IBA Annual Conference 2019: Report on Hot topics in aviation regulatory matters

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Anthony J Cordato
Cordato Partners Lawyers, Sydney
ajc@businesslawyer.com.au

Thursday 26 September 2019

Moderator

Serap Zuvin  Cakmak Attorneys at Law, Istanbul, Turkey; Vice-Chair, Aviation Law Committee

Speakers

Professor Anna Masutti  LS Lexjus Sinacta, Milan, Italy

Gene Kaskiw  Lewis Brisbois Bisgaard & Smith, Newark, New Jersey, USA

Sybille Rexer  ARNECKE SIBETH DABELSTEIN, Hamburg, Germany

Jenny Urban  CLEAR, New York, USA

Serap introduced the topic and the panel.

This international panel discussed the latest industry controversies regarding airport security, aeroplane certifications and airline distribution services. All industries are facing disruption and the airline industry is no exception. One of our important tasks is to identify sector trends and anticipate future legal consequences, both domestically and internationally.

Topic: Regulation by the European Union on drones

Professor Anna Masutti, LS Lexjus Sinacta, Milan, Italy

Drones are a disruptive innovation. The new EU regulation is directed at regulating drones in common airspace.

Drones can disrupt aviation: at Heathrow flights were suspended, resulting in losses of £50—£70m, including the compensation the airlines paid to passengers for delays. Because airlines have a right of recourse against the airports, European airports are using technological tools to prevent incursion by drones. The EU is declaring ‘no fly’ zones for drones around airports.

The EU regulation commences on 1 July 2020. Its important provisions are:

• the operator (the pilot) is the most important legal actor;

• the operator must submit a risk assessment to the Civil Aviation Authority (CAA);

• the operator must be registered with the CAA;

• there are three categories (open category, which is low risk; specific category, which is medium risk; and certified category, which is high risk);

• if the drone weighs 25 kilograms or less (the weight of a small washing machine) it is in the open category and does not need an airworthiness certificate, nor does it need to be registered;

• drones in the open category are limited to flying below 400 feet/120 metres and must be operated within the visual line of sight; 

• if the drone weighs more than 25 kilograms or is operated beyond the visual line of sight, it is in the specific category;

• drones in the specific category need to be risk assessed either under a standardised assessment or for a specific use, such as for security or fire fighting; and

• drones in the certified category operate in controlled airspace and need to be fully certified to aviation standards.

Topic: The grounding of the Boeing 737 Max Series

Gene Kaskiw, Lewis Brisbois Bisgaard & Smith, Newark, New Jersey, USA

What led up to the accidents?

The 737 Max is the latest version of Boeing’s best-selling jetliner: over 10,500 of the 737 series have been produced since 1967. For more than 30 years, the Boeing 737 has competed directly with the Airbus A320 series and the two types comprise the majority of commercial jetliners in service around the world. In 2011, Airbus announced the A320neo (‘new engine option’), which takes advantage of developments in turbofan technology to reduce fuel consumption. The A320neo was launched with a groundbreaking order from American Airlines, which previously had an exclusive-supplier relationship with Boeing.

American’s stunning order prompted Boeing to fast-track a further development of the popular 737 Next Generation series, which had been in service since the late 1990s. Boeing christened the new derivative the ‘737 Max’. The greatest advantage of the 737 Max is its reduced fuel consumption enabled by new engine technology, similar to that of the A320neo, providing a 10–15 per cent reduction over current-generation aircraft. The new engines are also significantly larger, presenting Boeing with engineering dilemmas. Critically, the new engine must be mounted higher and further forward on the wing to afford sufficient ground clearance with the same low-slung 737 landing gear. 

Boeing did not wish to redesign the wing box for taller landing gear, because this would be tantamount to building a new aeroplane, in turn costing much more to develop and leading to certification delays. Boeing also wanted the 737 Max to retain the same flying characteristics as earlier 737 models, to allow pilots certified in prior versions to fly the new derivative. This was crucial for customers with large 737 fleets, who did not want to have to re-train flight crews.

