[Senate Hearing 112-850]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-850
 
                 THE GLOBAL COMPETITIVENESS OF THE U.S.
               AVIATION INDUSTRY: ADDRESSING COMPETITION
       ISSUES TO MAINTAIN U.S. LEADERSHIP IN THE AEROSPACE MARKET
=======================================================================


                                HEARING

                               before the

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 18, 2012

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
             Richard M. Russell, Republican Staff Director
            David Quinalty, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

MARIA CANTWELL, Washington,          JOHN THUNE, South Dakota, Ranking 
    Chairman                             Member
DANIEL K. INOUYE, Hawaii             JIM DeMINT, South Carolina
BARBARA BOXER, California            ROGER F. WICKER, Mississippi
BILL NELSON, Florida                 JOHNNY ISAKSON, Georgia
FRANK R. LAUTENBERG, New Jersey      ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                DEAN HELLER, Nevada
MARK BEGICH, Alaska
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 18, 2012....................................     1
Statement of Senator Cantwell....................................     1
Statement of Senator Thune.......................................     3
Statement of Senator Isakson.....................................     4
    Prepared statement...........................................     4
    Letter dated June 7, 2012 to Hon. Ray LaHood, Secretary of 
      Transpiration, U.S. Department of Transportation...........     5
    Editorial dated July 16, 2012 from Aviation Week entitled, 
      ``Hawker Beechcraft's Future May Rest With Chinese''.......     6
    Editorial dated July 16, 2012 from Aviation Week & Space 
      Technology entitled, ``Hawker Beechcraft's Pending $1.79 
      Billion Sale Faces Hurdles''...............................     8
Statement of Senator Begich......................................    48
Statement of Senator Lautenberg..................................    50
Statement of Senator Warner......................................    54
Statement of Senator Boozman.....................................    56

                               Witnesses

Dr. John Tracy, Chief Technology Officer and Senior Vice 
  President, Engineering, Operations and Technology, The Boeing 
  Company........................................................     9
    Prepared statement...........................................    10
Dan Elwell, Vice President, Civil Aviation, Aerospace Industries 
  Association....................................................    15
    Prepared statement...........................................    16
Dr. Stanley Sorscher, Society of Professional Engineering 
  Employees in Aerospace, International Federation of 
  Professional and Technical Engineers Local 2001................    21
    Prepared statement...........................................    22
Pete Bunce, President and CEO, General Aviation Manufacturers 
  Association....................................................    25
    Prepared statement...........................................    27
Nicholas E. Calio, President and Chief Executive Officer, 
  Airlines for America (A4A).....................................    31
    Prepared statement...........................................    32
    Letter dated July 27, 2012 to Hon. Maria Cantwell from James 
      H. Zrust, Vice President--Tax, The Boeing Company..........    42

                                Appendix

Hon. Kay Bailey Hutchison, U.S. Senator from Texas, prepared 
  statement......................................................    77
Response to written questions submitted to Dr. John J. Tracy by:
    Hon. Maria Cantwell..........................................    77
    Hon. Amy Klobuchar...........................................    79
    Hon. Mark Warner.............................................    80
    Hon. Tom Udall...............................................    82
Response to written questions submitted to Dan Elwell by:
    Hon. Amy Klobuchar...........................................    84
    Hon. Mark Warner.............................................    85
    Hon. Tom Udall...............................................    86
Response to written questions submitted to Dr. Stanley Sorscher 
  by:
    Hon. Amy Klobuchar...........................................    88
    Hon. Mark Warner.............................................    89
    Hon. Tom Udall...............................................    90
Response to written questions submitted to Pete Bunce by:
    Hon. Maria Cantwell..........................................    92
    Hon. Amy Klobuchar...........................................    93
    Hon. Mark Warner.............................................    93
    Hon. Tom Udall...............................................    93
Response to written questions submitted to Nicholas E. Calio by:
    Hon. Maria Cantwell..........................................    94
    Hon. Amy Klobuchar...........................................    96
    Hon. Mark Warner.............................................    96


                     THE GLOBAL COMPETITIVENESS OF

                 THE U.S. AVIATION INDUSTRY: ADDRESSING

                  COMPETITION ISSUES TO MAINTAIN U.S.

                   LEADERSHIP IN THE AEROSPACE MARKET

                              ----------                              


                        WEDNESDAY, JULY 18, 2012

                               U.S. Senate,
 Subcommittee on Aviation Operations, Safety, and Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 3:01 p.m. in room 
SR-253, Russell Senate Office Building, Hon. Maria Cantwell, 
Chairman of the Subcommittee, presiding.

           OPENING STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Good afternoon. The Senate Committee on 
Commerce, Science, and Transportation Subcommittee on Aviation 
Operations, Safety, and Security will come to order.
    I thank the witnesses for being here today for such an 
important hearing. I want to welcome each of them: from 
Chicago, Dr. John Tracy, Chief Technology Officer and Senior 
Vice President of Engineering and Operations for The Boeing 
Company; Dan Elwell, Vice President, Civil Aviation, Aerospace 
Industries Association--welcome; Stan Sorscher, Labor 
Representative for the Society for Professional Engineering 
Employees in Aerospace--thank you for being here; Mr. Pete 
Bunce, President and Chief Executive Officer for the General 
Aviation Manufacturing Association; and, certainly not last in 
the regards to the importance to the sector, but very 
important, Mr. Nick Calio, President and Chief Executive 
Officer of Airlines for America.
    So welcome, gentlemen. Thank you all for being here.
    And I thank my colleague, the Ranking Member of the 
Subcommittee, for being here, and I know we're going to hear 
from many of our other colleagues as well.
    Today's witnesses are a broad cross-section of America's 
aviation sector, and we must take this opportunity to promote 
innovative strategies that will secure our future in the world 
and the marketplace. The U.S. aviation sector is vital to our 
nation's economy. According to the FAA, in 2009, the U.S. 
aviation industry supported more than 10 million direct and 
indirect jobs and contributed more than $1.3 trillion to our 
economy, which is about 5.2 percent of our overall gross 
domestic product.
    The manufacturing of civil aircraft and components provided 
for more than 1 million jobs and provided $185 billion in 
economic activity. And international sales of these aviation 
parts added up to about $75 billion, making aerospace our 
largest export industry, a key contributor to reducing our 
overall trade imbalance.
    With the projections for future growth, the aerospace 
industry represents a great opportunity for job growth in 
America, but only if we take the right actions necessary to 
make sure that we stay competitive. Today's hearing is about 
seizing on those opportunities.
    The aviation industry is critical to our economy because it 
facilitates commerce by connecting regions of the country and 
other fast-growing parts of the world, and we want to make sure 
that we are continuing to improve the quality of air service. 
Industries with perishable items and cargo such as fruits and 
vegetables and many other things count on aviation, as does our 
tourism industry and many other aspects of our economy.
    But despite the success in the growing economic sector of 
aerospace, we see a lot of competition and, obviously, 
financial challenges. In the manufacturing sector, low-cost 
competition from developing countries, where sectors are 
developing, like Brazil, Russia, and China, has added to the 
challenges already that we are seeing from competition from 
Europe, Canada, and Japan.
    Boeing and Airbus have dominated the market for large 
commercial aircraft, but Canada and Brazil have both made 
substantial contributions in regional jet markets. So there are 
also a growing number of concerns in the general aviation 
sector. While the makers of large general aviation aircraft 
appear to have made it through some economic downturns fairly 
well, smaller manufacturers have been hard hit.
    And it is also clear that China is pursuing the technical 
capability to compete in all sectors of aircraft manufacturing. 
Just last week, a Chinese firm purchased a controlling interest 
in the civil aviation operations of Hawker Beechcraft, a 
longtime Wichita-based aviation manufacturing company.
    So, meanwhile, the domestic airline industries continue a 
very steep financial climb out of their challenges emerging 
from where they were when they lost more than $60 billion and 
multiple airlines filed bankruptcy. So though these recent 
financial reports have demonstrated there is improvement, the 
margins still remain very narrow.
    The U.S. airline industry as a whole made a net profit of 
$2.7 billion in 2010 and $390 million in 2011. These first 
quarter earnings in 2011 included a net profit of $228 million 
for the 10 largest airlines, which translates into a 0.7 
percent profit margin.
    So these financial challenges have definitely taken their 
toll on the aviation workforce, and the airlines shed 160,000 
jobs--or about 20 percent of its total workforce. And those 
employees have been challenged with all sorts of wage cuts and 
benefit cuts.
    So the issue that we want to talk about today is how we can 
continue to weather the economic challenges and continue to 
grow the sector. Combined with the need to replace aging 
aircraft, commercial passenger traffic in the U.S. alone is 
expected to increase 90 percent by 2032, from 730 million 
passengers to about 1.2 billion passengers, and that is a 
projected 3 percent annual growth. And, as I mentioned, with 
aircraft orders, Boeing's latest forecast indicates airlines 
will need another 34,000 aircraft over the next 20 years, 
valued at $4.5 trillion.
    So in addition to the transformation of the air traffic 
management system through our satellite system, there are many 
things that we're doing to try to improve our competitiveness. 
I hope to hear a lot from the panelists about our workforce 
needs and what we can do to address the needs that we are 
seeing with an aging workforce, how we can match up our 
unemployment with this incredible job opportunity that we're 
looking at, how do we get more of our young students interested 
in aviation careers, and how do we get our returning veterans 
to fill some of these job needs.
    One estimate is that national projections are we will need 
82,000 pilots and 143,000 maintenance workers over the next 20 
years. So that's a good problem to solve compared to many of 
our others.
    So I look forward to hearing about that, about our FAA 
certification process and what we can do to streamline that and 
make it easier and more efficient, how we can more cost 
effectively implement the next generation system which will 
help us be competitive on an international basis, and what else 
we can do to make sure that we are innovating here in the 
United States and keeping our competitive edge.
    So, again, thank you, gentlemen. We look forward to hearing 
from you. And I'd like to turn to the Ranking Member, Senator 
Thune, for an opening statement.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Madam Chair. And I, too, want to 
thank our witnesses for appearing today and for sharing their 
insights about the state of aviation in this country.
    The United States is a leader in aerospace design and 
manufacturing, which is also the source of thousands of high-
quality jobs. We've always had a tradition of building advanced 
aircraft and introducing new technologies that can provide for 
superior safety travel experiences for the American passenger.
    However, in an economy barely coming out of a recession, 
the aviation industry is struggling to hold on while facing 
high taxes both at home and abroad, highly volatile fuel 
prices, and an increasing number of regulations. It is 
important that we reduce the tax burdens on airlines which are 
inevitably passed on to the American traveling public.
    Apart from the high departure and arrival taxes for flying 
into countries like Germany and the U.K., our airlines are now 
expected to pay a tax to the European Union as part of their 
emissions trading system. This is clearly a unilateral tax grab 
on American operators without any guarantees for how those 
revenues are going to be used.
    I look forward to hearing from our witnesses today on how 
this tax could affect aviation competitiveness. Additionally, I 
hope that the witnesses can highlight the important role small 
businesses play in the aviation industry. While many know that 
small businesses play an important role in the overall economy, 
I think most are surprised at how significantly small 
businesses impact the aviation industry, be it in the area of 
innovation, employee development, component manufacturing, FAA 
contracting, or just as a consumer. Without small businesses, 
the U.S. aviation industry would not be the leader that it is 
today.
    However, like small businesses throughout the nation, 
aviation-focused small businesses also face considerable 
challenges, and I look forward to hearing what can be done to 
reverse this trend. Ultimately, our goal should be to retain 
our global leadership position in the aerospace industry. And 
the solutions have to include lower taxes, less regulation, 
more innovation, and greater energy independence.
    Madam Chairwoman, thank you again for holding this hearing. 
I look forward to hearing from our witnesses and interacting 
with them about the future of this industry.
    Thank you.
    Senator Cantwell. Thank you.
    Do either of my colleagues have a quick comment before we 
start the panel, since you were both here on time and ready to 
go?
    Senator Warner. I just want to thank the Chair for holding 
this hearing. I'm very anxious to get the panel's view on some 
work we're trying to do on advanced composites and the 
potential that it has for the industry.
    Senator Cantwell. Senator Isakson?

               STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. I want to acknowledge, too, the Chair for 
calling this meeting. It's very important. And representing a 
state that's the home to Delta, the busiest airport in the 
world, Gulfstream and Lockheed Martin, there is no more 
critical issue in my state than aerospace.
    [The prepared statement of Senator Isakson follows:]

  Prepared Statement of Hon. Johnny Isakson, U.S. Senator from Georgia
    Thank you Madam Chairman. This is a very timely hearing because 
just this week alone news broke, which I am including for the record, 
about the potential purchase of the iconic Hawker-Beechcraft company by 
a Chinese entity that it 40 percent owned by the Chinese government. 
Now, there may be some questions as to whether the Chinese firm, 
Superior Aviation, can ultimately come up with the financing to meet 
the $1.8 billion asking price, but this story underscores what this 
hearing is about: in a globalized economy Madam Chairman if we don't 
create the competitive conditions to keep manufacturing like this in 
the United States, well capitalized foreign entities that see great 
opportunity in these companies will snap them up and possibly move 
their operations to other nations that are more business friendly.
    This is an industry that means 10 million jobs $1.3 trillion in 
total economic activity, and 5.2 percent of the gross domestic product 
for our economy in 2009 alone, the last year we have data to measure it 
by. This is an industry that, even though the U.S. has had a total 
negative trade balance since 1971 (it was at -$500 billion in 2009), 
means a $75 billion positive impact on the trade balance as civil 
aircraft engines, equipment, and parts contributed to the top net 
exports of the last decade.
    For Georgia the aerospace manufacturing industry accounts for over 
8,300 employees over 13 different companies, over $581 million in 
payroll, and over $474 million spent to secondary and tertiary 
suppliers in Georgia. For example Savannah is the home of Gulfstream, 
the premier business aviation manufacturer in the world. In 2010 
Gulfstream announced a $500-million, seven-year plan to ensure that the 
company is well-positioned to meet future demand for business-jet 
aircraft and support services. The growth is expected to result in 
1,000 additional Gulfstream jobs, an increase of more than 15 percent 
from Gulfstream's current Savannah employment level of approximately 
5,500 employees. The expansion would include building new facilities at 
the northwest quadrant of the Savannah Airport, renovating several 
existing facilities on the main campus off Gulfstream Road and 
expanding office and lab facilities at the Gulfstream Research 
Development Center in Crossroads Business Park. The expansion of 
Gulfstream's facilities will have a major impact on both the state and 
local economies by creating 1,000 new full-time jobs, not to mention 
the ripple effects in terms of construction and service workers, as 
well.
    Gulfstream has thrived in our state because we have made an effort 
to partner with them to create conditions whereby they can be 
successful. For example, one of the programs we have in Georgia is a 
good ``best practices'' example. We have developed Quick Start, which 
is an internationally acclaimed program providing customized training 
free-of-charge to qualified new, expanding and existing businesses. 
Quick Start is one of my state's most important economic development 
incentives for attracting new investment to the state and promoting job 
creation. As Gulfstream recently announced their major expansions a 
collaboration among Quick Start, Savannah Technical College and 
Gulfstream has helped in the past, and will help moving forward, to 
create training opportunities for local individuals so they would have 
the skills needed to take advantage of the opportunities at Gulfstream.
    The Federal Government should partner with this industry in the 
same way. For example, I have strong concerns about FAA's timely 
certification of new products. Companies in my state, like Gulfstream 
for example who are trying to certify their new G650, have outlined 
these same concerns to me. In the past we have heard the right things 
from FAA in how they're going to solve these problems, but their 
actions have never followed up. I certainly don't want to see 
impediments to bringing new products to market but the FAA needs to 
develop certification processes and partner with industry to move these 
processes forward instead of being an impediment to innovation and 
growth.
    Gulfstream recently opened a repair station in Brazil to serve its 
South American customers and is working towards opening one in China, 
but as is running into roadblocks every step of the way with both DHS 
and TSA. Inaction by DHS for the past decade has caused uncertainty in 
certifying the security of these stations, leading to lost 
opportunities. The inaction of our government has real world 
consequences and prevents our manufacturers from supporting their 
customers all over the globe.
    On June 7 I wrote Secretary LaHood, and I am including my letter 
for the record, encouraging the Administration to file an Article 84 
complaint in the International Civil Aviation Organization against the 
European Union's Emissions Trading Scheme (EU-ETS). This Committee 
recently held a hearing on the matter and there was strong bipartisan 
support for filing such a complaint, yet the Administration has not 
acted to halt the EU's unilateral and unprecedented action.
    Madam Chairman, I fear that if we do not take these and other 
common sense steps to level the competitive playing field for our 
aerospace manufacturers, then we will see more companies go the way of 
Hawker-Beechcraft. Thank you Madam Chairman.
                                 ______
                                 
                                       United States Senate
                                       Washington, DC, June 7, 2012
Hon. Ray LaHood,
Secretary of Transportation,
U.S. Department of Transportation,
Washington, DC.

Secretary LaHood:

    Thank you for your testimony yesterday before the Commerce 
Committee on the issue of the European Union's Emission Trading Scheme 
(EU-ETS) and its impact on America's aviation industry. I appreciated 
your candid views and strong opposition to the EU's plan.
    I would strongly encourage the Administration to file a formal 
Article 84 complaint against the EU on this issue in the International 
Civil Aviation Organization (ICAO). I believe you would find 
significant bipartisan support for the complaint in the House and 
Senate. I appreciate your consideration of my views, and I look forward 
to your response. Should you or your staff have any questions or need 
any more information, please do not hesitate to contact me or Michael 
Quiello on my staff.
            Sincerely,
                                            Johnny Isakson,
                                             United States Senator.
                                 ______
                                 

                    Business Aviation--July 16, 2012

            Hawker Beechcraft's Future May Rest With Chinese

                                By Staff

    Hawker Beechcraft's proposed sale to a Chinese firm was not a 
complete surprise. But that the smaller Superior Aviation Beijing 
emerged as the possible bidder instead of the larger AVIC or CAIGA 
leaves some industry experts wondering whether the deal will close at 
the $1.79 billion asking price.
    Hawker Beechcraft announced July 9 that it had reached an 
exclusivity agreement to explore the potential sale of all but its 
military business to Superior Air Beijing.
    The U.S. Bankruptcy Court for the Southern District of New York has 
scheduled a hearing July 17 to consider Hawker Beechcraft's request to 
enter into exclusive negotiations and a ``refund'' agreement for the 
company's sale.
    Under the exclusivity agreement, the companies would negotiate a 
definitive accord over 45 days. During this time, Superior Air would 
provide up to $50 million in funding ``to maintain certain product 
lines that [Hawker Beechcraft] would likely discontinue,'' according to 
court documents.
    Hawker Beechcraft has not said which lines are at risk, but a 
company presentation made this spring detailed the likelihood of 
shelving the Premier and/or Hawker 4000 programs, along with the 
permanent disbanding of the Hawker 400.
    Hawker Beechcraft, which filed for Chapter 11 bankruptcy protection 
May 3, had evaluated operating as a standalone entity, in addition to 
accepting eight bids for the potential sale of some or all of the 
company. The company on June 30 filed a preliminary plan of 
reorganization as a standalone entity that would have ownership of 
Hawker Beechcraft transfer from Goldman Sachs and Onex to its 
creditors, and in exchange some $2.5 billion in debt would be erased. 
But at the same time, Hawker Beechcraft held open the possibility of 
selling the company.
    Hawker Beechcraft says if it is unable to reach agreement with 
Superior Air Beijing in a timely manner, it would then move forward on 
its preliminary plan of reorganization.
    Hawker Beechcraft would be unable to sell its military business to 
the Chinese firm, and the proposed deal includes a potential refund of 
up to $400 million ``depending upon the price which the debtors 
received for the defense-related businesses'' (see related article on 
Page 7).
    Once a definitive agreement is reached (should it be reached), then 
the transaction must proceed through the normal bankruptcy process, and 
the Superior bid would serve as the stalking horse for competing 
proposals. The sale also would need to undergo a series of regulatory 
reviews.
`Greatest Value'
    Hawker Beechcraft has stressed that the Superior proposal ``would 
create the greatest value for the company and position it for long-term 
growth,'' and says it provides the most continuity for the business.
    In announcing the sale, Hawker Beechcraft Inc. CEO Steve Miller 
notes Superior has had a ``long-standing interest in the commercial 
aircraft business of Hawker Beechcraft.''
    Longtime Dassault Falcon veteran and current industry analyst Brian 
Foley notes that Superior's name had surfaced in the past, so the fact 
that it emerged as the leading bidder was not out of the blue.
    But Foley adds he found it curious that it was Superior over 
China's well-established AVIC or China Aviation Industry General 
Aircraft Co. (CAIGA), both of which have already set up manufacturing 
bases.
    Superior, which is 60 percent owned by a private entity and 40 
percent by the Beijing municipal government, gained a foothold in the 
aerospace realm with its 2007 acquisition of Brantly International, a 
maker of small helicopters. The company moved Brantly tooling to China 
and developed the aircraft as a UAV.
    The company subsequently purchased general aviation piston-engine 
parts maker Superior Air Parts out of bankruptcy and took on the name 
Superior Aviation Beijing. Superior remains in Texas, but the firm 
constructed a plant in China to make small piston aircraft engines for 
the regional market.
    But all of that amounts to a much smaller player in the aerospace 
market, particularly next to a company the size of Hawker Beechcraft. 
``It's not a complete unknown, but it's a small business compared to 
Hawker Beechcraft,'' notes Jack Pelton, the former Cessna executive who 
helped engineer the agreement for Cessna's Skycatcher light-sport 
aircraft to be developed by AVIC subsidiary Shenyang Aircraft Corp.
    Richard Aboulafia, Vice President-Analysis at the Teal Group, 
agrees. ``What an exceedingly odd announcement,'' he says. ``If AVIC/
CAIGA [established Chinese aircraft manufacturers] were behind this, 
that would be one thing. But we're talking about a much smaller and 
less well connected entity here.''
    ``We were expecting a Chinese buyer, but not this one,'' Frederico 
Fleury Curado, CEO of rival Embraer, said during the Farnborough 
airshow. ``We were expecting an established buyer.''
`That's Not Going Down'
    Aboulafia questioned whether Superior would have the resources to 
meet the announced $1.79 billion cash sale. ``They're not showing up 
with $1.8 billion here; that's not going down.''
    Foley concedes that the purchase price was surprising, but he notes 
that General Dynamics initially raised eyebrows with its purchase of 
Gulfstream, but that turned out to be a strong investment.
    Hawker Beechcraft also stresses that Superior intends to provide a 
substantial investment into the product lines. But Pelton notes that 
upgrading or developing an entirely new aircraft can cost $180 million 
to $700 million or more depending upon its complexity and that Hawker 
Beechcraft will require several such investments because ``long term 
they'll still be in a spiral unless they invest.''
    Superior may have the ability to draw on the resources of its 
second major investor--the City of Beijing--which might well want to 
establish a business aviation manufacturing base. But that would be a 
long-term and costly venture to establish such a presence in the city.
    In the interim, Hawker Beechcraft has stated unequivocally that 
Superior plans to maintain the company's U.S. presence and that the 
deal would save thousands of jobs in Wichita and Little Rock, Ark.
    Wichita Mayor Carl Brewer has been cautious about the move. ``The 
city is working to gain a better understanding of how the proposed 
acquisition may impact our community,'' Brewer says. ``We're encouraged 
by Hawker's statement . . . which indicated Superior intends to 
maintain Hawker Beechcraft's U.S. headquarters, management team and 
employees and continue product development throughout its commercial 
lines.''
    Kansas Gov. Sam Brownback, meanwhile, finds the deal appealing if 
it helps employment in his state. ``My major concern . . . is the jobs 
in Kansas. Wichita is the air capital of the world, and we've got more 
major air companies there than anyplace in the world: Boeing, Airbus 
and all the [general aviation],'' he says. ``We want to grow those 
jobs.''
    The good news, Foley notes, is that the companies have stated up 
front that employment and production will stay in Wichita. When CAIGA 
purchased Cirrus, it promised to keep production in Duluth, Minn., and 
so far has kept it there, Foley notes.
    But Foley does not rule out the possibility of some Hawker 
Beechcraft production lines opening in China for local sales down the 
road.
    Chinese executives have expressed a strong desire to build up their 
aviation manufacturing base. It's too early to tell what, if any 
production would launch there, he says.
    If the deal should go through as announced, Foley says the proposed 
agreement would be ``the best possible outcome for Hawker Beechcraft. 
It's a very good deal for Hawker and its creditors.''
    Competitively, he adds, the potential deal will mean ``Hawker is 
not going away, we're not going from six to five major manufacturers.'' 
But it could be argued that it's a ``little crowded'' at the mid-and 
small-size jet range, he says.

http://www.aviationweek.com/Article.aspx?id=/article-xml/
bav_07_16_2012_p
01-01-476697.xml
                                 ______
                                 

        Source: Aviation Week & Space Technology--July 16, 2012

      Hawker Beechcraft's Pending $1.79 Billion Sale Faces Hurdles

              By William Garvey, Kerry Lynch (Washington)

    Hawker Beechcraft's announcement of its potential sale to a small 
Chinese company for $1.79 billion could mark the beginning of the end 
of a decades-long period of missed opportunities and missteps at what 
had been among general aviation's most solid manufacturers.
    Many in Hawker Beechcraft's Wichita headquarters regard the buyout 
as the best option, but others elsewhere are skeptical about the 
offer's substance and the future of the company.
    Specifically, Hawker Beechcraft, which filed for Chapter 11 
bankruptcy protection May 3, announced July 9 that it had entered an 
``exclusivity agreement'' with Superior Aviation Beijing Co. Ltd., 
lasting 45 days, during which the two will attempt to finalize details 
of the takeover. If that occurs, Superior would serve as a stalking 
horse in an open bidding process. During the exclusivity period, 
Superior is to provide Hawker Beechcraft with up to $50 million to 
continue business-jet production.
    Superior has said it would keep Hawker Beechcraft's existing 
operations in the U.S. and retain its employees and executives. No 
mention was made of also establishing manufacturing operations in 
China, though that seems a likely eventuality, considering the prestige 
the Chinese attach to aircraft-building and the country's vast market 
potential for such products.
    Notably, the transaction would not include Hawker Beechcraft 
Defense Co. (HBDC), which makes the T-6A/B military trainer and is 
developing a tactical version, the AT-6. However, if HBDC is sold 
separately, up to $400 million from its divestiture would go to 
Superior.
    Should Hawker Beechcraft fail to be acquired, it plans to emerge 
from bankruptcy as a standalone entity whose ownership would transfer 
from Goldman Sachs and Canada's Onex Corp., which acquired it from 
Raytheon in 2007, and to its creditors. That would erase $2.5 billion 
of debt.
    While the news stirred hope among fretful Hawker Beechcraft 
employees, their reaction was hardly universal. ``What an exceedingly 
odd announcement,'' comments Richard Aboulafia, vice president-
Analysis, at the Teal Group. ``If AVIC/Caiga [established Chinese 
aircraft manufacturers] were behind this, that would be one thing. But 
we're talking about a much smaller and less well-connected entity.''
    Indeed. Hawker Beechcraft identified Superior as an ``aerospace 
manufacturer,'' but the adjective appears inflated.
    The Chinese company, which is 60 percent owned by a private entity 
and 40 percent by the Beijing municipal government, came into being in 
2010 when the venture bought Superior Air Parts, a bankrupt Texas parts 
maker for general aviation piston engines. A few years earlier the same 
Chinese venture purchased Brantly, an often-failed maker of small 
helicopters. Those subsidiaries are now co-located in Coppell, Texas. 
However, all of Brantly's tooling was moved to China, where the 
helicopter is being developed as a UAV. Meanwhile, Superior Beijing 
manufactures small piston aircraft engines for the Asian market.
    Jack Pelton, the former head of Cessna Aircraft, expresses surprise 
at the acquirer. ``It's not a complete unknown,'' he says, ``but it's a 
small business compared to Hawker Beechcraft.''
    The deal is also a surprise to Frederico Fleury Curado, CEO of 
Embraer, a competitor in both business jets and military trainers. ``We 
were expecting a Chinese buyer, but not this one,'' he said. ``We were 
expecting an established buyer.''
    Aboulafia is less guarded. ``We're looking at the people who bought 
Brantly,'' he says. ``They're not showing up with $1.8 billion here; 
that's not going down.''
    A Superior takeover will have to receive bankruptcy court approval 
and be blessed by the Committee on Foreign Investment in the U.S., a 
Federal inter-agency group that will weigh the deal's national security 
implications.
    While HBDC would not be involved, the King Air would, and the 
Pentagon operates hundreds of them, most importantly as intelligence, 
surveillance and reconnaissance (ISR) platforms.
    The idea of a King Air produced by a Chinese-owned company does not 
bother Lt. Gen. Larry James, U.S. Air Force deputy chief of staff for 
ISR. ``If you are talking just about the airframe, it's not a state-of-
the-art,'' he says. Nevertheless, it is impossible to predict how a 
sale to the Chinese of such an iconic American brand might play out in 
Washington.
    James's comments touched on a larger problem. Introduced in 1964, 
and with some 7,000 units delivered, the King Air has been Hawker 
Beechcraft's cash cow. However, management's understandable enthusiasm 
for the turboprop caused it to spurn jet development for too long.
    Raytheon, which acquired the company in 1980, attempted to leapfrog 
competing jets by introducing in 1986 what it hoped would be the 
ultimate business aircraft, the Starship--a twin pusher turboprop with 
a canard forward, main wing aft and made of composites. But Starship 
was star-crossed. Deemed too heavy, too slow, too expensive and too 
ugly, the market flatly rejected it.
    That expensive experience--the company put the program loss at $500 
million, but insiders say it cost considerably more--chastened 
Raytheon. Rather than launch any all-new programs, it acquired rights 
to the Diamond II, a Mitsubishi business jet of unremarkable 
performance, which it began building in Wichita in 1988. Then in 1993, 
it acquired the 30-year-old Hawker program. While the company has made 
significant improvements to all models, only the King Airs are market 
leaders.
    When once again it set out with clean-sheet designs for the Premier 
light jet in 1995 and the top-of-the-line Horizon the following year, 
it stumbled badly to the finish line. Certified in 2001, the Premier 
was a modest performer. And work on the Horizon, since renamed Hawker 
4000, consumed a decade to win full certification, and by then other 
super-midsize jets had stormed the market.
    So, Hawker Beechcraft finds itself with products seen by many as 
too old or non-competitive.
    And while the T-6 has been a stellar product, the original 700+ 
aircraft order from the U.S. Navy and Air Force is nearly fulfilled, 
with no other large-scale buyer on the horizon. Meanwhile, a flap over 
a competition between the AT-6 and Embraer's Super Tucano for an Air 
Force-led contract (see article below) prompted Hawker Beechcraft to 
file a lawsuit, embarrassing the service.
    Hawker Beechcraft says Superior would be ``investing substantial 
capital in the company.'' If so, its backers best have deep pockets, 
strong stomachs and patience aplenty.
    Pelton says upgrading or developing a new aircraft can cost $180-
700 million or more and that Hawker Beechcraft will require several 
such infusions because ``long term, they'll still be in a spiral unless 
they invest.''
    The company returns to bankruptcy court July 17 to request 
permission to pursue the Superior deal. The way forward will become 
clearer after that, but not the ultimate outcome.
    Notes Pelton, ``We're not going to know what this chapter looks 
like for another three to four years.''
    With Bradley Perrett in Beijing; Fred George and Jen DiMascio in 
Farnborough; and Dave Fulghum in Washington.

http://www.aviationweek.com/Article/PrintArticle.aspx?id=/article-xml/
AW_07_
16_2012_p40-476128.xml&p=1&printView=true

    Senator Cantwell. Good. Thank you.
    All right. Dr. Tracy, you're up. Speak into the microphone, 
and if the panelists could just note there's a little signal 
there to signify 5 minutes on your comments, and we have your 
full written testimony. But, again, welcome. Thank you for 
being here.

