Rules and Regulations. Final rule
36,378 words·~165 min read·
/register/2007/04/12/07-1803A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
BILLING CODE 3410-02-P SMALL BUSINESS ADMINISTRATION 13 CFR Part 120 RIN 3245-AE83 Liquidation and Debt Collection Activities AGENCY: U.S. Small Business Administration (SBA or Agency). ACTION: Final rule. SUMMARY: This final rule amends the regulations pertaining to guaranteed loan and debenture liquidation and litigation found in rules governing the 7(a) Guaranteed Loan program and the Certified Development Company program. It codifies statutory language contained in the Small Business Investment Act, and revises the Agency's guidance on the proper liquidation and litigation of defaulted SBA guaranteed loans and debentures.
These rules will give program participants authority to liquidate small business loans in a more timely fashion, and creates a process for identifying loans and debentures that could be disposed of in an asset sale conducted or overseen by SBA. DATES: This rule is effective May 14, 2007. FOR FURTHER INFORMATION CONTACT: James W. Hammersley, Director, Loan Programs Division, Office of Financial Assistance,
(202)205-7505, or by e-mail at *james.hammersley@sba.gov.* SUPPLEMENTARY INFORMATION: On November 3, 2005, SBA published proposed rules to revise and update regulations on liquidating and litigating SBA 7(a) and 504 loans (70 FR 66800, November 3, 2005). The initial period for public comment ended on January 6, 2006, but was reopened for additional comments on January 25, 2006. The extended comment period ended on February 24, 2006. Comment Summary In total, SBA received 138 responses to the proposed regulations. Of these, 133 were submitted by SBA lender participants (“Lenders”) or Certified Development Company (“CDC”) principals, two of the comments were submitted by Lender and CDC trade association representatives, two were submitted by third-party service providers, and one was submitted by the Chairman of the House Committee for Small Business. One hundred eleven of the 138 respondents were generally opposed to portions of the proposed regulations. Lenders were virtually unanimous in expressing their objection to SBA requiring them to complete the liquidation of all collateral securing a defaulted SBA loan before requesting SBA's purchase of its guaranteed portion. Lenders and CDCs also objected to the proposed rule provision under which Lenders and CDCs would have deemed to have given their consent, for loans made on or after the effective date that later go into default, to sell the defaulted loans in an asset sale. CDC commenters generally did not object to the principles behind having CDCs liquidate defaulted loans, but believed the rules lacked sufficient detail on their implementation for the lending community. The most prevalent comment focused on the need to compensate CDCs that perform liquidation and litigation activities. Section-by-Section Analysis of Comments Five general comments were received in relation to the proposed definition of an Authorized CDC Liquidator to be included in § 120.10. One comment expressed a view that the definition as written is too restrictive and that the liquidation function should be a fundamental requirement for all CDC participants. SBA has decided to retain the definition as proposed to provide CDCs and SBA with the flexibility to obtain necessary expertise in liquidations. Seven comments were submitted opposing the proposed definition in § 120.10 for Loan Program Requirements. The comments centered on concerns regarding program compliance and potential denial of an SBA guarantee resulting from interpretations of outdated standard operating procedures (“SOPs”), policy notices, and other loan documentation forms provided by SBA. Another commenter stated that including SOPs, Notices and Forms in the definition raises these items for enforcement purposes to a status equivalent to regulations without granting participants adequate notice and the right to submit comments. A third comment challenges the enforceability of Agency SOPs and notices in legal actions before a court of law, with the lender remaining unconvinced that lender compliance with respect to dynamic changes in SBA procedures or policy would be enforceable. A final commenter felt the proposed definitions could be another way to reinforce that Lenders should rely solely on written instruction and not expect direct assistance from SBA representatives. SBA acknowledges the dynamic nature of SOPs, Agency Notices and other policy and procedural guidelines. However, SBA's proposed definition is not designed to create conditions for releasing itself of the obligation to purchase its guaranteed portion of 7(a) loans. The definition was drafted to build awareness of all the related material the Agency provides to participants in SBA's loan programs. SOPs and Agency Notices are released by SBA to aid lenders in understanding current policy, procedures, and processes. These documents can be issued only after internal Agency clearance, including reviews by offices engaged in measuring Agency risk and compliance with Congressional intent. Forms and other documents are also subject to periodic Office of Management and Budget (“OMB”) review to measure regulatory burden and the impact on small businesses. These reviews ensure that SBA is reasonable in its program delivery. SBA also believes that by incorporating these additional elements in the definition, it will prompt more attention by program participants to stay abreast of changing program requirements, including those brought about through the Agency's periodic reassessment of its loan programs. In addition, this definition merely codifies current law and practice in a more clearly stated form. CDCs are already held to the substance of this definition. Section 120.826, which was enacted through notice and comment rulemaking in 2003, states that CDCs “must operate in accordance with all 504 program requirements imposed by statute, regulation, SOPs, policy and procedural notices, loan authorizations, debentures, and agreements between the CDC and SBA.” Lenders are also already held to the substance of this definition. Lenders sign a Loan Guarantee Agreement which requires a lender to comply with SBA's “rules and regulations.” Section 120.524(a)(1) states that SBA may deny liability under a 7(a) loan if lender has failed to comply materially with “any of the provisions of these regulations, the Loan Guarantee Agreement, or the Authorization.” The National 7(a) Loan Authorization Boilerplate (paragraph E) states that SBA's guarantee on each 7(a) loan is contingent upon the lender's compliance with current SOPs. It is for these reasons that the proposed rule is therefore adopted as written. Proposed § 120.180 revised the current § 120.180 to clarify that Loan Program Requirements in effect when a Lender or CDC undertook a specific action with respect to a given 7(a) or 504 loan will govern that action. The proposed rule makes use of the new term Loan Program Requirements in order to better specify the rules which govern an SBA loan financing transaction. No comments were received in reference to this rule, and thus the rule is adopted as final. Proposed new § 120.181 clarifies that Lenders or CDCs and their contractors are independent contractors and that SBA is not responsible for their actions. Two comments in support and ten comments in opposition to this proposed regulation were received. Support was general in nature, with no specific reasons cited. Comments in opposition to the proposed regulation noted a CDC's past inability to represent SBA in legal proceedings, SBA legal staff coordination issues, and also raised the issue of the availability of liability insurance for firms engaged in liquidation and litigation activity. The matter of legal representation of the SBA's interest in CDC litigation is granted by Congress in § 510(c)(1)(B) of the Small Business Investment Act. Pursuant to the statute, CDCs are to litigate any matter related to the performance of liquidation and foreclosure functions in a reasonable and sound manner according to commercially accepted practices pursuant to a litigation plan approved in advance by SBA. The concern about coordination with SBA legal staff would be resolved through SBA's review and action on the liquidation and litigation plan provided by the CDC pursuant to revised § 120.540. The Agency is not aware of any lack of availability of liability insurance for CDCs since this has not been a problem with Lenders participating in the 7(a) program. The new rule is thus adopted as proposed. Proposed new § 120.197 imposes a notification requirement to the SBA Office of Inspector General by all Lenders, CDCs, Borrowers and others when instances of fraud may have occurred. Twenty comments were received on this proposed regulation, three in support and 17 in opposition. One commenter who opposed the regulation stated that it appears to extend beyond the scope and intent of this regulatory action, and suggested it be treated as a separate matter. Another opposing commenter echoed the sentiments of many in identifying this notification requirement as another Suspicious Activity Reporting System (“SARS”) requirement already required of federal depository institutions. A commenter qualified his support of the proposal, insisting that this requirement be enforced upon bank and non-bank lenders alike. A fourth comment opposed to the proposal focused on the Agency's pursuit of lenders unaware of a fraudulent action and whether the Lender, absent factual evidence, should have timely reported suspected fraud. SBA has provided similar guidance in the past to Lenders, CDCs, and SBA personnel in program operating procedures. These guidelines were useful when SBA underwrote much of the 7(a) and 504 loan portfolio. With current loan activity, however, predominantly delivered through delegated authority processes such as the Preferred Lender Program (“PLP”), the Preferred Certified Lender Program (“PCLP”), and SBAExpress, the element of ensuring program integrity and a level of accountability shifts to the program participants. This new rule formalizes the reporting requirement into regulation for program participants. § 120.197 is retained as proposed. Minor revisions to § 120.440 received no substantive comments and are therefore revised as proposed. SBA received two comments in support of the revisions proposed for § 120.453. The proposed rule amends the heading and the existing regulation on PLP lender servicing, and directs the reader to revised subpart E for general instruction on SBA loan servicing responsibilities. SBA is adopting