Update: We've got a heated debate on this topic over on LinkedIn. Join the conversation.
Aircraft maintenance regulations are annoying. People, even you, complain about regulations. Like you just received a burger without the bun.
You despise. it. It annoys you. You feel it slows your workflow. And don't get me started on all the unnecessary paperwork.
Yet, with all the complaints. All the yelling and screaming. Nobody is specific on which regulations bother them. There’s no doubt aircraft maintenance regulations are clunky, outdated and unnecessary is some situations.
More often than not, when the government steps in, things become more complicated. The entrepreneurial free will declines and over processing complicates operations.
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Why have aircraft maintenance regulations at all?
Let’s put the term aircraft maintenance aside for a moment. Let’s look at regulations as whole.
In the last few decades, we’ve seen many new regulations. Each related to environment, health, and safety. During the same period we’ve seen entire industries become deregulated. as you hopefully know, our beloved airlines being one of them.
As we evolve and see an increase in globalized markets, we’ll see a fast paced trend in economic regulatory reform. Regulators are becoming more constrained by the increased mobility of capital and labor. We witness this in the outsourcing of heavy maintenance checks.
Just look at this conversation in a LinkedIn Group:
When we talk about regulations, there’s 3 broad classifications: economic, social and process regulation.
Economic regulations refers to restrictions on prices, quantity, entrance and exit conditions. Social regulations effect many industries and fall under environment, public health, and safety regulations. You’ll find most of your aircraft maintenance regulations falling into this classification. The last classification, process regulation, refers to government management of the operation of the public and private sector, such as paperwork requirements and administrative costs incurred by both producers and consumers.
Airlines as a whole fight economic regulations every day. On the aircraft maintenance side of things, we fight against safety and process regulations.
The sole purpose of these regulations are to ensure aircraft operate safely. Let’s call it consumer protection on a grand scale.
Few will deny that regulation can increase consumer welfare. This also depends on how regulation is designed and implemented, and the specific problem it is attempting to solve. Yet, currently, regulations substantially increase the costs of doing business. These costs are then passed along to consumers in the form of higher prices.
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Two reasons for inefficient regulations
There’s two reasons for inefficient regulations. One is economic and the other is political.
The economic reason for inefficient regulations is it’s difficult for a government authority to regulate companies because it lacks the necessary information.
"For example, a business might have a good idea of its cost and demand structure, but a regulator typically does not have access to such information. The firm usually is better informed than the regulator; moreover, it rarely has an incentive to tell the regulator all it knows. Such "information asymmetries" imply that economic regulation will rarely achieve a "first-best" or efficient outcome. That does not mean that regulation is not a useful approach for increasing economic efficiency when an industry is subject to increasing returns to scale or there are network externalities. It does mean, however, that the effectiveness of regulation is limited and that it has some serious structural defects. These defects need to be kept in mind when comparing this approach with viable alternatives.”
The regulators imposing social regulation must also frequently base decisions on limited information.
"For example, in setting the overall emission limitation for acid rain, the U.S. government had some crude estimates of the costs and benefits. After the program was implemented, however, the costs of achieving the emission standard were lower than expected. The lower costs resulted in part because of the flexibility inherent in the market based regulatory approach that was adopted. At the same time, unforeseen changes in energy and transportation markets also played an important role."
This regulatory mess is difficult to navigate. Political problems lead to inefficient economic results for aircraft maintenance. Regulation redistributes resources. Politicians take advantage of this to secure their own political gain rather than to correct market failures. Regulatory instruments such as quotas, licenses, and subsidies are used to transfer wealth from the consumer base, to small groups of producers.
If regulations become too inefficient, like were seeing on the aircraft maintenance with technological advancements (i.e. big data, predictive maintenance, better inspection technology, etc.), there's usually pressure to change. Companies with new technologies will always lobby for reduced regulation. But at what cost and how fast?
The costs of inefficient regulations are huge. Just think of customs administration in many countries. It's plagued with inefficiency and corruption. This reflects higher costs of traded goods or services. In 1997 (a long time ago but serves as a reference) their were surveys conducted in developing countries. A portion of managers time was spent managing process regulation. Between 10 - 30 percent of their time and inputted costs on produced goods or services was due to process regulation. The costs were estimated between 5-15 percent.
Countries who focus on deregulating their economies and reducing costs of process regulation are headed in the right direction. The gains obviously vary from country to country. But we can be confident to know that at least few percentage points of GDP can be regained. Start crunching those numbers. Talk about a big upside.
I leave you with this questions, how can we as an industry, decrease process regulation for aircraft maintenance, and still ensure a safe aircraft?
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We all want SMART regulations
Regulations are an overly complex process. What seems like good oversight transcends from a political chess match. It’s the King Kong syndrome. The giant political gorilla pounding on it’s chest.
Government bodies must sit down with the effected population. Both producers and consumers. They need to determine how regulations will be impactful on a day to day scale. They’ll also need to view this on a macro-economic level. For aircraft maintenance, it would be talking with the mechanics, engineers, and airline operations. How will overly complicated documents processes affect operations and inherently guarantee safe operations? Can these process be more efficient and still retain the integrity of safety?
Regulators must create SMART goals in pursuit of new and changing regulations. As time passes and technology gets better, old regulations become clunky and costly.
Analysis must not be overly burdensome. For smaller regulations, analysis may not be necessary. Yet, for larger regulations which have a large economic impact, more resources should be allocated to evaluation.
Analysis must be both prospective and retrospective. This allows analysts to learn how they can improve impact assessments. It’s extremely important to get front line agencies involved. They become more sensitive to the economy-wide decisions their proposing. With this we begin to see win/win negotiations.
With the larger regulations, a detailed cost-benefit analysis must be completed. For economic regulations, since it’s usually weak in terms of economic efficiency, the burden of proof should be on those who wish to maintain it, for obvious reasons. In social regulation, flexibility is key so that consumers and producers can still be innovative.
Just think if regulators took this process into consideration when dealing with aircraft maintenance regulations.
The biggest issue with regulations is the inability to predict how such regulations will directly affect behavior. Regulations have an unexpected and perverse consequence. When regulating, one should proceed with caution and err on the side of less regulation, especially when considering economic regulations.