         STATEMENT OF DR. JOHN TRACY, CHIEF TECHNOLOGY

        OFFICER AND SENIOR VICE PRESIDENT, ENGINEERING,

         OPERATIONS AND TECHNOLOGY, THE BOEING COMPANY

    Dr. Tracy. Thank you. Good afternoon, Chairwoman Cantwell, 
Ranking Member Thune, and members of the Committee. On behalf 
of The Boeing Company, I thank you for convening this hearing 
and inviting us to share our thoughts. It's a privilege to be a 
participant on this panel and provide Boeing's view on the 
challenges faced by America's aviation industry.
    Boeing is proud to be one of the leading U.S. exporters of 
manufactured goods. Our spirit of technical achievement and the 
breakthrough of products and services exemplify why the United 
States holds the role as the global leader in aviation. This 
leadership role is important to the United States and its 
workforce.
    Aviation helps drive our economy, contributes $1.3 trillion 
annually in economic activity, and generates 10.2 million jobs. 
And so it's no surprise that international competition for this 
market is growing. We are grateful for the support of Members 
of Congress on both sides of the aisle in seeking an even 
playing field for global aviation commerce.
    At Boeing, we are continuing to hire. As of May 31, we had 
173,167 employees, an increase of almost 11 percent from 5 
years ago. Boeing, along with other high-tech companies, faces 
a shortage of skills, not labor. Simply put, we need more young 
Americans to pursue education and careers in STEM related 
fields. In 2011, Boeing invested about $35 million externally 
in education programs with about $27 million directed toward 
specific STEM programs to inspire engineers, scientists, and 
technologists of tomorrow.
    To maintain the United States' leadership, companies in our 
industry also execute a vigorous slate of research and 
development activities. Boeing, for example, spent $3.9 billion 
in R&D in 2011. But it's basic scientific research supported by 
Federal investment that lays the foundation for the jobs of 
tomorrow.
    Another area of innovation is the need to improve the U.S. 
air traffic management system. The current air traffic control 
system, while safe, is inefficient. The good news is that there 
is broad agreement on what needs to be done. We are grateful 
for the efforts of this committee to include in the most recent 
FAA reauthorization strong accountability measures and a path 
forward for NextGen acceleration.
    We recognize that Congress faces the difficult task of 
ensuring that Federal expenditures address our nation's 
financial obligations and generate the greatest benefit for the 
American people. To ensure our competitiveness in the global 
marketplace, our aviation industry needs topnotch 
infrastructure, robust R&D programs, and a well-educated 
workforce.
    Again, and on behalf of the men and women of The Boeing 
Company, I thank the Committee members for their time and the 
opportunity to address this issue.
    [The prepared statement of Dr. Tracy follows:]

  Prepared Statement of Dr. John Tracy, Chief Technology Officer and 
  Senior Vice President, Engineering, Operations and Technology, The 
                             Boeing Company
    Good morning, Chairwoman Cantwell, Ranking Member Thune, and 
members of the Committee. On behalf of The Boeing Company, I thank you 
for convening this hearing and inviting us to share our thoughts. It is 
a privilege to be a participant on this panel and provide Boeing's view 
on the challenges faced by America's aviation industry.
    Our diligent, talented employees are proud to be a part of one of 
the leading U.S. exporters of manufactured goods. We work hard to 
maintain this rank by turning today's discoveries into tomorrow's 
market-leading products. This spirit of technical achievement and the 
breakthrough-products and services that result from it exemplify why 
the United States holds the role as the global leader in aviation.
    In an era where economic concerns top the national agenda, this 
role as the worldwide leader has tremendous importance to the United 
States and its workforce. Aviation helps drive our economy and 
contributes $1.3 trillion annually in economic activity. It generates 
nearly 10.2 million jobs with $394.4 billion in earnings. It creates 
$785 billion annually in value-added economic activity. Aviation 
accounts for 5.2 percent of Gross Domestic Product and ships more than 
$562 billion in goods and products each year.
    Because of these economic benefits, it is no surprise to realize 
that a growing number of international competitors aspire to erode the 
United States' role as the global leader in our industry. We do not 
fear this new competition. But we need to ensure that countries compete 
on an even playing field, and for us that means ensuring full 
compliance by European governments with last year's WTO ruling against 
$18 billion in illegal subsidies to Airbus. Members of Congress on both 
sides of the aisle and in both chambers have stood shoulder-to-shoulder 
with the USTR on this issue, and we are very grateful for that support.
    We were asked to highlight the issues that we believe most threaten 
American competitiveness in aviation. I'd like to address these 
concerns and explain why these are important to aviation, to Boeing and 
to the American worker. As I discuss these concerns, I believe you'll 
recognize that they all share this common aspect: A deficiency in the 
Federal support given to these issues would jeopardize our industry and 
the jobs within it.
    First, I would like to discuss the workforce-related topic of the 
looming shortage in key skills, especially in science, technology, 
engineering and mathematics, or STEM.
    At Boeing, we are continuing to hire--to replace attrition and to 
maintain an influx of new and diverse talent as we seek new growth 
opportunities globally. In fact, as of May 31, we had 173,167 
employees--an increase of almost 11 percent from five years ago.
    We are fortunate to be able to continue to attract and develop the 
best and brightest people who design and build the world's greatest 
aerospace products. We have a strategic workforce planning process that 
allows us to understand business requirements and forecast near-and 
long-term skill needs. By doing so, we develop employees in the right 
areas and maintain focus on hiring and retaining talents that are key 
to meeting our business needs and ensuring future competitiveness.
    However, with about 76 million baby boomers nearing retirement in 
the United States, technology-based companies like Boeing face a skills 
shortage as fewer people gain the qualifications needed for the high-
tech jobs of today and tomorrow, including those in aerospace. At 
Boeing, the average age of our employees is 48, which is only seven 
years shy of our retirement eligibility. In addition, the Aerospace 
Industries Association estimates that while the U.S. graduates 
approximately 70,000 engineers each year, only 44,000 are eligible for 
aerospace careers due to security clearance requirements.
    Simply put, we need more young Americans to pursue education and 
careers in STEM-related fields.
    I'd like to emphasize one point about these facts. No doubt, 
today's unemployment rate is a macroeconomic concern. However, Boeing, 
along with other high-tech companies, faces a shortage of skills, not 
labor. That's why we are working hard to prepare the future workforce 
for tomorrow's jobs and careers by advocating for improvements in 
education at all levels, particularly in STEM disciplines. In 2011, 
Boeing invested about $35 million towards external education programs, 
with about $27 million directed toward STEM programs to inspire the 
engineers, scientists and technologists of tomorrow.
    Beyond financial support, we've taken broad steps with educators, 
government, industry and others to help create a pipeline of 
technically educated and skilled workers suited for the jobs and 
challenges of a global economy.
    We partner with community and technical colleges to help develop 
programs that train workers in cutting-edge aerospace manufacturing 
skills. These recruitment, pre-hire and workforce training programs 
enable students to earn--certificates that better prepare themselves 
for jobs with Boeing and other aerospace companies.
    Our summer internship program is currently in full swing, with more 
than 1,700 interns--nearly 500 more than in 2010--joining Boeing 
business units around the world. In 2010, Boeing converted nearly two-
thirds of interns into full-time Boeing employees, a higher rate than 
industry averages.
    Many of our employees and retirees also do their part by 
participating in skills-based volunteering in programs, such as FIRST 
Robotics and others, to capture the imaginations of young people about 
the possibilities offered by technical careers. These are just a few 
examples of our efforts to help equip our citizens with the education 
and skills required for STEM jobs.
    As Boeing's chief technology officer, I am keenly aware of how 
innovation depends on a talented workforce that is technically skilled, 
has a passion for discovery, and is ready to work collaboratively to 
bring breakthrough products to life. Nothing is more fundamental to 
sustaining our ability to compete and win in a global economy than a 
strong pipeline of skilled workers. It thus follows that without these 
people, our products and the economic benefits they generate would not 
exist today and would not be created tomorrow.
    To design and create the innovative products and services that make 
the United States the global leader in aviation, companies in our 
industry also execute a vigorous slate of research and development 
activities.
    Our industry invests billions of dollars each year in R&D. Boeing, 
for example, spent $3.9 billion in R&D in 2011. But companies cannot 
afford R&D programs that provide little-to-no return for 15-20 years. 
And in the aviation industry, it can take that long, if not longer, for 
a technology to move from discovery to maturation to commercialization 
and implementation on a product.
    For example, last fall we delivered our first 787 Dreamliner 
airplane, which is made mainly of carbon fiber composite materials. 
While this technology appeared possible for aircraft nearly a half-
century ago, it took many decades of experimentation, development, 
testing, and maturing. The 787, in particular, took almost two decades 
to reach a point where the proven processes of creating carbon fiber 
composites could be validated as both technology- and production-ready.
    The basic scientific research that is supported by Federal 
investments lays the foundation for industries and jobs of tomorrow--
and helps ensure America retains its technology advantage. By 
commercializing findings from government-supported basic research, U.S. 
companies are able to generate a strong return in this government 
investment by creating jobs and strengthening the Nation's economy.
    I want to make it clear that when it comes to commercial 
application of new technologies developed with government support, 
private industry pays the tab. Boeing has always stood up to that 
responsibility. However, we see several areas in which stronger 
government support of specific programs would improve our industry's 
global competitiveness. These areas include:

   Federal R&D funding. Federal R&D plays a big role in 
        innovation and advancement. Yet our in-house research has shown 
        that Federal support for civil aeronautics research and 
        development in the United States has declined significantly. 
        Data for 2010 (the most recent year that data is available) 
        shows that in absolute dollar terms, the U.S. government spent 
        only about 10 percent of what the European Union spent as a 
        whole.

   The ecoDemonstrator Program. In July 2011, Boeing announced 
        a partnership with American Airlines and the FAA to kickoff the 
        ecoDemonstrator Program with a 737-800 airplane that will be a 
        flying testbed for environmentally progressive technologies. 
        This type of partnership helps prove out development 
        technologies quicker and can lead to commercialization of the 
        technology even faster.

   Public aviation research infrastructure. In past years, NASA 
        possessed state-of-the-art aviation infrastructure for research 
        and development, including best-in-the-world wind tunnels and 
        other testing facilities. However, NASA has not maintained its 
        cutting-edge facilities and, as a consequence, Boeing has had 
        to turn to overseas facilities to carry out related research, 
        often at much greater cost. Federal infrastructure is a big 
        enabler of private sector R&D. So this loss of capacity has 
        been an impediment and has driven up research costs.

   Commercialization of federally-funded research. The research 
        that is carried out using Federal funds, whether in 
        collaborations with universities, through Federal grants, or in 
        direct partnership with the government, often incurs a complex 
        intellectual property regime. This situation significantly 
        slows the transition of new technology to the private sector 
        for commercialization. Reducing this hurdle and facilitating 
        the transition of this technology for commercial use would be a 
        big help to the civil aeronautics industry.

   Clearer frameworks for proposed joint initiatives. 
        Collaborative frameworks for joint research proposed by the 
        government are often vague and unfocused, resulting in 
        companies not wanting to take part. Success of any initiative 
        cannot be expected unless it is advantageous to participate. 
        Aspects for developing clear frameworks can include finding 
        common ground for industry-wide collaboration, handling 
        intellectual property more efficiently, and defining which 
        aspects can be readily shared.

    We believe that resolution on these matters would enable the 
Federal government to maximize the return on the investment it makes in 
innovation--and spur job creation in an industry led globally by the 
United States.
    Another area of innovation I would like to discuss is the need to 
improve the U.S. air traffic management system.
    Air traffic demand in the United States and the world is expanding 
at an accelerating rate. More than 1,500 airlines operate a total fleet 
of nearly 24,000 aircraft worldwide. They serve almost 4,000 airports 
through a route network of several million miles managed by roughly 190 
air navigation service providers.
    The current air traffic control system, designed and built on 1950s 
and 60s assumptions of aircraft systems and limited technology, 
required a ground based surveillance and control system. The current 
air traffic control system is not scalable, is overly labor intensive 
and does not take advantage of new technologies in aircraft, ground 
systems and networked concepts. Today's system is built on layered, 
incremental changes that occurred over half a century, many reflecting 
mandated safety improvements. Much of these changes are based on the 
assumptions that are no longer valid, such as:

   Aircraft cannot determine their position except in gross 
        distances.

   Navigation is limited in the aircraft and requires 
        augmentation from the ground.

   Aircraft cannot determine where other aircraft are.

   The sole purpose of air traffic control is the separation of 
        aircraft.

    The good news is that we know there is broad agreement on what 
needs to be done to modernize the system. We are grateful for the 
efforts of this Committee to include in the most recent reauthorization 
strong accountability measures and a path forward for NextGen 
acceleration.
    We are excited about how NextGen will transform our current ground-
based radar system using more precise Global Positioning System (GPS) 
technology and other existing technologies to shorten routes, save time 
and fuel, reduce air traffic and weather delays, increase capacity, and 
permit air traffic controllers to monitor and manage aircraft with 
greater safety margins. Aircraft will be able to fly closer together, 
take more direct routes and avoid delays caused by weather. NextGen 
technologies also will enable controllers to orchestrate more efficient 
arrival and departure streams in and around busy airports.
    The FAA estimates that increasing congestion in the air 
transportation system will cost the American economy $22 billion 
annually in lost economic activity if NextGen is not implemented. Once 
implemented, NextGen will allow pilots greater freedom to select their 
own direct flight path rather than using the current grid-like highway-
in-the-sky system. Boeing planes are already equipped with NextGen 
avionics, which allow pilots to know both their current location with 
great precision, plus positions at future points. Aircraft equipped 
with NextGen avionics are able to provide such aircraft intent 
information to ground control, which helps them land and take-off 
faster, navigate through weather better and reduce taxi times, so that 
flights and airports are able to run more efficiently.
    NextGen also will deliver environmental benefits. Airline 
operations produced 745 million tons of CO2 in 2011, about 2 
percent of total human carbon emissions. When fully implemented, 
NextGen will deliver up to a 12 percent reduction (112 million pounds 
per year less of CO2) in aviation's environmental impact by 
enabling airplanes to save up to 1,100 pounds of fuel--and up to 3,400 
pounds of CO2--per flight.
    Boeing is working with industry and the FAA to develop ways to 
speed up implementation of NextGen. We are working to incentivize early 
equipage; to develop and implement tailored arrivals at major airports 
that reduce emissions and noise; and to accelerate required navigation 
performance to take advantage of the precision navigation capabilities 
of modern aircraft to allow shorter, more fuel efficient arrival and 
departure trajectories for airports.
    Boeing Commercial Airplanes' highest priority remains steadfast on 
ensuring safety of our products and their operation within our global 
transportation system. That is another reason we see NextGen as a key 
enabler to a better future. The new procedures associated with NextGen 
will provide clear safety benefits, while handling today's traffic and 
tomorrow's increased air traffic. We at Boeing believe the FAA's 
NextGen program needs to be a funding priority because it's an 
investment in U.S. transportation infrastructure that will pay enormous 
dividends downstream for the U.S. economy and further enable a safe, 
efficient aviation system. Again, we thank the Committee for their 
continued support of this effort.
    The last concern I'd like to address is the challenge of aircraft 
certification support.
    Last year, 2011, was extremely memorable for The Boeing Company, as 
we worked intensely to get two new airplanes, the 787 Dreamliner and 
the 747-8, certified by the FAA and delivered to our customers. Getting 
both market-setting airplanes certified in the same year required a 
monumental effort by industry partners around the globe and the FAA. We 
are grateful to the agency and its people for their support.
    To meet the evolving needs and demands of our customers, we have 
additional new products in the works. This includes the 737 MAX, an 
updated version of our best-selling 737 airplane that will deliver 13 
percent better fuel efficiency than today. Our 787-9 Dreamliner, a 
slightly bigger version of the 787-8, is in work to further improve on 
the technology and super-efficient performance aspects of our carbon 
fiber-based airplane model. Also among these products are derivative 
aircraft that will serve military purposes--most notably, the KC-46 
aerial refueling tanker for the U.S. Air Force, which is based on our 
767 airplane.
    As we look forward to future business, it is clear that reforms are 
needed in FAA certification processes, so that the American aviation 
industry becomes a stronger competitor in the global marketplace--and 
is able to grow and increase its workforce.
    One key way to help streamline these processes is for Congress to 
accept the recommendations and reports from the Aviation Rulemaking 
Committees (ARCs) mandated by the re-authorization bill for the FAA, so 
that these reports serve as direction to FAA leadership.
    The FAA has limited capacity and must handle competing priorities 
because it supports the entire product lifecycle, and not just 
certification and rulemaking. The ARCs observed that there are many 
existing improvement initiatives for certification process efficiencies 
already implemented or are in progress. However, the FAA has not fully 
integrated these initiatives, overseen their implementation, measured 
their benefits, or clearly linked them to a future state.
    The ARCs believe the best opportunity for efficiency gain today in 
the current state of the certification process is to develop 
comprehensive implementation plans and develop a tracking and 
monitoring process to ensure effectiveness, and to maximize delegation 
to the greatest extent in current delegation systems. With delegation 
and efficient measurement of oversight systems, regulators can place 
increased focus on the most critical areas to enhance safety and 
provide faster service to the public. Delegation also reduces cost to 
the government by leveraging the technical expertise already in 
industry, while providing an extra layer of safety culture throughout 
companies as they develop, approve and use delegation processes under 
FAA oversight.
    Furthermore, it is equally important to recognize the benefit and 
global fit of increased delegation and operational efficiencies within 
international regulatory sectors. Capacity created by improved 
efficiencies and expanded delegation is a key enabler for continued FAA 
international leadership--both in dealings with other regulatory 
agencies such as the European Aviation Safety Administration, as well 
as in assisting developing countries to accept FAA certification 
instead of building their own separate systems.
    The ARCs, which by nature of their composition and charter provide 
joint FAA/Industry perspective and conclusions, have spelled out 
recommendations for streamlining and reengineering the aircraft 
certification process, and for making other process reforms and 
efficiencies. We strongly advocate for the adoption of these 
recommendations and believe their implementation would make the FAA a 
stronger, streamlined agency that's better able to execute its duties 
in a faster and more cost-efficient manner. And by doing this, the 
agency helps support the jobs of this industry and is able to maximize 
the benefit generated by its resources.
Conclusion
    In closing, we see as the key threats to American competitiveness 
in the aviation industry:

   A looming skills shortage;

   The level of federally supported research on basic science;

   The constraints of our current air traffic control system; 
        and

   Inefficient support of aircraft certification efforts.

    Each of these topics is an area where the Federal government has an 
influence. We recognize that Congress faces the difficult task of 
ensuring that Federal expenditures address our nation's financial 
obligations and generate the greatest benefit to the American people. 
However, we would also strongly caution against making cuts to 
investments that would jeopardize our nation's ability to compete in 
this industry, as well as other high-tech fields. Such reductions would 
be analogous to eating one's seed corn--and would hamper our capability 
to sustain our technical advantage.
    To ensure our competitiveness in the global marketplace, our 
industry needs top-notch infrastructure, robust R&D programs, efficient 
regulatory processes and a well-educated workforce. These factors will 
help sustain the technology advantages that our industry holds over its 
global competitors--and will help current and future generations of 
Americans enjoy the American dream.
    Again, and on behalf of The Boeing Company, I thank the Committee 
members for their time and the opportunity to address this issue.

    Senator Cantwell. Thank you, Dr. Tracy. Thank you for your 
testimony. And we look forward to asking some questions.
    Mr. Elwell? Thank you.

   STATEMENT OF DAN ELWELL, VICE PRESIDENT, CIVIL AVIATION, 
                AEROSPACE INDUSTRIES ASSOCIATION

    Mr. Elwell. Thank you, Chairwoman Cantwell, Ranking Member 
Thune, and other distinguished members of the Subcommittee. My 
name is Dan Elwell, and I am the Vice President of Civil 
Aviation at the Aerospace Industries Association, the Nation's 
largest aerospace and defense manufacturing trade association.
    We are an industry that consistently punches above its 
weight. In fact, the aerospace industry is our nation's largest 
net exporter, contributing over $40 billion a year to our trade 
balance. To keep our industry strong and well-positioned to 
compete globally today and tomorrow, we have to focus on three 
key areas: the certification process, as you mentioned; 
homegrown innovation; and maintaining a world class workforce.
    The certification process. In its 2012 current market 
outlook, as you pointed out, Chairwoman, Boeing estimated the 
total number of commercial aircraft worldwide will double from 
approximately 20,000 today to 40,000 by 2031, and 34,000 of 
those aircraft will be new. Some will replace older, less fuel 
efficient aircraft, but almost 60 percent of the new airliners 
will accommodate global market growth, and over 80 percent of 
that growth will be outside the U.S.
    Our industry has a wide range of aerospace products that 
are poised to enter the global marketplace, including unmanned 
aerial systems. As a regulated industry, bringing these new 
products to market requires FAA certification. However, in this 
fast-moving, globally competitive environment, we are finding 
that the FAA certification process simply moves too slowly.
    That's why we're pleased that Congress recognized this 
issue in Section 312 of the FAA Modernization and Reform Act. 
This section, commonly referred to as certification 
streamlining, requires the FAA, in consultation with industry, 
to examine the certification and approval process and provide 
recommendations for streamlining and reengineering the process.
    The Act requires the FAA to issue its report to Congress by 
mid August, 2012, and implement the recommendations by next 
February. We urge Congress to endorse the joint FAA-industry 
recommendations from the ARC and ask you to ensure FAA seeks 
further consultation with industry as it develops its 
implementation plan.
    The second key focus is the need to promote aviation 
innovation at home. The United States has always been a world 
leader in aerospace research and design. That's why the R&D tax 
credit is so important for high-tech aerospace companies. But 
the R&D tax credit expired at the end of last year. So U.S. 
companies have been operating at a competitive disadvantage 
against companies in other nations with higher credits.
    Here is a telling statistic. From 2005 to 2009, the number 
of U.S. companies with corporate-wide initiatives to outsource 
R&D related jobs exploded from 22 percent to over 50 percent. 
But who can blame them? For each R&D dollar invested in France, 
the government provides a tax credit of 42 cents. India and 
Brazil provide 25 and 27 cents. And what was our credit before 
it expired? Six cents. That placed us dead last in the OECD 
rankings.
    R&D jobs are leaving the country, Madam Chair, and the 
competitive difference in R&D tax policy is the key factor. We 
urge Congress to restore the R&D tax credit and make it 
permanent as soon as possible.
    Finally, to be globally competitive, we need a world class 
workforce. Although today, we are a highly skilled workforce 
that punches above its weight, there are ominous trends about 
our ability to stay in the ring. Today, we simply don't produce 
enough workers with the right education and technical skills to 
remain competitive.
    With 30 percent of the aerospace workforce eligible to 
retire by 2016, the U.S. has got to step up its game. Ten years 
ago, the Commission on the Future of the U.S. Aerospace 
Industry recommended that the Nation immediately reverse the 
decline in and promote the growth of a scientifically and 
technologically trained U.S. aerospace workforce, and that the 
breakdown of America's intellectual and industrial capacity is 
a threat to national security and our capability to continue as 
a world leader.
    Companies in our industry are working closely with 
community colleges to develop and support courses that prepare 
students for specific positions they have open. Community 
colleges and trade schools play a critical role in meeting our 
workforce needs. One-third of current STEM employees began 
their education in community colleges, and thousands of 
aviation jobs require technical skills but don't require four-
year degrees. Madam Chair, your leadership in this area is well 
known, and we applaud you for all you've done.
    In conclusion, we believe that U.S. aviation manufacturers 
are in a strong competitive position. But there are risks to 
our maintaining this position over the next decade. As a 
nation, we need to ensure that our tax policies provide 
incentives to retain our R&D jobs, provide FAA the resources 
and support to improve its certification process, and ensure 
our aerospace workforce is prepared to meet the challenges over 
the next decade.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Elwell follows:]

   Prepared Statement of Dan Elwell, Vice President, Civil Aviation, 
              Aerospace Industries Association of America
Introduction
    Chairwoman Cantwell, Ranking Member Thune, and other distinguished 
members of the Subcommittee: The Aerospace Industries Association (AIA) 
appreciates the opportunity today to present our views on the 
competitiveness of the U.S. aviation industry. There is no sector of 
the U.S. economy more global than aviation, and as a result, the 
competition for this business is increasingly global as well.
    My name is Dan Elwell, and I am the Vice President of Civil 
Aviation at AIA, the Nation's largest trade association representing 
aerospace and defense manufacturers. Our 350 members represent an 
industry that directly employs one million workers, and supports 
another 2.5 million jobs either indirectly or as suppliers. Of this 
total, over 325,000 are involved in the manufacture of commercial and 
general aviation aircraft.
    The aerospace industry is highly skilled, and as a result provides 
well-paying, stable middle class jobs all around the Nation. The 
average wage in our industry is approximately $80,000, almost twice the 
national average. The U.S. continues to be a world leader in aerospace 
manufacturing, due to the dedication and hard work of American workers 
and the executives who lead these companies. As we like to say, this is 
an industry that consistently ``punches above its weight''.
    On balance, our aviation manufacturers today are highly competitive 
in the global marketplace. In fact, the aerospace industry is our 
Nation's largest net exporter, contributing over $40 billion a year to 
our trade balance. And by far the largest component of that figure 
involves commercial aircraft manufacturing.
Aircraft
    Our aircraft manufacturers continue to hold strong positions in the 
world market because of technological advances and an extended record 
of performance. Jet aircraft fuel efficiency has improved by 70 percent 
the past four decades and by 20 percent in the past ten years. Aircraft 
safety margins have doubled since 1990. Advanced avionics allow these 
aircraft to fly more fuel-efficient routes at lower cost. Because of 
this, the global competitiveness of U.S. aircraft manufacturers remains 
strong.
    Boeing has just released their 2012 Current Market Outlook, and I 
would like to highlight a couple of their findings. They predict strong 
growth over the next two decades, outpacing the growth in global GDP. 
This continues a trend we have seen for the past two or three decades. 
There were nearly 20,000 commercial aircraft in worldwide service in 
2011. Boeing estimates that number will double by 2031 and 34,000 of 
those aircraft will be new. Some of these airplanes will replace older, 
less fuel-efficient aircraft, but almost 60 percent of the new 
airliners will be needed to accommodate global market growth. A 
disproportionate share of this growth involves smaller, single-aisle 
aircraft and emerging markets led by the Asia-Pacific region and China 
in particular.
    Bombardier's 2012 Market Forecast focuses on the 20- to 149-seat 
market, and comes to similar conclusions. Global deliveries of smaller 
(20- to 59-seat) aircraft are expected to decline substantially over 
the next two decades, as airlines shift to larger, more economical 
regional aircraft in the 60-to 99-seat category. Once again, because 
aviation growth tends to follow national GDP growth and urbanization, 
the largest market growth is expected in China and the Asia-Pacific 
region, with Latin America not far behind. Bombardier estimates that, 
over the next twenty years, the worldwide share of middle-class 
consumer spending held by the United States and Europe will drop from 
64 percent in 2009 to approximately 30 percent.
    Honeywell's 2011 Business Aviation Outlook indicates the business 
jet market is recovering from the recent downturn, with orders expected 
to strengthen throughout 2013. Over the long-term this outlook is 
increasingly dependent on high economic growth rates in the developing 
world. However, for the next five years at least, the majority of 
orders are still expected to come from North America and dependent on 
the state of the U.S. economy.
    The growth in emerging markets will naturally stimulate other 
nations to improve or establish their own aircraft manufacturing 
capabilities. Manufacturers in Latin America, Russia, China, and 
elsewhere will increasingly compete with U.S. industry, particularly in 
the high-growth markets for single-aisle aircraft and regional jets. 
Therefore, it is imperative that we address risks or barriers to our 
global competitiveness over the long-term.
Engines and Avionics
    The competitiveness of our engines and avionics manufacturing is 
also critical for us to maintain a global edge. There are longstanding 
international competitors in this arena, and we must be vigilant to 
ensure U.S. companies remain the preferred vendors for our foreign 
customers. As our military budget is pressured here in the United 
States, it has a direct effect on the investment dollars companies have 
available to sustain and grow our industrial base. These industries are 
significant beneficiaries of research and development activity; their 
own and government research on the latest cutting-edge technologies 
that may one day be ready for the global marketplace. One example of an 
R&D program critical to the aviation industry is FAA's Continuous Low 
Emissions, Environment and Noise (CLEEN) program. This program is cost-
shared with industry on a dollar-for-dollar basis and is making great 
strides in the development of new engine technologies that dramatically 
reduce aviation noise, emissions and fuel burn.
Barriers or Risks to Maintaining U.S. Competitiveness
    While the U.S. is in a stable position today, there are risks and 
barriers that will undercut our position over the next few years if not 
addressed. These include FAA budget concerns, international leadership, 
tax incentives for the development of new technologies, and the 
inability to maintain a properly skilled workforce. Let me address each 
of those in turn.
Support from the Federal Aviation Administration
    The Federal Aviation Administration provides important services 
that directly affect the competitiveness of U.S. aviation 
manufacturers. Our industry has a wide range of aerospace products that 
are poised to enter the global marketplace, including unmanned aerial 
systems. As a regulated industry, bringing these new products to the 
market requires FAA certification. However, in this fast-moving, 
globally competitive environment, we are finding that FAA's 
certification process simply moves too slowly.
    We were pleased that Congress recognized this issue in section 312 
of the FAA Modernization and Reform Act of 2012 (Public Law 112-95). 
This section, commonly referred to as ``certification streamlining'', 
requires the FAA to examine, in consultation with the aviation 
industry, the certification and approval process, and provide 
recommendations for streamlining and re-engineering the process. The 
Act requires FAA to issue its report to Congress by mid-August of 2012, 
and implement the recommendations by next February. We urge Congress to 
endorse the recommendations created by the joint FAA--Industry Aviation 
Rulemaking Committee (ARC). We also ask congress to ensure FAA seeks 
further consultation with industry as it develops an implementation 
plan.
    The Act also authorizes the FAA, beginning January 1, 2013, to 
start to issue Certification Design and Production Organization (CPDO) 
certificates. Certified design organizations provide an ideal way for 
the FAA to leverage the experience and track record of manufacturers to 
handle the day-to-day certification activities, thereby allowing the 
FAA to focus tight resources on safety-critical trends and issues. This 
approach, now explicitly authorized and encouraged by Congress, is a 
positive and significant step toward further improving and streamlining 
today's certification process.
    Industry understands that the FAA has regulatory responsibilities, 
and FAA certification is still the ``gold standard'' sought by aviation 
authorities throughout the world. However, with the worldwide market 
shifting to Asia and the developing world, it would be detrimental to 
our competitiveness if foreign manufacturers are able to move improved 
products into the marketplace more quickly. Simply put, the FAA needs 
to change its approach given today's realities. We urge the Congress to 
ensure that FAA follows through on the certification reforms in Public 
Law 112-95.
    Secondly, it is imperative that FAA keep the Next Generation Air 
Transportation System (NextGen) on track and implement the NextGen-
related provisions of the FAA Modernization Act. We understand that FAA 
is behind schedule in many of the initial deadlines established under 
the Act, and that authorized programs like the Avionics Equipage 
Incentive Program (Sec. 221) are running into opposition on legal and 
technical grounds.
    Madam Chair, NextGen is clearly a partnership between government 
and industry. If airlines lack the incentive to equip or use NextGen, 
FAA's multi-billion dollar investment is largely wasted, and we lose 
the significant benefits that NextGen offers. Other nations are 
aggressively using third parties to develop performance-based 
approaches. Other nations are pursuing their own NextGen programs, and 
we cannot afford to fall behind. Again, we applaud this Committee for 
its leadership role in passing the NextGen-related provisions of the 
FAA Modernization Act. We hope the Committee will ensure that FAA works 
diligently and has the necessary resources to implement those 
provisions in a timely way.
    Thirdly, the FAA Modernization Act provides important requirements 
and deadlines for the integration of Unmanned Aerial Systems (UASs) 
into our national airspace. The Act requires the FAA to establish up to 
six test sites where UAS technology and procedures can be tested and 
validated. It requires the agency to integrate UAS systems into the 
airspace no later than 2015. And it requires the development of a long-
term UAS Roadmap. AIA is strongly supportive of these efforts, and 
believes they must remain on track. Our manufacturers believe UAS 
systems will constitute a significant global market over the coming 
years, and integration into our own airspace is a critical step to 
meeting our export potential in this emerging area of technology.
    We are also concerned that the FAA may not have adequate budgetary 
resources to help the industry remain competitive. FAA's Certification 
Office received several new responsibilities in the reauthorization 
Act, yet their budget remains flat. Future budget projections for 
NextGen have already been reduced by one-third from the estimates made 
a few years ago. These pose continuing challenges for the agency. But 
on top of these difficulties, sequestration could reduce the FAA's 
budget by $1 billion next January. The FAA has never faced a reduction 
of that magnitude, particularly three months into the Fiscal Year.
    If sequestration goes into effect, we believe FAA would seek 
authority to protect most of the daily operations of the air traffic 
control system, at least at the major hub airports. This means that 
NextGen would have to bear a heavier share of the reductions. If the 
FAA were to split the reductions equally between their capital and 
operation accounts, NextGen could see its budget reduced by one-half 
(from $1 billion to $500 million). We believe this would cause such 
chaos in the overall program that it would take years, if not decades, 
to recover.
    Such dramatic setbacks, if allowed to occur, would embolden our 
overseas competitors, disillusion our industry, and tell the developing 
world that the U.S. may not be able to meet aviation's needs in the 
future. That is the wrong message to send.
International Leadership
    Because aviation is fundamentally global, it is critical that the 
U.S. maintain its leadership role in the international bodies that set 
standards and harmonize technical specifications for aviation 
technologies. It is not unusual for technical or policy differences to 
arise among nations and regions of the world on aviation matters. For 
example, the recent episodes of volcanic ash over the European 
continent led to differences of opinion about our ability to detect and 
gauge the effects of microscopic ash particles on an aircraft engine. 
More recently, we have experienced the European Union's desire to 
impose emissions trading charges on the world's air carriers out of a 
misguided desire to move more forcefully on the issue of aircraft 
emissions.
    In cases like these, the United States must maintain its presence 
and reputation in the international arena, particularly in the future 
as market dynamics shift to emerging nations. As these nations and 
their industries grow, they will expect a stronger voice in 
international technical and policy discussions, and the U.S. must 
maintain a leadership role in the face of those shifts. In air traffic 
control technology, for example, if the U.S. falls behind other 
nations, it will be more difficult to harmonize our systems with those 
being developed in Europe, Asia, and other regions of the world. This 
could be a serious problem for our aircraft, engine and avionics 
manufacturers, who need to provide systems capable of interacting with 
ATC infrastructure throughout the world.
R&D Tax Credit
    The Research and Experimentation Tax Credit (commonly called ``R&D 
Tax Credit'') is an important incentive for national business 
investment in R&D, but it is especially important for high-tech 
companies in the aerospace sector. Since the credit expired at the end 
of last year, U.S. companies have been operating at a disadvantage 
against companies in other nations who have higher R&D tax credits 
available to them.
    The OECD analyzed this subject in 2010, and found that the U.S. now 
trails many nations in the tax treatment of research and development 
expenses. For each dollar of R&D invested in France, the government 
provides a tax credit of 42 cents. In Spain, the figure is 35 cents. 
India and Brazil provide between 25 and 27 cents. And even when our 
credit is in place, how much help does it provide? Only 6 cents. That 
placed us dead last in the OECD ranking.
    At a time when the United States needs to retain and increase jobs, 
the R&D tax credit could assist immediately in achieving that goal. In 
2009, more than 50 percent of U.S. companies indicated they had 
corporate-wide initiatives to outsource innovation jobs. Four years 
earlier, that figure had been only 22 percent. R&D jobs are leaving the 
United States, Madam Chair, and the competitive difference in R&D tax 
policy is one key factor. We urge the Congress to restore the R&D tax 
credit as soon as possible.
Providing a Skilled Aerospace Workforce
    American aerospace workers are among the most highly productive, 
highly skilled workers in the world. With a global market that is 
growing rapidly, and a U.S. industry that dominates the export market, 
we must maintain an adequate supply of workers with degrees in science, 
technology, engineering and math (STEM) disciplines and with specific 
manufacturing skills. And today, everyone in the workplace must be 
STEM-literate to function productively. However, there are ominous 
trends about our ability to maintain this workforce into the future.
    Today, we are simply not producing enough workers with the right 
education and technical skills to remain competitive. The U.S. 
currently graduates approximately 300,000 students a year with 
bachelors or associate degrees in STEM fields. The February 2012 report 
of the President's Council of Advisors on Science and Technology 
(PCAST) recommended that this be raised by one-third to meet our 
economic needs. One startling fact is that less than 40 percent of 
students who start college intending to earn a STEM degree actually 
complete the degree requirements.
    And of course community colleges and trade schools also play a 
critical role in meeting our workforce needs. One-third of current STEM 
employees began their education in community colleges. And thousands of 
aviation jobs require technical skills, but do not require a four year 
degree. Companies in our industry are working closely with community 
colleges to develop and support curriculum to prepare students for 
specific positions they have open. Madam chair, your leadership in this 
area is well known and we applaud you for all you are doing.
    The workforce issue is all the more pronounced because the 
aerospace industry has a high percentage of employees that are eligible 
to retire over the next decade. In 2011, over 60 percent of the U.S. 
aerospace workforce was 45 or older. This year 17 percent of aerospace 
workers are already eligible to retire and by 2016 that proportion will 
exceed 30 percent. We need more STEM workers today, but when this bow 
wave of retirements hits us, we could start to lose our edge.
    The Commission on the Future of the U.S. Aerospace Industry 
recommended ten years ago ``that the Nation immediately reverse the 
decline in and promote the growth of a scientifically and 
technologically trained U.S. aerospace workforce'' adding that ``the 
breakdown of America's intellectual and industrial capacity is a threat 
to national security and our capability to continue as a world 
leader.'' The world's emerging economies are rapidly improving their 
abilities to provide skilled workforces in STEM fields and in 
manufacturing. If we are unable to match this growth, we will fall 
behind.
    As a trade association, AIA has been actively engaged in this issue 
for a number of years. In 2010, AIA spearheaded the formation of the 
Business and Industry STEM Education Coalition--a coalition of 
coalitions--to provide a unified voice for those who employ STEM 
professionals. AIA and BISEC work with academia, government, the 
philanthropic community, school systems, STEM program providers and 
others at the national, state and local levels. We are engaging with 
and helping advance state STEM networks that are emerging across the 
country. For example, just last week we convened a meeting in Renton 
with Washington STEM that was attended by 150 leaders. Later this year 
we will hold similar meetings in Tennessee and California.
Export Policy
    AIA strongly supports the goal of the National Export Initiative to 
double U.S. exports by the year 2014. One example of where this is 
working in aviation is the NextGen Vendors Group (NVG), a public-
private partnership between the Department of Commerce and AIA. Earlier 
this year, the NVG provided opportunities for U.S. vendors to discuss 
requirements with foreign air navigation service providers in 
Amsterdam, Netherlands at ATC Global, and a similar effort will be held 
for the Latin America-Caribbean region later in 2012. The NVG is a 
great example of how the National Export Initiative can be put to use 
to help U.S. aviation manufacturers. We encourage the Department of 
Commerce to increase its support for the NVG and other efforts to 
promote aviation exports.
Conclusion
    In conclusion, we believe that U.S. aviation manufacturers are in a 
strong competitive position today, but there are risks to our 
maintaining this position over the next decade. As a nation, we need to 
ensure that our tax policies provide incentives to maintain R&D jobs 
here in the United States and are competitive with the policies of 
other nations. We need to provide improved infrastructure in air 
traffic control technology, not only for our own economic health but 
for its export potential. And we need to ensure that our aerospace 
workforce is prepared to handle the challenges and changes that are 
coming to the global marketplace over the next decade or two. Thank you 
for the opportunity to testify, and I would be happy to answer any 
questions you may have.

