Speech by Steve Douglas, Director of Civil Aviation
Address to 59th Annual
Aviation Industry Association Conference
Blenheim 27 July 2009
Introduction
Thank you for that introduction and good afternoon
everyone. One again I welcome this opportunity to address
you as part of your annual conference, this time in Blenheim –
the home of Marlborough Helicopters of course and the centre of
much else that is interesting in aviation as well as unique to
the New Zealand way of life.
The past year has been demanding for everyone, and the next year
will be no less so. The number of accidents reported in
2008 has spiked in three of the thirteen safety target groups we
monitor, interrupting a downward trend overall, and remedial
action is underway. We have been reminded of the need to
remain vigilant to the risks in the airline sector where some
accidents internationally have raised issues relating to flight
control systems and pilot interaction with these. In the
Perpignan A320 accident sadly the CAA lost a staff member while
carrying out his certification duties.
Financially, it has been a remarkable period with the effects of
a global crisis striking us all in different ways and forcing a
change in thinking about how we do business.
In the past year finance and funding issues have demanded more
attention by the CAA as we respond to these external factors.
In this address I would like to background these issues, as I
know you are interested in them, and touch on some current
activities and changes that will affect how we work together to
improve aviation safety in the years ahead.
CAA Finances and Funding
The CAA has been hit by two events affecting its funding:
- the downturn in the economy which has reduced levy revenue; and
- the arrival of Jetstar as an ANZA operator on New Zealand domestic operations, replacing New Zealand based Qantas subsidiary Jetconnect.
The combined effect is projected to be a 20% reduction in overall CAA revenue for 2009/10. Our revenue projections are based on:
· 10% reduction in domestic passengers carried, 12% reduction in international, due to the economic downturn; and
· full year loss of Jetstar levy revenue (should do better).
The CAA maintains sufficient reserves as a buffer against expected revenue and expenditure fluctuations. However, it does not have the ability to withstand two events such as this simultaneously.
Our response to this:
To lessen the financial impact of reduced revenue the CAA has cut its expenditure by 7% compared with the 2008/09 budget. The result for 2009/10 is a budget deficit of $4.5M (full year) in an overall budget of $29M.
Cuts have been made across all areas of the CAA. There will be no salary increases for staff in 2009/10, with a freeze on new positions and unfilled vacancies above a certain level. CAA groups have responded to the need to trim operating expenditure in different ways. Cuts have been made to mostly discretionary expenditure affecting travel, training and some deferment of capability projects. However these cuts are not sustainable if the CAA is to respond to current and future challenges.
The CAA is already a lean organisation. In the period since 2005/06 total expenditure has increased by 9.4%, or at an average annual rate of less than 3%. This, and the fact that we typically carry 15-20 vacancies against our establishment, limits our ability to respond to new initiatives above normal workload demands.
Levy revenue from ANZA operators:
Australian operators may operate domestic services in New Zealand under their Australian Air Operator Certificate, and vice versa, in accordance with the Mutual Recognition Arrangement. Australian ANZA operators are not presently covered by the Levies Order as they may operate in New Zealand under their CASA AOC, and therefore not under a certificate “approved by the Director”.
Jetstar only advised the CAA of its intention to operate in New Zealand under the Mutual Recognition Arrangement in February this year. Jetstar replaces Jetconnect who, as a New Zealand airline, was covered by the Levies Order.
To address this issue, and the revenue shortfall implications of other ANZA operators in future, the CAA has undertaken urgent work with the Minister and the Ministry of Transport seeking approval to bring Jetstar into the existing levy regime.
Consultation with industry on the proposed amendment to the
Levies Order is underway. The target implementation date
is November 2009. Once in place this amendment should
produce approximately $1.5M in 2009/10 (off the $4.5M deficit)
or $3.5M in a full year.
The balance of the revenue shortfall is due to the economic
downturn. The CAA has projected its revenue on a
conservative basis, and may do better than budget.
Funding Review
Work on a funding review commenced in late 2008. The
review responds to a commitment by the CAA in the 2008/09
Statement of Intent and the Letter of Expectation from the
previous Minister. The Funding Review will address the
medium and longer term funding requirements of the CAA to
undertake its safety role.
Funding requirements include projects defining areas where the
CAA needs to increase its capability to respond to existing and
future technological and regulatory developments. Examples
where the CAA needs additional resources or investment to make
progress are implementation of Performance Based Navigation,
Safety Management Systems, safety information policy and areas
of new rule making. Costs for these initiatives will be
included in the funding review.
