The Aviation Industry After January 20, 2017

Transcription

1 Embry Riddle Aviation Law & Insurance Symposium, Orlando, FL, January 19, 2017 The Aviation Industry After January 20, 2017 Jane M. Sigda Condon & Forsyth LLP ALL RIGHTS RESERVED

2 A Lot of Guesswork Where will the Trump Administration Stand? Significant infrastructure investment? Global Warming Policies? Proposed new nonprofit governance? Reauthorization? Regulatory Accountability? Aviation emissions agreement? Open Skies? Iran Nuclear Deal? NAFTA? Trans Pacific Partnership & China? Cuban market? Chevron Deference?

3 Political Curveballs Unparalleled Uncertainty After 2016, what lies beyond January 20, 2017 is anyone s guess For aviation, the predictions have focused on a few certain areas: infrastructure, privatization, trade and global warming mitigation efforts Trump campaign and post election promises to reverse trade and climate change agreements could jeopardize aviation manufacturers access to open markets and an airlines ability to operate under global rules With Republicans controlling the 115th Congress and White House in 2017, the long debated transfer of air traffic control system from the FAA to a non governmental, nonprofit entity is in the spotlight The aviation industry is casting a guarded eye

4 Infrastructure and Privatization in the Aviation Industry

5 Infrastructure Trump's first economic promise as the next president focused on infrastructure revitalization The President elect has indicated support for significant infrastructure investment including improving U.S. airports and travel experience No funding source has been identified, but there has been much discussion on use of private equity money "We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," Trump said. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it. (November 9, 2016 Victory Speech)

6 Infrastructure In 2015, more than 800 million passengers traveled through U.S. airports (FAA estimates over next 20 years enplanements will grow to over a billion) 1.2 million people employed at 485 commercial U.S. airports with nearly 10 million additional jobs for airport operations support Two weeks before Election Day, Trump released a plan pledging to spend up to $1 trillion on transportation and infrastructure over the next decade Elaine Chao picked to head Department of Transportation (DOT) Secretary Chao s extensive record of strong leadership and her expertise are invaluable assets in our mission to rebuilt our infrastructure in a fiscally responsible manner Trump said in a statement.

7 Privatization Indications that the President elect supports private sector involvement in airport and air traffic control (ATC) system Proposed new non profit governance structure (headed by airlines, air traffic controllers and other aviation stakeholders) Current short term extension of FAA programs expires September 30, 2017 Congress will have to enact an FAA reauthorization or pass another extension Reauthorization will have to address ATC system modernization, aviation safety and security, consumer protection and unmanned aircraft systems (UAS)

8 Privatization Key Question: Will the 115th Congress modernize nation s ATC system without fundamental reform to the FAA structure and budgetary constraints? 2016 House and Senate proposals were immensely different Senate FAA Reauthorization Act (S. 2658) for maintaining status quo with minor policy changes House Aviation Innovation, Reform & Reauthorization (AIRR) Act (H.R. 4441) providing overhaul of ATC system (which included removing ATC from FAA and creating an independent not for profit corporation)

9 Privatization Perennial issue and legislative gridlock faced by Congress is aviation system funding collecting revenue through aviation fuel taxes, ticket taxes, segment fees, international aviation taxes with funding provided by the Airport Improvement Program (AIP) and Passenger Facility Charges (PFCs) A Trump presidency decision: Government federal funding or private industry financing?

10 Privatization and Future of Drone Regulations Privatizing air traffic control will have implications on drone regulations Drone regulations rely on efforts to create a national drone air traffic control system capable of real time reporting, tracking and management of flights Unmanned aircraft will need a shared nationwide flight tracking system to avoid collisions and flying over restricted airspace NASA has been working with the FAA to test new tracking systems and finalize the project by 2019

11 Privatization and Future of Drone Regulations Drone industry leaders are hoping the Trump Administration will create rules that allow drones to fly for commercial purposes and at night without special waivers from the federal government as well as establish government industry collaboration A Trump Administration could impact the business and global competitiveness of the drone industry

12 Trade Policies and the Aviation Industry

13 Trade Policies and the Aviation Industry

14 Trade Policies and the Aviation Industry We made some great progress on simplifying requirements for Air Force One, streamlining the process, streamlining certification by using commercial practices. All of that is going to provide a better airplane at a lower cost, so I m pleased with the progress there. said Boeing CEO Dennis Muilenburg after a meeting with Trump January 17