During wind tunnel testing, it became clear that the configuration of the engine caused disruption of the air flow over the wing, which could lead to aerodynamic stall. An aerodynamic stall takes place when air no longer flows smoothly over the surface of the wing, such that the wing cannot generate lift, and the aircraft will begin to fall out of the sky. Angle of attack refers to the relationship between the flow of oncoming air and the angle of the wing as the aircraft moves through the sky.  At a high angle of attack, a stall can occur, depending on airspeed.

To mitigate changes to the aerodynamic performance of the airframe occasioned by the structural changes to the 737 Max, Boeing implemented a Maneuvering Characteristics Augmentation System (MCAS). The MCAS worked to counteract the aircraft’s tendency to stall during high angle of attack situations. When certain conditions were met, MCAS applied progressively-increasing nose-down trim commands, to reduce angle of attack away from a critical, stall-inducing point. After a safety analysis, Boeing concluded that the system could be implemented without additional pilot training, because MCAS was designed to function without pilot intervention. The analysis also showed that a failure of MCAS would not have catastrophic consequences, since Boeing assumed pilots would quickly recognise uncommanded stabiliser trim inputs and carry out the appropriate emergency checklist within seconds, restoring controlled flight. For these reasons, the 737 Max was approved by the Federal Aviation Administration (FAA) as an amendment to the original Boeing 737-type certificate.

The accidents

In the 29 October 2018 Lion Air Flight 610 accident in Indonesia, a new 737 Max 8 crashed about ten minutes after departure from Jakarta, killing all 189 passengers and crew aboard. Analysis of the crashed aircraft’s flight data recorder showed that the MCAS activated about 20 times during the brief flight and unusual oscillations in airspeed and altitude were noted. MCAS eventually commanded full nose-down trim input, matching the nose-down attitude of the airplane when it crashed into the Java Sea. Review of the aircraft’s maintenance records revealed problems with the angle of attack sensors, creating a situation in which the MCAS was activating based on faulty attitude data. The pilots of the Lion Air flight did not diagnose the issue in time to execute the prescribed emergency checklist for uncommanded stabiliser trim.

Boeing issued an Airworthiness Directive emphasising that pilots maintain vigilance for a so-called ‘runaway stabiliser’ situation and carry out the approved procedure to disconnect electric stabiliser trim as soon as trim abnormalities are evident.

On 10 March 2019, Ethiopian Airlines flight 302, another new 737 Max 8, crashed shortly after departure from Addis Ababa, Ethiopia, killing 157. Shortly after this crash, flight data recorder analysis showed similar pitch and altitude oscillations to Lion Air 610, almost immediately upon departure. In an eerily similar scenario, the flight crew of Ethiopian 302 fought with the aircraft’s ever-increasing trim inputs, to the point that the MCAS commanded full nose-down trim, which could not be overcome by the pilots’ full backward pressure on the control column, or ‘yoke’.

Aviation regulators around the world quickly moved to ground the aircraft, which continues as of the time of writing.

What will happen next?

Boeing immediately came under heavy criticism for what many believed was a hasty certification process for the 737 Max, influenced by commercial pressure applied by Airbus and the A320neo. Emails, documents and witness testimony fed a narrative that Boeing’s close working relationship with the Federal Aviation Administration (FAA) led to limited oversight and a rushed certification process that did not fully evaluate the hazards of a new, essentially autonomous flight control function.

In 2019, a Special Committee was convened by the FAA to undertake a comprehensive review of the certification of the 737 Max, including its status as a derivative of the original Boeing 737. The 737 was first type-certificated in 1967 and the original type certificate has been amended for each new version, up to and including the 737 Max.  The Special Committee concluded that the 737 Max adequately followed the FAA’s certification paradigm and qualified as an amendment to the original 737 type certificate. The Special Committee, however, found that areas for improvement included assumptions relative to pilot training, human factors assessments and internal communications within Boeing. Additionally, it advocated a more ‘holistic’ approach to risk assessment, especially as this relates to multiple changes to flight control systems, as were implemented in the 737 Max.  

