[Senate Hearing 113-567]
[From the U.S. Government Publishing Office]
S. Hrg. 113-567
THE U.S. AVIATION INDUSTRY AND JOBS:
KEEPING AMERICAN MANUFACTURING COMPETITIVE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MARCH 13, 2014
__________
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK BEGICH, Alaska DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii TED CRUZ, Texas
EDWARD MARKEY, Massachusetts DEB FISCHER, Nebraska
CORY BOOKER, New Jersey RON JOHNSON, Wisconsin
JOHN E. WALSH, Montana
Ellen L. Doneski, Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
------
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
MARIA CANTWELL, Washington, KELLY AYOTTE, New Hampshire,
Chairman Ranking Member
BARBARA BOXER, California ROGER F. WICKER, Mississippi
BILL NELSON, Florida ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK BEGICH, Alaska TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii TED CRUZ, Texas
CORY BOOKER, New Jersey DEB FISCHER, Nebraska
JOHN E. WALSH, Montana RON JOHNSON, Wisconsin
C O N T E N T S
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Page
Hearing held on March 13, 2014................................... 1
Statement of Senator Cantwell.................................... 1
Statement of Senator Ayotte...................................... 4
Statement of Senator Klobuchar................................... 40
Statement of Senator Fischer..................................... 42
Statement of Senator Scott....................................... 44
Statement of Senator Thune....................................... 45
Prepared statement........................................... 46
Witnesses
Dennis Muilenburg, Vice Chairman, President and Chief Operating
Officer, Boeing................................................ 5
Prepared statement........................................... 7
Hon. Marion C. Blakey, President and Chief Executive Officer,
Aerospace Industries Association of America.................... 10
Prepared statement........................................... 12
Nicholas Calio, President and Chief Executive Officer, Airlines
for America.................................................... 17
Prepared statement........................................... 19
Edward Wytkind, President, Transportation Trades Department, AFL-
CIO............................................................ 22
Prepared statement........................................... 24
Appendix
Letter dated March 13, 2014 to Hon. John D. Rockefeller IV, Hon.
Maria Cantwell, Hon. John Thune and Hon. Kelly Ayotte from
Daniel B. Fisher, Vice President of Legislative Affairs,
Aeronautical Repair Station Association........................ 51
Response to written question submitted by Hon. Amy Klobuchar to:
Hon. Marion C. Blakey........................................ 55
Nicholas Calio............................................... 55
THE U.S. AVIATION INDUSTRY AND JOBS:
KEEPING AMERICAN MANUFACTURING COMPETITIVE
----------
THURSDAY, MARCH 13, 2014
U.S. Senate,
Subcommittee on Aviation Operations, Safety, and
Security,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:05 a.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. The Senate Commerce Committee,
Subcommittee on Aviation will come to order. And I want to
thank my colleague, Senator Klobuchar, for being here. I know
that Senator Ayotte is finishing up her questioning at an Armed
Services Committee meeting at this moment and will be here
shortly to give her comments and statement, but since everybody
is on a tight timeframe this morning we want to go ahead and
get started.
I want to thank our witnesses that are here with us today:
Dennis Muilenburg, Vice President and Chief Operating Officer
from Boeing Commercial Airplane Company, thank you for being
here; the Honorable Marion C. Blakey, President and CEO of
Aerospace Industries Association, and obviously we're very
familiar with much of your work in the past; Nick Calio,
President and Chief Executive Officer of Airlines for America;
and Ed Wytkind. Is it Wytkind?
Mr. Wytkind. Wytkind.
Senator Cantwell. Wytkind, President of the Transportation
Trades Department, the AFL-CIO.
So first, before we turn to the subject of the hearing, I
want to offer my condolences to the families and the victims of
the Malaysian Flight 370. Our thoughts are with them. I know
there are several search parties and investigators working hard
to locate the aircraft and find some answers, including the
National Transportation Safety Board. And I want to thank them
for their efforts and for their dedication. It's a tragic
situation and it reminds the aviation community that as we see
growth of our systems across the world we must also remain
vigilant in regards to safety and operations of our systems,
and continue to work every day to prevent such tragedies.
Today, our hearing is entitled, ``The U.S. Aviation
Industry and Jobs: Keeping American Manufacturing
Competitive.'' The U.S. aviation sector is vital to our
nation's economy. In 2009 the civil aviation industry supported
over 10 million jobs and contributed $1.3 trillion to our total
economic activity and accounted for 5.2 percent of the U.S.
gross domestic product. Of this total, manufacturing of
aircraft and related components provided over a million jobs
that produced $185 billion in economic output while U.S. sales
of civilian aircraft equipment and parts to foreign entities
contributed $75 billion toward our Nation's trade balance. So
aircraft operations directly contribute a lot of money to the
U.S. economy.
We're here today to discuss a critical point in aviation
manufacturing, and then aviation in general, and that is that
as world demand for airplanes continues to rise, what are the
challenges and opportunities. We should note that for the first
time in history, a truly global middle-class is emerging. By
2030 it's projected that that middle-class will double in size
from two billion today to five billion. And this will support a
strong and steady growth in air service and aircraft. At the
same time, while we look at this tremendous opportunity, we
know that airlines, and I'm sure we'll hear from Mr. Calio,
must replace old aircraft with new, more fuel-efficient models
so that they can combat the rising cost of oil, which accounts
for about 30 percent of its cost and the issue of reducing
emissions.
As a result, the forecast for new commercial planes over
the next 20 years is over 35,000 planes. The market value of
these aircraft orders is about $4.8 trillion. This is a huge
economic opportunity for America to drive high-wage
manufacturing and transportation-related jobs over the next two
decades. However, this opportunity is not guaranteed.
While the U.S. has been a global leader in aircraft
manufacturing for 100 years, the competition is coming on
fiercely. Other nations want to build those 35,000 planes and
we can't rest on our laurels. The majority of demand for new
planes will come from abroad. An estimated 80 percent of those
new planes will be sold outside of North America and more than
one in three planes will go to the rapidly growing Asian
market. The European Union continues to make substantial
investments in aerospace manufacturing. And new government-
backed competitors in China, Brazil, Russia and Canada have
emerged as players in the aerospace market over the last few
years and they are playing for keeps.
So while we have a tremendous opportunity we also face real
challenges in aviation manufacturing. We need to make the right
investments to stay competitive on a global stage and financing
that innovation is also a challenge. We have to keep moving or
we will lose ground.
Today's hearing is about taking the next steps to ensure
that the Nation is ready and poised to capitalize on this
opportunity to talk about the job creation activities. There is
a demand in the aerospace market for those 35,000 planes and
there is a demand for about 200,000 new aviation workers. These
are everything from technicians, to engineers, to machinists,
to those involved, if you just look at the number of flights
that are going to be involved, for pilots, airplane mechanics
and repairers. So these are big issues that are going to
provide great opportunities for us.
So while the aviation sector supports lots of jobs across
our Nation and many states in the United States of America
support these jobs, just to name a few: Missouri, 15,000;
California, 18,000; obviously, Washington State, we have about
80,000. So these are all areas of our country that depend on
the aviation economy and we want to be competitive.
So today we're going to hear and talk about how we educate
and train the next generation of aerospace workers. That means
making investments in programs like STEM and worker training.
So I plan to move forward, working with my colleagues on both
sides of the aisle, on new aviation job training and apprentice
programs to make sure that we have some of those 200,000 people
that we need for the future. And I want to know, with the 777X
plane development, the fact that manufacturing is being brought
back to the United States from overseas manufacturing, is a
very telling opportunity for America as we move forward on
advanced materials, like composites, to continue to stay ahead
and show that the American workforce delivers the best product.
We also are going to hear about how we need to make sure
that there's a level playing field. The Chinese government has
committed $30 billion to developing a 737 competitor. The
Brazilians have increased their investment in vocational
training. We're going to make sure that when it comes to the
World Trade Organization that if there are illegal subsidies
that those subsidies are stopped.
We're going to hear from Mr. Calio about the competitive
nature of what the airlines themselves are facing; about high
fuel costs; and challenges as people add to the cost of
aviation. The U.S. airline industry needs to have our support
in making sure that carriers are on an equal footing in the
global marketplace. And so, I look forward to hearing his ideas
on how we do that.
We will continue to talk about export investments and about
modernization of our air traffic control system, which as many
of you here know, is long overdue. These improve safety, expand
capacity, lessen congestion, and provide greater efficiencies,
and opportunities for airlines to run efficiently.
We've had great success with the Greener Skies program in
Seattle which was lowering cost for airlines by reducing noise
and carbon dioxide emissions by putting people on a more direct
path to landing but we need to make stronger progress
implementing NextGen if we want to be a global leader. NextGen
is just not critical for the airlines, it's critical for the
manufacturers and the sooner the FAA implements the NextGen,
the sooner our manufacturers can start exporting the important
technologies and creating even more jobs here in the United
States.
So, I look forward to hearing from all the witnesses on
this and how we maintain our competitiveness in the
manufacturing industry. This is an incredible opportunity for
us; not every day you can look forward and say there's an
opportunity for 200,000 more jobs, but we have to be ready for
the competition and put a game plan in place to capture that
opportunity.
With that, I'd like to turn to my colleague, Senator
Ayotte. Thank you for rushing over from one hearing to this
hearing. We very much appreciate you being here and look
forward to your opening statement.
STATEMENT OF HON. KELLY AYOTTE,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Ayotte. Thank you, Madam Chairwoman, and I really
appreciate this hearing. It's a very important hearing that
we're going to hold today.
And before I begin my remarks, I just want to say that I
know that all of our thoughts and prayers are with the families
of those who have lost loved ones on the Malaysia Airlines
Flight 370, including three Americans who were onboard that
flight. I have full confidence that the authorities will
conduct a thorough investigation to identify the cause of what
happened with that flight and obviously help us prevent similar
tragedies from occurring.
Everyone in this room appreciates the value of a healthy
and competitive U.S. aviation industry and we all recognize its
contribution to America's economy. The industry supports over
10 million American jobs, contributes over $1 trillion to our
economy, and accounts for over 5 percent of U.S. gross domestic
product. Our focus today is to identify ways to build on these
contributions to expand the industry with the goal of making
sure that the U.S. aviation industry remains second to none.
For over a decade now, the domestic aviation industry has
faced serious challenges. Many of those challenges were due to
largely unanticipated events, shocks to our economy, including
the September 11 terrorist attacks, the fallout from the
financial crisis, and the highly volatile fuel prices. So, so
many challenges that the aviation industry has faced.
But some of the barriers to the industry's success can also
be attributed to a pattern of poor aviation policy choices. For
example, our Nation has an outdated and inefficient air traffic
control system, the overhaul of which has been significantly
delayed and is more expensive than originally envisioned. So
this is something that we absolutely need to work together on,
and I look forward to working with the Chairwoman on the
NextGen system.
We're also confronted with an aging workforce whose
technical skills and expertise are not being adequately
replaced. And the industry is further burdened by many onerous
taxes and regulatory demands from Washington.
In addition to these obstacles, our domestic aviation
industry must also respond to the pressures, often unfair
pressures, of an increasingly global marketplace and our
ability to compete in that marketplace. These challenges also
create an opportunity for the same spirit of innovation that
made America a global leader in aviation. Some potential areas
include exploring what increased efficiencies may be achieved
by engineering smarter aircraft and the possibilities that
exist for alternative fuels.
I look forward to hearing from our witnesses today about
how Congress and the industry can work together to address
these challenges. I look forward to hearing from all of you on
how we can help create a better competitive environment for the
industry to thrive and grow. And as we begin developing the
next FAA Reauthorization Bill, it is critical that members of
this committee, and our House counterparts, collaborate with
the industry and labor representatives like those on our panel
today to understand that we, this is so important to our
economy, that we create the very best environment for our
aviation industry to continue to thrive and grow and be more
competitive than it is now.
Thank you, Madam Chairwoman.
Senator Cantwell. Thank you.
And now we'll turn to the witnesses. Again, welcome to all
of you. Thank you for being here.
And we're going to start with you, Mr. Muilenburg.
STATEMENT OF DENNIS MUILENBURG, VICE CHAIRMAN, PRESIDENT AND
CHIEF OPERATING OFFICER, BOEING
Mr. Muilenburg. Madam Chair and Ranking Member Ayotte,
thank you very much for the opportunity to be here today as
well as the other members of the Committee. We appreciate the
challenges to American competitiveness in the aerospace
industry.
My name is Dennis Muilenburg. I am Vice Chairman, President
and Chief Operating Officer of the Boeing Company and I'm proud
to represent the hard-working employees of Boeing at the
hearing here today.
Now before beginning my testimony, I also want to express
my condolences on behalf of Boeing to the families and friends
of the passengers and the crew on Malaysian Airlines Flight
370. Although we do not yet know the cause of the airplane's
disappearance, Boeing is certainly joined with the National
Transportation Safety Board. We have a technical advisor and
team on the ground. It's a high-priority effort for us and we
are committed to doing everything possible to sustain a safe
and efficient global transportation system.
Madam Chair, the topic you've chosen for today's hearing is
both important and timely. The United States is the world
leader in aerospace, but with increasing competition from
foreign countries that are investing substantial government
funds in their aerospace industries, U.S. preeminence in
aerospace is eroding and at risk.
Boeing has a proud history of excellence in aerospace that
goes back nearly 100 years. In fact, we'll celebrate our
centennial in 2016. During that time, Boeing has used
innovation and a highly skilled workforce to create market-
leading products. For example, and, Senator, as you just
mentioned, we recently launched the 777X; an airplane that will
use 12 percent less fuel than its competitor due to the all-new
composite wing technology and other innovations that have been
built into the airplane.
Our company remains unique in that we assemble, test and
deliver all of our highly competitive products right here in
the United States. We have approximately 160,000 highly skilled
U.S. employees. And last year, we paid $48 billion more--excuse
me--$48 billion to more than 15,600 U.S. businesses including
6,800 small and disadvantaged businesses, which collectively
support an additional 1.5 million jobs across the country. So
the job impact, the employment impact, is very significant. And
while 80 percent of the aircraft that we make go to foreign
airlines, 80 percent of our supplier spend is right here in the
United States. So you see how this globally enables jobs.
Aerospace is one of the few sectors of the American economy
with a positive balance of trade in large part because of
Boeing Aircraft. For decades, Boeing has been one of the
largest U.S. exporters. And over the next 20 years, Senator, as
you said, we see a market for more than 35,000 new commercial
airplanes valued at $4.8 trillion plus $2.5 trillion of
additional commercial aviation services.
This is an opportunity that must be seized because our
competition is growing. Our competition with Airbus is
especially fierce. And airplane manufacturers in Canada,
Brazil, Russia and China are all soon to enter markets
currently served by Boeing products. We are working to position
ourselves to succeed in this competitive environment. We are
focused on productivity and cost reduction while working with
our customers to ensure we have the right products.
But government actions and policies affect the competitive
landscape as well. So we need your help to ensure that U.S.
aerospace industry's proud legacy of leadership continues. One
very important policy issue that affects our competitive
position is the availability of export credit assistance from
the Export-Import Bank. Eximbank, which returns a profit to the
U.S. Treasury due to its prudent lending policies, is an
important competitive tool for U.S. exporters large and small.
Without it, Boeing would be competing on an unlevel playing
field to foreign aircraft orders. Boeing also would be at a
disadvantage in the intensely competitive market for commercial
satellites.
Madam Chairwoman, I know that there are some in Congress
who question the need for official export credit, but calls to
reduce or eliminate such assistance in the face of
international availability amounts to unilateral disarmament.
Boeing would feel the impact of such a move immediately and it
would be broad, negative economic impacts on our extensive U.S.
supply chain. Thousands of direct and indirect U.S. jobs would
be lost and nothing would be gained. In fact, U.S. airlines
that compete against other airlines on international routes
would face that same competition. The only difference would be
that foreign airlines would likely be flying more airplanes
made in Europe and finance with European export credit
assistance. Airbus, it must be noted, has unrestricted access
to three European export credit agencies.
Another important issue for us is aircraft certification.
The future of American competitiveness in aviation is dependent
on a shared commitment by the FAA and industry to adapt to
changing safety and certification priorities, domestically and
abroad. The committee has been very supportive of these efforts
and we thank you for your leadership on Sections 312 and 313 of
the FAA Reauthorization bill. That has been very important.
These sections are the cornerstone of the reforms that will
be needed to keep the United States at the forefront of
innovation. Continued certification streamlining coupled with
further use of delegation will provide better safety outcomes,
more efficient use of FAA resources, and give industry the
tools needed to remain safe and competitive.
There are four additional policy issues which I simply
mention here but which I address more fully in my written
testimony. And those are, first, enforcement of the WTO ruling
against the $18 billion of illegal European government
subsidies to Airbus, subsidies that continue unabated.
Second, the growing scarcity of science, technology,
engineering, and math talent, and Senator, as you well noted
the importance of that talent pipeline.
Third, the decline in Federal R&D spending.
And fourth, the importance, as both of you have mentioned,
of NextGen air traffic control and management.
We are proud of the position that Boeing holds in the
global economy and what our employees all across the country
achieve on behalf of the company and the Nation. And again, I
thank the Committee for examining these issues today. And thank
you for the opportunity to provide that testimony.
[The prepared statement of Mr. Muilenburg follows:]
Prepared Statement of Dennis Muilenburg, Vice Chairman, President,
and Chief Operating Officer, Boeing
Introduction
Madam Chair, Ranking Member Ayotte, and Members of the Committee,
thank you for this opportunity to address the challenges to American
competitiveness in the aerospace industry. I am Dennis Muilenburg, vice
chairman, president and chief operating officer of Boeing.
Before beginning my testimony I want to express my condolences on
behalf of Boeing to the families and friends of the passengers and crew
of Malaysia Airlines Flight 370. We still do not know the cause of the
airplane's disappearance, but Boeing has joined with the National
Transportation Safety Board team as a technical advisor and that team
is now positioned in the region to offer assistance. We are committed
to doing everything possible to sustain a safe and efficient global
transportation system.
Madam Chair, the topic you have chosen for today's hearing is both
timely and important. United States is the world leader in aerospace,
but with increasing competition from foreign countries that are
investing substantial government funds into their emerging aerospace
industries, the U.S preeminence in aerospace is eroding, and indeed is
at risk.
Company Introduction
Boeing has a proud history of excellence in aerospace that goes
back nearly 100 years. During that time, Boeing has used technological
innovation and a highly skilled workforce to create market-leading
products that meet the demands of a diverse and growing global customer
base. We evolve constantly to meet our customers' requirements. As an
example, a few months ago we launched the 777X with 259 orders and
commitments, marking the largest product launch in commercial jetliner
history by value. The tremendous market response to the 777X was due to
the numerous features that make it 12 percent more fuel efficient than
its competitor. They include an all-new composite wing based on the
innovative wing developed for the super-efficient 787 Dreamliner,
aerodynamic advances such as a hybrid laminar flow control vertical
tail and natural laminar flow nacelles, and all-new GE9X engines
developed by GE Aviation. The 777X is the latest in a long line of
superior Boeing products that provide better value to our customers
than those offered by our competitor.
Our Place in the Economy/Suppliers
William Boeing first began making twin-float seaplanes in 1915 from
a small red boathouse, and while much has changed since then, our
company remains unique in that we assemble, test and deliver all of our
highly-competitive products right here in the United States. The final
assembly facilities for our commercial products are located in the
states of Washington and South Carolina, but we have facilities for
engineering and manufacturing major components in multiple states
beyond those two--including Oregon, Florida, California, Montana and
Utah, where we have a growing presence. Our defense and space -related
production primarily is located in the states of California, Missouri,
Pennsylvania, Texas, Arizona, Florida and Alabama. Today Boeing has
160,000 employees in the United States, and I'm proud to say that
24,000 of those employees are military veterans. Boeing has been
recognized as a top 100 Military Friendly Employer by G.I. Jobs
Magazine, and we are very active in numerous national initiatives to
help veterans find jobs and obtain the skills that they need to
transition into the private sector.
Notably, we have continued to add jobs at Boeing in recent years
while other sectors of the U.S. economy have shown little or no
employment growth. Both during and in the wake of the recent global
recession we hired new talent and critical skills at Boeing--a total of
more than 15,000 new, high-paying jobs since 2005. Our hiring has been
driven by our record backlog of $441 billion, including a record $374
billion commercial airplane backlog. With more than 5,000 commercial
aircraft on order, our commercial backlog is diverse, with customers
across the world committing to purchase a full range of Boeing
airplanes.
