ethics would clarify that safety is the organization's 
highest priority. This proposed requirement responds to section 102(f) 
of ACSAA, which mandates that ``the regulations issued under subsection 
(a) shall require a safety management system to include establishment 
of a code of ethics applicable to all appropriate employees of a 
certificate holder, including officers (as determined by the FAA), 
which confirms that safety is the organization's highest priority.'' 
The FAA agrees that a code of ethics is beneficial to overall safety; 
therefore, this proposal would fulfill that legislative mandate and 
extend the requirement to all persons required to have an SMS.
    The FAA acknowledges that section 102(f) of ACSAA only requires the 
FAA to apply the code of ethics requirement to certain part 21 
certificate holders. However, to the greatest extent possible, the FAA 
seeks consistency in the SMS requirements. Furthermore, the FAA 
believes having a code of ethics, applicable to all employees of the 
organization, would influence the safety culture of the organization. 
If employees see their management engaged with safety as the highest 
priority, then that same safety attitude would likely prevail 
throughout the entire organization. Therefore, all persons required to 
have an SMS would benefit from having a code of ethics that confirms 
that safety is the organization's highest priority. For that reason, 
the FAA is proposing to apply this requirement to all persons who would 
be required to have a part 5-compliant SMS.
    Additionally, the FAA proposes minor amendments to subpart B 
(Sec. Sec.  5.21 through 5.27) to reflect the new applicability 
requirements of the proposed rule. Currently, these regulations use the 
term ``certificate holder'' because part 5 applies to part 119 
certificate holders authorized to conduct operations under part 121. 
The FAA proposes to remove all references to ``certificate holder.'' 
Instead, the proposed rule refers to ``person'' to reflect the new 
applicability set forth in proposed Sec.  5.1. Additionally, the FAA 
proposes to amend the current requirements of Sec.  5.25 that refer 
only to ``certificate(s)'' by adding a reference to ``Letter(s) of 
Authorization.'' This would ensure that the requirements of Sec.  5.25 
pertaining to the accountable executive apply to Sec.  91.147 LOA 
holders.
2. Safety Risk Management (Subpart C)
    Another core component of an SMS is safety risk management. A 
comprehensive SMS using safety risk management includes identifying 
hazards, assessing risk, and developing risk controls to reduce or 
eliminate risk associated with those hazards. Safety risk management 
allows an organization to focus on the areas of greatest risk from a 
safety perspective, taking into account system complexity and scope of 
the operations, and allows the organization to implement appropriate 
risk controls.
    Organizations must apply safety risk management when implementing 
new or revising existing systems, developing operational procedures, 
and to address hazards or ineffective controls identified through 
safety assurance processes. For example, an organization would initiate 
safety risk management after learning that certain de-icing operations 
are not effective and use safety risk management to analyze the de-
icing operations.\54\ Safety risk management includes the following: 
(1) system analysis, (2) identifying hazards associated with the 
system, (3) analyzing the risk associated with the hazards, (4) 
assessing risk associated with the hazards to determine acceptable 
safety risk, and (5) controlling the risk of identified hazards when 
necessary.
---------------------------------------------------------------------------

    \54\ There are existing regulations that prohibit a takeoff when 
frost, ice, or snow (contamination) is adhering to the wings, 
control surfaces, rotors or propellers of an aircraft and some 
operations require a de-icing program [Sec. Sec.  91.527, 121.629, 
and 135.227]. However, this example describes how operators can use 
SMS to focus on certain de-icing operations that may not be 
performing adequately and use a structured process to correct 
performance deficiencies or identify design changes (additional 
controls) using the SRM process. Current regulations prohibit 
takeoff when certain conditions are met, but there are no 
requirements for the company to look more broadly at the system and 
determine if or when there is a systemic issue with de-icing.
---------------------------------------------------------------------------

    The system analysis serves as the initial source for hazard 
identification when new systems are designed, when systems are revised, 
and when new operational procedures are developed. The system analysis 
also serves as a basis for describing and organizing information for 
risk analysis when potential hazards or ineffective risk controls are 
discovered in the safety assurance process. The system analysis 
processes ensure that information regarding the function and purpose of 
the system; the system's operating environment; outline of the system's 
processes and procedures; and the personnel, equipment, and facilities 
that the system requires for operation are analyzed so that hazards may 
be appropriately identified.
    Next, an organization must use established processes to identify 
hazards within the context of the system analysis. Any hazards that are 
identified must be analyzed to the extent necessary to determine 
possible outcomes associated with each hazard.
    The organization must then analyze the outcomes to determine the 
severity and likelihood (i.e., risk) associated with the outcomes.\55\ 
Subsequently, the organization must assess the safety risk, which 
requires the certificate holder to determine whether the safety risk is 
acceptable or mitigation is required.
---------------------------------------------------------------------------

    \55\ As discussed in examples later in the preamble, this 
analysis may be either qualitative or quantitative depending on the 
size of the organization, the nature of the safety issue being 
addressed, and availability of relevant data, among other factors. 
SRM, as with all components of the SMS, should be scaled to fit the 
organization. Since each safety issue is unique and each SMS is 
developed to fit the organization, the FAA cannot make general 
estimates or judgments regarding the amount of time or documentation 
an organization would need for any given identified hazard. 
Consistent with the intent to scale this rule to the organization 
and the issue, the FAA would look to the organization to make that 
determination on a case-by-case basis.
---------------------------------------------------------------------------

    Finally, the organization would develop and implement risk controls 
where necessary. Risk controls may mitigate the outcomes by reducing 
the likelihood or severity of the outcome or eliminating hazards by 
design. After these controls are developed, but before being 
implemented, the organization must assess whether the controls are 
likely to be effective and would not introduce any new hazards. When 
the

[[Page 1945]]

risk controls are assessed and determined to be acceptable, the 
organization would implement them. Those controls would then be 
continuously monitored under the processes developed under subpart D, 
Safety Assurance, to ensure they are effective.
a. Summary of Current Requirements in Subpart C
    Subpart C of part 5 currently contains the safety risk management 
requirements for an SMS. Section 5.51 establishes when a certificate 
holder would need to apply safety risk management processes and 
procedures to systems to identify the hazards and assess the risk 
associated with the systems. Once a certificate holder determines that 
the processes of safety risk management have been triggered under Sec.  
5.51, it must conduct a system analysis, as required by Sec.  5.53. 
Section 5.53 provides information that must be considered when 
conducting a system analysis and identifying hazards. Currently, when 
conducting a system analysis, the following must be considered: (1) 
function and purpose of the system, (2) the system's operating 
environment, (3) an outline of the system's processes and procedures, 
and (4) the personnel, equipment, and facilities necessary for 
operation of the system. Section 5.55 establishes the requirements for 
safety risk assessment and controls.
b. Proposed Amendments to Subpart C
    The FAA is proposing several changes to subpart C. First, as in the 
other subparts, the FAA is proposing to amend Sec.  5.51 and Sec.  5.55 
by removing the term ``certificate holder'' to reflect the broadened 
applicability of the proposed rule. Instead, these sections will refer 
to ``any person required to have an SMS under this subpart.''
    Additionally, the FAA is proposing to add a new requirement, Sec.  
5.53(b)(5), which would add the interfaces of the system to the list of 
items that must be considered when conducting a system analysis in 
accordance with Sec.  5.53. Interfaces are a point where two or more 
operations, systems, subjects, or organizations connect and interact. 
Interfaces can be internal (e.g., between functional groups in an 
organization, between hardware/software components of the system being 
analyzed, or between processes in the system being analyzed), or they 
can be external (e.g., between organizations, between the system being 
analyzed and other systems, or between a human using the system and the 
system itself). The FAA is proposing to include the interfaces of the 
system in the list of considerations required when performing the 
system analysis in Sec.  5.53 because hazards can exist with 
interfacing organizations, processes, or systems in the way the two 
interfacing parts interact with each other. Understanding the 
interfaces while conducting a system analysis is important because the 
system analysis serves as the basis for identifying and analyzing 
hazards and their associated risk. This addition would further improve 
the ability of part 121 operators to analyze risk. As the aviation 
system becomes more complex, dynamic, and integrated, understanding 
these interfaces can assist in the identification of related hazards 
and improve safety overall. An SMS that looks both inward and outward 
is more effective at identifying hazards, a core function of any 
operational SMS. The FAA emphasizes that under this proposed 
requirement interfaces would be considered only to the extent that they 
affect aviation safety. For example, the interface between a part 21 
aircraft manufacturer's engineering and payroll departments would not 
be considered when conducting a systems analysis under Sec.  5.53 
because this interface would not impact the aviation safety of the 
aircraft design. Additionally, the use of fall-arrestors in operator 
maintenance facilities to protect individuals working on aircraft would 
not be considered when conducting a system analysis in Sec.  5.53 
either because the interface is an occupational safety and health 
concern and does not directly affect the quality of work performed on 
the aircraft.
3. Safety Assurance (Subpart D)
    Safety assurance verifies that the risk controls put into place 
under safety risk management continue to be effective in managing risk 
and that the organization's safety performance is meeting or exceeding 
its safety objectives. Safety assurance has three elements: (1) safety 
performance monitoring and measurement; (2) safety performance 
assessment; and (3) continuous improvement.
    Safety performance monitoring and measurement requires the 
development and maintenance of processes and systems that monitor 
operational processes and collect data on the performance of the 
organization. Within an organization, there are processes to collect 
data, such as those to meet regulatory requirements or voluntary 
reporting programs. In addition, there are external data sources, such 
as FAA systems or information from other organizations. Safety 
assurance processes must also include investigations of accidents and 
incidents. Employee reporting systems provide another source of 
information regarding the performance of the organization.
    The safety performance assessment is used to assess the 
organization's performance against its safety objectives. The safety 
performance assessment includes verifying the organization's compliance 
with established safety risk controls. In addition, the safety 
performance assessment identifies changes in operational environments, 
potential new hazards, and ineffective controls. If the assessment 
reveals new hazards or ineffective controls, the organization must 
initiate safety risk management processes. The accountable executive 
designated in accordance with Sec.  5.25 must review information from 
the safety performance assessment on a regular basis.
    Finally, safety assurance requires continuous improvement. The 
analysis and assessment functions of safety assurance are essential in 
alerting the organization to significant changes in the operating 
environment, possibly indicating a need for system change to maintain 
effective risk controls. As a result, an organization with an SMS must 
take steps to correct any safety performance deficiencies identified in 
the assessments.
a. Summary of Current Requirements in Subpart D
    Safety assurance requirements for an SMS are established in subpart 
D of part 5. Section 5.71 covers safety performance monitoring and 
measurement, Sec.  5.73 covers safety performance assessment, and Sec.  
5.75 covers requirements for continuous improvement. Pursuant to Sec.  
5.71(a), a person must develop and maintain processes and systems to 
acquire data with respect to its operations, products, and services to 
monitor the safety performance of the organization. Section 5.71(a) 
prescribes specific data that must be monitored, audited, evaluated, 
and investigated. Among these requirements, Sec.  5.71(a)(7) requires 
the processes and systems to include a confidential employee reporting 
system in which employees can report hazards, issues, occurrences, and 
incidents, as well as a means to propose solutions and safety 
improvements. Once an organization with an SMS collects data through 
its safety monitoring and measurement processes, it must use the 
processes developed under Sec.  5.71(b) to analyze the data.
    Specifically, Sec.  5.73 requires the organization to conduct 
assessments of its safety performance against its safety

[[Page 1946]]

objectives contained in its safety policy, which include reviews by the 
accountable executive to: (1) ensure compliance with safety risk 
controls, (2) evaluate the performance of the SMS, (3) evaluate the 
effectiveness of safety risk controls, (4) identify changes in the 
environment that may introduce new hazards, and (5) identify new 
hazards. This analysis is used to transform raw data into usable 
information that can support informed decision-making related to 
safety.
    Finally, Sec.  5.75 requires the organization to establish and 
implement processes to correct any safety performance deficiencies that 
are identified in the safety performance assessment, which ensures 
continuous improvement of the organization's safety performance.
b. Proposed Amendments to Subpart D
    The FAA is proposing to remove the word ``operations'' from Sec.  
5.71(a) to clarify the requirement and avoid confusion with the term 
``operator.'' In addition, the FAA is proposing to amend Sec. Sec.  
5.71-5.75 by replacing ``certificate holder'' with ``person'' or ``a 
person required to have an SMS under this subpart'' to reflect the 
proposed broadened applicability of the rule.
    The FAA is also proposing to add the text, ``without concern of 
reprisal for reporting'' to the confidential employee reporting system 
requirement in current Sec.  5.71(a)(7) to meet section 102(e) of ACSAA 
which mandates that the proposed regulation:
    [R]equire a safety management system to include a confidential 
employee reporting system through which employees can report hazards, 
issues, concerns, occurrences, and incidents. A reporting system under 
this subsection shall include provisions for reporting, without concern 
for reprisal for reporting, of such items by employees in a manner 
consistent with confidential employee reporting systems administered by 
the Administrator.
    Further, section 102 mandates that regulations required by the 
statute shall also require holders of both a TC and a PC to submit a 
summary of confidential employee reports received in accordance with 
section 102 to the Administrator at least twice per year. Therefore, 
the FAA is proposing to add a new Sec.  5.71(c), which would require 
holders of both a TC and a PC for the same product to submit a summary 
of the confidential employee reports received under Sec.  5.71(a)(7) to 
the FAA once every six months.
    The FAA recognizes that its proposed rule language, which would 
require holders of both a TC and a PC for the same product to submit a 
summary of the confidential employee reports received under Sec.  
5.71(a)(7) to the FAA once every 6 months, slightly differs from the 
statutory language. Section 102(e) of ACSAA requires the summary of 
reports to be submitted at least ``twice a year.'' As the statute does 
not require a particular interval for submission of the ``twice a 
year'' reports, the FAA finds it reasonable to require the reports 
every six months as it would preclude a person from submitting the same 
summary of reports twice in the same month and provide the FAA with an 
opportunity to assess reports received throughout the year. 
Accordingly, the FAA proposes to require the submission of these 
reports once every 6 months.
    Although the ACSAA mandate was specific to part 21 certificate 
holders with both a TC and a PC, employees of all persons required to 
comply with part 5 should be protected from reprisal if they report 
hazards, issues, concerns, occurrences, or incidents. Further, the 
intent of the confidential system would be to provide some protection 
to employees, so they are able to report issues without concern of 
reprisal. Therefore, the FAA is proposing to apply the revision to the 
employee reporting system requirements in Sec.  5.71(a)(7) to all 
persons required to comply with part 5. The FAA notes that this 
protection extends to the reporting of hazards, issues, concerns, 
occurrences, or incidents. If the individual reporting is responsible 
for creation of the hazard due to intentional actions or gross 
negligence, this provision would not protect them from employment 
actions based on the underlying offense.
    However, the FAA is proposing in Sec.  5.71(c) to require only 
holders of both a TC and a PC for the same product to submit a summary 
of the confidential employee reports to the FAA. This proposed 
requirement is targeted at part 21 certificate holders as this 
additional agency oversight is consistent with ACSAA. Summaries of 
confidential employee reports submitted by certificate holders with 
both a TC and a PC are protected from public disclosure by 49 U.S.C. 
44735(a)(2), if the summaries are requested pursuant to the Freedom of 
Information Act (FOIA). The FAA is not proposing to extend this 
requirement to all persons required to have an SMS because the 
information would not be protected under 49 U.S.C. 44735(a)(2) for 
persons that are not covered by the ACSAA requirement.
4. Safety Promotion (Subpart E)
    Safety promotion requires communication to promote safety 
practices. Safety promotion also requires that employees within an 
organization attain and maintain the competencies necessary to perform 
the duties relevant to the operation and performance of the SMS. 
Training to maintain the SMS may vary depending upon the position and 
responsibilities of the employee and may range from formal classroom 
training to simple notices to employees. In addition to training, an 
organization ensures that employees are aware of the SMS policies, 
processes, and tools that are relevant to their responsibilities.
a. Summary of Current Requirements in Subpart E
    The requirements for safety promotion are established in subpart E 
of part 5. Section 5.91 requires training for the employees of the 
organization to ensure they attain and maintain the competencies 
necessary to perform their duties relevant to the operation and 
performance of the SMS. Section 5.93 requires the organization to 
develop and maintain a means of communicating safety information that: 
(1) ensures employees are aware of the SMS policies, processes, and 
tools that are relevant to their responsibilities; (2) conveys hazard 
information relevant to the employee's responsibilities; (3) explains 
why safety actions have been taken; and (4) explains why safety 
procedures are introduced or changed.
b. Proposed Amendments to Subpart E
    The FAA is proposing two amendments to the safety promotion 
requirements of subpart E. First, as in the other subparts, Sec.  5.91 
and Sec.  5.93 would be amended to reflect the broader applicability of 
proposed part 5 by replacing ``certificate holder'' with ``any person 
required to have an SMS under this part.'' Second, the FAA proposes to 
add new Sec.  5.94 to require notification of hazards to interfacing 
persons, and require any person subject to part 5 to develop and 
maintain procedures for reporting hazard information to interfacing 
persons and for receiving hazard information from other parties.
    In some circumstances, a hazard might be identified by a person who 
is not in a position to address the hazard or there may be another 
person who could implement a more effective mitigation. For example, 
there may be a hazard identified by an aircraft operator that needs to 
be addressed by an aircraft manufacturer to mitigate the hazard for 
other operators. Similarly, an aircraft manufacturer may identify a 
hazard for which crew procedures or training are an appropriate 
mitigation to be taken by an operator. In Sec.  5.94, the FAA proposes