Boeing’s embattled Chief Executive Officer, Dennis Muilenburg, was dismissed in December 2019, following a decision to suspend production of the 737 Max due to ongoing grounding and recertification delays. In particular, Boeing’s Board of Directors found that Muilenburg’s public testimony before the United States Congress had not succeeded in generating confidence in Boeing’s ability to deliver a solution within a reasonable period of time, as the grounding will undoubtedly exceed a full year.

Nevertheless, in the past six months, the recertification progress of the 737 Max has been slow, with no firm timetable for the type’s return to service. Boeing, in connection with the release of its 2019 financial results, forecasts a mid-2020 service entry, but major carriers quickly expressed doubt as to the feasibility of this goal.

Boeing insists its proposed fix to the MCAS will result in an exceptionally safe aircraft upon returning to service. First, the MCAS will consider data from both (left and right) angle of attack sensors and a disagreement in this data will inhibit the function of the MCAS. Second, the MCAS will only activate once (as opposed to the multiple cycles of the original system) and will not apply control inputs greater than what the pilot can overcome with back pressure on the yoke. In other words, opposite trim input will not be necessary to correct an uncommanded application of nose-down trim by MCAS. Boeing also reports changes to the flight control system to ensure pilots are being presented with accurate diagnostic information, in the event of an instrumentation failure.

To support awareness of these changes and ensure pilots respond correctly to problems during high-workload phases of flight, Boeing announced that additional simulator training will be necessary for pilots flying the 737 Max after it is recertified. This is an outcome both Boeing and its customers initially sought to avoid, as it will contribute to further delays in resuming revenue service.  During simulator tests of the proposed MCAS fix, Boeing found that pilots were not identifying MCAS failures quickly enough, nor were they applying the correct emergency procedures to re-establish control. The simulator training satisfies transparency concerns from pilot groups and industry observers.

The FAA, as the certifying agency of the 737 Max, is taking the lead in the recertification process, but foreign regulators have assumed a more ‘hands-on’ role following criticism of Boeing’s close relationship with the FAA. Boeing reports a heightened degree of cooperation with foreign aviation authorities, consisting of frequent communication, sharing of technical data and participation in certification-related demonstrations.

Despite all of the resources and time invested in the recertification of the 737 Max, by the time of this publication, it would appear that its return to the sky (with paying passengers) is still months away, to say nothing of the long road ahead for Boeing to restore public confidence in the product.

Topic: New business models for airlines to gain revenue

Sybille Rexer, ARNECKE SIBETH DABELSTEIN, Hamburg, Germany

Airlines do not make enough money out of transportation. They need to find new business models to gain revenue. Airlines need to sell a surplus to the transportation. 

Airlines are becoming retailers. Here are some key facts:

• International Air Transport Association (IATA) data shows that ancillary revenue is low in comparison to operating revenue from the transportation business;

• airlines such as Air China and Norwegian are growing ancillary revenue at the strong rate of 55 per cent; and

• airlines such as Spirit derive 53 per cent of their revenue from ancillary revenue, compared with an average of 17 per cent for all airlines.

The low-cost carriers demonstrate the possible revenue models with direct marketing and, in order to depend less on intermediaries, they have their own websites. Every time you book a flight on the internet, you are asked if you need a better seat, insurance, a car or a hotel room.

This increased visibility is only possible if companies hold sovereignty over their data and their product.

In the past, this data was outsourced. Airlines entered into long-term agreements (15 years) with Global Distribution Systems (GDS), such as Amadeus, Sabre and Travelport. The contracts contained full content clauses which prevented airlines from becoming retailers, but did allow airlines to maintain bonus and mileage programmes.

In the future, we will see a disruption in the market in terms of distribution mix. Established GDS arrangements will change.

The only reported decision on GDS restraint clauses is American Airlines v Sabre, a decision of the Southern District of New York in 2016. The contracts contained ‘no discount’, ‘no surcharge’, ‘no better benefit’ and ‘no direct connect’ provisions, which the jury considered to place unreasonable restraints on trade. American Airlines was awarded US$5m, which was tripled for the antitrust violations. In September 2019, the appeals court (second circuit) remanded the case back to the District Court for further consideration.