As these numbers suggest, Boeing's impact on the Nation's economy
is substantial. Aerospace is one of the few sectors of the American
economy where there exists a positive balance of trade--in large part
because of Boeing's exports. We are the world's largest aerospace
company and a leading U.S. exporter measured by sales. The company's
capabilities in aerospace include commercial jetliners, military
aircraft, helicopters, electronic and defense systems, satellites, and
advanced information and communications systems. And Boeing's exports
benefit literally every state in America. Last year, we paid $48
billion to more than 15,600 U.S. businesses, including 6,600 small or
disadvantaged businesses, which collectively support an additional 1.5
million jobs across the country. While 80 percent of our commercial
airplanes go to airlines outside the United States, 80 percent of our
supplier spend is with U.S. companies.
We also have suppliers and partners outside the United States. I
mention that because I think it is important that members of the
Committee understand the strategy behind our global partnering. It
comes down to this. To ensure that we continue to design and build the
best commercial airplanes and aerospace systems in the world we must
seek out the best technologies, material resources and skills in the
world, wherever they reside. In addition, global partnering is critical
to Boeing's success in foreign markets where there is an expectation
that we invest as well as sell. Some 80 percent of our commercial
airplane sales, and nearly 30 percent of our defense and space sales,
are outside of the United States, so success overseas is critical to
the success of our domestic workforce--and the workforce of our entire
U.S. supply chain.
Exports/CMO
Boeing last year delivered more commercial airplanes than any other
company in the world. Boeing for years has been one of the largest U.S.
exporters, and we see significant opportunity going forward, with a
strong and growing market for both our defense and commercial products
and services. I will concentrate on the latter since today's hearing is
focused on commercial aviation. From 2013 to 2032, we project a demand
for $2.5 trillion in aviation services and a $4.8 trillion global
market for more than 35,000 new airplanes. Some will replace older,
less efficient airplanes, but we expect the total world fleet to double
in size over the next 20 years as a result of rising demand for
passenger services and a rebound in air freight. The aviation market is
broader and deeper than it was in the past, with demand being fueled by
growth in China, India and other emerging markets, as well as by
rapidly growing low-cost carriers and legacy carriers which want to
modernize their fleets. Our biggest challenge is to meet this demand,
regain market share from aggressive competition, and have the
profitability to invest in future products. For that reason, we are
increasing the production rates across our 737 and 787 lines, as well
as adding new models with the 787-9 and -10, 737 MAX, and the 777X. In
February we began assembling the first 737NG at the new production rate
of 42 per month, our highest rate ever, and we have announced that in
2017 we will boost 737 production to 47 airplanes per month. These
record high production rates will support tens of thousands of jobs at
Boeing, and many more in our extensive U.S. supply chain. Each time a
Boeing commercial airplane is exported and lands somewhere in the
world, it lands with millions of parts reflecting the workmanship of
many of our 15,600 small, medium and large U.S. suppliers.
Foreign Competitive Landscape
The increasing demand for airplanes presents a great opportunity
for Boeing and for U.S. commercial aerospace--but it is an opportunity
that must be seized. Right now, the international market for airplanes
is more competitive than ever, and that competition is only going to
become tougher in the decade ahead. Competition with Airbus, our
principal competitor, is particularly fierce, and airplane
manufacturers in Canada, Brazil, Russia and China are all, in one way
or another, soon to enter markets currently served by Boeing products.
We are working tirelessly to position ourselves to succeed in this
highly competitive environment, and are taking steps--often challenging
and difficult steps--to enable us to win in this rapidly changing
marketplace. We are taking cost out of our supply chain, focusing
relentlessly on our own productivity, and working with our customers to
ensure we have the right product strategy.
We also have negotiated new long-term agreements with the IAM in
both Puget Sound and St. Louis that will enable us to be more
competitive while still maintaining market-leading pay and benefits for
our employees. I cannot stress enough how important these agreements
are to our collective future, or how grateful we are that members of
the IAM recognize how intensely competitive the global aerospace
industry has become. With agreements like these, we can and will move
forward with confidence in our future as the world's leading aerospace
company.
But public policy and government actions also affect the
competitive landscape as we face established and emerging state-
supported competitors. In short, we need your help to ensure that the
U.S. aerospace industry's proud legacy of leadership continues in the
face of these significant, and increasing, global competitive
pressures.
WTO Ruling on Subsidies
Airbus has been heavily subsidized by European governments since
its inception more than 40 years ago. The subsidies take many forms,
but the most egregious is launch aid--the subsidy Airbus receives for
new product development. In 2004, the Office of the U.S. Trade
Representative (USTR) challenged Europe's subsidies to Airbus with a
request to the World Trade Organization for consultations--a step that
led two years later to the filing of a formal complaint against the
subsidies. A lengthy process ensued, but the bottom line is that in
mid-2011 the WTO issued a final ruling stating that European
governments had provided illegal subsidies to Airbus totaling $18
billion. It gave European governments six months to comply with its
ruling--something that has yet to happen--which is why USTR now is
seeking a non-compliance ruling from the WTO. We expect the WTO to make
such a ruling in the first half of this year. The U.S. government is
moving ever closer to being in a position to pursue sanctions against
European exports to the United States if the Airbus-sponsor governments
do not remove the harmful effects of their illegal subsidies.
Madam Chairman, this committee and the broader Congress have been
very supportive of Boeing and its supplier-partners in this
longstanding dispute, which we greatly appreciate. With your continued
support we are confident we can end these market-distorting and harmful
European practices.
Policy--EX IM
I want to take a moment to discuss another important policy issue
that affects our competitive position in the marketplace--the
availability of export credit assistance. Today export credit
assistance is provided to purchasers of U.S. manufactured products that
are exported abroad, at no cost to the American taxpayer. Export credit
assistance from the Export Import Bank is an important tool for all
U.S. exporters, including aerospace companies like Boeing, to compete
against foreign competitors that have access to even larger export
credit assistance programs administered by their own governments.
Without Ex-Im, Boeing would be unable to compete on a level playing
field for non-U.S. aircraft orders--a segment that makes up more than
80 percent of projected demand over the next 20 years. Boeing also
would be at a competitive disadvantage in the global and intensely
contested market for commercial satellites.
Airbus has unrestricted access from three European export credit
agencies. Countries with rapidly growing economies like Brazil and
China, which also are investing large amounts of government funds into
their emerging aerospace industries, together now provide nearly half
of all official export credit in the world today. And with the
exception of Brazil, none of the emerging economies is party to
international rules and frameworks regarding export credit. Measured as
a percent of 2012 GDP, U.S. official export credit ranks below six
countries: Korea, India, China, France, Germany and Italy. If the
United States were to disarm unilaterally by ceasing or scaling back
its official export credit program, it would put U.S. exporters--
including Boeing--at even a greater disadvantage in global markets than
we find ourselves in today.
Madam Chairman, I know that there are some in this body that
question the appropriateness and utility of official export credit,
arguing that it creates market distortions. However, our decades of
experience selling airplanes does not support that contention. Today,
the availability of export credit assistance ensures that Boeing
competes and wins on the basis of price and product; it levels the
playing field. We can agree to disagree. But calls to reduce or
eliminate export credit assistance in the face of international
availability amounts to unilateral disarmament. If it is eliminated, or
reduced in any significant way, the impacts on Boeing will be felt
immediately and there will be a negative impact on the United States
and the positive balance of trade payments in the aerospace sector. We
know from experience that airlines will flip orders for Boeing
airplanes if U.S. export credit halts and European export credit is
still available. Thousands of direct and indirect U.S. jobs will be
lost and nothing will be gained. U.S. airlines that compete against
other international airlines today will face that same competition
tomorrow. The only difference will be that their foreign competition
will be flying fewer Boeing airplanes and increasing numbers of Airbus
aircraft financed with European export credit assistance.
Certification
Another very important issue for us is aircraft certification. The
future of American competitiveness in aviation is dependent on a shared
commitment by the FAA and industry to adapt to changing safety and
certification priorities, domestically and abroad. This Committee has
been very supportive of these efforts, and we thank you for your
leadership on sections 312 and 313 of the past FAA Reauthorization
bill. These sections are the cornerstone of the reforms that will be
needed to keep the United States at the forefront of innovation.
Continued certification streamlining coupled with further use of
delegation will provide better safety outcomes, more efficient use of
FAA resources, and give industry the tools needed to remain safe and
competitive.
STEM, R&D, and NextGen
There are three other public policy issues I want to mention here
briefly. Boeing, like all high-tech U.S. companies, is concerned about
the growing scarcity of talent in science, technology, engineering and
mathematics--the so-called STEM disciplines--and we have numerous
initiatives underway to attract more students to these academic
disciplines. We know that many government officials share our concern,
and we stand ready to partner with you to address the STEM issue
because it is one that will have a significant effect one way or the
other on U.S. competitiveness in general.
Declining U.S. spending for research and development is another
concern. Companies like Boeing are doing their part to develop new
cutting-edge technologies and products. However, long-term research--
the kind that advances basic science and may not produce a payback for
20 or more years, is very hard for the private sector to fund and
manage. That is why the U.S. government historically has played a
central role in long-range research and must continue to do so to keep
our Nation competitive and economically strong.
Lastly, I want to reiterate our support for NextGen air-traffic
management. It is important to keep this vital aviation infrastructure
project adequately funded because the long-term payback will be
enormous. NextGen will enable airlines to fly far more efficiently,
with real environmental benefits, and in the process will help our
overall economy operate more efficiently. NextGen isn't just an airline
issue or aerospace issue; it is an issue of national economic
development and competitiveness.
Closing
We are proud of the position that Boeing holds in the global
economy and what our employees all across the country achieve on behalf
of the company. Again, I thank the Committee for examining these issues
and allowing me the opportunity to testify today.
Senator Cantwell. Thank you, Mr. Muilenburg.
Ms. Blakey, thank you very much for being here.
STATEMENT OF HON. MARION C. BLAKEY, PRESIDENT
AND CHIEF EXECUTIVE OFFICER, AEROSPACE INDUSTRIES
ASSOCIATION OF AMERICA
Ms. Blakey. Chairwoman Cantwell, Ranking Member Ayotte and
members of the Subcommittee, I certainly join with you in the
sympathy that you've expressed and the concern about Flight
370. And we all hope that this will be speedily resolved. I
also appreciate the opportunity to testify and bring AIA's
views on competitiveness of the U.S. aviation industry to the
fore.
U.S. aircraft manufacturers continue to hold a strong
position in the world market due to a dedicated workforce, able
executive leadership and, of course, technical excellence.
Today, we're proud that commercial aviation manufacturing is
the leading contributing factor to U.S. net exports. We had a
positive trade balance of $72.1 billion last year. It's a 10
percent gain over 2012. But we have to face at the same time
that we may see this erode if the situation is not dealt with
on a number of fronts.
These numbers not only reflect air travel's growth in the
developing world but also our commitment to invest billions of
dollars in cutting-edge research and technology. We've raised
jet engine fuel efficiency by 20 percent in the last decade and
safety margins, already very impressive, have improved
significantly.
Industry forecasts predict rising global demand for large
passenger aircraft, general aviation aircraft, and civil
helicopters are going up. But, this opportunity for aerospace
manufacturers is partly offset by the downturn in U.S. defense
investment. With military aircraft, as many of you know, I'm
sure, the last hearing discussed this--they're down at this
point by 6 percent from last year. The decline of key military
aircraft production lines is worrisome from the vantage point,
particularly, of the entire aerospace and defense supply chain.
Of course, other nations aren't sitting idly by. Private or
government-sponsored manufacturers of Latin America, Russia,
China, and elsewhere will increasingly compete, especially in
the high growth markets for single-aisle aircraft and regional
jets.
I'll now turn to some of those other issues that could
negatively impact U.S. civil aviation leadership. While we're
pleased that the FAA Modernization and Reform Act pushed the
agency to streamline its aircraft certification processes, it's
imperative that the FAA follow through. We need these
initiatives to expand delegated authorities wherever possible.
We're also concerned that budget austerity will continue to
impact the air traffic control modernization. Requested Fiscal
Year 2015 NextGen funding is almost $200 million below the
President's request of only 2 years ago. It's a steep drop for
a critical program. If the FAA is forced to pick winners and
losers in their modernization account, new technologies that
could really transform aviation may not germinate.
Let's not shut the door on progress, for example, by
failing to adequately support the integration of Unmanned
Aircraft Systems into the national airspace. The FAA is already
falling behind on the proposed rule for small UAS and it's
worrisome. We should remember that UAS markets develop not only
domestically but internationally. And it's important from a
U.S. competitiveness standpoint that our nation continues to be
the leader in this emerging aviation field.
Let me now turn to financial policies that are also
critical to our industry. We urge favorable consideration of
proposals to make permanent the R&D tax credit; an important
business investment incentive. At a minimum, legislation is
needed to restart the tax credit because it expired on January
1. AIA also strongly supports congressional reauthorization of
the Export-Import Bank, as Mr. Muilenburg just discussed.
Eximbank plays a vital role in helping America manufacturing
companies compete on a level playing field. And in fact, last
year, $1.1 billion in profit to the government is very
impressive. This is the return that the bank was able to make
as well as aiding 3,400 companies, many of them medium and
small, in supporting over 200,000 U.S. jobs. We need your
support to make sure that there's no gap and certainly no
shutdown in the bank's operations.
Finally, for our industry to meet future market demand
we'll need to address the aging industry workforce with a major
commitment to STEM education and, in fact, customized workforce
training programs; that, Madam Chairwoman, I know you've been a
strong advocate for.
In conclusion, let me just say we believe that U.S.
aviation manufacturers are in a strong competitive position
today, but there are risks to our maintaining that position
over the next decade. However, with appropriate policies to
spur innovation, improve air transportation infrastructure, and
replenish the workforce, we can continue to lead aviation
progress.
Thank you for inviting us to testify. I look forward to
your questions.
[The prepared statement of Ms. Blakey follows:]
Prepared Statement of Hon. Marion C. Blakey, President and Chief
Executive Officer, Aerospace Industries Association of America
Introduction
The Aerospace Industries Association (AIA) appreciates the
opportunity to present our views on the competitiveness of the U.S.
aviation industry. Today, there is no sector of our economy that
contributes more to U.S. net exports than commercial aviation
manufacturing. This situation could change in the future if we are not
careful.
I am Marion Blakey, President and Chief Executive Officer of AIA,
the Nation's largest trade association representing aerospace and
defense manufacturers. Our 380 members represent an industry directly
employing one million workers, and supporting another 2.5 million jobs
either indirectly or as suppliers. First, let me discuss the state of
commercial aircraft manufacturing today.
U.S. Competitiveness in Aircraft Manufacturing
U.S. aircraft manufacturers continue to hold strong positions in
the world market due to the dedication and hard work of American
workers, the wisdom of executives leading those companies, and the
pursuit of technological advances that drive world markets. In fact,
the aerospace industry continues to be the United States' leading
exporter of manufactured goods. By value, our industry exported $72.1
billion more than we imported last year. This figure was up 10 percent
over the previous year, even as the overall U.S. economy improved in
fits and starts.
Without a doubt, the success in net exports is related to our
dominance in commercial aircraft manufacturing. U.S. exports of civil
aircraft, engines, avionics, and related components represent 88
percent of all aerospace exports and almost all of the increase we
experienced last year. This is a sign of growth in the developing
world. But it is also a testament to an industry which has invested
billions of dollars in research and development to remain competitive
through the use of increasingly sophisticated technologies. We have
raised the fuel efficiency of jet engines by 125 percent since 1960 and
by 20 percent in the past ten years. And while increasing efficiency,
our manufacturers have also increased safety. In fact, aircraft safety
margins have doubled since 1990. Because of these advancements, the
competitiveness of our industry remains strong.
Several of AIA's member companies analyze global market trends, and
they reach similar conclusions. Aircraft manufacturing will continue to
experience growth that outpaces the growth in global GDP. About 60
percent of these new aircraft will be needed to accommodate global
market growth. However, the high price of aviation fuel has been
accelerating the replacement of older aircraft with more modern, fuel-
efficient aircraft. A disproportionate share of this growth involves
smaller, single-aisle aircraft in emerging markets led by the Asia-
Pacific region and China in particular.
We are pleased that the business aviation and rotorcraft sectors
are poised to recover from the economic downturn that began a few years
ago. General aviation aircraft shipments were up about 6 percent last
year and the forecast for this year is in that range (8.5 percent).
Business jet deliveries have also recovered, with shipments up 6.3
percent last year. For the next five years at least, the majority of
orders are expected to come from North America, and therefore will be
largely dependent on the state of the U.S. economy. However, over the
long term, our success in the business aviation market will become
increasingly dependent on our market share in the developing world,
particularly Asia and Latin America. Likewise, sales of civil
helicopters are increasing, and we expect this trend will continue over
the next few years with modest growth. These markets include oil and
gas exploration and production, public safety, and emergency medical
services.
I should add that the downturn in U.S. military investment puts a
drag on this positive message from our commercial industry. The U.S.
military aircraft sector continues to shrink, falling 6.3 percent last
year and almost 10 percent over the past three years. Many do not
realize that several of our key military aircraft production lines are
sustained today largely by exports. This situation contributes to a
declining supplier base that can affect the commercial sector in its
overall competitiveness.
Of course, other nations are not sitting idly by; they are trying
to cut into our edge. The growth in emerging markets is naturally
stimulating other nations to improve or establish their own aircraft
manufacturing capabilities. Two years ago, Russia joined the
International Coordinating Council of Aerospace Industries Associations
(ICCAIA), and China is expressing interest. 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. And it is important for us to realize that,
in many cases, U.S. companies are competing against foreign
governments, not just foreign companies.
AIA also believes the global liberalization of aviation treaties--
in ``open skies'' agreements and multilateral trade agreements--should
continue to be supported by governments around the world. Initiatives
such as these that increase the flow of goods, services and passengers
provide economic growth for countries worldwide and benefit all of us.
Considering this situation, it is also imperative that we address
long-term risks or barriers to our global competitiveness. Let me
highlight a few of those issues.
Barriers and 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, the inability to maintain
a properly skilled workforce, appropriate financial support, and tax
incentives for the development of new technologies. Let me address each
of these in turn.
FAA Funding and Future Sequestration
The Federal Aviation Administration (FAA) provides critical
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. As a regulated industry,
bringing these new products to the market requires FAA review,
approval, and certification. However, in this fast-moving environment,
we often find that FAA's certification process 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 the certification and approval process and
provide recommendations for streamlining. The FAA commissioned an
Aviation Rulemaking Committee and developed an implementation plan for
those recommendations. We urge the agency to follow through on this
plan as soon as possible. Given the current budget constraints facing
the FAA, making this process more efficient will help ensure the
industry does not have even longer wait times. The FAA needs to make
maximum use of existing delegation systems and leverage best practices
in their certification processes.
AIA does not believe FAA can maintain today's level of service and
invest adequately for the future if the agency is faced with additional
Budget Control Act sequesters. We appreciate the near-term relief for
Fiscal Years 2014 and 2015 that was provided in the Bipartisan Budget
Act last December. However, sequestration returns with a vengeance in
Fiscal Year 2016.
If Fiscal Year 2013 is any guide, when additional sequesters go
into effect the investment accounts will bear a heavier share of the
reductions. In 2013, the agency lost $637 million from a sequester that
occurred in the middle of the year. To avoid employee furloughs,
Congress authorized a one-time transfer of airport grant funds to the
operating account. However, even with this flexibility, the agency had
to reduce NextGen programs by almost $140 million, taking this
initiative back to its Fiscal Year 2011 funding level and disrupting
dozens of programs. The FAA's NextGen budget request for Fiscal Year
2015 does not recover from these reductions. In fact, that request is
almost $200 million below the President's request of only two years
ago. That is a steep funding drop for a critical program.
In addition, if the agency is forced to take a ``today first''
attitude, new technologies that could transform aviation may end up on
the cutting room floor. Foremost among these is the budding market for
unmanned aircraft systems (UAS). We think it was wise and important
that Congress promoted the integration of UAS into our national
airspace by the year 2015. The application of UAS for public safety
missions and a variety of commercial uses is enormous, and other
nations are just as interested. Our manufacturers lead the world in
these technologies, and if we make sure the Congressionally-mandated
integration stays on course, we will see markets open up for our
technologies, not only here in the United States, but around the world.
