Certification and Licensing and Optimal Deterrence

8.1.1 The notion o f certification: Certification of airworthiness, aircraft, aircraft

emissions or validation has dual attributes: information regulation and prior approval Breyer, 177.

Breyer, ibid.

398. Asch, 48, 141 & 148-49. 399. Ogus, 54-56 & 309; Breyer, 25.

"*®®. Baldwin & Veljanovski, n.357 above, 54; Ogus, 155: Breyer, 98.

"*®*. A I Ogus, Social Costs in a Private Law Setting, 3 Int Rev L & Econ (1983) 27; Ogus, 27; S Shavell, Liability for Harm versus Regulation o f Safety, 13 J Leg Stud (1984) 357, 365 above; id, A Model of tlie Optimal Use o f Liability and Safety Regulation, 15 Rand J Econ (1984) 271.

"*®-. 49 u s e Appd s 1421(a)(1) (1988); 14 CFR ss 21, 23, 25, 29, 31, 33, 35 & 37; Shawcross, V(35.2): G Galerstein, A Review o f Crashworthiness, 45 JALC (1979) 187, 206.

"*®3. We are therefore not concerned here with professional regulation by a private self-regulatory agency. See Ogus. 1077/C

equivalent to l i c e n s i n g . A s a means of avoiding market failure arising from information

deficits, a system of registration or certification requires applicants to satisfy certain

minimum standards of quality of a product or service. A certification system does not control the conduct of actors, but simply provides information, leaving passengers with the freedom of choice."^°^ Certification thus functions to remedy information deficits just as licensing does, and yet it still retains the additional advantage o f freedom o f rational choice."^®^ Certification should thus be distinguished, at least in theory, from a licensing regime which prohibits those without a license from practising the given trade or profession. One potential constraint on a certification regime relates to how the information disclosed as such can effectively be communicated to individual passengers who have no direct contact with the certifying authorities.

8.1.2 The notion o f licensing: Licensing or prior approval o f professional occupations

(e.g. licensing o f flight crews, air traffic controllers, air operators and maintenance engineers) means a regulatory technique whereby the applicant for a license or permit is

required to satisfy certain minimum and uniform quality standards to qualify for a license

or permit enabling him to practise in the given trade. Under a licensing system, the

sanction against those applicants failing to meet the specified minimum qualifications is

severe prohibition from practising the given p r o f e s s i o n .

xhe

ostensible purpose o f

licensing is thus to ensure that all practitioners competing in the market will satisfy and maintain certain required minimum standards in the provision of the given services and to

prevent ex ante the occurrence o f what is regarded as socially undesirable consequences.

As such, licensing is not, in principle, to limit competition, although in practice it

sometimes has the de facto effect o f creating barriers for prospective entrants and thus

limiting competition."^^®

Certification may effectively turn into de facto licensing where there is little market

demand for uncertified products or services."^^^ It is indeed inconceivable that an air operator will purchase an aircraft not duly certified to put it into service, given the high risk involved and the sanctions that may be incurred. More importantly, since no aircraft is

For certification and licensing regime in general, see M Trebilcock, Regulating Service Quality in Professional Markets, in D N Dewees (ed). The Regulation of Quality, 83, 92ff, Ogus, 215.

Ogus, 124, 38-41 & 152. Ogus, 217.

See Ogus, 122 & 152. Ogus, 214.

Ogus, 214. See ih&Air Na\>igation (No.2) Order 1995, SI 1995/1970, art 83 (Prohibition o f unlicensed air traffic controllers and student air traffic controllers) & art 88 (Prohibition o f unlicensed flight information service officers).