the revisions as proposed. In the proposed rule, § 120.500 along with §§ 120.510-120.513 were to be deleted. Additionally, a revision to the heading preceding this section was to be revised. Section 120.500 was a general introductory paragraph regarding general loan administration policies applicable to both loan servicing and loan liquidation. No comments were received and the section is deleted as proposed. No comments were received regarding the name change in the heading for Subpart E. The heading for this Subpart is now changed to read Servicing and Liquidation, and is adopted as proposed. Section 120.510 pertains to the servicing of SBA direct loans and immediate participation loans under the 7(a) program. SBA no longer makes direct or immediate participation loans and received no comments on its proposed deletion. SBA deletes this section as proposed. Section 120.511 identifies the Lender as the entity responsible for servicing SBA guaranteed loans, holding Loan Instruments, and accepting borrower payments of principal and interest. These responsibilities have been revised and incorporated into standards for loan servicing for Lenders in new § 120.536. No comments were received regarding this proposed deletion. The existing regulation is therefore deleted. Existing § 120.512 describes Lender responsibilities for servicing and liquidating an SBA loan in the 7(a) program once SBA has purchased its guaranteed interest. This regulation requires Lenders with loans for which SBA has purchased the guaranteed portion to submit liquidation plans on each loan to SBA for approval. The regulation also provides SBA with the discretionary authority to service or liquidate these loans and to have Lenders assign to SBA the related Loan Instruments. Lender liquidation responsibilities for all SBA loans have been reformatted as standards set forth in new § 120.535. The requirement for submission of liquidation plans for 7(a) guaranteed loans has been eliminated except for loans processed as CLP loans, which, by statute, still require the submission of liquidation plans to SBA. Finally, discretionary authority for SBA to service and liquidate loans where it has purchased the guaranteed portion has been incorporated into new § 120.535(d). No comments were received, thus in recognition of the revisions, SBA is deleting the existing regulation in § 120.512. Current § 120.513 outlines servicing actions requiring SBA's prior written consent. The proposed rule amends these requirements and promulgates the revised regulations under new § 120.536. SBA received no comments and is therefore deleting the existing regulation. In § 120.520, SBA proposed to amend the heading for the section; reuse the existing subsection, and add two new subsections. Section 120.520(a) detailed SBA's proposal to require Lenders in the 7(a) program to liquidate all collateral securing a defaulted SBA guaranteed loan prior to requesting SBA purchase of its guaranteed portion. The requirement to liquidate collateral first would only apply to loans made on or after May 14, 2007, with loans made prior to the date subject to SBA guarantee purchase provisions in place at the time the loan was approved. SBA received 62 comment letters opposing this proposal as written. The primary objection centered on the adverse financial effects imposed on Lenders arising from delaying guarantee purchase until all collateral recoveries have been exhausted. One commenter said Lenders will be forced to carry the SBA portion as a non-performing asset, and that this will require greater regulatory capital reserves. Another commenter stated that it would be detrimental to a potential borrower (and the local economy) for SBA guaranteed loans not to be made not because of the lack of a government backed guarantee, but because of the time and cost that it takes to claim the guarantee. SBA has considered the arguments presented by the commenters and seeks a reasonable alternative that improves the Agency's ability to manage its portfolio without hampering the Lenders' ability to participate in the 7(a) program. SBA notes the high volume of loan activity generated by its Lenders over the last five years and seeks to effectively manage the increased volume with the Agency's limited program resources. In modifying processes and procedures, SBA is adapting to the changing environment for small business lending and allowing lenders to perform more lending functions on SBA's behalf. Nonetheless, streamlined delivery methods and SBA's greater reliance on its lending partners has not lessened the Agency's attention to its fiscal management responsibilities for its loan programs and to the public. In recognition of the adverse financial impact that could be experienced by Lenders, SBA has decided to allow Lenders to request purchase without the full disposition of all related loan collateral. Since comments objecting to a full liquidation prior to SBA purchase cited the work effort and legal restrictions associated with real property collateral disposition, SBA will allow real property to be liquidated subsequent to purchase, but will still require all chattels (business personal property) to be liquidated prior to purchase. To ensure consistent interpretation with existing regulations, SBA will also allow Lenders to request purchase on a defaulted loan when the small business borrower files for bankruptcy protection and a period of at least 60 days has elapsed since the last full installment payment. SBA believes that a nine month period following purchase, after which Lenders will be deemed to have consented to SBA's sale of a purchased loan pursuant to new § 120.546, will generally provide Lenders with a reasonable period of time for addressing the activity needed to liquidate most remaining collateral in an orderly manner. Also, Lenders will continue to have the option to delay submitting a purchase request if they desire to liquidate real estate collateral prior to an SBA loan sale. Section 120.520(a) is revised to incorporate these changes resulting from the comments received. Proposed new § 120.520(b) codified existing SBA policy regarding documentation requirements sufficient for SBA to determine if purchase of the guarantee is warranted. One commenter objected to the rule stating that the determination of what is sufficient for SBA is somewhat vague, and that the regulation should direct the Lender to particular Agency procedures or instruction guides. SBA noted that the proposed rule referred to new § 120.524 as SBA's justification for determining if purchase is warranted and that this regulation included the Lenders' requirement to comply materially with any Loan Program Requirements including statutes, regulations, SOPs, SBA notices and applicable forms. SBA believes this level of instruction is sufficient for program participants. The regulation is therefore adopted as proposed. New § 120.520(c) clarifies SBA policy that a Lender's failure to perform all necessary servicing and liquidation actions subsequent to SBA's purchase of the guaranteed portion of a loan from the secondary market may lead to initiation of action to recover money SBA paid to the Registered Holder. Thirty-five comments were received all opposing the proposed regulation. Some felt the action of Lenders to purchase the guaranteed portion of their loans from the secondary market would threaten the true sale nature of other guaranteed portions sold to Registered Holders. SBA believes this premise to be inaccurate inasmuch as SBA lenders have always had the option to purchase defaulted loans. SBA does not pressure lenders to purchase loans nor is it necessary for a lender to purchase loans to protect its reputation in the industry. SBA believes the comments mask the real issue of SBA's ability to seek out documentation in a post-purchase review, and the remedies available to the Agency if such documentation is not provided by Lenders that have already received payment of the guaranteed portion. The regulation is a codification of a long standing policy where SBA has sought repayment from Lenders that did not properly process, close, and service loans sold in the secondary market. This regulation sets out the requirement that a Lender provide a loan status report as well as documentation that SBA deems necessary to make a determination that the loan was processed, closed, and serviced in compliance with SBA rules and regulations. Therefore, we conclude that codification of this long-standing policy will have no effect on the true sale nature of secondary market transactions. Lenders have always been required to provide documentation needed by the SBA to justify the purchase. As indicated, this rule merely codifies existing Lender responsibilities to assist SBA in providing the documentation requested by SBA to affirm that its purchase of the guaranteed portion was based on the Lender's compliance with program requirements. To reinforce SBA's need to provide timely submission of documents, the rule alerts Lenders that SBA will consider the Lender's actions in conjunction with their continued participation in the Secondary Market. SBA retains its rights to suspend or revoke Secondary Market participation if it feels the Lender is not in full compliance with this regulation. Accordingly, SBA has added a sentence to point out the importance of post-purchase document submission and the rule is otherwise adopted as proposed. No substantive comments were received regarding new rule § 120.520(d) relating to SBA's retention of rights of recovery in connection with the new rule. The rule is adopted as proposed. Revised § 120.522(b)(1) seeks to limit SBA's obligation to pay accrued interest on loans requested for guarantee purchase. This limit applies to loans made on or after October 1, 2006, and will limit interest purchased to be no more than 120 days. SBA received 42 comments opposing the proposed rule. Commenters stated that the time limit would unnecessarily force ill-advised liquidations instead of accommodating workouts with borrowers. SBA encourages its Lenders to continue to work with SBA borrowers through periods of temporary difficulty and to provide short-term deferments or other assistance in appropriate situations. However, this limitation on interest to be paid is intended to help streamline and standardize SBA's purchase review process for the benefit of its participant Lenders, and already is a part of program requirements for SBAExpress loans. For other types of loans under existing regulations, a Lender may receive payment from SBA for more than 120 days interest only if the Lender submits a complete purchase request to SBA within 120 days of the earliest uncured