Index WASHINGTON WATCH: EAA Headed to Senate Floor Krapek Addresses European Industry Leaders Industry Stakeholders Initiate Talks The President's WASHINGTON PIPELINE: Export-Import Bank, NASA Funding Can Boost U.S. Economy AIA’s newest member is i2 Technologies, Inc. Reinventing Government-to-Government Defense Sales Industry Logistics Coalition Seeks Revitalization of Defense Support Policy Showtime in Paris AIA and Labor Support U.S. Jobs Making Safer Skies A•E•R•O•I•N•D•I•C•A•T•O•R•S: Aerospace Trade Surplus Drop to $26.7 Billion Raises Concern

WASHINGTON WATCH: EAA Headed to Senate Floor

The Export Administration Act (EAA) is making progress in Congress.

A Senate bill was voted out of the Senate Banking, Housing and Urban Affairs Committee by a vote of 19-1 at the end of March, and Committee Chair Phil Gramm (R-Tex.) has asked that it be introduced on the Senate floor by the end of April.

Unlike past years, the EAA has a reasonable chance to pass in the Senate given President Bush’s endorsement.

Administration officials worked with the Banking Committee to amend the original bill to make it more agreeable to industry, while centralizing more power in the executive branch.

According to a letter from National Security Advisor Condoleezza Rice, the EAA will "strengthen the President’s national security and foreign policy authorities to control dual-use exporting in a balanced manner, which will permit U.S. companies to compete in a global marketplace."

The "patriot provision" that would have awarded compensation to whistle-blowers has been removed. The dollar amounts of penalties for violations were reduced to levels that already exist in the Arms Export Control Act while the intent standard for criminal violations has been increased to "willfully" from "knowingly."

Rep. Henry Hyde (R-Ill.), chairman of the House International Relations Committee, has indicated that the EAA is a priority for his committee. If Gramm’s EAA passes the Senate, it is unclear if Hyde will take up the Senate bill or write a new one. Whichever course he decides to take, it will be important to enact a bill before the old EAA expires.

In a related event, President Bush rescinded the declaration of economic emergency in place since August 1994, thereby revoking the International Emergency Economic Powers Act in effect since the declaration.

Because of the withdrawal of emergency powers, export control regulations have been moved under the statutory authority of the Export Administration Act of 1979 that was renewed last year.

The revocation of emergency powers and the expiration in August of the old EAA should give Congress incentive to pass a new Export Administration Act soon.

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European and U.S. aerospace leaders initiated dialogue on common issues last year during the Farnborough International Air Show. That led to an ongoing exchange, including development of common positions on export controls and other issues.

Last month United Technologies President and Chief Operating Officer and AIA Board of Governors Chairman Karl Krapek addressed the board of the European Association of Aerospace Industry Associations in Brussels.

Stating that "it starts with pressuring our governments to sit down together and resolve the nagging issues that divide them," he presented his vision for a multilateral, free trade aerospace community.

"Even in the sensitive field of aerospace, we can find ways to join forces with our former adversaries to work toward a common goal," Krapek said. "Should we not be able to accomplish as much — if not much more — by working together with our long-term allies?"

Trade retaliation, he added, has proven to be a fine that both sides pay and no one collects. The inclination of politicians is to protect their home court advantage, he added, "but their home court is the globe, not Europe or the United States."

He pointed to $270 billion in goods and services the United States exports to Europe and the nearly identical value of exports Europe sends to the United States. Only through a multilateral approach, such as via the World Trade Organization, can nations on both sides of the Atlantic continue to create such wealth, he said.

The International Civil Aviation Organization (ICAO), not the U.S. Congress or the European Commission, is the correct place for parties to set aircraft noise standards, Krapek said.

AIA supports the agreement reached recently by ICAO’s Committee on Aviation Environmental Protection (CAEP) for a 10-decibel reduction in Stage 3 noise standards, he said. AIA also supports CAEP’s recommendation for no phaseout of Stage 3 aircraft and opposes regional phaseout of hardware. "We think a balanced approach applied at the local level is a far better idea," Krapek stated.