[[Page 1947]]

that persons required to have an SMS under part 5 must share 
information regarding identified hazards with interfacing persons 
identified in their system description under proposed Sec.  5.5 who, to 
the best of their knowledge, could address the hazard or mitigate the 
risk. Interfacing persons may be other private entities or a government 
entity, including the FAA. For example, a person required to have an 
SMS might determine that, to the best of their knowledge, the FAA's Air 
Traffic Organization is the interfacing person who would be in the best 
position to address the hazard. The number of business connections that 
would fall within the scope of an ``interfacing person'' is not 
limitless, however. An interfacing person would be an entity providing 
a good or service connected to aviation safety. A payroll accounting 
firm, for example, would not fall within this requirement. Within that 
boundary, an organization's total number of interfacing persons would 
likely be related to the size and complexity of the operation. The more 
external entities an organization relies on for aviation safety 
purposes, the greater the number of interfacing persons they would have 
for the purposes of this rule.
    There may be instances in which the person with an SMS under part 5 
is required to communicate hazard information to an interfacing person 
who is not required to maintain an SMS under part 5. In this case, 
there is still a utility and benefit to safety in communicating hazard 
information even where the receiving party does not have to comply with 
part 5 because the receiving party may still address the hazard. 
Further, while persons are only required to share hazard information to 
relevant interfacing entities who, to the best of their knowledge, 
could address the hazard, the proposed requirements do not preclude 
anyone from sharing additional information with additional entities if 
they so choose.
    The number of interfaces an organization has depends on the type of 
goods or services the organization provides. FAA believes companies 
already know who their interfaces are, since the service providers, 
suppliers, and customers are those with whom they have an ongoing 
business relationship.
    In accordance with standard business practices, these organizations 
already have records of these relationships for purchasing, payment, 
and shipment purposes. Therefore, the FAA does not believe it would be 
burdensome to document these existing interfaces and share information 
about hazards, when appropriate, leveraging existing contacts and 
channels of communication. The FAA anticipates that the organization 
would update and revise contact information for these interfaces as a 
normal part of day-to-day business, as they would even in the absence 
of this proposed rule.
    For example, an aircraft manufacturer may identify that the 
interfacing persons in their system description include various 
suppliers. The manufacturer has a business relationship with these 
interfaces. As with most business relationships, these relationships 
include a way to communicate hazards with all of these interfaces 
including their suppliers, repair stations, and customers. The 
manufacturer might issue a service bulletin or an operator information 
letter. It could also communicate a hazard directly with a supplier or 
through its supplier management/purchasing organization.
    The purpose of this proposed requirement is to ensure that relevant 
information is shared with the person in the best position to address 
the hazard or mitigate the associated risk prior to an incident or 
accident occurring. This sharing would enable a network of 
organizations that would work collaboratively and be more effective at 
identifying hazards and mitigating risk than an individual organization 
working in isolation.\56\
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    \56\ The FAA is not aware of other CAAs currently requiring this 
type of collaborative approach. However, industry has recognized the 
value of this approach and it is discussed in the international 
standard: SM-0001_Issue B--Implementing a Safety Management System 
in Design, Manufacturing and Maintenance Organizations, which was 
developed by industry.
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    The following examples illustrate the network effect the FAA 
believes would be created by the proposed requirement to share hazard 
information.
    Example 1: A part 121 operator receives an employee report from a 
pilot stating that the aircraft flight management system deviated from 
the expected landing approach at a particular airport. The flight crew 
notices the deviation and corrects the flight path for a safe landing. 
The operator's management classifies this employee report as a hazard 
because the airport is surrounded by high elevation terrain. Although 
this incident occurred during daytime and in visual meteorological 
conditions, management determines that if the same issue occurred 
during a night landing or in instrument meteorological conditions, the 
aircraft could be turned toward terrain without detection by the flight 
crew, potentially resulting in an accident.
    The operator's management mitigates the risk through the safety 
risk management process by publishing an internal notice to all its 
flight crews warning of the issue and requesting them to avoid using 
that particular approach when flying into the particular airport. 
Additionally, the operator determines that the best person to mitigate 
the risk is outside its organization and uses its system description to 
identify the appropriate interfacing person with whom the information 
regarding this hazard should be shared. Per proposed Sec.  5.94, the 
operator sends a hazard report to the aircraft manufacturer. The 
aircraft manufacturer, who is a TC and PC holder, receives the hazard 
report and begins an investigation of the issue. The aircraft 
manufacturer also reports the issue per proposed Sec.  5.94 to the 
flight management system supplier and navigation database supplier, 
which, although not required to have an SMS, are interfacing persons 
identified in the aircraft manufacturer's system description.
    The aircraft manufacturer initiates safety risk management on the 
issue. Through computer simulation, the aircraft manufacturer 
duplicates the incident reported by the part 121 operator.\57\ The 
aircraft manufacturer safety risk management team develops and 
completes two actions: one short term to mitigate the risk, and one 
long term to eliminate the hazard. For the short-term mitigation, the 
flight management system database is updated to remove the affected 
approach. This database update occurs monthly, so all airlines flying 
with the flight management system automatically receive the update. For 
the long-term mitigation, the flight management system software is 
updated to correct the flight management system deviation. The aircraft 
manufacturer issues a service bulletin to all airlines recommending 
incorporation of the software update. Following the software update 
incorporation, the affected approach is added back into the navigation 
database and all airlines automatically receive it at the next monthly 
update.
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    \57\ It is common for an Original Equipment Manufacturer to 
replicate an incident after receiving a report. Typically, the 
manufacturer would reach out to the reporting entity (in this 
example, the airline operator) to gather as much information as 
available about the incident. While there are risks with information 
transfer delays between the interfacing entity and the reporting 
entity, FAA believes these will be improved with the proposed rule 
requiring hazard information sharing.
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    This example illustrates how an employee report pursuant to Sec.  
5.71(a)(7) and communication between

[[Page 1948]]

organizations would assist in quickly mitigating and later eliminating 
a hazard that could result in an accident if not addressed. The pilot 
reported the incident, the airline performed the organization's safety 
risk management process, and also reported the hazard to the aircraft 
manufacturer pursuant to Sec.  5.94. The aircraft manufacturer reported 
the hazard to the flight management system supplier pursuant to Sec.  
5.94 and then performed safety risk management to initially mitigate 
the risk and ultimately eliminate the hazard.
    Without applying this new requirement, under the current process, 
the part 121 operator would report the incident to FAA flight standards 
under Sec.  121.703(c). Flight standards would evaluate the incident 
and, if determined to be an airworthiness concern, would report it to 
the appropriate Aircraft Certification Office. The Aircraft 
Certification Office would then complete a risk analysis per FAA Order 
8110.107. If the risk assessment was determined to be unacceptable, the 
aircraft certification office would work the aircraft Original 
Equipment Manufacturer to develop corrective action. The proposed rule 
requires direct hazard communication between the operator and Original 
Equipment Manufacturer which will facilitate more timely resolution of 
the incident.
    Example 2: Three pilots, who work for a part 135 operator, report 
through the operator's employee reporting system that markings at the 
operator's home base airport at a newly paved intersection with a 
runway are confusing and nearly resulted in a runway incursion. The 
operator determines the reports are valid and notifies the airport 
authority of the pilots' observations in accordance with proposed Sec.  
5.94. The airport then could close that taxiway intersection and re-
mark the pavement.
    Example 3: A Sec.  91.147 LOA holder who conducts air tours in a 
Stearman Biplane procures a radial engine from a repair station that 
specializes in overhauling radial engines. The rebuilt engine is 
installed on the aircraft, ground tested, and then flown for a 3-hour 
maintenance test flight to ensure the engine is operating correctly. 
During the test flight, the engine seems to stop producing power 
altogether when the throttle is reduced to idle. On final approach, the 
engine stops, and though the aircraft lands without incident, the 
engine cannot be restarted because the idle jet in the carburetor 
vibrated out of the tapped fitting. The LOA holder and operator of the 
Stearman report the issue to the part 145 repair station in accordance 
with proposed Sec.  5.94. While the repair station is not required to 
have an SMS, they would have a duty to conduct an investigation under 
Sec.  145.221.\58\ The repair station investigates its stock of 
carburetor jets and finds five additional jets in a single lot that 
were improperly threaded. The repair station can then isolate the 
nonconforming lot of jets and rebuild the faulty carburetor. This 
example illustrates that there is still benefit to sharing hazard 
information with entities that would not be required to have an SMS.
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    \58\ Under this existing requirement, the repair station must 
submit a Service Difficulty Report. In the Service Difficulty 
Report, the repair station must include the ``apparent cause of the 
failure, malfunction, or defect,'' meaning that the repair station 
would have to conduct an investigation to determine the apparent 
cause.
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    Finally, the FAA acknowledges that there may be some concern 
regarding sharing information outside an organization. The FAA does not 
expect that sharing hazard information would require the sharing of 
proprietary information; it would only require the organization to 
adequately describe the hazard. The FAA expects that in instances where 
the hazard cannot be adequately described without the use of 
proprietary information, the organization itself would likely be in the 
best position to address that hazard, and therefore, information 
sharing would not be necessary. The FAA seeks comment on whether 
organizations can share information about hazards without disclosing 
proprietary information. The FAA also seeks comment on whether the 
holder of the proprietary information would be in the best position to 
address the hazard. Please provide examples of any situations in which 
the holder of proprietary information would not be able to share 
information about a hazard without disclosing that proprietary 
information.
5. SMS Documentation and Recordkeeping (Subpart F)
    Documentation of SMS processes, procedures, and outputs is 
necessary for persons to conduct a meaningful analysis under safety 
risk management, to review safety assurance activities, and for the FAA 
to review for compliance during inspections. Documentation and 
recordkeeping also preserve information that can be used to make future 
safety-related decisions.
a. Summary of Current Requirements in Subpart F
    The documentation and recordkeeping requirements for SMS holders 
are currently contained in subpart F of part 5. As currently described 
in Sec.  5.95, the certificate holder is required to document its 
safety policy and SMS processes and procedures. Organizations with an 
SMS under part 5 are required to document their safety policy and SMS 
processes and procedures.
    As described in Sec.  5.97, the certificate holder currently must 
maintain records of the outputs (e.g., risk assessments and implemented 
risk controls) of safety risk management and safety assurance 
processes. Outputs of safety risk management processes must be retained 
for as long as they remain relevant to the operation. Records can be 
kept either electronically or in paper format. In addition, the 
certificate holder is required to retain outputs of safety assurance 
processes for a minimum of five years, SMS training records for as long 
as the individual is employed by the person, and communication records 
for a minimum of 24 months. Communication records required to be 
retained would be limited to any communications related to SMS-related 
policies, processes and tools, hazard information, safety actions 
taken, and why safety procedures were introduced or changed. The 
timelines associated with the retention of these documents ensure that 
they are kept for a time period that provides the certificate holder 
with sufficient historical data to assure compliance and to conduct the 
required analyses and assessments. A certificate holder may retain its 
documents for longer time periods if needed.
    The documentation and records keeping requirements, like the rest 
of part 5, are designed to be scalable and flexible to accommodate a 
wide variety of business models and sizes. The specific information to 
be documented, and the means through which it is documented and 
retained, may vary depending on the scope and complexity of the 
systems. Organizations are currently required to maintain a myriad of 
business records. We anticipate that they will leverage existing 
systems or methods of records retention to meet these new requirements. 
The flexibility in the requirements enable the organization to use the 
most efficient means to fit their operations. For more information 
regarding scalability, please refer to Section V.F.
b. Proposed Amendments to Subpart F
    The FAA is proposing to amend Sec. Sec.  5.95 and 5.97 to change 
``certificate holder'' to ``any person required to have an SMS under 
this part.'' In addition, the FAA is proposing to add Sec.  5.95(c) to 
require the documentation of the system

[[Page 1949]]

description developed under proposed Sec.  5.5(b). The proposed 
addition is necessary to ensure that the system description would be 
documented.
    The FAA is proposing to amend Sec.  5.97(d) to require the persons 
required to have an SMS to retain records of all communications that 
occur under the hazard reporting requirements of proposed Sec.  5.94 
for a minimum of 24 consecutive calendar months. This proposed 
requirement is necessary to ensure consistency in the records for 
communications required under Sec.  5.93 and proposed Sec.  5.94. 
Maintaining these records would also enable traceability between 
information that is received from outside entities and actions taken 
using safety assurance or safety risk management processes. These 
records would be kept either electronically or in paper format. The 
timelines associated with the retention of these documents would ensure 
that they are kept for a time period that provides the organization 
with sufficient historical data to assist the FAA with oversight. 
Nothing in the proposed rule would preclude a person required to have 
an SMS under part 5 from retaining documents for longer time periods if 
they so choose.

D. Implementation of SMS

1. Requirements for Part 121 Operators
    Part 121 operators currently must comply with the part 5 
requirements. The FAA is proposing to add Sec.  5.7 to establish 
certain new requirements and compliance dates for part 121 operators.
    Proposed Sec.  5.7(a) would apply to all part 121 operators that 
have an FAA-accepted SMS as of the effective date of a final rule 
adopted pursuant to this rulemaking. The requirements in proposed Sec.  
5.7(a) are necessary to bring part 121 operators into compliance with 
the proposed revisions to part 5. Part 121 operators would be required 
to revise their SMS to meet the new requirements proposed in Sec. Sec.  
5.5(b) (System Description), 5.21(a)(7) (Safety Policy Code of Ethics), 
5.53(b)(5) (Safety Risk Management Interfaces), 5.71(a)(7) (Employee 
Confidential Reporting System), 5.94 (Hazard Notification), 5.95(c) 
(Documentation of System Description), and 5.97(d) (SMS Records), 
discussed in this section. Because part 121 operators already have an 
accepted SMS, the FAA considers that these new requirements would 
require minor adjustments. For example, current part 121 operators 
should be able to develop a system description with relative ease 
because they already have an FAA-accepted SMS and all the information 
needed for development of the system description. Also, a statement of 
compliance is unnecessary because the FAA has completed its review of 
the operator's SMS prior to the enactment of this rule. The changes to 
this entity's SMS are minimal and the FAA can review such changes in 
the normal course of its oversight of the operator.
    Because the proposed requirements may be met with relative ease, 
the FAA has determined that 12 months would provide a sufficient amount 
of time for current part 121 operators to implement any necessary 
changes based upon the amendments to part 5 and submit revisions to 
their SMS to the FAA for acceptance.
    Under proposed Sec.  5.7(a)(2), part 121 operators would have to 
submit revisions to their SMS for FAA acceptance in a form and manner 
acceptable to the Administrator no later than 12 months following the 
effective date of the rule. The FAA expects that current part 121 
operators would submit revisions to their SMS through the same process 
they currently use for submission of changes for acceptance by the FAA.
    Proposed Sec.  5.7(b) would apply to any person applying for 
authorization to conduct operations under part 121 of this chapter 
after the effective date of the rule. New certificate holders 
authorized to operate under part 121 would have to develop, implement, 
and maintain an SMS that complies with the requirements of part 5 as 
amended by this rulemaking. Those seeking to operate under part 121 
would have to submit the statement of compliance in a form and manner 
acceptable to the Administrator as part of the certification process. 
Under this proposal, the FAA would incorporate review of a person's 
compliance with part 5 requirements into the certification review 
process.
    The statement of compliance must describe how part 5 requirements 
have been met, and the FAA would review that statement of compliance 
during the certification process to assess the applicant's compliance 
with part 5. The statement of compliance enables the FAA to validate 
the applicant's compliance with part 5 prior to issuing a certificate.
2. Requirements for Part 135 Operators and Holders of Sec.  91.147 
Letters of Authorization
    The FAA is proposing to add new Sec.  5.9 to establish requirements 
and compliance dates for part 135 operators, and holders of an LOA 
issued under Sec.  91.147. Proposed Sec.  5.9(a) would require those 
certificate or LOA holders to develop and implement an SMS in 
compliance with part 5 no later than 24 months after the effective date 
of the proposed rule. The FAA expects certificate holders or LOA 
holders to submit the statement of compliance for acceptance by the FAA 
within 24 months after the effective date of this proposed rule. 
Proposed requirements for statements of compliance are described 
further in this section. This rule would also require these operators 
to maintain their SMS in accordance with part 5.
    Proposed Sec.  5.9(b) would affect those persons applying for a 
certificate under part 135 or those applying for an LOA under Sec.  
91.147 who have not yet received their certificate or LOA prior to the 
effective date of this proposed rule. These persons would be required 
to develop and implement an SMS that meets the requirements of part 5 
before their certificate or LOA could be issued. They would be required 
to submit a statement of compliance in a form and manner acceptable to 
the Administrator during the certification process or LOA issuance 
process. These operators would also be required to maintain their SMS 
in accordance with part 5.
    Based on lessons learned and the experience gained from part 121 
operators who have previously implemented SMS, as well as the voluntary 
program implementation for part 135 operators, the FAA proposes that 24 
months is adequate to implement an SMS and provide a statement of 
compliance to the FAA. This timeframe allows the operator sufficient 
time to implement SMS without unnecessarily delaying the realization of 
benefits derived from SMS.
a. Statements of Compliance for Current Part 135 Operators and Sec.  
91.147 Letter of Authorization Holders and Applicants
    Under this proposal, part 135 operators, and Sec.  91.147 LOA 
holders would be required to develop an SMS and integrate that SMS into 
the existing operations of the certificate or LOA holder. The 
certificate or LOA holder would also be required to submit a statement 
of compliance in a form and manner acceptable to the Administrator no 
later than 24 months following the effective date of this proposed 
rule.
    The statement of compliance notifies the FAA that the organization 
has complied with part 5 and prompts the FAA to update its oversight 
tools to include SMS. Although these statements of compliance would not 
be subject to an approval process, the FAA would validate the part 135 
operators' and Sec.  91.147 LOA holders' compliance with

[[Page 1950]]

part 5 and the accuracy of their statements of compliance under 
existing oversight processes. Because the certificate or LOA holder 
would be required to integrate the SMS into its existing operations 
processes during implementation, the FAA expects that existing 
oversight processes are sufficient to oversee and validate part 5 
compliance. The FAA would review statements of compliance upon 
submission and would validate that the organization's SMS meets the 
part 5 requirements over the course of several inspections. If, during 
those inspections, the FAA finds that the SMS does not meet the 
requirements of the proposed rule, a notification in writing of the 
deficiencies would follow.
    The proposal would also require applicants for authority to conduct 
operations under part 135 or Sec.  91.147 to submit a statement of 
compliance to the FAA for acceptance during the certification or LOA 
application process, as applicable. The statement of compliance enables 
the FAA to validate the applicant's compliance with part 5 prior to 
issuing a certificate or LOA.
b. Statements of Compliance for Existing Part 121/135 Combination 
Certificates
    For those part 119 certificate holders with combination 
certificates authorizing them to operate under parts 121 and 135 that 
already have an SMS in place due to the current part 5 requirements for 
part 121 operators, the FAA would review the part 121/135 operator's 
revised SMS submission. Certificate holders authorized to operate under 
parts 121 and 135 whose SMS was previously acceptable to the FAA for 
the part 121 portion of their organizations may choose to expand their 
existing SMS processes already in place to include their part 135 
operations. In this case, certificate holders would submit the changes 
to their SMS for acceptance as described for the existing part 121 
certificate holders in Section V.D.1.
    Certificate holders would also be required to submit a statement of 
compliance for the part 135 operations. The FAA would accept the 
submitted statement of compliance and validate the operator's 
compliance with part 5 using existing oversight processes, as discussed 
in Section V.D.5. The FAA expects that documenting the statement of 
compliance for the part 135 operations would be comparatively simple 
because the operator has already met SMS requirements for the part 121 
operations. Currently, of the seven existing combined certificates, 
five have already implemented SMS that covers both part 121 and 135 
operations.
3. Requirements for Holders of Both Type Certificates and Production 
Certificates Issued for the Same Product Under Part 21 and Certain Part 
21 Production Certificate Applicants
    The FAA proposes to add a new Sec.  5.11 to establish certain SMS 
requirements and compliance dates for holders with a TC and a PC for 
the same product issued under part 21. The FAA proposes a person that 
holds both a TC and a PC for the same product issued under part 21 of 
this chapter on or before the effective date of the proposed rule would 
be required to: (1) develop an SMS that meets the requirements of this 
part; (2) submit an implementation plan for FAA approval in a form and 
manner acceptable to the Administrator no later than December 27, 2024; 
(3) implement the SMS in accordance with the FAA-approved plan no later 
than December 27, 2025; and (4) maintain the SMS in accordance with 
this part.
    As discussed in Section IV.D., the proposed requirements are 
consistent with section 102(a)(1) of ACSAA, which requires that the 
FAA's rulemaking require these certificate holders to adopt an SMS by 
four years from enactment of the statute, December 27, 2024.\59\ 
Because the implementation plan would require certificate holders to 
submit a description of how they would comply with the part 5 
requirements, including but not limited to the policies, processes, and 
procedures used to meet those requirements, the FAA considers the 
certificate holder to have adopted the SMS system at the time the 
certificate holder files the implementation plan. By filing the 
implementation plan for FAA approval, the certificate holders commit to 
implementing the SMS described in the implementation plan and any 
modification to the SMS required by the FAA during the implementation 
plan approval process.
---------------------------------------------------------------------------

    \59\ Section 102(a)(2)(D) of ACSAA.
---------------------------------------------------------------------------

