On March 15, 2011, the United States and the European Union exchanged diplomatic notes bringing in force a comprehensive agreement to cooperate in the regulation of civil aviation safety. The groundbreaking U.S.-EU bilateral aviation safety agreement ("BASA") takes effect on May 1, 2011. Although the agreement was first signed on June 30, 2008, implementation had been long delayed by political opposition in the United States. The opposition included a controversial attempt by former House Transportation and Infrastructure Committee Chairman James Oberstar to impose new (and to Europeans, unacceptable) burdens on foreign repair stations, efforts that evaporated following the U.S. midterm elections of November 2010.
In most respects, the U.S.-EU BASA follows the pattern of similar accords that the FAA has signed with other countries. But this landmark agreement may also be regarded as a natural outgrowth of the globalization of aviation and aerospace industries—a market force that arguably began in earnest in the North Atlantic market. This phenomenon over the last 20 years has seen airlines form global alliances, manufacturers build supply chains literally spanning the earth, and governments virtually everywhere open international markets through "Open Skies" agreements.
The focus of the BASA is the certification of civil aircraft—the combined EU-U.S. market that will be worth an estimated $1.5 trillion by 2029. More specifically, the agreement creates a framework for cooperation in the areas of 1) airworthiness approvals and monitoring of civil aeronautical products; 2) environmental testing; and 3) approvals and monitoring of maintenance facilities. The parties anticipate that it may expand in scope to include pilot licensure and training.
The agreement obviously has particular significance for manufacturers, because it is expected to produce much greater efficiency in transatlantic oversight of certification, continued airworthiness, and maintenance. The BASA effectively creates a "one-stop shop" by obviating redundant certification activities through the validation and acceptance of both design approvals and repairs between the U.S. and all 27 EU member states. Going forward, as the jurisdiction of the European Aviation Safety Agency ("EASA") is expanded, the agreement provides a durable framework for the two sides to negotiate new technical annexes. In addition, implementation of the BASA will provide a way to resolve the longstanding dispute over certification fees assessed by EASA on U.S. manufacturers.
The agreement promises to streamline what are currently redundant U.S. and European regulatory oversight and approval regimes for the numerous firms engaged in manufacturing and maintenance services. European and U.S. authorities will be able to exchange certification data and mutually recognize each other's findings. The agreement will also supplant a web of BASAs between the U.S. and individual European states that will be amended or terminated.
At the same time, however, the agreement presents a number of legal and practical challenges for regulators and regulated entities—particularly as to the "approvals and monitoring of maintenance facilities." The airworthiness characteristics and environmental performance of aeronautical products may be empirically and objectively tested and demonstrated. Indeed, the web of BASAs has established a strong, preexisting framework upon which the agreement may build further. But aircraft maintenance is a behavior-driven "human intensive" enterprise and much more complex from a regulatory perspective. Determining compliance or lack thereof is a far more subjective exercise of judgment subject to all the biases of culture, language, organizational behavior, national business practices, the experiences of inspectors, and the highly intricate complexities of aircraft maintenance.
Overview of the Agreement
We now provide a brief overview of the major operative Articles of the U.S.-EU BASA itself, including the two Annexes.
The purposes of the agreement, as articulated in Article 2, are broadly stated. They are to enable reciprocal acceptance of findings and compliance, to promote safety, and to further regulatory cooperation and harmonization.
Several aspects of the agreement deal with the regulatory infrastructure being created to administer the new regime. Article 3 governs Executive Management under the agreement. The agreement is administered both by "Technical Entities"—the Federal Aviation Administration ("FAA") and EASA—as well as Aviation Authorities, which are the various agencies within EU member states responsible for oversight of regulated entities on behalf of the European Community. The two parties will form a Bilateral Oversight Board ("Board") co-chaired by the FAA and the European Commission, which will be assisted by EASA and the Aviation Authorities. The Board will receive support from subject matter experts and technical working groups on an ad hoc basis. The Board will handle all matters related to the function of the agreement including dispute resolution as specified in Article 17 and also serve as a "forum for early-warning discussions of draft regulations and legislation."
Several provisions of the agreement are designed to ensure that each side retains its basic regulatory prerogatives—effectively, a recognition of the sovereignty of civil aviation authorities first established by the Chicago Convention. Article 4 in particular establishes the metes and bounds of the reciprocity established by the U.S.-EU BASA. For instance, while each party is obliged to accept findings of compliance and approvals of the other, the agreement "shall not be construed to entail reciprocal acceptance of standards or technical regulations of the Parties" except as specified in the Annexes. The parties also agreed to recognize each other's system of delegation of authority to "designees," In other words, the scope of the agreement is limited to accepting the technical and legal judgments of the other while preserving the distinction between regulatory systems. Article 5 describes the key role of the Annexes as the primary mechanism to recognize differences in civil aviation systems, augment the scope of the agreement, and lay groundwork for further harmonization.