Europeans and Americans agree, he said, on the need to promote air safety and reform export controls. The antiquated U.S. export control system has made it difficult for NATO members to combine weapons systems and operate effectively together.

The United States needs to simplify export regulations, and the Bush Administration needs to light a fire under those who oversee them, he added.

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AIA last month opened a dialogue among aviation, space, and defense industry stakeholders on issues of common interest.

The aim is to develop a Washington-based coalition to help resolve common issues at a time when the new administration and the upcoming presidential commission on aerospace are seeking fresh ideas and recommendations.

The steering committee includes AIA, the General Aviation Manufacturers Association, the Air Transport Association, the American Association of Airport Executives, the Air Line Pilots Association, and the Aircraft Owners and Pilots Association.

Other steering committee members are the International Association of Machinists and Aerospace Workers, the National Defense Industrial Association, the National Air Traffic Controllers Association, the Regional Airline Association, the National Business Aviation Association, and the Airports Council International-North America.

The steering group is focusing its initial efforts on development of two industrywide models. The first is a comprehensive economic model that would cover the economic impact of the entire aviation and space industry on the American economy.

The second is a capacity model for America’s air traffic control system. At its next meeting the group will discuss the need for these models and other issues of common interest for industry.

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Economists have long debated the impact of trade deficits on modern national economies. As late as last year the debate was mooted by America’s run of economic expansion.

During most of 2000, economic expansion and foreign investment rocketed, despite the fact that the trade deficit increased by 40 percent in 1999. Jobless rates were at their lowest levels in years, and confidence in the economy soared.

However, the U.S. economy has slowed significantly since the start of this year. The speculative bubble of the "new economy" has burst and America’s entire industrial base is suffering.

Aerospace exports have decreased significantly in the past three years, and the resulting decline of our industry’s balance of trade has damaged our country’s lead in technology and has begun to impair American national security.

As our competitors in Europe and elsewhere have gained market share, they have been able to reinvest revenues into new efforts in order to gain the technological upper hand.

What can we do about this dilemma? There are two very specific items that can easily be fixed in the president’s budget that could correct the recent decline in exports.

The first is to appropriate the full $1.4 billion needed to fund the activities of the Export-Import Bank. For FY 2002, the president has proposed a 25 percent cut below the Export-Import Bank’s FY 2001 budget. The Export-Import Bank provides loan guarantees and is essential in aiding U.S. sales overseas. It is the only facility available to counter the foreign export credit agencies used by competitors of the U.S. aerospace industry.

The bank estimates that more than $4 billion of export sales could be lost to competitors if the funding level is decreased to the president’s proposal.

The president and Congress should remember that Export-Import Bank funds are used to reduce risk guarantee premiums and are paid back to the U.S. treasury. Although the funds are initially depleted, they are repaid with interest, and the money supports billions of dollars worth of sales of American products, generating jobs and tax revenue.

The second answer to our economic difficulty lies in the NASA aeronautics budget. Federal support for basic research and development has waned considerably in the past few years, and the FY 2002 budget eliminates monies for the rotorcraft research and technology program. These reductions come at a time when the U.S. market share for commercial fixed-wing aircraft has dropped to about 50 percent of the global market and to less than half for commercial rotorcraft.

Engineering students understand that our country’s historical dedication to flight is weakening with the decline in basic R&D dollars. As government support for research drops, and as students turn away from aeronautics, prospects for continued U.S. global leadership in aerospace deteriorates substantially.

By increasing funding for the Export-Import Bank and adequately supporting NASA research and development, we can reverse the decline of the trade balance that is severely damaging American national security.

Given that the U.S. aerospace industry employs nearly one million American workers, an increase in aerospace exports could be the rocket that boosts the economy from a potential recession.

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The firm is a leader in e-commerce, providing bottom-line benefits by helping companies reduce the cost of goods sold, shrink inventories, accelerate time-to-market, and create new e-marketplaces.

Founded in 1988, i2 is headquartered in Dallas and has more than 5,600 employees worldwide.

i2 Technologies supports Cordiem, Inc., previously known as myaircraft.com. Cordiem provides the aviation industry with end-to-end e-business solutions comprising supply chain management, e-procurement, and engineering services.