We hope you will support funding for UAS integration activities,
including the standards development efforts and the research and
development programs that are needed for successful and safe NAS
integration. And while we understand the desire to address privacy, we
believe it can be adequately protected. We urge you to oppose any such
legislation that would cripple or unduly restrict the growth of this
important industry before it is given a chance to develop.
If the FAA is constantly distracted by continuing resolutions and
budget cuts, long-term investments will suffer the most. I understand
the need to keep today's air traffic system running safely and
smoothly. But to remain competitive over the next decade, our
manufacturers also need continued investment in a twenty-first century
infrastructure, including high technology and transformational systems
like UAS.
Our failure to make these investments, just as we are hitting our
stride, would embolden our overseas competitors. It would send the
wrong message to the developing world--a message that the U.S. may not
be able to meet their needs in the future. Equally important, it would
break the faith with a manufacturing industry that is investing
billions to advance in growing worldwide markets. We are investing in
new supply chains, new plants and equipment, and new jobs employing
skilled workers all around the country. We need the government to do
its part--to review and approve those products efficiently, support new
markets, and expand our national aviation infrastructure.
Continuing to Improve Environmental Stewardship and Energy Efficiency
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--an issue with rising importance as market dynamics shift
to developing nations.
There is no better example than the critical technologies
underpinning aircraft fuel efficiency and low emissions. The high cost
of jet fuel on the global market has made engine fuel efficiency a
major driver of aircraft purchase decisions. The FAA's commitment to
the Continuous Low Emissions, Environment and Noise (CLEEN) program is
important to our industry. This program is cost-shared with
manufacturers on a dollar-for-dollar basis and is showing real results
in the development of new engine technologies that dramatically reduce
aviation noise, emissions and fuel burn. In addition, maintaining
momentum in the multi-agency alternative fuels development program is
an important initiative for the aviation industry as we work to reduce
our dependence on petroleum-based energy sources.
Providing Globally Competitive Tax Policies
The Research and Experimentation Tax Credit (commonly called ``R&D
Tax Credit'') is an important incentive for national business
investment in R&D. This is important for many sectors of our economy,
but it is especially important for high-tech companies in the aerospace
sector. Once again, the credit was allowed to expire at the end of last
year, a political football caught up in the broader discussion of
comprehensive tax reform.
U.S. commercial aerospace manufacturers are at a substantial
disadvantage vis-aa-vis foreign competitors whose home countries almost
universally have more favorable and more predictable R&D tax credits. A
permanent R&D credit has been proposed as part of the administration's
corporate tax reform package, and was included in Chairman Camp's bill
released earlier this month. We urge the Senate to act favorably on
these proposals either separately or as part of comprehensive tax
reform legislation. At a minimum, legislation is urgently needed to
restart the R&D tax credit and apply its provisions retroactively to
the beginning of calendar year 2014.
Providing a Skilled Aerospace Workforce
American aerospace workers are among the most highly productive and
skilled workers in the world. With a global market that is growing
rapidly, we must maintain an adequate supply of workers with degrees in
science, technology, engineering and math (STEM) disciplines and
specific manufacturing skills for U.S. industry to continue to dominate
and benefit from the aerospace export market. And for aviation markets
to meet the forecasted demand, we will need to recruit and train
hundreds of thousands of new pilots and maintenance technicians, as a
recent Boeing study has verified. We want to sell those aircraft, train
those pilots, and hire those mechanics.
Unfortunately, today America is simply not producing enough workers
with the right technical skills. The U.S. graduates around 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. We need to turn that around,
and AIA and our member companies are working to do just that. We are
collaborating with other stakeholders to increase retention rates in
engineering programs by putting in place policies and practices, such
as internships and mentoring, which encourage and support the success
of qualified students.
And this is not just about four year degrees. Community colleges
and career technical education play an equally important role in
meeting our workforce needs. In fact, today one third of our current
STEM employees begin their education in community colleges. For years,
aerospace companies have experienced challenges in filling certain
manufacturing and other technical positions. Customized credentialing
programs that prepare students with the specifically required skills
are playing an important role in addressing the existing STEM skills
gap and constitute another key element of our industry's workforce
efforts.
Our STEM workforce challenge is exacerbated by the fact that the
aerospace industry is graying. In 2007, we found that almost 60 percent
of the U.S. aerospace workforce was age 45 or older. Today, 9.6 percent
of our industry is eligible to retire, and projections are that by
2017--just three years from now--18.5 percent of the entire industry
will be eligible to retire. At our largest corporations (those
employing 100,000 or more), the percentage retirement eligible is
already 18.6 percent. We are experiencing a shortage of STEM workers
today, but the problem will be even greater when the bow wave of actual
retirement hits us in the next couple of years.
It was ten years ago that the Commission on the Future of the U.S.
Aerospace Industry recommended ``the nation immediately reverse the
decline in and promote the growth of a scientifically and
technologically trained U.S. aerospace workforce''. Our industry paid
attention, and AIA has been driving progress on STEM education and
workforce issues for a number of years. We facilitate collaboration
among our member companies and with other stakeholders--business
groups, government, academia and the philanthropic community--at the
national, state and local levels. We seek systemic change that will
produce a prepared and competitive twenty-first century workforce. AIA
further raised the profile and rigor of its engagement in 2013 with the
formation of a new, high-level Workforce Policy Council, and we remain
committed to meeting this challenge.
Implementing Improved Export Policies
AIA strongly supports the goal of the National Export Initiative to
double U.S. exports by the year 2014 and rationalize our outdated
system of export controls. Export control reform is crucial to the
success of the aerospace and defense industrial base to increase
exports, and enhance interoperability with our allies and trading
partners, while ensuring that advanced technologies are protected in
the most appropriate manner. AIA appreciates the substantial
achievements in satellite export reform enacted by Congress in 2012,
and we are committed to working with the administration and Congress to
see these reforms continue in other areas.
Missile Technology Control Regime and UAS Exports
One example of a current barrier to U.S. competitiveness involves
the application of the Missile Technology Control Regime (MTCR) to the
export of unmanned aircraft systems (UAS). We believe the MTCR's
``presumption of denial'' for UAS exports capable of greater than a 300
KM range and a 500 KG payload must be balanced for risk management
purposes on a consistent and clear basis. Other criteria to consider in
overcoming the ``presumption of denial'' include the system's
additional capabilities (or lack thereof) and the specific allies and
partners with whom we are considering sharing this technology to
protect and promote our common security interests. Absent such
considerations, we run the risk of the same loss of market share and
damage to the industrial base that occurred in the commercial satellite
sector under similar one-size-fits-all export controls, and may also
stifle the move to commercial use of such systems. We continue to work
with the administration to develop a new way forward to control UAS
systems for export appropriately in a way that benefits U.S. industry
and jobs while protecting our valid national security interests.
FAA Authority to ``Promote'' Civil Aeronautics
In the 1996 FAA Reauthorization Act (Public Law 104-264), Congress
deleted FAA's authority to ``promote'' new aviation technology. The
agency is still allowed to ``encourage'' these developments, but not to
``promote'' them. We acknowledge the intent of Congress to have the
agency focus solely on aviation safety. However, we believe FAA is
interpreting this in an overly restrictive manner that affects the
ability of U.S. manufacturers to sell our superior products overseas.
One recent example is the agency's refusal to endorse basic information
about air traffic control equipment currently in use by the agency out
of concern that this could be construed as ``promotion''. We believe a
clarification of Congressional intent or some modest exception
authority would be helpful.
Export-Import Bank of the United States
The Export-Import Bank of the United States also plays a vital role
in helping American companies compete on a level playing field in the
global marketplace. Last year, the bank aided 3,400 companies--large,
medium and small--in supporting over 205,000 U.S. jobs, maintaining a
robust network of aerospace suppliers, and facilitating a stronger U.S.
presence in the global market. Significantly, nearly 88 percent of
these jobs were at small businesses around the country. Many people do
not realize that the bank is self-sustaining, and operates at no cost
to U.S. taxpayers. In fact, through its fees and charges, the bank
brought in more than $1 billion to the U.S. treasury in Fiscal Years
2012 and 2013. Simply put, the Federal deficit will go up if the
Export-Import Bank is shut down.
At a time when defense cuts are causing smaller suppliers to shrink
their operations, Ex-Im financing maintains the financial health of a
large number of aerospace industry suppliers, providing assistance to
30,000 of them. Many of these suppliers have looked to other aerospace
sectors to compensate for lost revenue from the defense downturn.
Furthermore, Ex-Im financing is a critical tool to the aerospace
exporter in both general aviation and space services. From May 2012 to
February 2014, Ex-Im financed over $1 billion in business jet exports,
supporting over 5,000 jobs. Satellites and space launch services have
become Ex-Im's fastest growing sector. Prior to 2010, Ex-Im financed
roughly $50 million annually in space services. That number has risen
to over $1 billion in each of the last two years. In fact, over 60
percent of U.S.-built commercial satellite exports today are supported
through Ex-Im financing.
Equally important, the bank allows U.S. exporters to effectively
compete with foreign firms that have their own government-assisted
financing. Our Export-Import Bank is one of 59 export credit agencies
around the world. Each of them supports the export of manufactured
goods in a highly competitive global marketplace. And many of these
governments extend more credit, at more favorable rates, than the
United States. In fact, as a percentage of GDP, U.S. export credit in
2012 ranked below six other countries. Germany and France extended
nearly two and a half times as much export financing; China and India
almost three times; and Korea ten times as much. The Export-Import Bank
does not cost American taxpayers a dime. It helps our manufacturers
compete and sell their products around the world. And since aircraft
manufacturing is one of our Nation's biggest exports, it is not
surprising that U.S. jobs depend on our government helping to maintain
a level playing field. The bank's authority is set to expire on
September 30, 2014, and we need your support to ensure there is no gap
or shutdown in this important program's operations.
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 and financial support provide incentives
to maintain 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 coming to
the global marketplace over the next decade or two. Thank you for the
opportunity to submit testimony on this important subject.
Senator Cantwell. Thank you very much for that testimony. I
think you hit it right on the head exactly. There is good news
but there is a ``but'' to the question about what we have to do
to compete.
So thank you.
Mr. Calio, welcome. Thank you very much for being here.
STATEMENT OF NICHOLAS CALIO, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AIRLINES FOR AMERICA
Mr. Calio. Thank you, Madam Chairwoman, Senator Ayotte,
Senator Klobuchar, Senator Fischer. We appreciate the
opportunity to testify here today.
We hope that this will be the first of many hearings that
this committee holds and that you will specifically broaden the
scope of your inquiry to all sectors and jobs in aviation. You
know, we all say that we recognize the unique and vital role
that aviation plays in driving the U.S. economy in jobs. It's
time that we matched a more practical, focused policy reality
to that recognition and that vision. I say that because there
have been a bunch of Federal commissions which have talked
about that we've talked about this and that committee before
the recommendations lay fallow. It's time to move on.
You know, the expansion and transformation of the global
aviation sector that currently is underway, that's been
referenced, presents both the unique challenge and opportunity
for the U.S. aviation industry. It's also a unique challenge
and opportunity for this Congress since you and we are all
business partners together on a daily basis. The industry is on
leashed, or it's constrained, by the policies that you create
and the policies that you will oversee.
In a previous appearance before this committee, A4A
advocated for the creation of a national airline policy which
would give life to that vital and unique role that aviation
plays in our economy. Unlike many foreign governments which
treat their airlines as strategic assets, the U.S. Government
currently encumbers our carriers with tax, regulatory and
infrastructure systems that put us at a distinct competitive
disadvantage. You, and we, currently have a unique opportunity.
While we all, I think, agree that has been shown that Congress
doesn't always operate the way we like, it has also been shown,
and shown recently, that it can come together on bipartisan
legislation on important issues. This committee did it in the
2012 FAA Reauthorization bill; the time to do it and do it
better in the next reauthorization bill starts now.
House T&I Chairman, Bill Shuster, and Frank LoBiondo, and
their democratic counterparts, Nick Rahall and Rick Larsen,
have banded together to already start reaching out to all
stakeholders in informal roundtables to gain views on what it
would take to provide an FAA Reauthorization bill that is, in
their words, transformational. We hope that the Senate will
join that effort as A4A has so that we can begin to resolve
rather than just talk about what needs to be done to make the
U.S. aviation industry the world leader.
Now's the time, we believe, to go big; if we can put it
that way. Go big in a way that moves past the Government
mindset that harkens back, in too many cases, to a pre-
deregulation mindset of the 1970s. The path forward to
fundamentally transforming the way Americans travel and ship
goods would include, or should include, an examination of air
traffic control reform. Reform can provide a broad-based
approach to changing governance, financing and delivery of
service to travelers and shippers. Putting a new framework in
place is what would be a long overdue first step toward
creating a system that isn't dependent on an annual funding
cycle that furloughs our air traffic controllers and too often
delays passengers and the shipment of goods.
This reform can deliver benefits by ensuring that
stakeholders are actively engaged in the implementation of
NextGen. Airlines have invested billions of dollars in NextGen
with very little to show in return to our customers. We can do
better and there are models in other controls that show the
way. They may or may not work here but the examination is worth
it because it would provide a transformation that would get us
a lot for--would get us forward a lot faster than we're
currently going.
Since 1972 the aviation industry and its customers have
seen their tax burden rise thirtyfold. Airlines currently, and
their passengers, have 17 individual taxes and fees for which
we paid the Federal Government $19 billion last year.
Nonetheless, as the budget agreement at the end of 2013 showed,
as consideration of the omnibus appropriations bill at the
beginning of this year showed, and as the President's budget
shows again this year, airlines and their passengers remain the
go-to people whenever the Government wants to raise money. ATC
reform would have the benefit also of catalyzing making sense
out of a patchwork tax structure that's grown hodgepodge over
the years and it's a structure that cripples competitiveness
and progress.
Similarly, we have a regulatory burden that is outdated. We
face a competitive global disadvantage as a result of decades
of accumulated regulations that are simply unnecessary. To say
that the airline industry is outdated is something of the
nature of a bad joke. And, I'm not talking about safety
regulations here, safety and security regulations; we're
talking about the economic regulations, just to be clear. We
need a new regulatory paradigm which forces the application of
commonsense to the review of old and to the creation of new
regulations.
Also on fuel, and Madam Chairwoman, you've been a leader in
this regard. We need the commitment to continue to develop
viable options for alternative fuels. A4A has committed to
that; working very closely with the government and with you on
that.
In short, the global airline industry of 2014 is very
different than that of 1978. Foreign governments recognize that
and have adapted accordingly. The U.S. must catch up. We can
catch up if we start now to create policies that recognize our
failures, build on our successes, and provide a policy vision
that matches what airlines and aviations can do for our economy
and the growth of jobs.
Thank you very much.
[The prepared statement of Mr. Calio follows:]
Prepared Statement of Airlines for America
The U.S. airline industry is a powerful engine to improve the well-
being of America and Americans. Yet, Federal Government policies have
repeatedly throttled-back our industry. That must change.
The U.S. airline industry has been extraordinarily successful in
fulfilling Congress' mandates that safety be maintained as the highest
priority and that maximum reliance should be placed on market forces in
providing our services. In doing so, our industry has shown remarkable
adaptiveness and resilience. We have experienced seismic events--first,
deregulation and, more recently, the wrenching aftermath of 9/11--and
persevered. Since 2001, U.S. airlines lost over $55 billion. Our
perseverance, however, has been rewarded and is paying off for our
customers. We've now bounced back from the upheaval that the airline
industry experienced in the first decade of this century, albeit with
significant levels of debt remaining on our balance sheets.
It is a stunning accomplishment. Because of it, we should be
looking at a brighter future, yet it is far from that. We continue to
suffer from government policies that exhibit indifference and, often,
outright hostility to our industry and, by implication, our employees,
customers, the communities that we serve and the aviation manufacturers
upon which we rely.
Overview
Commercial air travel remains one of the best bargains in America,
especially given its superior speed and price versus other means of
travel.
Despite starting 2014 with $71.5 billion in debt, U.S. airlines'
modest but encouraging financial progress has allowed them to
accelerate investments in employees, products and technology to enhance
the customer experience and to cope more effectively with operational
impediments, such as extreme weather. In addition to capacity growth,
and the continuation of stable employment and rising wages, airlines
plan to invest an additional $11 billion--12 billion in 2014.
Investments will be made in such areas as new aircraft, spare engines,
larger overhead bins, premium seating, airport terminal and lounge
improvements, ground equipment, mobile technology, customer kiosks, in-
flight entertainment, and Wi-Fi, and baggage handling.
Despite these tangible commitments, non-investment-grade balance
sheets continue to burden most airlines. The airline industry remains a
low-margin business, significantly lagging (Standard & Poor's) average
net profitability (7.9 percent of revenues for airlines versus 10.4
percent of revenues for the S&P 500 in 2013). Moreover, airlines -as
ever--remain highly susceptible to volatile jet fuel prices. Jet fuel
costs in 2013 exceeded $50 billion for the third straight year.
U.S. airline workers have benefited from improving airline
finances, through enhanced job security, higher wages and benefits, and
reduction of airline debt. Enhanced employee well-being is one of the
most important outcomes of that improvement.
The carriers continue to demonstrate that the flying public,
employees, investors and the U.S. economy all are vastly better off
with a financially strong U.S. airline industry that can cover its full
costs over an entire business cycle and attract investments. It is with
such financial health that we will be able to compete effectively on
the global stage. In other words, we need sustained, meaningful
profitability.
Despite all of the above, the Federal Government does not have a
holistic perspective that encourages government policies that enable
the airline industry to thrive and thereby contribute as much as it can
to the U.S. economy and U.S. employment. That shortcoming needs to be
corrected. We are not asking the government to put its thumb on the
scale. Instead, we are asking it to remove the yoke of ever-rising
taxes and fees, and regulatory programs that neither benefit the
consumer nor the airline and thus curb U.S. economic growth.
Basic Considerations
An effective U.S. Government aviation policy should be based on
four fundamental considerations.
First, there must be a recognition that the U.S. airline industry
is indispensable to our Nation and its economy. What that means, of
course, is that the healthier our industry is, the more that we
contribute to the prosperity of America.
To place this in some context, the Federal Aviation Administration
(FAA) estimated that in 2009 civil aviation supported more than 10
million jobs, contributed $1.3 trillion in total economic activity and
accounted for 5.2 percent of total U.S. Gross Domestic Product. Civil
aviation in general and the airline industry in particular are thus
central to the U.S. economy.
An important element of this economic contribution is international
trade and tourism. Air travelers journeying to and from the United
States reached a record 185.4 million in 2013. Significantly, non U.S.
citizens represented 5.1 percent of year-over-year growth, compared
with 3.6 percent growth in U.S. citizen international travel. The
Department of Commerce has reported that international visitor spending
in the United States totaled $180.7 billion in 2013. U.S. airline
receipts totaled $41.2 billion of that sum.
The value of international air cargo transportation is similarly
significant. The United States traded a record $940 billion of
merchandise by air last year, much of it in high-value items, including
$431 billion in exports. The value of a kilogram exported by air was
129 times the value of a kilogram transported by sea.
These examples illustrate the need to scrutinize legislative and
regulatory initiatives to assure that they do not wrongly inhibit U.S.
airlines' ability to deliver air transportation services efficiently
and economically. Taxes and fees, as well as unnecessary regulations,
impose a hefty, ongoing drag on airlines and consequently their ability
to serve the public.
Second, there is nothing sinful about being profitable.
Profitability directly benefits our employees, customers and the
businesses from which we buy goods and services. This is the simple
reality. Airlines are now in the position to reduce debt, invest in
staffing and training, purchase new aircraft and better meet customer
demand by offering new and improved products, destinations and seats.
As JP Morgan airline equity analyst Jamie Baker recently observed,
``With airlines in the U.S. now generating acceptable returns, their
ability to reinvest in their product has been greatly enhanced.'' Most
importantly, the recently improved finances have allowed the airlines
to sustain more air service than would be possible under unprofitable
or less profitable conditions.