In November 2018, the EU opened an anti-trust investigation into Sabre and Amadeus, at the instigation of IATA. The EU Commission will be investigating barriers to new market participants, increases in ticket distribution costs and increases in ticket prices for consumers.

In August 2019, the United States Department of Justice commenced anti-trust proceedings against Sabre to prevent a buyout of Farelogix, a competitor with new technology.

Sharing of data is where disruption will occur. When drafting a contract, one must ask ‘who is responsible for data handling?’ and ‘how is the data to be returned or deleted?’.

Topic: Airport Security

Jenny Urban, CLEAR, New York, USA

Urban examined innovation in aviation to better the customer experience and make it more secure, as well as how existing regulations may or may not suffice.

The airport should be one of the best parts of a trip. The Incheon Airport is ranked as one of the top ten in the world for innovation: it has a ‘Spa On Air’; an indoor eco garden; two cinemas; an ice skating rink; and a dry cleaning service.

Airport roles vary. For example, the Port Authority of New Jersey oversees La Guardia, JFK and Newark Airports. The airlines run the terminals and each terminal has its own Chief Executive Officer (CEO). At smaller airports there is an executive director for that airport.

The Federal Security Director (FSD) oversees the airports. They are part of the Transportation Security Administration (TSA). There is also Customs and Border Protection and the FAA. These three agencies together work very closely for aviation security. Each sets protocols.

Employees of concessions, flight crew and registered travellers need to use protocols to avoid having to stand in the queues for passengers. The registered travellers programme is a biometric identity platform which uses fingerprints or irises to allow travellers to pass through with a lower level of screening. There is also normal screening and quad screening (the highest level) for passengers.

The key document at any airport is the airport security plan. This must be signed off by the FSD and is also audited. The airport conducts the audit and the concessionaire and the airlines all play a role in this. The TSA will check the audit.

The TSA Modernisation Act (2018) has introduced a number of innovations:

• the FAA and TSA require US carriers flying into their airports from overseas to observe US security standards. Reciprocally, the US has to meet other countries’ standards;

• biometric standards are set. This impacts data protection and privacy; and

• there are last point of departure standards.

Innovative solutions for airports include:

• biometric bag drops;

• biometric lounge access; and

• biometric payments.

Biometrics and security are not the only innovations at airports. At Munich, it is possible to go surfing in summer and visit a beer garden in October. There are gate delivery services for food. All of this must fit into the airport security plan.

Internationally, the IATA, International Civil Aviation Organization (ICAO) and Airports Council International (ACI) have set up best practices and protocols for airports, covering a wide range of areas such as cybersecurity and information sharing.

Discussion

Urban: In terms of the 737 Max, will there be a recommendation that the relationship between the FAA and the aircraft manufacturer be less cosy? If so, how will this affect international jurisdictions?

Kaskiw: Even though, historically, there has been a great deal of delegation between the FAA and manufacturers (which have sophisticated engineering departments because the FAA lacks resources) the problem is that this has been applied in an ad hoc manner. There needs to be a much more cohesive standard. This development may lead to a true international certification standard.

Audience: What other defects might there have been to cause the 737 Max debacle?

Kaskiw: There was a miscalculation of the risk of that failure, which resulted in a significant lack of redundancy. It took only 18,000 flight hours and failed twice, when it should have taken two or three billion flight hours. 

Melling: Two comments on 737: the FAA delegated Boeing to be a self-certifier, and the engines are really heavy compared with the old engines, which upset the balance on the plane.

Audience: Does the new EU drone regulation cover insurance and liability?

Masutti: The regulation does not cover liability or insurance. This is left to the EU Member States.

Wilson: Have there been any important developments in passenger compensation for flight delays?

Masutti: The Court of Justice of the European Union is becoming severe in finding liability against airlines because they have a right of recourse. In its recent KLM decision, the airline had to pay compensation for delay, even though the delay was caused by a defective engine.

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