Based in Washington, D.C., the independent company is the aviation industry’s first B2B exchange and application services provider jointly owned by buyers and sellers.

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Progress is being made in redesigning the way foreign governments can buy U.S. defense products.

Two years ago the Defense Security Cooperation Agency (DSCA) launched a program to "reinvent" the foreign military sales (FMS) system, the process by which foreign governments contract with DoD or a military service to buy U.S. manufactured defense equipment.

Foreign customers had long complained that the FMS system was unresponsive to their needs and that it was difficult to obtain answers to questions concerning the relationship between prices charged by the government and the goods and services received by the customer.

DSCA formed several working groups of representatives of DoD, the services, foreign governments, and U.S. industry.

AIA staff and representatives of member companies with expertise in international sales and defense contracting have participated in each group. Activity has accelerated in recent months, and DSCA hopes to have a number of reforms in place before its annual conference in September.

AIA has supported the reinvention effort and believes that customers ought to be able to participate in the process of formulating the requirements for a proposed sale as well as the price structure of various options — the same as if they were involved in a commercial sale.

This means bringing together customers, the U.S. government, and defense contractors in forming a package that is likely to involve hardware, software, training, and spare parts.

On the other hand, AIA representatives have insisted that proprietary company technical and cost data must be protected in an FMS transaction, just as it is in a commercial sale.

On the other hand, AIA representatives have insisted that proprietary company technical and cost data must be protected in an FMS transaction, just as it is in a commercial sale.

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The aerospace Industry Logistics Coalition (ILC) has developed a series of issue papers that address barriers inhibiting the sustainment of America’s warfighting forces.

While defense contractors continue to play an important role in supporting national defense, DoD must leverage the capabilities of the commercial private sector if an effective and affordable support infrastructure is to be maintained.

The ILC is a multi-industry, multi-association group representing the majority of U.S. defense manufacturers and services companies involved with logistics, depot maintenance, and life-cycle support for DoD. Members include AIA and eight other Washington-based professional associations.

The coalition recently forwarded a legislative package to Congress that discusses serious challenges that face defense and aerospace, including:

• Authorizing additional contract types, other than fixed-price, commonly used in the commercial sector for support services.

• Revising statutes that impede progressive public/private partnerships and DoD’s ability to fully use and upgrade its public-sector depots.

• Implementing a redefined and consistent core logistics policy.

• Modifying the federal "commercial item" definition to eliminate inconsistencies.

• Modifying current statutes to allow innovative competitive sourcing and privatization solutions.

• Reforming the Defense Working Capital Fund.

• Repealing the prohibition on outsourcing of security guards.

The ILC has offered to work with Congress and DoD on how best to revitalize America’s defense forces while protecting the interests of taxpayers, federal employees, and contractors.

Pete Scrivner of the National Defense Industrial Association is the coalition contact for the issues. Copies of the legislative package and forwarding letters are available from AIA.

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The Paris Air Show at Le Bourget, France, in June will again be a platform for the world’s civil and military aerospace suppliers to meet and discuss business with their customers. The event takes place between June 17 and 24.

As the premier organization representing U.S. aerospace, AIA is promoting the talent, know-how, and products of America’s aerospace industry.

The association also is coordinating participation of U.S. military aircraft and organizing several events that bring together industry representatives, government delegates, and international customers.

All AIA companies have an opportunity to exhibit at the Paris Air Show in the AIA booth for $3,000.

Members can further benefit from logistics and travel arrangements organized through the association.

The AIA Supplier Management Council (SMC) is creating a niche for several small and medium-sized companies that will exhibit at the show.

They are:

SMC companies can participate in symposiums with British, German, and French representatives to stimulate potential international sales.

At the same time, AIA is continuing its traditional role sponsoring the U.S. exhibit and coordinating arrangements for U.S. military aircraft and equipment displayed at the show.

Association staff is organizing the dinner for Senator Ted Stevens (R-Alaska), chairman of the Senate Appropriations Committee and President Bush’s representative to the show. Other AIA events include a reception with the Society of Japanese Aerospace Companies and luncheons with U.S. dignitaries.