    Senator Cantwell. Thank you, Mr. Elwell. And, certainly, 
we'll look forward to asking you some questions about that 
certification process in more detail.
    Mr. Sorscher, thank you very much for being here.

         STATEMENT OF DR. STANLEY SORSCHER, SOCIETY OF

        PROFESSIONAL ENGINEERING EMPLOYEES IN AEROSPACE,

          INTERNATIONAL FEDERATION OF PROFESSIONAL AND

                 TECHNICAL ENGINEERS LOCAL 2001

    Mr. Sorscher. Thank you, Madam Chairman and members of the 
Committee, for holding this hearing on this important issue. My 
name is Stan Sorscher. I am Labor Representative for the 
Society for Professional Engineering Employees in Aerospace. 
That's a union that represents engineers, scientists, pilots, 
technical and professional employees.
    I submitted written testimony, and I'd like to highlight a 
couple of points from the written testimony. First, we 
absolutely agree with concerns about the aging workforce. It 
then becomes our challenge to attract young people and students 
to go into aerospace careers, and we need to retain experienced 
mid-career employees.
    Families make a once-in-a-lifetime investment in their 
children's education, and any industry, any occupation, needs 
to send a market signal to families and students that this will 
be an attractive career. We also need to inspire students who 
have the option of going into other careers where they can get 
a sense of accomplishment. So that's sort of the promise of a 
career that we're making to students and workers.
    We need to deliver on the promise of good jobs and good 
careers, having made the promise. Engineers like to solve their 
little piece of a larger problem, but they also think 
systemically of the larger problem that their piece fits into. 
So what works, and how does it work?
    When you look at aerospace, specifically, as an industry, 
aerospace is a tough business on its best day. And the sense 
from the workplace is that the secret to success in our 
business is a strong problem-solving, design, and manufacturing 
culture--so a strong problem-solving culture in the design and 
manufacturing communities.
    In our written testimony, we have some policy suggestions. 
Any policy operates in a larger context. In this case, the 
context would be globalization and integration with the global 
economy. Globalization fundamentally reduces our national 
identity. We hear about global products. We hear about global 
companies. We hear about global supply chains.
    We're here in this hearing to talk about maintaining U.S. 
leadership in this industry. Sustainable U.S. leadership means 
a strong domestic industrial base. So, again, the engineer 
would ask, ``What works, and how does this work?''
    A systematic approach we're comfortable with--a systematic 
approach would be a national manufacturing industrial strategy. 
So what we would look for in such a national strategy would be, 
again, to encourage this problem-solving culture, which is 
particularly difficult in a global economy, and investment in 
the domestic industrial base. And, again, we hear how difficult 
that is in the global economy.
    I was on the Hill one day, and I heard about a Congressman 
who was going through legislation, who was marking up 
legislation, and he was writing ``in America, in America, in 
America.'' It's kind of a funny joke, right, and we can say it 
in different ways. But a successful manufacturing strategy for 
America does close that loop and add, you know, ``in America'' 
to the end of the sentence. So, again, that's what we'd be 
looking for.
    [The prepared statement of Mr. Sorscher follows:]

  Prepared Statement of Dr. Stanley Sorscher, Society of Professional 
    Engineering Employees in Aerospace, International Federation of 
            Professional and Technical Engineers Local 2001
    Thank you Madam Chairman and members of the Committee for bringing 
attention to competition issues in the aerospace industry.
    My name is Stan Sorscher. I am on staff at the Society of 
Professional Engineering Employees Association (SPEEA), a labor union 
representing over 24,000 engineers, scientists, pilots, technical and 
professional employees in the aerospace industry.
    We share concerns of other industry stakeholders regarding our 
aging workforce, knowledge transfer, and our capacity to deliver the 
next generation of workers. We agree that we face challenges attracting 
talented students and retaining skilled workers who currently 
contribute to the success of the aerospace industry.
    From our perspective, this challenge has two basic elements. First, 
we need to offer students, families and workers a sense that aerospace 
can give them a career, with some sense of job security. This is a 
fundamental market signal that any occupation needs to send.
    The second element arguably applies more to aerospace than to other 
industries.
    Aerospace products are complex and heavily engineered. This 
industry is known for its very demanding development programs, followed 
by steep learning curves. This gives a competitive advantage to 
employers who have capable and effective engineering and manufacturing 
communities with strong problem-solving cultures. I think anyone who 
has worked in an aerospace development program can appreciate that 
assertion, without meaning any disrespect to hard-working and very 
productive workers in other industries.
    Public policy plays a key role in addressing these issues and 
ensuring industry demands match the interests of students and workers.
    In terms of the national labor market, that means employer-and 
government-supported training opportunities for interns, new hires, 
mid-career mobility, and transition from military to civilian work. We 
need to manage knowledge transfer from one generation of workers to the 
next.
    We have considerable policy leverage through education and training 
programs, publicly funded research and development, investment in air 
traffic control, airport infrastructure, airplane certification, and 
our approach to safety.
Globalization has changed the workforce model
    In recent decades, both aerospace manufacturing and airline service 
operations moved from integrated business models, to more fragmented or 
decentralized business models that rely heavily on global supplier 
networks.
    We often hear a business perspective, that many activities are 
becoming more commodity-like, more cost-driven, and less performance-
driven. Commodity-like activities can be outsourced locally or 
globally.
    This reflects directly into our workforce strategies. A 
performance-driven company often holds its competitive advantage as a 
body of knowledge in a skilled and capable workforce. This type of 
company typically invests in worker training, knowledge transfer and 
lifelong learning.
    Companies in commodity-like markets typically rely more on market 
relationships, and a broad supplier network. Competition turns on cost 
and delivery. In this business model, a firm draws labor from the 
external labor market, as needed.
    When we talk with investors and financial analysts, they point to 
industries that successfully dismantled their integrated design and 
manufacturing communities. They cite running shoes, ladies garments, 
cell phones, hard drives, the motion picture industry and others. Some 
of these industries make products that are complex, highly technical, 
and creative.
    We argue, ``Aerospace is different.'' The 787 development program 
reminds us that aerospace manufacturing is still performance-driven. We 
can take similar lessons from the NextGen Air Traffic Control system, 
any number of military and space programs, the border fence project, or 
many other complex heavily engineered products in our industry. Our 
business is very difficult, on its best day.
Workforce strategies
    We would design one set of policies for workforce development, 
education and training for a mature commodity-like industry, but 
different workforce policies entirely, when our industry is 
performance-driven. Leading firms will attract and retain skilled 
workers if they believe their competitive advantage is held as a body 
of knowledge in their workforce. Employers will use different workforce 
strategies if they think workers are largely interchangeable in a 
global labor market. In the transition from integrated to decentralized 
global business models, training costs are typically externalized to 
employees and the public.
Demographic problem
    In the mid-90s aerospace employers began dismantling the integrated 
design and manufacturing communities. Figure 1 gives one instance of 
the aging workforce problem. Around 1990, a very large group of young 
engineers was hired for the 777 airplane program. Over the course of 
that program, older experienced workers transferred knowledge to the 
younger ones. In practice, this involved building a network of 
relationships, exchanging informal information, and establishing trust 
and confidence at the technical level. This is how a great deal of 
essential coordination takes place.


    Figure 1. Demographic shift from 1990 to 2011 for engineers and 
scientists.


    Figure 2. Demographic shift from 1990 to 2011 for technical 
workers.

    That cohort of employees is now in their mid-fifties--within a few 
years of eligibility for early retirement at age 55. Very few engineers 
work to full retirement age of 65.
    Figure 2 applies to technical workers, such as drafters, planners, 
laboratory technicians, and inspectors. The demographic bow-wave for 
technical employees is more dire.
    Since the 90s, hiring has been weaker, and successive rounds of 
layoffs fell mostly to younger workers. In a sense, the aging workforce 
problem is one of our own making, driven by changes in business models.
    Similar demographic patterns apply to hourly aerospace workers, and 
NASA scientists. European unions tell us that the Airbus workforce has 
similar demographics.
Trade and investment policies
    Our national trade and investment policies encourage global 
economic integration, rather than specialization, contrary to 
predictions from classical trade theory. Integrating with the global 
economy is consistent with commodity-like products, but misses the mark 
when products are performance-driven.
    We should think in terms of a national manufacturing strategy. 
Every country in the world has a manufacturing strategy. By definition, 
a national manufacturing strategy should express our national identity, 
rather than a global identity.
Workforce data as a policy-management tool
    Regarding workforce, we are in the curious position where employers 
report that they can't find experienced workers, but new graduates 
can't find jobs in their field of study.
    If we expect students and their families to invest in aerospace 
careers, we need to reassure them about the transition from education 
to employment. Tracking students as they enter the workforce would give 
us a valuable policy-management tool. When students graduate from 
community college programs, or engineering schools, or certificate 
programs, how many find jobs in their field of study? How many stay in 
their occupation or industry or geographic region for one year or for 
five years?
    Canada, Australia, and the U.K. track their workforce and education 
programs in more detail than we do. This gives their policy-makers 
reliable data to understand where labor shortages occur, how many 
workers they will need, in what occupations, and for how long. Most 
large firms manage their internal labor markets with the best data 
available. We should make policy decisions based on credible, 
meaningful, and actionable data.
    We are working with state agencies to assess the feasibility of 
connecting educational records to employment records. Some of their 
work was funded through the stimulus package. Schools tell us they want 
this type of data. Some schools track their own statistics, but they 
work in isolation, on an ad hoc basis.
    After we make our public investment in education and training, we 
should expect a reciprocal commitment from industry to hire graduates 
of these programs, and capitalize on our investment in human capital.
Mid-career Training
    Many mid-career training programs are offered as part of a social 
safety net, after layoffs are announced. Mid-career training for 
employees who are not at risk can be a competitive edge. We also see 
demand for training programs for the mid-career transition from 
military to private employment.
Temporary Work Visas
    Families and students are making ``once-in-a-lifetime'' investments 
in education and career choices. We send our students mixed signals 
when we raise the costs and risks of going to school, then tell the 
graduates to compete for entry level jobs with 800,000 foreign 
temporary high-tech workers, for careers with doubtful job security, in 
industries that are steadily shrinking as a percentage of GDP. We 
should not short-circuit our students' labor market when they graduate 
from school.
Connection between education and employment
    Apprenticeship programs answer the education-to-employment question 
directly, since an employment relationship is built into 
apprenticeships, by definition.
    Boeing and other large employers have excellent paid internship 
programs with good track records of recruiting and retaining students. 
They also offer excellent life-long learning programs. We should 
encourage and extend these programs.
    SPEEA has proposed that publicly funded research and development 
include provisions for co-ops or collaborations, so that research 
students are exposed to work environments in the private sector. 
Students would gain an advantage in hiring, and this would help anchor 
intellectual property in the domestic economy.
    We should revisit the Bayh-Dole Act, which releases any public 
interest in new intellectual property to universities and other agents 
for commercialization of publicly funded research. We support R&D as a 
way to create good jobs in America. As it works today, the Bayh-Dole 
Act emphasizes commercialization of new intellectual property, which is 
fine. However, we don't finish the sentence by saying ``in America.'' 
We should update the Bayh-Dole act to close that loop, adding ``in 
America,'' figuratively, at the end the sentence.
Policies for maintenance and airline operation
    We cannot neglect national investments in air traffic control, 
airport infrastructure, airplane certification, and safety programs. 
One lesson we are learning is that to manage global operations for 
manufacturing, maintenance, certification and safety, we need close 
awareness and a minimum level of technical coordination. We cannot rely 
entirely on contractual arrangements or formal agreements.
    These are complex technical issues. Private sector firms and public 
agencies need capable technical workforces and strong problem-solving 
cultures to manage these issues effectively.

    Senator Cantwell. Thank you, Mr. Sorscher.
    Mr. Bunce, thank you for being here.

          STATEMENT OF PETE BUNCE, PRESIDENT AND CEO,

           GENERAL AVIATION MANUFACTURERS ASSOCIATION

    Mr. Bunce. Madam Chairman, GAMA represents over 75 general 
aviation manufacturers, everything from the Boeing business jet 
down to light piston aircraft, rotorcraft, engine 
manufacturers, and avionics manufacturers. So, to us, this 
hearing is quite important, because when we talk about the 
international competitiveness of this industry, a lot of it has 
to do with things that this committee directly affects, and 
that's the government bureaucracy with which we have to work 
with to get product to market.
    We're very appreciative of everything that this committee 
has done, particularly in the recent FAA reauthorization bill. 
Your emphasis on holding the FAA accountable for streamlining 
certification, the whole process, for consistency of regulatory 
interpretation, getting new approach procedures out, and 
providing metrics back to you on where we are with NextGen and 
how much improvement as we move forward will happen as we start 
to proliferate these systems into the national aerospace system 
is very, very important.
    When we look at what our challenges are--my colleague from 
AIA, Mr. Elwell, already mentioned the importance of 
certification. Right now, the backup for some of our companies 
exceeds 18 months. That's 18 months before the FAA will even 
consider starting your project. What does that result in?
    First of all, some companies that do have facilities in 
other nations are going to them to be able to get their 
products certified. But what happens to the company that 
doesn't have facilities in other nations that can't go and use 
that route? They sit there. And what that does is it keeps them 
from employing other Americans to be able to get those products 
to market.
    This is a significant problem for us, and the streamlining 
is vitally important. And we hope that this committee and your 
colleagues over in the House hold the FAA accountable in this 
report that they get back to you on the success of streamlining 
and also the consistency of regulatory interpretation.
    Equally important is why would a customer buy a product 
that has an FAA certification if they can't get it maintained 
overseas, particularly when our overseas markets are really the 
area for growth right now. About 10 years ago, this committee 
tasked the Department of Homeland Security to put forward a 
repair station security rule. They still haven't done it. There 
is no controversy over this rule. They just won't get it out.
    And what that has done is in about 2007, the FAA was told 
they can't issue any companies an authorization to be able to 
repair FAA-certified aircraft overseas. We can't open up any 
new facilities. So that significantly impacts our ability to 
hire more people. So if I could ask anything, if we can up the 
pressure on the Department of Homeland Security to get this 
rule finished, it will help our manufacturers tremendously and 
create jobs.
    On the environment, we're making some great strides on 
alternative fuels. We're transitioning the piston fleet to an 
unleaded avgas. Those are significant programs that we need to 
keep up. But we also need to keep the pressure on NextGen, 
because all of this discussion over ETS and everything that's 
happening over in Europe, in my opinion, is a smoke screen for 
their inability to be able to go and work with us to be able to 
advance NextGen, because if they got their airspace system 
aligned and were able to go and get the countries to work 
together in this Single European Skies initiative, which is 
right now greatly stalled, they would make the most 
environmental gains.
    For us, not only in general aviation, but in the civil 
aviation sector, making these environmental gains with these 
new approach designs, being able to fly these precise 
approaches, and being able to come down to altitude with a 
continuous descent and ascent, is very important to making 
these environmental gains.
    And, finally, as my colleagues have mentioned, on the 
workforce training, first of all, I'm very proud in the general 
aviation sector that our manufacturers have been very 
aggressive in hiring veterans out there. Some of our companies 
have tremendous initiatives going forward and have been 
highlighted within their states as being some of the most 
veteran friendly employers around. That needs to continue.
    But we also need to get at these young people early. Next 
week, we have an opportunity up in Oshkosh, Wisconsin. Our 
member companies are involved in ``Teacher Day,'' where we go 
and try to teach them to be able to use the resources that the 
government provides to teach aviation principles in all of the 
STEM disciplines.
    We also strongly support Build-a-Plane, where we take 
airplanes that are no longer in service, put them in high 
schools, and let people get their hands on them, because just 
as important as pilots are and engineers are, we need the 
mechanics out there. And that workforce is aging tremendously, 
so being able to get them to get their hands on aircraft and 
really get excited about this industry, which is a truly 
tremendous one, is very important to us.
    So I just want to conclude. Again, thank you for the 
tremendous support that this committee has done for our 
industry. And we hope that we can keep the pressure on the FAA 
to make the gains that you've called for.
    Thank you.
    [The prepared statement of Mr. Bunce follows:]

         Prepared Statement of Pete Bunce, President and CEO, 
               General Aviation Manufacturers Association
Introduction
    Chairman Cantwell, Ranking Member Thune, distinguished members of 
the Subcommittee; my name is Pete Bunce and I am the President and CEO 
of the General Aviation Manufacturers Association (GAMA). GAMA 
represents over 75 companies who are the world's leading manufacturers 
of general aviation airplanes, rotorcraft, engines, avionics, and 
components. Our member companies also operate airplane fleets, airport 
fixed-based operations, as well as pilot training and maintenance 
facilities worldwide.
    Thank you for convening this hearing and providing me the 
opportunity to testify on the global competitiveness of the U.S. 
aviation sector.
The General Aviation Marketplace
    General aviation (GA) is an essential part of the national 
transportation system in the United States and in many countries around 
the world. It is especially critical for individuals and businesses 
that need to travel and move goods quickly and efficiently in today's 
just-in-time market. It is also a necessity for rural communities that 
do not have commercial air service.
    Equally important, GA is a significant contributor to economies 
around the world. For example, in the United States, GA supports over 
1.2 million jobs, provides $150 billion \1\ in economic activity and, 
in 2010, generated $4.6 billion \2\ in exports of domestically 
manufactured airplanes. It is also one of the few manufacturing 
industries providing a positive balance of trade for the United States. 
Many of these jobs are highly skilled, well paid positions and our 
companies are located throughout this nation: from Seattle to 
Albuquerque, Wichita to Little Rock, Cedar Rapids to Savannah.
---------------------------------------------------------------------------
    \1\ General Aviation Contribution to the U.S. Economy, Merge 
Global, 2006.
    \2\ 2011General Aviation Statistical Databook and Industry Outlook 
(amended), GAMA, 2012.
---------------------------------------------------------------------------
    Since the 2008 recession, the global general aviation manufacturing 
industry has experienced a real and substantial decline in airplane 
sales. The recent peak of 4,276 deliveries in 2007 was followed by a 
decline to 1,942 airplane deliveries in 2011 for the same set of 
companies.\3\ The most drastic decline is for small, piston engine 
aircraft which have declined from 2,755 to 886 units in 2011, a 
reduction of 68 percent.\4\ Employment figures at these companies 
reflect this decline with job losses in total for GAMA member companies 
at roughly 15 percent.
---------------------------------------------------------------------------
    \3\ Ibid.
    \4\ Ibid.
---------------------------------------------------------------------------
    The North American market has dominated much of the history of 
general aviation through the mid-2000s when 75-80 percent of all GA 
aircraft deliveries were to U.S. or Canadian customers. Since then, the 
Europe, Asia Pacific and Latin America regions have become more 
important to the industry's manufacturers, suppliers and service 
companies. As an example, in 2011 only 50 percent of business jet 
deliveries went to North American customers while Europe accounted for 
20.2 and Asia Pacific for 12.9 percent respectively in market share.\5\ 
The Asia Pacific market share has tripled proportionally over the past 
five years for business jets.\6\
---------------------------------------------------------------------------
    \5\ Ibid.
    \6\ Ibid.
---------------------------------------------------------------------------
Moving Forward
    These economic challenges and changing market dynamics have broad 
implications for the industry. Increasingly, U.S. manufacturers need to 
compete across the globe to maintain and strengthen sales, and have 
continued to invest and innovate. Many countries have indicated an 
interest in developing the general aviation industry both in terms of 
operations and manufacturing. Makers of U.S. engines and avionics and 
other components are strongly positioned in equipping both U.S. and 
aircraft manufactured in other countries. The business environment, 
already competitive and global in nature, has become even more complex. 
This requires the U.S. government and manufacturers to adapt and 
respond to marketplace changes and challenges. I want to applaud and 
thank the leadership of this Committee and others in Congress for 
responding to these challenges both in the FAA reauthorization bill, 
and in subsequent measures, but much remains to be done. The 
considerable effort by this Committee to pass the FAA bill was worth it 
for the changes it outlines that can benefit industry competitiveness 
but it is imperative that you continue to hold FAA accountable for 
implementing the changes outlined in the legislation.
    Additionally, there are a number of areas regulators and 
policymakers need to focus on if our industry is to continue to recover 
and grow. Let me highlight several of these critical areas:
FAA Certification of New Products
    Our companies cannot bring new product to market without FAA 
approval. We cannot overemphasize the importance of FAA certification 
to growth and sales in the global aviation industry. Unfortunately, FAA 
resources simply cannot keep up with the pace of industry activity and 
inefficiencies in FAA certification processes have led to missed 
business opportunities that restrict industry growth and have even led 
to missed business opportunities. FAA continues to employ a sequencing 
process where new products wait in line to even begin the certification 
process. Delays in beginning a certification project can range from one 
to eighteen months depending on the product and FAA's capacity to take 
on new work.
    In addition, the lack of FAA engineering and technical resources 
necessary to support ongoing programs often results in delays and 
additional costs. The inability of FAA to support aircraft 
certification programs in a timely and efficient manner significantly 
impacts manufacturer and supplier company decisions to invest in new 
projects, expand facilities and increase employment. Not knowing when 
or even if the FAA can start a new certification project is a 
significant problem because these development programs require 
financial commitments and planning long before, sometimes even years 
before, a formal application is made to the FAA. This problem will 
become more acute as the need for FAA certification to support NextGen 
technologies and equipage increases. In addition, delays in FAA 
certification put U.S. manufacturers at a competitive disadvantage as 
foreign companies can obtain more efficient certification from their 
national authorities and get their products to market sooner.
    We can address these delays through improvements in the 
effectiveness and efficiency of FAA certification processes. In the FAA 
Reauthorization process, Congress lent considerable support to these 
improvements such as effective use of delegation programs and 
increasing system safety oversight. We have been encouraged by Acting 
Administrator Huerta's responsiveness to this issue but similar efforts 
have eventually failed to realize their potential in the past. If the 
U.S. is to maintain leadership in the aviation industry and grow 
contributions to U.S. exports and jobs, both in the commercial and 
general aviation sector, we must ensure that FAA has adequate resources 
and that significant certification process improvements are 
implemented.
Impediments to our Presence Abroad--Foreign Repair Station Security
    As exports grow and more of our companies and customers reside in 
every part of the world, the need for GAMA companies to maintain a 
strong service presence increases. Our manufacturers need the ability 
to have service and maintenance facilities where products are being 
sold. Today, there is a substantial impediment to being able to meet 
this objective.
    For almost ten years, the Department of Homeland Security and 
Transportation Security Administration have failed to respond to a 
congressional requirement to promulgate aircraft repair station 
security regulations. In 2007, in an attempt to spur action by these 
agencies, Congress barred FAA from issuing new repair station 
certificates for overseas facilities until the rule is finalized. This 
has meant that as new markets develop, our companies have been hindered 
in opening facilities to support their products. This has made U.S. 
industry less responsive and less competitive as these opportunities 
emerge. Our companies stand ready to meet the security requirements--we 
just need to know what they are. We have appreciated those on this 
committee who have pushed for action by the Administration in 
finalizing the rule. Unfortunately, we continue to need strong 
engagement from Congress to ensure this rule is finalized as soon as 
possible.
Growing the Market Domestically and Internationally
    As manufacturers try to take advantage of more markets, issues like 
aviation infrastructure, tax policy, airspace management, and relations 
with aviation regulators become even more important. It is critical for 
U.S. government and industry to advocate for policies that will help 
underpin aviation growth in the global environment.
    In this regard, we strongly support the efforts of the Department 
of Transportation to develop an initiative with its partners in the 
Asia Pacific region to facilitate the operation of business aviation in 
these emerging economies. The U.S. Trade and Development Agency is also 
supporting this initiative through a ``reverse trade'' mission to bring 
aviation officials from six Asia Pacific economies to the U.S. later 
this year.
    Despite this initiative, we remain concerned about the 
Administration's proposals regarding general aviation. Efforts to 
weaken our network of general aviation airports through funding cuts or 
by placing ill-advised user fees on the industry has negative 
ramifications for operators in the U.S. In addition, it sends a 
negative message to other governments and regulators as they work to 
expand their domestic markets. User fees have weakened general aviation 
in Europe and elsewhere and for the U.S. to be considering such 
proposals at a time when deliveries are already suffering is ill-
advised. We have appreciated Congress consistently rejecting user fees 
because of the negative ramifications for communities, safety, and 
jobs.
International Leadership
    Underlying the discussion about certification, repair stations, and 
market growth is the importance of U.S. leadership in global aviation 
safety. The ability for U.S. manufacturers to export aviation products 
to the global market depends directly upon FAA's international 
certification activities and agreements with foreign civil aviation 
authorities. The FAA and Department of Transportation (DOT) and other 
departments of government must step up their efforts if we are to grow 
exports in general and commercial aviation.
    Furthermore, as markets develop overseas, the importance of FAA 
being able to work with other aviation regulatory bodies to adopt or at 
least accept U.S. safety standards and to develop bilateral safety 
arrangements to efficiently accept U.S. products becomes even more of a 
necessity. There is a great danger that support for these efforts will 
decline and this loss of FAA involvement in international aviation 
activities will hinder the development of safe and robust aviation 
transportation systems and the export of U.S. products and services. 
That is part of what is so concerning about the repair station security 
rule situation. As FAA is forced to sit on the sidelines because of DHS 
and TSA inaction, repair stations conducting work on non-FAA certified 
aircraft are able to receive certification from European or other 
authorities. These regulators are in a position to set global standards 
as new repair stations are certified in growing areas, creating an 
environment where FAA is diminished as a regulator.
    We have also been puzzled by politically motivated attacks in the 
U.S. on our industry. If we are to maintain jobs and grow exports, we 
need a government that supports the dedicated men and women of our 
industry. These attacks hinder growth and send the wrong message in the 
U.S. and abroad regarding the benefits of general aviation. The 
Administration needs to more consistently recognize the positive value 
of general and business aviation and work to support its recovery and 
growth.
Protecting the Environment
    To ensure sustainable growth in the industry, general aviation 
manufacturers recognize we must take action to improve the 
environmental performance of the industry. Our industry has taken a 
leading role in the development of a CO2 standard for new 
aircraft at the International Civil Aviation Organization (ICAO). GAMA 
member companies and others in the industry have in fact developed the 
first sector-specific carbon reduction commitments.\7\ These 
commitments require considerable investment by manufacturers and others 
to reach our environmental goals. While there are many objections that 
can be leveled against the European Union's (EU) Emissions Trading 
Scheme (ETS), the most damning is that it takes resources away from the 
aviation industry that could best be invested by the industry into 
research or technologies that improve aircraft efficiency. We have very 
much appreciated Senator Thune and Senator McCaskill's leadership in 
introducing legislation against the EU ETS scheme and also Chairman 
Cantwell and others willingness to give the Administration the 
political support and tools necessary to push the EU to end its 
unilateral and misguided approach.
---------------------------------------------------------------------------
    \7\ These commitments are: 1) carbon neutral growth by 2020; 2) an 
improvement in fuel efficiency of an average of 2 percent per year 
until 2020; and, 3) a reduction in CO2 emissions of 50 
percent by 2050 relative to 2005. GAMA press release of 11/24/09, at: 
(9/2/11) http://www.gama.aero/media-center/press-releases/content/
global-business-aviation-community-announces-commitment-climate-
---------------------------------------------------------------------------
    GAMA also supports efforts to develop alternative fuels by the 
United States military because we believe they will reduce the cost of 
these fuels and ultimately decrease our reliance on foreign oil. We are 
concerned about language in the National Defense Authorization Act that 
would restrict DOD's ability to move forward on biofuels. The work by 
the Department of Defense is being leveraged to move more quickly 
toward commercial viability of alternatives by demonstrating large 
scale production as well as making the price more competitive. This 
will help aviation industry meet its environmental commitments. 
Furthermore, we are convinced that this is an investment that will pay 
off by saving taxpayers millions through achieving energy security and 
independence while enhancing national security.
Sustaining the Workforce and Communities
    To remain competitive, GAMA member companies undertake a range of 
activities to engage students from the elementary school level through 
college. Some companies run programs that take students from local 
community colleges and universities and offer them summer jobs and the 
promise of a job upon graduation. Many are also actively recruiting and 
hiring veterans due to their work ethic and unique skillset. We want to 
attract the best and the brightest to our industry.
    A key domestic challenge will be to address the need for the United 
States to replace an aging science and engineering workforce. In 
addition, industry projects more than a million pilots and maintenance 
personnel will be needed to meet the demand of the worldwide aviation 
workplace in the next two decades. Following the recommendations of the 
Future of Aviation Advisory Committee set up by Secretary LaHood, we 
would encourage the Department of Transportation to develop and 
implement a strategic workforce development plan that includes Science, 
Technology, Engineering, and Mathematics (STEM) education programs and 
activities for the current and future workforce. Furthermore, the 
Interagency Aerospace Revitalization Task Force established in 2006 
should be reinvigorated to coordinate Federal resources throughout the 
government to implement a national strategy to recruit, train, and 
cultivate a world class aerospace workforce.
    As in workforce development, strong research and development 
programs are conducted by GAMA companies to ensure they remain 
competitive and can bring new technology and products to market. We 
support extending and making permanent the Research and Development Tax 
permanent to further these programs. This is the minimum that should be 
done given the U.S. was once a leader in encouraging research and 
development and we are now behind 23 other Organization for Economic 
Cooperation and Development (OECD) nations in providing research and 
development incentives to the private sector.
Conclusion
    Chairman Cantwell, thank you for providing me the opportunity to 
discuss with the Subcommittee an overview of the competitiveness of the 
U.S. Aviation Industry. Our industry has faced many challenges in 
recent years but we believe that our industry will continue to recover 
and grow and we look forward to working with you, Senator Thune, and 
others on this subcommittee and in Congress to further general aviation 
manufacturing.
    Thank you and I would be glad to answer any question that you may 
have.

