Exclusive Q&A on Aviation Law with Jonathon Foglia

What are the main regulators and legislations that apply to aviation in your jurisdiction?
 
The Federal Government pervasively regulates aviation and has exclusive sovereignty over the airspace of the United States.  The primary Federal regulatory agencies are: (i) the Federal Aviation Administration (FAA), which has several aviation safety functions, including, but not limited to, air traffic control (ATC), flight rules, aircraft and aircraft engine standards, the licensing of pilots and certain other airline personnel, and air carrier and airport operating certificates; (ii) the Department of Transportation (DOT), which has “economic” regulatory authority encompassing, among other areas, the licensing and continuing fitness of U.S. air carriers, foreign carriers’ traffic rights (consistent with bilateral agreements), subsidies for air service to small communities, joint venture agreements between carriers, and aviation consumer protection and civil rights; and (iii) the Department of Homeland Security (DHS), which, through the Transportation Security Administration (TSA), oversees aviation security, including airport and air carrier security protocols, watch list monitoring and the inspection of individuals seeking access to sterile airport areas and aircraft.  U.S. Customs & Border Protection (CBP) and the Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) also have regulatory functions impacting air carrier operations.  Finally, the National Transportation Safety Board (NTSB), an independent federal agency, investigates aircraft accidents to determine probable cause and, based on its findings, makes recommendations to the FAA.  The NTSB also reviews certain FAA civil penalty and certificate actions. 
 
What impact will the Germanwings incident have on safety and regulatory developments in the aviation industry?
 
The incident will undoubtedly prompt carriers, their insurers, government regulators and lawmakers to more closely scrutinize existing procedures to assess the fitness of pilots, including applicants and incumbent pilots.  Where these procedures are deficient, it is reasonable to expect that they will be enhanced, possibly requiring greater information sharing among airlines and regulators as well as more frequent pilot certifications and reports to identify potential mental health issues that might call into question a pilot’s continued fitness to exercise the privileges of his or her pilot’s certificate.  In late May 2015, the FAA announced the formation of a pilot fitness aviation rulemaking committee (ARC), comprised of government and industry experts, to “examine issues including the awareness and reporting of emotional and mental health issues, the methods used to evaluate pilot emotional and mental health, and barriers to reporting such issues.”  The ARC will provide the FAA with formal recommendations within six months and, based on these recommendations, the FAA may decide to implement regulatory changes.. 
 
How do airlines monitor the mental health of pilots?
 
In the U.S., airlines are required to obtain and carefully review pilot records maintained by the FAA and previous airline employers before allowing the individual to begin service as a pilot.  These records include FAA-issued medical certificates, summaries of disciplinary actions, records pertaining to performance, (including those concerning training, qualifications, proficiency and professional competence), and any release from employment or resignation, termination or disqualification.  Additionally, airline pilots are required to undergo a medical examination, administrated by an FAA-designated Aviation Medical Examiner, typically every six to 12 months, to maintain their FAA-issued medical certificate.  The FAA’s medical standards require that the certificate holder have no established medical history or clinical diagnosis involving a severe personality disorder, psychosis, bipolar disorder, substance dependence in the absence of sustained total abstinence, substance abuse within the preceding 2 years, or other personality disorder, neurosis or mental condition that renders (or can be expected to render) the person unable to safely perform his or her pilot duties.  Airlines also have developed their own, additional internal procedures for assessing the mental health of pilot applicants and incumbents.    
 
How has the aviation landscape altered in the aftermath of other recent incidents such as the Malaysia Airlines Flight 370 and MH17?
 
The tragedy of MH17 has prompted major carriers to curtail overflights of conflict zones.  When MH17 was downed over Ukraine, it was operating above the minimum safe altitude established by Notice to Airmen (NOTAM) alerts issued on the same day.  Nevertheless, the International Civil Aviation Organization (ICAO) Task Force on Regional Conflict Zones is undertaking efforts to improve the timeliness and accuracy of the NOTAM system. Additionally, the FAA earlier this year warned U.S. carriers whose codes are displayed on foreign partner operated flights to monitor their partners’ adherence to a U.S. requirement barring the display of any U.S. carrier code on flights entering, departing or transiting airspace for which the FAA has issued a flight prohibition, including a number of foreign conflict zones.
 
In the wake of the MH370 disappearance, a number of initiatives to improve the tracking of civilian aircraft and flight data recovery are underway, both in the U.S. and within the ICAO framework.  Predictably, one of the major sticking issues will be cost, and, as a consequence, those initiatives that leverage existing aircraft, ground equipment and satellite capabilities likely will have the greatest chances of success and adoption.  In the U.S., research efforts are focused on utilizing Aircraft Communications Addressing and Reporting System (ACARS) and Future Air Navigation System (FANS) technologies to transmit, at frequent intervals, aircraft position information to ground locations, given the large number of ACARS- and FANS-equipped aircraft in the U.S. civilian fleet.  Additionally, the FAA has issued an order extending the battery life of underwater beacon locators (ULBs) from 30 days to 90 days, effective with ULBs manufactured on or after December 1, 2015, and has approved an optional secondary underwater locating device that emits low-frequency acoustic signals within a 5-mile radius, which is a greater signal range than that provided by ULBs.  Finally, the NTSB has issued a safety recommendation to the FAA to provide for flight data recovery without underwater retrieval, either through the use of deployable recorders that automatically detach from the aircraft when sensors detect an imminent crash or an automatically triggered transmission of flight data to ground stations when variations in flight parameters indicate an emergency.  The FAA currently is studying these recommendations.
 