"H®. Ogus, 318. "“ f Ogus. 215 & 221.

allowed to fly without a valid certificate o f airworthiness/^^ certification o f aircraft should be seen as de facto licensing o f aircraft/^^ A possible distinction between certification and licensing may be found in different subject-matters each aims to regulate. Certification usually relates to minimum technical standards required for aircraft or equipment to satisfy in inspections, tests or experiments.'*^'* Licensing, on the other hand, is mainly concerned with certain minimum professional qualifications to be met by relevant persons, whether natural or artificial.'**^ Such qualifications include professional skills, experience or knowledge for prospective practitioners to satisfy (e.g. successful completion o f training courses, or passing o f examinations including medical check-ups).'**^

8.1.3 Justifications for licensing in the public interest: In order to justify on public

interest grounds'**^ licensing representing high intervention in the market,'*** it should be demonstrated that private law remedies and other less restrictive regulatory techniques are not effective enough to induce relevant parties to take optimal care to reduce risk or to minimise externalities.'**^ Indeed, licensing, unlike certification, shifts to the authorising agency information costs relating to the quality o f skills and expertise required o f flight crews, air traffic controllers, air operators, etc. and reduces the risk o f passengers making faulty decisions on poor-quality products.'*^** Given the technical complexities o f aircraft and the technical expertise required for its operation, it would be virtually impossible for passengers to identify sub-standard aircraft.

A second public interest justification for licensing is found in the fact that use o f an aircraft or provision o f air traffic control service may cause externalities.'*^* A poor-quality aircraft or poor air traffic control service may cause damage to third parties, i.e. passengers and people on the ground. Even the adverse publicity resulting from a disastrous accident and the consequent need for restoration o f public confidence may be

'**^. Sec 8.1.5 below.

'**^. For this reason, it is not surprising that one writer refers to the granting o f product license, not product certificate, in relation to aircraft. See Ogus, 234.

'**'*. E.g. certificate o f ainvorthiness, certificate o f validation, noise certificate, aircraft certificate or aircraft engine emissions certificate, with the possible exception of e.g. air operator's certificate. For minimum uniform criteria for certifying airports, see 49 USC Appd s 2204(d)(4) (1988).

'**^. E.g. licensing o f air operators, flight crews or air traffic controllers, maintenance engineers and the operator's operating or route licence. See ICAO, Definitions.

'**^. T Moore, The Purpose o f Licensing, 4 J L & Econ (1961) 93, 103^^; M Friedman, Capitalism and Freedom, 144-49.

'**^. This does not necessarily mean that licensing does not serve the private interest of the licensed. Ogus, 219. For the notion o f the public interest, sec 7.1 above.

'***. Ch I; 7.3 abo\e '**/ Ogus, 28, 218 & 228. '*20. Ogus, 234-35. '*2*. Ogus, 234.

regarded as a form of externalities under tort liability/^^ since such hidden costs are not usually reflected in the price o f aircraft or ATC service. A third factor justifying licensing is the time lag between the marketing of aircraft and the occurrence o f harm/^^ which will reduce the effectiveness of other regulatory techniques such as standards regimes. Standards regimes may be a less effective solution to poor-quality professional services

than a licensing system where the latter can relatively easily and cheaply exclude ex ante

manifest incompetence that may cause high social c o s t s .^^5 Finally, the licensing system has

an advantage o f reducing substantially enforcement costs of apprehending the offender and establishing the link between the licensed activity and crime."^^^

8.1.4 Certification/licensing and optimal deterrence: Certification or licensing is

regarded as a device for securing the safety and welfare of the flying public as a class (public interest). For example, in the absence o f any regulatory control on the minimum quality o f aircraft, there is greater possibility of a sub-standard (i.e. defectively designed or manufactured) aircraft being commissioned into service. This means that passengers will be deprived o f the chance to make a rational choice o f aircraft in the absence o f any information provided through certification on the performance o f a particular aircraft. By setting out minimum standards and qualifications of entry or practice, regulation through certification and licensing controls possible unfair, fraudulent or deceptive practices, responds to the needs o f the public and thus protects the general public from poor, unsafe or improper s e r v i c e s . A n d if licensing has the effect o f limiting competition, some corrective steps imposing little restriction may be devised."*^^

Under a system o f certification or licensing, prospective entrants as well as existing practitioners will be forced to stick to the regulatory requirements and to maintain a certain standard o f quality or service through the continuing pressure o f regulatory (e.g. suspension or revocation"^29 Qp certificates or licences for violation of, or non-compliance with, the safety or registration'^^® requirements) sanctions. Under a certification or licensing regime, the threat o f a certificate or license being suspended or revoked may create a more effective incentive for the certified or licensed to reduce risk than a

Ogus, ibid.