    Senator Cantwell. Thank you, Mr. Bunce. Thank you for that 
testimony.
    And, Mr. Calio, the man who represents the people who buy a 
lot of planes, we look forward to hearing your assessment of 
the industry.

 STATEMENT OF NICHOLAS E. CALIO, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, AIRLINES FOR AMERICA (A4A)

    Mr. Calio. Thank you, Madam Chairwoman and members of the 
Committee, for the opportunity to be here today. A4A 
appreciates the opportunity to be here and also for all the 
work that you did to help get the FAA reauthorization bill 
passed this year, finally.
    A4A represents the largest U.S. passenger and cargo 
carriers. We wish we could, as requested, address how to 
maintain our leadership or maintain leadership of the U.S. 
aviation sector. For U.S. airlines, our quest is to regain our 
leadership, not to maintain it.
    For years, we've operated under a tax, regulatory, and 
infrastructure environment that has made it increasingly 
difficult to make a profit and to compete globally. As detailed 
in our written statement, airlines are not allowed to act 
freely as a business as other industries do. In the last 20 
years, three or four Federal commissions have all studied the 
problems, recognized the same problems and made 
recommendations, virtually none of which have been acted upon 
in a comprehensive manner.
    This needs to change if U.S. airlines are to be a driver of 
the valuation chain. Therefore, A4A is calling for the 
implementation of a national airline policy, a policy that we 
hope this committee will take a leadership role on executing.
    The policy would have five core elements, the most 
important of which are to rationalize the airlines' tax burden, 
reform our regulatory structure, and modernize the 
infrastructure. It's critical that we act now. Aviation is a 
key driver of our economy. But while we have talked about the 
problems and failed to act, other governments, as you know, in 
Asia, the Middle East, and South America are treating their 
airlines as a strategic investment, successfully driving 
economic growth, jobs, and opportunity.
    The results of this investment are startling. Currently, 9 
out of every 10 wide-body jet orders have been placed by our 
foreign airline competitors. The Middle Eastern airlines alone 
have more wide-body jets on order than currently exist in the 
entire U.S. passenger fleet. And, as you know, it's the wide-
body jets that generally fly the international routes.
    The impacts are significant. Foreign flag carriers 
increasingly are flying to major U.S. gateways as a way to feed 
their growing global aviation hubs. These increases have 
already caused U.S. carriers to pull down capacity in some of 
these international markets, which is the most profitable part 
of the business and a part of the business that subsidizes, to 
a great degree, service to domestic routes, particularly 
service to smaller communities.
    The domino effect of these reductions from international 
routes on critical local service is significant. Jurisdictions 
across the United States understand very well their local 
economies are hugely dependent on air service. Airlines enable 
local businesses to export goods, connect residents to the 
world for business and leisure travel, and to create good 
paying jobs.
    We face the very real risk of U.S. airlines increasingly 
shifting to feeding foreign airlines at our gateways rather 
than expanding our own flying on international routes. It would 
be a costly shift for the entire industry and for our nation's 
economy. The risk goes to the very heart of today's hearing.
    The aerospace industry is extraordinarily synergistic. When 
we're profitable, we purchase more planes and hire more people. 
You can look at last year, even with the meager profits we made 
the last couple of years. When we purchase more aircraft, it 
helps the airframe and engine manufacturers, as well as 
innumerable other businesses, including many high-tech firms 
and small businesses.
    Our economy will only continue to become increasingly 
global as we move forward. And airlines will continue as the 
only mode of transportation that can efficiently move goods and 
people across the world on a timely basis. So we can continue 
on our path of ignoring the problems or in some cases 
exacerbating the problems and put the industry at risk of 
withering.
    There is one example to follow and one example not to 
follow. The one not to follow is the U.S. maritime industry. 
Formerly the world leader, today it only carries 2 percent of 
the total world tonnage. On the other hand, in the 1970s and 
1980s, Congress acted to put railroads on the path of 
profitability, able to sustain themselves, and today we are a 
world leader in the railroad industry.
    We're at that same kind of tipping point now that the 
railroad industry faced and we view the national airline policy 
as a way going forward and we're committed to working with you 
on it. I would be remiss if I didn't thank members of this 
committee, particularly Senators Thune and McCaskill, for all 
their help on the EU Emissions Trading Scheme, which we view as 
an extra territorial tax grab that sets a bad example already 
being followed by many other areas and nations that can lead to 
no good. And we hope that the Senate will pass a bill and nudge 
the administration to act, because, clearly, if you talk to 
people at the EU level, diplomacy is not working.
    Thank you very much.
    [The prepared statement of Mr. Calio follows:]

          Prepared Statement of Nicholas E. Calio, President 
        and Chief Executive Officer, Airlines for America (A4A)
Introduction
    U.S. airlines compete in a global market for passenger and cargo 
services. Free trade in the airline sector has grown to include over 
100 countries whose airlines have unlimited rights to fly to any market 
in the United States. Government policy framing the U.S. airline 
industry, however, has not kept pace with this evolving market. 
Consequently, U.S. airlines enter the global field of competition at a 
significant disadvantage compared to their foreign competitors. That 
disadvantage adversely impacts profitability and growth for U.S. 
airlines, and all that goes with it--service to smaller communities, 
jobs, employee welfare and shareholder value, and it adversely impacts 
the broader value chain that supports the airline industry and related 
travel and tourism industries. The aviation industry supports 10 
million jobs and more than 5 percent of GDP. It could be an even 
bigger, more productive sector of the economy with the right policy 
framework.
    The U.S. airline industry is a strategic asset. It is an enabler of 
the broader U.S. economy because it moves the commerce of the country. 
Simply put, it was the physical Internet before the digital Internet 
existed, and it remains the physical Internet for American business. 
U.S. airlines move manufactured goods from small communities across the 
country to other small communities, to major population centers within 
the U.S. and to cities and towns across the globe. The sales and 
service sectors rely on U.S. airlines to deliver their products and 
services and to meet their customers face-to-face. In the modern global 
market, U.S. businesses cannot compete without a healthy U.S. airline 
industry that provides convenient, safe and reasonably priced 
connectivity to their domestic and international markets and customers.
    The same policies that disadvantage U.S. airlines, however, also 
disadvantage U.S. businesses and the broader economy. A weak U.S. 
airline industry means fewer flight options to fewer cities, 
particularly to foreign markets that are on the edge of profitability. 
Reduced service means greater challenges and fewer opportunities for 
U.S. businesses in the highly competitive global marketplace.
    The solution to these linked problems is simple: adopting a 
National Airline Policy that provides a comprehensive blueprint to 
normalize the business environment in which U.S. airlines operate--a 
comprehensive airline policy that treats the industry like other U.S. 
industries and that enables U.S. airlines to compete effectively in the 
global marketplace. U.S. policy must recognize and treat the airline 
industry as a strategic asset. Failure to do so ultimately may see U.S. 
airlines increasingly shifting to feeding foreign-flag airlines at U.S. 
gateways, with significant adverse impact on profitability and on 
service that connects smaller cities and communities.
    Policy Schizophrenia Prevails: Regulation and Tax Policies 
Undermine Deregulation Success
    Congress deregulated the domestic airline industry in 1978 to 
unlock its value to the American public. Congress recognized that 
removing the strait-jacket of government regulation and allowing 
airlines to operate competitively like other businesses would make air 
transportation services affordable for consumers as well as foster 
innovation and efficiency for businesses.
    Congress was right. Passenger and cargo airline services are a 
tremendous value for American businesses and consumers; they enable the 
U.S. economy. From 1990 to 2011, real domestic fares fell 31 percent. 
In contrast, taxes increased 38 percent. (Slide 1). Business travel and 
cargo movements have grown dramatically, and air service is the favored 
method of transporting valuable exports. In 2011, the value of U.S. 
exports by air was 117 times the value of exports transported by sea. 
(Slide 2). Commercial aviation has grown to become one of the most 
important drivers of U.S. GDP (Slide 3). Today, U.S. airlines carry 
approximately 2 million passengers and 50,000 tons of cargo daily on 
approximately 28,000 flights.
Slide 1



Slide 2


Slide 3


    Despite the unparalleled value the U.S. airline industry delivers 
to the American economy as a result of deregulation, vestiges of the 
regulated era remain and new regulatory burdens have been added, 
particularly in recent years. These regulatory burdens reflect the 
ingrained view of some that the airline industry is different from 
other industries and, when controversy arises, regulation is the 
answer. This parochial view of commercial aviation must end.
    Vestiges of economic regulation include mandatory reporting of: 
traffic data (``O&D'' data); revenue and expense data; income taxes; 
maintenance expenses; profit and loss data; performance data such as 
on-time performance, baggage handling, and involuntarily denied 
boarding; and on-demand examination of financial data and records. 
Industries that were never regulated--the rental car and grocery 
industries, for example--are not saddled with these kinds of reporting 
burdens.
    To make matters worse, the Department of Transportation (DOT) has 
proposed a rule that would require airlines to report new revenue 
information related to 19 separate items, including how much they 
collect for meals, drinks and upgrades. In addition, DOT is considering 
a rulemaking to ``modernize'' the O&D data it collects from airlines. 
The DOT proposal not only would greatly expand the financial and 
operational data elements it collects, it would also begin collecting 
personal identifying information from airline reservations systems--
raising obvious and significant privacy concerns. Does Amtrak have to 
report to the government how much it made on selling Cokes, and how 
much revenue from tickets? Does the cable industry have to report how 
much it made selling HBO versus ESPN?
    Likewise, more recent regulatory initiatives substitute the 
government's judgment for the working of the marketplace and manifest a 
philosophy that favors re-regulation over market discipline. These new 
regulatory burdens run counter to the Airline Deregulation Act, which 
specifically stated that market forces should determine and drive 
consumer options and services. The Department of Transportation's 
``Enhancing Airline Passenger Protections'' Rule 2 (April 25, 2011) is 
such a rule. In it, DOT mandated that airlines, unlike virtually every 
other U.S. industry, must include taxes and mandatory fees in 
advertised prices. Even though airline customers purchase other 
products and services and understand that taxes and fees will be 
included in the final price, DOT insisted that airlines and travel 
agencies spend millions of dollars to reprogram their systems to 
display ``full'' prices. The rule also goes so far as to specify that 
any breakout of taxes, which are considerable, must be in smaller font 
than the total price. In addition, the rule creates an impossible 
burden by prohibiting an airline from raising the prices of optional 
on-board services for that particular customer after he/she purchases a 
ticket. That is like saying a ball-park or stadium cannot raise the 
price of a hotdog for an individual once he/she purchases a ticket. On 
game day, it is impossible for vendors to know what price to charge 
which patron if prices have changed. Although DOT has backed off of 
enforcing this rule, it has stated it will still be part of its next 
rulemaking.
    Looking forward, DOT is planning a third ``passenger protection'' 
rule. Among other things, this rule would require airlines to make all 
of their products available through global distribution systems. In no 
other industry is this required. Are the passenger rail or cable 
industries required by law to turn over all of their products and 
services to a third-party duopoly that can then mark-up the products 
for their own financial gain?
    Again, other industries are not subjected to such irrational rules. 
These and other regulatory burdens weigh heavily on the airlines and, 
with the tax burden discussed below, conspire to hold them back from 
stability and profitability. When safety rules are taken into account, 
we estimate the annual regulatory burden of existing and proposed rules 
exceeds $3 billion. (Slide 4).

Slide 4



    U.S. airlines and their customers are subjected to voracious taxes 
and fees that add up to 20 percent of the total price of an average 
domestic round-trip ticket. That is a 38 percent increase since 1990. 
No consideration is given to the impact of these government impositions 
on demand. In fact, commercial air transportation is taxed at a greater 
rate than products--alcoholic beverages and cigarettes--that are taxed 
in part to discourage consumption. (Slide 5) In 2011, airlines and 
their customers paid nearly $18 billion in taxes and fees, more than 
$11 billion of which went to the FAA Airport and Airway Trust Fund, 
more than $3 billion to the Department of Homeland Security, and more 
than $2.5 billion directly to airports. (Slide 6)
Slide 5



Slide 6


    More recently, there have been attempts to have airlines and their 
customers pick up the tab to reduce the Federal budget deficit or to 
cover the cost for a payroll tax-cut extension. Last year and earlier 
this year, on multiple occasions, the administration offered a proposal 
that would triple the security tax we all pay on each flight, as well 
as impose on airlines a $100 tax on every plane departure. In the end, 
the proposals were rejected--but they are back. The White House budget 
proposal for Fiscal Year 2013 again proposes to triple the security tax 
and add a $100 departure tax. These new taxes alone would cost the 
airline industry $36 billion over the next 10 years.
    The importance of these burdens is illustrated by comparing them to 
recent airline earnings--remembering first that U.S. airlines 
(passenger and cargo combined) lost $53 billion during the period 2001-
2011. In 2010, U.S. passenger airlines earned a total of $2.2 billion, 
and in 2011 less than $600 million, a mere 0.4 percent profit margin. 
(Slide 7) Put another way, in 2011 U.S. passenger airlines earned just 
$0.81 per passenger.

Slide 7


    Finally, as the Committee knows, the European Union continues to 
press ahead with its Emissions Trading Scheme, despite the widespread 
condemnation of it as a unilateral measure that is an unprecedented 
transgression of national sovereignty, including that of the United 
States.
    A4A and its member airlines are committed to reducing greenhouse 
gas emissions from aviation and, with fuel-efficiency improvements have 
saved more than 3.3 billion metric tons of CO2 emissions 
since 1978, have a strong record of meeting that commitment. By 
investing billions of dollars in fuel-saving aircraft and engines, 
innovative technologies and advanced avionics, the U.S. airline 
industry improved its fuel efficiency by 120 percent between 1978 and 
2011, resulting in emissions savings equivalent to taking 22 million 
cars off the road each of those years.
    Our commitment is clear. The question is how to proceed? Our firm 
belief is that the United Nation's International Civil Aviation 
Organization is the proper, multilateral venue to develop a worldwide 
policy to reduce GHG emissions from commercial aircraft. We fully 
support ICAO's efforts and urge Congress and the Administration to 
oppose the EU's unilateralism.
U.S. Policy Has Not Evolved With the Changing Global Market While Other 
        Countries Support Their Airlines
    The United States has championed free trade in the airline sector, 
and the U.S. airline industry has supported that effort. Our members 
are efficient, effective enterprises and are anxious to compete in the 
global marketplace.
    The U.S. has entered into 107 Open Skies agreements with aviation 
trading partners. These agreements liberalize the aviation relationship 
and allow airlines to decide route, frequency, capacity and pricing 
decisions based on commercial considerations free from government 
interference. As the State Department notes on its website, ``Open 
Skies agreements have vastly expanded international passenger and cargo 
flights to and from the United States, promoting increased travel and 
trade, enhancing productivity, and spurring high-quality job 
opportunities and economic growth.'' http://www.state.gov/e/eb/tra/ata/
index.htm.
    U.S. policy for its airline sector has not kept up with the 
evolution of the global market for airline passenger and cargo 
services. As discussed above, regulations are not grounded in the 
Airline Deregulation Act's fundamental policy goal of encouraging 
``efficient and well-managed air carriers to earn adequate profits and 
attract capital'' by ``placing maximum reliance on competitive market 
forces.'' 49 U.S.C. Sec. 40101(a)(6). Instead, regulatory initiatives 
are ad-hoc and are guided by the government's perception of the issue-
of-the-day and the vestigial but disproven view that government 
judgment is superior to the discipline of the marketplace. Likewise, 
the government's ever-growing appetite to tax the airline industry has 
increased the number of taxes and fees airlines and their customers pay 
and, of course, the amount paid--with no regard for their impact on 
demand.
    These factors illustrate that the U.S. does not have a coherent 
airline policy that recognizes the strategic value of the U.S. airline 
industry and seeks to advance its global competitiveness. Rather than 
``strengthening the competitive position of air carriers to at least 
ensure equality with foreign air carriers. . .to maintain and increase 
their profitability in foreign air transportation,'' another of the 
Airline Deregulation Act's specific policy goals (49 U.S.C. 
Sec. 40101(a)(15)), the ad-hoc approach to the U.S. airline industry 
has hobbled it.
    Other countries have championed their airlines. This is 
particularly true in South America, Asia and the Middle-East, areas 
that have seen strong growth and expansion by their airlines and where 
future demand is expected to be strong. Asian and Middle Eastern 
countries, in particular, have encouraged their airlines to grow and 
supported that growth with policies that reduce costs and encourage 
capital investment. Emirates and Singapore Airlines, for example, not 
only have large, young fleets of widebody aircraft, they also have 
considerably more widebody aircraft on order than U.S. airlines. (Slide 
8) In fact, only one U.S. airline is on the list of the 15 airlines 
with the largest widebody orders. (Slide 9) With the greatest amount of 
growth forecast to be in the emerging economies, foreign airlines, not 
U.S. airlines, are poised to succeed. (Slide 10)

Slide 8


Slide 9


Slide 10


    The international carriers who are buying the majority of planes 
today are providing the connectivity their governments envisioned--and 
driving economic growth in the process. This includes flying to the 
United States in increasing numbers--to our major cities--which has 
caused U.S. carriers to pull down capacity in some international 
markets, which is the most profitable part of the business and a part 
of the business that subsidizes--to a great degree--our domestic 
routes.
    The impact of the Open Skies initiative coupled with the absence of 
a coherent airline industry policy is plain. 107 foreign airlines will 
fly to the U.S. from 98 countries in the third quarter 2012. This 
compares to 11 U.S. airlines scheduled to fly to 77 countries. Today, 
Emirates operates to Houston, Dallas, Los Angeles, San Francisco, New 
York JFK and Seattle, and just announced plans to launch service to 
Washington, D.C. in September. Etihad operates to New York JFK and 
Chicago. And they start service to Dulles in 2013. They are not alone. 
Dozens of foreign-flag carriers serve the United States today and more 
are looking to add service, including Brazil's Gol, which has announced 
plans for service to Miami.
Why is this important?
    A strong airline industry drives high-quality, middle-class 
American jobs within the industry and is the foundation for jobs in the 
broader aviation industry. As we learned from the post-9/11 and post-
recession years, an unprofitable airline industry translates directly 
into job loss, reduced service and reduced investment in airplanes, 
facilities and equipment. The entire value chain suffers. In August 
2001, industry employment exceeded 536,000 full time equivalent 
employees. By April 2010, that number had dropped to just over 376,000, 
a loss of 160,000 good paying jobs. Likewise, an unprofitable industry 
cannot sustain the level of service America needs. In March 2001, there 
were just over 30,000 daily scheduled domestic flights. That number 
dropped more than 21 percent, to 23,600 daily scheduled domestic 
flights, in March 2012. (Slide 11)

Slide 11


    Foreign carriers will not directly serve smaller U.S. markets. They 
will cherry pick profitable cities and rely on others to provide 
connectivity, at whatever cost, across the rest of the country. That is 
not good for American businesses or consumers.
    The U.S. network carriers have a vested interest. Their business 
model accommodates connecting every part of the country with the 
revenues from the more profitable segments subsidizing the much less 
profitable, smaller communities. To continue to provide such service, 
U.S. carriers need a more rational, normalized business environment, 
with less government interference, and with a fair tax and fee 
structure. Our airlines want to compete head to head with their 
international competitors but on a more level playing field.
A4A Calls for a National Airline Policy
    For all of the reasons discussed above, A4A is calling for 
enactment of a National Airline Policy--a comprehensive approach to 
putting the U.S. airline industry in a position to survive and thrive; 
a policy in keeping with the fundamental role it plays in the U.S. 
economy and that gives substance to the aspirations for the industry 
articulated in the Airline Deregulation Act.
    These are the five core components that together form the basis of 
an effective National Airline Policy:

  1.  Reform our tax structure: Reduce taxes on this industry and our 
        already overburdened customers.

  2.  Reform our regulatory environment: Ensure rules are based on 
        sound science and cost analysis and eliminate rules that drive 
        excessive costs or inefficiencies while doing nothing for 
        safety or consumer benefit.

  3.  Fix the infrastructure--NextGen: Accelerate the deployment of the 
        most cost-beneficial elements of NextGen by implementing 
        policies and procedures to use the equipment we have in place 
        today.

  4.  Enable global competitiveness: This industry needs to compete on 
        a level playing field with global competitors. Endorse global 
        strategies to address issues that affect us all, like the EU-
        ETS plan, and put in place the policies, resources and 
        structure to promote business and leisure travel and tourism in 
        the United States; and

  5.  Mitigate fuel costs and volatility: We need the Commodity Futures 
        Trading Commission (CFTC) to follow its mandate and curb 
        excessive speculation in the oil futures market and, at the 
        same time, we need to bolster domestic fuels production and 
        alternate fuels development in an environmentally sound manner.

    This is a significant list with a great deal of work required on 
each part--and it will take time and unified engagement with Congress 
and the administration to get it done. A4A is committed to doing just 
that.
    In conclusion, there is much to do but there can be no question 
that we need a holistic approach that addresses the fundamental tax, 
regulatory and infrastructure challenges that prevent this industry 
from being sustainably profitable--and globally competitive.

    Senator Cantwell. Thank you, Mr. Calio.
    And, again, thanks to all the panelists. You've given us a 
lot to think about. And we'll start a round of questioning, and 
I think I'll start off here.
    Dr. Tracy, you mentioned in your written testimony--I want 
to get at this question about R&D and technology first, and 
anybody else can weigh in if they want. But one of the things I 
read in your testimony is about NASA cutting back on some of 
its partnering as it related to basic research in aerospace.
    So are we backing away from key science-based questions 
that we need to answer to keep competitive? And how much does 
the R&D tax credit play into that issue as well?
    Dr. Tracy. Madam Chair, with respect to the R&D tax credit, 
I'm an engineer, not a tax expert. So I'll have a full 
explanation of the tax side sent into the written record.
    [The information referred to follows:]

                                         The Boeing Company
                                         Chicago, IL, July 27, 2012
Hon. Maria Cantwell,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Subcommittee on Aviation,
Washington, DC.

Dear Senator Cantwell:

    In response to your question to Dr. John Tracy at the U.S. Senate 
Subcommittee on Aviation Operations, Safety, and Security; Committee on 
Commerce, Science, and Transportation hearing titled ``The Global 
Competitiveness of the U.S. Aviation Industry: Addressing Competition 
Issues to Maintain U.S. Leadership in the Aerospace Market'' on 
Wednesday, July 18, 2012, we respectfully submit the following 
information.
    During the question and answer period, you asked Dr. Tracy how much 
of an impact the R&D tax credit has on the competitiveness of the 
United States. The Boeing Company is one of the leading innovative 
companies in the world and spends billions of dollars each year on 
research and development in the United States. The R&D tax credit 
allows American companies, like The Boeing Company, to remain in stride 
with global competitors while also providing an incentive for high-
skilled, technologically advanced jobs to be created as well as 
sustained in the United States. However, the incremental structure of 
the R&D tax credit, the fact that it is temporary in nature, and the 
tremendous amount of resources needed to meet IRS approval of eligible 
expenses dilutes the value and effectiveness of the credit for American 
companies.
    To remain competitive in the short-term, the United States must 
reinstate the R&D tax credit for 2012. In the future, if policymakers 
determine that innovation incentives are important to retain in the 
context of comprehensive tax reform, they should reevaluate the current 
structure of the credit and consider making it permanent and less 
administratively burdensome. By doing so, companies will have more 
certainty around the incentives available to them and their ability to 
effectively utilize those incentives. This will ensure a strong 
commitment to invest in new technologies and innovation here in the 
United States.
    If you need additional information, please do not hesitate to 
contact me.
            Sincerely,
                                               James Zrust,
                                               Vice President--Tax.

cc: Tim Keating, Senior Vice President of Government Operations
Stacey Dion, Vice President of Corporate Public Policy

    Dr. Tracy. But from my perspective, NASA in general and 
NASA aviation investment has reduced dramatically over the last 
several years. I believe that in the United States, in aviation 
investment for research and development in NASA, we're probably 
10 percent of what the European Union is investing in similar 
areas. And this impacts----
    Senator Cantwell. What kind of technology are we talking 
about?
    Dr. Tracy. Oh, everything from the control of unmanned 
aerial vehicles to software reliability--software is so 
important in the way we control the vehicles today--to 
composite materials that Senator Warner mentioned--every aspect 
you can imagine. The vehicles today--we have to use technology 
to achieve the levels of performance that will allow our 
airline customers to be profitable, to reduce emissions, and to 
improve safety. And without investments in R&D, it's just very 
difficult to do that.
    Senator Cantwell. So are the Europeans catching up, or are 
they truly ahead on this next cutting-edge technology? Because 
I would say, ``Wait a minute. The 787 is a composite plane, and 
that was a big winner in the marketplace.'' So in that area, we 
were ahead.
    Dr. Tracy. I believe that the reason that the Europeans are 
investing at a rate of 10 to 1, compared to us, is because they 
see the $4.5 trillion market for commercial airplanes that was 
mentioned, and they want to make sure that they are the 
dominant player there. So in some areas, they've caught up. In 
the area of composites, they're still working to catch up to 
our level, in my opinion. But it's an intense competition, and 
I'm very concerned about the levels of NASA investment.
    One other thing that ties into one of your areas of 
interest is in terms of STEM education in our next generation. 
I, for instance, was inspired to become an engineer because of 
a NASA flight demonstration program called the X-15 that I saw 
when I was 5 years old. It's those NASA big picture things that 
young people can see and be inspired by that really are the key 
to our future generations developing interest in this area.
    Senator Cantwell. Thank you.
    Mr. Elwell, a little bit on the R&D. Could you and Mr. 
Bunce just say, what are the two or three things you would do 
to help streamline the FAA certification process?
    Mr. Elwell. I think, clearly, the biggest factor is to get 
organization and delegation authority robust--to pay full 
attention to it. It simply is too big a job across the full 
spectrum, from type certification to certification of 
aftermarket products and the like. It's just too big a job for 
FAA to put, you know, one man or two men or women on each 
project.
    We've got to have ODA, which is, you know, one of the 
things we're looking at in the 312 work that we're doing with 
FAA. That's probably the single most effective thing we can 
do--is make ODA a reality throughout the process.
    Senator Cantwell. Mr. Bunce?
    Mr. Bunce. Senator, I think when we look at the authorities 
that both the Congress and the FAA have talked about in this 
organization and delegation authority, it's also important to 
be able to say, ``OK. How are you really going to use it?'' 
Because that queue I talked about, that 18-month queue, could 
really significantly be reduced if we allowed for a safety 
system oversight by the FAA.
    Now, one of the things we have to do is we have to do 
workforce development within the FAA, because it's becoming 
more and more complex for them to be able to regulate an 
industry that is becoming much more software dependent and data 
driven. And so we spend a lot of time training the regulator. 
So we've got to do not only workforce development for our own 
workers within our factories, but also to help the FAA and 
train their workforce.
    A lot of people say throw more resources at the FAA. And 
especially when you look at what's going to be required for 
NextGen and if, oh, by the way, we certify these unmanned 
aerial systems, then that's going to add a burden to a system 
that's already stretched to the point where it's becoming very 
ineffective. We're going to break the system if we do that.
    So we have to be able to do this streamlining. And the 
streamlining is taking an approach that we've got to give the 
FAA leadership here in Washington the tools to break down some 
of those stovepipes, to be able to manage from Washington, and 
be able to say, ``OK. Here is the regulation. Go ahead and 
allow industry--you don't have to be sitting over--and these 
great engineers that we have working for us in our companies--
you don't need to look over their shoulder all the time.''
    You need to look at a systems approach to safety and be 
able to apply these principles that are being proliferated 
around the world, called SMS. ICAO is directing this for all of 
aviation, for commercial and general, all over the planet. And 
we can go and use those principles to be able to streamline the 
process, and that is truly the most important thing we can do.
    Senator Cantwell. Is the European system more streamlined?
    Mr. Bunce. No, ma'am. I would say the European system--
there isn't the volume. And they also have a system that--it's 
incredible. They have a fees and charges program for it, and I 
would say that that one is inefficient enough that we were just 
told a few weeks ago that we're going to be paying for the 
retirement programs for EASA workers in the fees and charges 
that they're charging our companies. So the European model is 
not the way that we want to go.
    We have a system that can work if we're allowed to use the 
delegation authorities that you and the FAA have already said 
we should be able to use. But they're not allowing us to 
implement them.
    Senator Cantwell. Thank you.
    Senator Isakson?
    Senator Isakson. Well, thank you, Madam Chair. Before I ask 
a question, I'd like to ask unanimous consent, if I can, to 
submit for the record an editorial that appeared in Aviation 
Week on the 16th of July of this year, just a few days ago, 
whose title was ``American Aerospace on the Block.''
    Senator Cantwell. Without objection.
    [The information referred to follows:]

  Aviation Week & Space Technology. 7/16/2012, Vol. 174 Issue 25, p58-
                               1NULL. 1p.