    Under proposed Sec.  5.13, the FAA proposes a person that holds, is 
applying for, or has a pending application for a PC under part 21 of 
this chapter for a product for which the person holds or is a licensee 
for a TC, would be required to: (1) develop an SMS that meets the 
requirements of this part; (2) submit an implementation plan for FAA 
approval in a form and manner acceptable to the Administrator during 
the certification process; (3) implement the SMS in accordance with the 
approved plan no later than one year from the FAA's approval of the 
implementation plan; and (4) maintain the SMS in accordance with this 
part.
    Furthermore, under proposed Sec.  5.15, the FAA is proposing to 
establish certain SMS requirements for any person that holds a TC for a 
product who allows another person to use the TC to manufacture a 
product under a PC. However, the requirements proposed in Sec.  5.15 
are consistent with those proposed in Sec. Sec.  5.11 and 5.13.
    Persons subject to Sec. Sec.  5.11, 5.13, or 5.15 would not be 
required to file a statement of compliance under this proposal because 
these organizations would have to implement their SMS in accordance 
with their FAA-approved implementation plan which is sufficient for the 
FAA to verify their compliance with part 5.
4. Implementation Plans
a. Implementation Plans for Part 21
    FAA proposes to add a new Sec.  5.17 to establish requirements for 
implementation plans filed under proposed Sec. Sec.  5.11 (PC holders 
who are holders or licensees of a TC for the same product), 5.13 (TC 
holders or licensees applying for a PC for the same product), and 5.15 
(TC holders who license their TC to others to obtain a PC). The 
implementation plan would include a description of how the person 
intends to comply with part 5, including, but not limited to, new or 
existing policies, processes, or procedures used to meet the 
requirements of part 5. The description would also demonstrate how that 
person would comply with the requirements of part 5 once the SMS is 
implemented and may reference manuals and other relevant documentation.
    Upon request by the FAA, any person required to submit an 
implementation plan under the proposal would have to provide the FAA 
access to the data necessary to demonstrate that the person has 
developed and implemented an SMS that meets the applicable part 5 
requirements. This data could include the outputs of safety risk 
management.
    For a person that holds both a TC and a PC for the same product 
issued under part 21 of this chapter (Sec.  5.11), or for persons that 
hold a TC that have licensed their TC to allow another person to use 
that TC to obtain a PC (Sec.  5.15(a)), on or before the effective date 
of the final rule, the person would submit an implementation plan to 
the FAA for approval in a form and manner acceptable to the 
Administrator by December 27, 2024. Section 102(a)(1) of ACSAA requires 
the FAA's rulemaking to require holders of both a TC and a PC to adopt 
an SMS by December 27, 2024. The FAA recognizes that ACSAA does not 
apply to persons who license their

[[Page 1951]]

TC to allow another person to obtain a PC. However, the FAA is 
proposing the same compliance deadlines for consistency purposes. The 
FAA invites comments about whether the FAA should extend the compliance 
timelines for persons who license their TC to other persons and, if so, 
what timelines the FAA should establish. The FAA requests that 
responsive comments include the commenter's rationale for the proposed 
compliance timelines.
    Section 102 of ACSAA also requires the FAA to: (1) promulgate rules 
to require SMS for holders of both a TC and PC, and (2) approve the 
certificate holders' SMS. By approving the implementation plans from 
part 21 certificate holders, the FAA would review the submission and 
would determine whether the implementation plan appropriately describes 
how the entity intends to comply with the requirements of the proposed 
part 5. Additional information regarding the form and manner of 
submission would be available in Advisory Circular (AC) 21-58, Safety 
Management Systems for Part 21 Type and Production Certificate Holders.
    The implementation plan would include a description of how the 
person intends to comply with the requirements of the proposed rule. 
The FAA would review and approve the implementation plan and provide 
confirmation to the person of FAA's approval of the implementation 
plan. The person would then be required to implement the FAA-approved 
SMS by December 27, 2025, and maintain the SMS in accordance with the 
approved implementation plan.
    After the effective date of the proposed rule, a person applying 
for a PC under part 21 for a product for which the person holds a TC, 
or for which an application is pending, would submit the implementation 
plan for FAA approval during the certification process. For persons who 
hold a TC and are entering into a licensing agreement to allow another 
person to use that TC to obtain a PC, the TC holder would submit the 
implementation plan for FAA approval when providing the written 
licensing agreement in accordance with Sec.  21.55. The FAA would 
review the applicant's implementation plan and approve the means by 
which the person intends to comply with the applicable sections of the 
proposed rule. The person would then be required to implement the FAA-
approved SMS within one year after FAA's approval and maintain the SMS 
in accordance with the implementation plan.
b. Removal of Implementation Plan Requirement
    Currently, Sec.  5.1(b) states that a part 119 certificate holder 
must submit an implementation plan to the FAA for review no later than 
September 9, 2015, and the implementation must be approved no later 
than March 9, 2016. Additionally, current Sec.  5.1(c) states that the 
implementation plan may include any of the certificate holder's 
existing programs, policies, or procedures that it intends to use to 
meet the requirements of part 5, including components of an existing 
SMS. These requirements applied to part 119 certificate holders who 
were authorized to conduct operations under part 121 as of the 
effective date of the 2015 final rule. The FAA adopted these 
requirements to ensure that part 121 operators properly developed SMS 
within the required timeframe. The FAA proposes to remove these 
requirements because the dates have passed, and the requirements are no 
longer necessary. All part 121 operators have developed and implemented 
SMS in accordance with part 5.
    The FAA recognizes that the proposed rule would extend the SMS 
requirements to additional entities who already hold certificates, and 
these certificate holders would have to develop and implement an SMS in 
accordance with part 5. Based on the FAA's experience with part 121 
operators complying with part 5 and those entities participating in the 
voluntary SMS program, the FAA proposes to require new applicants for 
certificates to operate under part 121, as well as certificate holders 
under part 135 and LOA holders under Sec.  91.147 to submit a statement 
of compliance in lieu of an implementation plan. Certificate holders 
receive continuous oversight and are regularly inspected by the FAA. 
The FAA has determined that the existing oversight processes such as 
FAA's Safety Assurance System,\60\ would be sufficient to ensure 
compliance with part 5 by certificate holders under parts 121 and 135 
and Sec.  91.147 LOA holders, and therefore it is not necessary to 
require an implementation plan.
---------------------------------------------------------------------------

    \60\ The Safety Assurance System is the Federal Aviation 
Administration's oversight tool to perform certification, 
surveillance, and Continued Operational Safety. The Safety Assurance 
System includes policy, processes, and associated software the FAA 
Flight Standards Service uses to capture data when conducting 
oversight. For more information see: https://www.faa.gov/about/initiatives/sas.
---------------------------------------------------------------------------

5. Compliance
    In accordance with the FAA's compliance program, FAA personnel 
investigate apparent violations of FAA statutes and regulations and 
have a range of options available for addressing apparent violations, 
when appropriate, including compliance, administrative, and enforcement 
action. The FAA's goal is to use the most effective and appropriate 
means to ensure compliance with part 5 and prevent recurrence. The 
underlying principles and oversight processes that form the foundation 
of FAA's approach to compliance would not change under this proposed 
rule.

E. Proposed Changes to Sections 119.8, 91.147, 21.135, and 21.147

1. Proposed Amendments to Section 119.8
    The FAA is proposing to revise Sec.  119.8 to require certificate 
holders authorized to conduct operations under part 121 or 135 to 
comply with the applicable requirements of part 5. Currently, Sec.  
119.8 only requires certificate holders authorized to conduct 
operations under part 121 to comply with the SMS requirements in part 
5; the proposed revision would add part 135 operators. Additionally, 
the FAA is revising Sec.  119.8 to remove the compliance dates which 
have passed and are no longer applicable.
2. Proposed Amendments to Section 91.147
    As discussed in Section V.A.2., the FAA proposes to require LOA 
holders operating under Sec.  91.147 to meet the requirements of part 
5. Specifically, the FAA proposes to amend Sec.  91.147 to require an 
operator conducting passenger carrying flights for compensation or hire 
to have an FAA-accepted safety management system that meets the 
requirements of part 5, and to add a requirement for an LOA applicant 
to submit with the application the statement of compliance required 
under part 5. The FAA also proposes non-substantive changes, including 
organizational changes to improve the readability of the section.
    The requirement for LOA holders and applicants to develop an SMS 
that complies with part 5 would be found in both part 5 and in Sec.  
91.147. Although part 5 would be applicable to Sec.  91.147 LOA holders 
under proposed 5.1, this amendment is necessary to make compliance with 
part 5 a requirement for operation.
    Because Sec.  91.147(c) contains a complete list of all documents 
that applicants for an LOA must submit as part of their application, 
the FAA is

[[Page 1952]]

proposing to add the statement of compliance required under proposed 
Sec.  5.9(b)(2) to the list of documents submitted when applying for an 
LOA.
    To eliminate redundancy in the regulations, the FAA is proposing to 
remove the phrase ``for drug and alcohol testing'' from current Sec.  
91.147(a), which defines ``operator'' for the purposes of Sec.  91.147 
and for drug and alcohol testing.\61\ The drug and alcohol testing 
requirements are contained in part 120 of 14 CFR. Under part 120, the 
regulations reference ``operator as defined in Sec.  91.147'' numerous 
times. In light of these cross-references, which expressly refer to the 
definition of operator in Sec.  91.147, the FAA has determined that it 
is unnecessary and redundant for current Sec.  91.147(a) to state that 
the definition of operator is ``for drug and alcohol testing.''
---------------------------------------------------------------------------

    \61\ One reason Sec.  91.147 was added to the regulations was to 
clarify the applicability of drug and alcohol programs (Final Rule; 
National Air Tour Safety Standards, 72 FR 6884, Feb. 13, 2007). The 
FAA notes that part 120 was added two years later (Final Rule; Drug 
and Alcohol Testing Program, 74 FR 22649, May 14, 2009), which 
further functioned to eliminate confusion and streamlined the 
requirements of the drug and alcohol program.
---------------------------------------------------------------------------

3. Proposed Amendments to Sections 21.55, 21.135, and 21.147(b)
    The FAA proposes to add a new paragraph (c) under Sec.  21.135 to 
require each applicant for or holder of a PC to meet the applicable 
requirements of part 5. A conforming edit is also proposed for Sec.  
21.147(b) to add the proposed Sec.  21.135(c) to the list of 
requirements with which applicants for an amendment to a PC must 
comply. Because ACSAA requires the Administrator to approve a part 21 
certificate holder's SMS, the FAA is proposing these changes to part 21 
to ensure that compliance with part 5 would be a pre-requisite for 
obtaining or amending a PC.
    Additionally, the FAA is proposing to revise Sec.  21.55 to require 
a type certificate holder, who allows a person to use the type 
certificate to manufacture a product to meet the applicable 
requirements of part 5. The FAA is also proposing to revise the heading 
of this section to account for the additional rule language.

F. Scalability

    Under this proposal, part 5 would apply SMS requirements to 
organizations that are diverse in size and complexity (i.e., aircraft 
fleet size, operations, product types and production volume, services, 
and number of employees). As the proposal is performance-based, the 
procedures and documentation for compliance are scalable to accommodate 
a wide variety of business models and sizes. This proposed rule 
specifies a basic set of processes to form a framework for the SMS, but 
does not specify particular methods for implementing these processes. 
This provides a balance between standardization and a robust SMS 
structure while allowing considerable flexibility for how an individual 
aviation organization chooses to establish its SMS.
    The SMS ARC recommended that part 5 be both scalable and flexible 
to accommodate many business models.\62\ This recommendation was 
incorporated into the current requirements of part 5. The four 
components of SMS (safety policy, safety risk management, safety 
assurance, and safety promotion) set forth in part 5, identify the 
system's requirements, but do not prescribe the means of achieving 
these requirements. Each organization has the flexibility to tailor an 
SMS that works for the organization's size, scope, and complexity to 
comply with the proposed rule. To enable scalability and flexibility, 
part 5 would continue to describe the desired measurable outcomes that 
must be accomplished. This performance-based approach would grant 
flexibility by enabling regulated persons to develop methods, 
processes, or other means of compliance that are appropriate to the 
size, scope, and complexity of their organization and operations.
---------------------------------------------------------------------------

    \62\ SMS ARC Recommendations Final Report, p.2. March 31, 2010.
---------------------------------------------------------------------------

    For example, the objective of safety risk management--to identify 
hazards, assess safety risk, and develop and monitor controls within 
the organization's SMS--would be the same regardless of the size of the 
organization even though methods used might be different. The FAA does 
not anticipate that small organizations will need additional management 
and staff to satisfy the requirement elements of safety risk 
management. For example, smaller organizations, with few aircraft 
operating in a limited geographic area, might record, and track the 
results of the safety risk management process with paper records or 
digital files using common word processing or spreadsheet applications.
    Additionally, persons required to have an SMS under the proposed 
rule would be able to comply with part 5 SMS requirements through a 
variety of means. The FAA considers that organizations may be able to 
leverage consensus or community standards, which are typically 
developed by third-party consultants or trade associations, to meet the 
requirements of part 5. In addition, the FAA recognizes that persons 
may already have systems and processes in place that meet the part 5 
requirements.
    In addition, aviation organizations that perform more than one 
service would be able to adapt their SMS to align with the complexity 
of their operations. For example, some aviation organizations have 
multiple certificates (e.g., the aviation organization might have 
multiple certificates authorizing it to conduct flight operations and 
to perform aircraft maintenance for other organizations, or the 
aviation organization might have multiple certificates authorizing it 
to manufacture certain products and perform flight operations or 
aircraft maintenance). An aviation organization with multiple types of 
certificates may choose to implement a separate SMS for each 
certificate by following the acceptance or approval process as 
applicable for each type of certificate. Although not required to do 
so, these aviation organizations may only want to implement one SMS 
that encompasses all their aviation-related safety activities. An 
aviation organization with multiple certificates would be required to 
meet the part 5 statement of compliance or implementation plan 
requirements as applicable for its certificates.
    A single pilot operator would build an SMS using tools and 
procedures commensurate with the size, complexity, and sophistication 
of the organization. Small organizations are likely to rely on the same 
tools that they already use in their day-to-day operations. For 
example, an operator may rely on standard word processing software, 
Excel spreadsheets, email, or even paper record books to document the 
system, policies, processes, and procedures. The single pilot operator 
would choose based on their own preferences and comfort level with the 
different types of technologies. This is a business decision the 
operator will make to maximize its own efficiencies, and it may look 
very different even among organizations of comparable size. In the 
discussion that follows, the FAA provides examples of how an SMS might 
be scaled to particular persons who would be required to comply with 
this proposed rule.
    The following example illustrates how a small single pilot operator 
could scale implementation of SMS to fit its organization. The 
responsible individual would first develop a system description, which 
would identify the aviation operations that would be

[[Page 1953]]

covered by the SMS and its organizational interfaces. This might be a 
hand-written document or a digital file on a computer. The organization 
would then document its safety policy; again, this could be done on 
paper or in a digital file. The example provided in the appendix in AC 
120-92 could be used as a starting point, but there are also various 
examples available on the internet that could be used as a starting 
point.
    To meet safety risk management and safety assurance requirements, 
the operator could use a tool such as the Web-Based Analytical 
Technology (WBAT) platform which is FAA-supported software, to support 
employee reporting and SMS. The platform could also be used to meet 
recordkeeping and documentation requirements. However, simpler options 
such as digital files on a computer or paper files could be used as 
well. For instance, AC 120-92 provides worksheets that the operator 
could use to meet most safety risk management requirements. To meet 
safety assurance requirements in a simpler way in a single pilot 
operator, the pilot could observe how an operation is working and 
identify trends in real-time. If there are issues, the pilot could take 
appropriate action and reevaluate the results. Any operational process 
could be observed and does not necessarily require formal audits or 
forms. Again, all of this could be documented on paper or in a digital 
file.
    To meet communication requirements a small operator might use 
existing email applications to share information within its 
organization and with interfacing organizations, as appropriate. To 
meet documentation and recordkeeping requirements, the organization 
could use paper or digital files just as they might do for other areas 
of their operations such as invoicing, service and rental agreements, 
etc. The organization could document this using a medium of their 
choosing, including something as simple as a notebook.
    The example above references resources available through or 
supported by the FAA. However, as previously noted, third-party 
consultants and trade associations are also resources available to 
assist in the development of an SMS. Further, aviation colleges and 
universities, ICAO, and other civil aviation authorities such as EASA 
and Transport Canada Civil Aviation have material that can be used to 
help develop an SMS.
    The following example illustrates how SMS might operate in a small, 
low complexity operator. This example company has two helicopters and 
four pilots, and it provides air tour services within a 25 nautical 
mile range of its home airport. The company has developed a safety 
policy under Sec.  5.21 that reminds everyone safety is the company's 
number one priority. It contains in bold letters at the bottom, ``If 
you see something unsafe, say something.'' This policy statement is one 
page, signed by the company owner, and posted inside the office for all 
to see.
    After a flight, one of the pilots reports to the air tour 
operator's home base that there is a new hazard in the flightpath of 
their desired tour route. The hazard is a power line across a canyon 
and there are no visibility markers on that line. The report of the 
hazard is the start of the safety risk management process under Sec.  
5.51(d). Under Sec.  5.53, the air tour operator researches the 
location and height of the power line relative to the flight path in 
the area. The operator calls the power company and learns that the line 
is \1/2\-inch thick and an expected date of installation for the 
markers is unknown due to manufacturing delays. This information is 
recorded in a notebook or digital file. Even the process for conducting 
this analysis under Sec.  5.53(c) can also be located in the notebook 
or in a digital file.
    Under Sec.  5.53, the air tour operator determines the unmarked 
power line is an operational hazard. Knowing that helicopters and 
unseen power lines are a high risk, and realizing that the company's 
air tour route places them in the exact spot of the canyon where the 
unmarked power line exists, makes this particular risk assessment easy. 
The air tour company determines the severity of hitting that power line 
would be catastrophic and the likelihood of encountering that power 
line is high due to their route of flight. Using a risk matrix, the 
operator qualitatively determines that the risk of conducting tours 
with the presence of the unmarked power line is unacceptable and 
requires risk controls be implemented to reduce the risk to an 
acceptable level. All this information is placed into the notebook. The 
operator develops risk controls under Sec.  5.55(c), which, in this 
case, is a deviation to the planned air tour route. The evaluation of 
the risk acceptance under Sec.  5.55(d) is done by talking to other 
employees, brainstorming, or engaging with other operators. The records 
of meetings or conversations, as well as the risk controls themselves, 
are documented using a medium of their choosing, including something as 
simple as a notebook or digital file consistent with the recordkeeping 
requirements of Sec.  5.97.
    The operator's next step is to monitor the controls it put into 
place through its safety assurance program. The operator will check on 
the deviation to the route it put in place under Sec.  5.71(a)(1) 
through proposed (a)(7). This can be done by tracking the flight path 
or auditing the new procedures and keeping those notes in the notebook. 
Under Sec.  5.93, the operator will promote safety by informing the 
pilots of the hazard and communicating the safety action taken, which 
was providing the air tour route with a deviation. Each pilot can be 
issued a safety alert via a memo that can be handed to them upon check 
in and perhaps sent via email before the flight starts.
    This example illustrates how aviation safety is improved because 
current regulations do not require operators to have a process to 
identify and manage hazards. For example, operators are not currently 
required to: have a process to proactively identify hazards before they 
become accidents, establish a structured method to assure hazards are 
controlled, have formal communication methods that notify all company 
personnel of new procedures, or keep records regarding safety actions 
taken to prevent possible accidents.
    The FAA recognizes that there is a spectrum of complexity within 
organizations across the aviation product and service provider 
industry. As discussed earlier in this section, there are relatively 
low-cost implementation resources available to assist persons to meet 
part 5 requirements, including online platforms such as the Web-Based 
Analytical Technology (WBAT) platform. This platform supports all 
aspects of an SMS and it includes the following tools: SMS 
implementation manager, safety risk management, safety assurance, 
employee reporting, and data sharing. Additionally, the FAA has drafted 
guidance in which there are numerous scalability examples of how 
various organizations can meet the pertinent SMS requirements based 
upon where an organization may fall on the spectrum of complexity. The 
proposed Advisory Circulars (AC 21-58, Safety Management Systems for 
Part 21 Type and Production Certificate Holders and AC 120-92, Safety 
Management for Aviation Service Providers), provide in-depth 
discussions on how to meet each of the part 5 requirements, what tools/
methods may be employed, how they may be employed, who would be 
involved, and includes sample tools and worksheets. For further 
information, see the draft AC 21-58, Safety Management Systems for Part 
21 Type and Production Certificate Holders and AC

[[Page 1954]]

120-92 Safety Management for Aviation Service Providers, which are 
included in the docket of this proposed rule.