Profitably also means more stability and better remuneration for
our employees. Over the last three years, employment levels at U.S.
passenger airlines have stabilized while wages and benefits have risen
substantially. In harsh contrast, the last decade was brutal for
airline employment. The number of full-time equivalent employees at
U.S. passenger airlines declined from 520,600 in 2000 to 378,066 in
2010, a 27-percent decline. The FTE figure was 380,853 last year. With
the recent recovering financial health of the industry, average
employee compensation per FTE rose from $85,372 in 2010 to an estimated
$93,856. That 10 percent increase is a concrete example of the benefit
of profitability.
Third, the marketplace is the best guarantor of consumer welfare.
The passenger or shipper will reward or punish the airline based on the
price and quality of service it offers. That is how it should be. We're
prepared to take our lumps. What we don't want is to have someone who
is not in the arena turning the dials and deciding our fate.
Finally, where the Federal Government has the responsibility to
provide services related to air transportation, such as customs and air
traffic control functions. It must meet the demand for those services
and do so efficiently. This means that Customs and Border Protection
(CBP) should not be constructing new preclearance facilities overseas.
Instead, it should concentrate on assuring improved service at U.S.
airports of entry. Congress should also recognize this imperative
legislatively. Similarly, the FAA should concentrate on exploiting
proven, available technology to improve air traffic procedures so that
airlines can leverage the investments they have already made in
existing equipment.
The Government's ATM Culture: The Relentless Rise in the Burden of
Taxes and Fees
The ever-rising Federal aviation tax burden rose 30 times from 1972
to 2013, hindering the industry's ability to grow and facilitate
broader economic growth and job creation, and putting it at a
competitive disadvantage vis-aa-vis our foreign airline competitors.
Unhappily, airlines continue to be regarded as the ``go-to guy'' for
financing the Federal Government.
This was illustrated in December in the congressional budget deal
which changed Transportation Security Administration (TSA) security
fees from $2.50 per leg of a connecting flight with a $5 per trip cap,
to a flat $5.60 each way. This increase will generate an estimated
$12.6 billion over the next decade, which the legislation says would be
deposited in the general government fund with no incremental benefit to
air travelers whatsoever. Thus, passengers were involuntarily and
uniquely conscripted into the Federal Government's budget travails.
The Administration's Fiscal Year 2015 budget proposal starkly
demonstrates that we remain the ``go-to-guy.'' That dubious distinction
would mean an increase in Federal aviation taxes and fees of $4.2
billion annually. Left unsaid in it is the inevitable outcome if the
Administration is successful: downward pressure on services and upward
pressure on prices. This would not be a winning combination for air
travelers and shippers.
More specifically, the FY 2015 budget proposal has four alarming
elements.
First, the White House is proposing to increase the TSA aviation
security tax from $5.60 per one way trip to $6.00, which would cost
airline passengers more than $217 million per year. This comes on the
heels, as noted above, of Congress increasing the tax to pay for
deficit reduction. Moreover, despite the fact that Congress recently
eliminated the TSA's Aviation Security Infrastructure Fee (ASIF), the
White House proposes to reinstate ASIF, which would cost the industry
$420 million annually.
Second, the budget proposal would create an 18th unique tax on
aviation--a mandatory $100 charge for every aircraft departure, costing
the U.S. aviation industry another $1 billion annually.
Third, the budget proposal would raise the Passenger Facility
Charge (PFC) cap from $4.50 per flight segment to $8, which would cost
passengers an additional $2.2 billion annually.
Fourth, the budget proposal would increase the Department of
Homeland Security's (DHS) customs fee from $5.50 to $7.50 and
immigration fee paid by passengers from $7 to $9, further increasing
their overall aviation tax burden by $318 million annually.
The astonishing bottom line is that if the Administration's
proposed new, higher taxes and fees were enacted, the tax bite on a
typical $300 one-stop domestic round-trip ticket would increase from
$62.98, or 21 percent, to $76.75, or 25.6 percent. That would be a
deplorable disregard of the consumer. The Administration's proposal
also ignores the fact that air travel is often discretionary; higher
costs count when consumers make the decision to fly or stay home, or to
ship an item. The elasticity in demand in for air travel has been well
documented. In 2012, the U.S. Government Accountability Office (GAO)
found that a 1 percent increase in the cost of an airline ticket
(including taxes and fees) would result in a 1.12 percent reduction in
the quantity of tickets sold. That unmistakably implies that further
increases in government-imposed taxes and fees would dampen demand,
reduce airline revenue and diminish overall U.S. economic activity.
Congress should recognize the need to leverage commercial
aviation--as a key enabler of job growth and U.S. economic activity
rather than as a source of U.S. deficit reduction--by rejecting the
White House's proposed aviation tax and fee increases.
The International Landscape
The international aviation landscape has been shifting
dramatically; indeed, by all appearances, change is accelerating. One
fact has been clear for some time: the days of North American and
European domination of air transportation are long gone.
Governments in key countries have recognized the increased and
critical role global air traffic will play in future economic
development. They have created clear, national strategic aviation plans
that have served to develop integrated aviation eco-systems that are
very effective vehicles for national economic growth.
These aviation ``ecosystems'' consist of airlines, airports,
airport concessions (e.g., duty free shops), ground services,
maintenance, aircraft leasing, aircraft financing and aviation policy-
maker authorities, that work under the same government umbrella to
serve a common government goal and purpose: drive overall economic
growth.
Strategic growth is being executed in different ways--organic
growth through acquisition of aircraft and the utilization of sixth-
and fifth-freedom rights, growth through equity investments in other
airlines that open up access to new territories, or growth through
industry consolidations backed by the governments.
Global airline traffic activity is shifting south and east in the
world, with fast-growing international airlines, such as the Middle
East and Chinese carriers emerging as top airlines in terms of revenue
and capacity. For example, rapid growth in the last decade has resulted
in Middle East carriers' share of all international capacity increasing
from 2 percent in 2002 to 11 percent in 2012, equaling U.S. widebody-
operator carriers' capacity, which decreased from 14 percent to 11
percent in the same period.
These foreign-flag carriers benefit from smart, forward-looking
governmental strategies to stimulate passenger growth by setting low
airport fees, low corporate taxes and minimal passenger-related fees
and taxes. These decisions generate significant economic benefits to
the host countries as traffic increases dramatically. Moreover, some of
these carriers have structural business model advantages such as low
labor costs (e.g., 36 percent lower average employee costs) and
relaxed labor regulations. These benefits combine to create low-cost
and resilient business models.
These dynamics have several noteworthy implications.
First, they highlight how critical government policy is in the
development of air transportation in these countries. Whether one
agrees with the nature of the governmental involvement, there is a
precise focus and abiding discipline exhibited in the execution of the
policies.
Second, at the core of the policies is a recognition that a vibrant
airline industry inevitably and significantly promotes overall economic
development.
Third, the shift to the south and the east will continue unabated.
We are not witnessing a temporary phenomenon.
Fourth, given the role of some governments, the U.S. Government
must make clear to civil aviation authorities in other countries that a
basic tenet of U.S. aviation policy is the maintenance of fair
competition.
We are not suggesting that the U.S. Government adopt all of the
policies of the governments that oversee rapidly expanding foreign-flag
airlines. We, however, firmly believe that the existence of such
policies means that the United States must develop a coherent National
Airline Policy that enables us to respond with maximum effectiveness to
our foreign-flag competitors.
We have demonstrated time and again that we have the wherewithal to
compete effectively--domestically and internationally. Customers,
airline employees, communities and businesses have been the
beneficiaries of that ability. We need government's help, however. Not
to tilt the playing field but unshackle us from exorbitant taxes, fees,
and regulations that all-to-often are uncalled-for.
Senator Cantwell. Thank you, Mr. Calio.
And Mr. Wytkind, thank you for being here. We appreciate
your testimony.
STATEMENT OF EDWARD WYTKIND, PRESIDENT, TRANSPORTATION TRADES
DEPARTMENT, AFL-CIO
Mr. Wytkind. Thank you very much for having me here, Madam
Chair, Ranking Member Ayotte and members of the Subcommittee.
I'm pleased to be here on behalf of our 32 transportation
unions that are part of the Transportation Trades Department of
the AFL-CIO.
This is a very important hearing and it is very timely. We
find ourselves at a tipping point in the state of this industry
and I'll talk about a couple of key points. First, I also want
to associate myself with the comments by others about the
Malaysia Airlines situation. The labor movement is deeply
concerned and obviously grieves with everyone else for the
situation around that flight.
First, trade and other policies as well as the acceleration
of globalization often unchecked, threaten the aviation
industry and middle-class jobs. That is if our government fails
to act with purpose. Second, FAA regulation is not keeping up
with the torrid pace of aircraft maintenance outsourcing, which
undermines aviation safety and security and denies U.S. airline
mechanics the chance to compete on a level playing field.
Third, the failure to properly fund the expansion and
modernization of our aviation system, meant to ensure adequate
resources for the FAA and its employees is threatening the
competitiveness, safety and efficiency of this industry.
One very clear example of what we think is liberalization
of aviation run amok is the Norwegian Air Shuttle's operating
scheme that is currently pending and becoming a very
controversial item in this country. Norwegian Air International
is the name of the company; NAI.
A few facts: Norwegian Air Shuttle was incorporated in
Norway and holds an air operator certificate in that nation.
Its so-called new company, NAI, was created to exploit European
aviation and labor law, circumvent the U.S.-E.U. Open Skies
Agreement, especially its labor article, and gain an unfair
advantage over U.S. and European carriers that play by the
rules. Norwegian has registered its aircraft in Ireland and
attained an Irish air operator certificate but it will not
service Ireland. The airline is also contracting, or more
accurately renting, its flight crews and they're largely based
in Thailand and covered under individual employment contracts
under the laws of Singapore. That's right. A Norwegian company
created an Irish airline that will not fly in Ireland, will
rent Asian flight crews, and will use expanded benefits under
the U.S.-European aviation trade accord to compete unfairly
with U.S. and European air carriers.
Fortunately, this is not a done deal because the NAI must
first secure approval from the U.S. Department of
Transportation. The administration must very clearly reject
NAI's application and send a clear signal that those seeking to
exploit U.S.-European aviation trade relations with a rogue
``flag of convenience'' operations will not be rewarded with
expanded access into the very lucrative U.S. marketplace. We're
pleased that yesterday 38 senators sent a letter to
Transportation Secretary Foxx that raises many of our concerns.
I wanted to thank Madam Chair, Senator Cantwell, for joining
that letter, as well as Chairman Rockefeller and Senator Schatz
and Blunt for leading the effort.
Another very critical international issue that we face
involves TTIP negotiations between the U.S. and the E.U. The
history is that aviation has always been left out of broad
trade negotiations. There's a very simple reason for it. The
strategic importance of the airline industry as expressed by my
colleagues here on the panel, cannot be understated. And yet,
the E.U. seeks to upend the current policy and include aviation
in TTIP negotiations. We think that's a huge mistake. The aim
of the European Union is clear; it wants to force unwise and
unpopular changes to U.S. policies on foreign ownership and
control of change the rules that currently limit point-to-point
domestic service to U.S.-controlled carriers. These laws ensure
a strong airline industry for Mr. Calio's members, protects
against unfair competition and preserve the rights of our
members. It would be irresponsible in our judgment to throw air
traffic rights into broader free trade talks with the Europeans
and then have aviation traded away as part of some broader
trade or geopolitical objective.
We've seen decades of unfair trade policy ravage many
industries in our country. We're committed to making sure that
bad trade policy doesn't ravage U.S. airline employees. Our
Government must also ensure the safety and security and
oversight of aircraft maintenance performed overseas.
There are 700 facilities that dot the globe now that
maintain aircraft that our carriers use. The FAA is now a year
late in issuing a rule mandated by the Congress to make sure
that those employees in FAA certified facilities around the
world are drug tested the same way they are here in the United
States. It's not about imposing our will on other countries,
it's about imposing a level playing field to make sure that if
you're going to fly the seal of the FAA on a facility around
the world and say you are approved, that you will comply by the
same rules that any facility or air carrier in this country
complies by. That rule is overdue and we really need it to be
issued.
Last, the U.S. must invest in the FAA's workforce and its
aging infrastructure. I join my colleagues here in talking
about not only NextGen but the overall modernization of
aviation. We still use too much 1950s technology and it puts us
at a very competitive disadvantage in the global marketplace.
We've already witnessed the impacts of the FAA shutdown and the
overall sort of budget impacts in Washington and what that
means to the FAA and its programs. You can't run large
infrastructure projects and have them go through fits and
starts. You can't put them on the shelf and then turn them back
on just like that as the government does its sort of fits-and-
starts approach to how we fund aviation. And meanwhile, the
members I'm honored to represent and the FAA members of the air
traffic controllers and PASS, are becoming scapegoats in this
battle. And we'd like to see that end with a more dependable,
reliable funding stream that deals with the real modernization
needs of the system.
And there is a major staffing crisis at the FAA. One third
of its workforce, including controllers, inspectors and system
specialists are eligible to retire. This is unsustainable and
must be addressed because we believe it's going to not only
impact operations for the airline industry, but also the safety
of the system as you see this brain drain of high-quality
people retiring and we're not hiring and replacing them fast
enough. It's time for Congress to fully fund the aviation
investment needs of the country.
I look forward to working with my colleagues here and many
others in trying to get that done. And I believe the issues
we've raised in our formal testimony about international trade,
about the way we regulate the outsourcing of aircraft
maintenance, the way we treat the FAA workforce, and the way
that we make sure we build a STEM program in this country that
has as many machinists working in America as possible who are
members of the IAM at Boeing and many other companies, who can
build that workforce up to be the best in the world, as it is
today, and compete with the rest of the world as it does today.
Thank you. Appreciate the opportunity.
[The prepared statement of Mr. Wytkind follows:]
Prepared Statement of Edward Wytkind, President,
Transportation Trades Department, AFL-CIO
Chairwoman Cantwell, Ranking Member Ayotte, and members of the
Senate Commerce, Science, and Transportation Committee's Aviation
subcommittee, thank you for the opportunity to testify today on the
international competitiveness of the U.S. aviation industry.
As the President of the Transportation Trades Department, AFL-CIO
(TTD), I am honored to speak on behalf of the employees who operate,
maintain, service and build our Nation's aviation system. By way of
background, TTD consists of 32 affiliated unions that represent workers
in every mode of transportation, private and public sector, including
those who work in aviation.\1\ Today, America is confronted with
enormous challenges as the effects of globalization ripple throughout
the aviation sector and its workforce. The policy and trade decisions
of our government and the business decisions of our air carriers in the
next few years will determine the fate of this vital sector of the U.S.
economy.
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\1\ A complete list of TTD affiliates is attached.
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With trade liberalization policies taking hold around the world,
our government--with appropriate congressional oversight--has the
responsibility to ensure U.S. airlines can compete on a level playing
field worldwide and to protect and expand middle class aviation jobs.
Specifically, the Administration and Congress must carefully manage
aviation trade relationships to ensure we avoid the land mines and pit
falls of unscrupulous liberalization, protect against outsourcing of
critical safety and security work, oppose regulatory overreaches by
foreign states, and provide stable and robust financing for our
aviation infrastructure and FAA workforce.
We are currently faced with a particularly dangerous instance of
liberalization run amok that could have far-reaching negative
implications for the U.S. aviation industry and its employees.
Norwegian Air Shuttle (NAS), which is incorporated in Norway and holds
an air operators certificate (AOC) in that country has developed a
business model that is designed to exploit European aviation and labor
laws and the U.S.-EU Air Transport Agreement (ATA) in order to evade
its collective bargaining obligations in Norway and Norway's laws. NAS
has created a subsidiary, Norwegian Air International (NAI) which
applied for and received an Irish AOC even though it will not serve
Ireland. NAI has also registered its 787 aircraft in Ireland and has
applied for a foreign air operators certificate with the U.S.
Department of Transportation (DOT) as an Irish carrier. Despite being a
subsidiary of a Norwegian company and registering as an Irish airline,
NAI is using pilots who will be based in Thailand and employed under
individual employment contracts that are governed by the laws of
Singapore to crew these flights. The pilot crew will not be employed
directly by NAI but by a pilot recruitment company that will then
contract, or more accurately ``rent'' them to NAI. A similar
arrangement will apply to the flight attendants who will work on the
787s.
The goal here is clear. NAI is using the unique nature of EU
aviation laws to effectively shop around for the labor laws and
regulations that best suit its bottom line. It's using a ``Flag of
Convenience'' strategy at the expense of high labor standards. NAI is
also taking advantage of the liberalized transatlantic aviation market
provided by the U.S.-EU ATA, and claiming that this agreement alone
provides unlimited access to the U.S. market. NAI has never disputed
the assertion by TTD and other U.S. and European labor organizations as
well as major air carriers on both sides of the Atlantic that they are
simply using this business model to avoid Norwegian labor, tax and
other laws. The airline has presented a number of economic reasons for
registering in Ireland, but each of these is unsubstantiated and has
only been recently presented. Rather than presenting legitimate, fact-
based economic benefits, NAI's claims appear to be part of a publicity
campaign designed to distract the general public and Federal regulators
from their true goal and purpose: to undermine labor standards and
secure access to the transatlantic aviation market with bottom of the
barrel labor costs.\2\
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\2\ Attached are joint comments by AFL-CIO president Richard Trumka
and TTD president Edward Wytkind, submitted to DOT docket number OST-
2013-0204 on December 12, 2014.
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We raise this not just to complain about a foreign airline operator
or to insulate U.S. carriers from legitimate competition. If allowed to
proceed, the NAI business model will have an immediate impact on U.S.
airlines and their employees. With plans to serve Los Angeles, Oakland,
Orlando and other American cities if its application secures DOT
approval, NAI would undercut U.S. air carriers and their employees that
serve those same markets by as much as 50 percent. If NAI's plan is
approved, in the long term this type of ``Flag of Convenience'' model
could become the norm, with more and more airlines seeking to compete
by scouring the globe for cheap labor and lax regulations.
Fortunately, negotiators for the EU-U.S. ATA foresaw this type of
nefarious business model as a potential problem and included, for the
first time ever, a labor article designed to prevent benefits from the
ATA from having adverse effects on aviation jobs. This provision,
Article 17 bis (``Social Dimension''), states that ``the opportunities
created by the Agreement are not intended to undermine labour standards
or the labour-related rights and principles contained in the Parties'
respective laws.'' It further states that ``the principles in paragraph
1 shall guide the Parties as they implement the Agreement.''
The inclusion of Article 17 bis in the ATA represented important
progress in our global effort to ensure that market-opening trade
initiatives are not used to harm good jobs and undermine labor
standards, and was praised by both U.S. and European negotiators. The
article is also consistent with U.S. law that requires DOT to apply,
among other factors, a public interest standard as it considers these
aviation policy questions. We believe that NAI's business model is a
clear violation of Article 17 bis and U.S. public interest standards,
and gives DOT ample grounds on which to reject the application. We are
also pleased that over a quarter of the U.S. Senate, including many of
you here today, joined a letter that was led by Senators Schatz, Blunt
and Rockefeller to DOT raising many of these concerns, and urging
Secretary Foxx to ensure the NAI application is fully compliant with
U.S. law and the U.S.-EU ATA. I want to thank these Senators for their
support. Our government must make it clear that NAI's operating scheme
runs contrary to the faith and intent of the U.S.-EU ATA and will not
be rewarded with expanded access to our lucrative aviation market.
In addition to the NAI dispute, another pending trade issue that is
vital to our aviation sector is the U.S.-EU negotiations over a
Transatlantic Trade and Investment Partnership, better known as TTIP.
These negotiations encompass a wide variety of trade issues, yet
despite the historical precedent of excluding air services in these
types of broad trade negotiations, the EU is attempting to include
aviation liberalization in these talks. We are strongly opposed to this
approach, as it is an attempt by the EU to force changes to U.S. rules
that limit foreign ownership and control of U.S. airlines and reserve
domestic point-to-point service, or cabotage, to U.S.-controlled
carriers. Because the EU has failed in its attempts to force unwanted
reforms to these U.S. laws, it is attempting to do so in complex TTIP
talks with hopes that somehow our aviation interests would be ``traded
away'' for other trade objectives. This strategy must be rejected and
we have communicated these views to the Administration and the EU.\3\
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\3\ Attached are TTD's comments on the Transatlantic Trade and
Investment Partnership, submitted to USTR docket number USTR-2013-07430
on May 10, 2013.T
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The good news is that risking our aviation interests in a broader
trade negotiation isn't necessary if the objective is opening aviation
markets and expanding trade and jobs. Over 100 trade liberalization
pacts, referred to as ``Open Skies'' agreements already exist between
the U.S. and various governments, and new and expanded agreements are
on the table. In other words, aviation trade is expanding through
existing negotiating frameworks overseen by the subject-matter experts
at the Departments of Transportation and State. There is no need for
our government to throw aviation into a larger, more complex pot of
trade issues.