payment default. Lenders that have submitted complete purchase packages within 120 days of default have historically involved a small percentage of loans. Determinations as to what may constitute complete purchase requests in specific situations have unnecessarily delayed overall purchase processing to the detriment of Lenders as a whole. Accordingly, SBA is adopting the 120 day interest limitation as set forth in the proposed regulation, and is deleting existing § 120.522(d) as proposed. Revised § 120.524(a)(1) amends the current provision in the regulations and codifies SBA policy that when a Lender is not in material compliance with the Loan Program Requirements as defined in § 120.10, SBA at its discretion may be released from liability under a loan guarantee. Seventeen comments were received in opposition to this proposed revision. One commenter said that this rule would discourage Lenders from taking collateral that is difficult to perfect, and that a denial of liability by the Agency for lender noncompliance absent a verifiable loss would decrease program participation. Another comment stated that wide gaps in interpretation will harm the liquidation process and that this proposed rule removes any rational flexibility. Another commenter felt the rule as drafted is far too broad and is not fair to the participants. SBA has thoroughly considered the comments, but has decided to retain the rule with no changes. The rule does nothing more than incorporate the new definition of Loan Program Requirements and thereby clarifies the intent of the existing regulation while making clear to Lenders what sources of authority will be applied. The view that SBA would look to use this revision to avail itself of its right to deny liability is strikingly narrow and inconsistent with the approach to guarantee purchases applied by the Agency. SBA continually strives for uniformity in its purchase processes, employing supervisory and legal reviews, and quality assurance assessments in the Agency's purchase centers. These factors have reduced the number of complaints received from Lenders regarding varied interpretations of SBA liquidation and guarantee purchase policy. SBA does not anticipate a significant change in the number of denials of liability annually as a result of this rule. The rule thus is retained as proposed. Revised § 120.524(a)(8) proposed extending the time within which a Lender can request guarantee purchase to 180 days following the maturity date on the SBA loan, or the end of all liquidation and debt collection activities. SBA received one comment in support of this proposal and is adopting the rule as proposed. SBA received no comments on proposed § 120.524(b) and
(d)and is adopting them as proposed. Proposed rule § 120.535 outlined the standards for the servicing and liquidation of SBA loans. Fewer than six comments were received for each subparagraph, all in opposition to some section of the rule. One commenter objected to the unilateral authority of the SBA to take over servicing and liquidation from a Lender; however, this authority exists already in the current regulations and also in the SBA Form 750, Loan Guarantee Agreement. Upon consideration of the comments provided, SBA adopts the rule as proposed with an additional sentence at the end of each subparagraph emphasizing that the standard applies to all Lenders and CDCs irrespective of whether or not they normally manage a non-SBA portfolio. There were no substantial comments received in reference to proposed new § 120.536 and the rule is adopted as proposed. The Proposed rule re-designated §1A120.540 as § 120.545 and added a new § 120.540 devoted to SBA loan liquidation. Amended § 120.540(a) described SBA's oversight responsibilities for monitoring efforts by Lenders and Authorized CDCs to dispose of collateral. No comments were received opposing the rule by which SBA seeks to clarify Lender liquidation reporting responsibilities. By statute, all SBA loans made through the CLP delivery process by Lenders authorized to make CLP loans require liquidation plans to be submitted to SBA for defaulted loans. This requirement is different from the liquidation wrap-up report required of all Lenders for their completed SBA defaulted loan recoveries. The rule therefore is adopted as proposed. Proposed § 120.540(b) specified the requirement for submission of written liquidation plans for prior SBA approval. As proposed, all Authorized CDC Liquidators, and Lenders that have made an SBA loan under the CLP delivery method, are required to submit a written liquidation plan to SBA for prior approval. Twelve comments were received in opposition to this proposed rule. The focus of the commenters' objections centered on PLP lender liquidation activities and the need for SBA to exempt the PLP lender from this rule. The rule, however, pertains to loans approved under the CLP delivery method irrespective of the lender's designation. As mentioned above, CLP loan liquidations require the statutory submission of a liquidation plan for prior written approval. SBA is unable to change this practice without a change in legislation. SBA retains the text of the rule as proposed. Proposed § 120.540(c) provided guidance on litigation involving SBA loans. Eighteen comments were received on this proposed rule, one in support and 17 in opposition. Comments in opposition tended to focus on the number of legal matters contained in the definition of Non-Routine litigation and its limit on costs and expenses of $10,000. Commenters acknowledged SBA's proposal to increase the dollar amount of legal fees considered to be for Routine Litigation, however, some comments sought an even higher threshold amount. SBA has reviewed the comments, but has retained the rule as proposed. It has been the Agency's experience that most legal matters in excess of $10,000 are in fact, non-routine and rarely involve actions that are not in dispute. No substantive comments were received regarding amended § 120.540(d) regarding SBA's ability to take over debt collection litigation of a 7(a) or 504 loan and thus the regulation is adopted as written. In amended § 120.540(e), SBA provided a process for Lenders and CDCs to amend previous liquidation and litigation plans. One comment opposed this proposed amendment stating that the litigation rules and procedures as revised by the proposal will continue to increase the need for SBA to review and approve litigation plans on a repeated basis during the course of a matter [which] will cause significant delays. SBA agrees with the suggestion that the revised regulations are likely to increase the work involving liquidation and litigation. SBA's experience, however, has been that in many non-routine litigation cases, the increase in fees was not cost effective to the Agency when compared with actual recoveries. This proposed rule therefore is necessary to protect the Agency and preserve taxpayer funds arising from liquidation recoveries. The rule is adopted with no changes. No comments were received regarding amended §§ 120.540(f) and (g). Amended § 120.540(f) provided SBA with a waiver of requirements in amended paragraphs (b),(c) and
(e)of this section in cases requiring immediate actions and decisions. New § 120.540(g) provided an appeals process for Lenders with CLP loans and for Authorized CDC Liquidators when they disagreed with a decision by SBA regarding a proposed liquidation plan. The rules are retained as proposed. New § 120.541(a) provided timelines for SBA approval of liquidation and litigation plans submitted by Lenders and CDCs. This section also states the timelines for actions specified in new § 120.536(b)(5) and § 120.536(b)(6) which are established by statute with respect to CDCs. These timelines differ from the ten day timeline found in new § 120.541(c) which is mandated by § 7(a)(19) of the Small Business Act. SBA is making minor technical corrections to the cross-references stated in the proposed rules. One commenter objected to the proposed new rule citing the potential impact on recoveries that may result from CDCs waiting for a 15-day approval from SBA, and the potential for these approval periods to be extended indefinitely. The commenter is encouraged to review statutory requirements placed on SBA if it is unable to respond within 15 business days. § 510(c)(2)(E) of the Small Business Investment Act requires SBA to provide a written notice of no decision stating the reasons for the SBA's inability to act on the plan or request, along with an estimate of the additional time needed by SBA to act on the plan or request, and the nature of any additional information or documentation impeding the SBA from acting on the plan or request. Also, SBA reporting requirements to Congress as mandated in § 510(e)(2)(E) create a quality control check on SBA's progress in reaching an expedient decision to Lenders and CDCs. Thus, the rule is adopted as proposed. New § 120.542 regulated the payment of legal fees and other expenses in conjunction with defaulted SBA loans. Thiry-four comments were received regarding this new rule, one in support and 33 in opposition. Twenty-eight of the 33 comments submitted in opposition are from CDC principals, or the industry's trade association representative. In the proposed rule, SBA had specifically requested comments from CDCs on this issue. Commenters objected to CDCs assuming risk and responsibilities for liquidation and litigation activity, yet not being adequately compensated for their additional involvement. One commenter could not understand why a CDC would request these new responsibilities under the proposed compensation scenario. Another commenter recommended that SBA define by task the items that it believes should be routine and under the $5,000 cap. A third commenter felt that in applying § 120.542(a)(2) of the proposed rule, conflicts may occur on whether SBA specifically directed CDCs to take action which could lead to a violation under proposed rule § 120.542 (b)(2). A fourth commenter felt that SBA should compensate CDCs for the additional expenses associated with locating and selecting liability insurance protection for the work it will assume on SBA's behalf. SBA has evaluated the comments provided and agrees that some form of compensation is warranted for requiring a CDC to incorporate the liquidation function into its CDC's practice. Commenters supported the position taken by the CDC trade association that involves compensation as a percentage of proceeds received from recoveries subject to a cap of $25,000. Having fees derived from recoveries and not from the unpaid principal balance on a loan is responsive to SBA's policy objective that liquidation fees paid to