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Complying With A Manufacturer's "Current" Maintenance Instructions

by Greg Reigel 3. May 2011 12:11
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If you own or operate a large airplane (over 12,500 MTOW and to which FAR Part 125 is not applicable), turbojet multiengine airplanes, turbopropeller-powered multiengine airplanes, or turbine-powered rotorcraft, you know that FAR § 91.409(f) requires you to have an FAA approved maintenance/inspection program in place for your aircraft. One option for complying with this requirement is to use a "current inspection program recommended by the manufacturer." In the past, that option had been interpreted to mean that, when a manufacturer updates its maintenance instructions, the aircraft operator is obliged to comply with the new instructions.

That interpretation was questioned when the FAA's Aircraft Maintenance Division requested a legal interpretation from the FAA's Office of Chief Counsel regarding the meaning and application of FAR § 91.409(f)(3). The specific issue that the Chief Counsel was asked to address was: "Whether, if a manufacturer amends its maintenance/inspection instructions, an affected aircraft operator is obliged to comply with the new instructions in order to be in compliance with § 91.409(f)(3)."

The FAA Chief Counsel issued a December 5, 2008 Legal Interpretation addressing this issue. It concluded that an operator is not required to comply with either "current"/"new" maintenance instructions or a "current"/"new" inspection program.

The FAA's Perspective

The Legal Interpretation initially observed that a similar issue had previously been raised, but not answered, regarding whether FAR § 91.9(a), required an operator to comply with a change to an operating limitation in an airplane flight manual if the change had not been made through the notice and comment procedures of 5 U.S.C. 500 et. seq., the Administrative Procedures Act ("APA").  It then concluded that an operator was not obligated to comply for the same reason that an operator is not required to comply with "current", or subsequently issued, changes to maintenance manuals or inspection programs.

According to the Legal Interpretation, "[i]f 'current' in § 91.409(f)(3) and similarly worded regulations could be read to mean an ongoing obligation, manufacturers unilaterally could impose regulatory burdens on individuals through changes to their inspection programs or maintenance manuals. In essence, they would be making rules that members of the public affected by the change would have to follow." However, the FAA does not have the authority to delegate its ability to make rules. Additionally, allowing a manufacturer to issue rules in the form of maintenance instructions or inspection programs, without public notice and comment, would be contrary to the APA.

As a result, the Legal Interpretation concluded that "to comply with § 91.409(f)(3) an operator need only adopt a manufacturer's inspection program that is 'current' as of the time he adopts it, and that program remains 'current' unless the FAA mandates revisions to it." For example, revisions would be required if the FAA issued an applicable airworthiness directive or amended the operating rules applicable to the operator.

Finally, the Legal Interpretation noted that, although not required, operators could, and typically do, incorporate subsequent changes issued by manufacturers. It also suggested that the FAA should initiate a rulemaking change to clarify the meaning of § 91.409(f)(3), and associated regulations, to remove the ambiguity associated with the term "current".

The Litigation Perspective

This Legal Interpretation clarifies that FAR § 91.409(f)(3) does not require compliance with subsequently issued changes to maintenance manuals or inspection programs, absent an airworthiness directive or other regulatory requirement. Thus, from a regulatory perspective, compliance is not mandatory. Yet, simply because the FARs do not specifically require an operator to comply with subsequently issued changes to maintenance manuals or inspection programs, does this mean an aircraft owner or operator can ignore these changes?

We know now that an FAR Part 91 aircraft operator will not invoke the wrath of the FAA if the operator does not comply with subsequently issued changes to maintenance manuals or inspection programs (unless, of course, an airworthiness directive or other regulatory requirement mandates compliance). However, before "current" changes are ignored or rejected, compliance must also be evaluated from a tort perspective in order to accurately assess the risks of non-compliance.

