Index Presidential Commission on Aerospace Expected to Get Underway in September Washington Watch: House Caucus Encouraging U.S. Aerospace Leadership Space Council Fights to Save Military Frequencies The President's WASHINGTON PIPELINE: Paris Air Show Gives Lessons in Global Aerospace Competitiveness Association Seeks Restored Export-Import Bank Funds Prospects Unclear for Long-term U.S. Defense Modernization WTO Says New U.S. Policy Is Illegal Subsidy Two Firms Join AIA AIA Tells EPA Wastewater Treatment Proposed Rule Needs To Be Revised AIA’s New Web Site Takes Off

Presidential Commission on Aerospace Expected to Get Underway in September

Appointment by the White House of the final six commissioners to the Presidential Commission on the Future of the U.S. Aerospace Industry is imminent, according to industry reports.

Meanwhile, President Bush has named Paul F. Piscopo, DoD staff specialist for aircraft systems in the Office of the Under Secretary of Defense for Acquisition and Technology, as interim staff director of the commission.

Piscopo will organize administrative functions for the commission until the president appoints a chairman of the panel, who, in turn, will appoint a permanent staff director.

The appointment of Piscopo is seen as good news for the commission because it indicates the president is moving ahead in organizing the commission, which now is expected to get underway in September.

Piscopo has selected office space for the aerospace commission in Arlington, Virginia. The panel will occupy offices recently vacated by the V-22 aircraft commission program. The current commission phone number is 703-602-1515.

AIA is working with Congress to ensure that the commission has a full year to conduct its work and the authority to examine all issues relevant to the aerospace industry.

The six commissioners already named are former Deputy Secretary of Defense John Hamre, Robert Stevens, president and chief operating officer of Lockheed Martin, William Schneider, former undersecretary of state, former Rep. Tillie Fowler (R-Fla.), former Air Force Secretary Whitten Peters, and Thomas Buffenbarger, president of the International Association of Machinists and Aerospace Workers.

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The House Aerospace Caucus is encouraging the Bush Administration to adopt policies that will help maintain U.S. preeminence in aeronautics and astronautics.

The caucus is a bipartisan group of more than 30 members of the House of Representatives. Co-chairs Dave Weldon (R-Fla.) and Dennis Kucinich (D-Ohio) said that the caucus is responding to foreign challenges to U.S. leadership in global aerospace markets.

AIA President John Douglass moderated a panel of industry speakers at the kick-off meeting of the caucus in June.

During the Carter Administration, Douglass noted, about 15 percent of the total amount spent by the government on research and development was devoted to aerospace.

"Today, only five or six percent of the total is spent on aerospace. Can we sustain this industry on that level of R&D?"

Douglass also noted that the decline in funding for aerospace R&D correlates to the drop in young engineers and scientists entering aerospace studies. "Only six out of every 100 engineering students enters aerospace today," he said, adding, "We cannot maintain our lead with so little investment."

John Meenan, senior vice president of the Air Transport Association, and Carol Hulgus, representing the American Institute of Aeronautics and Astronautics, also spoke to the caucus about aerospace research and development, air transportation infrastructure, and the aerospace industrial base.

In addition to industry representatives, five congressmen spoke in support of maintaining U.S. leadership in aerospace.

Weldon and Kucinich stressed the need for ensuring the health of our aviation and space industries and were joined by Representatives Nick Lampson (D-Tex.), John B. Larson (D-Conn.), and Mark Souder (R-Ind.).

"We’ve got the technological and intellectual base," Kucinich said. "Our generation was challenged to reach for the stars and we have to keep doing it so we can confirm for future generations that we kept the faith." He cautioned that funding for aerospace research and development at NASA had dropped by 60 percent in the last five years.

Weldon said, "America used to be the world’s undisputed leader in aerospace, but this can no longer be stated so clearly." He added that the nation’s federal investment in aerospace R&D was at the lowest level in a decade in contrast to other countries which "see the value of investing in aerospace."

AIA is working with the caucus to increase it membership and help plan future events.

In addition, the association is seeking formation of a similar caucus in the U.S. Senate.

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AIA’s Space Council has been asked to lead an effort to save the Defense Department’s radio spectrum.

The cellular telephone industry is promoting legislation that would take the spectrum away from DoD and assign it to third generation (3G) wireless services.

Wireless companies are promising delivery of new broadband access through telephone handsets, such as Web browsing, broadcast video, and live music.

While U.S. 3G promoters promise much, similar foreign companies that have tried to roll out the new service are largely bankrupt. The reasons for their failure are reportedly debt incurred from spectrum auctions, the high cost of building new cell towers, and lack of consumer interest.

The spectrum being sought by cellular interests is critical to U.S. national security, including troops on duty overseas. Reallocation of spectrum would not be feasible until 2017, due mainly to the lifetime of satellites, and would cause industry and government to lose hundreds of millions of dollars invested in current systems.