G. Examples of Real World Scenarios

    The following accident summaries provide examples of ways that an 
organization having an SMS under the proposed rule might provide 
mitigation in real world scenarios. To illustrate how SMS would be used 
by different entities under the proposed rule, the following accident 
summaries have been arranged by the type of operator or certificate 
holder involved in the accident.
1. Accident Involving Design and Production Under Part 21
    On June 28, 2015, a single engine aircraft crashed following a 
total loss of engine power due to the failure of the alternator drive 
coupling. The pilot and two passengers were fatally injured, and the 
airplane was destroyed by a post-crash fire. The manufacturer of the 
aircraft and aircraft engine were issued type and production 
certificates and the manufacturer of the installed replacement 
alternator coupling had been issued a parts manufacturer approval for 
the coupling pursuant to 14 CFR part 21. The instructions provided by 
the engine manufacturer did not advise that a loose or improperly tight 
coupling could lead to a loss of power.
    The NTSB report highlighted a review of the engine manufacturer's 
warranty records for the 5 years preceding the accident revealed six 
claims relating to the alternator coupling.\63\ If an engine 
manufacturer in this circumstance were required to comply with the 
proposed rule, the warranty information would be used to prevent future 
safety issues. Under Sec.  5.71, the engine manufacturer would develop 
a process for warranty data it receives and conduct an investigation 
under Sec.  5.71(a)(6). The engine manufacturer would conduct audits of 
its processes and the instructions it provided on how to inspect or 
measure the alternator coupling under Sec.  5.71(a)(3) before 
distributing the coupling. In this accident, the NTSB report also 
mentioned there were 10 events filed in the FAA Service Difficulty 
Report System relating to the alternator coupling.\64\ The engine 
manufacturer would analyze those reports under Sec.  5.71(b), which 
could have also revealed the inadequacy of the procedures. Then, under 
Sec.  5.73, the engine manufacturer would conduct an assessment of its 
safety performance and ensure compliance with the risk control it 
established in developing new instructions for the inspection and 
measuring of that alternator coupling.
---------------------------------------------------------------------------

    \63\ In this example, the organization is a medium-sized company 
that manufactures engines. The FAA does not have detailed data on 
the number of warranty claims during the five-year period.
    \64\ Service Difficulty Reports are evaluated by FAA flight 
standards offices. If the initial evaluation indicates a serious 
airworthiness problem, the FAA Aircraft Certification Office and the 
Aircraft Evaluation Division responsible for the product must be 
informed of the equipment service difficulty and any recommendations 
for corrective actions. Original Equipment Manufacturers are not 
notified when a Service Difficulty Report is logged. Currently, 
manufacturers are not required to proactively scan the Service 
Difficulty Reports database.
---------------------------------------------------------------------------

    Section 5.51(d) would require the engine manufacturer to apply the 
safety risk management process to the information collected under Sec.  
5.71 that indicated the identification of hazards or ineffective risk 
controls. Section 5.53(a) would require the engine manufacturer to 
analyze its systems resulting in a focused evaluation of the 
maintenance instructions and tooling requirements provided with the 
distribution of the alternator coupling. Then, under Sec.  5.55, the 
engine manufacturer would analyze the safety risk associated with the 
procedures that inadequately ensured that the coupling was properly 
tightened, determine whether the risk was unacceptable, and may develop 
risk controls that could result in a different set of maintenance 
instructions.
2. Accident Involving Part 135 Operator
    On June 25, 2015, a single-engine, turbine-powered, float-equipped 
airplane, operated by a part 135 on-demand air carrier, collided with 
mountainous, tree-covered terrain about 24 miles east-northeast of 
Ketchikan, Alaska.\65\ The pilot and eight passengers sustained fatal 
injuries, and the airplane was destroyed.
---------------------------------------------------------------------------

    \65\ NTSB accident number ANC15MA041.
---------------------------------------------------------------------------

    The NTSB established the probable cause of this accident as the 
pilot's decision to continue visual flight into an area of instrument 
meteorological conditions, which resulted in his geographic 
disorientation and controlled flight into terrain. The NTSB report 
listed several contributing factors: (1) the operator's company 
culture, which tacitly endorsed flying in hazardous weather and failed 
to manage the risk associated with the competitive pressures affecting 
Ketchikan-area air tour operators, (2) the operator's lack of a formal 
safety program, including not having an SMS, and (3) the operator's 
inadequate operational control of flight releases. The NTSB found that 
the operator's management did not hold themselves accountable for 
conducting safe operations and fostered a company culture that condoned 
operating in weather conditions with inadequate visibility for visual 
flight.
    If the proposed rule had been in effect during this time, the 
operator would have had requirements that may have prevented or 
mitigated an accident such as this one.\66\ With an SMS, the operator 
would have a safety policy that clearly articulates the company's 
safety objectives and its commitment to safety as required by Sec.  
5.21. Under Sec. Sec.  5.23 and 5.25, the operator would have to define 
accountability for safety within the organization and identify those 
members of management that are responsible for hazard identification, 
safety risk assessment, and safety promotion within their areas of 
responsibility. The operator allowed the operational control functions 
to be delegated to flight schedulers. Operational control provides for 
management of planning, departure, and inflight decision making to 
assure the safety of flights. These operational control functions were 
not performed adequately by those flight schedulers, leading to a loss 
of effective operational control. Section 5.23 requires all members of 
management to be accountable for their area of responsibility. 
Operational control responsibility resides with the Director of 
Operations, a required management position for an air carrier.
---------------------------------------------------------------------------

    \66\ In this example, the operator employed approximately 30 to 
40 people.
---------------------------------------------------------------------------

    Section 5.51 would require the operator to apply safety risk 
management in the development of operational procedures. The operator 
had a policy that both the pilot and flight scheduler must agree that 
the flight can be conducted safely before a flight may be launched. 
This action did not take place and, more importantly, the decision to 
initiate that particular flight was made by a new pilot who was subject 
to cultural and peer influences. Section 5.51 would help close this gap 
by requiring the operator to conduct safety risk management when 
developing its procedures, policies, and training. During the safety 
risk management process, Sec.  5.53 would require the operator to 
analyze its procedures and policies of operational control with the 
consideration of the operating environment of Ketchikan and the 
pressure of getting those passengers back to their cruise ship on time. 
Section 5.55 would require the operator to assess its risk and develop 
risk controls so the pilot would not be the sole decision maker 
regarding whether

[[Page 1955]]

the flight should proceed.\67\ Section 5.55 would also add an 
additional control to its training program, requiring the inclusion of 
the risk of the operating environment and the hazardous local weather 
patterns.
---------------------------------------------------------------------------

    \67\ In this example, the operator already had a policy 
requiring more than one person to decide whether the flight should 
be initiated. Therefore, the operator was not in conformance with 
its company policy related to operational control.
---------------------------------------------------------------------------

    The safety assurance requirements of Sec.  5.71 would require the 
operator to monitor its operational processes and operational 
environment, to include auditing its processes and procedures. Any of 
these monitoring actions could have revealed that the company 
procedures relating to operational control of their flights were not 
followed. Upon discovering those discrepancies, the operator would 
enter back into the safety risk management process and carefully look 
at those procedures to include interfaces, such as training of 
personnel involved, to ensure all company personnel are adequately 
trained to follow the company procedures. Additionally, auditing of the 
operator's pilot training program under Sec.  5.71 might reveal the 
exclusion of two items, training of hazardous local weather patterns 
and controlled flight into terrain avoidance training. Both are 
essential training items for this environment, which potentially could 
be identified during an analysis under Sec.  5.53.
    Under Sec.  5.91, the operator would be required to provide SMS 
training to management personnel. This SMS training could positively 
affect the safety culture of the entire organization. Section 5.93 
would require the operator to explain why safety actions and procedures 
are introduced or changed, thus also having an effect on the safety 
culture.
    The FAA recognizes that in this example, the operator was already 
in violation of its internal company policies. Although the company's 
policy included a requirement not required by regulation, the 
documentation that the company was not adhering to its own policies 
could be evidence that the organization is not maintaining its SMS per 
this proposed rule. Documentation requirements under an SMS create 
objective evidence that the organization is identifying hazards, 
assessing risk, and mitigating that risk as needed. The FAA may audit 
this evidence at any time. Where the person has failed to comply with 
FAA regulations, including SMS regulatory requirements, the FAA may 
take enforcement action. This would also help the FAA identify safety-
deficient organizations. Knowledge that adherence to its SMS policies 
could be audited by the FAA may encourage an organization to develop a 
stronger safety culture.
3. Accident Involving Helicopter Air Tour Conducted Under Section 
91.147
    On February 18, 2006, a helicopter operated by an air tour operator 
crashed into the Pacific Ocean, off the coast of Hawaii, after 
attempting an emergency landing following a maintenance malfunction of 
the main rotor.\68\ Three of the passengers were able to exit the 
helicopter but one passenger was trapped inside and drowned.
---------------------------------------------------------------------------

    \68\ National Transportation Safety Board accident number 
WPR16FA072.
---------------------------------------------------------------------------

    The NTSB determined the probable cause of this accident was the in-
flight failure of the engine to transmission drive shaft due to 
improper maintenance, which resulted in low main rotor rpm and a 
subsequent hard landing on water.
    The NTSB highlighted in its findings a failure of adequate 
managerial oversight during a critical maintenance task on the 
aircraft. A rated mechanic was not present throughout the removal, 
inspection, and reinstallation of the engine-to-transmission drive 
shaft. Additionally, maintenance records revealed no entries for the 
required annual inspection, or the 100-hour inspections and several 
required component inspections were overdue. Even though both of these 
deficiencies were violations of existing regulations, the FAA believes 
that an SMS would have allowed for the organization to self-identify, 
correct, and prevent the issue, negating the need for after-the-fact 
enforcement of non-compliance with the current regulation. If the 
operator implemented an SMS as proposed by this rule, the 
accountability for all members of management regarding their area of 
responsibility would have been explicitly defined, as required by Sec.  
5.23.
    The NTSB final accident report indicated the accident was caused by 
the in-flight failure of the engine-to-transmission drive shaft due to 
some missed maintenance processes. Under Sec.  5.71, the organization 
could have identified the missing steps in the maintenance process. 
NTSB's review of maintenance records revealed no entries pertaining to 
a current annual inspection or 100-hour inspection. An auditing process 
under Sec.  5.71 could have identified this deficiency. Additionally, a 
component inspection sheet provided by the operator revealed that 
several required component inspections were overdue and had not been 
completed at the time of the accident. The operator reported to the 
NTSB that he knew those inspections were coming due but did not realize 
the helicopter had flown such that it exceeded the inspection interval 
(which was a violation of existing regulatory requirements). Therefore, 
the owner did not know those items were overdue until he printed the 
status sheet for the investigation of the accident. If the operator 
monitored its operational processes as would be required under Sec.  
5.71, it would have conducted safety risk management under Sec.  5.51 
that would have identified hazards involving the lack of procedural 
actions resulting in overdue inspections. The organization would then 
develop and implement additional safety risk controls by applying Sec.  
5.55, such as management oversight, thus preventing future occurrences.
    In this example, the operator was in violation of existing safety 
regulations. As with the previous example where an internal company 
policy was not followed, SMS documentation requirements would either 
create the objective evidence that the organization is identifying 
hazards, assessing risk, and mitigating risk as needed, or the lack of 
proper SMS documentation may demonstrate that the organization is in 
violation of regulation, including SMS regulatory requirements. The FAA 
may audit this evidence at any time. The evidence created through the 
SMS would help the FAA to identify safety-deficient organizations more 
effectively. Where deficiencies exist, the FAA may take enforcement 
action; however a single safety incident would not necessarily indicate 
that an organization is out of compliance with its SMS.

H. Data Reporting and Protection

    In accordance with proposed Sec.  5.94, any organization that 
identifies a hazard in the operating environment would be required to 
provide notice of the hazard to the interfacing person or persons 
identified in the system description, who, to the best of their 
knowledge, would be able to address the hazard or mitigate the risk.
    Title 49 U.S.C. 44735 provides protection from disclosure under the 
Freedom of Information Act,\69\ for certain reports, data, or other 
information that are submitted to the FAA voluntarily and are not 
required to be submitted to the Administrator under any other provision 
of law. Section 44735(b)(4) limits disclosure of ``reports, data, or 
other information produced or collected for purposes of developing and 
implementing a safety management

[[Page 1956]]

system acceptable to the Administrator.'' Section 44735(b)(4) also 
limits disclosure of ``reports, analyses, and directed studies, based 
in whole or in part on reports, data or other information'' related to 
the development and implementation of a SMS.
---------------------------------------------------------------------------

    \69\ See 5 U.S.C. 552(b)(3)(B).
---------------------------------------------------------------------------

    The protections of 49 U.S.C. 44735 do not extend to information 
that is required to be submitted to the FAA.\70\ Therefore, if Sec.  
5.94 requires that notice of a hazard be submitted to the FAA (because 
the FAA is an interfacing party), that submission is not protected from 
disclosure under 49 U.S.C. 44735. However, if that notice of hazard 
submitted to the FAA contains trade secrets, or confidential commercial 
or financial information, the FAA must protect the information from 
public disclosure under 18 U.S.C. 1905 or 5 U.S.C. 552(b)(4). If a 
person voluntarily shares hazard information with the FAA and such data 
is not required to be submitted under Sec.  5.94, then such information 
would be protected from disclosure under section 44735.
---------------------------------------------------------------------------

    \70\ As discussed earlier in this preamble, for summaries of 
confidential employee reports to the FAA that would be required 
under proposed Sec.  5.71(c), 49 U.S.C. 44735(a)(2) offers statutory 
protection from disclosure under the Freedom of Information Act, 
pursuant to 5 U.S.C. 552(b)(3)(B).
---------------------------------------------------------------------------

    The FAA does not control data shared by a person under proposed 
Sec.  5.94 with other interfacing persons such as other governmental 
entities or private parties. Certain protections might be available 
under a private, legally-binding agreement to protect the information 
(e.g., non-disclosure agreement) amongst the parties sharing the 
information, or under certain state or local laws or regulations.
    Persons that would be subject to Sec.  5.94 may seek legal guidance 
to determine the most appropriate way to handle and protect data and 
information submitted to, or received from, interfacing persons. The 
FAA encourages these persons to assess applicable State legal 
frameworks to determine how to comply with data sharing, privacy laws, 
and reporting requirements, and how to best protect the data shared or 
received. These persons should evaluate whether states afford data 
sharing and information protection mechanisms through local statutes or 
regulations, or through other legal or contractual arrangements, such 
as confidential disclosure agreements. The FAA expects that industry 
already has agreements or other arrangements with those interfaces they 
interact with the most to protect their data and prevent unauthorized 
disclosures.\71\ The FAA considers that industry would be best able to 
determine how to effectively share hazard information with interfacing 
parties.
---------------------------------------------------------------------------

    \71\ As discussed earlier in the preamble, interfaces are often 
entities like suppliers or companies that the certificate holder 
contracts with for services. In these cases, contracts likely 
already exist, so the need to share hazard information could be 
added to those existing contracts or included in future contracts. 
The FAA notes that there are analogous information sharing 
agreements already present in the aviation industry. For example, an 
aircraft owner is provided with an Airplane Flight Manual. If the 
operator finds errors in the manual there is a means to report this 
to the Original Equipment Manufacturer. The manufacturer may make 
the change and then send out modifications to all the owners of that 
type of aircraft, therefore providing a closed loop communication 
system.
---------------------------------------------------------------------------

VI. Guidance Material

    The FAA provides guidance to the industry on potential methods to 
comply with part 5. Included in the docket for this proposed rule are 
draft updates to FAA's existing SMS guidance material, AC 120-92: 
Safety Management Systems for Aviation Service Providers, and new draft 
guidance in AC 21-58: Safety Management Systems for Type and Production 
Certificate Holders.

A. Guidance for Aviation Service Providers

    The FAA is revising AC 120-92: Safety Management Systems for 
Aviation Service Providers, to provide guidance in meeting the new 
requirements of part 5, and for all types of certificate holders and 
LOA holders who would be required to have an SMS under the proposed 
rule. The draft AC also describes methods of scalability for the 
service providers to meet the proposed requirements based on their size 
and the services they provide. Lastly, this draft AC has been updated 
to include current information and best practices. The AC would 
continue to support the FAA SMS Voluntary Program participants.

B. Guidance for Design and Production Approval Holders

    The FAA has drafted a new AC 21-58: Safety Management Systems for 
Type and Production Certificate Holders that would assist part 21 TC 
and PC holders and applicants in developing and implementing an SMS 
compliant with the proposed part 5 requirements. This new draft 
advisory circular is similar to the updated AC 120-92, geared toward 
the needs of part 21 certificate holders, and is consistent with AC 
120-92 to facilitate corporate-wide SMS implementation for part 21 
certificate holders that also have other certificates under 14 CFR.

VII. Regulatory Notices and Analyses

    Federal agencies consider impacts of regulatory actions under a 
variety of executive orders and other requirements. First, Executive 
Order 12866 and Executive Order 13563 direct 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 (Pub. L. 96-354) requires 
agencies to analyze the economic impact of regulatory changes on small 
entities. Third, the Trade Agreements Act of 1979 (Pub. L. 96-39) 
prohibits agencies from setting standards that create unnecessary 
obstacles to the foreign commerce of the United States. In developing 
U.S. standards, this Trade Act requires agencies to consider 
international standards and, where appropriate, that they be the basis 
of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4) requires agencies to prepare a written assessment of 
the costs, benefits, and other effects of proposed or final rules that 
include a Federal mandate that may result in the expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100,000,000 or more (adjusted annually for inflation) in 
any one year. The current threshold after adjustment for inflation is 
$165,000,000, using the most current (2021) Implicit Price Deflator for 
the Gross Domestic Product. The FAA has provided a detailed RIA in the 
docket for this rulemaking. This portion of the preamble summarizes the 
FAA's analysis of the economic impacts of this rule.
    In conducting these analyses, the FAA has determined that this 
rule: (1) will generate benefits that justify costs; (2) is a 
``significant regulatory action'' as defined in section 3(f) of 
Executive Order 12866; (3) will have a significant economic impact on a 
substantial number of small entities; (4) will not create unnecessary 
obstacles to the foreign commerce of the United States; and (5) will 
not impose an unfunded mandate on State, local, or tribal governments, 
or on the private sector.