We know that the expansion of international air transportation
opportunities can offer lucrative business opportunities for U.S.
airlines and, if done the right way, create good aviation jobs. At the
same time, we know that globalization without checks and balances can
have devastating effects on entire industries and middle class American
jobs.\4\ TTD has always rejected efforts that seek aviation
liberalization at any cost and without adequate protections for the men
and women who work in our aviation industry. Decades of unfair trade
policy have ravaged workers in many U.S. industries, and we will not
relent in our commitment to ensuring that aviation trade liberalization
does not have the same result for U.S. aviation employees.
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\4\ Bivens, J. (2008, May 6). Trade, Jobs and Wages. Economic
Policy Institute. Issue Brief #244.
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As noted above, we were pleased to see the inclusion of a labor
article in the U.S.-EU ATA as well a process through which the parties
can seek to address adverse effects of the agreement on aviation
employees. The U.S. also wisely rejected efforts by the EU to force
changes to our rules and regulations governing foreign ownership and
control of U.S. airlines. It was decided by our government that foreign
investment in our airlines was appropriate but not to a degree that
ceded actual control to foreign investors.
Foreign ownership and control rules, and prohibitions against
foreign carriers engaging in cabotage have ensured a viable U.S.
airline industry and have protected U.S. aviation workers against
unfair competition, preserved workers' rights and ensured our Nation's
status as the world's leader in air transportation. Foreign states have
long lobbied to loosen these restrictions in order to gain a foothold
in the lucrative U.S. aviation market, the world's largest, and syphon
away good middle class jobs. In rejecting these proposals, despite the
heavy-handed tactics of the EU, the final U.S.-EU accord proved again
that liberalization agreements can be reached that include important
protections for a vital U.S. industry and good jobs. With companies
such as NAI already seeking to exploit an Open Skies agreement with a
clear labor protection article, it would be particularly dangerous to
further muddy the regulatory waters by throwing air traffic rights
issues into a broad free trade agreement.
The expanding web of aviation liberalization agreements throughout
the world is making the global aviation system increasingly
interconnected and integrated. With this comes a host of regulatory
issues and concerns that will need to be addressed. One such issue is
the impact of aircraft carbon emissions on the environment and global
climate change. TTD is committed to working with U.S. carriers and the
U.S. Government to seeking a global solution to reducing aviation
emissions, but we believe that any solution must be truly global in
order to provide meaningful results and ensure competitive balance.
Piecemeal unilateral attempts to curb carbon emissions would place an
unreasonable financial burden on U.S. carriers and their employees and
only further delay the process of reaching an international, consensus-
based agreement. This includes the EU's Emissions Trading Scheme (ETS),
a plan that if implemented would apply to all flights entering and
leaving EU airspace.
I would like to thank Senators Thune and McCaskill for leading the
effort last year to pass legislation that allowed the Secretary of
Transportation to combat the harmful effects \5\ of the EU ETS and
ensured that U.S. airlines were not subject to the EU cap-and-trade tax
penalties. Because of this legislation and other international
pressure, the EU postponed implementation of ETS for a year to give the
International Civil Aviation Organization (ICAO) an opportunity to
draft a global plan. We were pleased, then, when late last year ICAO's
general assembly approved a plan that will provide for the development,
over the next three years, of a global framework for addressing
aviation's impact on climate change, with the goal of implementing the
plan worldwide by 2020. The ICAO action was an important step toward
implementing a global solution to this problem, and we look forward to
working with ICAO to develop a framework that will substantially reduce
global emissions, improve the efficiency and cost-effectiveness of our
aviation system, and promote sound environmental stewardship while
maintaining competitive balance and fairness in the international
aviation marketplace.
---------------------------------------------------------------------------
\5\ Attached is TTD's policy statement ``Supporting a Global
Solution to Aviation Emissions,'' which was adopted by the TTD
Executive Committee on October 29, 2013.
---------------------------------------------------------------------------
We are also pleased that EU officials have tentatively backed off a
plan to continue pushing the misguided ETS scheme. In the aftermath of
the ICAO general assembly meeting, the European Commission (EC)
proposed revising the EU law so that the ETS would cover all flights
over EU airspace, including those flown by international carriers. Last
week EU officials announced that they would not pursue this course of
action, but a final vote is pending in April. We hope that the EU will
completely suspend its plans to unilaterally implement its ETS scheme
and work with the U.S. and others toward a truly global solution
through ICAO.
We also must ensure that the more than 700 foreign-based aircraft
repair stations certified by the FAA to work on U.S. aircraft are held
to the same safety and security rules that we require for work done in
this country. Too often this has not been the case. For example,
aircraft mechanics working in the United States either employed at air
carriers or at domestic contract repair stations are required to
undergo various drug and alcohol screenings to ensure their ability to
perform safety-sensitive repairs. Yet employees working at repair
stations based overseas are exempt from these tests despite the fact
that they work on the same U.S. aircraft and at repair stations
certified by the FAA. To address this and other safety loopholes,
Senator McCaskill championed a number of reforms to aircraft repair
station regulations in the context of the FAA Modernization and Reform
Act of 2012. I want to thank and recognize the Senator for her
leadership on this issue. Specifically, the final law included a
provision (Section 308(d)(2)) directing the FAA, within one year of
enactment, to issue a proposed rule requiring all repair station
employees responsible for safety-sensitive maintenance on U.S. aircraft
to be subject to an alcohol and controlled substance testing
program.\6\ While we are pleased that Congress moved to address this
safety issue, the FAA is now over a year late in fulfilling this
mandate and the provision will have no impact until it is formally
implemented by the FAA. This delay is unacceptable and particularly
grievous since additional time will be needed to implement the final
regulations after the proposed rule is finally released.
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\6\ Separately, Section 308(d)(1) directs the Secretary of
Transportation and the Secretary of State to request that member
countries of ICAO establish international standards for alcohol and
controlled substance testing of persons that perform safety-sensitive
maintenance functions on U.S. commercial aircraft.
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We are also extremely disappointed in the final security rule on
foreign and domestic repair stations issued by the Transportation
Security Administration (TSA) in January. When TSA issued an NPRM in
2010, we raised significant concerns that the proposal did not go far
enough to address the security questions that have been raised. We
agree with TSA's assessment, noted in the agency's NPRM, that as TSA
``tightens security in other areas of aviation, repair stations
increasingly may become attractive targets for terrorist organizations
attempting to evade aviation security protections currently in place.''
That is why we were dismayed that the final rule further rolls back the
already weak security requirements TSA proposed in 2010, fails to
address security loopholes we identified in the proposed rule, and runs
counter to the congressional requirement that TSA ensure the security
of maintenance work performed at contract repair stations.
The final rule eliminates the proposal that repair stations
certified by the FAA that work on U.S. aircraft adopt and implement a
security program to help control access to a facility. Instead, limited
and weak security measures will apply only to stations that are on or
adjacent to an airport. The security challenges raised by the heavy use
of contract maintenance are not limited to stations at airports and
Congress clearly did not identify this distinction when it mandated
security enhancements.
The final rule also did nothing to address concern with adequate
background checks of contract station employees. In fact, it went in
the opposite direction by only applying these reviews to individuals at
a repair station designated as a TSA point of contact and those who
have the means to prevent the unauthorized operation of large aircraft.
Finally, TSA does not intend to fully inspect FAA certified repair
stations, weakening the agency's ability to ensure their security. This
rule also fails to give TSA the clear authority to conduct unannounced
inspections of foreign repair stations. While the rule extols the
virtues of unannounced inspections at domestic stations, it notes that
for foreign stations ``it will always coordinate any inspection with
the host government prior to starting an inspection.'' The final rule
fails to fulfill the intent of Congress, and we look forward to working
with this Committee to improve the safety and security of foreign
repair stations.
Beyond TTIP, Open Skies negotiations and ICAO global aviation
emission issues, the U.S. Government must embrace policies that promote
the competitiveness of U.S. airlines and protect and expand U.S.
airline jobs. It also must not advance policies that provide a
competitive advantage to foreign airlines, particularly state owned or
subsidized airlines. Unfortunately the Department of Homeland Security
(DHS) has been doing the latter. Earlier this year DHS opened a Customs
and Border Protection (CBP) pre-clearance facility at the Abu Dhabi
International Airport in the United Arab Emirates (UAE), despite an
outpouring of objections from the U.S. aviation community, including
labor, U.S. airlines and airports. CBP pre-clearance facilities are
popular with passengers and can help relieve congestion at customs
check points in U.S. airports. However, no U.S. carrier currently flies
between the U.S. and Abu Dhabi. This facility is staffed by U.S.
customs agents at significant cost to the U.S. taxpayer, yet it only
benefits Etihad--the state-owned air carrier of the UAE. This is also a
significant departure from the prevailing construct of preclearance
operations, which is to facilitate U.S. travel and to benefit U.S.
travelers. Preclearance should not be a vehicle to put U.S. air
carriers and U.S. airline jobs at risk by advantaging a foreign
competitor exclusively. And given that Etihad only operates three
routes between Abu Dhabi and the U.S., we believe CBP resources and
personnel would be better used here at home to relieve overburdened
customs lines in U.S. airports. While the Abu Dhabi facility is now up
and running, we are concerned that this will lead to other pre-
clearance facilities in airports that have a minimal U.S. presence such
as Dubai and Doha. We will work closely with Congress in the coming
months to ensure that our customs resources are used in a way that help
alleviate congestion at our airports while also promoting the
competitiveness of U.S. airlines.
In order to remain competitive in the global marketplace and
continue in our commitment to serving the flying public, the U.S. must
invest in the FAA's workforce and aging infrastructure, stabilize the
FAA's operating budget, ensure enhanced oversight of the industry and
airspace, and continue modernizing the National Airspace System (NAS)
through the Next Generation Air Transportation System (NextGen)
initiative. We have all witnessed the impact that government shutdowns
have had on these programs and each time this occurs, these
initiatives, designed to make air travel safer and more efficient and
to expand capacity, are grounded or idled.
The Government shutdown is just the latest disruption for the FAA.
Passage of the 2012 FAA Reauthorization Act was delayed over three
years with 23 extensions before finally being signed into law. In fact,
when an agreement could not be reached on the 21st extension, the FAA
was partially shut down for two weeks during the summer of 2011,
costing the government nearly $30 million a day. More recently, in
April 2013, sequestration forced the FAA to furlough every employee,
including air traffic controllers and safety inspectors, and look at
closing towers in order to achieve the mandated spending cuts.
Sufficient and predictable long-term funding is desperately needed to
ensure that our aviation system is as safe and efficient as possible.
This lack of stable funding has already caused damage, some of
which will be difficult if not impossible to reverse. For example,
stop-and-start funding means that the FAA can't plan for the future,
making long term improvement and modernization projects even more
difficult. In addition, restarting modernization projects is very
expensive and some projects may need to begin again from square one.
The April 2013 furloughs caused delays to modernization projects like
En Route Automation Modernization (ERAM) that are costing $6 million
per month of delay (currently estimated to be about $42 million).
Due to budget cuts, preventative maintenance has been halted, and
engineers and systems specialists must contend with a fix-on-fail
policy, meaning they must wait until equipment actually breaks before
replacing it. This creates an obvious safety concern and may also
result in excessive and avoidable air traffic delays. Sequestration-
mandated furloughs in April 2013 caused severe delays: during the week
of April 21-27 2013, delays nearly tripled at our Nation's airports,
from 5,103 delays to 13,694. These funding cuts are problematic, and
will continue until Congress finds a responsible way to end
sequestration. Until then, our NAS is in jeopardy of falling behind on
efficiency, safety, and capacity.
The FAA also continues to face serious problems regarding staffing,
especially considering that one-third of its workforce, including air
traffic controllers, aviation safety inspectors and systems
specialists, will be eligible to retire starting this year.
Furthermore, even if the FAA replaced these retiring workers
immediately, the training for employees throughout the agency is
extensive and it can take two to five years to fully train new hires.
In addition, FAA operations within the current budget environment are
presenting major challenges for the FAA workforce and the aviation
system, which is resulting in limited funding for travel, challenges
performing inspections and other surveillance activity, reduced or
delayed maintenance of critical systems and equipment, and difficultly
in meeting growing industry demands with its manufacturing and
certification process. Without clear funding in place to ensure the
current workforce remains on the job and a new generation of employees
is in place with access to thorough on-the-job training, there is no
way the FAA can guarantee there will be enough aviation safety
inspectors, air traffic controllers, systems specialists and other
employees in place to secure the safety and efficiency of the system.
The U.S. must also foster programs that will help develop a
workforce with the skills and expertise necessary for the manufacture
and maintenance of modern, technologically advanced aircraft. U.S.
aviation cannot compete globally without maintaining its world
leadership in producing the highest quality aircraft. To that end the
International Association of Machinists and Aerospace Workers (IAM), a
TTD affiliate, has partnered with the Boeing Company to create the
Quality Through Training Program. The IAM and Boeing jointly design and
administer a host of programs designed to continually upgrade the
skills and abilities of the incumbent workforce. These programs
comprise career planning, education assistance, and a variety of onsite
training programs including apprenticeships.
We also want to refer the Committee to the Modular Manufacturing
Development Project, developed by IAM in collaboration with Goodwin
College, the Connecticut Center for Advanced Technology (CCAT) and
other manufacturing organizations. This project is a shining example of
a program designed to increase our manufacturing capabilities to meet
the demands of U.S. aviation and around the world. This project has
identified gaps in our manufacturing capabilities and brings together
industry stakeholders, including labor, to recognize and address the
needs of our manufacturing workforce. I commend IAM, led by President
R. Thomas Buffenbarger, for its leadership and vision in collaborating
on this project, and hope that it will serve as model for workforce
development and technological advancement in aviation manufacturing.
The U.S. aviation industry and its workers face significant
challenges and opportunities as globalization and liberalization become
more prevalent. Already, U.S. aviation crews have seen their jobs
threatened by corporate schemes such as alliances between U.S. and
foreign air carriers, and the ``flag of convenience'' scheme being
advanced by NAI. Similarly, foreign outsourcing of aircraft maintenance
and passenger service functions is sending good U.S. aviation jobs
overseas, while our own FAA remains paralyzed by sequestration and
budgetary uncertainly. The U.S. aviation system remains the best and
safest in the world, however, and through smart government policies and
investment that promote U.S. competitiveness, middle class job
creation, and technological modernization we can thrive in the
international marketplace.
Thank you for the opportunity to testify today, and I look forward
to working with the Committee to promote the competitiveness of the
U.S. aviation industry and to protect and expand our middle class
aviation industry workforce.
______
Attachment 1
Transportation Trades Department, AFL-CIO
A bold voice for transportation workers
TTD MEMBER UNIONS
Air Line Pilots Association (ALPA)
Amalgamated Transit Union (ATU)
American Federation of Government Employees (AFGE)
American Federation of State, County and Municipal Employees
(AFSCME)
American Federation of Teachers (AFT)
Association of Flight Attendants--CWA (AFA-CWA)
American Train Dispatchers Association (ATDA)
Brotherhood of Railroad Signalmen (BRS)
Communications Workers of America (CWA)
International Association of Fire Fighters (IAFF)
International Association of Machinists and Aerospace Workers
(IAM)
International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers (IBB)
International Brotherhood of Electrical Workers (IBEW)
International Longshoremen's Association (ILA)
International Organization of Masters, Mates & Pilots, ILA
(MM&P)
International Union of Operating Engineers (IUOE)
Laborers' International Union of North America (LIUNA)
Marine Engineers' Beneficial Association (MEBA)
National Air Traffic Controllers Association (NATCA)
National Association of Letter Carriers (NALC)
National Conference of Firemen and Oilers, SEIU (NCFO, SEIU)
National Federation of Public and Private Employees (NFOPAPE)
Office and Professional Employees International Union (OPEIU)
Professional Aviation Safety Specialists (PASS)
Sailors' Union of the Pacific (SUP)
Sheet Metal, Air, Rail and Transportation Workers (SMART)
SMART--Transportation Division
Transportation Communications Union/IAM (TCU)
Transport Workers Union of America (TWU)
UNITE HERE!
United Mine Workers of America (UMWA)
United Steel, Paper and Forestry, Rubber, Manufacturing,
Energy, Allied Industrial and Service Workers International
Union (USW)
These 32 labor organizations are members of and represented by the TTD
______
Attachment 2
BEFORE THE
U.S. DEPARTMENT OF TRANSPORTATION
WASHINGTON, DC
Application of )
) Docket No. OST-2013-0204
NORWEGIAN AIR INTERNATIONAL )
LIMITED )
)
for an exemption under 49 U.S.C. Sec. 40109 )
and a foreign air carrier permit pursuant to )
49 U.S.C. Sec. 41301 (US-EU Open Skies )
ANSWER OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL
ORGANIZATIONS, AND THE TRANSPORTATION TRADES
DEPARTMENT, AFL-CIO TO DOT NOTICE OF MOTION
On behalf of the American Federation of Labor and Congress of
Industrial Organizations (AFL-CIO), and the Transportation Trades
Department, AFL-CIO, we write in response to the written summary of the
January 8, 2014 U.S.-EU Joint Committee meeting as it pertained to the
current and planned long haul operations of Norwegian Air Shuttle ASA
(NAS) and its affiliated companies, Norwegian Long Haul AS (NLH) and
Norwegian Air International Limited (NAI).
The AFL-CIO and TTD support the comments filed by the Air Line
Pilots Association (ALPA), and we refer you to the analysis and
response to each point made by the European delegation detailed in
ALPA's filing. As those comments discuss, the DOT Summary states that
during a closed-door session of the Joint Committee Meeting, the
European delegation gave the Joint Committee what the Summary
characterized as ``some detailed factual information.'' We do not
believe that this characterization accurately reflects the nature of
the information provided by the European delegation, as the information
is in most cases not detailed or not factual, or both. Much of the
justification being provided for NAS/NLH/NAI business model, including
their decision to seek an Air Operators Certificate in Ireland rather
than Norway, has only been recently presented. Furthermore, as detailed
in the ALPA filing, the economic claims for basing long haul operations
out of Ireland seem to be insubstantial. Rather, we believe that these
claims are merely part of a publicity campaign designed to distract the
general public and Federal regulators from their true goal and purpose:
to avoid Norway's labor and other social laws, evade their existing
collective bargaining agreements, and to undercut existing U.S. and
European airlines and their workers.
Perhaps the most troubling thing about the written summary is what
is what the EU delegation did not mention. The EU-U.S. Air Transport
Agreement (ATA) includes, for the first time ever, a labor article
designed prevent an agreement from having adverse effects on aviation
workers. This provision, Article 17 bis (``Social Dimension''), states
that ``the opportunities created by the Agreement are not intended to
undermine labour standards or the labour-related rights and principles
contained in the Parties' respective laws.'' It further states that
``the principles in paragraph 1 shall guide the Parties as they
implement the Agreement.''
The inclusion of Article 17 bis in the ATA represented important
progress in our global effort to ensure that market-opening trade
initiatives are not used to harm good jobs and undermine labor
standards, and was praised by both U.S. and European negotiators. On
March 25, 2010 Siim Kallas, the European Commission Vice President
Responsible for Transport released a statement proclaiming that ``For
the first time in aviation history, the agreement includes a dedicated
article on the social dimension of EU-U.S. aviation relations. This
will not only ensure that the existing legal rights of airline
employees are preserved, but that the implementation of the agreement
contributes to high labour standards.'' \1\
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\1\ European Commission, Office of the Vice President for
Transport. Breakthrough in EU-U.S. second-stage Open Skies
negotiations: Vice-President Kallas welcomes draft agreement. Retrieved
from: http://europa.eu/rapid/press-release_IP-10-371_en.htm?locale=en
---------------------------------------------------------------------------
Despite such a strong statement supporting high labors standards
and worker protections, the European delegation appears to be walking
away from commitments they agreed to in Article 17 bis. At no point in
the written summary of the European delegation's presentation was
Article 17 bis mentioned or referenced. Nor does it appear that the
European delegation has factored this article into its determination
that the U.S. DOT should grant NAI a foreign air carrier permit.
