[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
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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.