'‘23. Ch 3: 2.5.3 & 3.1.5 below. '‘24. Ogus, 234.

^25. Ogus, 218. '‘26. Ogus, 229.

'‘22. 49 USC Appd s 1302(a)(5) & (7) (1988); Kahn, I M 14 n .2 .1/20-21 & 1-2. 428. C ivil A viation A c t 1982, s 68(l)-(2); 49 USC Appd s 1302(a)(7) (1988).

'‘2^. See th e^ /> N avigation (No.2) Order 1995, SI 1995/1970. arts 71-72; A ir N avigation O rder 1989, SI 1989/2004, arts 66-67.

43®. Licensing o f A ir Carriers R egulations 1992, SI 1992/2992; 49 USC s 46306 (1996). See G D Martin, Enforcement o f Federal Aviation Regulations by the Federal Aviation Administration. 53 JALC (1987) 543, 5 5 3 ff& 557.

monetary sanction (civil liability) applied ex post.^^^ The only constraint is that these sanctions may not adequately induce a firm to take optimal care where the possibility of incurring the sanction is very low with its cost very high/^^^ This is because the managers o f a firm may rationally decide to gamble on the tiny risk (revocation) materialising and may simply declare the firm insolvent should the risk does materialise/^^

8.1.5 Certification and licensing under domestic laws/^"* In English law regulation o f

civil aviation is effected to secure safety and efficiency."*^^ An aircraft shall not fly in or over the United Kingdom unless it is duly registered."*^^ No aircraft registered in the United Kingdom is allowed to fly for carriage for reward without a valid certificate of airworthiness and certificates o f validation and maintenance r e v i e w . T h e CAA is responsible for certifying (and renewing or validating) aircraft airworthiness/^^ aircraft operators (air operator's certificate or l i c e n c e ) . I t is also charged to license air traffic controllers'^® and aerodrome flight information service officers,'^ ^ maintenance engineers'^^ and flight crews.'^^ As the regulator o f carriage for reward and as the supervisor o f safety o f air navigation, the CAA is empowered to grant or refuse to grant, make valid, renew, vary, suspend or revoke'^'* any of air transport-related licences or certificates.'*'*^ In carrying out its air transport licensing functions, it is under duty to ensure

'*31. Ogus, 229. '*32. Ogus, 228. '*33. Ogus, ibid.

'*3'*. On the requirement o f certification and licensing on the international level, see the Chicago Convention 1944, arts 29, 31-33 & 39-40 and Annex 8; Shawcross, V(14); Juglart, l(584)-(585).

'*3^. Civil A viation A c t 1982, s 60(3)(h).

A ir Ncnngation (No.2) O rder 1995, 81 1995/1970, art 2 0 , A ir N avigation Order 1989, 81 1989/2004, arts 3-4.

'*32. Civil A viation A c t 1982, s (60)(2)(})); A ir Na\4gation (No.2) Order 1995, ibid, arts 8-10; Shawcross, V(15)-(17). If any part o f the aircraft or its equipment has been overhauled, replaced or modified, a certificate o f release to ser\dce must also be obtained.

'*3*. A ir Nax’igation (No.2) O rder 1995, arts 8-9; Civil A viation A c t 1982, s 85; Shawcross, V (I5)-(16). '*3^. C ivil A viation A c t 1982, s 64(1 )(a); A ir Na\>igation (No.2) Order 1995, art 6; Shawcross, IV(45) & (53). An 'operator' is a person who has the management and control o f one or more aircraft. C ivil A viation A ct 1982, ss 105(1) & SS(9), A ir Na\ngation Order 1989, ibid, art 106(3).