Article 15 is effectively a savings clause. Entitled "Preservation of Regulatory Authority," it states that the agreement cannot be construed to limit the authority of the parties to, among other things, "[t]ake all appropriate and immediate measures to eliminate or minimize any derogation of safety." If a regulator takes such action, it must notify the other party within 15 days. Article 15 reinforces the notion articulated in Article 4 that the agreement does not abrogate any of the core legal powers held by the parties to create and enforce regulatory measures necessary to protect aviation safety and environmental testing.
Other provisions will affect inspection processes. Article 7 governs quality assurance and standardization of inspections. It calls for the parties to allow participation of the other in "internal quality assurance and standardization inspection functions related to accreditation and monitoring, as provided in the Annexes."
The Agreement appears to turn the surveillance and enforcement of aviation regulations into an international endeavor. In Article 13, the parties agree to assist each other in gaining "unimpeded access" to regulated entities within their respective jurisdictions. Article 8 of the agreement states:
The Parties agree, subject to applicable laws and regulations, to provide through their Technical Agents or Aviation Authorities as appropriate mutual cooperation and assistance in any investigation or enforcement proceedings of any alleged or suspected violation of any laws or regulations under the scope of this Agreement. In addition, each Party shall notify the other promptly of any investigation when mutual interests are involved. [Emphasis added]
As we discuss in further detail below, the implementation of this provision may lead to challenges for both regulators and regulated entities.
The Agreement broadly calls for a much higher and regular level of information exchange between U.S. and EU safety agencies. Article 9 calls for the parties to provide each other safety data "related to accidents and incidents" involving products or regulated entities subject to applicable laws and regulations according to procedures that have yet to be developed. Article 10 requires the parties to notify each other of "all applicable requirements, procedures and guidance material with respect to matters covered" by the agreement. In concrete terms, this Article appears to oblige the FAA, for instance, to provide any Orders, Notices, Advisory Circulars, or other administrative materials it creates related to the operation of this Agreement. Article 6, on "Regulatory Cooperation and Transparency," calls for the parties to develop mechanisms for cooperation and consultation in the development of regulatory materials and also the testing and approval processes.
One provision that may limit the overall effectiveness of the agreement is Article 11, which contains provisions that strictly limit the disclosure of proprietary and restricted information submitted to regulated entities. It does not appear that such information can be shared between U.S. and European authorities absent prior written consent of the submitter or unless the disclosure of the information is required by law. This may act as a roadblock to harmonization, in the same way that similar confidentiality protections have acted to impede information exchange between DG-Competition in the European Union, on the one hand, and the Office of the Assistant Secretary of Transportation for Aviation and International Affairs, on the other, in joint reviews of applications for antitrust immunity.
The agreement settles a contentious dispute over certification fees—one of the major benefits for U.S. manufacturers. Article 14 addresses fees and states simply that the parties shall ensure that fees imposed are "just, reasonable and commensurate with the services." This, obviously, leaves much for interpretation.
Article 16 addresses other agreements and commits the U.S. and EU to take steps to replace the web of preexisting bilateral agreements between the U.S. and individual European states. Finally, it recognizes the ongoing validity of findings of compliance and approvals made pursuant to the aforementioned bilateral agreement until such approvals are replaced or cancelled.
The agreement creates a bare-bones mechanism for consultations and settlement of disputes. In Article 16, there is an obligation for each side to "promptly" reply to a request for consultations and to enter into consultations at a mutually agreeable time within 45 days. It also contemplates elevation of the disagreement to the Board if the Technical Agents cannot resolve it among themselves. Article 18 describes the mechanism for suspending acceptance of findings, described in Article 4, should consultations and dispute resolution efforts fail. The suspensions take effect 30 days after date of notification. However suspension will not affect the validity of findings of compliance, certificates, and approvals made prior to the date that suspension takes effect.
Much like the Chicago Convention itself, many key parts of the agreement are contained in the Annexes, which, we would expect, over time to govern the harmonization of U.S.-EU safety rules. Annex 1 governs airworthiness and environmental certification. Among the obligations undertaken by the parties is to notify the other agency whenever there is an investigation or enforcement action involving "a product or regulated entity for airworthiness or environmental certification or ... an action of Technical Agent or Aviation Authority that appears not to comply with this Annex." The latter provision may prove of use to regulated entities that believe their national (or supra-national) regulator has misinterpreted a particular foreign regulatory requirement. For example, a U.S.-based Part 145 maintenance station may come to believe FAA inspectors may be providing information to Europe regulators that is detrimental to their EASA Part 145 certification based on a misunderstanding. They might seek intervention under this provision.