                    American Aerospace On the Block

Emotions Should Not Dictate Fate of Hawker Beechcraft
    Shock, disbelief, dismay, distrust. Stages of grief?
    No, these adjectives sum up the reaction to the news that Hawker 
Beechcraft has agreed to sell itself to a Chinese manufacturer for 
about $1.8 billion (see p. 40). It remains to be seen whether the 
property will actually change hands, although there is no reason at 
this point to doubt it will. Nonetheless, the announcement stunned 
aerospace professionals.
    It doesn't take a psychologist to explain why. Beechcraft is an 
icon of American aircraft manufacturing. Hawker Beechcraft is the once 
proud and thriving linchpin of Wichita--the aviation capital of the 
U.S. And now, the company has sunk into such desperation that it must 
fall not just to the highest bidder but to one in Beijing.
    Hawker Beechcraft's defense business is not included in the sale 
and will continue as a separate entity, building T-6 training and AT-6 
light-attack aircraft. That would seem to neatly side-step any 
heartburn the Defense Department might get. But Hawker Beechcraft's 
announcement does not mention the Beechcraft King Air, a twin turboprop 
that has become as synonymous with military intelligence, surveillance 
and reconnaissance as it is with cost-effective business aviation.
    Even if the specialized task of modifying commercial King Airs into 
military platforms stays with Hawker Beechcraft's defense operation, 
the aircraft themselves will be built by a Chinese-owned entity. 
Indeed, they have to be. Without its workhorse twin-turboprop, the 
company would be next to worthless to its new owners.
    Then there is the troubling question about the automated fiber-
placement technology pioneered by Hawker Beechcraft to build composite 
fuselages of Premier I and Hawker 4000 business jets and later used by 
Boeing on the 787. Can transfer of that technology be prevented and its 
use be limited to Hawker Beechcraft commercial airplanes?
    U.S. authorities who decide whether to allow the sale of Hawker 
Beechcraft to Superior Aviation Beijing face a difficult decision. 
There is the politics swirling around legitimate concerns for the 
Wichita jobs that may be at risk, and there are issues of protecting 
national security and safeguarding dual-use technologies.
    So how do we progress through the stages from initial shock to 
eventual acceptance--or rejection--of the deal? First, we must dispense 
with the emotion surrounding the names of Hawker and Beechcraft. In 
truth, the company has had a checkered history. And it has changed 
hands before.
    Beech Aircraft was acquired by Raytheon in 1980. The Hawker line 
was added from British Aerospace in 1993. And the two merged to form 
Raytheon Aircraft in 1994. It was an uneasy marriage, and the company 
was sold to private equity firms Onex of Canada and Goldman Sachs of 
the U.S. for $3.3 billion in 2007. Then, in 2008, a vicious economic 
downturn slammed the entire business aviation sector. Hawker Beechcraft 
limped along until it filed for bankruptcy court protection this May, 
and a short time later put itself on the auction block.
    Focusing on what really matters, the central question is whether 
national security policy makers should prevent, not just the 
modification of special-mission King Airs, but also the production of 
the basic platform from falling under foreign control. It is easy to 
say there are plenty of U.S.-owned companies that could take over the 
support of King Airs operated by the U.S. military. Harder to determine 
is whether Chinese control of the company that produces the basic 
platform might one day pose a threat to the U.S. and allied militaries 
that depend on the King Air.
    Moreover, there is no replacement for the King Air the Pentagon can 
easily substitute. Regrettably, U.S. aerospace has largely turned away 
from the turboprop market in its search for higher-value sales. The 
nearest equivalents are the Swiss Pilatus PC-12, Italian Piaggio Avant 
and Canadian Viking Twin Otter, and none has the stars and stripes 
flying over its corporate headquarters. There is no getting around the 
notion that the company formed by Walter and Olive Ann Beech in 1932, 
and which carries a Hawker name dating back to 1920, should have to be 
sold in the first place. But the hard truth, no matter how distasteful, 
is that China is where much of the growth in business and general 
aviation will occur. After all, Cessna is already planning to develop 
and build business jets with China.
    There are any number of venerable names that stir the passion of 
aviation professionals. Consider the great ones that fell victim to the 
wave of consolidation of the U.S. aerospace industry starting in the 
early 1990s. And where would aviation be without the passion!
    But passion must not influence whether Hawker Beechcraft stays a 
U.S. company. If the transaction is to be blocked, it ought to be 
because the company's products and technology must remain U.S.-
controlled on the grounds of national security. If there is not a 
compelling case, let market forces shape the evolution of the global 
aviation industry as they have done since the birth of powered flight 
more than 100 years ago.
    Copyright 2012 The McGraw-Hill Companies, Inc. www.mcgraw-hill.com

    Senator Isakson. And now I'd like to read the opening 
paragraph, if I can. ``Shock, disbelief, dismay, and distrust--
stages of grief? No. These are the adjectives that sum up the 
reaction to the news that Hawker Beechcraft has agreed to sell 
itself to a Chinese manufacturer for $1.8 billion.''
    So I think in talking about competitiveness today, it's 
important that we recognize the importance of manufacturing on 
American soil and the important contribution it makes to the 
American economy.
    And, Mr. Bunce, you made two points that--when I read that 
editorial today and when I listened and read your testimony--
read your testimony earlier and then listened to it today, I 
want to focus on two points for a second, if I can.
    One, Mr. Bunce talked about new product certification at 
FAA. As I understand it, they have a sequencing system on 
taking these new products which can delay the beginning of the 
evaluation as much as 18 months. Is that correct?
    Mr. Bunce. Yes, Senator.
    Senator Isakson. If you could do it in a faster sequence 
somewhere else, you'd want to go there to do it, right?
    Mr. Bunce. Absolutely.
    Senator Isakson. That's the point I want to make. So when 
you take this editorial and you read it, and then you read that 
you have a delay as long as 18 months before the regulatory 
agency that oversees you even begins the process of certifying 
a new product, you understand how government has a role in 
making sure we remain competitive.
    To that end--in the previous administration, I worked with 
Mr. Calio on some projects. And one of my subcommittees on 
another committee of the Senate is the Labor and Occupational 
Safety Committee. And I know there have been efforts in the 
past where regulatory authorities over American business and 
enterprise have done partnerships with the industry itself to 
end up speeding up the process of evaluation and 
accountability.
    Can you discuss, Mr. Bunce, if you would--or if you all 
have ever made any suggestions--how you could partner with the 
FAA to make it easier for them to streamline the new product 
evaluation process?
    Mr. Bunce. Senator, we've actually done that. And with our 
partners at AIA, we've got a steering group of aerospace 
leaders together with the FAA leadership. And I will say that 
Acting Administrator Huerta has been very receptive. In fact, 
he's talked about this in several of his speeches as one of the 
initiatives that they have to use in the FAA, knowing that 
their budget is going to be fiscally constrained with the state 
that we're in right now.
    So we feel like we've got something moving forward. We've 
got some metrics designed. Those metrics will come back to you 
in a report that you asked for from the FAA reauthorization 
act. And what you can do to help us is keep pressure on them. 
Just that one report isn't going to be good enough.
    If you can help us to help the FAA be able to lead--
because, truly, they have to drive change within the workforce, 
and it's good change, because we can make these great people 
that we have working in the FAA more effective in safety 
management if they go and get out of having a sharp pencil and 
looking at every minute detail that our great engineering 
workforce does and be out there and be safety managers. And 
that truly can make a difference for us.
    Senator Isakson. And it's more economical, I would think, 
for a manufacturer to bear some of the costs of certification 
and the process rather than wait 18 months to even begin a 
process. Am I correct?
    Mr. Bunce. Absolutely. That time is critical. If we have to 
delay that project--and, as I said, some companies have been 
forced to go overseas to do it somewhere else just to get the 
project going. The other things that they're also doing is 
breaking up projects to try to get it underneath the threshold 
where sequencing applies. So they're breaking that project up, 
which is very inefficient. But they're trying to do that to 
work around this sequencing system. So it is causing a delay of 
being able to start any of the projects, as you've said, 
Senator.
    Senator Isakson. Second, you talked about foreign repair 
stations. And I have a--being the Ranking Member of the Africa 
Subcommittee, and given the fact that Delta now flies so much 
into Africa, and Gulfstream manufactures planes that fly 
worldwide, I was shocked to understand--and if I'm wrong on 
this, tell me. But I think I read it right in your testimony. 
In 2007, Congress mandated that FAA develop the rules and 
regulations for foreign repair stations, and they still haven't 
done it. Is that correct?
    Mr. Bunce. Sir, it's actually the Department of Homeland 
Security that has to do the rules. And in 2007--actually, 10 
years ago, you all said that TSA and DHS should do this. It was 
in 2007 when we were kind of put as a lunchmeat in the middle, 
and the FAA wasn't allowed to issue any new certifications for 
new repair stations. So we're being punished because DHS hasn't 
done their job to get this rule out.
    There is no controversy about the rule. It's just that, 
from what we understand, DHS is saying, ``Well, we see no 
security threat, so it's not our priority.'' But the trouble is 
it's costing American jobs. So what we would ask is, again, if 
you can pressure DHS and just say, ``Get the rule done.'' 
That's all we need, and we can go ahead and start having these 
repair stations again up and running, and people can have 
confidence they can get their FAA-certified products serviced 
overseas.
    Senator Isakson. I'll take just one additional second, if I 
may. And in a worldwide marketplace where our manufacturers, 
like Boeing in Washington and Gulfstream in Georgia and others, 
sell to the world, these impediments by delays in regulatory 
authority or by not being able to approve new products faster, 
just push the business to look for other options. Is that 
right?
    Mr. Bunce. Absolutely, sir. We have a case where there was 
an order placed with one of our companies here in the U.S., and 
we couldn't get the process through the FAA in time. And it was 
just basically to put winglets on an aircraft, and winglets 
were relatively easy. And all of a sudden, another manufacturer 
in another country that has a different certification authority 
said, ``We can do it,'' and they lost the whole order.
    Senator Isakson. Thank you very much.
    Thank you, Madam Chairman.
    Senator Cantwell. Senator Warner would be next, but I'm 
sure he'll be back.
    So Senator Begich?

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you very much.
    Thank you, all of you, for being here today and testifying.
    First, Mr. Bunce, I have a quick question for you. I know, 
in your testimony, you had some good data on general aviation. 
You know, we love general aviation in Alaska. We live it. It's, 
for us, in some cases, like an automobile in order to get 
around. So we thank you for the work you're doing.
    But you mentioned some issues around FAA. And if you could 
pinpoint one--if you had an opportunity to say, ``Here's the 
one thing in FAA'' that you would want us to push on with 
regards to general aviation, to help improve the capacity of 
general aviation, do you have a feel of what that might be? I 
know there are lots of items, but is there one that you would 
say, ``This would make a difference to the general aviation.''? 
It may be on the manufacturing side or the transport side. Is 
there any thought there?
    Mr. Bunce. Senator, I think that, again, we've all talked 
about certification. And I think across the board, all the way 
from the products that Mr. Calio's organization buys to anybody 
up in Alaska buying a general aviation aircraft, certification 
of not only new products, but also to be able to get what we 
call STCs--modifications. And the pilots up in Alaska do that 
all the time, and to be able to get those through the system 
efficiently is the best thing that can happen for all of 
general aviation and I would say all of civil aviation in the 
United States.
    Senator Begich. Very good.
    Mr. Calio, if I could ask you a couple of questions--in 
your verbal testimony as well as in your written testimony, you 
talked about the tax policies and the over-burdensome 
regulation. But let me focus, if I can, on taxes.
    I was looking at some of your charts and so forth that were 
included. I would just say one thing. What you had in here, I 
think was, Rationalization for Tax Burden, and you had 
``Federal Taxes on Commercial Aviation are Comparatively High, 
Comparable with Many `Sin' Taxes.'' You've listed in sin taxes 
a revolver, Smith and Wesson, diesel, and gasoline. From 
Alaska's perspective, we don't think those are sins.
    [Laughter.]
    So we want to make sure we're clear on that. You know, you 
can have distilled spirits, tobacco--we might not even think 
beer is a sin, either. But, definitely, our guns and our fuel 
are not. So just a little fun there.
    But your point, which I want to get to, is you indicate 
that the tax structure is too high in comparison to those 
items, none of those do we provide infrastructure for. We don't 
build liquor stores. We don't build tobacco plants. We don't 
build gun factories. Put aside the $100 issue, because I oppose 
that. The administration is way off on that. They're wrong. The 
GA folks know this more than they can imagine.
    But how do we pay for the infrastructure, then? Because, as 
you know, a sizable amount of money goes into the trust fund. I 
can tell you as a former mayor, we owned an airport, and we 
invested into Merrill Field significantly, improved the 
capacity for our pilots to land safely. How do we pay for this?
    Mr. Calio. Well, Senator, first of all, most airports 
currently have investment grade ratings but the airlines don't. 
And if we're here to address global competitiveness of the 
entire industry, and I'm here to represent the airline 
industry, I think you have to look at the state of the 
industry. It lost $50 billion and 160,000 jobs, over one-third 
of the workforce, over a 10 year period. It made less than a 
quarter of a penny in profit over the last two years, but it's 
a profit. We created 10,000 new jobs last year as a result of 
that.
    And I think you have to look more broadly at how the 
industry is taxed. There are 17 separate taxes and fees on the 
airline industry and its passengers. If you buy your typical 
round-trip ticket, $300, on a domestic route, $61 is taxes and 
fees. And the GAO came out with a study a few years ago. If you 
increase taxes or fees by $1, you're going to suppress demand 
by .5 percent to 1.8 percent.
    Senator Begich. I understand that. But let me step back 
again. I want to get to the question, because I've looked at 
the charts. I've studied the material that you have. And I just 
want to--you know, from us--you know, we're the international 
hub for FedEx and UPS. We ship 700 wide-bodies every week out 
of our airport to an enormous amount of markets throughout the 
world. Aviation is a big part of our life and economy in 
Alaska.
    So I'm just trying to figure this out--your chart of 
comparison of sin tax is no comparison, in my view. How do we 
pay for the infrastructure, maybe NextGen or the airport 
improvements, or those things? I'm not saying raise taxes. Your 
comment was to lower taxes. So I'm trying to figure out how we 
do that and then build an infrastructure that supports a great 
aviation system that this country has.
    Mr. Calio. Senator, I don't think you can rely on the 
airlines solely to do that.
    Senator Begich. OK. That's what I was trying to get to. In 
other words, you believe we need to step one more step out now 
that's outside of the aviation fees and so forth, that we need 
to put more general dollars----
    Mr. Calio. I think you need to look at the state of the 
industry and see where it stands and what you can do and 
whether you can burden one part of the industry or one industry 
in and of itself more.
    Senator Begich. I got you. I understand now what you're 
saying. From the broader expanse of aviation, airlines are 
taking a big chunk of it, and there are other pieces to the 
equation.
    Mr. Calio. There's other pieces. We're not suggesting to 
tax them. I would say that I think--you know, the trust fund 
last year hit record levels, you know.
    Senator Begich. Right.
    Mr. Calio. The airports took in record revenues, $22.2 
billion in 2011. So it's not as if the money is not there.
    Senator Begich. I got you.
    Mr. Calio. There are bonds, and airlines contribute a 
great--if you look at Chicago, you know, American and United 
are contributing there. And other airlines do that across the 
board at all these different airports across the country.
    But I think it gets back to the analogy of the maritime 
industry. We can sit here and keep using the airline industry 
as a cash cow, and it will continue to wither, and we'll 
continue to lose jobs. The industry has done a very good job of 
trying to right itself in recent years.
    Senator Begich. I agree.
    Mr. Calio. As a result of everything it does, we have about 
the lowest unit cost in the world right now. But you raise 
prices, no matter how you do it--there are two ways, two ways, 
that you can get back to try to sustain profitability. And 
that's either you cut service or you cut employees, and that's 
about it. We have nowhere else to go.
    Senator Begich. Very good. Thank you very much for your 
testimony. Thank you for the information, too. You did a lot of 
good charts here that I appreciate, because it's in a broad 
sense. So thank you for that.
    Mr. Calio. Thank you, Senator.
    Senator Cantwell. Senator Lautenberg?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Madam Chairman, for holding 
this hearing. It sounds like a bit of an anomaly to me. We hear 
fairly bold projections in terms of what the volume of 
opportunity of business is going to be for the industry. And I 
hear tales of woe about whether or not we have enough people to 
service these opportunities, and the two things don't seem to 
go together, because competing airlines from other countries 
certainly must have at least had the same problems that we're 
looking at. So it needs a little bit of straightening out, as 
far as I'm concerned.
    And, Mr. Elwell or Dr. Tracy, maintaining our global 
competitiveness, preparing for the projected growth in the 
industry, suggests that we have to make substantial investments 
to upgrade our aviation system. However, we're looking at 
sequestration in 2013. Drastic budget cuts will evolve from 
that. What impact will these cuts have on our ability to 
improve or maintain--or at least not fall back on our aviation 
sector?
    Mr. Elwell. Well, Senator, are you asking specifically what 
we think sequestration could do to FAA and to our industry?
    Senator Lautenberg. Yes.
    Mr. Elwell. Obviously, there are more questions than there 
are answers to sequestration, how they'll implement it. But the 
way we've looked at it for FAA, for instance, on the non-
defense side, it would be over $1 billion a year for 10 years. 
That's, as you well know, sir, huge for an agency with a $15 
billion budget.
    The devil, of course, would be in the implementation 
details, you know. Where would they make the cuts? If they make 
them in the biggest account, which is the Ops account, there 
would be tower closures--I mean, I don't know how they would do 
$1 billion out of $9.5 billion when they're already stretched--
their budget is stretched thinly.
    But they're likely to preserve operations if they have the 
discretion to move sequestration, and the place--if you're 
going to try to run an operation, the place you're going to cut 
is future programs. So I think NextGen is very, very vulnerable 
in a sequestration scenario.
    And in partial answer to Senator Begich's question about 
how you fund the system going forward, much like the initial 
investment to build the national highway system produced huge 
economic benefit to the country, more than paid for itself over 
and over again--the same thing if we do the upfront investment 
for NextGen. The efficiencies, the ability to move traffic, and 
the economic benefits that NextGen will give us will more than 
pay for it. And so, you know, conversely, if sequestration guts 
NextGen----
    Senator Lautenberg. But, of course, Mr. Elwell, you have to 
look at what might be a doomsday projection and say, ``OK. What 
do we do if we don't close that gap?'' What do you do? Cut 
services, cut equipment sales?
    What happens, Dr. Tracy, in this event?
    Dr. Tracy. Senator Lautenberg, thank you for this question. 
I read a lot always about the effects of sequestration on the 
Department of Defense, but I'm not going to address that at 
all. I'm going to talk specifically about the FAA.
    There are two aspects to that that concern me. One is the 
implementation of NextGen, which will be a huge opportunity 
lost in terms of--if NextGen is implemented, we have the 
opportunity to increase the efficiency of the airspace by 35 
percent, the efficiency of the airports by 50 percent, to 
literally save billions of gallons of fuel. The airlines, I 
think, in 2011 spent $174 billion on fuel, and implementing 
NextGen can help reduce the amount of fuel they need and the 
emissions by something like 12 to 15 percent.
    So on one hand, I think it's a huge opportunity lost by not 
implementing NextGen. The other side of the equation has to do 
with product development and the other parts of the FAA that 
help us certify the products. We've talked about potential 
improvements in efficiency. But, for us, we've just put into 
service two new airplanes that we believe change the face of 
civil aviation, the 787 and the 747-8, each saving between 15 
and 20 percent of fuel and operating costs, helping our 
airlines.
    The ability to produce and implement and certify new 
products of the future in conjunction with the FAA, who was a 
partner with us, to assure the safety of these products, I 
believe, will be impacted negatively in the case of 
sequestration.
    Senator Lautenberg. If I may, Madam Chairman, for a 
moment--are we seeing better progress in the new generation in 
other major countries and their systems?
    Dr. Tracy. In terms of their certification process or in 
terms of their air----
    Senator Lautenberg. In terms of the development of the 
efficiency of the system, whether it's less fuel, whether it's 
more mechanical management of the airplanes, et cetera. Are 
there places where it's done better?
    Dr. Tracy. No. I think the United States is in a position 
where we lead the world with products that are progressive 
environmentally, in terms of fuel efficiency, in terms of 
bringing value to the airline customer.
    Senator Lautenberg. Mr. Elwell?
    Mr. Elwell. The one difference, though, Senator, I will 
tell you, in the emerging markets, the emerging countries, they 
can go straight to NextGen. They don't have this legacy 
infrastructure that we have. So they're likely--once they get 
it, they're likely to put it in much faster than we can.
    Senator Cantwell. Good point. Thank you.
    Senator Thune and then Senator Warner.
    Senator Thune. Thank you, Madam Chair. With respect to the 
Senator from New Jersey's line of questioning about 
sequestration, the House of Representatives this afternoon 
passed a bill, 414 to 2, that would require the administration 
to put forward a plan for implementation of sequestration. I've 
got a companion bill in the Senate along with Senator Sessions 
that would require that.
    I think it would be very helpful for a lot of decision 
making, not only ours, but yours, to at least have an idea 
about how this sequestration is going to be implemented. And so 
I hope we can get that acted on here in the Senate, 
particularly with the big vote coming out of the House today.
    I want to ask a question, and anybody on the panel feel 
free to answer this. But the EU Emission Trading Scheme is 
clearly, in my view, a unilateral and unfair tax policy that is 
hurting U.S. operators flying into and out of Europe. And my 
view is we need to protect our operators and the traveling 
public from this unnecessary tax.
    And I guess the question is do you agree, and if you do, 
what impact do increased taxes, especially when they're 
collected for a country's treasury as opposed to--for general 
or for aviation infrastructure operations? What impact do taxes 
like that have on the U.S. aviation competitiveness?
    Dr. Tracy. Senator Thune, with respect to the ETS, it just 
doesn't accomplish what we're trying to accomplish. There are 
other means to reduce emissions that are much more efficient. 
ICAO, as was mentioned earlier--across the industry, we've come 
up with an agreement that, as an industry, we'll improve the 
fuel efficiency and reduce the emissions of the global fleet by 
1.5 percent a year.
    By 2020, we've agreed to achieve carbon neutral growth. By 
2050, we've agreed that we will be able--or we will strive to 
cut the amount of emissions in half from the 2005 baseline. 
We're focusing on coming up with a metric and then standards 
for each new product and also investing in biofuels. So there 
are other ways to achieve emissions. The ETS scheme, because 
it's regional and because it's not covering the aerospace 
sector but just throwing--it will cause taxes that will never 
get fed back into the system to improve the basic problem of 
reducing emissions and improving products.
    And so I just think it's pointed in the wrong direction, 
and it'll end up distorting markets, because what counts in 
that scheme is where you took off from, and if you land in 
Europe, you're taxed for the full region. So people will be 
taxed unfairly based on what their current route structure is 
and frequency, and it'll have nothing to do with reducing 
emissions, in my opinion.
    Mr. Calio. Senator Thune, if I could just add, I agree with 
everything Dr. Tracy said. I think the impact would be, as I 
noted earlier, you increase prices, you suppress demand, and 
the prices are only going to go up over time. And, in 
particular, I would note that this is not going back into 
aviation. It's not going to the environment. It's for whatever 
they want it for.
    Mr. Bunce. Senator, I was just over at Euro Control in 
Brussels about 2 weeks ago, and they gave us a briefing on 
their ability to implement Single European Skies. And they've 
pretty much given up on an ability even to integrate what's 
called functional airspace blocks just to be able to get a 
basic system where they can get their controllers talking to 
one another and working together.
    So right now, they don't have any ability to use all of the 
benefits that we call NextGen over here. Their research arm is 
called SESAR [Single European Sky ATM Research] because they 
just can't get their airspace act together. So it's each 
individual country with their own controllers, that each have 
different weigh scales, and there is no political will to 
cobble this thing together and really do Single European Skies, 
which is really where they'll get the environmental gains.
    I would argue that if they were really serious about doing 
something about the environment, the first thing they would do 
is make Single European Skies work and then talk about taxing 
after that. So it is really something that I think when you 
have a chance to talk to your European colleagues--and when we 
go to Brussels and we talk to the European Commission, we very 
much get the feeling that it is not the people responsible for 
aviation that's driving this trend and has dug their feet in on 
this issue.
    It's an interesting thing within the European Parliament, 
where the folks--the environmental ministers have really driven 
this trend. They're against all reason of what the aviation 
community has.
    Senator Thune. Madam Chair, I see my time has expired. I 
have another question, but I can ask it later.
    Senator Cantwell. Thank you.
    Senator Warner?

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Madam Chair. I want to join 
Senator Thune. I hope that vote in the House will mean that 
we'll recognize that on sequestration--that to continue to punt 
on these issues, that maybe this will mean we can see the kind 
of bipartisan consensus that we've got to generate some 
additional revenues and reform our entitlement programs so we 
can actually take on the bigger deal, which at the end of the 
day, in my view, there's nothing that's more important in terms 
of generating job growth and economic activity than restoring 
basic confidence. But it's going to take some give on both 
sides.
    Let me go to Dr. Tracy. And I appreciate your earlier 
comments about the great opportunities we have in aviation and 
the diminishing role that NASA has played in competing with our 
European rivals and others in terms of basic research. One of 
the areas that, again, your company has been one of the 
absolute leaders in the world has been composites. And kudos to 
you on your 757 Dreamliner.
    But as we all know, the composite research takes years, and 
the cost return is one only a company of your size and 
capability would take on. We are exploring--and I appreciate 
again Boeing's participation to date, and I'd love to see more 
of this--creating a public-private partnership at NASA Langley 
that would include all members of the industry to try to take 
the composite development to utilization of modeling a 
simulation from this 10 to 15-year process down to a 3 to 5-
year process.
    I'd like to have you comment, Dr. Tracy, on your sense of 
the opportunity here and some of the challenges you might have 
in a public-private partnership in terms of intellectual 
property sharing. And we talked--as Mr. Sorscher said, a bit 
more about trying to make sure we do this in America. My hope 
would be, since we have dramatically upgraded our wind tunnel 
investments in the United States, that Boeing would no longer 
do that testing on the European wind tunnels and would take a 
fresh look at the American wind tunnels in terms of your 
testing procedure.
    So I'll start with you, Dr. Tracy.
    Dr. Tracy. Thank you, Senator Warner. I've spent the last 
31 years of my life working on composite materials, and the 
reason I chose that field, in particular, to specialize in is 
because I did think it would revolutionize the aerospace world. 
And in my opinion, it has finally lived up to its potential 
with the 787, as we've seen today.
    One of the interesting things about that, though, is it 
took me 31 years to see what I thought the future held 31 years 
ago, and that's for the exact reasons that you're talking 
about. Composites still do offer us tremendous advantages in 
multiple industries, aviation being the best example, where you 
can dramatically reduce the weight which allows you to reduce 
the size of the engines which allows you to use less fuel, less 
emissions, et cetera.
    The problem is the material systems are being developed 
faster than we can certify the new products. And so there might 
be material systems developed today that we won't be able to 
use on a future airplane--and we're developing many airplanes--
because it takes so long to develop the design allowables, to 
run the component test, the wing test, and then full scale 
test.
    So NASA Langley's expertise and having an industry-wide 
consortium of public-private partnerships--I'm very much in 
favor of that. And I think that could help improve U.S. 
competitiveness for the entire American industry by coming up 
with more of these modeling and simulation-based methods that 
does certification by analysis rather than by test.
    Senator Warner. Can I just interject a word there one 
moment?
    Dr. Tracy. Yes, Senator.
    Senator Warner. Because we have had some conversation with 
the FAA and others about whether we can shrink that test time 
down. And it seems to me that modeling and simulation is the--
since other areas have used that. I'd like you to address that 
for a moment. And I know my time is expiring.
    Could you also touch a little bit on the challenges--as you 
said, this is not just for aviation. It could be for autos, and 
other products--how you could do the intellectual property 
sharing?
    Dr. Tracy. Yes. The modeling and simulation is a key 
enabler to reduce the testing, and the testing is one of the 
biggest constraints, because we have to test hundreds of 
thousands of test coupons. The intellectual property is a 
concern. At our core, we believe that advanced composite 
materials, the manufacturing approaches used for them, the 
design and analysis approaches, are critical pieces of 
intellectual property that make us more competitive versus our 
foreign competitors.
    So we would like to have streamlined intellectual property 
agreements that would allow us to share the fundamental 
research that we did in a public-private partnership. But 
certain things that we brought to the table that were specific 
to us--and we feel fully responsible that it's our job to make 
the investments to commercialize these things in a product, but 
there are certain aspects in the middle where we just need to 
be very careful that we don't lose our competitive advantage by 
making everything public.
    Senator Warner. Thank you. My time has expired. But I would 
hope to engage the balance of the panel on this topic and 
project as well.
    Mr. Sorscher. If I could make just a short statement, the 
idea of public-private partnerships is a terrific idea. I was 
at an engineering conference, and there was a panel where 
someone from Oak Ridge National Laboratory had a public-private 
partnership with an American company. And also on the panel was 
a scientist from a Chinese research institution discussing her 
relationship with a private business.
    And I asked them what was the policy of their country, each 
one, about publicly-funded R&D which was then commercialized 
outside your country. You have a foreign partner, and the 
foreign partner takes the intellectual property and 
commercializes it in their own country.
    Of course, I'm not sure what our policy is. The Chinese 
policy was pretty clear. They have some problems with that. 
There was some intellectual property that wasn't very 
important. They didn't care if that was commercialized outside 
of China, and then there was another category that maybe they'd 
have to think about. And then there was a category that they 
would be very unhappy if that was commercialized outside their 
country.
    So Europe has more of an understanding. I'm not sure they 
need regulations explicitly. But, again, that's something we 
ought to be thinking about. Where's the reciprocity, you know? 
Where's the quid pro quo? We've made our investment as a 
country, and there's this expectation that it'll be 
commercialized in America. Maybe we need to be a little more 
explicit about that.
    Senator Cantwell. Thank you.
    Senator Boozman?

                STATEMENT OF HON. JOHN BOOZMAN, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Boozman. Thank you, Madam Chair.
    Senator Cantwell. I am going to have a second round. So if 
members want to ask another round of questions, we'll be here.
    Senator Boozman. Thank you, Madam Chair. Recently, I had a 
young farmer in the office, and he was talking about the fact 
that he needed a new tractor, and this is an $80,000 to 
$100,000 piece of equipment. And yet he didn't feel like he 
could do that, wasn't going to do it, because of the fact that 
we're trying to get the farm bill passed. It's taking a while. 
It's going to take a while longer. So he just simply doesn't 
know what the rules are going to be for the next 5 years 
concerning his industry.
    You know, we've heard talk of sequestration. You know, the 
fiscal cliff is out there. Tell me how this lack of having a 
tax policy--whether we disagree as to how to get that done--but 
how is that impacting you all as far as not knowing what to 
expect over the next year or two and the difference in going 
out a year or 2 years or 3 years? Would any of you all like to 
comment in that regard?
    Mr. Elwell. Senator, my boss, Marion Blakey, CEO of 
Aerospace Industries Association, was in a press conference 
yesterday about a report on what sequestration is likely to do 
or could do, and it's been all over the papers. Requirements of 
the WARN Act--it's not knowing. It's the not knowing that is 
requiring some of our companies, some of the members, Pete's 
members, our members, to have to put out notice, not knowing 
where the money is going to be cut and exactly how--there are 
legal requirements. And so our companies are taking action now. 
They're not waiting----
    Senator Boozman. So you've got that problem. But along with 
that, not knowing what your healthcare costs are going to be in 
the future, you know, not knowing what your taxes are going to 
be in the future--all of this is--you know, it seems to be 
working together to really hinder the economy right now.
    Let me ask you another thing real quick that you--perhaps 
you, Mr. Bunce, can comment on. The overseas facilities, repair 
facilities--you know, Homeland Security. You know, Congress 
said we need some security put in place. That wasn't acted on. 
Congress tried to get FAA to be more responsive and basically 
said, I think, in 2007 that you can't certify any more until 
it's done, until they get the regulations. How is that 
affecting things as far as our ability to produce--not to 
produce, but to compete overseas?
    Mr. Bunce. Senator Boozman, it is significant. And, in 
addition to the fact that we can't open up new repair 
stations--and to be clear, I think the FAA will be able to 
implement as soon as DHS publishes the rule. So, really, the 
key is to get DHS to act. But what is important to note is that 
if we go ahead and get these repair stations up and running, it 
also spurs jobs back home, because people will be willing to 
buy the product back here.
    Also, the Europeans, surprisingly, or maybe not 
surprisingly, are also using this now as an excuse on the ETS 
front, saying, ``Well, now, you're causing us problems because 
you won't implement your security rule. Why should we not 
restrict our repair stations and who we're inspecting?'' So it 
actually has international implications that DHS hasn't been 
able to get this rule done. And, truly, there is no controversy 
over the rule. It's just getting it through their legal system 
and publishing the rule.
    Senator Boozman. Very good. Does anybody else want to 
comment on that?
    Yes, sir?
    Mr. Sorscher. I may be rewinding a little bit here. But my 
impression from the workplace--we've had excellent technical 
relationships with the FAA technical specialists. We think 
their demographic situation looks kind of like ours, and so we 
include them in this question about recruiting and retaining 
experienced employees.
    Part of the problem with workload is having enough people. 
And so, again, we think that the situation with the FAA 
technical specialists, aside from the administrative and legal 
issues, when it comes time to actually do the work, they also 
need to be part of this attention that we're paying, generally, 
to getting the right number of qualified, trained, experienced 
people.
    Senator Boozman. Very good.
    Thank you, Madam Chair.
    Senator Cantwell. Thank you. We're going to start the 
second round, and I'd like to go back to this basic question 
about this engineering thing Dr. Tracy talked about, what 
basically caught his imagination as a young person. I mean, 
maybe our next panel will be the private companies that are 
doing their own commercialization to outer space. Maybe we'll 
get them and Paul Allen to come and talk about their 
engineering needs.
    But right now, we're graduating about 70,000 engineers a 
year, but only 44,000 of those are eligible for aerospace 
careers due to security issues. And I think the numbers are 
even more dramatic when you look at those advanced degrees. So, 
in fact, I think we're probably educating a lot of foreigners 
with advanced degrees in aviation, and they're probably going 
home to various places.
    So how do we get more STEM educated engineers in aerospace? 
What do we need to do? And are we talking about starting now at 
the K through 12 level--is that where we need to start? Is that 
where we need to build the pipeline, or are there some 
immediate things we can do at our 4-year institutions?
    So either Mr. Sorscher or Dr. Tracy.
    Dr. Tracy. Senator, I do believe that it requires a system 
level solution that necessitates interaction at all levels. 
Clearly, we need more capacity and more research going on at 
the graduate level and at the bachelor's degree level. But the 
problem really starts at the elementary school level, where 
even in terms of just a public image that scientists and 
engineers have through the popular media affects young people's 
choices. Having the large projects to inspire them is a second 
choice.
    But there are programs out there, and our industry is 
working as a whole to try and change this. There's programs 
like First Robotics, where we get junior high and high school 
kids into robotics competitions that have the feel of a high 
school football game that gets their interest going. I think I 
mentioned earlier that we're investing alone $25 million a year 
in the external community to try and get these young people 
excited.
    So I do have hope, but it does require a system solution 
where all of us are working as individuals, talking to the 
young people next door from historically under-represented 
communities in aerospace, to the top level public policy 
decisions and programs. It takes all of us working together.
    Senator Cantwell. Well, I mean, we have an aviation high 
school in Seattle. I mean, that's one example, right? Also, the 
Composite Research Center at the University of Washington. I 
definitely think that did turn on a light bulb--having visited 
that several times--a light bulb for a lot of, particularly, 
young women who decided that composite manufacturing was very 
interesting juxtaposed to previous manufacturing schemes.
    Dr. Tracy. One other thing we're doing--before I turn it 
over to Dr. Sorscher--is that this summer alone, we've brought 
in 1,700 interns who might not have had an interest in aviation 
from colleges--you know, sophomores through juniors--and we 
give them a chance to get their hands on aerospace products and 
see how these products can change the world. And, typically, 
most of them want to come back and be hired as full-time, and 
our conversion rate is about 66 percent that come in as interns 
and become full-time employees because they're so excited. And 
we have been focusing that program on people historically 
under-represented in engineering, women and minorities.
    Senator Cantwell. Mr. Sorscher?
    Mr. Sorscher. I would agree with everything that John Tracy 
just said. And I would add that the internship program is 
really sensational. It's one of the coolest things I've ever 
seen.
    But to answer, my sense of the question is that we tend to 
think of education as being a bucket of students, and then you 
pour that bucket into the bucket of workers. There's actually 
quite a bit of dynamic that goes on. You mentioned that--I 
think the number is 10 percent of the baccalaureate enrollments 
are foreign students, and 50 percent of advanced degree 
programs are foreign students. That's one dynamic.
    Another is that graduates of our engineering programs don't 
take--many of them graduate and don't take a job in their field 
of study. And I think some NSF data suggests that as many as 
half just never make that transition from education to 
employment. They go into public service or business or finance 
or something else. There's also a fairly significant attrition 
in the first five or 10 years. We're not sure where people go, 
but, you know, they don't necessarily stay in aerospace. Maybe 
they take another engineering job. Maybe they go somewhere 
else.
    And then when you look at the charts that I have in my 
written testimony--actually, they're much better as 
animations--but you can see the hiring of new students--they 
disappear. Where did they go? Some of them were laid off. Some 
years there's just very low hiring. So, again, the dynamic of, 
you know, what happens to students who are making that 
transition from education to employment has a lot of activity 
going on. It isn't just a bucket of students being poured into 
a bucket of workers.
    So part of that is the business model, which I talk a 
little bit about in my written testimony. What kind of workers 
are we looking for? Are we primarily thinking about 
manufacturing, or is a lot of that going to the global 
suppliers? There are a lot of dynamic processes going on that 
we need to think about.
    So, again, one of the suggestions we have is that we be 
more detailed in tracking what happens to students. Where do 
they go? And I think if we start looking at some of the 
mechanisms in there--what works and how does it work--there's a 
lot of detail in there that--and, again, it's different from 
just thinking, ``Well, we'll graduate more, and then there'll 
be more workers.''
    Senator Cantwell. So I just want to be clear. Are we doing 
enough? Does anybody on the panel think we're doing enough, and 
that it'll right itself here in a few years, or do we need to 
do more?
    [Mr. Sorscher sent the following in reply:]

Can we do more to improve our STEM workforce?
    Our instinct is to inspire children to study science, and motivate 
college students to pursue STEM degrees. We should do both. Education 
is the gateway to the labor market.
    We also have policy opportunities for employees already in the STEM 
labor market.
    First, consider the basic dimensions of the question, as measured 
in BLS surveys.