Proponents of 3G wireless services have been actively and effectively lobbying the Senate and House Commerce Committees. Some members of Congress have signaled to the Federal Communications Commission their interest in seeing the DoD spectrum transferred to commercial use and are developing draft legislation to that effect – legislation unfavorable to DoD.

Several DoD operations would be affected by the proposed move, including space telemetry, tracking and command, tactical radio networks, air combat training, precision-guided munitions, and fixed point-to-point equipment.

AIA’s Space Council is forming a task group to focus on ensuring that the spectrum in question remains dedicated to DoD at least for the foreseeable future.

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The Paris Air Show was a good place to admire the extraordinary accomplishments of the U.S. aerospace industry. And it was a good place to observe how tough the competition is that our industry contends with.

Today, U.S. companies not only face traditional competitors from Europe but also increasing challenges from Asia, Latin America, Canada, and countries that a decade ago were on the other side of the Cold War.

Competition is further evidenced in trade figures in which U.S. aerospace exports have significantly declined each of the last two years while imports have risen.

I was happy to host representatives of our government as they examined U.S. and other exhibits at the show. Representatives included the secretaries of commerce and transportation and several senators and members of Congress.

Their observation of the nature of global competition in the aerospace industry should assist them in grappling with policy decisions that will affect U.S. competitiveness ahead.

One issue that will have an immediate impact on our industry’s competitiveness is the rechartering of the Export-Import Bank and the level of funding provided this year. The administration’s FY 2002 request for the bank’s lending activities is $220 million less than last year’s level, which would surely crimp U.S. competitiveness.

Last year the Ex-Im Bank financed $3.5 billion in aerospace exports, roughly one-quarter of the bank’s lending activity. The House has already restored some of the funding in its appropriations bill, and we look to the Senate to help make up the shortfall.

Another issue for Congress and the administration is how to respond to a World Trade Organization (WTO) finding that the revised U.S. policy on corporate foreign income is still non-compliant with WTO rules. Formerly known as Foreign Sales Corporations, the new Extraterritorial Income program could result in up to $4 billion in retaliation by the European Union if modifications aren’t agreed to. U.S. and EU negotiators hope to resolve this issue, but coordination between U.S. industry and Congress will be necessary to find a solution.

In addition, the United States must continue to press Europe to eliminate government loans to its aerospace industry to launch new commercial products. Loans have recently been committed to help companies develop the Airbus 380, the Rolls Royce Trent 900, which will power the A380, and some European avionics also related to the new plane.

Government support allows European companies to develop products with less risk and at lower prices than is possible for American companies.

Other issues affecting industry include government support for basic research in aeronautics, an urgent need for overhaul of our air traffic control system, and steps to assure an educational system that produces the men and women to design, manufacture, and maintain next-generation aerospace products.

Issues such as these will provide much of the focus for the Commission on Aerospace.

Meanwhile, Congress has named its six commissioners, and we’ve been told that the president’s appointments could be announced in the near future.

Finally, I sense a growing willingness in Congress and the new administration to work together to ensure that America’s aerospace industry will continue to grow and prosper.

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The Bush Administration has proposed slashing Export-Import Bank funding for 2002 by 25 percent.

AIA believes that the reduction in financial support would lead to a drop in U.S. exports and a loss of export-related jobs.

The association is working with other industry organizations to restore funding to the bank.

The House Appropriations Committee in approving $805 million for Ex-Im’s 2002 budget in the Foreign Operations Appropriations bill has put some of the cut back.

However, the appropriation remains $118 million under the bank’s current funding, and AIA is continuing to seek full restoration.

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The Defense Department’s budget request for fiscal year 2002 proposes a $33 billion and seven percent increase over fiscal year 2001. It’s the largest proposed increase in defense spending since the mid-1980s.

But an overwhelming portion of the increase would fund personnel costs and operations and maintenance.

The picture in the so-called investment accounts of research and development and procurement is more troubling, especially given the budget constraints that will appear in fiscal year 2003 and beyond.

Research and development funding would be increased to $47.1 billion in 2002, compared to $40.8 billion in fiscal year 2001. However, funding for science and technology – the foundation of future U.S. technology superiority – would drop $200 million.

The procurement account would actually decline in real dollars by more than $1 billion from fiscal year 2001, undercutting attempts to stem the rapid aging of military aircraft fleets.

It is unlikely that DoD will be able to alter the balance between investment and consumption in the budget request for fiscal year 2003. Current budget projections yield at most $4 billion in additional funds for all the needs of the federal budget in 2003.

DoD health care and other personnel costs are expected to jump dramatically during the same period because of recent changes in law.

Despite the serious structural issues, there is broad bipartisan consensus in Congress that ways must be found to devote significantly greater resources to national defense over the next several years.