Under tort law, and specifically the law of negligence, we all have a duty to use reasonable care. The standard of care is established by determining what a reasonable person would do under a set of given circumstances. In recent years, plaintiffs in aircraft crash cases have been using subsequently issued changes to maintenance manuals or inspection programs to establish the standard of care with respect to aircraft ownership, operation and maintenance.

Specifically, in a post-aircraft accident scenario, plaintiffs’ experts will scour the aircraft’s logbooks in an attempt to identify subsequently issued changes with which the aircraft owner, operator, or maintenance provider has not complied. They then try and argue a causal connection between that lack of compliance and the aircraft accident.

At trial, the plaintiffs argue that the manufacturer issues the changes because it believes compliance will make the aircraft or its components safer and that compliance with the "current" change's recommendations, issued by the manufacturer who should know best, establishes the duty owed by the aircraft owner, operator or maintenance provider. They will direct attention to the “mandatory” nature of the issued changes, so designated by the manufacturer. Plaintiffs will also argue that deferred or rejected compliance improperly placed financial savings over safety.

In response, the defense will argue that the aircraft is still safe without compliance with the changes, pointing out that the changes are not issued by the agency responsible for safety and certification of aircraft and aircraft components. After all, unless the FAA has issued an airworthiness directive based upon the manufacturer's changes or otherwise mandated compliance under some other operating rule; the FAA apparently does not deem the manufacturer’s recommendations to be necessary or mandatory to protect the public’s interest in aviation safety. So why should the aircraft owner, operator, or maintenance provider comply when the FAA doesn't think it is necessary or mandatory? And why should the owner or operator spend additional money for parts or maintenance that may or may not actually make the aircraft safer?

All of these arguments are made to, and allowed by, the courts, in spite of the fact that compliance with the subsequently issued changes is not mandated by FAR § 91.409(f)(3). Additionally, juries have heard evidence regarding the absence of compliance and returned verdicts in favor of plaintiffs based upon that evidence. The higher standard of care argued in the tort context has yet to be pre-empted by the regulatory standard of care established by the FARs.

What Should You Do?

So how should an aircraft owner or operator deal with subsequently issued changes to maintenance instructions or an inspection program? First, you will need to be aware of applicable changes to the manufacturer's maintenance instructions or inspection program and to discuss the information with the aircraft owner and/or operator. This means making sure that you are aware of all applicable changes issued by the manufacturer.

Next, you need to specifically identify, in writing, the maintenance instructions or inspection program that have been adopted for your aircraft: Is it current as of the date the aircraft's type certificate was issued or is it current as of some later date? Unfortunately, the Legal Interpretation doesn't provide any guidance in this regard. This is necessary to later prove the version of instructions or program with which you complied.

Conclusion

The Legal Interpretation appears to raise more questions than it answers. And, unfortunately, these questions will only be answered by further legal interpretations or by changes to the regulations. In the meantime, you need to be aware of the regulatory requirements of compliance, to the extent that it is possible given the existing confusion. You will also need to understand the costs and benefits of compliance from a tort perspective. Only then can you make an informed decision as to how the regulations apply and what you should do with "current" maintenance instructions.

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Greg Reigel

Aircraft Inflation: Where are Aircraft at in the "Global Financial Crisis" scheme of things

by Jeremy Cox 2. May 2011 12:12
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Back in 1991 I was the Vice President and head of sales for an FAA Certified Repair Station that specialized in major modifications and repairs for a variety of aircraft that included the Sabreliner and Falcon. We were a new company that erected its shingle in a highly competitive market. Our timing was good because at about the same time the FAA really jumped on the Ageing Aircraft issue thanks to the Aloha Airlines convertible incident coupled with the clamp down on unapproved parts.

Corrosion was a big money-maker for us, and just like cancer in the human body treated with a scalpel or laser, we filed, sanded and ground aircraft alloy parts and components away until all of the black oxide and associated cracking was gone and the base metal was polished smooth and clean. Next came either the repair or part replacement before everything was repainted. The Sabreliner was naturally a battery from its birth thanks to North American Rockwell’s decision to use stainless steel married to aluminium to in-build added strength without having to go too exotic in the design.