        Employed engineers nationwide--about 1.5 million

        Total employed in computing and math--roughly 3 and a half 
        million

        All domestic engineering enrollments--almost 600,000

        All domestic engineering graduations--about 125,000 per year

    At 125,000 graduations per year, we produce enough engineers to 
replace all working engineers in 12 years, assuming they all found 
engineering jobs, and they all stayed in those occupations.
    The dynamics of the workforce are somewhat more complicated than 
that.
    For instance, roughly half of graduating engineers take jobs 
outside of engineering--in finance, public service or some other 
occupation.
    Also, foreign workers take many of the available entry-level jobs. 
The 125,000 engineers we graduate will compete for entry-level jobs 
with about 800,000 foreign temporary high-tech workers.
    More and more employers see themselves as global companies, who 
prefer ``flexible'' labor practices. That means less commitment to 
long-term careers, more global outsourcing, more frequent layoffs, and 
more reliance on contractors.
    This problem is acute in computing and IT professions, where many 
mid-career engineers find themselves unemployable. In 1996, Intel's 
chief operating officer, Craig Barrett, told his stockholders, ``The 
half-life of an engineer . . . is only a few years.''
    In the July 6, 2012 Wall Street Journal, 3G Studios CEO James Kosta 
says, ``Engineers were outliving their usefulness from one project to 
another. When projects end, it's better to re-evaluate your entire 
staff and almost just hire anew.''
    The labor market sends a negative market signal to students 
considering a STEM career. Lifetime earnings and job security can be 
much more attractive in non-STEM occupations, such as health care, 
education, finance, business, law, or public service.
    On the other hand, for a foreign student, a STEM degree offers a 
path to permanent residency or citizenship. A STEM degree has much 
higher potential value to a foreign student than to a domestic student 
with similar abilities and professional goals.
    In aerospace, the negative workforce signals from globalization are 
partially offset by the high value that experienced employees bring to 
their products. Our product cycles can last decades, unit costs are 
very high, development costs can be huge and learning curves are very 
steep. However, even in aerospace, attrition in the first five years 
can be 50 percent or more.
    We can take two approaches to workforce management. We can 
encourage students to pursue STEM careers. At the same time, we can 
manage our existing workforce to capitalize on the investment we have 
already made in education and on the job training.
    Ideally, the two approaches will reinforce each other. Students are 
more likely to invest in a career with opportunities, job security, and 
a clear sense of purpose.
Policy recommendations
    SPEEA supports every effort to inspire young students to pursue 
careers in science, technology, engineering and math. We support public 
investment in education, R&D, and effective workforce training through 
apprenticeships, community colleges, and specialized programs in 
manufacturing.
    Our policy agenda should be coherent; it should send consistent 
market signals to families and students, and deliver on the promise of 
good jobs and good careers.
    In written testimony, we made several recommendations:

  (1)  We need a national manufacturing strategy. Japan, Taiwan, 
        Singapore, Korea, Ireland, Israel, Denmark, Germany and India 
        all have national manufacturing strategies. Every country in 
        the world has a national industrial policy. By definition, our 
        national manufacturing strategy should express our national 
        identity, rather than a global identity.

  (2)  Expand our official labor market data so policy-makers have 
        credible, meaningful, actionable data regarding the transition 
        from education to employment. We should track how effective our 
        programs are. How many students graduate from different 
        programs? Do they find jobs in their field of study? Where are 
        they employed after five years? What is the unemployment rate 
        for recent graduates?

  (3)  Keep skilled workers in the labor market, with mid-career 
        training and life-long learning. This applies to actively 
        employed workers and the transition from military service to 
        private employment.

  (4)  Temporary foreign workers should be admitted to deal with short-
        term documented labor shortages. Labor shortages should be 
        identified by occupation, industry, region, and length of time, 
        just as they are in Canada, Australia and the UK.

  (5)  Internships, co-ops and coordinated public-private R&D programs 
        should connect students to employment before they graduate.

  (6)  Licensing of publicly funded R&D should include conditions for 
        commercialization in the U.S. on more favorable terms, and 
        commercialization offshore under less favorable terms.

    Items 3, 4 and 5 overlap, which prompts another policy 
recommendation. On the day of the hearing, the Brookings Institution 
released a study of training programs that are funded by fees collected 
in the H-1B program. The study found that training programs showed 
little connection to the use of H-1B visas.
    This connection can be made explicit. The fees can be pooled into a 
limited matching fund, devoted to internships, and mid-career training 
in industries with a high density of workers with temporary visas. 
Employers can bid for the funds by demonstrating increased commitment 
to new and existing employees. For instance, employers could score high 
in their bids when they establish new paid internship programs, or when 
they increase their conversion of interns to full-time employees. 
Similarly, employers who begin life-long learning programs, or who 
increase participation in life-long learning programs, can bid for 
matching funds from the H-1B fee matching pool. Finally, the matching 
funds should be subject to recapture or clawback if employees are laid 
off within 2 years.
    In the past, we inspired students with publicly funded innovative 
projects, or national missions, such as landing on the moon. I was 
inspired to consider a STEM career by elegant bridges, magnificent dams 
and reservoirs, and research programs that cured diseases or helped us 
understand the universe.
    Landing on the moon, building infrastructure, and leading the world 
in science were national strategies. They were also a promise to 
students that they would have good careers. They would accomplish 
something for themselves and their country. Times have changed, and we 
will have different national strategies. But motivation and human 
nature are the same for our children as they were for past generations 
of students.
    The following figures are provided for reference and to help 
visualize workforce dynamics over the last few decades.
Enrollments


    Figure 1. Engineering enrollments are generally flat, with a recent 
increase at the undergraduate level.


    Figure 2. Computing enrollments peaked after the tech bubble.

    Enrollments and graduations tend to hold to a steady level. It is 
relatively difficult to move those numbers up or down.
Foreign enrollments


    Figure 3. Foreign enrollment in undergraduate, masters and PhD 
programs are roughly equal in number.


    Figure 4. Foreign students make up half of enrollments in graduate 
engineering programs, but a smaller fraction of undergraduate 
enrollments.

    Some foreign undergraduates go on to graduate programs, but many 
foreign students graduate elsewhere, then come to America for advanced 
degrees.
Graduations


    Figure 5. Combined, all U.S. programs award about 125,000 degrees 
per year.
Employment


    Figure 6. National employment for engineering and computing 
occupations is rising very slowly.
Transition from education to employment


    Figure 7. Education is steady-state, but demand for new hires 
fluctuates dramatically from year to year.


    Figure 8. Engineering unemployment is generally lower than 
unemployment generally.

    Unemployment for recent graduates is typically well above the 
unemployment rate for experienced workers. Data support the impression 
that recent engineering graduates face a very difficult labor market.
    We use the metaphor of a bucket of students being poured into a 
bucket of workers. We assume that engineering graduates will find jobs 
in their field of study, stay in those jobs, and become more 
experienced.
    However, data show that a large fraction of the graduating class 
promptly drifts out of science and engineering, moving into other 
occupations.
    In the bucket metaphor, we spill about half the students in the 
transition from education to employment. The bucket leaks from then on, 
losing workers to other industries and occupations.
    Recent graduates face two significant obstacles when looking for 
jobs in their field of study. First, their labor market includes 
roughly 800,000 foreign temporary workers, taking mostly entry-level 
jobs at or below market wages. Secondly, the Optional Practical 
Training program was recently expanded to allow foreign students to 
take long internships, giving those foreign students preferential 
status when applying for full-time positions.


    Figure 9. Immediately after graduation, many students do not find 
jobs in their field of study.


    Figure 10. Foreign temporary high-tech workers greatly outnumber 
graduates of all domestic engineering programs.

    The figure does not include roughly 40,000 H-1B workers legally 
overstaying their 6-year visa while pursuing citizenship, nor does it 
include tens of thousands of foreign students in the OPT program.
Attrition


    Figure 11. Attrition for SPEEA-represented engineering and 
scientists, measured from their date of hire.


    Figure 12. Attrition, measured over time, for different cohorts.

    These two figures show the same data, formatted in two ways. The 
upper figure shows each year's new hires, as they progress through the 
first years of their career. The lower figure shows the fraction 
remaining over time, rather than time since hire.
    Of those who take jobs as engineers, attrition over the first 5 or 
10 years can be half or more.
Demographic shifts


    Figure 13. Age profiles for engineers and scientists shift over 
time from 1990 to 2011.


    Figure 14. The age shifts for technical employees are more 
pronounced than for engineers and scientists.

    These figures show the steady development of our demographic 
problem in aerospace. In 1990, the engineering population was heavily 
weighted toward young people. Over the next two decades, we attracted 
many new engineers, but some were laid off and others resigned, without 
being replaced. Employees are eligible for early retirement at age 55.
    Some of this shift is the consequence of changing from an 
integrated design and manufacturing business model to a globally 
integrated business model.
    In 1995, when senior executives said, ``These jobs are going away 
and not coming back,'' they meant that manufacturing will move out into 
the global supplier base, and we will need fewer engineers working on 
detailed parts, subassemblies, software, and electronic systems. 
Instead, we will need system integrators, project managers, and a small 
group for product development. Research and development will generally 
follow manufacturing out into the supplier network.
    In that sense, our demographic situation is a problem of our own 
making.
    To some extent, the 787 program reversed that trend.
    The situation for technical employees is much more dire. For that 
population, a large bow-wave of older employees is approaching 
retirement. The cohort of new technical employees is very small.

    Mr. Sorscher. First of all, we'd love to do more, right? We 
think this is a great industry. It's a great career. It would 
be irresponsible for us to encourage families to make this 
extraordinary investment and not have good jobs for them when 
they get out. So this is a very volatile industry. There are 
some years when, you know, we need 2,000 people, and there are 
some years when we need 175. So I think that might be why a lot 
of the graduates don't go into engineering. A lot of times, 
there's a problem getting from education to employment. So we 
need to think about that more carefully.
    I certainly believe that there is a systematic approach 
where we can be more efficient in the way we capitalize on the 
social investment we made in education going into employment. 
Education is a very steady state. If you look at the 
enrollments and graduations, it takes quite a bit to move that 
number up and down. Employment is much more volatile.
    Senator Cantwell. Well, I'm not so sure we don't need a 
poster that says, ``Uncle Sam needs you,'' because if we're 
talking about this sector being such a huge employment sector 
for the United States and the growth that we're seeing around 
the globe, this is where job creation really is. And so we can 
be the leaders in it, or, as Mr. Calio said, wait and find out 
that we'll be like the maritime industry, and somebody else 
will have driven, the innovation and driven down the cost. The 
thing we have going for us is--just as SPEEA does--that 
engineering brain power that can be well educated and continue 
to innovate and keep us ahead.
    Mr. Sorscher. I'm all for that. And, again, there's just 
that quid pro quo, that reciprocity. I just look at what 
happens to each year's new hires. The internship program is 
really cool. We bring people in. Where do they go? So, again, 
maybe I'm not saying it the right way. But we want to hire 
more, and then we want to retain the ones that we have. And I 
think if you look at those demographic profiles, that was our 
problem. We didn't retain them.
    Senator Cantwell. OK. Good.
    Senator Lautenberg?
    Oh, Mr. Bunce, did you want to make a comment on that?
    Mr. Bunce. Senator Cantwell, I just want to give you an 
example. I was talking to one of our CEOs today, and this 
company is the one that put the great screens in the 787, the 
liquid crystal displays, heads-up display. They have an 
Ethernet backbone--state-of-the-art technology. Well, they're 
trying to take that technology and put it down into the 
business aviation sector. So they've got 17 different 
individual platforms that they can put that onto. They've got 
about 1,000 engineers working on it.
    But what are they looking at? They're looking at the R&D 
tax credit. And they're seeing exactly the numbers that Mr. 
Elwell brought out, and in a best year, only a 6 percent return 
here in the U.S., or 6 cents on the dollar. You can get that 
much better other places. But then even worse is our R&D tax 
credit sometimes is retroactive. You don't know if you're going 
to get it, and it's only done a year at a time.
    So I would ask that when you take on this giant gorilla of 
tax reform, and especially looking at the manufacturing sector, 
for engineering within aerospace, this R&D tax credit is a 
fundamental element that's very important to us.
    Senator Cantwell. Thank you. Very well made point.
    Senator Lautenberg?
    Senator Lautenberg. Thank you, Madam Chairman.
    Mr. Bunce, if we can just review an area that I think you 
were kind of leading us with, the repair stations abroad, what 
happens exactly if a country has its own investors, and they 
want to open an FOB, if you could call it that, or a repair 
station? What happens before that station can be of use to our 
airlines?
    Mr. Bunce. If the aircraft is FAA certified, to be able to 
work on that aircraft, then we have to be able to--according to 
the laws that have been passed, we have to have that certified, 
and so no new station can be opened up. So it greatly impacts 
Mr. Calio's folks out there to be able to have these aircraft 
serviced in a worldwide network.
    So if we have these expanding markets, which we're very 
happy to have, whether they're in the Asia Pacific region or 
Latin America or Africa, we've got to be able to have a repair 
station that's close to home, because the worst thing is we've 
got to fly that airplane all the way back--especially if it's 
used domestically in China, to have to fly it all the way back 
here to work on it. Folks just aren't going to do that.
    So we really need to be able to open up a global network of 
repair stations. And, obviously, we have to have them secure, 
and the TSA has already come up with a plan to make them 
secure. We've just got to get the rule out, and then let the 
FAA----
    Senator Lautenberg. So how much of a delay is there because 
of the security concerns?
    Mr. Bunce. Well, Senator, it's not a matter of delay. We 
cannot open up new repair stations right now until they get 
this rule out. So existing ones can still operate, but we are 
not able to open up new ones until they get this rule.
    Senator Lautenberg. Now, is the ``we'' talking about 
strictly American-owned operations, or are we talking about 
foreign operations? There are lots of countries where we would 
use these repair stations if they're qualified.
    Mr. Bunce. Sir, again, it's where we have an FAA production 
certificate. And that's where it changes a little bit. So let's 
take, for instance, in my industry, Embraer, a great company 
out of Brazil. They've opened up production facilities in 
Melbourne, Florida. When they start producing aircraft there, 
they'll have an FAA production certificate.
    We have Dassault that has more jobs in Little Rock than 
they actually have back in Bordeaux. We've got Bombardier that 
has the Learjet facility in Kansas, so they're a Canadian 
company that has a great facility in Kansas, and they have an 
FAA production certificate.
    Senator Lautenberg. Well, I hear the business is fairly 
robust. The people I've talked to who operate a couple of these 
things--they say that business is really good and picking up, 
and they're in far away stations. And so it sounds like the 
business is pretty good with the population of these facilities 
that we have. Are there enough out there to take care of the 
current needs and the expected future requirements?
    Mr. Bunce. Absolutely not, especially in the markets where 
we want to go. So right now, Europe is hurting, just like the 
North American economy. So when you look at what our 
traditional markets were, it was North America, and about a 
quarter was Europe. That's all dynamic--has changed now. And 
our growth is going to be in Latin America and in the Asia 
Pacific region and then down in Africa. So that's where we've 
got to be able to have these new repair stations so that people 
want to buy those types of aircraft.
    Senator Lautenberg. In Asia and Latin America and those 
areas, the requirements are not being made rapidly enough? I 
threw Asia in there. Is that true?
    Mr. Bunce. Right. We're not able to open up those--we're 
not able to put in new repair stations to service registered 
aircraft----
    Senator Lautenberg. Because of the American requirement?
    Mr. Bunce.--because of the rule.
    Senator Lautenberg. Mr. Calio, one of the things that 
hasn't been discussed here is how we can help the process, from 
an operating standpoint, improve pass-through times. Now, for 
instance, according to reports from Newark Liberty, arriving 
passengers are experiencing long waits at Customs. A busy 
travel season is on the way. There are concerns that wait times 
will continue to grow. Are you aware of whether or not Customs 
is providing adequate staffing at Newark?
    Mr. Calio. Senator, I think across the board at all the 
major gateways, like Newark, like Miami, like Los Angeles, like 
Houston, there are problems with CBP staffing and the time it 
takes passengers to get through. The waits--you know, some 45 
minutes. You mentioned an hour--sometimes much longer than 
that.
    It's suppressing travel and tourism here. It's suppressing 
business travel here, because it, frankly, is just not worth 
it. And there are significant problems that I think CBP is 
trying to work through, but they need to be worked through on a 
faster, real-time basis, because it is having an impact on the 
entire industry across the board. And there's that kind of 
daisy chain of, you know, less travelers, less airline 
business, less service. So something needs to happen there.
    You know, they move people around to try to match peak 
hours. But the system is not working right now. One thing that 
I would be remiss if I didn't bring up is the notion that we're 
now putting in--or DHS would like to put in play this pay-for-
play scheme, and so we're going to open up a center in Abu 
Dhabi, because Abu Dhabi is going to pay for it. CBP will staff 
it. Meanwhile, there's not a single American carrier that 
transits through Abu Dhabi. So they need to put their resources 
where they do the most good, and in many cases, that's our 
major gateways, like Newark.
    Senator Lautenberg. Are you aware whether immigration cases 
or examinations are mixed in with Customs reviews? Are they 
separate in most airports so that one is a much faster 
operation than the other?
    Mr. Calio. I don't know that one is faster. I'm not sure if 
they're mixed together. But I think in terms of the 
immigrations--and if you're looking at visas, in many cases, 
we've got significant delays there, too, which is also 
suppressing the travel to this country.
    Senator Lautenberg. Because one of the things that we see 
happening is that there are fee revenues being developed for 
different services--where do you want to sit, do you want to 
eat, do you want this, do you want that? And so the airlines, 
in my view, have picked up revenues. Now, whether they've got 
enough volume because of the number of passengers is another 
question. But having these services unavailable without selling 
them directly has, I think, inured well for the airlines--lots 
of new revenues.
    But we're hearing a lot of complaints from the traveling 
public about these things and about the notion that you're 
going to have to go through a dial-them-up kind of reservation 
to find out whether or not--or when their seat is available, 
and on what row. There are places and times in our lives when 
if there are crowds, the crowd just goes in and first come, 
first serve, and that's the way it is.
    And now I'm fearful that one of these days an airline will 
want to charge for an opportunity to go to the lavatory and 
what kind of a charge might be imposed for that kind of 
facility. Because almost everything else now is being put on a 
separate bill, and it is creating maybe more revenues, more 
income for the airlines. But I don't hear them saying, ``Hey, 
this is really good for us.'' But what I do hear is, ``Wow, 
what else must we do?''
    They're putting more passengers in, with less sitting room, 
less comfort in the airplanes. What's happening? Is there just 
a reduction in air travel that eats up these extra revenues and 
it doesn't fall to the bottom line?
    Mr. Calio. Senator, put it in context. The ancillary 
revenues that you're talking about constitute only 4 percent of 
our total revenues. That 4 percent has helped us make a profit 
in the last 2 years after losing billions and billions of 
dollars before that. We are, as we do this, acting like any 
other business in unbundling our product and giving consumers 
choice of an attractive base fare, and then they can pay for 
what they like or what they don't like.
    You know, baggage fees, as an example--many passengers, 
like me, like to carry my bag on the airplane, and we're 
permitted to. We've had the same policy in place for 20 years 
now--the same carry-on allowance that you had before. I don't 
want to be away from my bag, so I carry it on.
    And, you know, if someone wants to pay--so if we put that 
into the base price and don't charge for it, despite the fact 
that we pay multimillions of dollars every year for the 
infrastructure and the labor and the fuel to move those bags 
from Point A to Point B, then I don't have a choice. I 
subsidize other passengers.
    And it's like any other business. In cable--cable is not 
forced to provide premium service to everybody. They give you 
the base service, and then you add onto that service.
    Senator Lautenberg. And you weren't locked into a cabin. 
You weren't strapped in your seat. You weren't waiting in a 
line for various inspections. The traveling routine has become 
more cumbersome, and the revenues per passenger have gone up. 
The question of whether there are enough passengers is another 
thing we're not reviewing here.
    Senator Cantwell. Thank you. I want to move on. I certainly 
appreciate your leadership.
    Senator Lautenberg. I'm sorry.
    Senator Cantwell. No, Senator Lautenberg. You've done a 
good job.
    Senator Lautenberg. I found my questions so interesting I 
just couldn't stop.
    [Laughter.]
    Senator Cantwell. Well, I have found your past leadership 
on banning smoking on airlines a great service to our country. 
So, anyway, we're going to move to Senator Thune. So thank you.
    Senator Thune. Could we add leg space for tall people to 
the Senator from New Jersey's list of----
    Mr. Bunce. Senator, I would agree with that.
    [Laughter.]
    Senator Thune. Two quick things, and the panel can respond 
to them. But the Finance Committee today voted to report out 
permanent normal trade relations with Russia. And that's 
something that I know Boeing took, I think, a public position 
on. But I'm just curious as to why--you know, maybe you could 
elaborate on that--why it's important.
    And then, second, the so-called fiscal cliff, which 
includes a sequester, which we've talked a little bit about, 
but also tax increases that occur on January 1 of next year --
what that might mean, not only to your operations or those you 
represent, but also just the impact on small businesses. How 
many small businesses are sort of in the chain, so to speak, 
the supply chain of the various manufacturers, airlines, I 
mean, right down the list? It seems to me, at least, there are 
a lot of small businesses that would be impacted.
    When we talk about jobs, we talk about the large employers, 
obviously, but also there's that ripple effect that goes out 
throughout the entire economy, which I think impacts a lot of 
small businesses. So maybe the first question on PNTR, and the 
second question dealing with the issue of the fiscal cliff, the 
impact of the sequester, and increasing tax rates on small 
businesses that might be a part of that supply chain.
    Whoever?
    Mr. Elwell. Senator Thune, that's good news, PNTR, and the 
position on--I'm assuming you mean the repeal of Jackson-Vanik.
    Senator Thune. The repeal of Jackson-Vanik, yes.
    Mr. Elwell. Well, that's very important, because now, with 
Russia in WTO, we're not going to have to--Boeing and any of 
our companies are not going to have to deal with higher tariffs 
when it competes with other countries, and so I think that's 
great news. And for global competitiveness, you don't want to 
have some steep tariff added to your product--so with regard to 
that.
    And your point about small business and sequestration I 
think is a very good one. Clearly, if the big companies are 
letting people go or have to let people go, if we're making 
these huge cuts on the defense side, for instance, all these 
primes have hundreds and hundreds of suppliers which will be 
undoubtedly negatively impacted by the reduction in the primes 
and the OEMs. So the ripple effect is going to be huge.
    And on the civil side, there will be a report coming out in 
August that examines the very question we were talking about 
earlier, about the different scenarios of sequestration to, 
specifically, FAA and the civil aviation industry at large--
that ripple effect you're talking about and what it's likely to 
do. So that ought to be out within about 3 or 4 weeks.
    Senator Thune. I'd be interested in seeing that.
    Dr. Tracy. Senator Thune, I echo Mr. Elwell's comments on 
PNTR. I'd also like to mention that with respect to small 
business, just our company alone has over 8,000 small business 
partners where we spend $4 billion a year. We're quite 
concerned that under sequestration, they might not have the 
robustness to carry them through any perturbations into their 
normal business plans that they were counting on. And so this 
is a concern for us, because it takes all types of suppliers, 
large suppliers, small suppliers, to have a healthy ecosystem 
and keep coming up with innovative ideas for our products and 
services.
    Mr. Bunce. Senator, I would just add that with 
sequestration, as we look toward the effects, one of the things 
is certification officials at the FAA are not considered safety 
critical. So if they're going to make some cuts--and we've 
already talked about potentially pushing NextGen way out in 
cutting the operations account--if you go ahead and stop the 
certification activities because of budget constraints, then 
our small business suppliers that were just talked about--they 
are on the end of that whip, and the amplitude of that whip 
gets really big out there. The smaller they are, the less 
capability they have to cover if there is some kind of stop, 
because there are no certification officials to be able to get 
the product through the system.
    Senator Thune. Madam Chair?
    Senator Cantwell. Thank you.
    Senator Thune. I'm sorry?
    Mr. Sorscher. I had just a very short thing to say about 
PNTR. If PNTR and WTO were only about tariffs, that would be 
great. The tariff part, we think, is to our advantage. But it's 
actually a much more complex situation than joining the WTO or 
not and tariffs. Russia is very comfortable with offsets and 
other arrangements that help build their aerospace industry. 
And when you look at, again, some of the complexities of the 
national policies that other countries are using, that, I 
think, is what we think has the greater leverage.
    So in my testimony, I talked about what we should have is a 
national manufacturing strategy. I think that part of it is 
where we have a lot of potential. So, again, it's kind of 
confusing sometimes when you think about, ``OK, Russia goes 
into the WTO, and that's a good thing.'' Actually, the dynamic 
there, we think, is a lot more complicated. So we're thinking 
about what can maximize our potential for our domestic 
industry, and we start with sort of a manufacturing strategy, 
and then the trade strategy would follow out of that.
    Senator Cantwell. Thank you.
    Well, I want to thank the panelists for their testimony 
today and for all of your input. We'll leave the record open 
for two weeks in case anybody has any other questions or 
information that we want to get back. I appreciate everybody's 
covering of a wide cross-section of issues.
    I certainly, as Chair of this subcommittee, plan on making 
sure that NextGen implementation is a big focal point and 
making sure that that does go smoothly. I think seeing the 
greener skies already implemented in various places in this 
country is helping us with huge savings. So that's something 
very positive, along with streamlining the FAA process and this 
larger education issue. The good news is there's great 
opportunity. The challenge is we need to continue to innovate 
to meet it, and we're certainly going to play our part here in 
doing so.
    So thank you all very much. We're adjourned.
    [Whereupon, at 4:45 p.m., the hearing was adjourned.]
                            A P P E N D I X

  Prepared Statement of Hon. Kay Bailey Hutchison, U.S. Senator from 
                                 Texas
    Thank you Chairwoman Cantwell for convening today's hearing. I 
would like to also thank the witnesses for their participation.
    The aviation industry is a critical engine for job creation in the 
United States, supporting over ten million jobs and contributing $1.3 
billion in total economic activity. Last year, almost 800 million 
passengers and $562 billion in freight value were flown safely in the 
United States. Our aviation manufacturers contributed a $75 billion net 
positive impact on our worldwide trade balance and represented the top 
U.S. exports for the past decade.
    But as critical as the aviation industry is to our economy the U.S. 
airline industry is facing strong headwinds particularly with highly 
volatile fuel prices and increasing tax burdens both at home and 
abroad.
    I would like to highlight a couple of burdens faced by the industry 
and urge my colleagues to consider that impact on our carriers' 
competitiveness and ability to create jobs.
    For instance, as discussed at a Committee hearing in June, the 
European Union is implementing an emissions tax on U.S. air carriers 
with its unilaterally imposed Emissions Trading Scheme. The European 
scheme violates U.S. sovereignty by imposing a tax on routes flown by 
U.S. airlines over U.S. airspace, far outside of European airspace.
    I would like to commend Senator Thune for taking the lead in 
fighting this scheme. Together with Senator McCaskill he introduced a 
bill to protect the U.S. aviation industry from the harmful effects of 
Europe's emissions tax and I am proud to be a cosponsor of their 
legislation. The House has approved legislation and it's now the 
Senate's turn to protect American passengers and carriers from Europe's 
emission tax.
    In addition to harmful international taxation abroad, airlines are 
mistakenly thought of as a tax revenue generator by some here in the 
United States.
    Airline passengers pay taxes that are proportionately higher than 
the ``sin taxes'' on alcohol, tobacco, and firearms. The industry's 
Federal tax burden on a typical $300 domestic round-trip ticket has 
tripled since 1972, from $22 to $61.
    In the midst of such a challenging time, the government is not 
making it any easier on the American passenger.
    President Obama proposed an increase in the passenger security fee 
in his 2013 budget. The fee would disproportionately affect low-cost 
carrier operations and would increase government taxes on 300 million 
travelers.
    These proposed tax increases could not come at a worse time as the 
airline industry struggles to remain profitable amid skyrocketing fuel 
costs. The industry posted a $1.7 billion loss in the first quarter of 
2012, wiping out the meager $500 million profits for all of 2011.
    Whether imposed by our own government or by foreign governments, 
unfavorable aviation tax policies hurt our carriers' ability to compete 
around the world and create jobs. It's time to stamp out any proposals 
to increase the already high tax burden imposed on the aviation sector.
    I look forward to hearing from today's witnesses.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                           Dr. John J. Tracy
    Question 1. Apprenticeships Programs for the Manufacturing 
Workforce--Dr. Tracy, I know Boeing continues to actively work with 
Washington state educators, government, industry, and its employees to 
create a pipeline of skilled workers to meet its current and future 
needs. For example, your company has operated a decades-old 
apprenticeship program with the International Association of 
Machinists. They call it the original four-year degree.
    To meet Boeing's increasing production rates, your supply chain 
will also need to have an equally skilled workforce. When Boeing is 
hiring, I am told that frequently the first place the company looks for 
new workers is its suppliers' experienced employees. For this reason, 
some of smaller aerospace suppliers in Washington tend to pay a lower 
starting wage and under-invest in training.
    Why do you believe Boeing's existing apprenticeship program has 
been successful in providing one path to a skilled manufacturing 
workforce?
    Answer. Because Boeing is known for offering among the best pay and 
benefits for this type of work, skilled employees or professionals from 
other companies or suppliers may apply for and obtain employment with 
Boeing. Due to the company's size, the wide range of skills needed in 
our various businesses and the geographic diversity of locations, the 
company takes several different approaches to train and develop a 
skilled future workforce at Boeing.
    In Washington State, Boeing trains and develops its skilled 
workforce and plans for the future workforce several ways:

   The IAM/Boeing Joint Programs Apprenticeship Program, a 
        partnership between Boeing and the International Association of 
        Machinists (IAM District 751), working in conjunction with the 
        state apprenticeship councils, gives current Boeing employees 
        the opportunity to learn all aspects of their chosen trade 
        through hands-on experiences and trade-related classroom 
        instruction. During this four-year program, apprentices work 
        full time in their chosen trade, learning the latest 
        technologies in the aerospace industry.

   Boeing partners with community and technical colleges to 
        develop a pipeline of workers trained in cutting-edge aerospace 
        manufacturing skills. With assistance from the Washington 
        Aerospace Training and Research Center--a collaborative 
        initiative between the aerospace industry and Washington 
        State--Boeing has created recruitment, pre-hire and workforce 
        training programs in aircraft assembly and fabrication, 
        maintenance and other skill areas critical to building 
        aircraft. Students attending these courses can earn pre-hire 
        certificates to prepare themselves for Boeing and other 
        aerospace jobs.

   The Boeing Commercial Airplanes Aerospace Academic Alignment 
        Team partners with IAM/Boeing Joint Programs in Puget Sound to 
        promote awareness and develop manufacturing career paths that 
        expose high school students to the aerospace industry through 
        hands-on and experiential learning. High school skill centers 
        in Washington State are beginning to offer these programs today 
        with more planned for the future.

    Question 1a. What do see as some of the key challenges in trying to 
establish apprenticeship programs at the smaller companies that make up 
your supplier base?
    Answer. The geographic diversity in Washington State prompted the 
Aerospace Joint Apprenticeship Committee (AJAC) to develop and deploy 
the Advanced Inspection and Manufacturing Mobile Training Unit. This 
53-foot classroom on wheels provides advanced aerospace training for 
suppliers in rural areas and other parts of the state not served by 
this advanced training. Skilled instructors provide modular training in 
the entire manufacturing process, from product design to inspection. 
The Mobile Training Unit introduces new machinery and trains employees 
on equipment not currently available at the company worksite.
    The Mobile Training Unit is the brainchild of the Aerospace Joint 
Apprenticeship Committee (AJAC), which is the result of Washington 
State developing on-the-job training programs to instruct workers in 
the aerospace industry. The AJAC committee is comprised of industry 
employers, employees, and the International Association of Machinists 
and Aerospace Workers (IAM) and has equal representation from different 
segments of the aerospace industry.