Australia, Indonesia and Malaysia are reportedly collaborating to test whether existing GPS technology on many intercontinental wide-body aircraft can be used to transmit the aircraft’s position to ATC at more frequent intervals.  If successful, this would allow search teams to more effectively focus their efforts in the immediate aftermath of a disappearance.     
 
Have there been any other recent regulatory changes or interesting developments in your jurisdiction?
 
One of the most noteworthy regulatory developments in the U.S. is the FAA’s initiative to safely integrate small unmanned aircraft systems, i.e., drones weighing less than 55 pounds, into the national airspace system, further to a mandate imposed by the U.S. Congress in 2012.  The effort has involved (i) the issuance of exemption authority to operators upon a finding that the proposed operation neither creates a hazard to other national airspace users and the public nor poses a threat to national security, entailing a case-by-case adjudicatory process, and (ii) the publication of proposed rules that, if adopted, would permit such operations without the need to first obtain exemption authority.  The rules likely will not be finalized until 2017 and, in the interim, the FAA has streamlined its process for reviewing exemption applications by utilizing its summary grant authority and has provided greater flexibility to drone operators by allowing pilots to rely on a valid driver’s license in lieu of an FAA-issued medical certificate (although such individuals still are required to hold an FAA-issued pilot certificate). 
 
What investment opportunities currently exist in the aviation finance market?
 
As with other jurisdictions, U.S. law presently limits foreign investment in U.S. airlines.  More specifically, non-U.S. citizens may not own or control, in the aggregate, more than 25% of the total voting interest in any U.S. airline.  Additionally, the president and at least two-thirds of the board of directors and other managing officers of a U.S. airline must be citizens of the U.S.  Finally, U.S. law requires that U.S. carriers remain at all times under the “actual control” of U.S. citizens, which looks to the totality of circumstances, including the airline’s organization, capital structure, management, and contractual relationships.  Under DOT case precedent, foreign ownership of up to 49% of total equity (subject to the 25% cap on any voting interests) may be permitted in cases where the foreign investor is from a country with which the U.S. has a liberalized (i.e., “open skies”) air transport agreement.    
 
What do falling oil prices mean for the airline industry?
 
Falling oil prices, coupled with capacity discipline and robust passenger demand, have bolstered U.S. carrier profits.  However, falling oil prices will not necessarily translate into lower ticket prices in the near- or mid-term, for three principal reasons.  First, between 2001 and 2008, U.S. airlines, in the aggregate, lost nearly $40 billion and, during that time, deferred investments in their products as they focused on maintaining solvency; today U.S. airlines are “catching up” by once again investing in new aircraft, better technology for workers, refreshed cabin interiors and improved airport facilities, which is a very expensive undertaking.  Second, under existing fuel hedging contracts, some airlines are paying more than the “average reported price” for aviation jet fuel, at least for a portion of their fuel needs.  Third, a wave of airline consolidation in recent years has resulted in fewer U.S. carriers, with four airlines now controlling about 80% of the domestic market and, translating into less downward pricing pressure.  Finally, falling fuel prices, over the long term, may not be a good thing for the industry if a dramatically lower cost structure prompts airlines to pursue capacity growth in excess of passenger demand, possibly increasing the risk of aggressive industrywide price cutting to protect market share—similar to the strategy pursued in the early 1990s, which had a very destabilizing effect on the industry. 

Can you outline the main environmental and sustainability concerns?
 
The aviation sector is responsible for approximately three percent of U.S. generated greenhouse gases and about 11 percent of U.S. transportation sector greenhouse gases.  The introduction of more fuel efficient civilian aircraft and performance based navigation solutions utilizing satellite- and ground-based aids for more direct routings have allowed U.S. airlines to achieve demonstrable reductions in emissions per flight.  Additionally, U.S. airlines have been at the forefront of research efforts regarding sustainable alternative aviation fuels.  However, aircraft are thus far one of the largest remaining greenhouse gas sources within the U.S. transportation sector for which comprehensive federal emission regulations have not been enacted, and domestic pressure is mounting to enact regulations.  Meanwhile, the ICAO has been negotiating a global aircraft emissions standard, which should be finalized by next year and thereafter implemented by contracting States to the Convention on International Civil Aviation through national law.  U.S. airlines operate internationally and U.S. aircraft and engine manufacturers’ products operate in foreign markets.  The challenge for U.S. airlines and equipment manufactures will be to persuade U.S. regulators to address aircraft greenhouse gas emissions in a manner consistent with the forthcoming international standard.

Are there any environmental compliance incentives or schemes worth noting?
 
