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Archives for May 2017

CAA Notices: The reinvention of a failed methodology

Since our last update, feedback shows that concerns are shared across the aviation sector about this matter. The introduction of CAA Notices would be a significant departure from the way aviation in New Zealand has been regulated for the past 25 years. Whilst the official comment period for NPRM 17-02 has closed, the following is a quick recap of what the CAA is proposing:

  • Section 28(5) was inserted into the Civil Aviation Act in 2010 and confers certain powers to impose requirements or conditions.
  • About seven years later, the CAA has suddenly come up with an interpretation of how far Parliament intended these powers to extend.
  • In the Cabinet Paper recommending amendment of the Civil Aviation Act, the Minister sought to grant the Director power to determine technical matters such as testing equipment, syllabi and examinations.
  • Cabinet agreed (via Cabinet Minute) to amend the Civil Aviation Act to provide for rules to delegate to the Director the power to determine technical matters, such as testing equipment, syllabi, and examinations.
  • When introducing the amendments to Parliament for debate, the Associate Minister highlighted them as being about the power of the Director to determine technical matters under the Civil Aviation Rules.
  • Parliament intended the granting of powers to determine technical matters in a narrow range of areas. It never intended the establishment of a process where the CAA becomes the risk-definer, the solution-chooser, the rule-maker and the law-enforcer.
  • NPRM 17-02 (released in February 2017) presents CAA Notices as though they are an existing tool. A reader would be forgiven for concluding that CAA Notices are an existing and routine method of communication.
  • The CAA knows that it currently has a Minister who is distracted by other issues within his portfolios and that he basically rubber-stamps anything the CAA puts in front of him.
  • The CAA also knows that it will most likely only have this Minister until August this year; so the Authority is pushing to make hay while the sun shines so to speak, and get everything it possibly can into position before then.
  • The CAA has done a very good job of maximising confusion in the way it has rolled out this CAA Notices concept.
  • Crucially, CAA Notices are a CAA invention.
  • The CAA believes that Section 28(5) of the Act enables the Minister to put in place rules which empower the Authority to impose mandatory requirements or conditions without the need to put the proposed requirements or conditions through the normal rule-making process.
  • The CAA has decided that, should the Minister put in place such an empowering rule, then the mandatory requirements or conditions imposed under it will be documented in a CAA Notice.
  • The first attempt at convincing the Minister to create an empowering rule is contained in NPRM 17-02 in the form of the proposed new Subpart I to Part 61.
  • The CAA has everyone fixated on how a CAA Notice will be consulted upon, who might be allowed to issue it, and how much faster it will allow things to be achieved. Only now are people waking up to whether Parliament ever intended Section 28(5) to be used in the way that is proposed, or what the implications are of enabling this sort of regulatory power to be wielded outside the normal rule-making process.
  • The CAA has carefully chosen the subject matter of the first CAA Notice. R22/R44 operational safety is a subject upon which some fairly firm views are held across the community and most discussions can be relied upon to revert to this subject matter, rather than sticking to the core issue of what regulatory checks and balances are appropriate.
  • The introduction of the CAA Notices concept will never reach an NPRM stage. As outlined above, the CAA has invented it for its own ends.
  • What will reach an NPRM stage are the proposed empowering rules which we expect will be introduced by the CAA as and when it decides it wishes to create mandatory requirements or conditions in different areas. The proposed Subpart I to Part 61 is the first example of an empowering rule.
  • Should the Minister decide to create an empowering rule under Section 28(5), he must specify the consultation that is to be undertaken prior to mandatory requirements or conditions being promulgated. The cynical side of us wonders how long it will be before the CAA convinces the Minister that specifying zero consultation will lead to a far more expeditious pathway to introduction of various requirements or conditions.

When questioned about CAA Notices, the CAA has made it very clear that consultation on their introduction is not necessary because this is already provided for in Section 28(5) of the Act. Our assessment is that the CAA has made its mind up on what the Act means and will attempt to drive this CAA Notices concept forward – regardless of resistance.

The Swedavia-McGregor Report was in part instigated because the aviation regulatory framework had become an unwieldy ad hoc mess of rules, circulars, orders and other tertiary regulations.

CAA Notices are a reinvention of this failed methodology and we encourage everyone to continue voicing their opposition at every opportunity.