    Question 2. NextGen--Dr. Tracy, NextGen will bring a number of 
benefits to airlines, passengers, the environment, and communities 
surrounding airports. In the near term, airlines will be able to 
implement precision navigation through existing technology combined 
with procedures developed and demonstrated in Greener Skies over 
Seattle pilot, of which Boeing is key participant. One of the key 
challenges I see with NextGen implementation is that there will be a 
period where there will be mixed navigation equipment--that is to say 
some aircraft at an airport will be NextGen enabled and some will not. 
These precision procedures are developed in conjunction with an 
aircraft's flight management system. For newer aircraft, I know that 
Boeing has given a lot of thought to it. As you point out in your 
written testimony, newer Boeing planes are already equipped with 
NextGen avionics equipment.
    Are there certain models of Boeing aircraft that do not have a 
sophisticated enough flight management system to accommodate Required 
Navigation Performance and other aspects of NextGen?
    Answer. All new Boeing aircraft flight management computer systems 
are capable of supporting Required Navigation Performance (RNP) and 
many of the other aspects of NextGen that have been defined to date. 
With respect to navigation, many of the existing in-service Boeing 
aircraft have flight management systems that can support Area 
Navigation (RNAV), which is a less stringent variant of RNP but can be 
effectively used to reduce fuel consumption and environmental emissions 
if the procedures are put in place to accommodate. The FAA has 
demonstrated this in Atlanta and Dallas and is working to deploy it 
elsewhere.
    A subset of the existing inventory of Boeing aircraft is equipped 
with higher-precision RNP capability that enable operations in more 
demanding applications and instrument conditions. Boeing is working 
with the FAA to implement RNP in Seattle where a high percentage of 
airplanes flying in and out are equipped and the weather if often less 
than optimum.
    With regard to other aspects of NextGen, the complex mix of 
possible operational improvements, essential technologies, and 
differing implementation schedules are such that only some of the 
envisaged near term NextGen improvements, such as Tailored Arrivals, 
will be possible with the same flight management system containing RNP 
capabilities. Other parts of NextGen such as 4D Trajectory Based 
Operations in the far term will require software and/or equipment 
hardware changes in order to provide the needed aircraft capability and 
performance.

    Question 2a. How do you think the NextGen program best handle these 
legacy aircraft?
    Answer. Because of the large numbers of aircraft with legacy 
capabilities, NextGen should initially place some emphasis on the 
transition to advanced ATM operations. In the beginning, mixed fleet 
operations will need to be managed and reasonable accommodation of 
legacy aircraft will need to be part of the implementation planning. 
The NextGen program planning should reflect this through aggressive 
steps that move out to implement RNAV procedures across all congested 
airports within the National Air Space (NAS). In addition the NextGen 
program should work with airlines to develop a detailed implementation 
road map for the more capable RNP procedures and a Green Lane concept 
that will advantage Airlines who invest in the new NextGen avionics 
equipage. This road map will enable Airlines to close the business case 
for investing in the equipage, thereby accelerating the number of 
capable aircraft in the inventory and enabling more efficient flight 
routes and higher capacity across the NAS.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                           Dr. John J. Tracy
    Question. Minnesota has a thriving aviation industry. In fact, GAMA 
members, three of which have headquarters in Minnesota, support over 
2,600 direct jobs in my state. Additionally, we have tens of thousands 
of general aviation, commercial and cargo pilots who reside in the 
state, as well as the 12th busiest airfield in the U.S. The 
Minneapolis-St. Paul Airport alone supports 17,000 jobs. All of these 
jobs and more are dependent on the competitiveness of the U.S. aviation 
industry from manufacturing to passenger and cargo services. How are 
you, or your members, working to ensure aviation related and supported 
jobs stay in the U.S.?
    Answer. Despite significant cuts in defense spending, Boeing has 
hired more than 15,000 workers over the past five years. Total 
employment at Boeing at the end of July stood at 174,675. Ninety-four 
percent of those jobs were in the United States, and those figures tell 
only part of the Boeing jobs story. In 2011 Boeing spent more than $40 
billion with 18,500 businesses across the United States--expenditures 
that supported an additional 1.3 million supplier-related American 
jobs.
    Boeing does not project future employment figures, but we expect 
the recent positive hiring trend to continue due to strong global 
demand for our products and services. At the end of the second quarter, 
we had commitments from the world's airlines for 4,000 commercial 
airplanes, and a total order backlog (commercial, defense and space) of 
$374 billion.
    Going forward, the key to sustaining and growing U.S. aerospace 
jobs is continued success in global markets for companies like Boeing. 
Numerous other countries have their eye on the U.S. aerospace business. 
New competitors are emerging in China, Russia, Canada, Japan and 
Brazil. However, we are confident we can meet and beat the new 
competition, with broad economic benefits to the United States and its 
workforce. We are making substantial investments in new products like 
the 737 MAX, in worker training, and in new plants and equipment. In 
2011, for example, we opened a major new final assembly plant for 
commercial airplanes in North Charleston, SC, and just recently we 
opened a new parts processing center in Portland, Ore. We also 
continuously work to stay cost-competitive through improved 
productivity.
    While Boeing is doing what it needs to do to position itself for 
success, it is important to note that government also must take steps 
to help companies like Boeing compete successfully and sustain American 
jobs. Companies that design and produce high-tech products and services 
need workers skilled in science, technology, engineering and math. We 
can, and will, do on-the-job training, but it is essential that 
America's schools graduate students with the basic skills and knowledge 
needed to sustain high-tech jobs.
    Robust, long-term government research and development programs also 
are important to maintaining America's leadership in aerospace and 
other high-tech industries. Private-sector companies cannot afford to 
support R&D efforts that offer little, if any, return on investment for 
20 or 30 years. Only the government can sponsor such research, and the 
record is clear that when it does, it often lays the groundwork for 
major new products and industries and the jobs that they support.
    In addition, reasonable tax and regulatory policies are important 
to keeping businesses and jobs here in the United States. We recognize 
the need for both taxes and regulations, but a proper balance must be 
struck to ensure U.S. competitiveness.
    Likewise, government enforcement of trade agreements is essential. 
Boeing's chief competitor--Airbus--has been highly subsidized by 
governments in Europe since its inception more than 40 years ago. The 
Office of the U.S. Trade Representative has been successful in 
challenging those subsidies before the World Trade Organization. 
However, European governments have yet to comply with that landmark 
ruling. The USG must ensure they comply, not only to level the playing 
field with Europe's Airbus, but to set clear ground rules for emerging 
competitors in other parts of the world.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                           Dr. John J. Tracy
    Question 1. Dr. Tracy, you mentioned that your industry invests 
billions of dollars every year in research and development (R&D). You 
further mentioned that it is difficult for companies in your industry 
to invest in R&D programs that will provide little-to-no return over a 
15-20 year period. Who do you think should take on the role of long 
term R&D projects in the aviation and aerospace industries?
    Answer. There is no one entity that should be solely responsible 
for long-term research and development projects in the aviation and 
aerospace industries. Rather, such efforts need to be undertaken 
collaboratively between government agencies, university researchers, 
and private sector R&D programs. Basic research in most areas can apply 
to a wide variety of different industries and applications, meaning 
that all research entities in the United States have significant roles 
to play. The development of carbon fiber composite materials that I 
described in my original testimony is a perfect example of the 
importance of broad-based investing in research and development. The 
basic scientific research underpinning carbon fiber composites was 
supported by Federal investments, which laid the foundation for their 
eventual use in aerospace applications. We have long-maintained that 
commercialization of technologies and applied sector-specific research 
is the responsibility of the private sector--but such long-term 
investments are extremely difficult to maintain without broader support 
for basic research throughout the domestic scientific community.

    Question 1a. What role do you see the National Aeronautics and 
Space Administration (NASA) as having in long term R&D projects?
    Answer. As we have learned within Boeing, it is important to have a 
critical mass of investment to be able to accomplish technical 
objectives in research activities. We believe the research we see NASA 
performing and the way it is investing as appropriate for the funding 
levels it currently has. This fundamental research is the seed corn 
that forms the basis for next generation capabilities. Ultimately, the 
commercialization of aeronautics knowledge into products and services 
that serve the market is the responsibility of private industry. NASA 
has played an invaluable role in encouraging and helping to fund the 
development of a foundation of knowledge that can then be leveraged by 
industry to serve the public. For instance, NASA, like its European 
counterparts, has been funding critical foundational research into 
automating the air traffic management system with the goal, among other 
things, to increase safety and decrease the environmental impact of 
aviation. That kind of research, which only NASA can accomplish, is 
critical to future of the air travel and of our planet. It's critical, 
of course, that collaborative NASA and industry research activity be 
consistent with the obligations of our trade treaties, but there is 
much valuable work for NASA to promote within those bounds.

    Question 1b. What are your feelings on the possibility of a joint 
public-private partnership focused on long term R&D projects such as 
research on advanced composites? Given the rich history of aeronautics 
research at NASA Langley, do you think that facility should play a role 
in such a partnership?
    Answer. Boeing would welcome joint public-private partnerships on 
long term research projects, not only in advance composites but in a 
variety of other research fields as well. Provided that clear 
frameworks are established for any such proposed initiatives that 
govern the use of intellectual property and other technical aspects 
(discussed further below), such collaboration can be extremely 
beneficial for advancing innovation. In addition, a public-private 
partnership would enable all those involved, including both the 
government and the private sector, to maximize the return on their 
investments in these areas, and ultimately make participation in joint 
partnerships more attractive. We agree that NASA Langley has a rich 
history of aeronautics research, and its work has significantly 
furthered the industry with countless valuable developments. We would 
look forward to continuing to work closely with NASA in this regard.

    Question 1c. What potential challenges do you see in the creation 
of such a partnership, and how would you propose addressing those 
challenges?
    Answer. As I mentioned in my original testimony, collaborative 
frameworks for joint partnerships and initiatives, if not established 
with adequate foresight and consultations, can be vague and unfocused, 
leading companies to question the value of participating. A significant 
challenge in this regard is providing clear objectives and goals for a 
partnership, while still maintaining enough flexibility so that 
companies can tailor their participation in achieving those objectives. 
For any given partnership, individual companies may wish to participate 
differently depending on their unique position and competitive 
advantages (or disadvantages)--in such scenarios, flexibility in 
addressing technical challenges would enable mutually-beneficial 
arrangements that would encourage participation by all types and sizes 
of companies. This issue encompasses various aspects of, among other 
things, finding common ground for research priorities, handling 
intellectual property in an efficient and sensible manner that will 
allow companies to recoup reasonable returns on their investments, and 
defining which aspects of the work can be readily-shared among 
participants. If these challenges can be addressed in a satisfactory 
framework, the chances of success for a public-private partnership rise 
considerably.

    Question 2. Dr. Tracy, when Boeing was developing the 787 
Dreamliner, a good portion of the wind tunnel testing was done at the 
European Transonic Windtunnel instead of at the National Transonic 
Windtunnel (NTW) at NASA Langley. You mentioned in your testimony that 
in years past, NASA possessed state-of-the-art aviation infrastructure 
for research and development (including some of the best wind tunnels 
in the world). However, NASA had not maintained these facilities and, 
consequently, Boeing had to go overseas to carry out much needed 
research. Since then, NASA Langley has invested nearly $10.5 Million to 
upgrade the NTW and make it more competitive. Given the existing 
infrastructure at NASA Langley, and the recent improvements and 
investments there, do you think that Boeing will utilize their 
facilities for future projects rather than using facilities overseas?
    Answer. Boeing has been working with NASA on wind tunnel 
improvements by providing a suggested set of test quality requirements 
and productivity improvements needed by the industry. NASA has been 
actively addressing these requirements along with other industry 
requirements and is working hard to demonstrate many of these facility 
improvements in the National Transonic Facility (NTF) in mid-2013. 
Depending on the results of this demonstration, future Boeing 
Commercial Airplanes (BCA) test plans utilizing comparable facilities 
overseas could be modified to use the NASA Langley NTF.
    Boeing also has provided inputs around requirements and 
improvements to other NASA facilities, but the NTF appears the nearest 
term opportunity for NASA and Boeing. Across Boeing, including BCA, 
Boeing Defense, Space & Security, and Engineering, Operations & 
Technology, test requirements are dependent on the type of vehicle 
being tested and the test objectives. The test objectives drive what 
wind tunnel test facility to utilize.

    Question 2a. How much can we do with newer modeling and simulation 
technology (as opposed to large physical structures like wind tunnels)?
    Answer. Today, aircraft design and assessments are heavily 
influenced by our ability to accurately and reliably predict the 
aircraft aerodynamic characteristics. These predictions are tied 
closely to wind tunnel test validation to minimize developmental risks. 
Computational Fluid Dynamics (CFD) codes (a modeling/simulation code) 
are very good at predicting aircraft aerodynamic properties around the 
typical cruise conditions. However, the accuracy and reliability of the 
predictions at extreme conditions need substantial improvement. There 
are many opportunities to further improve these predictive 
capabilities. CFD is one area that NASA continues to play a key role in 
advancing the state of the art in aerodynamic modeling. Additional 
advancements in predicting aircraft characteristics over the entire 
flight envelope efficiently and quickly are required. This is an 
important area for NASA to continue research with industry and 
university partnerships. Research on turbulence modeling, transition 
models, grid adaptation, complex geometric capability, aeroelasticity, 
efficient time accurate and time averaged flow solvers are just a few 
examples of important areas for NASA research. Another research area 
for NASA is validating the fundamental CFD simulation models with 
detailed wind tunnel measured information obtained on basic flow 
features.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                           Dr. John J. Tracy
Certifications
    Question 1. I recently met with representatives from Aspen Avionics 
and Bendix/King, general aviation manufacturers located in New Mexico, 
and was concerned to learn that current certification processes are 
creating a competitive disadvantage for them compared to foreign 
manufacturers. Can you please explain further how the processes 
disadvantage U.S. manufacturers?
    Answer. While at a macro level the Federal Aviation Administration 
(FAA) has already implemented many improvement initiatives for 
certification process efficiencies and others are in progress, there is 
clearly room for further improvements to ensure competitive 
advancements within our aviation and manufacturing industries. It is 
our belief, shared by industry, that the FAA has not fully integrated 
these initiatives, overseen their implementation, measured their 
benefits, or clearly linked them to a future state. This is the best 
opportunity for leverage, looking forward.
    While civil Commercial Transport manufacturers share many similar 
certification requirements and processes with civil General Aviation 
manufacturers, there are differences in their direct lines of 
businesses stemming from the certification categorization, risk and 
complexity of their respective systems. The success of commercial 
aviation manufacturers in the United States is dependent on the 
performance of the FAA. If the FAA is not efficient and effective, or 
does not have efficient and effective processes, that can put U.S. 
manufacturers at a competitive disadvantage relative to manufacturers 
in other countries from a cost and schedule performance perspective.
    To this point and in collaboration with our industry associations, 
Aerospace Industries Association (AIA) and General Aviation 
Manufactures Association (GAMA), U.S. industry has expressed concerns 
about the efficiency and effectiveness of the FAA. In response to those 
concerns, Congress included language in the FAA Modernization and 
Reform Act of 2012 (a.k.a. the Act or the Reauthorization Bill,) 
directing the FAA to conduct an immediate study of FAA certification 
processes and their ability to support anticipated U.S. manufacturer 
certification activity.
    The FAA chartered an Aviation Rulemaking Committee (ARC) to 
specifically make recommendations to improve efficiency and reduce 
costs through streamlining and reengineering the certification process 
to ensure that the FAA can conduct certifications and approvals in a 
manner that supports and enables the developments of new products and 
technologies and global competitiveness of the U.S. aviation industry. 
The ARC has completed its assessment and observed that there are many 
existing improvement initiatives for certification process efficiencies 
already implemented or are in progress. However, the FAA has not fully 
integrated these initiatives, overseen their implementation, measured 
their benefits, or clearly linked them to a future state. Given these 
conclusions, the ARC developed specific recommendations around these 
known areas of the inefficiencies and opportunities for further 
improvements. Those recommendations have been approved by the FAA and 
now submitted to Congress for their review and approval.

    Question 1a. Do you have recommendations on how to improve the 
process to level the playing field?
    Answer. Yes. The best opportunity for leveling the playing field 
and achieving efficiency gains in today's current state of the 
certification process is for the FAA to (1) develop comprehensive 
implementation plans of key improvement initiatives and develop a 
tracking and monitoring process to ensure effectiveness of them, and 
(2) maximize delegation with appropriate oversight to the greatest 
extent in current delegation systems.
    In response the recent Congressional FAA Modernization and Reform 
Act of 2012 (a.k.a. the Act or the Reauthorization Bill,) the FAA along 
with industry participants formed an Aviation Rulemaking Committee 
(ARC) to conduct a study of FAA certification processes and their 
ability to support anticipated U.S. manufacturer certification 
activity. The ARC was chartered to develop specific recommendations 
which improve efficiency and reduce costs through streamlining and 
reengineering the certification process, such that the FAA can conduct 
certifications and approvals in a manner that supports and enables the 
developments of new products and technologies and global 
competitiveness of the U.S. aviation industry.
    The ARC recently completed their study, concluding the best 
opportunity for efficiency gains in today's current state of the 
certification process is for the FAA to (1) develop comprehensive 
implementation plans on key improvement initiatives and develop a 
tracking and monitoring process to ensure effectiveness, and (2) 
maximize delegation with appropriate oversight to the greatest extent 
in current delegation systems. These two core reform recommendations 
along with four other sub recommendations were documented in a formal 
ARC report and submitted to the FAA in May 2012. The FAA completed a 
thorough review of the ARC's recommendations and in coordination with 
the Office of the Secretary (OST) and Office of Management and Budget 
(OMB), the FAA tells Congress that it has accepted the ARC's 
recommendations as of August 2012 and is currently implementing several 
of the recommendations and/or actions to fulfill the intent of the 
recommendations. The FAA plans to develop a comprehensive 
implementation plan by October 2012 and will begin full implementation 
the ARC's recommendations by February 2013.
    The FAA's prime mandate is to ensure aviation safety and provide 
continuous improvement across the global aviation transportation 
system. The recommendations coming forward from the ARC and now 
submitted to Congress by the FAA are complementary to and fully 
supportive of this mandate and to that mandate, it is important to note 
the excellent safety record within the U.S. over the last decade within 
the aviation industry. Each day, nearly six million people fly safely, 
making flying the safest form of transportation. This didn't just 
happen. Rather, working together, the entire aviation industry achieved 
this through innovation, collaboration and delegation. Safety will 
always remain the fundamental imperative across aviation because it's 
the right thing to do--for people and for business. The global economy 
relies on a safe, efficient aviation system to create jobs and sustain 
economic performance. The aforementioned recommendations around process 
efficiency established by the ARC and accepted by the FAA are not in 
conflict with safety; instead, they are fully complementary. They 
enable enhanced safety by allowing FAA to focus their critical 
resources on items with safety leverage instead of those things which 
do not. It is a win--win: enhance safety via focused efforts, and 
increase efficiency/competitiveness for U.S. manufacturers.
    So, as we go forward, this collaboration among manufacturers, 
regulators, airlines and industry will reach even higher to make the 
safest form of transportation even safer while driving further 
efficiency, effectiveness and leveling into the certification process 
playing field.
STEM
    Question 2. The statistics for the need to replace the aging 
workforce are staggering and I am concerned to hear that despite 
efforts from the agencies and industry we are still falling behind. I 
am also concerned though by reports I have been hearing recently that 
the current job market isn't able to absorb the graduating students. Is 
there simply a timing issue or is there a deeper issue of matching the 
supply skills/training to the needs of the industry?
    Answer. It's more than a timing issue as our country and the 
aerospace industry faces a competitive gap that we can close only if 
more of our young people pursue careers in STEM-related fields. Unless 
we can close this gap, it will have grave implications for our Nation's 
competitiveness, security, and defense industrial base.
    High-tech jobs are becoming difficult jobs to fill not because 
there is a labor shortage but because there is a skills shortage. This 
is especially acute in the U.S. defense industry because many 
government programs can employ only U.S. citizens. Of the positions 
open in the aerospace and defense industry in 2009, two-thirds required 
U.S. citizenship. Yet less than 5 percent of U.S. bachelor's degrees 
are in engineering, compared with about 20 percent in Asia, for 
example. Our pipeline of qualified U.S. STEM workers is too small: Of 
nearly 4 million children who start pre-school in the United States 
each year, only about 25 percent of them go on to complete basic 
Algebra in junior high, only 9 percent declare a STEM major at the 
undergraduate level, only 4.5 percent actually graduate with a STEM-
related degree, and only 1.7 percent graduate with an engineering 
degree--and not all engineering degrees are applicable to aerospace.

    Question 2a. Also can you address how industry is tracking the need 
versus the supply and addressing pipeline issues if needed?
    Answer. Boeing has a strategic workforce planning process that 
allows us to understand business requirements and forecast near-and 
long-term skill needs. By doing so we develop employees in the right 
areas and maintain focus on hiring, and retaining, diverse talent that 
matches our innovation and growth strategies.
    Boeing also regularly monitors aerospace industry-related research 
and studies, such as a Deloitte and Manufacturing Institute survey that 
showed 83 percent of manufacturers reported a moderate or severe 
shortage of skilled production workers to hire and 74 percent of 
manufacturers said a shortage of skilled production workers had a 
``significant negative impact'' on either their productivity or 
expansion plans.
    In 2011, Boeing invested about $25 million directed towards 
science, technology, engineering and math (STEM) education programs. 
Boeing encourages students to pursue technical careers and supports 
many innovative initiatives and interactive programs. For example, 
Boeing is working with colleges and universities to support student 
access to higher education through scholarships, enhanced curricula and 
boosting engineering graduation rates. Boeing also works with industry 
and education leaders to establish public-private partnerships to 
enhance STEM education. In Illinois, Boeing is a supporter of Illinois 
Pathways, a program that helps students pursue academic and career 
interests through STEM Learning Exchanges while attending high school. 
STEM Learning Exchanges are designed to increase student enrollment in 
STEM programs by forming networks between education institutions and 
employers that are focused on new and growing technical fields. STEM 
Learning Exchanges will also connect students with adult mentors and 
provide internship and other work-based learning opportunities.
    Additionally, Boeing maintains partnerships with community and 
technical colleges to develop a pipeline of workers trained in cutting-
edge aerospace manufacturing skills. With assistance from the 
Washington Aerospace Training and Research Center--a workforce training 
initiative funded by the aerospace industry and Washington State--and 
readySC--a subsidiary of the South Carolina Technical College System--
Boeing created recruitment, pre-hire and workforce training programs in 
aircraft assembly and fabrication, maintenance and other skill areas 
critical to building aircraft. Students attending these courses can 
earn pre-hire certificates to prepare themselves for Boeing and other 
aerospace jobs.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                               Dan Elwell
    Question 1. Minnesota has a thriving aviation industry. In fact, 
GAMA members, three of which have headquarters in Minnesota, support 
over 2,600 direct jobs in my state. Additionally, we have tens of 
thousands of general aviation, commercial and cargo pilots who reside 
in the state, as well as the 12th busiest airfield in the U.S. The 
Minneapolis-St. Paul Airport alone supports 17,000 jobs. All of these 
jobs and more are dependent on the competitiveness of the U.S. aviation 
industry from manufacturing to passenger and cargo services. How are 
you, or your members, working to ensure aviation related and supported 
jobs stay in the U.S.?
    Answer. AIA has no higher priority than working to keep our 
aerospace manufacturing industries second to none in global 
competitiveness. Some of our key initiatives include: (1) working hard 
to educate Congress and the public on the devastating effects of 
sequestration (see attached report on the effects of sequestration on 
the civil aviation industry); (2) constant and consistent advocacy of 
Federal funding for timely implementation of the Next Generation Air 
Transportation System (NextGen); (3) advocating for an immediate 
restoration of the R&D tax credit, which helps keep aviation jobs in 
the United States; (4) supporting STEM initiatives, to help provide the 
skilled workforce needed for long-term competitiveness; (5) advocating 
adequate funding for FAA's certification workforce and the 
implementation of certification streamlining, which are critical for 
industry to move new products into the marketplace in a timely manner; 
(6) supporting efforts to integrate unmanned aerial systems (UAS) into 
the national airspace and advocating export control reform of policies 
impacting UAS; (7) collaborating with the International Trade 
Administration on the NextGen Vendors Group, which works to promote 
NextGen as the global standard and expand market opportunities for U.S. 
companies selling abroad; and (8) promoting adequate funding for the 
Export-Import Bank and export policies that support traditional 
aviation manufacturing as well as emerging technologies including UAS 
and NextGen.

    Question 2. As we look to the future, it is clear that the U.S. 
should exercise strong leadership in finding, developing, and deploying 
sustainable, available, and affordable alternative fuels for the 
aviation industry. Alternative fuels can be domestically produced here 
in the U.S.--in fact isobutanol products for jet fuel are already being 
produced in my home state in Luverne, MN. The Future of Aviation 
Advisory Committee's 2010 report recommended U.S. leadership in 
alternative aviation fuels; however, it also said that the U.S. would 
need to have commercially viable alternative aviation fuels within 3-5 
years to have global leadership in technology. Do you think that the 
industry is going to make that mark?
    Answer. AIA agrees that the development of cost-competitive, 
sustainable alternative fuels is critical for the aviation industry 
over the long term. The aviation industry has committed to reducing 
global CO2 emissions in half by the year 2050, and this 
cannot be achieved without the significant operational use of 
sustainable alternative jet fuels. Aviation manufacturers have been 
investing heavily in the Commercial Aviation Alternative Fuels 
Initiative (CAAFI), FAA's Continuous Low Emissions, Environment and 
Noise (CLEEN) program, and a number of international partnerships for 
at least the past five years. The lack of refinery capacity is now 
being addressed by a multi-agency Federal MOU committing three agencies 
to invest $170 million in the program, matched on at least a dollar-
for-dollar basis by private industry. In addition, large-scale fuel 
purchases by the Department of Defense, their leadership in the RDT&E 
of alternative fuels, and financial support under the Defense 
Production Act are key components of the overall program. Partnerships 
such as those between Gevo and the Air Force, which prompted the 
alternative fuel production in Minnesota that you mentioned, are 
critical to the development and eventual stabilization in the price of 
these fuels.
    To date these efforts have proven that various biofuels can deliver 
equal or better aircraft performance when compared to petroleum. 
However, ``commercially viable'' fuel indicates fuel that is cost-
competitive with petroleum, and that is not yet the case. The fossil 
fuel industry has had a century to develop and refine its fuel sources, 
technologies, and distribution networks. As with other transformative 
technologies, to become price competitive the alternative fuels 
industry will need government and investment community support in its 
early stages. In a 2011 report, the Air Transport Action Group (ATAG) 
notes that there are several different alternative fuels that can be 
utilized, some of which are in an early stage of development. However, 
one important factor affecting each of these technologies is the need 
to increase production volume to bring the price down. As the report 
says, ``The key to improving the economics of using biofuels for air 
transport will be to significantly reduce unit production costs.'' 
Unfortunately, proposed restrictions on alternative fuel purchases such 
as section 313 of S. 3254 (the National Defense Authorization Act, 
2013) are a step backward in this regard and could cripple the emerging 
biofuels industry just as it is getting off the ground.
    Although the United States is not likely to have commercially cost-
competitive alternative fuels in the 2013-2015 timeframe, we are not 
yet falling behind other nations in our pursuit of these technologies. 
It is essential to maintain strong investment in this area to keep from 
backsliding. A real cost-benefit will occur when the price of biofuels 
is stabilized.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                               Dan Elwell
    Question. Dr. Tracy testified that accelerating the development of 
advanced composites for use in the commercial aviation sector could 
dramatically help the U.S. maintain its edge in aviation manufacturing, 
creating good jobs here in the U.S. as well as more efficient planes. 
Would you agree that a public-private partnership in the U.S. focused 
on this issue would hold potential? What public sector entities do you 
think should be involved in such an endeavor? How would you propose to 
tackle some of the key challenges that kind of partnership would face, 
such as how to structure a successful IP sharing agreement?
    Answer. The development and use of advanced composites and alloys 
is a key area of innovation for the global aviation market, and 
currently U.S. companies maintain a world leadership position. However, 
the technology investments and research and development pendulum has 
swung away from the U.S. as foreign governments invest in the 
development and use of advanced composites. Without continued support 
from the private and public sectors, the U.S. may soon lose its 
leadership position in these technologies. AIA strongly supports 
Federal programs furthering the development of advanced aerospace 
composites, including the consideration of public-private partnerships. 
Clearly, the entities involved would need to reach agreement on issues 
such as facility usage, staffing, and intellectual property, but these 
issues should not be insurmountable. We believe that, at a minimum, the 
NASA Langley Research Center and DOD research labs should be considered 
for any such partnership. NASA Langley has been actively involved in 
the research and development of composite materials and structures for 
almost four decades now, and their expertise is world renowned.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                               Dan Elwell
    Question 1. UAS--New Mexico has been a leader in testing unmanned 
aerial systems (UAS) and is looking forward to the expansion in 
manufacturing of UAS. Can you explain further the impact UAS will have 
on the aviation industry and the role it will play in the global 
market?
    Answer. AIA believes unmanned aerial systems (UAS) could have a 
revolutionary impact on the aviation industry over the next decade or 
two. They have the potential to bring down end user costs for various 
applications by being lighter weight, smaller, and by using state-of-
the-art NextGen technology. In addition to unmanned aerial vehicles, 
technology used in UAS has the potential to improve safety across the 
board. In the future, general aviation and commercial aircraft may be 
controllable from the ground in emergency medical or critical security 
situations.
    To date, the use of UAS in our national airspace has been largely 
limited to defense operations and testing, border security, and weather 
data collection. These limitations are largely due to cumbersome 
restrictions and limitations on flying in the U.S. national airspace 
system (NAS). However, in the FAA Modernization and Reform Act of 2012, 
Congress required the FAA to fully integrate UAS systems into the NAS 
not later than 2015. In addition, the National Defense Authorization 
Act for Fiscal Year 2012 mandated the FAA to establish up to six UAS 
test sites around the country within one year of enactment. These and 
similar provisions enacted over the past year will go a long way toward 
opening up a vibrant new sector of the aviation industry.
    It is often said that UAS systems are attractive and cost-effective 
for jobs considered ``dull, dirty, and dangerous''. These systems can 
be used for wildfire surveillance and mapping; floodplain surveillance; 
search and rescue; disaster response; crop monitoring; law enforcement; 
and many other missions. However, growth in public and commercial 
markets will be limited by the FAA's ability to meet the requirements 
and schedules in the FAA Modernization Act and by the availability of 
increasingly-scarce RF spectrum for the command and control of UAS 
assets.
    AIA believes the global UAS market will develop rapidly over the 
coming decade, and different regions of the world will have different 
uses and priorities. In Africa, for example, UAS systems would be 
important tools for wildlife monitoring, anti-poaching, and 
conservation efforts. In energy-rich regions, they would be valuable 
for pipeline monitoring. Although the specific uses and aircraft/sensor 
combinations will vary, U.S. manufacturers should be competitive in all 
areas of this worldwide industry: aircraft; sensors; datalinks and 
control systems; and integrated logistics support. We also believe that 
test sites, like the one in New Mexico, could foster a market in 
themselves, as overseas companies bring their ideas to U.S. shores for 
testing.
    One factor undermining our competitiveness in this market involves 
the inclusion of UAS systems under the Missile Technology Control 
Regime (MTCR). The 25-year-old MTCR has the effect of placing severe 
restrictions--a strong presumption of denial--on the sale to 
international partners of Category 1 UAS (those capable of carrying a 
500 kg payload to a range of 300 km). While the goal of the MTCR is 
noble--to ``limit the risks of proliferation of weapons of mass 
destruction . . .''--it did not foresee the evolution and promise 
offered by current UAS technologies. UAS, unlike other items covered 
under the MTCR, would be ill-suited for WMD delivery. They are often 
slow moving, have limited maneuverability, are trackable on radar, and 
easy to intercept by air defense systems. Even so, the U.S. continues 
to apply the ``presumption of denial'' as an actual denial, absent 
compliance with case by case conditions that are not communicated to 
industry in a predictable, efficient, or transparent fashion.
    Furthermore, applying MTCR guidelines to the export of UAS systems 
does not stem the proliferation of unmanned vehicles. Parallels can be 
drawn between the UAS market and the U.S. commercial satellite market. 
In 1999 Congress passed a law that moved commercial satellites from the 
more flexible export policies of the Commerce Department to the more 
restrictive export policies of the State Department. Since the 1999 
law, we have seen U.S. commercial satellite manufacturers consistently 
lose ground to their international competitors who do not face 
restrictive export policies on their products. The lack of export 
opportunities for UAS manufacturers has not yet noticeably stunted U.S. 
competitiveness in the global market, but the time is coming. The U.S. 
application of the ``presumption of denial'' has the potential to 
incentivize other countries to find alternative solutions from other 
countries that have a lower threshold to overcome than ``the strong 
presumption of denial,'' or to develop their own technology and compete 
against the U.S. In addition, the MTCR constraints needlessly restrict 
the supply of critical capabilities (such as intelligence, surveillance 
and reconnaissance) that are in high demand by the U.S. military and 
our coalition partners.
    AIA believes the MTCR and U.S. application of its requirements 
should be updated to reflect the evolving role of UAS. Specifically, 
the U.S. should: (1) Develop and establish performance criteria and 
survivability criteria, such as radio frequency/infrared signature, 
speed and maneuverability, and absence of weapons delivery systems, 
with other MTCR signatories, which would allow Category I UAS not 
suitable for WMD delivery to be evaluated for export without a 
presumption of denial; (2) Develop a better process to communicate 
conditions for export to industry and negotiate security arrangements 
for UAS with specific importing countries before exercising the 
presumption of denial for export; (3) Clarify that lighter-than-air 
vehicles are not subject to MTCR jurisdiction; (4) Review how UAS are 
covered under the International Traffic in Arms Regulations (ITAR) and 
make changes to U.S. Munitions List (USML) Category VIII as 
appropriate.

    Quesiton 2. STEM--The statistics for the need to replace the aging 
workforce are staggering and I am concerned to hear that despite 
efforts from the agencies and industry we are still falling behind. I 
am also concerned though by reports I have been hearing recently that 
the current job market isn't able to absorb the graduating students.

   Is there simply a timing issue or is there a deeper issue of 
        matching the supply skills/training to the needs of the 
        industry?

   Also, can you address how industry is tracking the need 
        versus the supply and addressing pipeline issues if needed?