The U.S. government has opposed the European Union’s Emissions Trading Scheme (ETS) and, in late 2012, the president signed into law U.S. legislation excluding U.S. airlines from the application of the ETS.  However, the U.S. Environmental Protection Agency (EPA) is expected to shortly issue an “endangerment finding” under the Clean Air Act (CAA), concluding that U.S. aircraft greenhouse gas emissions endanger human health.  This finding will prompt a legal requirement under the CAA for the EPA to begin drafting regulations to reduce such emissions.  Hopefully, these U.S. regulations, once finalized, will follow the forthcoming ICAO emissions standard (noted above).
 
Recent statistics suggest that air travel is growing by 4-5% annually. What challenges does this pose for air traffic management (ATM) and the looming capacity crunch in airports?
 
The FAA forecasts that U.S. air travel will grow between 1.5% and 2.5% annually over the next five years.  Increased passenger demand and outdated infrastructure have strained the U.S. air traffic control (ATC) system, with an FAA study from 2010 estimating that delays cost the U.S. economy $33 billion each year.  However, FAA efforts to implement the Next Generation Air Transportation System (NextGen) face significant organizational and funding challenges, with project deliverables encountering repeated cost overruns and delays.  A number of key industry stakeholders have called for privatization of the ATC system, possibly through the establishment of a not-for-profit corporation similar to Nav Canada.  Additionally, any such organizational overhaul of the ATC system will need to be accompanied by adequate long-term funding to ensure that NextGen’s benchmarks are achieved in a timely fashion.  Not surprisingly, significant disagreement exists regarding appropriate funding mechanisms (e.g., user charges and passenger fees) to meet NextGen’s funding needs.
 
What impact has the global trend towards airport privitisation had on your jurisdiction?
 
Airport privatization has had very limited success in the United States.  A 1996 law passed by the U.S. Congress established an experimental program to encourage airport privatization, by authorizing the FAA to exempt participating airports from airport revenue usage restrictions, the repayment of federal grants and the return of airport property acquired with federal funds in the event the airport is leased or sold.  Only two airports completed the privatization process under this program, and one of these airports was subsequently “de-privatized.”  In 2008, efforts to privatize Chicago’s Midway Airport (MDW) fell through when a consortium selected to operate the airport could not secure financing.  Efforts to privatize MDW fell through again in 2013 when one of the two bidders withdrew from the process.  Presently, there is one application pending for privatization under the program (involving a small, county-owned general aviation airport).  In 2014, the Congressional Research Service released a report identifying the lengthy application process, overly restrictive regulatory requirements and uncertainty regarding continued access to federal funds post-privatization as potential impediments to the program’s success.
 
Are there any exciting technological developments on the horizon?
 
Further to U.S. regulatory efforts to safely integrate drones into the national airspace system discussed above, the FAA also has begun an initiative to assess how technological advancements might allow for the next phase of drone operations (i.e., operations beyond those proposed in the pending draft rules) to be integrated into the national airspace system.  This initiative, involving the FAA’s coordination of research efforts with private entities, specifically will focus on whether drone operations can be safely conducted in populated, urban areas for purposes of news gathering and also will examine certain operations outside the pilot’s direct line-of-sight in rural areas using enhanced command-and-control technology.    
 
What key trends do you expect to see over the coming year and in an ideal world what would you like to see implemented or changed?
 
FAA reauthorization is once again front and center in the United States.  The agency’s current funding, which expires in September of this year, followed five years of piecemeal, short-term funding extensions given the inability of the U.S. Congress to reach agreement on FAA priorities (much to the frustration of airlines, airports and other aviation industry stakeholders).  In terms of the upcoming reauthorization, airlines will be pushing for measures to fast-track ATC modernization, and airports will be advocating for an increase in the passenger facility charge (currently capped at $4.50 per passenger enplanement) to fund FAA-approved airport-related projects.  Key congressional committee members also have indicated that the reauthorization legislation may include provisions obligating the FAA to expedite its pending rulemaking efforts addressing the safe integration of drones into the national airspace system.  Elsewhere on the regulatory front, the DOT is finalizing a third round of proposed airline passenger protections, addressing, among other things, additional disclosures to consumers regarding fees for certain optional services, so-called display bias involving electronic airline information systems, and customer service standards for large travel agencies.  Separately, and in an ideal world, I would like to see a reasonable loosening of the U.S. restrictions on foreign direct investment in U.S. carriers, which can be accomplished in a manner that does not pose a threat to national security.  Any loosening, of course, will require legislative changes.  The current restrictions have been criticized as “archaic” and “protectionist,” and I believe such criticisms as well-placed. 

Jonathon Foglia joined Zuckert, Scoutt & Rasenberger in 2008 and his practice focuses primarily on aviation regulatory and commercial matters. Mr. Foglia advises airlines, public charter operators, ticket agents, tour operators, travel agencies, trade associations, and air charter brokers on compliance with DOT economic regulations, including licensing, registration, consumer protection and advertising matters.  He also counsels airlines, aircraft operators, fixed-based operators and shippers under the Federal Aviation Regulations, Civil Aviation Security Regulations and Hazardous Materials Regulations. 
 
Jonathon can be contacted on +1 202 973 7932 or by email at jhfoglia@zsrlaw.com