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While Business is 'Squirrelly as hell,' America is Not Like Europe

We are currently operating under extremely strange times as I see it personally. We officially sloughed off the “recession” label last year, and the activity within the marketplace has bourne this out as being accurate; so much-so that even the heavy iron is again selling now. However any used business aircraft transaction today is for want of a better phrase: “Squirrelly as hell” with buyers willing to walk at the drop of a hat, or the nod of a chin. I believe that this is directly attributable to the uncertainty that is rife within our global lives at the present.

Let’s take for instance the situation in the Greece, Spain, Portugal, Italy and Ireland (Eire); the economies of these Euro-zone countries, and the official currency of the same, are in severe jeopardy. This in turn has the World’s stock markets on the run again, most in the wrong direction, all the while the price of oil seems to be staying in a moderate band because the U.S. Dollar is climbing in value against other currencies, and the folks at OPEC are enjoying economic gains made for them from the foreign exchanges rather than from oil demand.

The rising Dollar is causing great angst amongst the multi-nationals of this great country, because their foreign earned profits translate into fewer Dollars at home here; adding to this pressure at the top, are the alleged socializing of the nation through the new legislation that is seemingly pouring out of Capitol Hill in an un-ending river of change. We are also fighting two wars abroad, and one of the largest natural disasters ever seen on our home shores thanks to deep-well drilling gone bad.

Add all of this up, throw an Icelandic volcano, and the ever present spectre of terrorism into this big pot of woe, and pretty soon the World’s lunch menu poses a bitter and uncertain meal for consumption, hence all of the indecision, flightiness, and all-round bizarre behaviour currently being played out by the buyer of the minute.

The Annual Meeting in Geneva in early May of the European Business Aviation Council was like at surfaced submarine that had been riding out a long period of enemy surface activity, sitting in the silent depths of the ocean. Everyone there was convinced that all enemy action was long-gone and their opportunity to bath in the sun under blue skies was safe, safe, safe. Okay so it sounds like I am writing in some sort of code, but the metaphors that I am using to describe the high-riding optimism of the business aviation industry on that side of the Atlantic Ocean, just didn’t fully jive with our current economic outlook.

You may call me a naysayer, but seeing that only about 8% of the business aircraft fleet resides in Europe, including Russia and the Baltic States, the optimism shown at this convention, might be read two ways: 1.) The industry over there is either in denial or is now experiencing a renaissance whereby the traditional modus operandi of using the airlines and railways to get from city to city is the first choice, with business aircraft service coming in second, is changing to a more American way of thinking; or 2.) We Americans had better start paying attention to how the nice multi-language folks over there, structure their small slice of this industry, because our share is contracting and we shall soon be seeing more and more people choose to charter and ride fractional aircraft over the American tradition of owning your own.

We are still not out of the woods when it comes to public and governmental perception of business aircraft use here, even though geographically, companies cannot achieve successful domestic growth by relying on ground transportation, and the legacy airline system. It is still thought to be passé of corporate management, and private individuals to be visible users of business aircraft. This prevailing point-of-view now active on our side of the Atlantic, has been the norm in Europe since the end of the Second World War, hence the prevalence of the charter and fractional providers over there.

I’m not saying that any of this is bad; however America is just not like Europe. Their model will not fit our business environment. Our industry will suffer mortally though, if the Middle East continues to take on debt without encouraging the much needed and generally forecasted growth, and Asia is unable to order itself into a politically stable region. If these scenarios remain in the so-called “bad zone”, we are all on the brink of a painful consolidation within our business sphere. I for one will shed a tear if Wichita and Seattle become second-tier, aircraft manufacturing cities due to a severe lack of demand, while the BRIC nations: Brasil, Russia, India and China take over and become the first tier. Okay maybe this is inevitable, but there is no reason why we can as a collective group, combat the European trend, and start educating the public and our elected officials, why the American way of doing business is the best for us, and largely for the rest of the World as well.