A. Regulatory Impact Analysis

    In summary, the FAA estimated quantified annualized costs of $51.3 
million using a 7 percent discount rate over a 5-year period of 
analysis. The costs represent the value of resources needed for 
regulated entities to develop and implement a safety management system. 
Mitigation costs to reduce or eliminate any hazards identified by an 
SMS, which are yet to be identified and

[[Page 1957]]

thus unknown, are not included in the analysis. The FAA evaluated 
benefits qualitatively. The benefits are the value that would result 
from avoided fatalities, serious injuries, aircraft damage, and 
investigation costs.
1. Baseline for the Analysis
    The baseline for the analysis of incremental benefits and costs of 
the proposed rule includes existing regulations and standards, existing 
practices, affected entities, and current risks of aircraft accidents 
and incidents. The FAA already requires part 121 operators to implement 
an SMS. The FAA also provides a voluntary SMS program for certificate 
holders under parts 21, 135, and 145. The SMS voluntary program is 
based on the requirements in existing part 5. There are over 200 
participants in the voluntary program, including 40 participants in 
active conformance (full implementation of the certificate holder's 
SMS).\72\ In addition, some part 121 operators have covered their part 
135 operations and part 145 repair station services under their SMS. 
Finally, certain aircraft design and production approval holders and 
certificated repair stations subject to EASA requirements will be 
required to develop and implement an SMS under that agency's SMS 
requirements.\73\
---------------------------------------------------------------------------

    \72\ See FAA Order 8900.1, Volume 17, Chapter 3, ``Safety 
Management System Voluntary Program''.
    \73\ EASA adopted a rule to require SMS for maintenance 
organizations (part 145), which will become applicable on December 
2, 2022. EASA also adopted a rule for design and production 
organizations (part 21), which will become applicable on March 7, 
2023.
---------------------------------------------------------------------------

    The FAA estimated that the proposed rule would apply to 
approximately 65 holders of both a type certificate and a production 
certificate for the same product. Also, there are approximately 1,907 
part 135 operators that would be required to implement an SMS, which 
includes 272 entities that also hold an LOA to conduct commercial air 
tours under Sec.  91.147. Additionally, there are 694 LOA holders 
operating under Sec.  91.147 that are not associated with a part 135 
certificate that would be required to implement an SMS under the 
proposed rule.
    With respect to aircraft accidents, although the risk associated 
with regularly scheduled commercial air carriers under part 121 in the 
United States is low, there have been accidents involving fatalities 
and serious injuries. Under part 135, there has been an average of 43 
accidents and 24 fatalities annually from 2015 to 2019, mostly within 
on-demand operations. There have also been recent fatal accidents of 
air tours conducted under Sec.  91.147, an average of 7 accidents and 3 
fatalities annually from 2015 to 2019.
2. Benefits
    The benefits of the proposed rule would include the value of the 
reductions in safety risks associated with requiring additional 
entities to implement SMS. The information available for estimating 
such benefits includes data on accident consequences, accident 
investigation reports identifying the probable causes, and information 
on the values associated with avoiding consequences. The FAA relied 
largely on aviation accident data from the NTSB for the years 2015 to 
2019 (the most recent available at the time of the analysis) and 
standard values for estimating avoided consequences including 
fatalities, serious injuries, property damage, and investigation costs.
    The FAA evaluated benefits by determining annual average aviation 
accident consequences, the share of those consequences that could be 
mitigated under the proposed rule, and probability of mitigation. The 
FAA determined the share of consequences that could potentially be 
mitigatable by the rule by looking at the causes of individual 
accidents. Requiring certain aircraft design and production approval 
holders (14 CFR part 21) to implement SMS has the potential to mitigate 
accidents in operations conducted under 14 CFR parts 121, 135, and 91. 
Requiring part 135 operators and Sec.  91.147 LOA holders to implement 
SMS has the potential to mitigate accidents in operations under part 
135 and Sec.  91.147. The probability of mitigation is uncertain.
    The FAA used accident data from 2015 to 2019, focusing on those 
involving fatalities and serious injuries (1,954 out of 6,718 accidents 
across parts 91, 121, and 135). The FAA identified 11 accidents of 
which the risk could have been mitigated by requiring SMS for part 21 
approval holders. The FAA also identified 35 part 135 accidents and 4 
Sec.  91.147 accidents of which the risk could have been mitigated by 
the proposed rule. There are a number of uncertainties in the analysis, 
including that not all accidents indicative of the potential for 
benefits from the proposed rule may have been identified. In 
particular, requiring SMS for certain part 21 design and production 
approval holders will have beneficial impacts beyond domestic 
operations (i.e., to citizens of foreign countries).
3. Costs
    To estimate compliance costs, the FAA developed average onetime SMS 
development costs and recurring SMS implementation costs. Then, the FAA 
extrapolated these costs to entities that would fall under the expanded 
applicability of part 5 who would not already be required to implement 
an SMS and are not already implementing an SMS voluntarily. To develop 
these estimates, the FAA conducted limited outreach to industry 
participants in the FAA's voluntary SMS program to obtain data on 
implementation costs. In order to properly scale costs for company 
size, the FAA calculated these costs per employee for certificate 
holders under part 21 and per aircraft for operators under part 135 and 
Sec.  91.147. The FAA then extrapolated the costs based on number of 
employees or number of aircraft. The FAA estimated only minor costs for 
entities that have already implemented an SMS voluntarily.
    There are a number of uncertainties in the analysis, including that 
costs are based on a small sample. As a result, costs could be lower or 
higher than estimated. The outreach indicated a high level of 
variability depending on the individual circumstances of the entity 
(e.g., existing processes and capabilities). For this analysis, the FAA 
intends for the estimates to represent an average across entities.
4. Summary
    Table 2 provides a summary of annualized and present value costs 
using 3 percent and 7 percent discount rates.

                        Table 2--Summary of Costs
                            [Millions $2021]
------------------------------------------------------------------------
                                                                Present
                    Category                      Annualized   value (5
                                                                years)
------------------------------------------------------------------------
3% Discount Rate:
  Part 21......................................         $5.0       $22.8
  Part 135.....................................         39.5       180.8
  Sec.   91.147................................          7.2        33.0
  Part 121.....................................          0.1         0.3
                                                ------------------------
      Total....................................         51.7       236.9
7% Discount Rate:
  Part 21 \1\..................................          5.0        20.6
  Part 135.....................................         39.1       160.4
  Sec.   91.147................................          7.1        29.3
  Part 121.....................................          0.1         0.3
                                                ------------------------
      Total....................................         51.3       210.6
------------------------------------------------------------------------
n.e. = not estimated.
 \1\ Based on quantified impacts. Excludes costs of mitigation, which
  FAA was unable to estimate.

    Considering particular uncertainties associated with estimating 
benefits (e.g., SMS effectiveness), the FAA estimated the number of 
accident consequences (fatalities, serious injuries, and

[[Page 1958]]

destroyed airplanes) that would have to be avoided for benefits to 
equal costs. These estimates are based on the estimated costs if 
mitigation costs are minimal. Although mitigation costs are not 
included, neither are cost savings, such as from potential efficiency 
gains. For example, SMS can result in doing things differently but not 
always more costly.
    However, the breakeven analysis is limited for providing insight on 
the relationship of benefits and costs because net benefits will also 
depend on the magnitude of mitigation costs, which have not been 
quantified due to lack of data. Therefore, the FAA also calculates the 
breakeven level of consequences for an illustrative example of 
mitigation costs equal to 25 percent of compliance costs. Avoided 
consequences would need to be higher if mitigation costs are greater 
than 25 percent of compliance costs. The FAA requests comment and data 
on the costs of mitigations that could have prevented the accidents 
described in the analysis.
    The breakeven analysis suggests that the proposed rule would break 
even, across all parts, if an average of four fatalities are avoided 
annually (5 fatalities in the example assuming mitigation costs are 25 
percent of compliance costs). Requiring SMS for certain part 21 design 
and production approval holders would break even if an average of four 
serious injuries are avoided annually (5 serious injuries assuming 
mitigation costs are 25 percent of compliance costs). The SMS 
requirements for part 135 operators would break even if an average of 3 
fatalities are avoided annually (4 fatalities assuming mitigation costs 
are 25 percent of compliance costs). The SMS requirements for Sec.  
91.147 LOA holders would break even if an average of 1 fatality is 
avoided annually (1 fatality also assuming mitigation costs are 25 
percent of compliance costs). The benefits of the proposed rule could 
also equal costs with other combinations of avoided accident 
consequences.
5. Regulatory Alternatives
    The FAA considered two alternatives to the proposed rule. Each 
proposed alternative would change the applicability of the requirements 
for an SMS:
     Alternative 1: Extend applicability of part 5 to include 
most design and production approval holders under part 21, with some 
exceptions.
     Alternative 2: Exclude from the applicability of part 5 
the part 135 operators that use only one pilot-in-command in their 
operations and the Sec.  91.147 LOA holders that conduct fewer than 100 
flights per year.
    The FAA considered an alternative to the proposed part 21 
applicability based on recommendations from a part 21 SMS Aviation 
Rulemaking Committee. Under Alternative 1, the SMS requirements would 
apply beyond holders of both a type and production certificate for the 
same product and would include most design and production approval 
holders. This alternative would exclude design and production approval 
holders of products, articles, or changes to existing type certificated 
products that are not typically used for carrying passengers or 
property for compensation or hire. Also, as part of this alternative, 
the FAA considered a process that would allow design and production 
approval holders to apply to be excluded from SMS requirements if their 
article or approved product alteration would have little or no effect 
on the continued safe flight or landing of the aircraft. Under 
Alternative 1, the FAA estimated that over 3,000 additional entities 
would be required to implement SMS. The FAA also estimated that over 
3,000 additional entities (not associated with the entities in the 
previous sentence) would likely apply for an exception from the SMS 
requirements.
    Alternative 1 would increase benefits through SMS implementation by 
the approximately 3,000 entities who design or produce certain safety-
critical parts under any design or production approval. The alternative 
would also hold entities who design and produce interchangeable safety-
critical parts to the same SMS standard required of entities holding 
both a type certificate and a production certificate for the same 
product. However, as of the date of this analysis, the FAA was not able 
to estimate these risks or benefits due to a lack of specific data and 
lack of certainty at this time.
    The FAA estimated that costs could be $39.4 million for Alternative 
1, using a number of assumptions because the agency does not have 
information for these entities on the size of their aviation design and 
production processes. The costs would include SMS development and 
implementation costs, application costs for an exception to 
implementing SMS, and FAA review and approval costs. Compared to the 
proposed rule, the increased costs would be approximately $34.4 million 
(annualized using a 7% discount rate).
    The FAA considered an alternative for part 135 and Sec.  91.147 
that would limit the number of small operators affected. Under 
Alternative 2, the FAA considered excluding from the applicability of 
part 5 the part 135 operators that use only one pilot-in-command in 
their operations and the Sec.  91.147 LOA holders that conduct fewer 
than 100 flights per year. The FAA estimated that 1,313 part 135 
operators would be affected under Alternative 2 compared to 1,907 under 
the proposed rule. The FAA does not have data on the number of Sec.  
91.147 LOA holders that conduct less than 100 flights per year. 
However, for this analysis, the FAA used LOA holders with one 
registered aircraft as an estimate of LOA holders that would not be 
affected under the alternative. The FAA estimated that 321 Sec.  91.147 
LOA holders would be affected under Alternative 2 compared to 694 under 
the proposed rule.
    The reduced applicability under Alternative 2 would lower both the 
benefits and costs. For part 135, costs would be $3.4 million lower 
compared to the proposed rule. For Sec.  91.147, costs would be $1.7 
million lower compared to the proposed rule. With respect to benefits, 
the FAA identified five potentially mitigatable accidents involving 
operators that use only one pilot-in-command and one potentially 
mitigatable accident involving a Sec.  91.147 LOA holder with one 
aircraft registration. These types of operators would not be required 
to implement an SMS.
    Table 3 provides a summary of the analysis of alternatives. The 
uncertainty associated with the estimation of benefits and costs of the 
proposal also applies to the estimates of the alternatives. Section 
V.A., Applicability, of the preamble to the proposed rule provides the 
agency's rationale for selecting the proposed option.

[[Page 1959]]

                                    Table 3--Summary of Alternatives Analysis
----------------------------------------------------------------------------------------------------------------
                                                             Change from proposed rule
             Scenario             ------------------------------------------------------------------------------
                                        Affected entities             Benefits             Costs (millions)
----------------------------------------------------------------------------------------------------------------
Alternative 1: Extend              SMS: +3,000................  Data not available   +$34.4.
 applicability to include          Exception: +3,000..........   to quantify change
 additional design and production                                in risk.
 approval holders under part 21.
Alternative 2: Limit               Part 135: -594.............  Lower (would not     Part 135: -$3.4.
 applicability for certain part    Sec.   91.147: -373........   mitigate risks      Sec.   91.147: -$1.7.
 135 operators (exclude operators                                identified in 5
 that use only one pilot-in-                                     part 135 and 1
 command) and Sec.   91.147 LOA                                  Sec.   91.147
 holders (exclude fewer than 100                                 accidents).
 flights per year).
----------------------------------------------------------------------------------------------------------------

    Please see the RIA available in the docket for the more details.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, 94 
Stat. 1164 (5 U.S.C. 601-612), as amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 
857, Mar. 29, 1996), and the Small Business Jobs Act of 2010 (Pub. L. 
111-240, 124 Stat. 2504 Sept. 27, 2010), requires Federal agencies to 
consider the effects of the regulatory action on small business and 
other small entities and to minimize any significant economic impact. 
The term ``small entities'' comprises small businesses and not-for-
profit organizations that are independently owned and operated and are 
not dominant in their fields, and governmental jurisdictions with 
populations of less than 50,000.
    The FAA is publishing this Initial Regulatory Flexibility Analysis 
(IRFA) to aid the public in commenting on the potential impacts to 
small entities from this proposal. The FAA invites interested parties 
to submit data and information regarding the potential economic impact 
that would result from the proposal. The FAA will consider comments 
when making a determination or when completing a Final Regulatory 
Flexibility Analysis.
    An IRFA must contain the following:
    (1) A description of the reasons why the action by the agency is 
being considered;
    (2) A succinct statement of the objective of, and legal basis for, 
the proposed rule;
    (3) A description of and, where feasible, an estimate of the number 
of small entities to which the proposed rule will apply;
    (4) A description of the projected reporting, recordkeeping, and 
other compliance requirements of the proposed rule, including an 
estimate of the classes of small entities which will be subject to the 
requirement and the type of professional skills necessary for 
preparation of the report or record;
    (5) An identification, to the extent practicable, of all relevant 
Federal rules that may duplicate, overlap, or conflict with the 
proposed rule; and
    (6) A description of any significant alternatives to the proposed 
rule which accomplish the stated objectives of applicable statutes, and 
which minimize any significant economic impact of the proposed rule on 
small entities.
1. Reasons the Action Is Being Considered
    As described elsewhere in this preamble, the proposed ruled 
addresses a Congressional mandate as well as recommendations from the 
NTSB. Additionally, the proposed rule would move the United States 
closer to harmonizing with ICAO Annex 19. The FAA intends for the 
proposed rule to improve aviation safety by requiring organizations to 
implement a proactive approach to managing the safety performance of an 
organization. The successful use of SMS by part 121 operators suggests 
potential benefits of expanding SMS into other sectors of the aviation 
system.
2. Objectives and Legal Basis of the Proposed Rule
    The objective of implementing an SMS is to proactively identify 
hazards, assess the risk of those hazards, and apply effective 
mitigations before an accident or incident occurs. The proposed rule 
would expand the use of SMS in the aviation industry by making the SMS 
requirements applicable to part 135 operators, Sec.  91.147 LOA 
holders, and certain part 21 design and production approval holders. 
The proposed rule would also increase the opportunities for 
communication of identified hazards between part 119 certificate 
holders, Sec.  91.147 LOA holders, and manufacturers. The proposed rule 
is therefore intended to increase the overall safety of the national 
airspace system. Additionally, the proposed rule would fulfill the 
statutory mandate in section 102 of ACSAA. Section II of this preamble 
describes the FAA's authority to issue rules on aviation safety under 
Title 49 U.S.C. and the Congressional mandate in section 102 of ACSAA.
3. Description and Estimate of the Number of Small Entities
    FAA used the definition of small entities in the RFA for this 
analysis. The RFA defines small entities as small businesses, small 
governmental jurisdictions, or small organizations. In 5 U.S.C. 601(3), 
the RFA defines ``small business'' to have the same meaning as ``small 
business concern'' under section 3 of the Small Business Act. The Small 
Business Act authorizes the Small Business Administration (SBA) to 
define ``small business'' by issuing regulations.
    SBA has established size standards for various types of economic 
activities, or industries, under the North American Industry 
Classification System (NAICS). These size standards generally define 
small businesses based on the number of employees or annual receipts. 
Table 4 shows the SBA size standards for example industrial 
classification codes relevant for the proposed rule. Note that the SBA 
definition of a small business applies to the parent company and all 
affiliates as a single entity.

       Table 4--Small Business Size Standards: Air Transportation
------------------------------------------------------------------------
          NAICS code                  Description         Size standard
------------------------------------------------------------------------
336411........................  Aircraft Manufacturing  1,500 employees.
336412........................  Aircraft Engine and     1,500 employees.
                                 Engine Parts
                                 Manufacturing.

[[Page 1960]]

 
336413........................  Other Aircraft Part     1,250 employees.
                                 and Auxiliary
                                 Equipment
                                 Manufacturing.
481111........................  Scheduled Passenger     1,500 employees.
                                 Air Transportation.
481112........................  Scheduled Freight Air   1,500 employees.
                                 Transportation.
481211........................  Nonscheduled Chartered  1,500 employees.
                                 Passenger Air
                                 Transportation.
481212........................  Nonscheduled Chartered  1,500 employees.
                                 Freight Air
                                 Transportation.
481219........................  Other Nonscheduled Air  $16.5 million.
                                 Transportation.
487990........................  Scenic and Sightseeing  $8.0 million.
                                 Transportation, Other.
------------------------------------------------------------------------
NAICS = North American Industrial Classification System.

a. Part 21
    As described in the RIA, the FAA estimated that there may be 
approximately 65 design or production approval holders under part 21 
that may need to implement SMS under the proposed rule. Fifteen of 
these entities are already implementing SMS under the FAA's voluntary 
program or are large businesses (based on publicly available 
information regarding number of employees). Of the remaining 50 
entities, 31 may meet the size standard for a small business in 
Aerospace Product and Parts Manufacturing (NAICS 33641).
b. Part 135
    Approximately 1,907 part 119 certificate holders operating under 
part 135 would need to implement SMS under the proposed rule. Internal 
FAA data indicate that all but three of these certificate holders have 
fewer than 1,500 employees. Thus, to the extent that the industrial 
classification of the parent company of these entities is scheduled 
passenger or freight, or nonscheduled chartered passenger or freight 
air transportation (NAICS 481111, 481112, 481211, or 481212), over 
1,900 would be small businesses. Table 5 shows the distribution of 
certificate holders by total employment.

                                  Table 5--Distribution of Part 135 Employment
----------------------------------------------------------------------------------------------------------------
                                                                    Number of certificate        Percent of
                        Number of employees                                holders          certificate holders
----------------------------------------------------------------------------------------------------------------
1.................................................................                    292                     15
2-9...............................................................                    877                     46
10-19.............................................................                    275                     14
20-49.............................................................                    264                     14
50-99.............................................................                    106                      6
100-499...........................................................                     76                      4
500-999...........................................................                     13                      1
1000+.............................................................                      4                      0
----------------------------------------------------------------------------------------------------------------
Source: FAA data as of March 2021.

c. Section 91.147
    Approximately 694 air tour operators would have to implement SMS 
under the proposed rule. To the extent that the industrial 
classification of the parent company of these entities is Scenic and 
Sightseeing Transportation, Other, the relevant size standard is $8.0 
million. Internal FAA data does not include revenue or number of 
flights for these operations. However, 362 of these LOA holders have 
only one aircraft listed on the LOA. Many may meet the small business 
size standard. The FAA requests data and information that may enable 
determination of whether these air tour operators would meet the SBA 
small size threshold.
4. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    Section V.C.4 of this preamble discusses the reporting requirements 
of the proposed rule. Affected entities who identify a hazard in their 
operating environment must provide notice of the hazard to the 
interfacing person or persons who would best be able to address the 
hazard or mitigate the risk.
    Section V.C.5 of this preamble describes the recordkeeping 
requirements of the proposed rule. Affected entities must maintain 
records of the outputs of safety risk management and safety assurance 
processes for as long as they remain relevant to the operation. In 
addition, entities must retain outputs of safety assurance processes 
for a minimum of 5 years, SMS training records for as long as the 
individual is employed by the person, and communication records for a 
minimum of 24 months.
    Recordkeeping and reporting requirements, like the rest of part 5, 
are scalable to a wide variety of business models and sizes, as 
discussed in Section V.F. of this preamble. As a result, entities could 
potentially accomplish the recordkeeping and reporting requirements 
through the use of existing personnel rather than require additional 
professional skills.
    Section V.C of the preamble describes the primary requirements for 
an SMS, which include safety policy, safety risk management, safety 
assurance, and safety promotion, as well as documentation. As described 
in the RIA, the FAA estimated the cost of compliance with all the 
proposed requirements based on number of employees for part 21 
certificate holders and based on fleet size for part 135 operators and 
Sec.  91.147 LOA holders. Table 6 and Table 7 provide the results for 
example size categories and expressed as a percentage of overall 
average receipts (using NAICS 336411 for part 21 and 336411 for part 
135 as examples).\74\ Not included in the costs

[[Page 1961]]

are mitigation costs which are yet unknown. The RIA provides additional 
detail on the cost estimates.
---------------------------------------------------------------------------

    \74\ The ratios are similar using NACIS 336412 and 336413 for 
part 21 and 481112, 481113, 481211, 481212, and 481213 for part 135. 
For Sec.  91.147, the FAA does not have number of employees 
associated with the number of aircraft on the LOA. However, assuming 
LOA holders of 1 and 2 registered aircraft have less than 5 
employees, the ratios for one-time and annual costs as a percentage 
of inflation adjusted receipts in this smallest employment size 
category in NAICS 487990 would be 1.8% and 1.1%, respectively.