15 Trade Policies and the Aviation Industry Aviation, by definition, is a global industry Manufacture of aircraft involves multi national agreements New rules would limit treaties Long standing global partnerships based on trade agreements could be affected

16 Trade Policies and the Aviation Industry President elect has stated he intends to renegotiate trade agreements that, in his view, have not provided benefit to the U.S. Some trade agreements to consider: Open Skies agreements Iran Nuclear Deal North American Free Trade Agreement (NAFTA) Trans Pacific Partnership (TPP) Export Import (EX IM) Bank

17 Trade Policies Current Open Skies agreements allow air carriers unlimited market access to partner markets and flexibility for airline alliances increasing air and cargo services

18 Trade Policies U.S. airlines contend Open Skies agreements disproportionately benefit the Arabian Gulf carriers because they have access to capital at sovereign debt rates, and their economic losses are subsidized by their governments President elect could seek to limit Open Skies agreements to include only non stop flight between the U.S. and the Gulf countries Rights to serve intermediate points, such as stops in Europe, might be terminated

19 Trade Policies North American Free Trade Agreement (NAFTA) President elect has indicated plans to renegotiate NAFTA a significant change to reduce overall trade between U.S., Canada & Mexico corporations may decrease demand for travel among the countries

20 Trade Policies Iran Nuclear Deal of 2015 President elect has indicated he would reverse since there is no air service between the U.S. & Iran this should bear little impact on passenger traffic Revocation of agreement would eliminate U.S. OEMs (Original Equipment Manufacturer), as well as U.S. MROs (Maintenance, Repair & Operations), right to sell airplanes, engines, other parts, technology and services to Iran For example, under the agreement, Boeing signed a $16.6 billion deal to sell 80 jets Airbus signed a deal for 20 jets at approximatively the same value Airbus delivered the first aircraft under the deal on 11 January Farhad Parvaresh, left, the chairman of Iran Air, and Fletcher Barkdull, right, a Boeing regional director, after the signing of an agreement (December 2016)

21 Trade Policies Trans Pacific Partnership (TPP) and China Focus is on alliances with Asian nations and does not include China Contentious during the primaries and general election President elect has proposed economic sanctions on China any sanctions could result in losses for Boeing aircraft orders, engines, parts, technology or other manufacturing from U.S.

22 Trade Policies U.S. Export Import (Ex Im) Bank Supports financing of U.S. products to other countries (Boeing and GE are two of the biggest beneficiaries) Airbus (though temporarily blocked) and Bombardier benefit from their countries credit agencies Congress has reauthorized the Bank but the Senate has not confirmed a quorum of the Bank s governing body therefore the bank is unable to arrange financing deals of more than $10 million Trump Administration position is unknown but there were indications during the campaign that PEOTUS is against Ex Im

23 International Policies and Air Travel Revoking trade agreements, such as NAFTA, could cause a decline in airline traffic to/from regions Secretary of State nominee has previously expressed support for NAFTA, TPP and global trade in general Proposed visa restrictions also would limit airline traffic to/from the U.S.

24 International Policies and Air Travel Cuban Market Agreement signed in February 2016 under Obama administration to open Cuban Market to restart commercial flights Currently 9 U.S. carriers are authorized by DOT to fly U.S./Cuba Demand has not matched initial exuberance but it remains to be seen how the Trump administration will change U.S. Cuba relations

25 Global Warming Policies

26 Global Warming Policies Aviation aircraft emit high levels of CO2 as well as emitting oxides of nitrogen and producing contrails, which have been associated with causing the formation of ozone, another greenhouse gas (GHG) The United Nations aviation body, the International Civil Aviation Organization (ICAO), forecasts significant emissions growth in the aviation industry: against a 2006 baseline, an increase of 63% to 88% by 2020 and 290% to 667% by 2050 (without accounting for the impact of alternative fuels) In 1997, under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), the ICAO was charged with regulating aviation emissions The Kyoto Protocol was adopted in 1997 and entered into force in 2005 In 2013, at the 38th session of the Assembly, ICAO pledged to cap aviation GHG emissions at 2020 levels with the development of a global Market Based Mechanism (MBM)