A proposal to challenge the new CAA levies

By now, operators will have received a letter and information booklet from the CAA detailing the new safety levies that will take effect from 1 July 2017. These levies have been introduced despite efforts by a number of individuals and organisations to enlighten the CAA and Minister of Transport of the failings in the consultation process, as well as the inequities in the methodology adopted.

Immediate financial implications

The levies will be introduced across two financial years (2017-2018 and 2018-2019) with 50% of the full rate payable in the first year and 100% payable in the second year and beyond. For the purposes of analysis, this article is based upon the full levy rate payable and ignores the first year’s sugar-coated Trojan horse.

Certificated operators will no longer be charged at an hourly rate by the CAA for routine inspections and monitoring. They will instead be levied at varying rates as outlined in the following table:

Sector Full levy rate
Part 115 – Parachuting $1.60 per descent
Part 121/125 – Passenger Air Transport $5.50 per flight hour
Part 135 – Passenger Air Transport $6.50 per flight hour
Part 137 – Agricultural Operations 0-10,000 tonnes per annum $0.87 per tonne
10,000 – 50,000 tonnes per annum $0.73 per tonne
50,000+ tonnes per annum $0.65 per tonne
Part 121/125/129/135 –
Freight Only
0-10,000 tonnes per annum $3.00 per tonne
10,000 – 50,000 tonnes per annum $2.60 per tonne
50,000+ tonnes per annum $2.00 per tonne

 

Apply the above figures to your operation to determine how much you will pay the CAA under this new levies regime. Compare this to how much you currently pay annually for routine audits and this will tell you whether you are immediately better or worse off.

The longer term consequences

These are numerous. A couple of the more obvious consequences are the loss to industry of the mechanism whereby demonstrated safety performance was financially rewarded via an increased audit interval and a corresponding reduction in CAA charges; and the fact that in moving away from an hourly rate-based method of cost recovery, the CAA has skilfully managed to put itself in a position where its operating costs can’t easily be compared with other similar organisations or government agencies.

Of far more significance, however, is the fact that throughout the process of setting these levies, the CAA was very clear that its objective was to more closely match the revenue recovered from each sector of industry with the expenditure it incurs in regulating that sector. This all sounds very nice as a concept, but an analysis of the CAA’s current sector-by-sector costs and budgeted future expenditure shows what full cost recovery might look like, and the ramifications for commercial general aviation become immediately apparent:

  • Regulating commercial general aviation accounts for 23% of the CAA’s total expenditure.
  • The CAA’s budgeted total expenditure for FY2019 is $42.818m.
  • This means that the CAA’s expenditure on the regulation of commercial general aviation will be 23% of $42.818m, which equals $9.848m.
  • Deducted from this is the CAA’s projected revenue from other sources (for example, fees and hourly rate charges) of $1.637m, which leaves $8.211m to be recovered from commercial general aviation by way of levy.
Sector Historic percentage of total cost of commercial general aviation audit oversight Share of $8.211m to be recovered if 100% cost recovery principles applied Levy rate required to achieve 100% cost recovery
Part 115 – Parachuting 11.3% $927,843 $11.94 per descent
Part 121/125 – Passenger Air Transport 11.6% $ 952,476 $25.15 per flight hour
Part 135 – Passenger Air Transport 25.4% $ 2,085,594 $29.78 per flight hour
Part 137 – Agricultural Operations 34.7% $ 2,849,217 $3.99 per tonne
Part 121/125/129/135 – Freight Only 17.0% $ 1,395,870 $13.75 per tonne
TOTAL 100.0% $ 8,211,000

 

In terms of the way the Government sets fees and charges, there is nothing to prevent the CAA moving to a 100% cost recovery methodology. You will be able to assess the impact on your business, but it doesn’t take rocket science to also imagine the implications for the entire commercial general aviation sector.

Can this be challenged?

Yes it can. Four avenues have so far been identified through which various aspects of this levy can be subjected to scrutiny. These range from the veracity of the consultation process, through to the selective targeting of the levy, its longer term implications, and compliance with government guidelines and the Civil Aviation Act itself.

This isn’t going to be an easy process. It will involve significant research and analysis coupled with engagement in the political arena to maximise the chances of success. Any such challenge needs to be mounted now, before the levies are cemented in place.

The estimated cost to mount a credible challenge will be around $20,000.

The next step

If you have any questions, or would like to support the effort to overturn this parasitic threat to the future livelihood of commercial general aviation, please contact Qwilton Biel.

Phone:           (027) 493 5655

Email:            qwilton [at] biel [dot] nz