As TTD detailed in its previous filing, NAI's intentions leave
little in doubt. Its business model was developed explicitly to evade
its collective bargaining obligations in its home country and Norwegian
labor laws, and it is doing so using opportunities provided by the ATA.
By basing its crews in Thailand and employing them on individual
contracts governed by the laws of Singapore, NAI is clearly undermining
labor standards on both sides of the Atlantic.
The negotiators of the ATA recognized that the fact that each
European signatory to the ATA has its own national labor law might
entice airlines to ``shop around for a better deal.'' Article 17 bis
was included to precisely to prevent this practice. Yet now, when NAI
is attempting to do precisely that, the European delegation appears to
be abandoning the principles that guided their negotiations, and
walking away from their commitments under the agreement.
Should NAI's business plans be allowed to move forward, we believe
that it will set a devastating precedent that will have far reaching
implications for the global aviation industry, U.S. and European
airlines and airline employees. NAI's application is a critical test
case for how the U.S.-EU air services agreement will be implemented,
and whether the Article 17 bis labor protections will be enforced as
intended.
We believe that the case presented by the European delegation as
detailed in the written summary is fundamentally flawed and ignores a
crucial article in the ATA. It also ignored many serious questions that
TTD and other organizations have posed in regards to the NAI business
model. DOT should make clear that it will not ignore the ATA labor
article, and seek further information from the European delegation and
NAI about how they will address the serious labor concerns that we have
presented.
We appreciate your consideration of our views.
Richard Trumka
President, AFL-CIO
Edward Wytkind
President, TTD
______
Attachment 3
May 10, 2013
Ms. Yvonne Jamison,
Office of the United States Trade Representative,
Washington, DC.
RE: Request for Comments on the Transatlantic Trade and Investment
Partnership Docket No. USTR-2013-07430
Dear Ms. Jamison,
The Transportation Trades Department, AFL-CIO (TTD) appreciates the
opportunity to submit its views on the proposed Transatlantic Trade and
Investment Partnership (TTIP) between the United States and the
European Union. TTD has previously submitted comments during the United
States European Union High Level Dialogue process, and I gave an oral
presentation of TTD's views at the US-EU High Level Regulatory
Cooperation Forum on April 11, 2013. TTD's comments today will reflect
those previously stated positions.
We understand that the EU has asked that the ownership and control
rules that pertain to airlines, the right of the carriers of two sides
to operate in each other's domestic markets (``cabotage operations''),
and maritime transport services be included as topics in the TTIP
negotiations. For the purposes of air transport services, TTD's
comments here are limited to whether or not air traffic rights and
services directly related to those rights should be included in TTIP.
TTD strongly believes that they should not. Likewise, TTD believes that
maritime transport services and U.S. maritime laws such as the Jones
Act should not be included in these negotiations.
Air transport services have historically been excluded from general
trade agreements such as GATS and bilateral and multilateral free trade
agreements. Rather, such services have been subject to a separate
administrative regime, under which the U.S. has negotiated air service
specific agreements with foreign countries. These negotiations have
been led by the Department of State and the Department of
Transportation, two agencies with dedicated experts on air transport
services. This regime has led to the steady and dramatic removal of
barriers to trade in the air transport services sector and since 1993
the U.S. has entered into ``open skies'' agreements with 107 countries
agreements that have eliminated virtually all restrictions on the
ability of carriers to select routes, to establish frequencies and to
set prices.
The U.S. and the EU have recently entered into such an open skies
Agreement (``Agreement''). During the comprehensive discussions that
resulted in the Agreement, the EU sought the exchange of cabotage
rights and the elimination of restrictions on the ownership and control
of airlines by the nationals of the parties. In fact, it is fair to say
that consideration of altering the ownership and control rules was one
of the central topics in the negotiations. Ultimately, the Agreement
left in place the restrictions on cabotage. With respect to ownership
and control, the Agreement left in place the statutory restrictions but
did establish a Joint Committee (consisting of representatives of the
two sides) that meets on a regular basis and is tasked, among other
things, with considering possible ways of enhancing the access of U.S.
and EU airlines to global capital markets.
In TTD's view the existing administrative framework has been
successful in opening markets and liberalizing trade in air transport
services while at the same time taking into account the legitimate
concerns of airline labor. The regime has also created an open market
environment that has permitted the airlines of the two sides to receive
antitrust immunity for ever-deeper alliance arrangements. Almost all
major U.S. and EU passenger airlines are now members of immunized
alliances that permit them to operate as virtually single entities in
the international markets that are covered by the immunity grants.
Additionally, the Agreement contains provisions that recognize the
value of ``high labour standards'' and establishes a mechanism for
considering and addressing adverse effects on airline workers that may
result.
While restrictions on cabotage and on ownership and control remain,
there are good reasons for this. With respect to cabotage, the
operation of foreign airlines in U.S. domestic markets would be at odds
with a host of U.S. laws, including visa and labor laws. It would also
be inconsistent with the treatment of other business sectors. For
example, if a foreign automobile company wishes to set up a
manufacturing operation in the U.S., that facility and its workforce
are subject to U.S. laws and regulations. Granting cabotage rights to
EU airlines, however, would allow these airlines to operate in the U.S.
domestic market with a workforce that remains technically based in
their home country and subject to that country's laws. This would allow
the airlines to bypass U.S. laws and displace U.S. aviation employees.
Additionally, given that the U.S. represents about half of the world's
aviation market, it is unreasonable to argue that opening the U.S.
domestic point-to-point market to foreign carriers would represent an
even exchange of benefits with our EU trading partners.
The request to eliminate the ownership and control restrictions
raises its own set of difficult issues. If an EU airline were able to
own a U.S. airline, it would be able to place the air crew of the U.S.
carrier in competition with the air crew of the EU airline for the
international routes flown by the previously U.S.-owned carriers. If
the foreign owner sought to eliminate U.S. jobs and move this work to a
foreign crew, it is unlikely that U.S. labor laws would provide an
adequate remedy or protection for these workers. This is a very real
threat, and the consequences of a similar arrangement are currently
being felt by aviation workers in Europe where several airlines have
taken advantage of the lack of a comprehensive labor law in the
European common aviation area to undermine the ability of European
flight crews to bargain over the flying done by their companies. We
would be happy to provide specific examples of these actions if you
wish to consider the issue in more depth.
Changes to our ownership and control laws would have a negative
impact on U.S. aircraft maintenance workers as well. If foreign
carriers are allowed to take over U.S. airlines, the practice of
outsourcing aircraft maintenance to foreign countries will only
accelerate. This is already a major problem that has cost thousands of
skilled U.S. jobs and lowered safety standards. And while there is
currently a congressionally mandated moratorium on certifying new
foreign repair stations, we are still awaiting long overdue security
rules governing contract repair stations and drug and alcohol testing
at foreign repair stations. Any actions that would further promote the
outsourcing of aircraft maintenance work, particularly without adequate
rules governing the oversight of these foreign repair stations, should
be rejected by this administration. The U.S. Government should be
pursuing market-opening aviation trade opportunities that create and
sustain U.S. jobs both in the air and on the ground, not those that
leave the future of U.S. aviation to foreign carriers (and their
respective governments) that may have different economic agendas.
In addition to the problems that relaxing foreign ownership and
control rules would cause for our domestic aviation workforce, this
proposal would strain our government's ability to mandate and enforce
critical security standards. With a foreign interest so integrally
involved in controlling the operations of a U.S. air carrier, it would
be impossible to assert U.S. security interests. Moreover, the ability
of our government to manage the Civil Reserve Air Fleet (CRAF) program,
which assures U.S. air carrier capacity for our military's air
transport needs during wars and conflicts, would be undermined. Under
relaxed foreign ownership and control rules we question how a foreign
executive that controls the commercial aspects of a U.S. carrier but
does not support our military strategy would be compelled to provide
CRAF air transport services during a war or conflict.
Finally, we would note that the Bush Administration in 2005
proposed a rule change to allow foreign entities to exercise actual
control over U.S. airlines. This proposal was subject to fierce
opposition in Congress and eventually had to be withdrawn by the
Administration. It is clear that there remains little support in
Congress for changing our current ownership and control standards at
the demand of an international trading partner when there is no
identifiable benefit to U.S. interests.
The same principles noted above apply to any consideration of U.S.
maritime transport laws and policies. The Jones Act has been a
successful part of our Nation's national security and economic policy
since 1922, and serves a critical economic role for our nation,
sustaining over 500,000 good-paying American jobs and generating $100
billion in total annual economic output. This law has ensured that the
U.S. continues to have a reliable source of domestically built ships
and competent American crews to operate them. Overall, the U.S.-flag
maritime industry has played a vital role in supporting our armed
forces, our trade objectives, food and other aid to other countries,
and our national security. We should be promoting the growth of the
U.S. merchant marine, not pursuing changes in our maritime policies
through trade negotiations that weaken this vital segment of our
transportation system.
Any limitation of the Jones Act would harm American mariners,
increase the unemployment rate, accelerate the decline of U.S.-flag
operators and seriously damage our economic recovery and national
security. This would also permit foreign entities that do not employ
U.S. workers and do not pay taxes to our treasury to operate with
impunity on our inland waterways and along our coasts. Any efforts to
include maritime transport services in these negotiations or to
otherwise weaken or infringe upon the Jones Act should be rejected by
U.S. negotiators.
TTD looks forward to working with the U.S. Government as it
considers how to proceed with respect to the proposed TTIP. Thank you
for your consideration of our views.
Sincerely,
Edward Wytkind,
President.
cc: Susan Kurland, Assistant Secretary for Aviation and International
Affairs, DOT
Paul Gretch, Director, Office of International Aviation, DOT
Kris Urs, Deputy Assistant Secretary for Transportation Affairs, DOS
______
Attachment 4
SUPPORTING A GLOBAL SOLUTION TO AVIATION EMISSIONS
Earlier this month the International Civil Aviation Organization's
(ICAO) general assembly approved a plan that will provide for the
development, over the next three years, of a global framework for
addressing aviation's impact on climate change, with the goal of
implementing the plan worldwide by 2020. TTD applauds the adoption of
this plan, and looks forward to working with ICAO to develop a
framework that will substantially reduce global emissions, improve the
efficiency and cost-effectiveness of our aviation system, and promote
sound environmental stewardship while maintaining competitive balance
and fairness in the international aviation marketplace.
The U.S. aviation system plays a critical role in our national
economy. It employs millions of workers both directly and indirectly,
generates nearly $900 billion in economic activity annually, and is
responsible for nine percent of our GDP. The aviation industry also
faces significant financial head winds as profit margins remain thin
and job losses continue at some carriers. Rising fuel costs have
contributed greatly to these hardships. Despite technology driven
reductions in jet engine fuel consumption and airline fuel conservation
practices, jet fuel expenses have become the airlines' largest
operating cost. As a result, U.S. airlines have acted proactively to
both decrease their environmental footprint and combat volatile fuel
expenses. The industry has improved fuel efficiency and lowered
emissions, including a 1.5 percent annual average fuel-efficiency gain
through 2020, carbon-neutral growth from 2020, and a 50 percent net
reduction in emissions by 2050. The U.S. was also actively engaged in
negotiating the ICAO global emissions plan.
The ICAO agreement comes on the heels of a contentious period
revolving around aviation emissions. In November of last year President
Obama signed legislation that allowed the Secretary of Transportation
to combat the harmful effects of the European Union's Emissions Trading
Scheme (EU ETS) and ensured that U.S. airlines are not subject to the
EU cap-and-trade tax penalties. TTD endorsed this legislation, the
purpose of which was not to turn a blind eye to the effects of aviation
emissions on global climate change, but to reaffirm our commitment to
finding a global solution to reducing aviation emissions through ICAO.
The U.S. and EU share the common goal of reducing carbon emissions
in the aviation industry. However, while the U.S. was committed to
working through the ICAO process, the EU moved forward by unilaterally
subjecting all international flights arriving and departing from the EU
to emissions standards mandated by the EU ETS. This would have placed
an unreasonable financial burden on U.S. carriers and their employees,
and would have only further delayed the process of reaching an
international, consensus-based agreement. Fortunately, in the face of
deep criticism from the international community including the
legislation signed by President Obama, the EU delayed implementation of
the EU ETS for one year to allow the ICAO process to deliver a global
plan.
A global solution is not only the most effective way to reduce
aviation emissions in the environment that we all share, but also the
most economically sound solution. Rather than a patchwork system of
environmental standards set by various governments, a global system
will address this problem without putting U.S. carriers and their
workers at a competitive disadvantage. The emission payments under the
EU ETS, for instance, were expected to cost the U.S. aviation industry
over $3 billion dollars in the next several years--a prohibitive
expense that could have cost thousands of jobs.
Despite the international commitment to creating a global framework
for reducing carbon emissions, EU officials have unfortunately
expressed disappointment with the ICAO agreement and are pushing to
implement the misguided ETS scheme regardless. In the aftermath of the
ICAO general assembly meeting, the European Commission (EC) proposed
revising the EU law so that the ETS would cover all flights over EU
airspace, including those flown by international carriers. While we
continue to support the responsible reduction of carbon emissions, the
latest EU proposal only complicates the goal of reducing emissions on a
truly global scale.
TTD and its affiliated unions oppose the heavy handed, unilateral
approach being taken by the EU and believe that these actions only harm
the international community's ability to find a meaningful and
permanent solution. We remain committed to working with U.S. carriers,
the U.S. Government, and ICAO to build an international framework for
combating global carbon emissions in the aviation system, but will
oppose unilateral action by other governments that undermine U.S.
airlines and their workers.
Policy Statement No. F13-05 Adopted October 29, 2013
Senator Cantwell. Thank you, Mr. Wytkind.
And again, thank you to all the witnesses for your
testimony. It was very thorough and brought up a lot of issues
and hopefully my colleagues and I will have ample time to ask
you some questions.
And I want to start with you, Mr. Muilenburg, about the
35,000 planes that are this market opportunity for us. Seventy
percent of that market, or 24,000 of that demand is going to be
single-aisle planes which is kind of evenly divided right now
between Boeing and Airbus. There are new entrants into the
market like China and Brazil who are making serious investment.
So what is it we need to do to stay competitive in the U.S. in
manufacturing of the single-aisle planes?
Mr. Muilenburg. Senator, you bring up a very good point.
And your statistics, they are very accurate. The majority of
those 35,000 planes are in the single-aisle marketplace.
Boeing, today, we have our 737 family of aircraft that compete
in that market space against our principle competitor, Airbus.
That is our most competitive market space.
A couple of things I think are important to enable U.S.
industry and the rest of the infrastructure as we look forward.
One is continuing to invest in innovation. As you know, we are
currently investing in the 737 MAX, the next version of the
737, to make the airplane 14 percent more efficient than it
already is today as we work in this competitive marketplace.
But continuing to invest in aerospace R&D in the country to
enable that innovation, I think, is very important.
We know, also, that many of the airlines that are buying
these single-aisle airplanes are leveraging government
investment in Europe. We continue to be concerned about the
illegal subsidies that we see in Europe that Airbus is taking
advantage of. We think the WTO compliance panel, that's
currently evaluating the compliance of Airbus to the previous
WTO rulings that were made, it's important that that's brought
to conclusion so that we can operate on a level playing field.
EX-Im Bank reauthorization, as we talked about, is another
important financing element here that will enable us to take
advantage of that marketplace. As we said, 80 percent of those
airplanes will likely be sold outside of the United States
while 80 percent of the jobs will be in the United States. So
it's in our best interest to help airlines finance and take
those airplanes.
And then last, I think, is workforce training. As you said,
if we look at the demographics for our workforce across Boeing
and much of the aerospace industry, about 50 percent of our top
engineers and mechanics will be eligible to retire over the
next, roughly, 5 years. If you look at the STEM pipeline in
this country, just to give you an example, we have about four
million children entering kindergarten this year. At current
rates, that will produce about 60 to 70,000 engineers at the
end of college. That's not even enough to satisfy the aerospace
industry, let alone all sectors that need engineers.
So investing in the future pipeline training across
engineers, mechanics, all of those high-skilled areas, an
important investment to the future, as well.
Senator Cantwell. Thank you.
And I have some follow-up for that but I also want to ask a
question because I think, you know, many of us have mentioned
this, Malaysian Flight 370 and the fact that the flight is
missing and everybody is very anxious and concerned, including
the family members who are living through this, but it seems to
me that certain things shouldn't be missing. And that is
information and data about what is the accuracy of either in-
flight information or--I wanted to ask Mr. Calio about this
issue of Interpol. I found it surprising, maybe many Americans
did, that U.S. carriers or flights in and out of the U.S.
basically had background checks and yet some of these other
foreign destinations don't.
Ms. Blakey, I don't know if you know about these in-flight
monitoring systems but these are, the 777, are one of the most
technologically sophisticated flying machines out there. And I
think people are anxious to know, is there data collected on
these planes that's a normal part of engine maintenance and
what is that information and how can it be made available to
people?
Ms. Blakey. Well, to speak to the last point because I'm
sure that there are lots of expertise up here at the table, I
certainly can't comment on the specifics of the Rolls-Royce
engines that were on that flight. But it is true that
airplanes, new airplanes, are flying computers and they do have
tremendous amounts of data that is very helpful in maintaining
the extraordinary safety record that we have because they do
monitor in-flight, for example, the health and our activity of
engines. That is something that newer engines will do. They do
it periodically during the flight.
If there are anomalies that begin to appear in terms of the
data, then that monitoring becomes more intense and
transmission to the ground is available, again, depending on
the model. And then finally when they land, of course, you can
download all of that so that from a maintenance standpoint, as
well as from the standpoint of transit issues, we've got a
tremendous amount of information available. So that certainly
is a part of the picture in all of this.
Senator Cantwell. So that communication is continuing
during flight?
Ms. Blakey. It depends, again, on the model, the engine
itself, but it is sporadic, usually, with a healthy engine; it
is not continuous.
I would turn to Muilenburg, he also knows this.
Mr. Muilenburg. That's an accurate description of the
overall systems. So we can't yet comment on the details of that
specific flight but the technology is sophisticated and
available. Our in-flight monitoring systems are often used to
enhance the safety and maintenance of the airplanes. So we have
a team on the ground in Malaysia working with the safety board
and we're providing technical assistance. So we will stay very
closely engaged in that process.
Senator Cantwell. And my time is up on this round. But, Mr.
Calio, how do U.S. carriers look at this Interpol issue in the
sense that they're providing the safety and security for
systems flying in and out of the United States? Our U.S.
carriers are doing in partnership with our government that work
but Americans are now finding out that if they're on these
other flights they're not basically going through the same
Interpol system?
Mr. Calio. Madam Chairwoman, I worry a little bit about
commenting about anything right now because we don't really
know. And I'm not intimately familiar with the Malaysian
security but we do have agreements with many other countries
and we work with our partners in flight on the security
matters. Security is not something we normally compete on. You
know, we've got the best system in the world we think. So we're
going to have to wait to see what the facts say about the
Interpol report.
Senator Cantwell. OK.
Well, I think Americans want to understand, as we have
implemented----
Mr. Calio. Sure.
Senator Cantwell.--security regimes, what's happening to
these systems around the globe? So, thank you.
Senator Ayotte.
Senator Ayotte. Thank you, Madam Chairwoman.
Let me just follow up on what the Chair just raised. I
think the issue is, at least the public reports have been that
essentially Interpol has this data base but it's not being
checked. And we may be checking it for, obviously, our
carriers, but these other carriers are not checking whether
it's, for example, a stolen passport issue or an invalid
passport issue of some form.
And so, I think this issue is incredibly important and all
of you have tremendous technical background and expertise in
this area. While this is ongoing, I hope that we can have
follow up on this, Madam Chair, to get your advice and thoughts
as the facts come forward as to what happens so that we can
obviously take a look at this issue from a perspective of the
safety of American passengers. And I appreciate that.
And I think the other issue is you were talking about, Mr.
Muilenburg, that Boeing has people on the ground in Malaysia. I
really appreciate that. I know my people have raised with me,
is this issue of the so called ``black box.'' And usually, that
type of data survives and is designed, as I understand it, to
survive not only water type situations but other weather
conditions.
Can you give us a sense, to the extent you can, of how that
system works? And I understand that the facts are still being
gathered here but I think that's one of the things that's an
outstanding question in people's minds.