27 Global Warming Policies: The CORSIA On October 6, 2016, the ICAO 39th General Assembly reached a Resolution to implement the world s first international regime to combat aircraft CO2 emissions The Carbon Offset and Reduction Scheme for International Aviation (CORSIA) Over the next two years, ICAO will formulate rules for the global MBM system and airlines/air operators will establish policies by 2020 that will lead to carbon neutral growth through carbon offsetting (in lieu of a capand trade system or a carbon emission tax) How the CORSIA will impact airlines and other aviation operators which fly internationally will depend upon how the CORSIA is developed in the members home countries and whether that country is a voluntary participant of the CORSIA

28 Global Warming Policies: The CORSIA We are subject to risks associated with climate change, including increased regulation to reduce emissions of greenhouse gases. The CORSIA was supported by the board of Airlines For America (the principal U.S. airline trade association) and IATA (the principal international airline trade association), and by American and many other U.S. and foreign airlines. The CORSIA will increase operating costs for American and most other airlines, including other U.S. airlines that operate internationally, but the implementation of a global program, as compared to regional emission reduction schemes, should help to ensure that these costs will be more predictable and more evenly applied to American and its competitors. U.S. Securities and Exchange Commission, American Airlines, Inc. 10 Q, filed October 20, 2016

29 Global Warming Policies The CORSIA came a day after the December 2015 Paris accord ( Paris Agreement ) to fight climate change was ratified COP21, also known as the 2015 Paris Climate Conference The Paris Agreement is a treaty and binding on any state who becomes a signatory party it entered into force on November 4, 2016 Earth Day April 22, 2016: Over 170 nations signed the Paris climate change agreement at UN headquarters in New York

30 Global Warming Policies

31 Global Warming Policies

32 Global Warming Policies The President elect has denied global warming and has indicated hesitance to remain committed to climate change accords such as the Paris Agreement and the CORSIA The Marrakech Climate Change Conference (COP22) November 2016 Secretary of State nominee Rex Tillerson has indicated that it is better to remain at the table to control the implementation of the policies The Trump Administration and the 115th Congress will determine how robust the implementation of the Paris Agreement and the CORSIA will be

33 Limiting Chevron Limiting Federal Agencies

34 Limiting Chevron Limiting Federal Agencies H.R. 5: The Regulatory Accountability Act (RAA) of 2017 To reform the process by which Federal agencies analyze and formulate new regulations and guidance documents, to clarify the nature of judicial review of agency interpretations, to ensure complete analysis of potential impacts on small entities of rules, and for other purposes. Introduced January 3 rd in the House of Representatives, passed on January 11 th and reintroduced in the Senate on January 12 th One aim of the RAA, is to reverse Chevron USA Inc. v. Natural Resources Defense Council Inc. (467 U.S. 837 (1984)) Chevron principle of deference is based on the 1984 high court decision holding that federal agencies are entitled to deference when interpreting ambiguous statutes for the purpose of crafting rules Case centered around a challenge to EPA Clean Air Act regulations

35 Limiting Chevron Limiting Federal Agencies Agency deference became a talking point during the Obama administration as the EPA, among other agencies, promulgated rules that some in Congress viewed as overreaches or economically detrimental The most high profile examples are the Clean Power Plan, which would slash carbon emissions from existing power plants and was crafted under the Clean Air Act, and the Waters of the U.S. Rule, which aims to define federal permitting jurisdiction under the Clean Water Act

36 Limiting Chevron Limiting Federal Agencies H.R. 5 Sponsor, Congressman Bob Goodlatte (R Va.) intends for the RAA to repeal the Chevron and Auer doctrines to end judicial deference to bureaucrats statutory and regulatory interpretations, among a host of other actions primarily designed to severely impede agencies from promulgating any new regulations The RAA would: Amend portions of the Administrative Procedure Act (APA) that address judicial review Instruct courts not to defer to an agency s cost benefit analysis if the agency fails to conform with guidelines established by the White House s Office of Information and Regulatory Affairs, agency determinations made in the adoption of an interim rule or agency guidance Amend the APA to require reviewing courts to decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies

37 Thank You for Attending Jane M. Sigda Condon & Forsyth LLP / condonlaw.com New York / 7 Times Square / New York, NY / Tel / Fax Los Angeles / 1901 Avenue of the Stars / Los Angeles, CA / Tel / Fax