    Answer. The workforce issues faced by the aerospace and defense 
industry are complex and multifaceted. They start with the need to 
replace the entire baby boomer generation of workers who will be 
retiring over the next several years. This daunting challenge is 
complicated by the changing nature of the industry, which on the 
defense side is decreasingly focused on the manufacture of large 
aerospace structures and increasingly involved in new and growing 
business areas, such as cybersecurity and biotechnology. Therefore, 
while our companies have good jobs open for which they cannot find 
talent, there are also recent engineering graduates who cannot find 
jobs. Today our companies employ and need all kinds of engineers, 
especially systems engineers and software engineers, but not 
necessarily every aerospace engineer who applies can be hired.
    Our companies are also facing a serious shortage of or mismatch 
with the skills needed for many of our ``touch labor'' positions. Both 
major corporations and smaller supplier companies are having 
difficulties finding people ready to work in these kinds of jobs. In 
some cases, companies have developed in-house training programs to 
bring new hires up to the required skill level. Others are partnering 
with local community colleges and training firms to develop customized 
Career Technical Education (CTE) curricula to grow the technical 
workforce in regions where it is needed.
    Demographic shifts in the country mean we must draw more women and 
traditionally underrepresented ethnic groups into engineering and 
skilled touch labor positions in order to fill jobs today and into the 
future. And efforts to attract, recruit and retain a qualified and 
vibrant workforce are made more difficult by program terminations and 
scale-backs due to funding cuts in DOD, FAA and NASA budgets driven by 
Federal budget pressures.
    These multiple factors and divergent pressures present the need to 
understand and comprehensively address the complex interaction of 
Federal funding for production programs and research and technology; 
the impact of such funding decisions on the industrial base; and their 
long-term implications for the industry's ability to develop and 
sustain a robust and diverse aerospace and defense workforce.
    Leaders in the aerospace and defense industry several years ago 
recognized these workforce challenges and began to address them, both 
for the future of the industry and for the economic well-being and 
security of the Nation. Our member companies work on these difficult 
issues through an AIA Workforce Steering Committee and a subordinate 
Workforce Committee. We have partnered with the trade journal Aviation 
Week and Space Technology and other groups to conduct an annual, 
official workforce survey of the aerospace and defense industry. This 
study is refined and improved each year, to provide greater fidelity of 
the data and a more complete understanding of trends in our industry 
and its workforce requirements.
    At the urging of our industry leaders, AIA also took the lead in 
spearheading the formation of the Business and Industry STEM Education 
Coalition (BISEC), a coalition of associations representing employers 
of science, technology, engineering and mathematics (STEM) 
professionals. Since 2010, BISEC members have pledged to work with 
other private sector stakeholders and federal, state and local 
officials in all fifty states to grow the pipeline of both STEM 
professionals and a STEM-literate general workforce.
    The long-standing and deep-seated problems in our education and 
workforce preparation system will not be turned around overnight. Some 
progress is beginning to show, as the business, education, and 
workforce development sectors engage in more meaningful and sustained 
conversation about their mutual and respective needs, interests and 
roles in preparing students for 21st century jobs. Our industry has 
contributed a systems dynamics model of the STEM education system, and 
the tool is being utilized to identify key intervention points that 
offer the greatest prospect of increasing the number of STEM graduates. 
We have made a good start and are working hard, but much remains to be 
done and changed to ensure that American youth develop the academic 
knowledge, technical skills, and personal capacities--including 
creativity, teamwork and innovation--to keep the U.S. aerospace and 
defense workforce at the forefront of the global industry.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                          Dr. Stanley Sorscher
    Question 1. Minnesota has a thriving aviation industry. In fact, 
GAMA members, three of which have headquarters in Minnesota, support 
over 2,600 direct jobs in my state. Additionally, we have tens of 
thousands of general aviation, commercial and cargo pilots who reside 
in the state, as well as the 12th busiest airfield in the U.S. The 
Minneapolis-St. Paul Airport alone supports 17,000 jobs. All of these 
jobs and more are dependent on the competitiveness of the U.S. aviation 
industry from manufacturing to passenger and cargo services. How are 
you, or your members, working to ensure aviation related and supported 
jobs stay in the U.S.?
    Answer. As workers, we invest our careers in our industry. We 
understand how the success of our employers is tied to prosperity in 
our local communities.
    SPEEA members and staff serve on our local, regional and state 
economic development boards, the state export promotion center, and 
advisory boards for education and training programs. SPEEA and the 
Machinists union joined business and government leaders in recruiting 
employers to our aerospace cluster. We advocate for R&D, investment in 
our industry, strong educational systems, and lifelong learning to 
retain experienced mid-career employees.
    In aerospace, a strong design and manufacturing problem-solving 
culture is part of our competitive advantage. We make the business case 
that our members demonstrate the value of a capable and effective 
workforce, particularly in aerospace, where products are complex, 
heavily engineered, and have high standards for performance and safety.
    One of our top legislative priorities is the rebuilding our 
domestic manufacturing base. We coordinate with our employers to 
advocate for the Export Import Bank, building the new Air Force tanker 
in America.
    Wherever we can, we work with local, state, and national policy-
makers. Our consistent message is that the purpose of public policy 
should be to raise living standards and the quality of life in our 
communities. Of course, that includes making business succeed.

    Question 2. From the stories my colleagues and I have heard as 
travel throughout our states talking about how to matchup our education 
system with the realities of the job market, it is clear a skills gap 
exists. In your testimony you mention the need to explore the 
feasibility of connecting educational records to employment records. 
Can you expand on how you see the aviation industry utilizing 
information like that? Is this something you see being done at a state 
or Federal level?
    Answer. Policy-makers hear conflicting impressions of the STEM 
labor market. Employers report difficulty filling jobs requiring 
``high-demand'' skills. On the other hand, STEM graduates report 
difficulty finding employment in their field of study. Unemployment for 
STEM occupations spiked in 2009 and remains well above long-term 
levels.
    The answer to Senator Udall's question provides an alternative 
interpretation of the apparent skills shortage: Employers are hiring 
fewer workers, and employers are being more selective.
    In that case, raising enrollments and increasing graduations will 
not address the apparent skill shortage. If we do a better job of 
managing our existing investment in education, we could meet employers' 
demands, and place graduates in good jobs.
    Tracking recent graduates would give policy-makers a valuable 
policy management tool.

    Question 3. What is the unemployment rate for recent graduates? Do 
graduates find work in their field of study? How many are still 
employed after 1 year and 5 years? To what extent are students 
migrating regionally and nationally?
    Answer. Rather than relying on anecdotes, and impressions, we could 
use employment patterns for recent graduates to see where we are being 
effective and where educational resources are not matching the labor 
market. We can then adjust our social investment in education using 
reliable and timely data.
    This would help employers, legislators, students, families, and 
communities make informed decisions about education and careers.
    States and educational programs already track some of their 
graduates. A particularly good example is Washington State's online 
report of worker training outcomes (http://www.wtb.wa.gov/
WorkforceTrainingResults.asp) from data gathered across all sectors. 
This evaluation was originally authorized in 1991.
    At the national level, the National Center for Science and 
Engineering Statistics, within the National Science Foundation, surveys 
recent STEM graduates. Surveys are conducted on a two-year periodic 
schedule.
    Surveys are expensive. Collecting and analyzing the data are time 
consuming.
    Instead, universities and training programs can provide simple 
reports identifying graduates and programs of study. State employment 
agencies can match student information to employment records when 
graduates appear in the workforce.
    Records supplied by schools would show graduates' educational 
background, and the corresponding records from employers would give 
NAICS codes and occupation data.
    The 2009 Federal stimulus program provided funding to study a 
longitudinal data system in Washington State, which could serve as a 
model for collecting data on graduates and tracking their transition to 
employment.
    By coordinating these records regionally or nationally, we could 
strengthen our understanding of dynamics in the labor. We would build 
on existing labor market data systems to provide high quality data at 
relatively low cost. Training and retraining programs for mid-career 
workers would work the same way.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                          Dr. Stanley Sorscher
    Question. Dr. Tracy testified that accelerating the development of 
advanced composites for use in the commercial aviation sector could 
dramatically help the U.S. maintain its edge in aviation manufacturing, 
creating good jobs here in the U.S. as well as more efficient planes. 
Would you agree that a public-private partnership in the U.S. focused 
on this issue would hold potential? What public sector entities do you 
think should be involved in such an endeavor? How would you propose to 
tackle some of the key challenges that kind of partnership would face, 
such as how to structure a successful IP sharing agreement?
    Answer. U.S. manufacturers have very good design and manufacturing 
practices for composite materials.
    We should recognize that other countries aggressively pursue 
technology that we've developed. Our public and private investment in 
domestic innovation is under constant pressure from offset agreements 
and well-designed industrial policies in China, India, Korea, Japan, 
Russia and other countries.
    Publicly funded R&D is justified on theoretical and practical 
grounds, particularly in aerospace, where formidable foreign producers 
are beneficiaries of their governments' well-designed industrial 
strategies.
    A public-private partnership is basically a two-way promise--a 
private gain, in exchange for a public good. In this case, the public 
good is the expectation that innovative new products and processes will 
be commercialized in America.
    Global economic integration blurs the identity of national 
economies. Any public-private partnership should have specific 
provisions that sharpen the domestic identity of our innovation 
strategy. This is not protectionism. It is the fundamental quid pro quo 
of all national manufacturing strategies used by every country in the 
world.
    Two mechanisms can encourage business to produce new products 
domestically. One is a condition for domestic content. That could come 
in the form of a minimum domestic content requirement, or a clawback 
that increases as domestic content falls. A domestic content provision 
may not make sense for every invention or innovation, but it might be 
applied at a higher level, such as a condition to participate in the 
partnership. In principle, foreign producers could meet domestic 
content provisions and benefit from a public-private partnership.
    Another mechanism is preferential licensing for domestic 
commercialization. IP sharing is often managed through licensing 
agreements. Licensing can be on favorable terms for domestic 
commercialization, but at less favorable terms when the IP is 
commercialized offshore.
    My written testimony recommended updating the Bayh-Dole Act, which 
grants broad authority to universities and other agents who 
commercialize publicly funded research. That approach made more sense 
before globalization integrated our economy with other economies around 
the world. In the 21st century global economy, preferential licensing 
for domestic commercialization helps restore the fundamental quid pro 
quo of public-private partnerships.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                          Dr. Stanley Sorscher
    Question 1. STEM--The statistics for the need to replace the aging 
workforce are staggering and I am concerned to hear that despite 
efforts from the agencies and industry we are still falling behind. I 
am also concerned though by reports I have been hearing recently that 
the current job market isn't able to absorb the graduating students. Is 
there simply a timing issue or is there a deeper issue of matching the 
supply skills/training to the needs of the industry?
    Answer. Aerospace must deal with an aging workforce. Employers have 
a few years to replace a generation of experienced workers and transfer 
knowledge from older workers to younger ones. It takes 3 to 5 years for 
a recently graduated engineer to become fully productive. A similar 
learning curve applies to hourly and technical non-exempt workers.
    In the older integrated business model, employers invested in more 
training, mentoring and career development for new workers, to move 
them along the learning curve. Employers managed their internal labor 
market, by transferring employees from one program to another.
    Lately, many employers prefer to let the labor market deliver 
exactly the right skills as needed. In this market-oriented human 
resource model, training costs are externalized to the employees, and 
to publicly funded training and retraining programs. The employment 
relationship is much weaker and contractors often outnumber direct 
employees.
    In 1996, Intel's chief operating officer, Craig Barrett, told his 
stockholders, ``The half-life of an engineer . . . is only a few 
years.''
    In the July 6, 2012 Wall Street Journal, 3G Studios CEO James Kosta 
shared a similar sentiment. ``Engineers were outliving their usefulness 
from one project to another. When projects end, it's better to re-
evaluate your entire staff and almost just hire anew.'' (http://
tinyurl.com/c7n6xjm)
    This labor market model actually performs well in the motion 
picture industry, where cast and crew, directors, writers and editors 
are chosen for their specific talents for each project. When the 
project concludes, workers are released back into the labor market. 
This employment model makes less sense in aerospace, IT or other high-
tech occupations.
    Peter Cappelli, director of Wharton's Center for Human Resources 
described this shift in human resource management in the Wall Street 
Journal on October 24, 2011. Employers have become very selective, 
writing narrow job descriptions that eliminate many capable qualified 
applicants who could do the job with a small amount of retraining. 
(http://tinyurl.com/3nz676g)
    I am reminded of one employer, desperate for an experienced 2.2 GHz 
antenna engineer, when all he could find were applicants with 
experience at 1.9 GHz.
    In basic labor market terms, unemployment remains high relative to 
pre-recession levels. Wages, adjusted for inflation, are stagnant since 
1999 for engineering, computing and science occupations. Real wages 
have fallen slightly in the last few years for computing and science 
occupations.
    Data in figures 1 and 2 show overall unemployment rates for high-
skilled occupations. Unemployment rates for recent graduates will run 
higher than the overall rate. Similarly, when mid-career workers in 
computing and IT lose a job, their re-employment prospects are 
relatively bleak.
    Lindsay Lowell, at Georgetown University, and Hal Salzman at the 
Urban Institute report more than three times as many S&E four-year 
college graduates as S&E job openings, so increasing graduations may 
not be a productive use of scarce educational resources.
    If employers are hiring fewer workers, they can be very specific 
about their requirements, which may look to them like a shortage of 
``high-demand'' skills. Many graduating will find very poor job 
prospects, and drop out of STEM careers, seeking employment in other 
fields.


    Figure 1. Long-term trends in unemployment for engineering, 
computing, and professional occupations, compared to all workers.


    Figure 2. Monthly unemployment for engineering, computing and 
professional occupations is still at or above levels seen shortly after 
the tech bubble.

    Question 2. Also can you address how industry is tracking the need 
versus the supply and addressing pipeline issues if needed?
    Answer. Industry typically tracks the length of time a job stays 
open; the number of applications per opening; the acceptance rate on 
offers (how many offers must they make to fill an opening); need to 
increase salaries offered; demand for signing bonuses, relocation 
packages or other incentives; attrition of employees after 1 year and 5 
years; and availability of workers locally versus nationally.
    Employers can address pipeline issues by expanding their geographic 
range for recruiting, building long-term relationships with key 
universities, internship programs, and by relying on contractors or 
temporary workers. They can also build in employment practices that 
retain current experienced workers.
    This comes back to the connection between the business model and 
the employment relationship. Some business models value experience, 
long-term employment, and career development. That puts the employer in 
control of workforce management. If the employer's business model 
treats workers more like a market commodity, then the market will set 
terms for supply.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                               Pete Bunce
    Question 1. Apprenticeship Programs for the Manufacturing 
Workforce--Mr. Bunce, do business jet manufacturers utilize 
apprenticeships as one means of developing a pipeline for its 
manufacturing workforce? What do you see as the challenges to a 
successful apprenticeship programs at business jet OEMs and their 
suppliers?
    Answer. GAMA Member Companies utilize numerous avenues to develop, 
attract, and maintain their workforce. While there are a variety of 
initiatives to expose children and young adults of all ages to aircraft 
to develop an interest in aviation, as well as attract women and 
veterans to our workforce, a key point of entry is apprenticeship 
programs.
    An exemplary example is Gulfstream Aerospace Corporation. The 
company utilizes a formal trainee, co-op and intern program, and 
maintains one formal apprenticeship program entitled the 'Youth 
Apprenticeship Program' that targets high school students and has been 
extremely beneficial tool for recruitment and exposure. This avenue 
provides local students with access to both soft and hard skill 
training, including hands-on experience to many diverse career paths at 
Gulfstream. The program hires high school juniors and seniors who can 
work up to 2,000 hours as a way to transition students into their post-
secondary career whether it be a direct hire, technical certificate or 
college training.
    Challenges to implementing such a program at a business entity 
include management of the day to day program. In addition, the business 
must be open to training students and giving students real work 
experience that aligns with the career path students are studying. 
Gulfstream works hard to let students interview for a position that 
they are interested in and continue to learn and grow with new 
experiences and opportunities throughout the apprenticeship. Finally, 
managers and supervisors must be aware of the program and interested in 
bringing on a student for an extended period of time. The youth 
apprentice program lasts two years, so students are able to be trained 
and provide valued work to the team.

    Question 2. NextGen--Mr. Bunce, do you believe the FAA is paying 
enough attention to the implications of NextGen to business aviation?
    Answer. General aviation is part of the discussions when it comes 
to developing NextGen requirements including the development of key 
communication, navigation and surveillance technologies. There are many 
developments, such as Enhanced Vision Systems, where general aviation 
manufacturers are leading the way ahead for airlines due to the need 
for utility and safety in business aircraft operations. The one area 
where our members have some concerns is the proliferation of FAA 
operational approvals for a number of NextGen operations. Basically, 
the operational approval process is a paperwork bureaucracy through 
which each aircraft is subject to hundreds of pages of paperwork to 
conduct a mostly normal operation. If the FAA doesn't make the 
operational approval process more efficient, the agency will sink under 
a NextGen mountain of paperwork before any of these technologies, and 
their intended benefit, are derived.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                               Pete Bunce
    Question. Minnesota has a thriving aviation industry. In fact, GAMA 
members, three of which have headquarters in Minnesota, support over 
2,600 direct jobs in my state. Additionally, we have tens of thousands 
of general aviation, commercial and cargo pilots who reside in the 
state, as well as the 12th busiest airfield in the U.S. The 
Minneapolis-St. Paul Airport alone supports 17,000 jobs. All of these 
jobs and more are dependent on the competitiveness of the U.S. aviation 
industry from manufacturing to passenger and cargo services. How are 
you, or your members, working to ensure aviation related and supported 
jobs stay in the U.S.?
    Answer. One of GAMA's top priorities remains our initiatives to 
reduce impediments manufacturers face in getting products to the global 
marketplace. We firmly believe that our efforts to reform and improve 
the Federal Aviation Administration's (FAA) certification processes 
will ensure that the U.S. remains a viable and attractive place for 
general aviation manufacturers. In working to reduce the negative 
impact delays in FAA certification activities have upon manufacturers, 
we will ensure that U.S. policies and procedures remain competitive 
with the policies and procedures of foreign authorities.
    Additionally, GAMA has advocated that the Transportation Security 
Administration and Department of Homeland Security complete action on 
the Foreign Repair Station Security Rulemaking. As a result of TSA 
failing to comply with this mandate, the FAA has been prohibited from 
issuing new foreign repair station certifications since 2008. 
Unfortunately, the ban on new foreign repair station certificates is 
having a detrimental impact on U.S.-based aerospace companies looking 
to tap into rapidly expanding overseas markets. The longer the 
prohibition is in effect, the more damage it will cause our Nation's 
competitiveness in aviation and exports. Further, it is expected that 
foreign nations will impose a reciprocal ban that prevents repair 
stations located in the United States from gaining approval from 
foreign civil aviation authorities if we do not act quickly.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                               Pete Bunce
    Question. Dr. Tracy testified that accelerating the development of 
advanced composites for use in the commercial aviation sector could 
dramatically help the U.S. maintain its edge in aviation manufacturing, 
creating good jobs here in the U.S. as well as more efficient planes. 
Would you agree that a public-private partnership in the U.S. focused 
on this issue would hold potential? What public sector entities do you 
think should be involved in such an endeavor? How would you propose to 
tackle some of the key challenges that kind of partnership would face, 
such as how to structure a successful IP sharing agreement?
    Answer. GAMA believes that any endeavor that provides public and 
private entities the ability to work in a collaborative fashion is 
beneficial and holds potential.
    We believe there are a number of stakeholders that are vital to 
this concept, including colleges and universities and research 
consortiums with expertise in the aviation field, the government, and 
manufacturers.
    Finally, there are obvious challenges that need to be addressed to 
ensure success. Typically, we find that to achieve a constructive 
outcome, it is important that objectives and parameters be clearly 
defined and understood by all stakeholders in advance of collaboration.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                               Pete Bunce
Certifications
    Question 1. I recently met with representatives from Aspen Avionics 
and Bendix/King, general aviation manufacturers located in New Mexico, 
and was concerned to learn that current certification processes are 
creating a competitive disadvantage for them compared to foreign 
manufacturers. Can you please explain further how the processes 
disadvantage U.S. manufacturers?
    Answer. To remain competitive, GAMA companies constantly design and 
develop new products. All these products require Federal Aviation 
Administration (FAA) approval. Under current resources and processes, 
FAA cannot support industry activity and has implemented a 
``sequencing'' program to delay certification projects until resources 
are available. These delays result in increased costs, missed business 
opportunities, and affects economic and job growth. The recently 
enacted FAA Reauthorization legislation requires FAA to review the 
certification process and implement actions to improve the efficiency 
and effectiveness of the certification process. These provisions will 
enhance safety and reduce unnecessary regulatory burden. Congress has a 
key role to play in supporting the agency in making these changes. 
Moving forward, we hope these improvements, combined with adequate 
funding levels, will eliminate delays and keep pace with industry's 
certification demands.

    Question 2. Do you have recommendations on how to improve the 
process to level the playing field?
    Answer. We believe that policymakers need to hold FAA accountable 
and ensure progress is made on efforts to improve the efficiency of 
effectiveness of the certification process. In doing so, GAMA believes 
this will level the playing field and sustain U.S. based manufacturers 
in a global marketplace.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                           Nicholas E. Calio
    Question 1. NextGen--Mr. Calio, in your testimony you speak to all 
the important benefits NextGen will bring to the airlines once 
implemented. One of the unanswered questions is who is going to pay to 
put NextGen on passenger and cargo aircraft.

   What is A4A's current thinking on NextGen equipment?

   The FAA bill included a section authorizing public-private 
        partnerships for NextGen equipage. Do you believe the FAA has 
        all the authority it requires to conduct a public-private 
        partnership for NextGen equipage? From a practical standpoint, 
        how viable do you think it is to use public-private 
        partnerships as a mechanism for NextGen equipage?

    Answer. A4A members believe that the Administration should be 
guided by a National Airline Policy that addresses the tax, regulatory 
and infrastructure environment and would enable America's airlines to 
contribute at an even greater level to the economy. An indispensable 
element of such a policy is the modernization of the U.S. air traffic 
management system, or NextGen.
    Carriers believe that tangible, near-term improvements in schedule 
reliability, customer satisfaction, and emissions reductions can be 
achieved. Today's NextGen technologies and current equipage can deliver 
greater efficiencies than currently realized. In order to achieve these 
near-term benefits, we encourage the FAA to focus on ensuring that the 
needed policies, procedures and training are in effect to enable 
realization of the benefits.
    Our priorities for that modernization are to:

   accelerate the development and approval process of 
        performance-based navigation (PBN) procedures that utilize 
        existing equipage; and

   streamline the National Environmental Policy Act (NEPA) 
        review process to expedite the development and implementation 
        of PBN and other environmentally beneficial NextGen procedures, 
        relying on authority granted in the FAA Modernization and 
        Reform Act to use categorical exclusions.

    Accordingly, while we share the goal of advancing NextGen, we 
believe the most effective way to accomplish this goal is for the FAA 
to develop, certify and implement procedures and policies that allow 
carriers to maximize their current Area Navigation (RNAV) and Required 
Navigation Performance (RNP) capabilities. FAA's delivery of reduced 
fuel burn and other tangible, operational benefits from these 
foundational capabilities will provide the most powerful incentive for 
carriers to equip. Once these near-term benefits are realized, the FAA 
could explore financial incentives to facilitate equipage, including 
the use of public-private partnerships.

    Question 2. Challenge to the industry in hedging fuel costs--Mr. 
Calio, your industry's fuel bill was over $50 billion last year, a 28 
percent increase from 2010. Fuel is the airlines largest operating 
expense. Fuel prices are also volatile, making it difficult to plan and 
hedge. After spiking at nearly $115 in May, crude prices are back below 
$90. This volatile roller-coaster ride continues to pose enormous 
challenges to the airline industry.
    Earlier this year, it was reported that Delta Airlines had 
basically thrown up its hands with trying to hedge fuel costs and 
decided to just buy a refinery and refine its own jet fuel. Delta said 
it would spend $150 million to acquire a refinery in Pennsylvania, and 
another $100 million to refurbish the plant to increase its output of 
jet fuel.
    Delta estimated that it would reduce its annual fuel expense by 
$300 million once the refinery is refurbished and operating again. To 
achieve similar fuel savings, Delta would have to buy 60 new-
generation, fuel efficient, narrow-body planes like the Boeing 737, a 
capital investment that would total $2.5 billion.
    How would you rank fuel prices, and the ability to hedge fuel price 
risk, compared to other major challenges the airline industry has faced 
in the last decade? What about going forward?
    Answer. At 34 percent of operating expenses in the first half of 
2012, fuel continues to be the industry's largest and most volatile 
cost. In fact, A4A analysis of data from the Department of 
Transportation shows that the cost of fuel rose 262 percent from 2000 
to early 2012. Moreover, according to the U.S. Energy Information 
Administration, after reaching a record high in 2011, the spot price of 
jet fuel is poised to break that record in 2012. As a result, many A4A 
carriers have and continue to use fuel-hedging as an expensive form of 
insurance. Some carriers, like Delta, are exploring fuel savings via 
direct investments in the fuel supply chain. All carriers continue to 
seek every viable means of increasing fuel efficiency, as decreased 
consumption is the best possible form of hedging.
    Unfortunately, there is no silver bullet to mitigating jet fuel 
price volatility. One of the five core components of our National 
Airline Policy is to mitigate commercial jet fuel price volatility. In 
order to achieve this important goal, Congress and the Administration 
should take the following policy actions:

   Ensure that the Commodity Futures Trading Commission (CFTC) 
        follows its statutory mandate to curb excessive speculation and 
        manipulation in the oil futures market;

   Ensure that the FAA expedites the most cost-beneficial 
        elements of NextGen, including cost-effective, widespread 
        deployment of performance-based navigation (PBN) procedures;

   Promote increased domestic fuel production;

   Continue and expand research and development into 
        alternative aviation fuels; and

   Repeal the 4.3-cent-per-gallon commercial jet fuel tax, 
        which costs the airline industry about $400 million annually.

    Question 3. How financialization of commodities affect end-users 
such as airlines--Mr. Calio, as you know, around the year 2000 
institutional investors discovered commodity index funds as a new 
investment opportunity and have flocked en masse to commodity futures 
markets. Earlier this year we had experts testify in the Energy and 
Natural Resources Committee who presented data showing how trading 
volumes and trading volume volatility of crude oil futures have clearly 
and substantially grown since January 2001.
    I don't think it is a coincidence that before 2001 it was unheard 
of for crude oil prices to jump a few dollars a day unless the U.S. was 
under a trade embargo or about to go to war. Yet today, without a major 
event in sight, we witness price swings that would put the wartime 
spikes of yesteryear to shame. Do you think commodity index funds have 
this much influence on commodity prices? Should they?
    Answer. We are indeed concerned that commodity index funds, 
sovereign wealth funds and other similar investment vehicles amplify 
the price movement of crude oil prices. Whether described as market 
psychology or feedback, price swings of a commodity induce price swings 
in the related index fund, and this in turn can cause a larger price 
movement of the underling commodity. It is well known that market 
movements often are driven by the psychology and emotion of investors 
as much as by empirical data.

    Question 4. How treating commodities as an asset class affects 
producers and consumers--Mr. Calio, the Commodity Exchange Act clearly 
states that commodity futures markets were created for two basic 
purposes: (1) to provide a venue for producers and consumers of 
physical commodities to hedge their risk; and (2) to establish a fair 
price based on supply and demand fundamentals.

   How does the ability for retail and institutional investors 
        to invest in commodity markets through commodity index funds--
        making commodities an asset class like securities--impact the 
        ability of fuel consumptive industries, like airlines, hedge 
        risk?

   Do you think that the current level of speculative volume 
        and investment is harming commercial hedgers like airlines?

    Answer. Volatility in the commodity markets, which we believe is 
influenced by index funds and other similar investment vehicles, makes 
hedging more difficult and expensive. Because greater volatility 
creates more risk, fewer counterparties are willing to engage in 
hedging transactions, terms and conditions are more restrictive, and 
hedging costs are greater. The volume of speculative activity is a 
significant problem. Historically, speculation accounted for 30-40 
percent of crude oil market activity, while true hedging accounted for 
60-70 percent. This balance enabled sufficient liquidity for the market 
to function effectively and efficiently perform its dual roles of price 
discovery and facilitating true hedging. However, in recent years 
speculative activity as swamped true hedging and it is estimated that 
speculative activity now accounts for 60-70 percent of market activity, 
while hedging has fallen to 30-40 percent. At the same time, the crude 
oil market has become much more volatile. As noted, increased 
volatility has impaired the ability of our members to execute hedging 
their strategies, or to engage in hedging at all.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                           Nicholas E. Calio
    Question. Minnesota has a thriving aviation industry. In fact, GAMA 
members, three of which have headquarters in Minnesota, support over 
2,600 direct jobs in my state. Additionally, we have tens of thousands 
of general aviation, commercial and cargo pilots who reside in the 
state, as well as the 12th busiest airfield in the U.S. The 
Minneapolis-St. Paul Airport alone supports 17,000 jobs. All of these 
jobs and more are dependent on the competitiveness of the U.S. aviation 
industry from manufacturing to passenger and cargo services. How are 
you, or your members, working to ensure aviation related and supported 
jobs stay in the U.S.?
    Answer. The U.S. airline industry is a major source of high-
quality, middle class U.S. jobs, with the average airline salary 
exceeding the national average. The best way to ensure U.S. airline job 
growth is create an environment that allows the airline industry to 
become sustainably profitable. Title 49 of the U.S. Code explicitly 
directs the Department of Transportation ``to encourage efficient and 
well-managed air carriers to earn adequate profits and attract capital, 
considering any material differences between interstate air 
transportation and foreign air transportation.'' Since 2000, the 
industry has lost over $50 billion and shed over 150,000 jobs--nearly 
one-third of its total workforce. When the industry is profitable, even 
nominally, it creates and sustains U.S. job and purchases new aircraft 
and equipment, spurring job growth at Boeing, GE, UTC (Pratt & Whitney, 
Goodrich), Rolls Royce, Harris, Honeywell, Rockwell Collins and 
numerous and other U.S. aerospace manufacturers, not to mention 
thousands of others throughout the supply chain. In fact, U.S. 
government analysis has found that every 100 airline jobs support 360 
non-airline jobs. With their recent return to albeit modest 
profitability, U.S. passenger airlines have added jobs for 19 months in 
a row, according to the Bureau of Transportation Statistics, amounting 
to nearly 11,600 new employees in the industry. Implementation of a 
National Airline Policy that rationalizes our tax and regulatory 
burdens, enhances our global competitiveness, modernizes our 
infrastructure, and mitigates jet fuel price volatility will help the 
industry generate healthier profit margins in the long-term, thereby 
driving more significant U.S. airline job growth.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                           Nicholas E. Calio
    Question. Dr. Tracy testified that accelerating the development of 
advanced composites for use in the commercial aviation sector could 
dramatically help the U.S. maintain its edge in aviation manufacturing, 
creating good jobs here in the U.S. as well as more efficient planes. 
Would you agree that a public-private partnership in the U.S. focused 
on this issue would hold potential? What public sector entities do you 
think should be involved in such an endeavor? How would you propose to 
tackle some of the key challenges that kind of partnership would face, 
such as how to structure a successful IP sharing agreement?
    Answer. NASA, the FAA and the U.S. aviation industry are already 
partnering on a wide range of research and development projects, 
including in the area of composites. For example, NASA is implementing 
the Environmentally Responsible Aviation (ERA) program, a public-
private partnership for research and development of aircraft 
propulsion, vehicle systems and airframe technology, which aims for 
breakthroughs that can be implemented in the medium-to-long term. 
Focusing on the short-to-medium term, the FAA and industry stakeholders 
are participating in the FAA Continuous Lower Energy, Emissions and 
Noise Technology (CLEEN) program, a unique form of public-private 
partnership where the FAA funds a portion (up to 50 percent) of the 
research to mature technologies that show promise to bring significant 
aviation environmental improvements, while allowing industry to retain 
appropriate rights to their proprietary technology. In addition, the 
FAA is working with industry to expedite deployment of advanced NextGen 
procedures, including performance-based navigation (PBN) procedures 
that will reduce aircraft track miles, fuel consumption and carbon 
dioxide (CO2) emissions.
    The aviation industry's goals of carbon neutral growth from 2020 
and achieving a 50 percent reduction in the total 
CO2 footprint of aviation by 2050 require such public-
private partnerships. Historically, most of the reductions in the 
environmental impact of aviation have been due to improvements in the 
technology on the aircraft, including the use of advanced composites on 
new types design aircraft such as the 787. While significant 
improvement opportunities are still possible, the timelines for the 
development of new technologies tend to be very long, with additional 
time involved for the introduction of these technologies into the 
aircraft fleet. In order to realize benefits within a foreseeable 
timeframe, the aviation industry needs to achieve successful maturation 
and deployment of new technologies within the next 3-8 years. While 
public-private partnerships--such as the CLEEN initiative--can help 
accelerate the development of technologies and their introduction into 
the aircraft fleet, we are concerned that efforts to cut the budgets of 
FAA and NASA for fundamental aeronautics research and development could 
threaten these important programs.
    Aviation-related R&D investments are vital for a high technology 
economy and are the enablers of solutions that can decrease emissions, 
create good jobs, increase U.S. competitiveness, and provide 
substantial enhancements to mobility to the benefit of the public. The 
U.S. aerospace industry is a top exporter, so increased capability in 
this sector also benefits the U.S. balance of payments and is essential 
to achieving the Administration's stated goals of doubling exports over 
the next five years. Leveraging the aviation industry's R&D investment 
is critical to maximize benefits in the shortest period.

                                  
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