A ir Nax’igation (No.2) O rder 1995, art 81.

'*'*1. Ibid, art %1, A ir Nax’igation O rder 1989, arts 70-71; Shawcross, VI(24)-(25).

A ir Nax’igation (No.2) O rder 1995, ibid, art \2 , A ir Navigation Order 1989, ibid, art 9(3)(a).

. A ir Nax’igation (No.2) O rder 1995, ibid, art 22; Civil Aviation A c t 1982. s 2{c), A ir N avigation Order 1989, ibid, art 20(1) & (7); Shawcross, 1V(79).

'*'*'*. See Laker .Airxx’ays L td x>. D ept o f Trade, [1976] 3 WLR 537 (QBD). [1977] 2 WLR 237 (The Secretai}' found to have exceeded the statutory powers in revoking the operating permit granted to Laker Airways. Shawcross, 11(51); R v. Civil A viation Authority, ex p British Airways Board (1983) 1 S & B AvRIV/11 (QBDC).

'*'*^. Civil A viation A ct 1982. ss 60(3)(n) & (p), 66(2) & (3); .Air Nax’igation (No.2) Order 1995. ibid, arts 71-72; A ir Nax’igation Order 1989, ibid, art 70(1); Civil Aviation Authority Regulations 1991, SI 1991/1672, reg 6(4); Shaw cross. V(15), 111(14), II(58)-(59) & Vl(24). For revocation and suspension o f an operating licence and o f an air transport licence, Shawcross, IV(58) & (63).

that British airlines conpete effectively with other airlines serving on international routes

and impose as Utile re^riction as possible on the industry and services/^^

The CAA issues an aircraft with certificate o f airworthiness after it has conducted necessary inspections, tests, experiments and flight trials and the aircraft has satisfied the standards o f design, construction and maintenance/^^ Certificates o f maintenance review or o f release to service may be issued by the CAA-authorised persons after an aircraft has been overhauled or r e p a i r e d . A n y person applying to the CAA for an air operator's certificate must be able to prove, on the basis o f his past conduct and experience, his equipment, organisation, staffing, maintenance and other arrangements, that he is competent to operate his aircraft safely on the specified or intended f l i g h t s . I n the case of licensing, an applicant for a licence is required to prove his qualifications in terms o f his knowledge, experience, competence and skill in aeronautical engineering, and physical and mental fitness by taking prescribed courses of training and undergoing examinations and tests including medicil examinations (for maintenance engineers,"*^® flight crews"^^* and air traffic controllers'*-^).

The French Code àe Îconation civile 1967 has subjected commercial air transport to a

regime o f strict reguUtion'*^^ which is characterised by prior authorisation o f international air transport activities,'*^ technical control by the Minister o f Civil Aviation to ensure safety,'*^^ administrative approval of exploitation, conditions and tariffs o f transport performed by aircraft exceeding a certain tonnage,^^^ and sanctions against infractions of the rules.'*^^ A 1982 Icw on the direction o f domestic transports also attempts to serve the public service objecthe of transport in general by providing: "[l]e système de transports intérieurs doit satisfare les besoins des usagers dans les conditions économiques et sociales les plus avsnt&geuses pour la collectivité".'*^*

Certificates are issued largely in two categories: certificate of airworthiness {certificat de

na\ngabilité\ CdN) and certificate o f limitation o f nuisance {certificat de limitation de

'*'*^. C ivil A viation A ct 1982, s6 8 (l)-(2 ); Shawcross, IV(48).

'*'*^. C ivil A viation A ct 1982, s 8 5 (l); Shawcross, V(15)-(16) & II(58)-(59) & V(16). '*'**. A ir Navigation (No.2) Order 1995, ibid, art 10; Shawcross, V(17)-(18).

'*'*^. Ibid, art 6; Shavcross,IV(53). '*^®. Ibid, art 13.

'*^*. Ibid, arts 21-22; Shawcross, IV(80).