Mr. Muilenburg. Yes.
I can give you some of the basics of how that system is
designed. It's certainly intended to be very robust and to
survive any kind of physical encounter in the airplane. It's
highly integrated. It records the overall flight path of the
airplane, details of how the airplane is performing, pilot
inputs. So it's a very thorough monitoring system. It is
designed to survive any kind of impact that might occur. It is
designed to survive any kind of electrical interference, as
well. So it's a very robust system, one that we typically rely
on for post-incident reviews. And I think it has contributed
significantly to the safety and overall improvements of the
aviation system over time. And we'll continue to stay very
engaged in this particular incident as we would any time we see
something that might raise concerns about the aviation system.
Senator Ayotte. Absolutely; we appreciate it.
I want to get to the issue, obviously, of how do we create
a better competitive environment for the aviation industry and
with all of the importance in it and the good news in terms of
the exports.
But, I wanted to ask you, Mr. Calio, about--you talked
about looking at ATC reform on the tax structure. Can you give
us a sense what, as we look in terms of your average airline's
ticket, what is actually currently part of it in terms of
taxes?
And also, when you talk about this type of reform, I guess,
Mr. Muilenburg, so all of you, what do you think we should do
there as we look at if we go big on a reauthorization to help
you be more competitive?
Mr. Calio. Thank you.
A couple of points. The most shocking fact in the world to
most normal people is when you tell them that if they bought a
$300 roundtrip ticket, $61 of that is currently Federal taxes
and fees. That will rise come July as a result of the budget
agreement where, in 2013 when the TSA Security fee was raised
by $3.10, absolutely none of which is going to security.
So one of the things that has to happen is more
transparency in taxes and fees and, going forward, we'd like to
see those taxes and fees reduced. You know, for the most part
the taxes and fees are collected to fund the system, but it's a
not very well thought out way to fund the system and a critical
portion of that goes to fund ATC operations. If you were able
to reform, make more efficient ATC operations which would have
multiple benefits down the line, and the air traffic
controllers agree with us on this, you could look at a new way
to fund the system that made a lot more sense than this
accumulation of taxes and fees that's built up over the last 20
to 30 years.
Senator Ayotte. And I wanted to follow up, Mr. Wytkind, I
think there's a number, if we get a second round, of additional
questions, on the issue that you talked about with regards to
this Norwegian issue.
Mr. Wytkind. Yes.
Senator Ayotte. And could you help me understand, is there
a precedent for this within DOT to deny this type of
application? And also, what do you see the implications if it's
not denied? And, if it is denied, do you think that there'll be
any kind of retribution on the European's part?
Mr. Wytkind. Well, let's sort of look back for a minute.
Thank you for that question, by the way. The issue is very
important.
So this is an unprecedented moment. We just had a new U.S.-
E.U. Open Skies Agreement negotiated and finalized in 2010--and
it did liberalize and open new markets--that we supported. It
also had embedded in it a labor article that made it very clear
that both sides of the Atlantic embrace high labor standards
and that nothing in this agreement shall be used by any carrier
to lower labor standards. And so, this NAI, this Norwegian
operation, we think violates the agreement. It also violates
our own public interest laws in the United States. And so, it
is a bit of an unprecedented case because they are using a
U.S.-E.U. agreement to form a new airline in Ireland that
doesn't fly in Ireland and that employs people in Thailand who
are under Singapore labor laws.
So the precedent question is one where the DOT has denied
applications by many carriers over the history. But, this is a
very clear-cut slam-dunk case in front of DOT, as far as we're
concerned. If our government is going to embrace a labor
article that is enforceable and then you have the first case
come before you that says we want to fly in the United States,
we want to compete with U.S. and European air carriers on a
very unleveled playing field, we want to use the benefits of
the U.S.-E.U. Agreement to do so, but we don't want to play by
the same rules as our competitors, we think the government
needs to say no to this application. And so, the implication
is, however, that we're going to be sending the signal if we
approve this that it's OK to use ``flag of convenience''
operations that scour the globe for the cheapest labor costs
under so-called liberalized trade agreements that are designed
to create opportunities for U.S. aviation and for European
aviation. So I think it's a clear-cut case, but obviously it's
in the hands of DOT regulators and we believe, you know,
they're moving a little closer toward a decision.
Senator Ayotte. Thank you.
Mr. Wytkind. Thank you.
Senator Cantwell. Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Chairman Cantwell.
Thank you to all our witnesses.
Minnesota is the home of the twelfth largest airfield, the
Minneapolis St. Paul Airport. We're also the home of Cirrus,
one of our Nation's major manufacturers of small jets and we're
the home of Charles Lindberg. So, there you go.
And I wanted to focus today on two issues really. The first
is Small Airplane Revitalization Act; something that I led with
Senator Murkowski, and we passed and signed into law. It
doesn't happen a lot around here right now. And then, also, the
export issue with growing markets in Asia and Latin America
demanding more aircraft. And I did want to say, Mr. Wytkind,
I'm on the letter with, I think there are 38 Senators----
Mr. Wytkind. There are, thank you.
Senator Klobuchar.--bipartisan Senator on that issue that
you just discussed and share your concerns. So thank you for
that.
With eight aviation-related manufacturing, engineering and
assembly facilities in my state, I'm interested in how aviation
companies are able to get FAA approval for commercial use of
their innovative products. The Small Airplane Revitalization
Act that I introduced and I mentioned earlier, address a
certification process for smaller airplanes, Part 23 category,
given the FAA dates certain to streamline the process.
I guess I go to you, Ms. Blakey. What more can we do to
modernize and improve the certification process for other forms
of aircraft such as larger cargo or passenger planes, as well
as new aerospace innovation?
Ms. Blakey. Well, I think this committee, that Act, have
been appropriately focused on asking the FAA to streamline
their operations and, in fact, move much more quickly,
employing the expertise that is available, for example, under
an ODA, an organizational designation authority. We feel that
they have done a good job in pulling together through several
aviation rulemaking committees with industry; working out
processes that can really speed things up.
The problem is they haven't implemented them. And I think
that is where we really do need the ongoing scrutiny and
attention from the Congress, because FAA does not have the
resources to continue to operate the way they have in the past
on certification nor is it appropriate from either a
technological standpoint where expertise is, these days, very
diffuse. We need to capitalize on the best possible ways and
that often means working in coordination but not trying to
provide all of that within the FAA's own structure. And that's
what streamlining and ODA is all about.
Senator Klobuchar. OK.
I assume you agree, Mr. Muilenburg?
Mr. Muilenburg. I agree fully with all of Marion's
comments. And I also would offer that the progress the
Committee has already made here on Sections 312 and 313 of the
FAA reauthorization bill, big enablers here, down that path. We
do think certification reform, streamlining the system, as
Marion has described, is very important to the future. It's an
important enabler and I appreciate the progress already made.
Senator Klobuchar. Another issue with the exports; I just
know from our own company employing thousands of people in
Duluth, Minnesota, that--where it's really warm right now.
Well, it's warming up. I'll put it that way. The issue is that
we're seeing this growing export market. And, first of all, Mr.
Muilenburg, does Boeing have a sense of what the demand is for
cargo planes over the next decade? Is it expected to increase
at the same rate as the demand for passenger aircraft when you
look at exports?
Mr. Muilenburg. It is.
And, just to give you an overall sense of it, as we said,
about 35,000 large aircraft, both single-aisle and dual-aisle
large aircraft class, over the next 20 years.
Senator Klobuchar. And that's a lot, you know, a lot of
international demand?
Mr. Muilenburg. A lot of international demand. About 80
percent of those aircraft will be sold outside of the United
States.
Senator Klobuchar. Right. And that's what I see with our
small jets. Different----
Mr. Muilenburg. Yes.
Senator Klobuchar.--obviously, different product.
Mr. Muilenburg. Very similar.
Senator Klobuchar. It's over 50 percent of their market and
it's what they really built to get through the turn because of
that.
Mr. Muilenburg. Very similar dynamic and it's shared across
passenger traffic and cargo traffic; as you're well pointing
out.
Senator Klobuchar. OK.
The export control list, on October 28 of last year, the
first export control reform list rules took effect. These rules
include the revisions Category 8 regulations for aircraft and
transition less sensitive items in this category from the State
Department's jurisdiction to the Commerce Department, been a
long-time advocate as we look at not just airline manufacturing
but also defense manufacturing as a whole. We're seeing
decreased spending. We'll want to keep these jobs and we've got
to reform this export control list while still maintaining
safety for the public.
Mr. Muilenburg, do you feel that these efforts will help
companies increase exports and if there are more you feel needs
to be done--I actually raised this on the Export Council, the
President's Export Council with your CEO and raised this issue
recently in quite some detail about what I thought needed to be
done.
Mr. Muilenburg. Yes.
Senator Klobuchar. But do you want to comment on that?
Mr. Muilenburg. Yes.
As you noted, Jim McNerney, our Chairman and CEO, is part
of the Export Reform Council. We think the actions on export
reform that have already been taken are very important and we
appreciate the progress that has been made. Much more still to
do; we believe. So we'd like to continue on that urgent path.
This is an enabler for both commercial aircraft and for defense
products and also for commercial satellites.
So the recent actions to move satellites to the Commerce
List, largely, has been a real enabler for the commercial
satellite business in the U.S. So those are all important
features for us. We would urge continued aggressive action
there. And, in many cases, our broad supply chain is enabled by
export reform because much of their work supports both
commercial aircraft and defense aircraft.
Senator Klobuchar. Thank you.
I have a question on Export-Import Bank but I'll put that
on the record.
Thank you, all of you.
Senator Cantwell. Thank you.
Senator Fischer.
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Madam Chair, and Ranking Member
Ayotte and thank you to our panelists for being here today.
Mr. Calio, it's my understanding that in January of 2012 we
saw a new rule come out from the DOT with regard to the full
fare advertising. I also understand the House has now
introduced legislation that's going to reverse that rule and
allow airlines to, again, separate the fees and taxes from what
the airline ticket truly costs. As a consumer, I think that's
really important. And I know all of my colleagues agree that
transparency is always good. Our constituents like that; we
like that.
Can you tell me your feelings on that?
Mr. Calio. Thank you for the question.
Our feelings are very strong. We thought that the rule was
wrong-headed. It's an example of the type of economic
regulation that predates deregulation. It's also one that makes
no sense and, as is the case, and often the airline industry is
held to a different standard. There's no other product or
service you can name, I don't think, that requires you to take
the taxes and publish them as part of the price. If you buy an
automobile, you get a base price and then you add things on and
the taxes are separate. If you buy a hotel room, the same thing
happens. You have a base price. Taxes are listed separately. I
could go on but you get the point.
So with us being required to advertise a ticket at costing
$300, consumers naturally think that the airlines are taking
$300 out of that, not $239. When ticket prices go up because of
the new TSA security fee July 1, if that rule stays in effect,
the new price will be published and it will look like we just
raised our fare $3.10. So we believe that repeal should happen.
We hope that the Senate will join in that because it will
provide greater transparency to consumers. That rule has
allowed the government to effectively hide the ball on tax
increases.
Senator Fischer. Thank you. I agree with that.
Senator Ayotte had talked about the taxes and fees with you
and you brought up the example of the $300 ticket, which is
fascinating to me, that we aren't able to see what the true
costs are on that. You also briefly mentioned in passing the
President's new budget proposal. It's coming up for Fiscal Year
2015. Can you tell me how that is now going to impact the
ticket price? That's that $3.00 that we're going to see in
addition, another addition?
Mr. Calio. Yes.
If the President's budget were fully implemented, airlines
and their passengers would end up taking that $61 up to $76.
Senator Fischer. OK, thank you.
Mr. Calio. And that dampens demand which is considerable.
You know, there's very little price elasticity in any airline
price which is why sometimes when we raise prices to cover the
cost of fuel or other expenses you'll see those were increases
rejected because consumers won't buy into it.
Senator Fischer. Exactly, thank you.
Ms. Blakey, on your testimony you discuss the ways that
American companies are at a disadvantage in the global market.
And you talked about the increase in taxes and regulations, as
well as some export controls that are there. Where do you see
the trends moving in terms of our competitiveness on a global
scale? And what can we do? What can Congress do to address that
competitive issue that is so very important to this industry as
well as others?
Ms. Blakey. Well I think there's no doubt about the fact
that we are seeing competitors move up behind us. You can hear
the feet. You can feel the hot breaths. So we should recognize
that. Now I have tremendous confidence in American innovation
and technology. And I do believe that we can continue to lead
the world in terms of our aviation industry. You only have to
look at the most recent products that are out there; 787 is a
great example. And you see that we are doing well, but we need
to be very careful about both government policies and our
workforce.
On government policies we've got to extend that R&D tax
credit. Other countries throughout the world are providing very
significant monies to their industries in terms of supporting
research and innovation. We're not the first; we're not even
the sixth. We're way back there. And so we basically must
complete that.
We also have to reauthorize the Export-Import Bank. This is
a debate we shouldn't be having. A Federal agency that is
supporting American jobs and American industry in a way that 60
other nations do, many of them outdistancing us, this really is
not a debate and we need to accomplish it.
And, turning to the broader issue of workforce, STEM
education is something that the Federal Government, state and
local, all of us need to move together to emphasize the
importance of science, technology, engineering and math. And I
do mean in terms of both vocational training as well as the
kind of efforts that, for example, we're making with state
universities and others to net up their engineering
departments' offerings with the actual jobs that we have in our
industry so that there really are the opportunities and smooth
transference into the workforce.
Those are several things I'd mention.
Senator Fischer. Thank you.
My time is up but, for the record, I would like to ask all
of you, how we can improve the cost and the access for my
constituents in Nebraska when it comes to these issues?
Thank you.
Senator Cantwell. Thank you.
Senator Scott.
STATEMENT OF HON. TIM SCOTT,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Scott. Thank you, Madam Chairwoman.
I did listen to Amy asking her question about streamlining.
Really, it was one of the questions I had. So I was
appreciative of her asking that question.
To the panel, I spend a lot of my time working on finding a
way to look at all the duplicative job training programs that
we have, more than 30, and have the overhead collapse down in
the ``Skills Act'' that passed the House that I've introduced
in the Senate. So to focus my attention like a laser on the
needs of our future workforce, we have certainly had a lot of
economic development announcements in South Carolina. We have,
hopefully, some good news coming in the upstate with automotive
expansions, as you all are aware of the wonderful opportunities
we now have in Charleston because of Boeing; 5,000 employees
growing to, hopefully, a couple thousand more. And then, I
assume over the next several years, you guys will just move the
whole shop to South Carolina. But that's just my personal
perspective. You don't need to answer to that comment.
But there are four million jobs available today in America
that go unfilled because the skills necessary to fill those
jobs are very hard to find in the workforce. According to, I
think, it's the National Association of Manufacturers, there
are over 500,000 jobs that could be filled in their industries
that can't be filled because of skills. I'd love to hear your
perspective on ways that you would like us to focus to improve
the skill set and the workforce and, perhaps specifically, in
the workforce development space where we use technical schools.
I think that should be a major part of the opportunities moving
forward, as well as other vocational training schools because
some of the jobs that we're looking for aren't necessarily the
STEM areas, they are simply the ability to have the skill set,
from welding and other areas, that are impacting the
transportation sector significantly.
So I'd love to hear some of your responses.
Mr. Muilenburg. Senator, perhaps I could take a cut at
that.
I certainly share your high interest here and appreciate
your focus on workforce development. And as mentioned, STEM
skills are very important to us, but machinists' skills, the
skill to build airplanes is also a skill where we see a
shortage going forward. And we think the investment talent
needs to be both broader and deeper, needs to start earlier.
And this is getting children interested in aerospace-related
career fields early on. Things like the FIRST Robotics program,
I think, are wonderful examples. They're jointly working
together with colleges and universities, intern programs,
vocational schools; very important to bring those machinists'
skills in early so that as they enter the workforce they can
quickly ramp up as we try to produce airplanes.
So I think there are opportunities for government and
industry to partner together each step of that career
progression to fill the size of the pipeline and also to build
the depth of that pipeline early on, in particular, in some of
those high-end skills, both STEM and machinists-related.
Senator Scott. I have it noted that Boeing, specifically in
Charleston, has a program for high school students at a couple
of high schools to try to help overcome that chasm in the
workforce, that seems to be certainly a very strong tool. I
read a study; I think it was recently. It may have been a
comment by Dr. Thomas Sowell that suggests that it is sixth or
seventh grade, not high school, sixth or seventh grade is when
we start seeing the bifurcation of education as it relates to
STEM and the machinists or the blue collar workers that we know
we're going to need in the future.
Is there any approach that you've seen that's been
effective around the country and perhaps getting in the
pipeline those students between the first and sixth grades?
Mr. Muilenburg. Yes.
Well, we have, and as you rightly mention, those early
decisions are happening. And, I would offer that in many cases
aerospace machinists' skills----
Senator Scott. Yes.
Mr. Muilenburg.--although sometimes labeled as blue collar
skills, those are technically very sophisticated to build
airplanes with aerospace qualities. So those are high-end high
paying jobs in the end. We see the opportunity to take that
vocational training earlier.
So as you've mentioned the high school examples in
Charleston, in fact, we're doing it in many sites around the
country including in the State of Washington, participating
with high schools now for early vocational training and even
looking earlier in the pipeline with programs like FIRST
Robotics as I mentioned, which trains some machinists' skills.
Senator Scott. Thank you very much.
Senator Cantwell. Senator Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Madam Chair, and Senator Ayotte
for having this hearing. I want to thank our panelists for
being here. And I have a statement I'd like to have included in
the record.
Senator Cantwell. Without objection.
[The prepared statement of Senator Thune follows:]
Prepared Statement of Hon. John Thune, U.S. Senator from South Dakota
I would like to thank Chairwoman Cantwell and Ranking Member Ayotte
for holding this hearing today, and thanks to the witnesses for
testifying.
The United States is a leader in aerospace design and
manufacturing. The sector is a source of thousands of high-quality jobs
for businesses large and small.
While it is good news that many segments of the aviation industry
appear to be rebounding from the recession, the industry continues to
face a number of challenges. Fuel prices remain volatile, pressures
from our international competitors are growing, and tax and regulatory
burdens are drags on our global competitiveness.
I am keeping a close eye on developments regarding the European
Union Emissions Trading Scheme (EU ETS). This is an issue Senator
McCaskill and I, along with Senator Ayotte and others, have been
confronting head on for quite some time. The EU ETS is little more than
a unilateral tax-grab that would hurt American operators and the
traveling public when flying into and out of Europe.
In 2012, we led an effort to protect U.S. interests from this
controversial tax, culminating in the EU Emissions Trading Scheme
Prohibition Act, which was signed into law in November 2012. That law
required the Secretary of Transportation to hold U.S. operators of
civil aircraft harmless from the EU ETS, and directed the Secretary to
conduct negotiations at the International Civil Aviation Organization
(ICAO) charting a path for a global, consensus-based approach to
aviation emissions.
I am pleased with the positive outcome on the global aviation
emissions agreement at ICAO's 38th General Assembly, which rejected
unilateral approaches. At the end of last year, the EU had announced
proposed changes to the EU ETS that appeared inconsistent with the ICAO
agreement. However, recent press reports indicate the EU may extend the
moratorium through 2016. This would be a positive development, and I
look forward to hearing from the witnesses on this issue, including how
the absence of a continued moratorium could affect aviation
competitiveness, U.S. consumers, and trade relations with the EU.
During his confirmation process, Secretary Foxx was clear that the
Department of Transportation would enforce the provisions of the EU ETS
Prohibition Act. I look forward to continuing to work with my
colleagues and the Department to confront this challenge.
Another issue on the international front that I look forward to
hearing about today is the impact of state sponsorship of foreign air
carriers on the competitive landscape of international markets.
While the Middle Eastern carriers have been important customers of
our aviation manufacturing sector, we should be careful to consider the
impacts state sponsorship may have on U.S. air carriers' ability to
compete in international markets, as well as the potential consequences
of Open-Skies agreements and what that could potentially mean for
domestic service that exists today--including service to small and
rural communities.
Today, I hope to hear our witnesses' views on what U.S. Government
policies help or hurt our carriers' competitiveness in this regard.
Thank you, Chairwoman Cantwell.
Senator Thune. Thank you.