Also, AIA is assisting the U.S. embassy coordinate industry participation in the U.S. ambassador’s reception.

For more details on specific AIA Delegate Exhibitor Programs, contact Amanda Matthews at 202-371-8409 or amanda@aia-aerospace.org.

For more information on all other AIA events and coordination, contact Chris Lombardi at 202-371-8422 or lombardi@aia-aerospace.org.

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Trade and jobs issues were discussed recently in meetings between John Douglass, AIA president and CEO, and R. Thomas Buffenbarger, president of the International Association of Machinists and Aerospace Workers.

Discussion covered areas to work together to boost the U.S. aerospace industry, such as apprenticeships and other skill-training programs.

There was agreement that a stronger partnership among government, industry, and labor is needed along with a clearer appreciation of the unique strengths each would contribute to a strong U.S. aerospace industry in the next decade.

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The joint government/industry Safer Skies effort is beginning to produce concrete results. That was the key message of the recent FAA-sponsored "Aviation Safety Expo" in Washington

Transportation Secretary Norman Mineta and FAA Administrator Jane Garvey, together with industry leaders and other FAA officials, gave a report card on progress toward meeting the goal of 80 percent improvement in aviation safety by 2007.

The results are encouraging.

To date, the work program developed under Safer Skies has produced thirteen recommendations being implemented in commercial aviation to address critical safety issues.

For example, in controlled flight into terrain — one of the leading categories of fatal accidents — the industry is well ahead of schedule in installing advanced terrain avoidance equipment. With other measures the equipment will virtually eliminate the hazard in the United States.

Progress is being made in implementing ways to prevent uncontained engine failures. In addition, work is well underway to improve safety in approach and landing, loss of control, runway incursions, and turbulence. Significant gains are also being accomplished in general aviation.

A critical feature of the Safer Skies program that must be emphasized: Success depends upon voluntary implementation of the safety improvements recommended by the Commercial Aviation Safety Team and the General Aviation Joint Steering Committee.

Although the FAA might determine that some recommendations should be required by regulation in order to ensure complete implementation, the length of the rulemaking process itself would make it difficult, if not impossible, to reach improvement goals by 2007.

As major participants in the Safer Skies effort, AIA and its member companies are committed to achieving the goals. A top issue for AIA in 2001 is gaining a commitment from international stakeholders to use the work of Safer Skies to improve safety worldwide.

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Record imports and lower exports combined in 2000 to reduce the aerospace trade balance to $26.7 billion, down $14.3 billion — or 34.7 percent — from the 1998 record high of $41 billion.

Exports last year dropped $7.8 billion from the previous year to a total of $55 billion. Imports rose $2.9 billion to $28 billion, a record high. (See graph at right.)

Export of civil transports accounted for the majority of the drop — $6 billion — and imports of civil transports increased by $2 billion.

AIA President and CEO John W. Douglass said the decline in exports could be attributed in part to the cyclical nature of civil transport manufacturing. But he added that a rise in sales of foreign-built aircraft to U.S. air carriers accounted for the growth in imports.

AIA sent a letter April 11 to President George W. Bush saying that his proposal to cut the U.S. Export-Import Bank budget in FY 2002 by 25 percent was particularly ill timed in light of the current trend in exports and will further erode U.S. aerospace exports.

The Ex-Im Bank, Douglass said, "is the only facility available to counter the liberally funded foreign export credit agencies used by competitors of the U.S. aerospace industry." With imports rising and exports falling, he wrote, "it hardly seems appropriate to reduce the bank’s appropriations at this time."

Douglass said that the Presidential Commission on the Future of the U.S. Aerospace Industry should first study government policy regarding exports. "Before the budget for the Ex-Im bank is cut, the government should be aware that this will adversely affect billions of dollars in foreign aerospace sales," he said.

Since the end of the Cold War, the U.S. aerospace industry has grown by exporting U.S. aerospace products into the global economy. These recent statistics reflect the need for a more focused national plan for the future of the American aerospace industry, Douglass added.

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