"^^^. Ibid, art 81; Shawcross Vi(24) '*^^. Juglart, 1(465).

'*54. Code, art L.330-2. '*55. Ibid, art L.330-6.

456. Ibid, art L.330-8; Juglart. 1(352). 457. Ibid, art L.330-9

n u i s a n c e s )The former includes type certificate of airworthiness {certificat de ncnngabilité de type), and licenses and certificates for flight crew {brevets, licenses et certificates de tous les membres de Véquipage)."^^ The certificate o f airworthiness is an official document guaranteeing that the aircraft is fit for flight and consequently authorising it to engage in air navigation/^' No aircraft may be used for air traffic, unless it is provided with a valid certificate of navigation, it is fit for flight and its use is in conformity with the rules promulgated to ensure s a f e t y Ce r t i f i c a t e o f airworthiness may be renewed for an equal duration after inspection by the competent authority, and since the

State has entrusted such a function to a company of authorised classification, le Bureau

Véritas, the company therefore conducts corresponding controls on behalf o f the State/^^ Certificate o f airworthiness may be suspended in certain cases, and use o f aircraft without valid certificates will incur penal sanctions against the aircraft owner, the commercial operator and the pilot (e.g. fines and imprisonment).^''

In America a comprehensive regulatory scheme has been provided by the Federal

Aviation A ct 1958"^^ and the Department o f Transportation Act 1967^^ authorising the Secretary acting through the FAA Administrator to promulgate regulations and minimum standards designed to promote safe flight of civil a i r c r a f t . T h e Administrator is charged

to prescribe such minimum standards required in the interest o f public safety for

appliances and for the design, material, workmanship, construction and performance of aircraft, aircraft engines and propellers.''^* The Administrator is also under duty to prescribe, in the interest o f safety, regulations and minimum standards governing inspection, servicing, and overhaul of aircraft, aircraft engines, propellers, and appliances''^^

In accordance with its function o f regulating and promoting safety, the FAA issues air carrier operating certificates,''"^'' airport operating certificates,'*'^' airman certificates'*^^ "59. Juglart, I(486)-(488) & (566).

"60. Juglart, 1(490) & (511). "6'. Juglart, 1(486).

"62. Code, art R .1 3 3 -l(l)(a ), (b) & (c). "65. Juglart, 1(502).

"6". Code, ibid, art L. 150-1 & 150-2; Juglart, 1(504)//:

"65. Act o f Aug. 23, 1958, as codified as amended at 49 USC Appd ss 1301-1557 (1988); Juglart. 1(557) & 1(466)//:

"66. 49 USC s 44701 et seq (1996).

"62. 49 USC s 44701(a) (1996): M A Dombroff, Certification and Inspection: An Overview o f Government Liabilit) , 47 JALC (1982) 229, 230-31.

"6*. 49 USC Appd s 1421(a)(1) & (2) (1988); 49 USC s 44701(a)(1) (1996). "69. Ibid, s 1421(a)(3); 49 USC s 44701(a)(2)(A) (1996).

"20. Ibid, s 1424: 49 USC ss 4 1 101(a)(1), 44701(b)(1). 44702(a), 44705 (1996). " 2'. 49 USC ss 44702(a) & 44706 (1996).

(flight crew including pilots, air traffic controllers, and aircraft mechanics and repairmen). The FAA also issues airworthiness, type and production certificates for aircraft, aircraft engine, propeller, or appliance specified in the regulations, upon tests o f their design, manufacture and performance and upon their satisfaction o f minimum standards.'*^^ It is unlawful for any person to operate any civil aircraft without a valid airworthiness certificate, airman certificate or air carrier’s operating certificate.'*^'* The FAA may suspend, modify or revoke such certificates upon re-inspection, re-examination or re­ investigation, if public safety so requires.'*^^ The FAA also prescribes for licensing purposes a minimum level of equipment and services applicable to each class of airports.'*^^

In document Economic analysis of the legal regime for aviation liability (Page 81-88)