Compliance With The Voluntary Disclosure Reporting Program Can Protect An Air Carrier Employee's Certificate



© June, 2010 All rights reserved.

The D.C. Circuit Court of Appeals has vacated an NTSB decision in which the Board refused to allow the employee of an air carrier to assert compliance with the Voluntary Disclosure Reporting Program ("VDRP") as an affirmative defense to an FAA order of suspension. As a result, employees of air carriers and other applicable certificate holders, including mechanics, will have the opportunity to prove compliance with the VDRP to avoid civil penalties or other sanctions in an enforcement action.

The VDRP

Under FAA Advisory Circular AC 00-58A, Voluntary Disclosure Reporting Program, the VDRP provides a waiver of enforcement action to certificate holders, including those holding certificates issued under FAR Parts 21, 119, 121, 125, 129, 133, 135, 137, 141, 142, 145, 147, Production Approval Holders ("PAH") and for program managers of qualified fractional ownership programs operating under Part 91K, when the certificate holder meets the requirements of the VDRP. Generally, the certificate holder must detect a violation before the FAA, promptly disclose the violation to the FAA after discovery, and then take prompt corrective action to ensure that the same or similar violation does not recur.

The VDRP also applies to individual airmen and agents of the certificate holder if the following occurs:
  1. The apparent violation involves a deficiency of the certificate holder’s practices or procedures that causes the certificate holder to be in violation of a covered violation of an FAA regulation;

  2. The airman or other agent of the certificate holder, while acting on behalf of the certificate holder, inadvertently violates the FAA’s regulations as a direct result of a deficiency of the certificate holder that causes the certificate holder to be in violation of the regulations. (The VDRP does not apply to the airman or other agent when his or her apparent violation is the result of actions unrelated to the certificate holder’s deficiency);

  3. The airman or other agent immediately makes the report of his or her apparent violation to the certificate holder; and

  4. The certificate holder immediately notifies the FAA of both the airman or other agent’s apparent violation and the apparent deficiency in its practice or procedures.

The Case

In Moshea v. NTSB, an air carrier with whom the airman was employed voluntary disclosed the airman's failure to make certain required maintenance logbook entries pursuant to the VDRP and the FAA concluded that the air carrier and a number of its employees would receive no penalty. However, the FAA subsequently issued an order suspending the airman's airline transport pilot certificate for 60 days based upon alleged violations of FARs 91.7(a) (aircraft must be in airworthy condition for operation), 135.65(b) (requiring pilot to enter any mechanical irregularities into aircraft logs), and 91.13(a) (careless and reckless).

The NTSB Denies The Airman's VDRP Affirmative Defense

The airman appealed the suspension to the NTSB. At the hearing before the administrative law judge ("ALJ") the airman attempted to raise an affirmative defense based on his compliance with the VDRP. However, the ALJ refused to allow the airman to admit evidence bearing on his compliance with the program. The ALJ concluded that the NTSB lacked the jurisdiction to review the discretion as to how the FAA implements the VDRP (i.e. who the FAA lets off the hook and who the FAA decides to go after). As a result, the ALJ upheld the airman's suspension (although the ALJ did reduce it from 60 to 50 days).

The airman appealed the ALJ's decision to the full Board. However, the Board agreed with the ALJ. The Board ruled that it lacked jurisdiction to entertain the airman's affirmative defense and it affirmed his suspension. The airman then appealed the Board's decision to the United States Court of Appeals-D.C. Circuit.

The Court of Appeals Reverses The NTSB

On appeal, the airman argued that he should have been able to offer evidence to support his affirmative defense that he complied with the VDRP as an employee of the air carrier certificate holder. However, the FAA and the NTSB argued that the VDRP was unavailable to the airman because it purportedly "does not relate to the sanctions to be imposed," as required by 49 U.S.C. § 44709(d)(3), even though the VDRP provides that no sanctions will be imposed in cases of voluntary disclosure.