CDCs should be based on work performed in the recovery process. The suggestion of a monetary cap, while noteworthy in concept, would be counterproductive in practice. Authorized CDC liquidators could limit their liquidation activities to the $25,000 threshold, and would lose incentive to seek recoveries beyond this discrete limit. With much of a liquidator's upfront time and effort incurred irrespective of the loan size, SBA sees a real benefit to maximizing recoveries for Authorized CDC liquidators as well as the SBA. The Agency, however, recognizes a time element to liquidation in which, as time goes on, the additional recovery potential is overshadowed by a decrease in the value of the underlying asset. In an effort to retain a real incentive to liquidators while limiting the practice of avoiding final disposition of a collateral asset, SBA has agreed to allow Authorized CDC liquidators to use net recoveries on the defaulted CDC debenture as a base unit for computing a fee for liquidation activity. SBA initially will allow a percentage of net recoveries not to exceed 10%, with the fee dropping by at least 50% after the first $25,000 in fee income is realized. SBA will evaluate these fee percentages from time to time, and provide notice of a change in permissible fee percentages when appropriate through notice published in the **Federal Register** . SBA would also look for all liquidation activity to be completed within nine months of SBA's purchase of the CDC debenture. This would amount to eleven months after the date of default, and would conform to similar timetables for Lenders liquidating real property in the 7(a) program. To accomplish this change, SBA has inserted a new § 120.542(c). SBA has re-designated proposed § 120.542(c) and § 120.542(d) as § 120.542(d) and § 120.542(e) and implements the section as proposed. The new § 120.542(c) would provide CDCs with guidance on the form of compensation acceptable to SBA for CDC loan liquidation activity. This would not include SBA compensating the CDC for liability insurance coverage. SBA views that element as a normal cost of doing business and provides no similar relief to Lenders in the 7(a) program. The issue of legal fee compensation for work performed by Authorized CDC Liquidators on behalf of the Agency involves several factors. SBA welcomes the use of qualified counsel to address legal matters affecting the Agency's ultimate recovery. SBA is not, however, in a position to provide Authorized CDC Liquidators with unbridled authority to incur substantial legal fees. SBA needs to be able to weigh prospective recovery options against the costs of securing those recoveries and only approve those actions which best serve the needs of the Agency. Since SBA purchases the full amount of the defaulted CDC debenture, SBA is the sole financial beneficiary of the recovery efforts. Consequently SBA is unwilling to modify the proposed rules regarding payment by SBA of legal fees, and adopts §§ 120.542(a) and
(b)as proposed. New § 120.546 proposed conditions under which SBA would have the opportunity to include defaulted SBA loans in an asset sale process. SBA received one comment in support and 31 comments in opposition to the proposed rule. Commenters objected to new § 120.546(b)(1)(i) which provides for implied consent to an asset sale if Lenders request SBA to purchase the guaranteed portion of a loan directly from the Registered Holder in a secondary market transaction. The option to purchase a loan from the secondary market investor, which exists already, would be the only way for a Lender to avoid this outcome. Many small Lenders objected to this option, noting that the capital needed to purchase the guaranteed portion from the secondary market is comprised of funds that otherwise would have been available for additional small business lending. These same Lenders added that the increased level of non-performing assets would have detrimental capital consequences and would serve as the impetus for leaving the program. Other commenters stated that forced asset sales inevitably cause lenders to participate with a third party, not the SBA, and greatly reduces flexibility in reaching a workout with a small business. Comments also focused on whether these purchases from the secondary market jeopardize the accounting of these transactions as true sales, and if Lenders would have to retain the guaranteed portion of the loan on their books even if sold in a secondary market transaction. SBA has evaluated the comments and has modified its proposal in this final rule with respect to 7(a) loans sold on the Secondary Market. SBA recognizes the possibility that under some circumstances recoveries from sales of collateral and foreclosure proceedings arranged prior to SBA's purchase of the loan from the Registered Holder might be higher than recoveries from a sale of that loan in an asset sale. In the final rule, SBA retains the provision that deems the Lender to have consented to an asset sale for loans approved on or after the effective date of this regulation for which the Lender subsequently sells the guraranteed portions in the secondary market that later default and are purchased by SBA from the Registered Holder. SBA, however, adds a new subparagraph which gives Lenders the option, regardless of the fact that they already are deemed to have consented to the asset sale, to request SBA withhold the loan from such a sale based on a pending sale of collateral or the existence of an existing foreclosure proceeding. The Lender will have 15 business days from the date of SBA's purchase to submit such a request. Liquidation actions contemplated but not underway at the time of SBA's purchase will not be sufficient justification for withholding a loan from inclusion in an asset sale. SBA will consider the Lender's request and, in SBA's sole discretion, SBA may provide the Lender with limited additional time to complete loan restructuring and/or liquidation activities. SBA also revises § 120.546(b)(1) by adding two additional subparagraphs one to include defaulted SBA loans where SBA has purchased its guaranteed portion from the Lender and nine months have elapsed from the date of SBA's purchase, and the other to give Lenders the option of giving written consent to an asset sale for those Lenders that determine this form of asset disposition to be in their best interest. Regardless of the circumstances leading up to an asset sale, the Lender is not released from its obligations to continue to properly service and liquidate the loan up to the point the loan is transferred in an asset sale. A new subparagraph (b)(4) has been added to the final rule to this effect. Finally, Lenders that wish to pursue additional recovery on loans after the nine-month period subsequent to purchase always have the option to repay the guaranty purchase amount disbursed by SBA, and release SBA from further participation in the loan. New § 120.546(c)(1) extends similar guidance on the sale of defaulted PCLP Loans. Since SBA purchases the full amount of the defaulted debenture, the rule does not require PCLP CDC consent. Thirteen comments were received, all in opposition to the regulation. One commenter stated that since PCLP CDCs have reserves established for loan losses, they should have some say in the decision to initiate an asset sale on a defaulted CDC loan. SBA's loss exposure in a defaulted CDC debenture is larger than that of the PCLP CDC. Therefore, the Agency believes it is in the SBA's best interest to take control of the disposition of the defaulted asset. In those instances where a PCLP CDC can demonstrate to SBA's satisfaction that an asset sale should be withheld in favor of an imminent liquidation event, SBA may further examine its avenues for recovery. Notwithstanding these circumstances, SBA will determine the course of disposition for the defaulted debenture. The regulation is therefore adopted without change. New § 120.546(c)(2) grants SBA, upon its purchase of a Debenture, and in its sole discretion, the right to sell the defaulted SBA loan in an asset sale. Thirteen comments objecting to this proposed rule were received. The comments centered on the perceived loss of a local presence to coordinate an orderly liquidation of the loan and the diminution of value that would result from an SBA asset sale. However, SBA may solicit from the CDC that originated a particular loan the CDC's views concerning how to best maximize recovery from the loan with regard to the timing of including that loan in an asset sale. SBA will retain the provision in the final rule granting the Agency the authority, in its sole discretion, to sell a defaulted 504 loan in an asset sale. Amended § 120.826 revises the basic requirements for operating a CDC to include, if authorized by SBA, liquidating and litigating 504 loans. SBA received one comment in support of the regulation and nine opposed to the proposal. Those opposed to the proposed revision cite a lack of preparedness, training and source of income for CDCs to perform these functions. One commenter felt that the agency must issue more specific Loan Program Requirements for CDCs before attempting to mandate that CDCs adhere to what are now somewhat general standards. Another stated that since there are published guidelines for liquidation, SBA should provide CDCs with a litigation plan format for use in submitting such plans. A small CDC acknowledged that it does not have the staff, expertise or funds to properly maintain litigation and liquidation functions, stating that if the CDC were to be forced to pay for the liquidation procedure out of pocket without compensation from the SBA, it would cause serious hardship for the CDC. Much of the revised text in the regulation incorporates the Loan Program Requirements definition discussed above and the authorization of CDC liquidators. Commenters are concerned that some of the identified source documents are outdated and may lead to inadvertent confusion with CDCs attempting to assume liquidation and litigation activities. SBA is well aware of the need for CDC training and will work with the industry to develop comprehensive course materials to provide a baseline competency level. SBA legal staff likewise will assist in the development of training materials and reporting requirements to SBA. This support will help those CDCs that recognize the importance of their contribution to this exercise and give each CDC an opportunity to comply with this regulation. As noted above in the discussion of § 120.546, SBA has revised the rule to allow for compensation in some instances. In all other respects, SBA will retain the regulation as proposed. Revised §§ 120.841, 120.845, and 120.846 were revised to make minor changes to incorporate the use of the Loan Program Requirements definition in the qualification for ALP and PCLP status. No substantive comments were received and the regulations are adopted as proposed. Amended § 120.848 revised subparagraphs