                      Table 6--Example SMS Compliance Costs by Number of Employees: Part 21
----------------------------------------------------------------------------------------------------------------
                                                                              One-time cost/      Annual cost/
       Number of employees           One-time cost         Annual cost       receipts \1\ (%)   receipts \1\ (%)
----------------------------------------------------------------------------------------------------------------
1-99............................       $7,500-$26,050         $500-$10,130            0.2-1.2            0.1-0.1
100-499.........................       26,320-131,320        10,230-51,050            0.2-1.2            0.1-0.5
500-10,000......................    131,580-2,631,590     51,150-1,023,000           0.03-0.1          0.01-0.04
----------------------------------------------------------------------------------------------------------------
\1\ Source for receipts: 2017 County Business Patterns and Economic Census (https://www2.census.gov/programs-surveys/susb/tables/2017/us_state_naics_detailedsizes_2017.xlsx). Adjusted for inflation using the Consumer
  Price Index. Based on NAICS 336411.

                Table 7--Example SMS Compliance Costs By Number of Aircraft: Part 135 and 91.147
----------------------------------------------------------------------------------------------------------------
                                                                              One-time cost/      Annual cost/
       Number of aircraft            One-time cost         Annual cost       receipts \1\ (%)   receipts \1\ (%)
----------------------------------------------------------------------------------------------------------------
1-9.............................       $7,500-$38,120       $4,380-$39,420            0.1-0.7            0.1-0.4
10-49...........................       42,360-207,560       43,800-214,640            0.1-0.9            0.1-0.9
50-99...........................      211,800-419,370      219,020-433,670            0.2-0.9            0.2-0.9
100-500.........................    423,600-2,118,010    438,050-2,190,230            0.2-0.3            0.2-0.3
----------------------------------------------------------------------------------------------------------------
\1\ Source for receipts: 2017 County Business Patterns and Economic Census (https://www2.census.gov/programs-surveys/susb/tables/2017/us_state_naics_detailedsizes_2017.xlsx). Adjusted for inflation using the Consumer
  Price Index. Based on NAICS 481111 and median number of employees per number of aircraft for part 135
  operators.

    Total annualized costs (using a 7 percent discount rate) for small 
businesses may be in the range of $0.3 million for part 21 and $37.4 
million for part 135. The FAA does not have data to identify Sec.  
91.147 LOA holders that may meet the size standard. However, total 
annualized costs for this sector are $7.1 million.
    Although the proposed requirements are scalable to fit the size or 
complexity of the organization, any adverse impacts of compliance costs 
could disproportionately fall on small entities. Like large entities, 
small entities will likely pass the costs on in the form of price 
increases.
5. All Federal Rules That May Duplicate, Overlap, or Conflict
    There are no relevant Federal rules that may duplicate, overlap, or 
conflict with the proposed rule.
6. Significant Alternatives Considered
    The FAA considered extending the applicability of part 5 to include 
most design and production approval holders under part 21, with some 
exceptions. Compared to the proposed option, the FAA estimated that 
more than an additional 3,000 entities would need to implement an SMS 
and more than 3,000 would likely apply for an exception under this 
alternative. To the extent that the industrial classification of these 
entities is in aircraft manufacturing, the industry data in Table 2 
suggests that a large percentage are likely small businesses (i.e., 
given at least 92 percent of this sector meet the size standard).
    The FAA considered excluding from the SMS certificate holders under 
part 135 that use only one pilot-in-command in their operations and 
Sec.  91.147 LOA holders that conduct less than 100 flights per year. 
This alternative would reduce affected part 135 operators by 31 percent 
and Sec.  91.147 LOA holders by 54 percent. For part 135, costs would 
be $3.4 million lower compared to the proposed rule. For Sec.  91.147, 
costs would be $5.9 million lower compared to the proposed rule. 
However, the alternative would also reduce benefits. The FAA identified 
five potentially mitigatable accidents involving operators that use 
only one pilot-in-command and one potentially mitigatable accident 
involving a Sec.  91.147 LOA holder with one aircraft registration. 
These types of operators would not be required to implement an SMS.

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 Federal 
agencies from establishing standards or engaging in related activities 
that create unnecessary obstacles to the foreign commerce of the United 
States. Pursuant to these Acts, the establishment 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 protection 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, where 
appropriate, that they be the basis for U.S. standards. The FAA has 
assessed the potential effect of this rule and determined that it will 
improve aviation safety and does not exclude imports that meet this 
objective.\75\ As a result, the FAA does not consider this rule as 
creating an unnecessary obstacle to foreign commerce.
---------------------------------------------------------------------------

    \75\ The FAA notes that because this proposed rule would not 
apply to products where the state of manufacture is not the United 
States, aircraft manufacturers who are manufacturing abroad would 
not be required to have an SMS under part 5 but may have SMS 
requirements imposed by the state of manufacture.
---------------------------------------------------------------------------

D. Unfunded Mandates Assessment

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to prepare a written statement 
assessing 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 tribal 
governments, in the

[[Page 1962]]

aggregate, or by the private sector; such a mandate is deemed to be a 
``significant regulatory action.'' The FAA currently uses an inflation-
adjusted value of $165 million in lieu of $100 million. An unfunded 
mandate is a regulation that requires a State, local, or tribal 
government or the private sector to incur direct costs without the 
Federal government having first provided the funds to pay those costs. 
The FAA determined that the proposed rule will not result in the 
expenditure of $165,000,000 or more by State, local, or tribal 
governments in the aggregate, or the private sector, in any one 
year.\76\ Therefore, the requirements of Title II of the Unfunded 
Mandates Reform Act of 1995 do not apply.
---------------------------------------------------------------------------

    \76\ The Unfunded Mandates Reform Act of 1995 defines ``Federal 
private sector mandate'' as ``any provision in legislation, statute, 
or regulation that . . . would impose an enforceable duty upon the 
private sector . . . or would reduce or eliminate the amount of 
authorization of appropriations for Federal financial assistance 
that will be provided to the private sector for the purposes of 
ensuring compliance with such duty.'' Public Law 104-4 section 658 
(1995).
---------------------------------------------------------------------------

E. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires 
that the FAA consider the impact of paperwork and other information 
collection burdens imposed on the public. According to the 1995 
amendments to the Paperwork Reduction Act (5 CFR 1320.8(b)(2)(vi)), an 
agency may not collect or sponsor the collection of information, nor 
may it impose an information collection requirement unless it displays 
a valid Office of Management and Budget (OMB) control number.
    This proposed rule contains new information collection requirements 
and amendments to the existing information collection requirements 
previously approved under OMB Control Number 2120-0675. As required by 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the FAA has 
submitted these proposed information collection amendments to OMB for 
its review.
1. Summary
    In this rule, the FAA is proposing to require that all certificate 
holders operating under part 135, all LOA holders operating under Sec.  
91.147, and certain certificate holders under part 21 establish an SMS 
to improve safety for their operations, and to amend the requirements 
for certificate holders operating under part 121.\77\ An SMS is a 
formalized approach to managing safety by developing an organization-
wide safety policy, developing formal methods for identifying hazards, 
analyzing and mitigating risk, developing methods for ensuring 
continuous safety improvement, and creating organization-wide safety 
promotion strategies.
---------------------------------------------------------------------------

    \77\ Proposed part 121 requirements would be amended in the 
corresponding OMB Control Number 2120-0675.
---------------------------------------------------------------------------

    Under this proposed rule, certificate and authorization holders 
required to comply would be burdened with the following information 
collection activities: \78\
---------------------------------------------------------------------------

    \78\ Proposed part 121 requirements not reflected in 
corresponding OMB Control Number 2120-0675 are system description 
and notification of hazards.
---------------------------------------------------------------------------

    (1) Develop a system description--Sec.  5.5(b)(1).
    (2) Revise and maintain the system description to reflect changes 
in the organization--Sec.  5.5(b)(2).
    (3) Submit the revisions of the SMS to meet the requirements of 
Sec. Sec.  5.5(b), 5.21(a)(7), 5.53(b)(5), 5.94, 5.95(c), and 5.97(d) 
for FAA-acceptance in a form and manner acceptable to the 
Administrator--Sec.  5.7(a)(2).
    (4) Submit a statement of compliance in a form and manner 
acceptable to the Administrator--Sec.  5.7(b)(2) and Sec.  5.9(a)(2).
    (5) Submit an implementation plan in accordance with Sec.  5.17of 
this subpart for FAA approval in a form and manner acceptable to the 
Administrator--Sec.  5.11(b) and Sec.  5.13(b)(2).
    (6) Any person required to have an SMS under this part to have a 
safety policy--Sec.  5.21(a).
    (7) Any person that holds both a type certificate and a production 
certificate for the same product issued under part 21 of this chapter 
must submit a summary of the confidential employee reports received 
under Sec.  5.71(a)(7) to the Administrator every 6 months--Sec.  
5.71(c).
    (8) If a person identifies a hazard in the operating environment, 
the person must provide notice of the hazard to the interfacing person 
or persons identified in the system description who, to the best of 
their knowledge, could address the hazard or mitigate the risk--Sec.  
5.94(a); any person required to have an SMS under this part to develop 
and maintain procedures for reporting and receiving hazard 
information--Sec.  5.94(b).
    (9) Any person required to have an SMS under this part to develop 
and maintain SMS documentation containing (a) safety policy, (b) SMS 
processes and procedures, (c) system description--Sec.  5.95.
    (10) Any person required to have an SMS under this part to maintain 
SMS records: (a) records of outputs of safety risk management processes 
for as long as the control remains relevant to the operation, (b) 
records of outputs of safety assurance processes for a minimum of 5 
years, (c) records of all training provided under Sec.  5.91 for each 
individual for as long as the individual is employed by the person, (d) 
records of all communications provided under Sec.  5.93 or Sec.  5.94 
for a minimum of 24 consecutive calendar months--Sec.  5.97.
2. Use
    The information collection will be used to provide a basis for the 
FAA's review during the development and implementing phases, used by 
the certificate or LOA holder in its SMS processes and procedures, and 
used to demonstrate compliance with the part 5 requirements.
    Collection and analysis of safety data is an essential part of an 
SMS. Types of data to be collected, retention procedures, analysis 
processes, and organizational structures for review and evaluation will 
be documented in the SMS. These records will be used by a certificate 
holder or LOA holder in the operation of its SMS and to facilitate 
continuous improvement through evaluation and monitoring. While this 
proposed rule does not require a certificate holder or LOA holder to 
submit these records to the FAA, it would require a certificate holder 
or LOA holder to make these records available upon request.
3. Respondents (Including Number of)
    Table 8 provides the FAA's estimates of the number of respondents 
by affected entity category (by part 121 approval holders, part 135 
operators, and Sec.  91.147 LOA holders) that would be impacted by the 
paperwork requirements in this rule.

[[Page 1963]]

                     Table 8--Number of Respondents
------------------------------------------------------------------------
                                                             Number of
                Affected entity category                    respondents
------------------------------------------------------------------------
System Description:
    Part 21.............................................              65
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
    Part 121............................................              66
                                                         ---------------
        Total...........................................           2,732
Statement of compliance:
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
    Part 121 \1\........................................               1
                                                         ---------------
        Total...........................................           2,602
Implementation plan:
    Part 21.............................................              65
Safety policy:
    Part 21.............................................              65
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
                                                         ---------------
        Total...........................................           2,666
Summary of employee reports:
    Part 21.............................................              65
Notification of hazards:
    Part 21.............................................              65
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
    Part 121............................................              66
                                                         ---------------
        Total...........................................           2,732
SMS documentation:
    Part 21.............................................              65
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
                                                         ---------------
        Total...........................................           2,666
SMS records:
    Part 21.............................................              65
    Part 135............................................           1,907
    Sec.   91.147.......................................             694
                                                         ---------------
        Total...........................................           2,666
------------------------------------------------------------------------
\1\ Estimate based on one new 121 operator over last 3 years. Not
  applicable to existing 121 operators.

4. Frequency
    The frequency of new information collection requirements and 
amendments to the existing information collection requirements is shown 
below in Table 13 with the annual burden estimate for each.
5. Annual Burden Estimate
    The FAA estimated the paperwork burden for up to 2,732 certificate 
and approval holders impacted by the rule as shown below in Table 9.

                                            Table 9--Paperwork Burden
----------------------------------------------------------------------------------------------------------------
                                     Number of     Frequency of    Total number    Burden hours        Costs
            Category                respondents    response \1\    of responses         \2\       (millions) \3\
----------------------------------------------------------------------------------------------------------------
System Description:
    Part 21.....................              65               1              65             520           $0.05
    Part 135....................           1,907               1           1,907          15,256            1.36
    Sec.   91.147...............             694               1             694           5,552            0.49
    Part 121....................              66               1              66             528            0.05
                                 -------------------------------------------------------------------------------
        Total...................           2,732              NA           2,732          21,856            1.94
Statement of compliance:
    Part 135....................           1,907               3           5,721          61,024            5.43
    Sec.   91.147...............             694               3           2,082          22,208            1.98
    Part 121....................               1               3               3              32            0.00
                                 -------------------------------------------------------------------------------
        Total...................           2,602              NA           7,806          83,264            7.41

[[Page 1964]]

 
Implementation plan:
    Part 21.....................              65               3             195           2,080            0.19
Safety policy:
    Part 21.....................              65               1              65             260            0.02
    Part 135....................           1,907               1           1,907           7,628            0.68
    Sec.   91.147 LOA...........             694               1             694           2,776            0.25
                                 -------------------------------------------------------------------------------
        Total...................           2,666              NA           2,666          10,664            0.94
Summary of employee reports:
    Part 21.....................              65               6             390           1,560            0.14
Notification of hazards:
    Part 21.....................              65               3             195           1,560            0.14
    Part 135....................           1,907               3           5,721          45,768            4.07
    Sec.   91.147...............             694               3           2,082          16,656            1.48
    Part 121....................              66               3             198           1,584            0.14
                                 -------------------------------------------------------------------------------
        Total...................           2,732              NA           8,196          65,568            5.83
SMS documentation:
    Part 21.....................              65               3             195           2,080            0.19
    Part 135....................           1,907               3           5,721          61,024            5.43
    Sec.   91.147...............             694               3           2,082          22,208            1.98
                                 -------------------------------------------------------------------------------
        Total...................           2,666              NA           7,998          85,312            7.59
SMS records:
    Part 21.....................              65               3             195           1,560            0.14
    Part 135....................           1,907               3           5,721          45,768            4.07
    Sec.   91.147...............             694               3           2,082          16,656            1.48
                                 -------------------------------------------------------------------------------
        Total...................           2,666              NA     7,99822,791          63,984            5.69
----------------------------------------------------------------------------------------------------------------
NA = not applicable.
\1\ Frequency over three-year period.
\2\ Calculated as number of respondents x hours per respondent.
\3\ Calculated as burden hours x average labor rate including benefits. The FAA used an average wage including
  benefits of $88.97, which is the mean average wage for aerospace engineers ($59.12) divided by the percent of
  total employer costs of employee compensation represented by wages (66%) to account for benefits (34%). Wages
  and benefits information available at: https://www.bls.gov/oes/current/oes172011.htm and https://www.bls.gov/news.release/ecec.t04.htm#ect_table4.f.1.

    Table 10 provides a summary of the implied annual responses and 
burden (total divided by three).

                                     Table 10--Summary of Annual Burden \1\
----------------------------------------------------------------------------------------------------------------
                            Category                                Reporting     Recordkeeping     Disclosure
----------------------------------------------------------------------------------------------------------------
System description:
    Number of respondents......................................             911                0               0
    Number of responses per respondent.........................             0.3                0               0
    Time per response (hours)..................................               3                0               0
    Total number of responses..................................             911                0               0
    Total burden (hours).......................................           7,285                0               0
Statement of compliance:
    Number of respondents......................................           2,602                0               0
    Number of responses per respondent.........................               1                0               0
    Time per response (hours)..................................            10.7                0               0
    Total number of responses..................................           2,602                0               0
    Total burden (hours).......................................          27,755                0               0
Implementation plan:
    Number of respondents......................................              65                0               0
    Number of responses per respondent.........................               1                0               0
    Time per response (hours)..................................            10.7                0               0
    Total number of responses..................................              65                0               0
    Total burden (hours).......................................             693                0               0
Safety policy:
    Number of respondents......................................               0              889               0
    Number of responses per respondent.........................               0              0.3               0
    Time per response (hours)..................................               0              1.3               0
    Total number of responses..................................               0              889               0
    Total burden (hours).......................................               0            3,555               0

[[Page 1965]]

 
Summary of employee reports:
    Number of respondents......................................              65                0               0
    Number of responses per respondent.........................               2                0               0
    Time per response (hours)..................................               4                0               0
    Total number of responses..................................             130                0               0
    Total burden (hours).......................................             520                0               0
Notification of hazards:
    Number of respondents......................................           2,732                0               0
    Number of responses per respondent.........................               1                0               0
    Time per response (hours)..................................               8                0               0
    Total number of responses..................................           2,732                0               0
    Total burden (hours).......................................          21,856                0               0
SMS documentation:
    Number of respondents......................................               0            2,666               0
    Number of responses per respondent.........................               0                1               0
    Time per response (hours)..................................               0             10.7               0
    Total number of responses..................................               0            2,666               0
    Total burden (hours).......................................               0           28,437               0
SMS records:
    Number of respondents......................................               0            2,666               0
    Number of responses per respondent.........................               0                1               0
    Time per response (hours)..................................               0                8               0
    Total number of responses..................................               0            2,666               0
        Total burden (hours)...................................               0           21,328               0
----------------------------------------------------------------------------------------------------------------

    The agency is soliciting comments to--
    (a) Evaluate whether the proposed information requirement is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (b) Evaluate the accuracy of the agency's estimate of the burden;
    (c) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (d) Minimize the burden of collecting information on those who are 
to respond, including by using appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology.
    Individuals and organizations may send comments on the information 
collection requirement to the address listed in the ADDRESSES section 
at the beginning of this preamble by March 13, 2023. Comments also 
should be submitted to the Office of Management and Budget, Office of 
Information and Regulatory Affairs, Attention: Desk Officer for FAA, 
New Executive Building, Room 10202, 725 17th Street NW, Washington, DC 
20053.