The Court rejected what the Court characterized as the FAA's/NTSB's attempt to "evade" the VDRP. The Court stated that when the VDRP says no sanction will be imposed in a case of voluntary disclosure it is "quite obviously 'related to sanctions'" and, as a result, the Board's analysis was unreasonable and contrary to the statute. The Court also found that the NTSB's decision was inconsistent with its handling of a prior case, Administrator v. Liotta, in which the Board allowed an employee of an air carrier to assert an affirmative defense based on the VDRP. According to the Court, this failure to follow precedent without an explanation was arbitrary and capricious and provided an independent basis for vacating the NTSB's decision.

The Court concluded that the NTSB did have jurisdiction to decide whether the FAA's suspension of the airman's certificate was in compliance with the VDRP. It then vacated the NTSB's decision and remanded the case to allow the airman to offer evidence of compliance in support of his affirmative defense.

Conclusions

It is nice to see the Court requiring both the FAA and NTSB to comply with their policies and rules. Keep in mind that this decision applies to all airmen employed by certificate holders, including mechanics. Mechanics and the certificate holders with whom they are employed should take advantage of the VDRP. If the FAA pursues enforcement action against an individual mechanic when the mechanic and his or her employer have complied with the VDRP, the mechanic should be able to assert compliance with the VDRP as an affirmative defense to defeat the FAA's claims.

Of course, mechanics should file their individual ASRS/NASA Forms in addition to compliance with the VDRP. That way, if the FAA/NTSB determines that the mechanic or its employer did not comply with the VDRP, the mechanic may still be able to avoid sanction if he or she has filed the ASRS/NASA form and meets the requirements of that program. You can download the mechanic ASRS/NASA form or file it online here.

Use Caution When Comparing Costs

Last month I talked about a methodology to compare costs. I suggested that Life Cycle Costing is the preferred method in order to fully understand the total costs of owning and operating an aircraft. Even if Life Cycle Costing, I want to bring another point of caution to you.

What is covered?

We've done many benchmark reports and analyzed the costs of hundreds of aircraft. It is vital to understand exactly what went into the number is that you have.  If you have used Life Cycle Costing yourself, then you will have put forth the effort into your costs. But what about costs from other sources?

If your analysis suggests that an aircraft costs $1,200 per hour and your friend, who operates the same type, tells you $900 per hour, who is correct? Well, you both can be. Just what was covered in each number and what were the underlying assumptions?

Fuel cost is an easy example. For each hour that you fly, your aircraft consumes so much fuel. The $1,200 per hour assumed fuel at $5.25 per gallon while your friend used $4.50 per gallon. At 85 gallons per hour, you are different by $63.75 per hour.

Next up in variable costs is maintenance. But what maintenance is included? Scheduled, unscheduled, retirement items, engines? Are major cost items such as engine overhauls accrued as a cost per hour, or just shown as an average or an interval not equal to the time accrued?

Say you spent $252,000 on an engine overhaul due at 3,600 hours. The accrual cost is $70 per hour. If you have had the aircraft for only two years and flew 600 hours during that time, the “cost per hour” to you is $420 per hour. Quite a difference!  While that cost jumps out as obvious, add up a lot of $1,000 and $500 items. Taken individually, they seem insignificant. In total the effect can be substantial.

Maintenance costs can vary considerably and their cyclical nature adds to the fog surrounding using a single number. While Life Cycle Costing helps, you need to be consistent in the methods and length of time used. Even so, a five year cost period for a new aircraft will differ than a five year cost for a 10-year old aircraft. What maintenance happens when is important.

Training costs, new avionics, upgrading paint and interior, how much insurance coverage you have, whether you have three full time crew or two full time crew and one part time contract pilot, and so on all can add up to significant differences in the cost. 

When you are analyzing and comparing costs from different sources, you need to know what methodology is used and what the numbers include (or exclude). The more detail the better as you can easily be lulled into a false sense of security when two big numbers are close together. Ideally you should run all the numbers yourself using as close to the same assumptions and sources as possible.

Lastly, please keep in mind that every serial number of a single model does not cost the same to operate. In the real world some folks will see higher costs than others, especially in the area of maintenance. Ask questions and understand that "your actual results may vary."

