EASA Proposal Would Recognize ASA-100 Accreditated Suppliers

April 12, 2012 by 1 Comment

EASA has published a new draft rule for public comment.  This new rule would form the basis of European recognition of distributor accreditation.  Formal European recognition of distributor accreditation is something that ASA has been working on for many years; most recently as a member of the EASA Working Group that helped to craft the rule.

The draft rule is known as NPA 2012-03.  The title of the draft is ‘Control of suppliers of components and material used in maintenance.’

Under the new rule, maintenance organizations, like repair stations, are provided with guidance about acceptable practices for managing sources of supply.  The change is accomplished by a minor change to the EASA rules that apply to maintenance organizations, and a more significant change to the EASA guidance material.  The new rule language requires 145 organizations to “establish procedures for the acceptance of components and material.”  The proposal also includes substantial guidance material to explain what this means, from a practical standpoint. To begin with, the guidance material makes it clear that maintenance organizations can inspect parts to ensure airworthiness, but that reliance on credibility of sources to support the finding of airworthiness is also a piece of the analysis.

AMC 145.A.42 (a) Acceptance of components

The procedures for acceptance of components should have the objective of ensuring that the supplied components and material are in satisfactory condition and meet the organisation’s requirements. These procedures may be based upon:

1) incoming inspections which include:

  • physical inspection of components and/or material;
  • review of accompanying documentation and data, which should be acceptable in accordance with 145.A.42(e).

2) supplier evaluation and control.

The guidance goes on to explain that an organization may choose to directly evaluate sources (suppliers) or it may rely on a third party to do so.  The guidance material recommends the following standards as typical elements for a supplier’s quality system:

GM 145.A.42 (a) Supplier evaluation and control

1) The following elements may be checked for the evaluation and control of a supplier’s quality system, as appropriate, to ensure that the component and/or material is supplied in satisfactory condition:

a. Availability of appropriate up to date regulations, specifications such as component manufacturer’s data and standards;

b. Standards and procedures for training of personnel and competency assessment;

c. Procedures for shelf-life control;

d. Procedures for handling of electrostatic sensitive devices;

e. Procedure for identifying the source from which components and material were received;

f. Purchasing procedures identifying documentation to accompany components and material for subsequent use by approved Part-145 maintenance organisations;

g. Procedures for incoming inspection of components and materials;

h. Procedures for control of measuring equipment that provide for appropriate storage, usage, and for calibration when such equipment is required;

i. Procedures to ensure appropriate storage conditions for components and materials that are adequate to protect the components and materials from damage and/or deterioration. Such procedures should comply with manufacturers’ recommendations and relevant standards;

j. Procedures for adequate packing and shipping of components and materials to protect them from damage and deterioration, including procedures for proper shipping of dangerous goods. (e.g. ICAO and ATA specifications);

k. Procedure for detecting and reporting of suspected unapproved components;

l. Procedure for handling unsalvageable components in accordance with applicable regulations and standards;

m. Procedures for batch splitting or redistribution of lots and handling of the related documents;

n. Procedure notifying purchasers of any components that have been shipped and have later been identified as not conforming to the applicable technical data or standard;

o. Procedure for recall control to ensure that components and materials shipped can be traced and recalled if necessary; p. Procedure for monitoring the effectiveness of the quality system.

Finally. the new guidance explains that certain standards are known to be acceptable:

2) Suppliers certified to officially recognised standards that have a quality system that includes the elements specified in 1) may be acceptable; such standards include:

a. EN/AS9120 and listed in the OASIS database;

b. ASA-100;

c. EASO 2012;

d. FAA AC 00-56.

The use of such suppliers does not exempt the organisation from its obligations under 145.A.42 to ensure that supplied components and material are in satisfactory condition and meet the applicable criteria of 145.A.42(e).

The appendices to the proposal show correspondence tables that demonstrate the acceptability of each of the above standards.

The last element of the above guidance, explaining that use of accredited suppliers “does not exempt the organisation from its obligations under 145.A.42 to ensure that supplied components and material are in satisfactory condition and meet the applicable criteria of 145.A.42(e),” means that the other regulatory requirements, like documentation requirements, continue to apply regardless of source.

For Americans, it is important to remember that the all maintenance in the European system is performed by Part 145 organizations.  Even air carriers must have 145 certificates in order to maintain their own aircraft.  So a European rule that affects maintenance providers will affect all European purchasers of parts.  It will also affect many U.S. repair stations, because a significant number of U.S. repair stations are EASA 145-accepted, which means that they conform to both U.S. regulations and European regulations.

ASA is pleased that this allows the U.S. and Europe to rely on harmonized standards of distributor accreditation, that recognize popular accreditation standards like ASA-100 and the other standards accepted under FAA AC 00-56.

Comments on the draft rule are due July 12, 2012.  They may be submitted by posting them on the Comment-Response Tool (CRT) available at http://hub.easa.europa.eu/crt/, or by mail to:

Process Support
Rulemaking Directorate
EASA
Postfach 10 12 53
50452 Cologne
Germany

Please send copies of your comments to ASA as well, so we can be sure to reinforce and support our members’ comments.