(a)and
(f)to incorporate the use of the Loan Program Requirements definition and to cross-reference this regulation with the servicing regulations now contained in Subpart E. With just two comments received among the 138 respondents over the expanded 60 day review period, SBA adopts the regulation as proposed. Section 120.854(a)(2) was amended in the proposed rule to identify material non-compliance with any Loan Program Requirement as grounds for enforcement action against a CDC. SBA received a number of general comments opposing this regulation on the grounds that the statement is too vague, open to interpretation, and needs clarification. The revised paragraph proposed is only a technical change in the wording of what is already established as the determinants for enforcement actions against a CDC. Thus, the regulation is adopted as proposed. Amended § 120.970(a) was a minor revision proposed to incorporate the use of the Loan Program Requirements in the general subparagraph and to cross-reference this regulation with servicing regulations now contained in Subpart E. SBA received no substantive comments on this revision and adopts the text in the final rule. New § 120.975 identified the CDC entities that are eligible to become Authorized CDC Liquidators. Section 120.975(a) covered those requirements for PCLP CDCs to be designated Authorized CDC Liquidators. Five comments were received in opposition to the proposed regulation, two were received in support. One commenter objecting to the proposed regulation stated that there is no rationale for requiring them to handle non-PCLP liquidation cases just because they are involved in the PCLP program. Another commenter said that all CDCs, not just PCLP CDCs, should be engaged in 504 loan liquidation and litigation either directly with qualified staff, or by agreement with a qualified third-party provider acceptable to SBA. Those commenters in support of the proposal have the existing capability to perform the functions and simply request that the compensation be reflective of the effort involved in the exercise. In proposing the regulation, SBA adhered to the provisions of § 510(b)(1)(ii) of the Small Business Investment Act (“the SBI Act”). That statute specifies that all PCLP CDCs operating under § 508 of the SBI Act be deemed eligible, subject to having experienced staff or using an approved contractor. The statute does not limit PCLP CDCs to liquidating and litigating only PCLP loans. The regulation conditions PCLP CDCs' authority to liquidate and litigate their non-PCLP loans by requiring the entity to meet one of two operational criteria. SBA believes most, if not all PCLP CDCs, would meet one of these two criteria and would be required to use their delegated authority to liquidate and handle debt collection litigation. Given the diversity of opinion on this proposal, and the decreased SBA staff devoted to 504 loan liquidation and litigation activity, SBA has decided to retain § 120.975(a) as proposed in the final rule. New § 120.975(b) provided guidance on all other CDCs becoming Authorized CDC Liquidators. Eight comments were filed on this subparagraph, two in support and six in opposition to the regulation. Some of those objecting to the proposal stressed the limited resources they have for fulfilling this function and the hardship it will likely cause. Others felt no need to promulgate separate qualification requirements because they support having all CDCs as Authorized CDC Liquidators. Once again, the criteria followed the language of the SBI Act, and thus are retained as proposed. SBA recognizes the concerns expressed by smaller CDCs and will work closely with industry leaders to ensure that training resources are available and to identify qualified third-party providers for those unable to staff these functions internally. New § 120.975(c) added a legal counsel qualification requirement to ensure that SBA is aware of the parties engaged in debt collection litigation on behalf of the Agency. No meaningful comments were received regarding this requirement and the regulation is adopted as proposed. New § 120.975(d) established the process for CDCs to make application for authority to liquidate and litigate. No substantive comments were received on this subparagraph and the regulation is adopted as proposed. Compliance With Executive Orders 12866, 12988, and 13132, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44 U.S.C., Ch. 35). Executive Order 12866 The Office of Management and Budget has determined that this rule constitutes a “significant regulatory action” under Executive Order 12866 thus requiring Regulatory Impact Analysis, as set forth below. A. Regulatory Objective of the Final Rule The objective of the final rule is to clarify and make uniform SBA's existing regulations governing lenders participating in the 7(a) business loan program (Lenders) and Certified Development Companies
(CDCs)that are performing loan servicing, liquidation and debt collection litigation. Parts of the rule have been drafted in response to a statutory directive arising from Pub. L. 106-554. Other parts of the final rule have been written as a codification of both longstanding Agency policy, and new direction in the area of liquidation and debt collection. The final rule will promote better understanding of Agency requirements by Lenders and CDCs, and improve oversight and management by SBA of Lender and CDC liquidation and debt collection litigation. B. Baseline Costs of Existing Regulatory Framework SBA 7(a) loan programs presently require Lenders to submit liquidation plans for most defaulted loans, except for those made pursuant to the SBAExpress program. SBA estimates that these requirements currently result in the submission of about 4,000 liquidation plans per year. The approximate time needed for lenders to complete a liquidation plan is two hours at an average cost of $30 per hour, resulting in a total annual cost to Lenders of $240,000. Presently, CDCs that are authorized to perform liquidation activities on 504 loans submit about 100 liquidation plans per year. The approximate time needed for CDCs to complete a liquidation plan is two hours at an average cost of $30 per hour, resulting in a total annual cost to CDCs of $6,000. SBA's 7(a) loan programs also presently require Lenders to submit litigation plans to SBA for approval. Lenders currently submit to SBA approximately 3,000 litigation plans per year. Preparation of each plan takes about one hour, at an average cost of $150 per hour for private counsel time, for a total annual cost to Lenders of $450,000. SBA reimburses Lenders for their share of reasonable, customary and necessary attorney fees, including those incurred for the preparation of litigation plans. CDCs submit to SBA only a small number of litigation plans presently, because SBA currently handles most litigation involving 504 loans. SBA takes an average of one hour to review and respond to each liquidation and litigation plan submitted by Lenders and CDCs. This equates to 4,000 hours for Lender liquidation plans at an average cost of $30 per hour, for a total of $120,000. For review of CDC liquidation plans by SBA, 100 hours is required at an average cost of $30 per hour, for a total of $3,000. For Lender litigation plans, 3,000 hours of SBA review time is required at an average cost of $30 per hour, for a total of $90,000. SBA processes approximately 54,000 servicing and liquidation actions per year for Lenders and CDCs. The average action takes one-half hour for SBA to process, for a total of 27,000 hours processing time. At $30 per hour, this equates to a total cost to SBA of $810,000. Therefore, the total administrative cost to SBA under the current regulatory framework for these activities is approximately $1,023,000. C. Potential Benefits and Costs of the Final Rule 1. Potential Benefits and Costs to Lenders The rule would provide benefits for Lenders because it reduces the costs associated with submitting liquidation plans to SBA for review and approval. The only subprogram unaffected by the final rule would be for those loans approved under the Certified Lenders Program which by statute require the submission of a liquidation plan to SBA. Submission of liquidation plans is currently required for most lending programs by SBA procedures and regulations. SBA estimates that ending this requirement will enable Lenders to eliminate the preparation and submission to SBA of at least 4,000 liquidation plans a year. The approximate time to complete and submit a plan to SBA is about two hours at an average cost of $30 per hour. Consequently, eliminating the requirement to submit liquidation plans will save Lenders about $240,000 per year. Other benefits for Lenders would result from the proposal to raise the dollar threshold for non-routine litigation (for which submission to SBA for pre-approval is required) from $5,000 to $10,000. With the higher dollar threshold, Lenders would be required to submit fewer litigation plans to SBA. The Agency anticipates that approximately 500 fewer plans annually would be required to be submitted to the Agency as a result of this change. Because preparation of each plan takes about one hour at an average cost of $150 per hour, SBA estimates that the enactment of the final rule would result in a cost savings of $75,000. Finally, the final rule would reduce the operational costs associated with preparing requests for loan servicing and liquidation actions taken by Lenders that require prior SBA approval. These changes would simplify and reduce the costs of loan servicing and liquidation processes for Lenders. SBA does not know of any specific costs that would be imposed on Lenders as a result of this rule except for the loss of income that would result from the limitation of interest on guarantees purchased by SBA to 120 days. It has, however, been SBA's experience in tracking the receipt of completed guarantee purchase request filings that such a limitation would affect only a small percentage (estimated at around 10%) of SBA guaranty purchases. In review of the comments to the proposed rule, Lenders objected to this limitation, viewing it as an encroachment on a source of income. SBA would like to note that current accounting practices generally limit the accrual of interest on defaulted loans to 90 days, and that after that date the loan would be placed in non-accrual status. This loss expressed