At the same time the CAA is reviewing the way it conducts
business. In the past year a review of the Professional
Standards Unit resulted in the decision to contract out the
internal audit function. Currently underway are reviews of
IT, travel management and the use of electronic means to process
and store records presently held in paper form. The CAA
must have regard to the government’s ‘value for money’
imperative, and can expect close scrutiny of its costs and
efficiencies by government and Treasury officials.
Balancing this is the need for the CAA to maintain its focus on
safety and to be fully effective in this role.
Focus of the review:
A review of the CAA’s funding from all sources – Crown, levies
and fees and charges – has become critical as it has been 10
years since the last review. Costs have increased and
activities have changed.
The funding review will secure a basis for long term funding of
the CAA. The costs and benefits of providing regulatory
services will be clearly identified and allocated within a fair
system of charges. This is likely to result in a reduction
of the current level of subsidisation of fees and charges
activity by levies paid by the airlines sector. Any
changes proposed to the basis of funding, for example
introduction of a fuel tax, will need to be economically sound
as well as simple and efficient to administer. Another
objective is to achieve some flexibility in implementation of
the funding regime, including phased introduction of increased
rates where these are necessary to fully recover the costs of
providing services.
The planned increases in the AIS Levy for this year will not go
ahead. Instead the funding review will consider whether
the aeronautical information service will continue to be funded
from a separate levy, as at present, or from wider levy funding.
Consultation on the funding review is planned for later this
year with a target implementation date for the changes being
July 2010.
Nevertheless, I appreciate the concern you may feel towards any
potential fee increases in the current economic conditions.
CAA Safety Monitoring
As Director I have set as one of my priorities improving the
effectiveness of the core regulatory functions of the CAA. I
have emphasised this in my two addresses as Director to your
conference. Entry certification and safety monitoring are
essential functions of the CAA in carrying out its safety role,
and it is important that we perform them well.
For most of you the visit by the CAA to carry out an audit or
inspection of your organisation is the main contact you have
with the CAA. The focus of our audits, including the
things we check and the information we obtain on site and later
report as findings, will influence your behaviour towards
compliance with safety requirements. If our safety
monitoring activities are to be effective they should positively
influence safety by reinforcing the obligations and
responsibilities you each have as participants to operate safely
in the system.
The CAA’s approach to surveillance is set out in established
surveillance policy. For surveillance read ‘safety
monitoring’ being the pro-active monitoring function as distinct
from our reactive roles, which include receiving Part 12
reports, carrying out accident and incident investigations, and
other investigations. The principles underpinning the
surveillance policy are as relevant today as when they were
written.
One of those principles is that our attention, in carrying out
safety monitoring should be directed at checking the operation
of the systems and procedures detailed in the organisation’s
exposition, under which the organisation entered the civil
aviation system.
I am aware that by using the surveillance tool, developed to
support surveillance activity, the focus has moved away from
this reverting to a rules based checklist approach in some
cases. The CAA is correcting this as it potentially
repeats entry certification, or at least the exposition
acceptance process, in the field. The CAA’s safety
monitoring builds on the entry certification process, and does
not repeat it.
The surveillance policy sets out the expectations placed on
participants operating in the system. The operator will:
· know and
understand its own system of manuals;
· conduct its
operations in accordance with those manuals and documented
procedures; and
· willingly put
right any deficiencies that are identified in findings.
Safety monitoring by the CAA is a process of checking what is
actually happening in an operation, compared with what the
operator says will happen as set out in its exposition.
Our monitoring, and the findings raised during an audit or
inspection, should:
· direct any
corrective actions to the operations of those systems and
procedures shown to be at fault in order to bring performance
back to an acceptable standard.
In this way, if entry certification has been completed properly,
operations are effectively checked against the safety
requirements – and the operator’s reliance on its own system of
manuals is reinforced.
Why is this important? As our system evolves, safety management
systems will place greater reliance on the operator’s exposition
and its procedures. These procedures will be directed at
identifying and managing risks in its operation, investigating
and reporting on safety issues and learning from its experience.
A safety oversight system established on management systems, and
operating effectively, will provide the foundation for the
safety gains that will come from adoption of SMS.