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Make Your Exports More Competitive By Reducing Your U.S. Tax Liability

December 11, 2011 by Leave a comment

Are you exporting aircraft parts? Looking for new ways to make your parts more competitive in the global marketplace?  If you are engaging in significant export volume from the United States then you may be able to reduce your U.S. tax liability by creating an Interest Charge-Domestic International Sales Corporation (IC-DISC).

At a manufacturing conference that I attended in October, I heard Kevin Cox of LarsenAllen discuss IC-DISCs as a way to minimize federal taxes on profits from exports. I though that this sounded like a fascinating way to reduce tax burden on exports and make American companies more competitive. I knew that this was a topic that would interest aircraft parts distributors.  After his presentation, I asked if his organization could provide me with more information. In response, his colleague Steve Roark wrote us the following article describing the IC-DISC and the way that a US exporter can use an IC-DISC to reduce its tax obligation. Contact information for LarsenAllen is at the bottom of the article.

Manufacturers and distributors work hard to provide products and services competitive in the global economy. Now more than ever, generating foreign sales is a necessary component to growth. Competition for export sales is burdened by many factors including foreign competition, tariffs, fees, foreign taxes and so forth. Wouldn’t it be great if companies could get a break from this burden? The rallying cry by many companies is that Congress needs to act now to allow U.S. manufacturers to be more competitive in the global market. Well, Congress did act – they just acted about 30 years ago. Years ago, congress recognized the growing disparity in global competition and provided a way to help compete on a level footing in the face of these burdensome requirements. The vehicle to do this is through the tax strategy called an IC-DISC.

Organizations that have export sales can significantly reduce their Federal tax by creating an Interest Charge-Domestic International Sales Corporation (IC-DISC). It’s a long name, but the concept is quite simple. By creating a separate entity, a domestic organization with international sales can defer and/or reduce their overall tax burden related to the income on these international sales.

The IC-DISC reduces U.S. taxation on exports of property originating in the United States for direct use outside the U.S. There are two types of sales that qualify. The first is for products shipped directly outside of the U.S. The second is for products sold in the U.S. that ultimately are added to a product that is shipped internationally. Many contract manufacturers and distributors are part of a supply chain that serves large OEM’s whose products end up outside the U.S. Parts shipped domestically to these OEM’s may also qualify for this tax advantaged status, even though on the surface they aren’t what you think of as foreign sales.

An IC-DISC can be used in a number of ways. Some of the advantages and benefits provided by an IC-DISC include:

• Permanent tax savings on export sales. Although an IC-DISC is a tax exempt entity, any cash distributed out of an IC-DISC is taxed to the shareholders at the capital gains rate of 15 percent. This results in up to a 20% savings on Federal taxes on the income associated with foreign sales.
• Tax deferral on export sales. An IC-DISC also allows a company to defer up to $10 million dollars of taxable income to the future. This can be a significant benefit if cash flow is tight, or if you are a proponent of deferring the payment of tax to Uncle Sam.
• Means to facilitate succession planning. An IC-DISC offers a number of capabilities for executing a succession plan. An important feature of the IC-DISC is that shareholders can be corporations, retirement accounts, individuals or a combination thereof. This can result in an effective means to distribute cash to beneficiaries in a tax-advantaged manner.

It doesn’t take much for a company to benefit from an IC-DISC. Companies with as little as $500,000 of export sales have shown savings from establishing an IC-DISC. In addition, the set-up and recurring maintenance of this strategy is relatively minimal compared to the savings.

IC-DISC’s have been around for close to 30 years, yet they are not widely used in small to mid-sized organizations – why is that?

One reason is the misconception that they are too complicated or administratively burdensome. An IC-DISC strategy does require a company to establish a separate entity to report these international sales. The IC-DISC is a “paper” entity created to make the company more competitive. It does not require corporate substance or form, office space, employees, or tangible assets. It simply serves as a conduit for export tax savings. Customers do not need to know about the IC-DISC, and contracts remain as they are today. In addition, the transactions required to be reported in the IC-DISC can be summarized and reported once a year.

Another reason is that in the past this structure didn’t provide much benefit. There were other provisions in the tax code that provided deductions for international sales. These provisions expired a number of years ago resulting in the IC-DISC strategy once again becoming more advantageous.

If you think this strategy may be an option for your company, it is important to act quickly. An IC-DISC is only allowed to provide benefit beginning on the date the IC-DISC is formed (benefits are not available retroactively). The sooner a taxpayer creates an IC-DISC entity the greater their benefits will be.

To maximize savings and ensure proper IC-DISC formation and administration, businesses that wish to create an IC-DISC should seek assistance from a qualified tax advisor. While the concept and administration are relatively simple, it is important that the initial set-up is done properly to maximize and protect this tax advantage status.

About the Author: Steve Roark is a Manager in the Manufacturing and Distribution group of LarsonAllen. Steve can be reached at 888.529.2648 or sroark@larsonallen.com. To learn more about LarsonAllen, visit www.larsonallen.com.

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