Other than being a dedicated sheet-metal repair company, we made a name by offering a very competitive labour rate. In fact our magazine advertising in the aviation press was centred on this low rate, which at the time-twenty years ago was set at $40 per man-hour. Equivalent shops were at that time charging $55 per man-hour. Today equivalent rates have risen three times that figure and at some shops it is not unusual to pay close to $200 per man-hour for specialist service work.

This trip for me down my memory lane really makes me think about inflation and its impact on the aviation industry. The questions nagging in the back of my mind are: “Have prices risen in-step with the rest of this countries ‘goods and services?’”; and “Where do business aircraft fall into all of this?”

If I apply the simple way of calculating the amount of inflation seen by using my 1991 labour-rate example; I do this by subtracting the old cost per man-hour rate from today’s rate, and then dividing this result by the old rate from 1991 (($120-$55)/$55 X 100 = 118%) I find that the cost of aviation labour over the past 20 years has risen by 118%, or alternatively it has risen by almost 6% every year.

Okay now let’s apply this simple method to a business aircraft. I will pick a machine that I know is still in production after more than 20 years, i.e. the Beechcraft King Air B200. So in 1991 according to the Aircraft Bluebook Price Digest a B200 of that year model sold in a standard equipment configuration ‘New’ for $3,188,800. This same, but considerably updated version, the B200GT sold at the end of 2010 for $5,584,000. Therefore:

(5,584,000 – 3,188,800)/3,188,800 X 100 = 75%, or almost 4% every year.

Let’s try this on three more aircraft so that we can obtain an average number to be applied to the business fleet as a whole. This time I will pick both the Cessna Citation 560, the Falcon 50/50EX and the Gulfstream IV/G450. First the Citation:

In 1991 a standard equipment configuration ‘New’ CE560 was $4,438,800. In late 2009 it was $8,864,000, thus:

(8,864,000 – 4,438,800)/4,438,800 X 100 = 100%, or 5% every year.

In 1991 a standard equipment configuration ‘New’ Falcon 50 was $14,650,000. In late 2007 (the last year that one of these aircraft was built) it was $22,700,000, thus:

(22,700,000 – 14,650,000)/14,650,000 X 100 = 55%, or almost 3% every year.

 

Lastly, in 1991 a standard equipment configuration ‘New’ GIV was $21,900,000. In late 2010 its later equivalent the G450 was $38,250,000, thus:

(38,250,000 – 21,900,000)/21,900,000 X 100 = 75%, or almost 4% every year.

If we take all resultant percentages for the aircraft examples, and add them all together and then divide by the number of figures added together, we shall arrive at an average (I shall also average the years to arrive at an accurate divisor for annual increase):

(75% + 100% + 55% + 75%)/4 = 76%

(20 years + 19 years + 16 years + 20 years)/4 = 19

76%/19 = 4% per annum.

Summary:

On average, turbine business aircraft have seen an annual inflation rate applied to their factory ‘new’ prices that equals 4% per annum.

 

According to the U.S. Government, inflation has averaged about 3% per annum.

Although this is interesting information, what about the value of the U.S. Dollar? How has the buying power/value of this unit of currency also faired over the past twenty years?

So let’s take that venerable King Air B200 and compare what the 1991 price of $3,188,800 in cash is equivalent to in today’s value of the dollar. By searching the internet I found a variety of historical “comparative value of the dollar” calculators and charts. It appears that the 2010 U.S. Dollar is now worth about 0.63 cents compared to the 1991 U.S. Dollar if taken as having a ‘then’ value of 100 cents, therefore the purchase price of a B200 in 1991, if made in 2010 U.S. Dollars would in fact cost $4,368,656. The 2010 price of the B200 at $5,584,000, if paid in 1991 dollars would really only cost $3,517,920 which is only about 10% more.