Annex 2 covers the approval of repair stations and maintenance organizations. Section 6.3.1 allows EASA and FAA to participate in each other's "quality audits, standardization, and sampling inspections," among other activities. This provision should allow U.S. and European regulators to develop common understanding of methodologies and analytical issues. Section 7 of Annex 2 requires each party to notify the other of any investigation or "subsequent closure actions" for noncompliance. Interestingly, although parties retain the right to take enforcement action, they may also elect to "review a remedial action taken by the other Party." This language may provide regulators and repair stations a constructive alternative to the imposition of civil penalties.
Given their nature, oversight and enforcement functions around maintenance and repair may prove to be the most challenging area of the agreement for regulators and regulated entities. The complexity of a modern aircraft is difficult to overstate. For example, a Boeing 747-400 has six million parts, 171 miles of wiring, and five miles of tubing. There are numerous inspections, maintenance schedules, and tasks that must be routinely performed. There are also unplanned repairs and replacements of parts. All aspects of aircraft maintenance and repair are closely controlled by many thousands of pages of regulation, advisory material, manufacturers' manuals, service bulletins, and other documents, thus adding an additional layer of complexity. Even in a purely domestic context, maintenance organizations, like other organizations, vary by size, corporate culture, capabilities, customer base, and other factors.
The sheer volume and complexity of the tomes of maintenance manuals and FAA regulatory material, combined with a highly diverse regulated community overseen by a geographically dispersed inspector workforce, has led to divergent and inconsistent interpretation and enforcement of the laws leading to confusion within the United States. In recognition of this problem, the FAA has launched the "Consistency and Standardization Initiative." Under this initiative, a "stakeholder" may elevate a disagreement with an FAA inspector to progressively higher levels of FAA management. The very need for this initiative is remarkable, given that the United States is a single federal jurisdiction with a common lingua franca.
Within Europe, presumably there will be equal or greater challenges as the European Commission integrates 27 states with different legal systems under the aegis of EASA regulation. The BASA will create new regulatory questions transcending multiple borders, cultures, languages, and understandings of the finer points of regulatory compliance. Indeed, the agreement was executed in two originals written in 22 languages. There is a potential for a true flurry of activity as both sides have pledged to assist in case of "any alleged or suspected violation of any laws or regulations."
Even a shared language and long history of cooperative relations is insufficient to head off a confrontation between regulators. On February 19, 2005, British Airways Flight 268 operating from Los Angeles to London experienced a surge in its number-two engine only 100 feet into the B747's climb. The crew idled the damaged engine and, after consultation with their engineering support at Heathrow, decided to continue the 11-hour flight on three engines. The U.K. Civil Aviation Authority concluded that the crew's decision was "perfectly acceptable." The FAA viewed it very differently. As the incident occurred in U.S. airspace, the FAA investigated and prepared to take strong action for what it considered to be "careless and reckless operation of an aircraft," which is a reference to 14 CFR § 91.13. Section 91.13 of the U.S. Federal Aviation Regulations is typically cited for the most egregious violations and is thus telling of the extent of the FAA's disapproval of the crew's decision-making. This incident led to a low-grade standoff between the U.S. and its closest ally within the EU.
Although the incident above occurred in the operational domain, which is distinct from maintenance and repair, it is nonetheless illustrative since the exercise of discretion and sound judgment is essential in both. In the UK, the crew's exercise of discretion was deemed prudent and sound, while in the U.S., it was perceived at the opposite end of the same spectrum.
In this sense, the agreement raises the question of whether, and for how long, it makes sense for the two largest aviation markets to have largely overlapping—but sometimes inconsistent—regulations in place. One hopes that at some point, the industry can look forward to a truly harmonized regulatory regime. Nothing less makes sense in the oversight of a highly integrated, and truly global, industry.
In the long run, the agreement promises to further integrate the North Atlantic into an enormous and unified single market for aerospace parts and services. Like the Open Skies agreements that began in the North Atlantic and have since proliferated around the world, this agreement may eventually serve as a template as aviation regulation globalizes within trading blocs or multilateral groupings of nations. In the near term, U.S. and European regulators and regulated entities will very likely need to work through various legal and practical issues on their way to achieving a harmonized system of regulation over the North Atlantic.