F. International Compatibility

    ICAO Annex 19 establishes an SMS Framework for managing aviation 
safety risk, as well as identifies the types of organizations that 
should implement an SMS. This rulemaking would move the United States 
closer to harmonization with ICAO Annex 19. The proposed rule would 
align with Annex 19 by requiring the following service providers to 
implement SMS: (1) commercial operators of airplanes or helicopters, 
and (2) certain organizations responsible for the design or manufacture 
of products. The FAA has already implemented SMS across the FAA's Air 
Traffic Organization.\79\ Additionally, the FAA is proposing SMS 
implementation for certain airports through a separate rulemaking 
effort. Both of these efforts bring us closer to alignment with ICAO 
Annex 19 because Annex 19 also includes air traffic service providers 
and airports.
---------------------------------------------------------------------------

    \79\ More information regarding the Air Traffic Organization's 
SMS is available at: https://www.faa.gov/about/initiatives/sms/specifics_by_aviation_industry_type/air_traffic.
---------------------------------------------------------------------------

    When part 5 was originally constructed, it was based on the SMS 
framework in ICAO Annex 19. Part 5 currently also includes requirements 
for recordkeeping, which are not part of the ICAO's SMS framework. 
However, recordkeeping requirements facilitate FAA's oversight 
functions, and they assist the person implementing SMS in demonstrating 
compliance with the regulations. In addition, the proposed rule would 
require the use of a system description and the communication of 
information regarding safety hazards. While these requirements are not 
in the ICAO's SMS framework, the FAA believes that they are beneficial 
to the persons implementing SMS and consistent with ICAO's intent as 
ICAO notes in Annex 19 that other organizations that interface with a 
product or service provider can make a significant contribution to the 
safety of its products or services.
1. Air Carriers and Operators
    The ICAO SMS requirements for commercial operators are contained in 
Annex 19, but Annex 6 defines the scope of the requirements. Part I of 
Annex 6 covers international commercial operations in airplanes. This 
part of Annex 6 makes no distinction in its requirements on the basis 
of an organization's size. The Annex applies to all commercial air 
transportation operations in airplanes. In the United States, this 
includes operators certificated under both part 121 and part 135. Part 
III of Annex 6 covers commercial air transportation operators of 
helicopters. In the United States, these operations are conducted under 
part 135. Annex 6, part I addresses international flight operations; in 
the United States, these international flights are operated under 
either part 121 or part 135. The FAA currently requires part 121 
operators to implement and maintain an SMS, and this proposed rule 
would extend the requirement for an SMS to part 135 operators, further 
harmonizing the United States with ICAO's SMS requirements.
2. Aircraft Design and Manufacturing
    ICAO Annex 19 requires SMS for organizations responsible for the 
type design or manufacture of aircraft, engines, or propellers. This 
proposal extends part 5 applicability to holders of

[[Page 1966]]

both a TC and a PC for the same product, applicants for a PC where the 
applicant is the holder or licensee of the TC, and holders of a TC who 
allow other persons to use their TC to obtain a PC. This proposal would 
bring the United States into closer harmonization with the ICAO Annex 
19 SMS requirement for certain organizations responsible for design or 
manufacturing of products.
3. Development and Implementation of SMS by Foreign Jurisdictions
    Many States have made significant progress in developing, 
implementing, and maintaining requirements for SMS, aligned with ICAO's 
SMS framework, including certificating authorities in Europe (EASA), 
Canada, Brazil, the United Kingdom, Japan, and Australia. Of those 
authorities, most have SMS requirements for international commercial 
operations, and some have SMS requirements for design and 
manufacturing. Most that do not have SMS requirements for design and 
manufacturing plan to adopt such requirements in the future. Several 
States also have SMS requirements for other operations in the aviation 
system: airports, maintenance organizations, training organizations, 
international general aviation operations, and for safety data 
collection, protection, and exchange.
    Harmonization of requirements, to the extent feasible, is important 
to reduce the regulatory burden on those holding certificates or 
authorizations from multiple States. The FAA continues to work with 
other States to harmonize SMS requirements. The proposed rule aligns 
with sections of the ICAO SMS framework and furthers harmonization with 
other States requiring SMS. United States-based certificate holders 
providing products or services internationally could be limited or 
asked to provide duplicative information to other States' approval 
authorities to show compliance with in-country SMS requirements. If 
adopted as proposed, the rule would reduce the regulatory burden on 
those holding certificates or authorizations across multiple States.
4. Other FAA Support for Harmonization and Standards Development
    The FAA is a founding member and active participant in the Safety 
Management International Collaboration Group, a group representing 18 
international regulatory authorities. The primary purpose of the Safety 
Management International Collaboration Group is to promote 
international harmonization of SMS regulations, guidance material, and 
oversight strategies. The FAA is also an active participant on the ICAO 
Safety Management Panel.
    The FAA also participated with the Aerospace Industries Association 
to develop an international industry standard for SMS: ``Implementing a 
Safety Management System in Design, Manufacturing and Maintenance 
Organizations.'' This Standard is intended to enable the aviation 
industry to implement an SMS consistent with the ICAO Annex 19 ``Safety 
Management'' Second Edition, Appendix 2.

G. Environmental Analysis

    FAA Order 1050.1F identifies FAA actions that are categorically 
excluded from preparation of an environmental assessment or 
environmental impact statement under the National Environmental Policy 
Act in the absence of extraordinary circumstances. The FAA has 
determined this rulemaking action qualifies for the categorical 
exclusion identified in paragraph 5-6.6f for regulations and involves 
no extraordinary circumstances.

H. Regulations Affecting Intrastate Aviation in Alaska

    Section 1205 of the FAA Reauthorization Act of 1996 (110 Stat. 
3213) requires the Administrator, when modifying regulations in 14 CFR 
in a manner affecting intrastate aviation in Alaska, to consider the 
extent to which Alaska is not served by transportation modes other than 
aviation, and to establish appropriate regulatory distinctions. Because 
this proposed rule would apply to: (1) any person authorized to conduct 
operations under part 135, (2) any person operating under an LOA issued 
under Sec.  91.147, and (3) holders of both a TC and a PC for the same 
product, as well as applicants for a PC where the applicant is the 
holder or licensee of the TC, it could, if adopted, affect intrastate 
aviation in Alaska. The use of SMS would improve aviation safety in 
Alaska. The FAA analyzed NTSB part 135 accident data from 2015 to 2019 
and found that of all part 135 air carrier accidents studied, 43 
percent of these accidents occurred in Alaska. Because implementation 
of SMS can be scaled to the size and complexity of an organization, SMS 
requirements would not be overly burdensome for smaller part 135 
operators. The increase in safety benefits to intrastate operations in 
Alaska would positively impact air commerce in Alaska with the same 
requirements applicable to every organization under part 5. The FAA 
specifically requests comments on whether there is justification for 
applying the proposed rule differently in intrastate operations in 
Alaska.

VIII. Executive Order Determinations

A. Executive Order 13132, Federalism

    The FAA has analyzed this proposed rule under the principles and 
criteria of Executive Order 13132, Federalism. The agency has 
determined that this action would not have a substantial direct effect 
on the States, or the relationship between the Federal Government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government, and, therefore, would not have 
Federalism implications.

B. Executive Order 13211, Regulations That Significantly Affect Energy 
Supply, Distribution, or Use

    The FAA analyzed this proposed rule under Executive Order 13211, 
Actions Concerning Regulations that Significantly Affect Energy Supply, 
Distribution, or Use (May 18, 2001). The agency has determined that it 
would not be a ``significant energy action'' under the executive order 
and would not be likely to have a significant adverse effect on the 
supply, distribution, or use of energy.

C. Executive Order 13609, International Cooperation

    Executive Order 13609, Promoting International Regulatory 
Cooperation, promotes international regulatory cooperation to meet 
shared challenges involving health, safety, labor, security, 
environmental, and other issues and to reduce, eliminate, or prevent 
unnecessary differences in regulatory requirements. The FAA has 
analyzed this action under the policies and agency responsibilities of 
Executive Order 13609, and has determined that this action may improve 
regulatory cooperation by moving FAA requirements for SMS closer to 
ICAO Standards and Recommended Practices that other States are adopting 
or considering adopting.

IX. Additional Information

A. Comments Invited

    The FAA invites interested persons to participate in this 
rulemaking by submitting written comments, data, or views. The agency 
also invites comments relating to the economic, environmental, energy, 
or federalism impacts that might result from adopting the proposals in 
this document. The most helpful comments reference a specific portion 
of the proposal, explain

[[Page 1967]]

the reason for any recommended change, and include supporting data. To 
ensure the docket does not contain duplicate comments, commenters 
should send only one copy of written comments, or if comments are filed 
electronically, commenters should submit only one time.
    The FAA will file in the docket all comments it receives, as well 
as a report summarizing each substantive public contact with FAA 
personnel concerning this proposed rulemaking. Before acting on this 
proposal, the FAA will consider all comments it receives on or before 
the closing date for comments. The FAA will consider comments filed 
after the comment period has closed if it is possible to do so without 
incurring expense or delay. The agency may change this proposal 
considering the comments it receives.

B. Confidential Business Information

    Confidential Business Information (CBI) is commercial or financial 
information that is both customarily and actually treated as private by 
its owner. Under the FOIA (5 U.S.C. 552), CBI is exempt from public 
disclosure. If your comments responsive to this NPRM contain commercial 
or financial information that is customarily treated as private, that 
you actually treat as private, and that is relevant or responsive to 
this NPRM, it is important that you clearly designate the submitted 
comments as CBI. Please mark each page of your submission containing 
CBI as ``PROPIN.'' The FAA will treat such marked submissions as 
confidential under the FOIA, and they will not be placed in the public 
docket of this NPRM. Submissions containing Confidential Business 
Information should be sent to the person in the FOR FURTHER INFORMATION 
CONTACT section of this document. Any commentary that the FAA receives 
which is not specifically designated as CBI will be placed in the 
public docket for this rulemaking.

C. Request for Comments

    In the preamble under Section V., Discussion of the Proposal, the 
FAA requested comments pertaining to specific issues. To facilitate 
submission of public comments, the specific requests for comments are 
also listed below. When responding to the comments, please identify the 
issue by using the question numbers used here:
    (1) The FAA requests comment regarding how SMS might present unique 
opportunities or challenges for smaller organizations.
    (2) The FAA is aware that there are 135 operators that use only one 
pilot-in-command in their operations, as well as Sec.  91.147 LOA 
holders with low flight volume. The FAA seeks supporting information 
and data regarding whether this applicability should be limited to a 
certain subset of part 135 operators and Sec.  91.147 LOA holders, and 
if so, how? If the applicability is limited to a particular subset of 
part 135 operators and Sec.  91.147 LOA holders, please provide any 
recommendations for alternatives that would achieve the same safety 
objectives as SMS for those operators that would not be included under 
SMS.
    (3) The FAA considers that there may be safety benefits to applying 
SMS to a larger portion of the aviation industry that could lead to 
safety improvements in the aviation ecosystem as a whole. The FAA 
invites comments as to whether part 5 should apply to all holders of a 
TC, PC, supplemental type certificates, technical standard order 
authorizations, or parts manufacturer approvals. The FAA requests that 
comments specify whether any exceptions should be made in the event 
that the FAA extends part 5 to these design and production approval 
holders, and what those exceptions should entail. The FAA further 
requests information and data related to the safety benefits or impact 
of applying part 5 to additional design and production approval holders 
beyond the applicability in this proposed rule.
    (4) Under Sec.  5.15(a), the FAA is proposing that any person that 
holds a TC for a product who allows another person to use the TC to 
manufacture a product under a PC to be required to submit an 
implementation plan for FAA approval in a form and manner acceptable to 
the Administrator no later than December 27, 2024, and implement the 
SMS in accordance with the FAA-approved plan no later than December 27, 
2025. These proposed compliance dates are consistent with the proposal 
under Sec.  5.11 for holders with a TC and a PC for the same product 
issued under part 21. The FAA invites comments about whether the FAA 
should extend the compliance timelines for persons who license their TC 
to other persons and, if so, what timelines the FAA should establish. 
The FAA requests that responsive comments include the commenter's 
rationale.
    (5) The FAA seeks comment on whether organizations can share 
information about hazards without disclosing proprietary information. 
The FAA also seeks comment on whether the holder of the proprietary 
information would be in the best position to address the hazard. Please 
provide examples of any situations in which the holder of proprietary 
information would not be able to share information about a hazard 
without disclosing that proprietary information
    (6) The FAA seeks comments regarding the Annual Burden Estimate for 
the Paperwork Reduction Act to--
    (a) Evaluate whether the proposed information requirement is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (b) Evaluate the accuracy of the agency's estimate of the burden;
    (c) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (d) Minimize the burden of collecting information on those who are 
to respond, including by using appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology.
    (7) Is there data or other evidence of the effectiveness of SMS in 
mitigating accidents and incidents?
    (8) Appendix A of the RIA lists the accidents that inform the RIA 
and includes the FAA's assessment of the effectiveness of SMS 
mitigating the accident as well as the FAA's rationale:
    (a) Has the FAA accurately estimated the most likely effectiveness 
of mitigation of any specific accidents through the proposed rule? 
Please provide any data or analysis to support your assessment.
    (b) Does the FAA's rationale accurately assess how the use of an 
SMS would potentially mitigate the hazards that caused the accidents?
    (c) What would be a reasonable intervention to mitigate the 
specific hazards identified, and what would be a reasonable estimation 
for the cost of the intervention or mitigation? Please provide data or 
analysis to support your response.
    (d) Are there additional accidents or incidents that SMS could have 
meaningfully mitigated?
    (9) The FAA seeks comments and information regarding expanding the 
applicability of part 5 in the future. Should the FAA consider a future 
rulemaking project to expand the applicability of part 5 to include 
repair stations certificated under part 145? Repair stations perform a 
wide range of repair and maintenance work on an equally wide range of 
aircraft and components. Some repair stations do not perform work on 
aircraft used for passenger-carrying operations. Should the FAA 
consider applying part 5 to all certificated part 145 repair stations? 
Should applicability be limited to a subset of part 145 repair 
stations? The

[[Page 1968]]

FAA seeks information and supporting data regarding how the 
applicability should be limited to a subset (i.e., to which repair 
stations should part 5 be applicable).

D. Availability of Rulemaking Documents

    An electronic copy of rulemaking documents may be obtained from the 
internet by--
    1. Searching the Federal eRulemaking Portal at www.regulations.gov;
    2. Visiting the FAA's Regulations and Policies web page at 
www.faa.gov/regulations_policies/; or
    3. Accessing the Government Printing Office's web page at 
www.GovInfo.com.
    Copies may also be obtained by sending a request to the Federal 
Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence 
Avenue SW, Washington, DC 20591, or by calling (202) 267-9677. 
Commenters must identify the docket or notice number of this 
rulemaking.
    All documents the FAA considered in developing this proposed rule, 
including economic analyses and technical reports, may be accessed from 
the internet through the Federal eRulemaking Portal referenced in item 
(1) above.

List of Subjects

14 CFR Part 5

    Air carriers, Aircraft, Airmen, Aviation safety, Reporting and 
recordkeeping requirements, Safety, Transportation.

14 CFR Part 21

    Aircraft, Aviation safety, Exports, Imports, Reporting and 
recordkeeping requirements.

14 CFR Part 91

    Air carriers, Air taxis, Aircraft, Airmen, Aviation safety, Charter 
flights, Reporting and recordkeeping requirements.

14 CFR Part 119

    Administrative practice and procedure, Air carriers, Aircraft, 
Aviation safety, Charter flights, Reporting and recordkeeping 
requirements.

14 CFR Part 121

    Air carriers, Aircraft, Aviation safety, Charter flights, Reporting 
and recordkeeping requirements, Safety, Transportation.

14 CFR Part 135

    Air taxis, Aircraft, Airmen, Aviation safety, Reporting and 
recordkeeping requirements.

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation 
Administration proposes to amend chapter I of title 14, Code of Federal 
Regulations as follows:

PART 5--SAFETY MANAGEMENT SYSTEMS

0
1. The authority citation for part 5 is revised to read as follows:

    Authority:  49 U.S.C. 106(f), 106(g), 40101, 40113, 40119, 
41706, 44101, 44701-44702, 44705, 44709-44711, 44713, 44716-44717, 
44722, 46105; Sec. 102, Pub. L. 116-260, 134 Stat. 2309; Sec 215, 
Pub. L. 111-216, 124 Stat. 2366.

0
2. Revise Subpart A to read as follows

Subpart A--General

Sec.
5.1 Applicability.
5.3 Definitions.
5.5 General requirements.
5.7 Requirements for domestic, flag, and supplemental operations.
5.9 Requirements for commuter and on-demand operations or passenger 
carrying flights for compensation or hire.
5.11 Requirements for certificate holders with both type 
certificates and production certificates.
5.13 Requirements for type certificate holders or licensees applying 
for a production certificate for the same product.
5.15 Requirements for type certificate holders who allow another 
person to use the type certificate to obtain a production 
certificate for the same product.
5.17 Implementation plan.

Subpart A--General

Sec.  5.1   Applicability.

    This part applies to all of the following:
    (a) Any person that holds or applies for a certificate issued under 
part 119 of this chapter authorizing the person to conduct operations 
under part 121 of this chapter.
    (b) Any person that holds or applies for a certificate issued under 
part 119 of this chapter authorizing the person to conduct operations 
under part 135 of this chapter.
    (c) Any person that holds or applies for a Letter of Authorization 
issued under Sec.  91.147 of this chapter.
    (d) Any person that holds both a type certificate and a production 
certificate issued under part 21 of this chapter for the same product.
    (e) Any person who holds a production certificate under part 21 of 
this chapter for a product for which the person is a licensee of the 
type certificate.
    (f) Any person who applies for a production certificate under part 
21 of this chapter for a product for which the person is the holder or 
licensee of the type certificate.
    (g) Any person who holds a type certificate under part 21 of this 
chapter for a product who allows another person to use the type 
certificate to manufacture the same product under a production 
certificate.

Sec.  5.3   Definitions.

    Hazard means a condition or an object with the potential to cause 
or contribute to an incident or aircraft accident, as defined in 49 CFR 
830.2.
    Risk means the composite of predicted severity and likelihood of 
the potential effect of a hazard.
    Risk control means a means to reduce or eliminate the effects of 
hazards.
    Safety assurance means processes within the SMS that function 
systematically to ensure the performance and effectiveness of safety 
risk controls and that the organization meets or exceeds its safety 
objectives through the collection, analysis, and assessment of 
information.
    Safety Management System (SMS) means the formal, top-down, 
organization-wide approach to managing safety risk and assuring the 
effectiveness of safety risk controls. It includes systematic 
procedures, practices, and policies for the management of safety risk.
    Safety objective means a measurable goal or desirable outcome 
related to safety.
    Safety performance means realized or actual safety accomplishment 
relative to the organization's safety objectives.
    Safety policy means the person's documented commitment to safety, 
which defines its safety objectives and the accountabilities and 
responsibilities of its employees in regards to safety.
    Safety promotion means a combination of training and communication 
of safety information to support the implementation and operation of an 
SMS in an organization.
    Safety Risk Management means a process within the SMS composed of 
describing the system, identifying the hazards, and analyzing, 
assessing, and controlling risk.

Sec.  5.5   General requirements.

    (a) SMS components. An SMS under this part must include, at a 
minimum, all of the following components:
    (1) Safety policy that meets the requirements of subpart B of this 
part.
    (2) Safety risk management that meets the requirements of subpart C 
of this part.

[[Page 1969]]

    (3) Safety assurance that meets the requirements of subpart D of 
this part.
    (4) Safety promotion that meets the requirements of subpart E of 
this part.
    (b) System description. Any person required to have an SMS under 
this part must:
    (1) Develop a system description that includes, at a minimum, the 
following information about the safety of the aviation products or 
services provided by the person:
    (i) The person's aviation-related processes, procedures, and 
activities.
    (ii) The function and purpose of the aviation products or services 
provided.
    (iii) The operating environment.
    (iv) The personnel, equipment, and facilities necessary for 
operation.
    (v) Interfacing persons that contribute to the safety of the 
aviation-related products and services provided.
    (2) Revise the system description to reflect changes to the 
information in (b)(1) of this section.
    (c) Continuing requirements. Any person required to develop and 
implement an SMS under this part must maintain the SMS in accordance 
with this part.

Sec.  5.7   Requirements for domestic, flag, and supplemental 
operations.