by Lenders in their comments to the proposed rule relates to SBA bringing its program provisions into greater conformance with more traditional banking practices. In the proposed rule, SBA sought comment on any monetized quantitative or qualitative costs of Lenders' compliance with the rule. One comment filed by the Chairman of the House Small Business committee felt the proposed rule did not properly detail the indirect effects of the rule on small businesses. The thrust of the comment centered on the adverse impact the rule would have on small lenders and CDCs, and consequently local small business concerns. The committee Chairman felt the increased administrative burden resulting from these proposed changes to existing regulations would drive Lenders and CDCs from the program thus contracting the available sources of small business capital. According to the comment, this second order level of analysis must be performed lest the Congress initiate legislation to enjoin the regulations from taking effect. SBA wishes to thank the Chairman for providing comment to the proposed rule, and would like to outline its response. In his comment letter, the Chairman identified the proposed rule as a modification of the existing regulatory structure that has proven successful in implementing the Small Business Act and the Small Business Investment Act. As it is, the final rule pertaining to CDC liquidation and debt collection activity performed by qualified CDCs is consistent with the statutory requirements mandated by § 510 of the Small Business Investment Act. In the preamble to the proposed rule, SBA explained the basis for the lengthy delay in fulfilling the legal mandate to promulgate regulations consistent with the statute. This final rule fulfills the Agency's responsibility to Congress under the Act. CDCs will retain the option to conduct their own liquidation and debt collection activity or to utilize a services of another CDC. The final rule also devises a form of compensation that offsets the additional operational costs associated with implementation of a liquidation function. SBA acknowledges the Chairman's comments regarding the adverse impact the proposed rules could have on small 7(a) lenders that would be required to liquidate all collateral before seeking SBA purchase of the guarantee. SBA has decided to modify the final rule to require only the liquidation of business personal property (chattels) prior to seeking purchase. If a Lender only has business real property pledged against the SBA loan, the Lender can seek either a request for guarantee purchase or may elect to liquidate the property first. This option is presently available in the existing regulations cited in the comments as being successful in implementing the Small Business Act and the Small Business Investment Act. 2. Potential Benefits and Costs to CDCs As provided by statute, this final rule would enable qualified CDCs to seek authority to perform liquidation and debt collection litigation, and by doing so, qualified CDCs would be determining that the benefits of conducting their own recovery on defaulted loans would outweigh any burdens associated with the preparation and submission to SBA of liquidation and litigation plans as set forth in the final rule. Such benefits would include the ability to pursue quicker liquidations and possibly achieve higher recoveries as a result. SBA expects that CDCs would incur some additional costs as a result of this rule. SBA anticipates that CDCs would be required to submit to the Agency for approval about 300 liquidation plans per year, an increase of 200 from the approximately 100 liquidation plans CDCs currently submit annually. SBA estimates that the average time for completion of each plan would consist of two hours at an average cost of $30 per hour. Therefore, the annual cost of submitting the plans under the final rule would be $18,000 per year, for an overall cost increase of $12,000 from the $6,000 annual cost under the current regulatory framework. CDCs that receive delegated liquidation authority under the final rule would also incur added costs through acquiring resources and creating the necessary internal structures to engage in liquidation and litigation activities. SBA had sought comments from the public on any other monetized, quantitative or qualitative costs of CDCs' compliance with this rule and has decided on a compensation structure detailed below. 3. Potential Benefits and Costs for SBA and the Federal Government The final rule would benefit SBA because it would eliminate the need for most Lenders to submit liquidation plans to SBA (the exception is for Lenders under the Certified Lenders Program, which are required to submit liquidation plans by statute; the number of liquidation plans submitted by such Lenders currently is minimal, and SBA expects even further reduction under the rule). SBA estimates that ending this requirement would eliminate the need for SBA to review about 4,000 liquidation plans a year. The approximate time required for SBA to review a liquidation plan is one hour at an average cost of $30 per hour. Consequently, there would be a cost savings to SBA of $120,000 per year. Another benefit for SBA would result from the proposal to raise the dollar threshold for non-routine litigation (for which submission to SBA for pre-approval is required) from $5,000 to $10,000. SBA anticipates that approximately 500 fewer plans annually would be required to be submitted to the Agency as a result of this change. Because review of each plan takes about one hour at an average cost of $30 per hour, SBA estimates that the final rule would result in a cost savings of $15,000. In addition, SBA would not be required to reimburse Lenders for the Agency's proportionate share of the costs incurred by Lenders in connection with the preparation of these litigation plans, resulting in a further savings of approximately $50,000. Although under the final rule SBA would be required to review liquidation plans submitted by qualified CDCs (estimated at 300 liquidation plans per year), this would not represent a significant increase in SBA administrative costs because currently SBA reviews approximately 100 such plans per year as well as provides assistance to CDCs on the preparation of such plans. The final rule would also reduce SBA administrative costs associated with oversight of the Agency's business loan assistance programs by delegating greater servicing and liquidation responsibilities to Lenders and CDCs, and reducing their need to seek the prior approval of SBA for their proposed recovery activities and for various specific liquidation actions. This would decrease the amount of time required for SBA personnel to manage these programs. It is estimated that reviews of at least 30% (16,200) of the approximately 54,000 servicing and liquidation actions SBA currently processes annually would be eliminated. This would save an average of one-half hour processing time per action for a total time savings of 8,100 hours at $30 per hour, or $243,000. In addition to increasing consistency among SBA's loan programs and creating more uniformity in processing guaranty purchase requests, the final rule would save taxpayer dollars by limiting payment of interest on purchased loans to 120 days, except for loans where the guaranteed portion has been sold in the Secondary Market. This change would not be a burden on Lenders because Lenders typically place loans on interest non-accrual after 90 days of delinquency and SBA already limits interest purchased to 120 days in the fastest growing program (SBAExpress). However, it is estimated that such a limitation in the proposed rule would affect only a small percentage (estimated at around 10%) of future SBA guaranty purchases. Finally, the proposed rule would facilitate SBA's transformation initiative by enabling the sale of groups of 7(a) and 504 loans in asset sales. To this end, the rule provides that Lenders which do not purchase the guaranteed portion of a defaulted 7(a) loan from a Registered Holder in the Secondary Market and have SBA purchase the guaranteed portion will have provided their consent for SBA to include the loan in an asset sale. This may turn out to be the most cost-effective approach for Lenders, particularly those with limited capital or operational resources to complete the liquidation exercise. Asset sales would also be available to CDCs, including those operating with limited funding since a sale may be the most expedient approach to disposing of defaulted loans. Costs imposed on SBA as a result of the rule would include personnel and administrative costs associated with implementing appeals processes to which Lenders and Authorized CDC Liquidators may be entitled under the final rule when they disagree with a decision by an SBA field office or servicing center regarding a liquidation or litigation plan, when they disagree with an SBA determination to deny reimbursement of liquidation or litigation fees or costs, or when SBA denies applications from non-PCLP CDCs requesting authority to handle liquidation and debt collection litigation. D. Final Rule Is the Best Available Means To Reach the Regulatory Objective This final rule is SBA's best available means for achieving its regulatory objective of clarifying and making uniform existing SBA regulations and policy, which currently only partially address liquidation and debt collection litigation and vary across Agency lending programs. With respect to CDCs that are eligible for and request liquidations and debt collection authority from SBA, the rule merely implements § 307(b) of Pub. L. 106-554, which requires SBA to promulgate regulations to carry out § 510 of the SBI Act, 15 U.S.C. 697g, regarding CDC liquidation and debt collection litigation authority. SBA considers those statutory provisions applicable to CDCs to be mandatory, and SBA has not identified any reasonable alternative to this proposed rule implementing the statutory mandate. Executive Order 12988 This final action meets applicable standards set forth in §§ 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. In particular, the regulations provide for rights of appeal to Lenders and CDCs in the event they are aggrieved by an Agency decision, thereby limiting the possibility of litigation by these entities. The final action does not have retroactive or preemptive effect. Executive Order 13132 This final rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, SBA has determined that the rule has no federalism implications warranting preparation of a federalism assessment. The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. This rule directly affects only those