I'd like to direct this question--I guess it has to do with
the E.U.-ETS issue. And I'm kind of opening this up, I suppose,
to whoever wants to answer it but I think presents a real
challenge to U.S. operators and that's why Congress gave the
DOT the authority to protect our air carriers and the traveling
public from what is unilateral taxation, in effect. And I'm
encouraged to hear that E.U. negotiators are considering
extending the current ``stop the clock,'' at least to 2016. And
I guess my question has to do with, while we hope for an
extension that continues that existing moratorium, how would
the expiration of this stop the clock affect aviation
competitiveness, U.S. consumers and U.S.-E.U. trade relations?
Mr. Calio, perhaps, take that.
Mr. Calio. First of all, Senator Thune, thank you very much
for all your support and leadership on the issue and the
leadership of this committee. Frankly, if Congress had not done
what it had done last year, the E.U. never would have backed
off and never would have put the ``stop the clock'' in place.
That ``stop the clock'' in their statement was based on
progress at ICAO in September and October of this year. We
believe considerable progress was made. But, I guess I would
say to you that--that Congress is going to have to remain
vigilant on this issue. Experience with the E.C. and the E.U.
suggests that there will be constant reconsideration of this
even if that vote is positive in the next few weeks. If they
move the clock ahead or if they put the stop the clock to 2016,
all positive, but I would bet there would be another effort to
roll it back at times. And it does put us at a disadvantage and
it's just wrong. There's nothing about the tax that goes toward
the aviation or making aviation any better. It's extra
territorial, as you all know, and it's something that should
have been done in the first place.
So again, thank you very much, all of you, for your help on
that issue. Without your help and what DOT did on the
administration last year, that would be in place right now.
Senator Thune. And, just as a follow up, compared to the
past, how engaged would you say that U.S. stakeholders and
foreign bodies are when it comes to utilizing ICAO to find a
comprehensive solution to the issue of aviation emissions?
Mr. Calio. From our perspective, from the airline's
perspective, we are very engaged. I say that, you know, if I
were to be glib about it and say you've never seen so many e-
mails and meetings in your entire life on any issue. But it's
all positive. People are working very diligently. It's to our
great benefit to come up with solutions because it means less
fuel burn, better customer service, less noise, everything
along the way. There's a real vested interest here as well as a
common good.
Mr. Wytkind. Senator, may I add----
Senator Thune. Yes.
Mr. Wytkind. I really want to, first, on behalf of our 32
unions, to really thank you for your leadership on this issue.
As you know, our unions all completely came on board in support
of your effort and the effort of the airlines to stop what we
thought was a very heavy-handed tactic. And, unfortunately for
us in the labor movement, the European Union's heavy-handed
tactics on these kinds of issues have become the norm. That's
the same strategy they're deploying in trying to force changes
to our foreign ownership of control roles; it's the same
strategy they're using to try to allow their carriers to serve
domestic markets in the United States point to point.
And so, we're completely on board. We're very engaged at
ICAO. We've embraced an ICAO solution, a global solution, not
one that's unilaterally imposed by the Europeans. So we're
completely with you and all your colleagues and members of this
committee. We think it's the right approach and your leadership
in 2013 brought us to the point we are today.
But I'm with Nick, Mr. Calio. I think this ``stop the
clock'' strategy, while it's better than the alternative which
is trying to force it on us, that issue is coming back and
we're going to have to be very, very aggressive.
Thank you.
Senator Thune. I'm sure Nick is going to want to use that
``I'm with Nick'' statement over and over again.
[Laughter.]
Ms. Blakey. Let me also add from the manufacturers'
standpoint, that at ICAO, working jointly, the manufacturers,
and particularly the engine manufacturers, have done what is
very difficult to do and that is come up with a carbon
standard. You know, you have to measure this. There has to be
science behind it----
Senator Thune. Right.
Ms. Blakey.--at the end of the day. And we're making real
technical progress through this international effort. So we're
right at the forefront.
Senator Thune. Good.
And I want to come back to something that you just stated
and that has to deal with the issue of foreign ownership.
Mr. Wytkind. Yes.
Senator Thune. And, you know, increasingly we're seeing
competition from aircraft that are, you know, aircraft
manufacturing from countries like Brazil and China. And I think
it was mentioned in testimony earlier that U.S. aviation
companies are competing against foreign governments, not just
foreign companies.
So I guess the question is how does that state sponsorship
in other countries impact U.S. air carriers' ability to compete
in international markets? And I should say as a follow up to
that question, what risk does expanded direct foreign ownership
and competition mean in the long-term for domestic service here
in the United States? Will we always have more, or fewer,
carriers and flight options domestically for the traveling
public, say, 10 to 15 years down the road?
Mr. Wytkind. Well, I might say, look, the vision of those
that are proposing to dramatically reform our foreign ownership
rules, is to turn the U.S. essentially into a feeder country.
Even though we're the world's largest aviation industry market,
they want to turn us into a feeder.
And so, there have been many attempts led mostly by the
Europeans to try and change our rules and here's how it would
work. You would make our employees have to work for foreign
companies that come and decide who flies the planes; who
maintains the planes; who services the planes; where they fly;
where they don't fly; are they going to become ticket sellers
where all they want to do is feed the foreign carriers' market
opportunities abroad; and at the end of the day we think the
strategic significance of aviation and its connection to
national security cannot be ignored in this debate.
We run a very robust aircraft program which gives our
military the auxiliary support it needs from our airline
industry to be able to use its aircraft during times of
military and international emergencies. And, for us to just
turn the keys over to foreign interests that want to take over
our airlines, we think it would be one of the great strategic
blunders that this country has made; especially given the fact
that we've already seen bad decisions ravage all sorts of U.S.
industries that are now completely overseas and we've lost them
here. And so, I think we have to act with great caution. That's
why we're strongly against their agenda.
Mr. Calio. Senator, if I could address that as well.
People are surprised to allow it, the ``I'm with Nick'' and
``I'm with Ed,'' but we are together on a lot of things and
we're together on foreign direct ownership. It's a very
divisive issue on the past. We believe it's almost a sidelight
issue. What we, and our partners in labor, have done is try to
partner up on issues that matter most to the industry because
we both agree. You need the U.S. Airline industry to be
sustainably profitable to have good jobs, better jobs, better
product, buy more product. And we're working toward that end.
In terms of state owned enterprises, we are facing very
stiff competition from a lot of state-owned enterprises. We
have information. We'd be happy to share the--brilliant,
actually, the way they've created it. If we could start from
scratch it would be much easier, but they've created these
aviation ecosystems where, for instance, in the case of one
airline, one country, there's one person at the top of the
entire chain; runs the airport, the duty free, the operations,
the maintenance, the airline itself. And they are taking
product away. And what that means in terms of the small and
medium sized communities that you ask about is significant
because U.S. airlines use the profit from international routes
which are their most lucrative parts of their business to
subsidize most of the domestic flying. It's a little known fact
that for years we've been flying people from point A to point B
in the United States at a loss. And it's the international
profits that subsidize the loss on those. And to the degree
that you see a diminution of services down the line, and in
many cases currently, it's because those routes simply become
unsubsidizable.
Senator Cantwell. Well, I want to thank our witnesses.
We're out of time because we had a 15-minute roll call vote
start about 10 minutes ago. So we're going to have to adjourn
the hearing. But I do want, to Mr. Muilenburg and Ms. Blakey,
to follow up on your FAA certification process.
We are going to have more hearings about this. I would like
to, obviously, got to work with our Senator Ayotte on this, but
to focus on what other additional FAA certification process
focus this committee can give to helping us expedite that
process. And to your point, Mr. Calio, would love to hear more
feedback from you on what you want to see in the FAA
reauthorization bill that you would think will also help us in
this process of competitiveness.
Mr. Calio. Thank you.
Senator Cantwell. Senator Ayotte.
Senator Ayotte. First of all, I absolutely agree with the
Chair to have more hearing follow-up on the certification
process. And I do want to hear from all of you what the
priorities should be on the authorization and two other issues
we talked about.
Mr. Calio, the issue of the fees that are on the airline
bills and, obviously, openness of those fees and how people
know. But also, I'd like to get your thoughts on the overall
tax code and what you think needs to be done to ensure that
we're more competitive as these discussions about tax reform
keep bubbling up.
And finally, on the STEM education piece. Obviously, we've
had a great discussion about it today and how we can improve
the pipeline, which I think we're all committed to, but also
what role you believe that raising the H-1B visa caps in the
interim until we have that pipeline.
Thank you.
Senator Cantwell. Well, I, again, want to thank all the
witnesses and all the members. I think we can see from today's
attendance that aviation is a very important issue all across
the America. I think you have laid out an agenda that the
opportunities are great but so are the risks. So we want to be
a partner in helping to minimize those. And so, we'll look
forward to having more discussions and more hearings on this
subject.
We're adjourned.
[Whereupon, at 12:27 p.m., the hearing was adjourned.]
A P P E N D I X
Aeronautical Repair Station Association
Alexandria, VA, March 13, 2014
Hon. John D. Rockefeller IV,
Chairman,
Commerce, Science, and Transportation Committee,
Washington, DC.
Hon. Maria Cantwell,
Chairman,
Aviation Operations, Safety, and Security Subcommittee,
Washington, DC.
Hon. John Thune,
Ranking Member,
Commerce, Science, and Transportation Committee,
Washington, DC.
Hon. Kelly Ayotte,
Ranking Member,
Aviation Operations, Safety, and Security Subcommittee,
Washington, DC.
New Data Highlights Economic Strength of Aviation Maintenance Industry
Chairmen Rockefeller and Cantwell and Ranking Members Thune and Ayotte:
I am writing to provide a new report from the Aeronautical Repair
Station Association (ARSA) quantifying the aviation maintenance
industry's economic and employment footprint nationally, and in your
respective states (see attached state-by-state chart). Please visit
http://bit.ly/1i83gCb to view the full study.
The study makes clear that, although maintenance may be the least
visible segment of the aviation industry, in addition to helping U.S.
airlines become safer and more competitive, repair stations are
significant economic contributors throughout the country. The study
found that the U.S. civil aviation maintenance industry employs 311,614
people and generates $44.4B in economic activity. Additionally, 84
percent of maintenance, repair, and overhaul (MRO) companies in the
United States are small-medium sized entities.
The report also details the broader aviation sector's significant
growth overseas. To ensure the U.S. aviation maintenance industry
remains internationally relevant, repair stations must be able to
compete globally. Congress and the administration should encourage the
negotiation of more bilateral aviation safety agreements (BASAs),
respect our current international aviation accords, and refrain from
micromanaging the aviation maintenance sector through unnecessary
mandates that offer no flight safety benefit.
Additionally, indiscriminate cuts to FAA funding further threaten
the viability of the industry. Congress requires that the agency
provide strict oversight of the industry. However, when lawmakers don't
give FAA the resources to retain adequate certification and inspection
personnel to carry out congressional mandates, the aviation maintenance
industry's ability to efficiently service customers is at risk.
When considering legislative proposals, ARSA asks Congress to keep
our industry's contributions and safety record in mind. Thank you for
your consideration and please contact me if you have questions.
Sincerely,
Daniel B. Fisher,
Vice President of Legislative Affairs.
cc: Members of the U.S. House
Members of the U.S. Senate
______
Global MRO Market Economic Assessment--January 2014
U.S. Employment & Economic Impact by State
Overview
The U.S. civil aviation maintenance industry employs 311,614 people
and generates $44.4B in economic activity. (Figure 1.) MRO accounts for
78 percent of the total employment in the U.S. with 244,144 employees.
Within the MRO industry, companies that are certificated by the FAA
under part 145 are the largest employers with some 195,114 employees.
The remaining 49,030 are employed by other companies involved in civil
aviation. Parts manufacturing and distribution accounts for the
remaining 22 percent of employment with 67,470 employees. MRO generates
48 percent of the economic activity or $21.3B. With 22 percent of the
total employment, parts manufacturing and distribution, accounts for 52
percent of the total economic activity or $23.1B.
Source: FAA/BLS/RITA/TeamSAI Consulting Services analysis
Analyzing the MRO industry at the state level, TeamSAI estimates
that California, Florida, Georgia, and Texas combined represent 35
percent of the total U.S. civil aviation maintenance employment with an
estimated 110,330 employees. The top ten states represent 62 percent of
the total employment in the U.S. (Figure 2.)
Source: FAA/BLS/RITA/TeamSAI Consulting Services analysis
California and Texas also generate the most economic activity
followed by Arizona, Connecticut, Georgia, and Washington. Together,
these six states generate 49 percent of the total economic activity.
(Figure 3.)
Figure 4 presents the detailed employment and economic impact at
the state level.
Figure 4. 2014 U.S. Aviation Maintenance Industry Employment And Economic Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aviation Maintenance Industry Employment Aviation Maintenance Industry Economic Activity
------------------------------------------------------------------------------------------------------------------------
Maintenance, Repair and Overhaul
State (MRO) Parts Maintenance, Parts Total
----------------------------------- Manufacturing / Total Repair and Manufacturing / Economic
FAA Repair Distribution Employment Overhaul (MRO) Distribution Activity
Station Air Carrier
--------------------------------------------------------------------------------------------------------------------------------------------------------
AK 490 417 9 916 $65,833 $3,084 $68,917
AL 5,065 -- 28 5,093 $367,634 $9,595 $377,229
AR 2,927 79 61 3,067 $218,185 $20,903 $239,088
AZ 6,306 978 9,907 17,191 $528,697 $3,394,869 $3,923,566
CA 26,296 3,170 5,493 34,959 $2,138,739 $1,882,307 $4,021,046
CO 1,211 1,535 15 2,761 $199,314 $5,140 $204,454
CT 5,042 240 7,067 12,349 $383,385 $2,421,676 $2,805,061
DE 893 25 83 1,001 $66,631 $28,442 $95,073
FL 16,536 3,780 976 21,292 $1,474,602 $334,450 $1,809,052
GA 16,225 3,338 1,435 20,998 $1,419,947 $491,737 $1,911,684
GU 21 54 -- 75 $5,444 $0 $5,444
HI 158 863 8 1,029 $74,108 $2,741 $76,849
IA 2,738 -- 4,443 7,181 $198,733 $1,522,500 $1,721,233
ID 501 95 33 629 $43,260 $11,308 $54,568
IL 4,010 4,501 1,441 9,952 $617,756 $493,793 $1,111,549
IN 3,450 618 1,164 5,232 $295,269 $398,872 $694,141
KS 5,479 53 4,932 10,464 $401,531 $1,690,067 $2,091,598
KY 538 965 44 1,547 $109,093 $15,078 $124,170
LA 2,040 135 187 2,362 $157,869 $64,080 $221,949
MA 2,060 486 268 2,814 $184,797 $91,837 $276,634
MD 1,102 246 593 1,941 $97,842 $203,206 $301,048
ME 923 -- 129 1,052 $66,994 $44,205 $111,199
MI 4,377 1,946 2,531 8,854 $458,944 $867,307 $1,326,251
MN 2,367 1,557 360 4,284 $284,817 $123,363 $408,179
MO 1,630 276 23 1,929 $138,344 $7,881 $146,225
MP 6 -- -- 6 $435 $0 $435
MS 1,076 23 140 1,239 $79,769 $47,974 $127,743
MT 367 -- 18 385 $26,638 $6,168 $32,806
NC 3,788 1,031 384 5,203 $349,779 $131,587 $481,366
ND 233 -- 99 332 $16,912 $33,925 $50,837
NE 1,079 -- 1,297 2,376 $78,317 $444,448 $522,765
NH 661 -- 33 694 $47,978 $11,308 $59,286
NJ 4,060 1,735 449 6,244 $420,620 $153,861 $574,481
NM 462 -- 47 509 $33,533 $16,106 $49,639
NV 545 1,175 116 1,836 $124,843 $39,750 $164,593
NY 5,761 3,438 2,743 11,942 $667,694 $939,954 $1,607,648
OH 6,052 937 3,174 10,163 $507,285 $1,087,647 $1,594,931
OK 12,188 335 523 13,046 $908,961 $179,218 $1,088,179
OR 1,645 552 116 2,313 $159,465 $39,750 $199,216
PA 3,411 1,536 114 5,061 $359,070 $39,065 $398,134
PR 116 55 -- 171 $12,412 $0 $12,412
RI 251 -- 44 295 $18,218 $15,078 $33,296
SC 2,197 164 10 2,371 $171,369 $3,427 $174,796
SD 83 -- 170 253 $6,024 $58,255 $64,279
TN 2,633 2,055 601 5,289 $340,270 $205,947 $546,217
TX 21,871 7,300 3,910 33,081 $2,117,327 $1,339,854 $3,457,182
UT 342 697 458 1,497 $75,414 $156,945 $232,359
VA 1,179 1,557 2,336 5,072 $198,588 $800,486 $999,074
VI 2 -- -- 2 $145 $0 $145
VT 171 -- 297 468 $12,412 $101,774 $114,186
WA 8,838 888 9,012 18,738 $705,945 $3,088,176 $3,794,121
WI 2,155 195 94 2,444 $170,571 $32,211 $202,782
WV 1,483 -- 38 1,521 $107,641 $13,022 $120,663
WY 74 -- 17 91 $5,371 $5,825 $11,197
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Total 195,114 49,030 67,470 311,614 $17,720,775 $23,120,200 $40,840,975
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FAA/BLS/RITA/TeamSAI Consulting Services analysis
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Hon. Marion C. Blakey
Question. In September, the authorization of the Export-Import Bank
will expire. There is no doubt that many U.S. businesses benefit from
Ex-Im Bank financing, but there have also been concerns raised during
past reauthorizations. Why is it important that the U.S. provide these
financial guarantees? Please comment on the controversy of wide-body
aircraft financing to countries that subsidize their airlines.
Answer. The reauthorization of the Export-Import Bank of the United
States (Ex-Im) is a high priority for the Aerospace Industries
Association. With 95 percent of the world's consumers living outside
the United States, and with GDP rising at faster rates in many of those
countries, it is imperative for policy makers to support the export of
U.S. manufactured products. The Ex-Im plays a vital role in helping
American aerospace companies compete on a level playing field in the
global marketplace. Ex-Im is crucial to supporting U.S. jobs,
generating export revenue, maintaining a robust network of aerospace
suppliers, and facilitating a strong U.S. presence in the global
market. The backbone of the aerospace industry is supported by more
than 30,000 small and medium-sized suppliers--all who benefit when our
products are exported. The benefits don't stop there. The Ex-Im Bank is
a self-sustaining entity, actually returning more than $1 billion to
the Treasury Department last year.
Our foreign competitors have their own export credit agencies that
provide financial support to their domestic manufacturers. Without Ex-
Im, U.S. aerospace companies would be unable to compete on a level
playing field for overseas orders. It will undermine our global
competitiveness, in a field where we lead the world today.
We believe that without the support of the Ex-Im Bank, foreign
airline carriers will decide to purchase non-U.S. manufactured aircraft
financed by foreign export credit agencies.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Nicholas Calio
Question. In September, the authorization of the Export-Import (Ex-
Im) Bank will expire. There is no doubt that many U.S. businesses
benefit from Ex-Im Bank financing, but there have also been concerns
raised during past reauthorizations. Why is it important that the U.S.
provide these financial guarantees? Please comment on the controversy
of wide-body aircraft financing to countries that subsidize their
airlines.
Answer.The financing of large, wide-body aircraft is not an Ex-Im
Bank problem--it is an export credit structural problem. Today our
foreign airline competitors can save millions of dollars on financing
costs because export credit assistance from the Ex-Im Bank or a
European export credit agency allows them to finance aircraft at below
market rates. U.S. airlines, however, are blocked from export credit.
Both sides--the U.S. and Europe--support their aircraft manufacturers
and neither can disengage unilaterally. We understand that. But the
cost is U.S. airline jobs and U.S. airline global competitiveness. U.S.
airlines, their employees and, ultimately, consumers, pay the price of
this market distortion.
The solution, which Congress identified in the 2012 Ex-Im Bank
reauthorization bill, is for the U.S to reach agreement with Europe to
eliminate export credit for wide-body aircraft. That way nobody is
harmed--the manufacturers and the airlines are free to compete on a
level playing field. It is critical to the global competitiveness of
our industry that export credit does not place U.S. airlines at a
competitive disadvantage, particularly as to state-owned and state-
supported airlines and those with strong credit ratings who can access
the credit and capital markets to finance their aircraft purchases.
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