More about Monitoring
The CAA has recently begun a programme of regulatory training
for staff. The first modules of this training cover regulatory
principles, the roles of participants in the civil aviation
system and the obligations placed on them for achieving the
safety outcomes. The programme of training is aimed at
increasing the knowledge and understanding of all staff – new
and existing – of the principles underpinning our policies.
The focus initially is on the certification and safety
monitoring functions, to improve their effectiveness. I
expect you to see the benefits of this training over time in
your interactions with the CAA, including the advice and support
we provide and greater consistency in the application of the
regulatory tools.
In parallel with this the CAA is reviewing how it conducts
audits and inspections. The review is taking a first
principles approach and will look at what we do in preparing for
audits, how we conduct our examination and interact with you on
site, the information we obtain, and how and what we report as
findings. The operating group General Managers are leading
this review, with input from key staff across the CAA.
CAA audits should be as useful to you as they are to the CAA as
a picture of the state of compliance of your organisation.
In my 2007 address I said:
“The routine audit and inspection should be the primary, and
best source of information about the state of compliance of
individual participants, and ultimately of the safety of the
system.”
I believe that still to be the case.
Other Changes Relating to Safety Monitoring
The CAA has commenced a programme of monitoring of Part 43
workshops and will extend its monitoring to other non
certificated areas where necessary to raise performance levels.
Our own data tells us that this is necessary to ensure improved
compliance and your members have told us too.
A new chargeable time policy has formalised charging practices
for our staff engaged in chargeable activity, to ensure
consistency in the way the Charges Regulations are applied
across the CAA. One change is that spot checks, one of our
safety monitoring tools, will now be charged to the client in
the same way that audits and inspections are charged now.
CAA Relocation
I want to talk about the CAA’s relocation, as it is important
strategically for the CAA and because it has been in the news
recently. The CAA and its Board believe it is in the long
term interests of the organisation and the function it serves to
be located in Wellington – more accessible to you, our industry
clients, and closer to other stakeholders we work with in the
transport sector.
The CAA is currently located in two buildings in Petone, the
main building being a converted warehouse. Neither is
suitable for the CAA’s long term requirements and the expiry of
the lease provided the opportunity to consider a move. A
project to consider the options was commenced in 2007.
That process has been thorough, and the options carefully
evaluated. The Board has been fully involved and the
relocation, including the funding arrangements, had the support
of the previous government.
The CAA will move to a building now under construction in
Featherston Street, in the Wellington CBD, in February 2011.
In doing so it moves back to Wellington that it left in 1988.
The CAA will occupy one and half floors in a purpose-built,
modern office block. The principal tenant is Inland
Revenue, who will occupy 10 floors. I hope that won’t
discourage you from visiting us! The only other tenant is
AvSec on half a floor. As you would expect of a building
meeting new building codes, the building meets earthquake
standards, its amenities and services are of a standard that
will provide a comfortable and productive working environment
for staff, as well as yielding operating efficiencies and cost
savings in terms of energy usage.
The one–off costs of the relocation are being met from reserves
(currently at $6.8M) with the balance funded by the developer
over the term of the lease.
Yes, the relocation will mean that we pay more in rental than we
do at present. In the CAA’s case the increase in rental is
as much to do with the site that we are moving from, as it is
the building we are moving to. The increase in rental from
2011 will need to be funded from future revenue, and this was
taken account of in the funding arrangements put in place in the
decision to relocate.
I have pointed out that the CAA will need increased funding if
it is to retain and build the capability it needs to undertake
its role as an effective and responsive aviation safety
regulator. These strategic projects, rather than the
relocation, are likely to determine the future funding
requirements of the CAA.
What about that statement by One News that the shift will hit
you in the back pocket? Well, if the domestic passenger
levy were to be the only source of funding; the increase would
be of the order of 20 cents per passenger sector. I’m sure
that is not the impression you were left with as the result of
TV One’s treatment of the issue.
The CAA’s move to Wellington is a very positive development, in
the long term interests of the organisation.
Rule Making Activity
A new rules programme is currently being considered by the
Ministry and Treasury. The aviation rules programme
contains 17 projects. Once the programme is approved, the
contract with the CAA is likely to list these projects in three
categories– current projects in 2009/10, a second category of
projects that could be commenced if additional funding were made
available, and projects for commencement in 2010/11.