CDCs that are eligible for and that request, authority from SBA to conduct liquidation and debt collection litigation, along with an unknown number of small lending institutions. SBA assumes, therefore, that this final rule may have an impact on a substantial number of small entities. However, the rule merely implements statutory mandates and, further, SBA has determined that the impact on entities affected by the rule will not be significant for the reasons set forth below. The final rule would enable qualified CDCs to seek authority to perform liquidation and debt collection litigation, and by doing so, qualified CDCs would be determining that the benefits of conducting their own recovery on defaulted loans would outweigh any burdens associated with the preparation and submission to SBA of liquidation and litigation plans as set forth in these regulations. Such benefits include the ability to pursue liquidations more quickly and potentially achieve higher loan recoveries. In the loan liquidation pilot program established by the Small Business Programs Improvement Act of 1996, CDCs that conducted their own liquidation achieved a slightly higher overall recovery rate than did SBA in the comparison group of cases handled directly by the Agency. Subject to the new provisions contained in § 120.542, SBA would also be reimbursing CDCs for their reasonable, customary and necessary expense disbursements related to liquidation activities on particular loans, which would include title reports and title insurance on real estate collateral; appraisals; costs for the care and preservation of collateral; fees for lien recordings, filings and lien searches; and fees for legal services provided by outside counsel in litigating on a particular loan account. SBA anticipates that approximately 80 of the 270 SBA-approved Certified Development Companies will apply to become Authorized CDC Liquidators. CDCs participating in the Premier Certified Lenders Program
(PCLP)would not be required to seek authority to conduct liquidation and debt collection litigation on their PCLP loans since they are already required to do so by statute and regulation. PCLPs, however, will be required to liquidate and litigate their non-PCLP loans by this rule if they are notified by SBA that they meet either of the requirements to be an Authorized CDC Liquidator in order to have one consistent standard for all their loans. CDCs are expected, by statute, to submit liquidation plans to the Agency for prior written approval. It is also assumed that all CDCs would qualify as a small CDC based on SBA size standards for non-depository, credit intermediaries. Based on the level of current CDC liquidation activity, SBA estimates receiving an industry total of 300 liquidation plans per year compared with a portfolio of over 33,400 outstanding CDC debentures for $11.9 billion as of September 30, 2005. SBA estimates that the average time for completion of each plan will necessitate two hours at an average cost of $30 per hour, which is based on a mid-level professional salary level of $60,000 per year. Therefore, the total annual cost to the CDC industry for all plans submitted would be $18,000 per year. Using a 1 percent default rate on $11.9 billion in debentures outstanding (300 liquidations divided by 33,400 debentures times $11.9 billion outstanding) results in an estimated liquidation portfolio of $119 million. With their debentures representing no more than five percent of the outstanding CDC debenture portfolio at fiscal year end, small CDCs would be no more likely to assume the industry expense burden than larger CDCs. The additional costs from enacting the final rule could be recaptured in liquidation recoveries equivalent to just 2.0% of the estimated debenture balance in default. Based on this assessment, SBA concludes that this final rule will not have a significant impact on small CDCs. The rule would also not impose a significant economic impact on small lending institutions in the 7(a) program for similar reasons. SBA size standards for small banks, savings institutions and credit unions is up to $165 million in total assets. A current review of the outstanding 7(a) loans finds over 95% of the SBA portfolio held by 400 of 5,200 registered lender participants, each of them larger in size than the stated size standard for small depository lending institutions. Most liquidations will be undertaken by the more active lenders whose total assets or average annual receipts far exceed the size standard for credit intermediaries. Consequently, this group will also incur the majority of liquidation expenses associated with collateral dispositions, leaving small lending institutions marginally impacted by this final rule. Small lenders that decide to sell the guaranteed portion of an SBA loan in the secondary market could actually benefit from the savings associated with the use of an asset sales mechanism. This benefit is derived from the availability of an asset disposition alternative that may be less costly for small lenders than the effort and expenses involved in planning, preparing and implementing a loan liquidation exercise. The low level of loan activity from small lenders may have a marginal overall effect on the program, but for individual small lenders the savings may be meaningful. SBA recognizes that not all small lenders will opt for implied consent and will purchase the guaranteed interest from the secondary market. This purchase exercise, and the related cost of liquidating the SBA loan could increase the marginal costs of operating in the program; however, until SBA has more definitive data on which of the two options small lenders actually select, the impact on small lenders is indeterminate. SBA will monitor small lender liquidation activity for the next 2 years following enactment of the final rule and will re-examine its burden analysis on small lenders at that time to determine if changes are necessary. SBA's assessment of the impact on small lenders filing a written request to have SBA to refrain from selling the unguaranteed portion of a defaulted loan in an asset sale is referenced in the discussion of the Paperwork Reduction Act detailed below. Lenders would also realize a cost savings associated with eliminating the need to submit liquidation plans to SBA (except for Lenders under the Certified Lenders Program which are required to submit liquidation plans by statute), which is currently required by SBA procedures and regulations. SBA estimates that ending this requirement will enable Lenders to eliminate the preparation and submission to SBA of at least 4,000 liquidation plans a year. The approximate time to complete and submit these plans to SBA is about two hours at an average cost of $30 per hour. The average cost is based on a mid-level professional salary level of $60,000 per year. Consequently, eliminating the requirement to submit liquidation plans will save Lenders about $240,000 per year. The rule also reduces the number of loan servicing and liquidation actions taken by Lenders that require prior SBA approval as compared with existing SBA requirements, and makes the remaining prior approval requirements similar among the various SBA loan programs, thereby simplifying the loan servicing and liquidation process for SBA participating Lenders. In addition, as pointed out above, small lending institutions will be required to submit fewer litigation plans since the proposed rule raises the dollar threshold for Non-Routine Litigation from $5,000 to $10,000. SBA anticipates that approximately 500 fewer plans will be required to be submitted to the Agency as a result of this change. Since preparation of each plan takes about one hour at an average cost of $150 per hour, which is based on a nationwide estimate of the billing level for attorneys qualified to perform this type of work, SBA estimates that the final rule will result in a cost savings of $75,000. In addition, this regulation merely codifies the existing SBA practice of requiring the submission of liquidation and litigation plans by Lenders and CDCs, but reduces any burden from this requirement as to litigation plans by raising the dollar threshold for Non-Routine Litigation from $5,000 to $10,000, as noted above. Further, the performance standards for 7(a) and 504 loan servicing and liquidation contained in these regulations merely codify existing SBA policy as set forth in SOPs and currently existing lending standards. In addition, it is a prudent lending practice for Lenders to prepare plans prior to undertaking liquidation and debt collection litigation. Therefore, this rule does not impose any new or unnecessary requirements on these small entities. It is for these aforementioned reasons that SBA certifies that this final rule will not have a significant economic impact on a substantial number of small entities. The Paperwork Reduction Act SBA has determined that this rule imposed additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C. Ch. 35;
(1)Application for Liquidation Authority;
(2)the Liquidation Plan;
(3)the Litigation Plan; and