    (a) Any person authorized to conduct operations under part 121 of 
this chapter that has an SMS acceptable to the FAA on or before 
[EFFECTIVE DATE OF THE FINAL RULE], must:
    (1) Revise its SMS to meet the requirements of this part in effect 
on [EFFECTIVE DATE OF THE FINAL RULE].
    (2) Submit the revisions for FAA acceptance in a form and manner 
acceptable to the Administrator no later than [12 MONTHS AFTER 
EFFECTIVE DATE OF FINAL RULE].
    (3) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (4) Maintain the SMS as long as the person is authorized to conduct 
operations under part 121 of this chapter.
    (b) Any person applying for authorization to conduct operations 
under part 121 of this chapter or with such application pending on or 
after [EFFECTIVE DATE OF THE FINAL RULE], must:
    (1) Develop and implement an SMS that meets the requirements of 
this part.
    (2) Submit a statement of compliance with this part to the FAA in a 
form and manner acceptable to the Administrator as part of the 
certification process.
    (3) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (4) Maintain the SMS as long as the person is authorized to conduct 
operations under part 121 of this chapter.

Sec.  5.9   Requirements for commuter and on-demand operations or 
passenger carrying flights for compensation or hire.

    (a) Any person authorized to conduct operations under part 135 of 
this chapter or that holds a Letter of Authorization issued under Sec.  
91.147 of this chapter before [EFFECTIVE DATE OF THE FINAL RULE], must:
    (1) Develop and implement an SMS that meets the requirements of 
this part no later than [24 MONTHS AFTER EFFECTIVE DATE OF THE FINAL 
RULE].
    (2) Submit to the FAA, a statement of compliance with this part in 
a form and manner acceptable to the Administrator no later than [24 
MONTHS AFTER EFFECTIVE DATE OF THE FINAL RULE].
    (b) Any person applying for authorization to conduct operations 
under part 135 of this chapter or a Letter of Authorization under Sec.  
91.147 of this chapter, or with such application pending on or after 
[EFFECTIVE DATE OF THE FINAL RULE], must:
    (1) Develop and implement an SMS that meets the requirements of 
this part.
    (2) Submit a statement of compliance with this part to the FAA in a 
form and manner acceptable to the Administrator as part of the 
certification or Letter of Authorization process.
    (c) Any person required to develop and implement an SMS under this 
section must maintain the SMS as long as the person is authorized to 
conduct operations under either part 135 or Sec.  91.147 of this 
chapter.
    (d) Any person required to develop and implement an SMS under this 
section must make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.

Sec.  5.11   Requirements for production certificate holders who are 
holders or licensees of a type certificate for the same product.

    Any person that holds a production certificate issued under part 21 
of this chapter for a product for which the person is the holder or 
licensee of the type certificate on or before [EFFECTIVE DATE OF THE 
FINAL RULE], must:
    (a) Develop an SMS that meets the requirements of this part.
    (b) Submit to the FAA, an implementation plan in accordance with 
Sec.  5.17 for FAA approval in a form and manner acceptable to the 
Administrator no later than December 27, 2024.
    (c) Implement the SMS in accordance with this part no later than 
December 27, 2025.
    (d) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (e) Maintain the SMS as long as the person is both a holder of a 
production certificate and a holder or licensee of a type certificate 
for the same product.

Sec.  5.13   Requirements for type certificate holders or licensees 
applying for a production certificate for the same product.

    (a) This section applies to any holder or licensee of a type 
certificate for a product who either:
    (1) Applies for a production certificate for that same product 
under part 21 of this chapter on or after [I EFFECTIVE DATE OF THE 
FINAL RULE], or
    (2) Has an application for a production certificate for that same 
product under part 21 of this chapter pending on [EFFECTIVE DATE OF THE 
FINAL RULE].
    (b) Any person who meets paragraph (a) of this section must:
    (1) Develop an SMS that meets the requirements of this part.
    (2) Submit an implementation plan in accordance with Sec.  5.17 for 
FAA approval in a form and manner acceptable to the Administrator, 
during the certification process.
    (3) Implement the SMS in accordance with this part no later than 
one year from the FAA's approval of the person's implementation plan.
    (4) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (5) Maintain the SMS as long as the person is both a holder of a 
production certificate and a holder or licensee of a type certificate 
for the same product.

Sec.  5.15   Requirements for type certificate holders who allow 
another person to use the type certificate to obtain a production 
certificate for the same product.

    (a) This section applies to any person that holds a type 
certificate for a product that allows another person to use the type 
certificate to manufacture a product under a production certificate.

[[Page 1970]]

    (b) Any person that meets paragraph (a) and has a licensing 
agreement in accordance with Sec.  21.55 of this chapter on [EFFECTIVE 
DATE OF THE FINAL RULE], must:
    (1) Develop an SMS that meets the requirements of this part.
    (2) Submit an implementation plan in accordance with Sec.  5.17 for 
FAA approval in a form and manner acceptable to the Administrator no 
later than December 27, 2024.
    (3) Implement the SMS in accordance with this part no later than 
December 27, 2025.
    (4) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (5) Maintain the SMS as long as the person continues to meet 
paragraph (a) of this section.
    (c) Any person that meets paragraph (a) and enters into a licensing 
agreement in accordance with Sec.  21.55 of this chapter after 
[EFFECTIVE DATE OF THE FINAL RULE], must:
    (1) Develop an SMS that meets the requirements of this part.
    (2) Submit an implementation plan in accordance with Sec.  5.17 for 
FAA approval in a form and manner acceptable to the Administrator when 
providing written licensing agreements in accordance with Sec.  21.55 
of this chapter.
    (3) Implement the SMS in accordance with this part no later than 
one year from the FAA's approval of the person's implementation plan.
    (4) Make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the person has an 
SMS that meets the requirements set forth in this part.
    (5) Maintain the SMS as long as the person continues to meet 
paragraph (a) of this section.

Sec.  5.17   Implementation plan.

    (a) An implementation plan filed under this part must include a 
description of the means of compliance (including but not limited to 
new or existing policies, processes, or procedures) used to meet the 
requirements of this part.
    (b) A person required to submit an implementation plan under this 
part must make available to the Administrator, upon request, all 
necessary information and data that demonstrates that the SMS has been 
or will be implemented in accordance with the implementation plan.
0
3. Amend Sec.  5.21 by:
0
a. Revising the introductory text of paragraph (a), paragraphs (a)(1) 
and (a)(2).
0
b. Adding paragraph (a)(7).
0
c. Revising paragraphs (c) and (d).
    The revisions and addition read as follows:

Sec.  5.21   Safety policy.

    (a) Any person required to have an SMS under this part must have a 
safety policy that includes at least the following:
    (1) The person's safety objectives.
    (2) The person's commitment to fulfill the safety objectives.
* * * * *
    (7) A code of ethics that is applicable to all employees, including 
management personnel and officers, which clarifies that safety is the 
organization's highest priority.
* * * * *
    (c) The safety policy must be documented and communicated 
throughout the person's organization.
    (d) The safety policy must be regularly reviewed by the accountable 
executive to ensure it remains relevant and appropriate to the person.
0
4. Amend Sec.  5.23 by revising the introductory text of paragraph (a), 
and revising paragraphs (a)(3) and (b) to read as follows:

Sec.  5.23   Safety accountability and authority.

    (a) Any person required to have an SMS under this part must define 
in its safety policy the accountability for safety of the following 
individuals:
* * * * *
    (3) Employees relative to the person's safety performance.
    (b) The person must identify the levels of management with the 
authority to make decisions regarding safety risk acceptance.
0
5. Revise Sec.  5.25 to read as follows:

Sec.  5.25   Designation and responsibilities of required safety 
management personnel.

    (a) Designation of the accountable executive. Any person required 
to have an SMS under this part must identify an accountable executive 
who, irrespective of other functions, satisfies the following:
    (1) Is the final authority over operations authorized to be 
conducted under the person's certificate(s) or Letter(s) of 
Authorization.
    (2) Controls the financial resources required for the operations to 
be conducted under the person's certificate(s) or Letter(s) of 
Authorization.
    (3) Controls the human resources required for the operations 
authorized to be conducted under the person's certificate(s) or 
Letter(s) of Authorization.
    (4) Retains ultimate responsibility for the safety performance of 
the operations conducted under the person's certificate(s) or Letter(s) 
of Authorization.
    (b) Responsibilities of the accountable executive. The accountable 
executive must accomplish the following:
    (1) Ensure that the SMS is properly implemented and is performing 
across all pertinent areas.
    (2) Develop and sign the safety policy.
    (3) Communicate the safety policy throughout the person's 
organization.
    (4) Regularly review the safety policy to ensure it remains 
relevant and appropriate to the person.
    (5) Regularly review the safety performance and direct actions 
necessary to address substandard safety performance in accordance with 
Sec.  5.75.
    (c) Designation of management personnel. The accountable executive 
must designate sufficient management personnel who, on behalf of the 
accountable executive, are responsible for the following:
    (1) Coordinate implementation, maintenance, and integration of the 
SMS throughout the person's organization.
    (2) Facilitate hazard identification and safety risk analysis.
    (3) Monitor the effectiveness of safety risk controls.
    (4) Ensure safety promotion throughout the person's organization as 
required in subpart E of this part.
    (5) Regularly report to the accountable executive on the 
performance of the SMS and on any need for improvement.
0
6. Revise Sec.  5.27 to read as follows:

Sec.  5.27   Coordination of emergency response planning.

    Where emergency response procedures are necessary, any person 
required to have an SMS under this part must develop, and the 
accountable executive must approve as part of the safety policy, an 
emergency response plan that addresses at least the following:
    (a) Delegation of emergency authority throughout the person's 
organization.
    (b) Assignment of employee responsibilities during the emergency.
    (c) Coordination of the emergency response plans with the emergency 
response plans of other organizations it must interface with during the 
provision of its services.
0
7. Revise the introductory text of Sec.  5.51 to read as follows:

[[Page 1971]]

Sec.  5.51   Applicability.

    Any person required to have an SMS under this part must apply 
safety risk management to the following:
* * * * *
0
8. Amend Sec.  5.53 by:
0
a. Revising paragraph (a).
0
b. Adding paragraph (b)(5).
0
c. Revising paragraph (c).
    The revisions and addition read as follows:

Sec.  5.53   System analysis and hazard identification.

    (a) When applying safety risk management, any person required to 
have an SMS under this part must analyze the systems identified in 
Sec.  5.51. Those system analyses must be used to identify hazards 
under paragraph (c) of this section, and in developing and implementing 
risk controls related to the system under Sec.  5.55(c).
    (b) * * *
    (5) The interfaces of the system.
    (c) Any person required to have an SMS under this part must develop 
and maintain processes to identify hazards within the context of the 
system analysis.
0
9. Revise Sec.  5.55 to read as follows:

Sec.  5.55   Safety risk assessment and control.

    Any person required to have an SMS under this part must:
    (a) Develop and maintain processes to analyze safety risk 
associated with the hazards identified in Sec.  5.53(c).
    (b) Define a process for conducting risk assessment that allows for 
the determination of acceptable safety risk.
    (c) Develop and maintain processes to develop safety risk controls 
that are necessary as a result of the safety risk assessment process 
under paragraph (b) of this section.
    (d) Evaluate whether the risk will be acceptable with the proposed 
safety risk control applied before the safety risk control is 
implemented.
0
10. Amend Sec.  5.71 by:
0
a. Revising the introductory text of paragraph (a).
0
b. Revising paragraphs (a)(6), (a)(7), and (b).
0
c. Adding paragraph (c).
    The revisions and addition read as follows:

Sec.  5.71   Safety performance monitoring and measurement.

    (a) Any person required to have an SMS under this part must develop 
and maintain processes and systems to acquire data with respect to its 
products and services to monitor the safety performance of the 
organization. These processes and systems must include, at a minimum, 
the following:
* * * * *
    (6) Investigations of reports regarding potential non-compliance 
with regulatory standards or other safety risk controls established by 
the person through the safety risk management process established in 
subpart C of this part.
    (7) A confidential employee reporting system in which employees can 
report hazards, issues, concerns, occurrences, incidents, as well as 
propose solutions and safety improvements, without concern of reprisal 
for reporting.
    (b) Any person required to have an SMS under this part must develop 
and maintain processes that analyze the data acquired through the 
processes and systems identified under paragraph (a) of this section 
and any other relevant data with respect to its products and services.
    (c) Any person that holds both a type certificate and a production 
certificate issued under part 21 of this chapter for the same product 
must submit a summary of the confidential employee reports received 
under paragraph (a)(7) of this section to the Administrator once every 
6 months.
0
11. Amend Sec.  5.73 by revising the introductory text of paragraph 
(a), and revising paragraphs (a)(1) and (b) to read as follows:

Sec.  5.73   Safety performance assessment.

    (a) Any person required to have an SMS under this part must conduct 
assessments of its safety performance against its safety objectives, 
which include reviews by the accountable executive, to:
    (1) Ensure compliance with the safety risk controls established by 
the person.
* * * * *
    (b) Upon completion of the assessment, if ineffective controls or 
new hazards are identified under paragraphs (a)(2) through (5) of this 
section, the person must use the safety risk management process 
described in subpart C of this part.
0
12. Revise Sec.  5.75 to read as follows:

Sec.  5.75   Continuous improvement.

    Any person required to have an SMS under this part must establish 
and implement processes to correct safety performance deficiencies 
identified in the assessments conducted under Sec.  5.73.
0
13. Revise Sec.  5.91 to read as follows:

Sec.  5.91   Competencies and training.

    Any person required to have an SMS under this part must provide 
training to each individual identified in Sec.  5.23 to ensure the 
individuals attain and maintain the competencies necessary to perform 
their duties relevant to the operation and performance of the SMS.
0
14. Amend Sec.  5.93 by revising the introductory text to read as 
follows:

Sec.  5.93   Safety communication.

    Any person required to have an SMS under this part must develop and 
maintain a means for communicating safety information that, at a 
minimum:
* * * * *
0
15. Add Sec.  5.94 to read as follows:

Sec.  5.94   Notification of hazards to interfacing persons.

    (a) If a person required to have an SMS under this part identifies 
a hazard in the operating environment, the person must provide notice 
of the hazard to the interfacing person or persons identified in the 
system description maintained under Sec.  5.5(b) who, to the best of 
their knowledge, could address the hazard or mitigate the risk.
    (b) Any person required to have an SMS under this part must develop 
and maintain procedures for reporting and receiving hazard information 
in accordance with subsection (a).
0
16. Amend Sec.  5.95 by revising the introductory text and adding 
paragraph (c) to read as follows:

Sec.  5.95   SMS documentation.

    Any person required to have an SMS under this part must develop and 
maintain the following SMS documentation:
* * * * *
    (c) System description.
0
17. Revise Sec.  5.97 to read as follows:

Sec.  5.97   SMS records.

    Any person required to have an SMS under this part must:
    (a) Maintain records of outputs of safety risk management processes 
as described in subpart C of this part. Such records must be retained 
for as long as the control remains relevant to the operation.
    (b) Maintain records of outputs of safety assurance processes as 
described in subpart D of this part. Such records must be retained for 
a minimum of 5 years.
    (c) Maintain a record of all training provided under Sec.  5.91 for 
each individual. Such records must be retained for as long as the 
individual is employed by the person.
    (d) Retain records of all communications provided under Sec.  5.93 
or Sec.  5.94 for a minimum of 24 consecutive calendar months.

[[Page 1972]]

PART 21--CERTIFICATION PROCEDURES FOR PRODUCTS AND ARTICLES

0
18. The authority citation for part 21 is revised to read as follows:

    Authority:  42 U.S.C. 7572; 49 U.S.C. 106(f), 106(g), 40105, 
40113, 44701-44702, 44704, 44707, 44709, 44711, 44713, 44715, 45303; 
Pub. L. 116-260; 134 Stat. 2309.

0
19. Amend Sec.  21.55 to read as follows:

Sec.  21.55  Responsibility of type certificate holders that provide 
written licensing agreements.

    A type certificate holder who allows a person to use the type 
certificate to manufacture a new aircraft, aircraft engine, or 
propeller must meet the applicable requirements of part 5 of this 
chapter and provide that person with a written licensing agreement 
acceptable to the FAA.
0
20. Amend Sec.  21.135 by adding paragraph (c) to read as follows:

Sec.  21.135  Organization.

* * * * *
    (c) Each applicant for or holder of a production certificate, 
except those based only on a supplemental type certificate or on the 
rights to the benefits of a supplemental type certificate under a 
licensing agreement, must meet the applicable requirements of part 5 of 
this chapter.
0
21. Amend Sec.  21.147 by revising paragraph (b) to read as follows:

Sec.  21.147  Amendment of production certificates.

* * * * *
    (b) An applicant for an amendment to a production certificate to 
add a type certificate or model, or both, must comply with Sec. Sec.  
21.135(c), 21.137, 21.138, and 21.150.
* * * * *

PART 91--GENERAL OPERATING AND FLIGHT RULES

0
22. The authority citation for part 91 continues to read as follows:

    Authority:  49 U.S.C. 106(f), 106(g), 40101, 40103, 40105, 
40113, 40120, 44101, 44111, 44701, 44704, 44709, 44711, 44712, 
44715, 44716, 44717, 44722, 46306, 46315, 46316, 46504, 46506-46507, 
47122, 47508, 47528-47531, 47534, Pub. L. 114-190, 130 Stat. 615 (49 
U.S.C. 44703 note); articles 12 and 29 of the Convention on 
International Civil Aviation (61 Stat. 1180), (126 Stat. 11).

0
23. Revise Sec.  91.147 to read as follows:

Sec.  91.147   Passenger carrying flights for compensation or hire.

    (a) Definitions. For the purposes of this section Operator means 
any person conducting nonstop passenger-carrying flights in an airplane 
or helicopter for compensation or hire in accordance with Sec. Sec.  
119.1(e)(2), 135.1(a)(5), or 121.1(d), of this chapter that begin and 
end at the same airport and are conducted within a 25-statute mile 
radius of that airport.
    (b) General requirements. An Operator conducting passenger-carrying 
flights for compensation or hire must meet the following requirements 
unless all flights are conducted under Sec.  91.146. The Operator must:
    (1) Comply with the safety provisions of part 136, subpart A of 
this chapter.
    (2) Register and implement its drug and alcohol testing programs in 
accordance with part 120 of this chapter.
    (3) Comply with the applicable requirements of part 5 of this 
chapter.
    (4) Apply for and receive a Letter of Authorization from the 
responsible Flight Standards office.
    (c) Letter of Authorization. Each application for a Letter of 
Authorization must include the following information:
    (1) Name of Operator, agent, and any d/b/a (doing-business-as) 
under which that Operator does business.
    (2) Principal business address and mailing address.
    (3) Principal place of business (if different from business 
address).
    (4) Name of person responsible for management of the business.
    (5) Name of person responsible for aircraft maintenance.
    (6) Type of aircraft, registration number(s), and make/model/
series.
    (7) Antidrug and Alcohol Misuse Prevention Program registration.
    (8) The statement of compliance required under part 5 of this 
chapter.
    (d) Compliance. The Operator must comply with the provisions of the 
Letter of Authorization received.

PART 119--CERTIFICATION: AIR CARRIERS AND COMMERCIAL OPERATORS

0
24. The authority citation for part 119 continues to read as follows:

    Authority: Pub. L. 111-216, sec. 215 (August 1, 2010); 49 U.S.C. 
106(f), 106(g), 1153, 40101, 40102, 40103, 40113, 44105, 44106, 
44111, 44701-44717, 44722, 44901, 44903, 44904, 44906, 44912, 44914, 
44936, 44938, 46103, 46105.

0
25. Revise Sec.  119.8 to read as follows:

Sec.  119.8   Safety Management Systems.

    No certificate holder authorized to conduct operations under part 
121 or 135 of this chapter may operate an aircraft under that 
certificate unless the certificate holder complies with the applicable 
requirements of part 5 of this chapter.

    Issued under authority provided by 49 U.S.C. 106(f), 44701(a), 
and 44703 in Washington, DC.
Warren S. Randolph,
Deputy Executive Director, Office of Accident Investigation and 
Prevention. Federal Aviation Administration.
[FR Doc. 2022-28583 Filed 1-10-23; 11:15 am]
BILLING CODE 4910-13-P