Summary:

The dollar has lost 37% of its buying power in the past 20 years.

 

Since we are all living ‘post GFC’, it is interesting to see how all four aircraft in their 1991 production year-models are now worth today on the free-world used-market, according to AMSTAT Corporation’s database, and the Bluebook.

B200

Somewhere between 1,200,000 to 1,970,000 depending on engine times and condition; let’s call it $1,585,000.

 

 

Citation 560

Somewhere between 1,300,000 to 2,100,000 depending on engine times and condition; let’s call it $1,700,000.

 

Falcon 50

Somewhere between 3,700,000 to 4,300,000 depending on engine times and condition; let’s call it $4,000,000.

 

GIVSP

Somewhere between 7,100,000 to 14,100,000 depending on engine times and condition; let’s call it $10,600,000.

 

The issue of ‘residual value.’

Okay so we have original purchase prices from 1991, and we also have 2010/11 values of today for the same aircraft, twenty years hence. Let’s analyze these numbers to see what the residual value of each aircraft is compared to its original price, and then lets average this:

The B200 was $3,188,800 and is now $1,585,000; therefore its residual value is about 50% of its original price. If the dollar value is adjusted by 63% (the real buying power of today’s dollar, then the adjusted residual value is about 31%.

The Citation 560 was $4,438,800 and is now $1,700,000; therefore its residual value is about 38% of its original price. If the dollar value is adjusted by 63% (the real buying power of today’s dollar, then the adjusted residual value is about 24%.

The Falcon 50 was $14,650,000 and is now $4,000,000; therefore its residual value is about 27% of its original price. If the dollar value is adjusted by 63% (the real buying power of today’s dollar, then the adjusted residual value is about 17%.

The GIV was $21,900,000 and is now $10,600,000; therefore its residual value is about 48% of its original price. If the dollar value is adjusted by 63% (the real buying power of today’s dollar, then the adjusted residual value is about 30%.

(50% + 38% + 27% + 48%)/4 = 41%

(31% + 24% + 17% + 30%)/4 = 26% Adjusted for the decline in the value of the U.S. Dollar.

Summary:

On average, over a 20 year period, turbine business aircraft have been seen to retain a residual value of about 41%, or about 26% in real dollars.

 

The What-If of a ‘Non-GFC Economy’

So let’s imagine that the Global Financial Crisis never took place. Where would these figures stand today if the new paradigm of values had not come into play?

If you scroll back to my March 2009 Globalair.com article titled: “The Not So Great Depression”, you will see that effectively post GFC tipping-point market values have dropped between 40% and 60%. It is absolutely true to say that the ‘Large Cabin’ market is the precursor, by performance today, of an improving outlook. However I want you to imagine just for a moment, what the average residual value percentage could-would have been without GFC, somewhere between 50% and 80%.

What does all of this mean to you?

Final Conclusion:

Business Aviation sees about a 4% per annum inflation rate.

 

The U.S. Dollar is losing 1.85% of its buying-power/worth every year.

 

All resale/used aircraft are currently trading somewhere between 40%, to 60% below their ‘historical norm.’

 

If you have a hankering for a new aircraft and you are a tenacious-tax-tiger, remember that you are able to write 100% off in the first year due to the Bonus Depreciation legislation enacted by the House.

 

My advice is that you ‘dump’ your old aircraft now, and buy up into a newer aircraft that prior to GFC was probably well and truly out of your price-range. Take the hit on your trade-in while you find great peace of mind in the knowledge that you have a bargain that can only accrue in value  compared to its initial purchase price today (baring another GFC of deeper proportions). Pray that Quantative Easing and the Printing Presses of the Federal Reserve Banks don’t continue to devalue the U.S. Dollar.

 

In-short: ‘Out with the Old, and In with the New. SELL now and then immediately BUY now.

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Jeremy Cox



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