Can communities and small airports use Social Media to bring air transportation solutions to their people?

 

Over the years of growing our business, I have had the opportunity to meet many airport directors in communities looking for ways to improve air service to their airports. My brother runs an airline in the western US providing air service to many communities through the Essential Air Service (EAS) program funded by the DOT. He has probably been through 100’s of presentations from airports and their support organizations – chambers of commerce, economic development boards and city governments.

All of these airports and the communities they serve want good air service. Why?

They consider air service as a necessary ingredient for business and economic development. When you can connect to the rest of the world by air you can bring business in to your community and create jobs and prosperity. When you are disconnected from the rest of the world you lose out and no one wants to lose out. 

Over the past two years the situation has not gotten better for small airports.

In fact it has gotten worse because airlines have pulled out of many small markets either entirely or they have reduced service to the point that it no longer offers any convenience to the business traveler. Because of the geographic and demographic rules of EAS subsidies, many small airports don’t qualify for the subsidy. They are just a little too close to another airport with airline service but too far away to be convenient. Or they are not quite large enough as a market.  

So far no one has come up with a real solution that fixes the problem of the demand for convenient air travel at a reasonable price in small markets.

Small airlines like Cape Air are doing a good job of filling some of the holes but there are still a lot of airports looking for solutions. Charter companies like my company are glad to pick you up at a small airport and take you anywhere. Our problem is price. We are still to expensive for the average traveler.

As I have sat in on meetings over the years I usually hear the field of dreams story. “Build it and they will come” or in this case “show up and fly and we will fill up your aircraft with happy paying passengers”. If that was the case then why aren’t the airlines showing up and fighting for those passengers?

One of the major issues I see is that no one can really tell you or me today where people really want to go. At best, over the years, consultants to the airline and airports put together a marketing study based on DOT statistics showing Origin and Destination (O&D) traffic flow between cities based on airlines published data. With some statistical tweaking the consultant shows that a quantity of people in a community are flying to or from some close by hub airport and they would all rather leave from the home field if they just could. Those stats rarely translate into a reality for the airline or the home airport because the stats don’t correctly indentify the traveler’s true intentions.

So the question to ask is how we identify the true intentions of travelers, to really know when and where they want to go, and what it is worth to them for someone to meet their intentions.

If, in a perfect world with perfect knowledge at our fingertips, we could reach that point of knowledge could we then meet those intentions with the fleet of aircraft available in this country?

Change gears with me now and think about what is happening in the world of social media: 400 million and counting on Facebook, people tweeting every minute of the day, geo-location technology that knows where I tweet or text from, linked in profiles, and applications like TripIt that tell everyone where I am going and how I am getting there. In the past few weeks Facebook has gotten slapped for their use of the information they have been collecting on all of us but at the end of the day I predict that we will not slow down telling everyone else everything about us. Privacy or no privacy we seem more than willing to let the world know just about anything.  

How could communities and small airports use the power of this information from Social Media to match traveler’s intentions to the supply of travel services? Could they build their very on communities online with the purposes of sharing travel intentions between travelers?  If so they could have the real knowledge of who, where, when and how much as opposed to the statistics that don’t seem to mesh with reality?

Something to think about isn’t it!

You can contact me at [email protected]

FAA / DOT lays out NextGen plan details

 

The Transportation Department today issued its guidelines to manufacturers for NextGen implementation.

“Today's regulations set clear performance requirements for the electronics that will allow aircraft to be tracked with greater precision and accuracy. And by 2020, all aircraft flying over the United States will be broadcasting an ADS-B signal,” states an announcement on Transportation Secretary Ray LaHood’s departmental blog.  “ADS-B will allow pilots to get the same information as air traffic controllers and see the same things on their screens. Pilots will know where aircraft are located and how close one plane is to another. They'll have a clearer picture of what’s happening in the air or on the ground--even in low visibility.”

Read the blog entry here.

Or check out the entire implementation plan in PDF form here.

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