The Armed Services Committees in the House and Senate were expected to propose defense budget authorization recommendations at the end of July. Congressional action on final defense appropriations for fiscal year 2002 is expected in the fall.

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The World Trade Organization (WTO) has circulated an interim report to the United States and European Union (EU) finding that a trade bill passed by Congress last year is an illegal export subsidy.

The Extraterritorial Income Exclusion Act of 2000 (ETI) was an American response to the loss of a previous WTO dispute in which the EU argued that the U.S. Foreign Sales Corporation provision (FSC) was an illegal export subsidy.

Now, the new report asserts that the new ETI provision is also an illegal export subsidy and recommends that the United States bring it into conformity with WTO obligations.

The U.S. government will likely appeal, and it is expected that the appellate body will render its decision by the end of November.

If the appeal is lost, the U.S. government could seek a bilateral agreement halting possible retaliation from the EU – giving Congress and the administration time to amend current law.

However, if there is no resolution between the feuding parties, an arbitration panel will meet at the end of this year and EU reprisal in the form of economic sanctions and duties against U.S. firms could begin early next year.

EU officials have said that they will seek to impose up to $4 billion in trade sanctions.

The ETI provision gives U.S. companies tax deferrals on a portion of profits earned from exporting goods. The U.S. government maintains that the lower tax rates are equivalent to the European territorial tax system.

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Two corporations involved in aerospace and defense have joined AIA’s roll of member companies.

Founded in 1951 as an electronics firm, Cubic Corporation today is the parent company of two major segments – Defense and Transportation Systems.

The Cubic Defense Group provides instrumented training systems for military forces as well as avionics, data links, aerospace systems, and product logistic support. The group also offers battle command training, field service operation and maintenance, and radio communication systems for air traffic control and maritime industries.

Cubic’s other major segment, the Transportation Systems Group, designs and manufactures automatic revenue collection systems for public transit projects throughout the world, including rail, bus, and parking lot systems.

The company is headquartered in San Diego, Calif.

Embraer Empresa Brasileira de Aeronautica SA, based in Brazil, has production facilities in Ft. Lauderdale, Fla. The company develops, produces, and markets aircraft and aviation-related structural parts, components, and equipment.

One of the largest aircraft manufacturers in the world, Embraer focuses on regional, military, and corporate aviation.

In the commercial marketplace, Embraer makes jets and turboprops that seat from 30 to 50 passengers. Embraer also serves military markets, mainly the Brazilian Air Force, with transport, light attack, and surveillance aircraft. The company also provides spare parts and training.

The company’s family of regional airliners places it among the four largest commercial aircraft manufacturers in the world. The ERJ 145 twin-turbofan jetliner operates in the 50-seat category, its derivative ERJ 135 serves the 30- to 40-seat market, and the ERJ 140 fills the 44-seat niche.

Embraer is developing a new jetliner family in the 70- to 110-seat category, comprised of the ERJ 170/190-100/190-200.

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Proposed U.S. Environmental Protection Agency effluent limitation guidelines for metal products and machinery don’t provide a cost-effective environmental benefit, AIA has told the federal agency.

The effluent guidelines include aircraft and aerospace manufacturing. Because metal products are such a vital part of almost everything AIA members produce, the Metal Products and Machinery (MP&M) rulemaking has received high visibility within the industry.

In comments submitted in early July, the association’s Environmental, Safety, and Health Committee said EPA’s current estimate of pollutant removal achieved by the proposed regulation has significant errors.

The errors result in an overestimate of pollutant removal and an underestimate of the rule’s cost effectiveness. AIA gave careful consideration to "toxic pound equivalents," one of the cornerstones of the proposed rule.

AIA suggested revisions to the rule to provide accurate estimates of pollutant removal and cost effectiveness. AIA’s analysis concludes that the proposed rule doesn’t provide a cost-effective environmental benefit.

Association environmental representatives will meet with EPA officials this summer to review the rule and AIA’s comments.

Alcoa Industrial Components, Alliant Techsystems, Textron, Boeing, General Electric, Goodrich, Lockheed Martin, Raytheon, and Rockwell Collins contributed to the development of the association comments.

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AIA’s new Web site has been launched after months of careful planning and testing.

One of the primary goals in redesigning the AIA Web site was to make it easier to use. To achieve that goal, information was reorganized and new features added, such as a sitemap that will help users find what they are looking for.

In addition, an e-mail news alert – the AIA Web Flash – will be sent periodically to those who register for it. The Web Flash will contain links to items that were recently added to AIA’s Web site so that users can find valuable information they might otherwise miss.

To sign up for the AIA Web Flash, go to the subscription area of the AIA web site.

Questions or comments about the Web site can be e-mailed to webmaster@aia-aerospace.org.

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