Recently completed Final Rules include new requirements for
Extended Diversion Time Operations, Part 21 categories of
aircraft, and Part 135 Terrain Awareness Warning Systems for
fixed wing aircraft. With regard to the TAWS rule, the CAA
and the Ministry will shortly brief the Minister on the
technical aspects of this rule. I know the outcome is of
interest to many of you.
Meanwhile no aviation rules have been signed in 2009. I
note there is increased involvement by Treasury and government
generally in the rule making process. Changes to
requirements for completing Regulatory Impact Statements, for
example, are slowing progress on Final Rules.
Following consultation on the Part 61/141 NPRM, changes will be
made to the Final Rule to remove the requirement for the
certification of organisations conducting training for other
than professional licences. Instead training for PPLs,
BFRs and type ratings will be covered by a registration scheme.
We do listen to the views expressed in your submissions on rule
changes. The Summary of Submissions on Part 61/141 will be
published by the CAA this week.
The Aviation Community Advisory Group continues to be effective
as the facilitator of industry’s views and priorities on rules,
and rule related policies. We look forward to
strengthening the relationship forged with you in this forum.
The Minister has indicated his agreement to allocate additional
Crown funding to aviation rule making for 2009/10, within an
unchanged total for the transport sector. An additional
$150,000 will be provided to fund pre-rule making policy
development work to support PBN implementation, including
development of a national Airspace and Air Navigation Plan.
This responds to the views you have expressed to the Minister
generally that in the aviation industry you want more resources
for rule making.
More work is being done to refine and simplify the rule making
process. This includes simplifying the Issue Assessment
process, particularly for ICAO Standards where the issue has
been identified and addressed beyond this initial stage provided
for in our rules process. Also, setting a target time for
completion of a rules project – 2 or 2½ years (depending on
whether you include the government processes, which are
lengthening rather than shortening). The current average
time for an aviation rules project is 4 years, which is
unacceptably long.
What the CAA is doing on SMS
Following the successful SMS symposium held in March this year,
the CAA has been working on a number of implementation issues
identified there. These include:
· the need to ensure that SMS principles are ‘scalable’, equally able to be applied by both small and large operators.
To achieve this we need the industry to work with us by bringing in the range of participants, small as well as large, to ensure the needs of the smaller operators are taken account of in the guidance material. This collaborative process with industry will also seek agreement on a methodology, based on the NZS 4360 Standard, which can be applied successfully to aviation.
I applaud the initiative taken by the AIA in advancing this work on the implementation of SMS. I am keen that we continue to work together to extract the benefits that SMS will bring to improving safety.
ICAO Audit Performance
The CAA and the New Zealand system of safety oversight was assessed by ICAO as part of its comprehensive audit programme in 2006. ICAO assesses each State’s oversight system and performance against eight criteria, including:
· Primary Aviation Legislation
· Specific Operating Regulations
· Technical Personnel Qualifications and Training
· Licensing, Certification, Authorisation and Approval Obligations
· Surveillance Obligations
· Resolution of Safety ConcernsICAO has now completed audits of 115 of the 190 member states. Data published by ICAO shows each State’s audit score against these criteria.
To date only eight states have achieved a higher average score than New Zealand: China, France, Canada, the United States, the Republic of Korea, Poland, South Africa and Egypt. Australia gets the same as NZ.
New Zealand’s score of 8.375 (out of possible 10) compares with –
· 8.156 for OECD States; and
· 5.875 for the ICAO global average.
As a global benchmark of the capability and performance of our civil aviation system, the ICAO result is one to be proud of. We should be encouraged in our efforts to develop and improve our performance further.
Closing
I have covered issues today not normally covered in my address to your conference. They are in response to the economic realities of the times. I can assure you the CAA is keeping its focus on safety while we manage these issues.
As evidence of that, as we look to the future resources of the CAA, we are ensuring that we have the capability to respond to current and emerging developments in aviation, including the new technology and regulatory practices. We aim to be a responsive and effective regulator acting in the public interest and for all those who use the services of the aviation system.
I have touched on some of the initiatives we are taking, including training, to achieve that aim.
The CAA is making presentations to this conference on a number of projects we are working with you on. General Managers Simon Clegg, John Kay and Graeme Harris will be presenting or participating in discussions on SMS, safety information, and health and safety, and you will be hearing from our CAA staff on many other safety issues.
I look forward to meeting and having discussions with you over the next few days – including the Awards Dinner tomorrow when I will present the annual Director and CAA Awards.
Thank you, and best wishes for a successful week.