(4)Request for Emergency Waiver. SBA received twenty comments objecting to the estimates used by SBA in its Paperwork Reduction Act analysis pertaining to authorizing CDCs to liquidate and litigate, and preparing liquidation and litigation plans acceptable to SBA. In complying with the Paperwork Reduction Act, SBA is obligated to address the estimated time taken by the public to complete the forms recommended for use. The information requested by SBA is maintained by Lenders in the normal course of their daily liquidation activity. SBA is requesting the Lenders disclose what they would readily have available in operating a liquidation function of a commercial lending practice. SBA is cognizant of the preparation work involved in a liquidation report filing, but does not view the form filing as taking more than 2 hours of work by a mid-level professional. When evaluating the burden associated with filing litigation plans, SBA looks only to those instances when loan recovery through litigation is probable. SBA is also considering only those contemplated legal actions as non-routine in nature. When this level of filtering is applied to an estimate of the annual number of initial liquidations filed with SBA, the total cost estimate of $450,000 per year is reasonable. The final rule provides Lenders with a limited opportunity to request SBA refrain from including the unguaranteed portion of an SBA loan with the SBA-purchased guaranteed portion in an asset sale conducted or overseen by SBA. This written notice would include an explanation supporting the Lender's request and would take the form of a simple letter. SBA has determined that this level of effort does not give rise to a cost analysis under the Paperwork Reduction Act. Thus, based on its review of these proposed liquidation activities, SBA maintains that its estimates used in determining the costs of additional reporting or recordkeeping requirements under the Paperwork Reduction Act are accurate. SBA therefore makes no changes to the information collections in this final rule. In addition, SBA has submitted these information collections to OMB for review and will publish a notice in the **Federal Register** announcing the results of the review. List of Subjects in 13 CFR Part 120 Loan programs—business, Reporting and recordkeeping requirements, Small businesses. For the reasons set forth above, SBA amends 13 CFR part 120 as follows: PART 120—BUSINESS LOANS 1. The authority citation for part 120 is revised to read as follows: Authority: 15 U.S.C. 634(b)(6), 636(a) and (h), 696(3), 697(a)(2), and 697(g). 2. Amend § 120.10 by adding the definitions of “Authorized CDC Liquidator” and “Loan Program Requirements”, and by adding a sentence to the end of the definition of “SOPs” as follows: § 120.10 Definitions. *Authorized CDC Liquidator* is a CDC in good standing with authority under the Act and SBA regulations to conduct liquidation and certain debt collection litigation in connection with 504 loans, as authorized by § 120.975. *Loan Program Requirements* are requirements imposed upon Lenders or CDCs by statute, SBA regulations, any agreement the Lender or CDC has executed with SBA, SBA SOPs, official SBA notices and forms applicable to the 7(a) and 504 loan programs, and loan authorizations, as such requirements are issued and revised by SBA from time to time. For CDCs, this term also includes requirements imposed by Debentures, as that term is defined in § 120.802. *SOPs* * * * SOPs are publicly available on SBA's Web site at *http://www.sba.gov* in the online library. Subpart A—Policies Applying to All Business Loans 3. Amend the undesignated center heading immediately preceding § 120.180 to read as follows: Applicability and Enforceability of Loan Program Requirements 4. Revise § 120.180 to read as follows: § 120.180 Lender and CDC compliance with Loan Program Requirements. Lenders must comply and maintain familiarity with Loan Program Requirements for the 7(a) program, as such requirements are revised from time to time. CDCs must comply and maintain familiarity with Loan Program Requirements for the 504 program, as such requirements are revised from time to time. Loan Program Requirements in effect at the time that a Lender or CDC takes an action in connection with a particular loan govern that specific action. For example, although loan closing requirements in effect when a Lender or CDC closes a loan will govern the closing actions, a Lender or CDC's liquidation actions on the same loan are subject to the liquidation requirements in effect at the time that a liquidation action is taken. 5. Add § 120.181 to read as follows: § 120.181 Status of Lenders and CDCs. Lenders, CDCs and their contractors are independent contractors that are responsible for their own actions with respect to a 7(a) or 504 loan. SBA has no responsibility or liability for any claim by a borrower, guarantor or other party alleging injury as a result of any allegedly wrongful action taken by a Lender, CDC or an employee, agent, or contractor of a Lender or CDC. 6. Revise the undesignated center heading immediately preceding § 120.195 to read as follows: Reporting 7. Add § 120.197 to read as follows: § 120.197 Notifying SBA's Office of Inspector General of suspected fraud. Lenders, CDCs, Borrowers, and others must notify the SBA Office of Inspector General of any information which indicates that fraud may have occurred in connection with a 7(a) or 504 loan. Send the notification to the Assistant Inspector General for Investigations, Office of Inspector General, U.S. Small Business Administration, 409 3rd Street, SW., Washington, DC 20416. Subpart D—Lenders 8. Amend § 120.440 by revising the section heading and the first sentence to read as follows: § 120.440 The Certified Lenders Program. Under the Certified Lenders Program (CLP), designated Lenders process and close 7(a) loans and service and liquidate such loans in accordance with subpart E of this part. * * * 9. Revise § 120.453 to read as follows: § 120.453 Responsibilities of PLP Lenders for servicing and liquidating 7(a) loans. Servicing and Liquidation responsibilities for PLP Lenders are set forth in subpart E of this part. 10a. Revise the heading of subpart E to read as follows: Subpart E—Servicing, Liquidation and Debt Collection Litigation of 7(a) and 504 Loans 10b. Remove § 120.500 and §§ 120.510 through § 120.513, and the undesignated center heading immediately preceding § 120.510 entitled “Servicing”. 11. Revise § 120.520 to read as follows: § 120.520 Purchase of 7(a) loan guarantees.
(a)*When SBA will purchase* —(1) *For loans approved on or after May 14, 2007.* A Lender may demand in writing that SBA honor its guarantee if the Borrower is in default on any installment for more than 60 calendar days (or less if SBA agrees) and the default has not been cured, provided all business personal property securing the defaulted SBA loan has been liquidated. A Lender may also submit a request for purchase of a defaulted 7(a) loan when a Borrower files for federal bankruptcy once a period of at least 60 days has elapsed since the last full installment payment. If a Borrower cures a default before a Lender requests purchase by SBA, the Lender's right to request purchase on that default lapses. SBA considers liquidation of business personal property collateral to be completed when a Lender has exhausted all prudent and commercially reasonable efforts to collect upon these assets. In addition, SBA, in its sole discretion, may purchase the guaranteed portion of a loan at any time whether in default or not, with or without the request from a Lender.
(2)*For loans approved before May 14, 2007.* The regulations applicable to the time that a Lender may make demand for purchase that were in effect immediately prior to this date will govern such loans.
(b)*Documentation for purchase.* SBA will not purchase its guaranteed portion of a loan from a Lender unless the Lender has submitted to SBA documentation that SBA deems sufficient to allow SBA to determine whether purchase of the guarantee is warranted under § 120.524.
(c)*Purchase of loans sold in Secondary Market.* When the Lender has sold the guaranteed portion of a loan in the Secondary Market, under subpart F of this part, Lenders must perform all necessary servicing and liquidation actions for such loan even after SBA has purchased the guaranteed portion of such loan from a Registered Holder (as that term is defined in § 120.600(i)). In the event that SBA purchases its guaranteed portion of such a loan from the Registered Holder, Lenders must provide SBA with a loan status report within 15 business days of such purchase. This report should include but not be limited to, a status report on the borrower and current condition of the collateral, plans for any type of loan workout or loan restructuring, existing liquidation activities including the sale of loan collateral, or the status of ongoing foreclosure proceedings. The report should accompany requested documentation that SBA deems sufficient to be able to review the Lender's administration of the loan under § 120.524. A Lender's failure to provide sufficient documentation may constitute a material failure to comply with SBA requirements under § 120.524(a)(1), and may lead to initiation of an action for recovery from the Lender of all or some of the moneys SBA paid to a Registered Holder on a guarantee. SBA will also evaluate the Lender's continued participation in the Secondary Market and may restrict further sale of guaranteed portions into the Secondary Market until SBA determines that the Lender has provided sufficient documentation for purchases.
(d)*No waiver of SBA's rights.* Purchase by SBA of the guaranteed portion of a loan, or of a portion of SBA's guarantee of a loan, either through a negotiated agreement with a Lender or otherwise, does not waive any of SBA's rights to recover from the responsible Lender any money paid on the guarantee based upon the occurrence of any of the events set forth in § 120.524(a) in connection with that loan. 12. Amend § 120.522 by revising the section heading and paragraph (b), and removing paragraph (d), to read as follows: § 120.522 Payment of accrued interest to the Lender or Registered Holder when SBA purchases the guaranteed portion.
(b)*Payment to Lender* —(1) *For loans approved on or after May 14, 2007.* SBA will pay up to a maximum of 120 days interest to a Lender at the time of guarantee purchase.
(2)*For loans approved before May 14, 2007.* The regulations applicable to the amount of interest that SBA will pay to a Lender upon loan default that were in effect immediately prior to this date will govern such loans. 13. Amend § 120.524 by revising paragraphs (a)(1), (a)(8), and
(b)through
(d)to read as follows: § 120.524 When is SBA released from liability on its guarantee on loans?
(a)* * *
(1)The Lender has failed to comply materially with any Loan Program Requirement for 7(a) loans.
(8)The Lender has failed to request that SBA purchase a guarantee within 180 days after maturity of the loan. However, if the Lender is conducting liquidation or debt collection litigation in connection with a loan that has matured, SBA will be released from its guarantee only if the Lender fails to request that SBA purchase the guarantee within 180 days after the completion of the liquidation or debt collection litigation;
(b)If SBA determines, at any time, that any of the events set forth in paragraph
(a)of this section occurred in connection with that loan, SBA is entitled to recover any moneys paid on the guarantee plus interest from the Lender responsible for those events.
(c)If the Lender's loan documentation or other information indicates that one or more of the events in paragraph
(a)of this section occurred, SBA may undertake such investigation as it deems necessary to determine whether to honor or deny the guarantee, and may withhold a decision on whether to honor the guarantee until the completion of such investigation.
(d)Any information provided to SBA by a Lender or other party will not prejudice, or be construed as effecting any waiver of, SBA's right to deny liability for a guarantee if one or more of the events listed in paragraph
(a)of this section occur. 14. Remove the undesignated center heading immediately preceding § 120.530. 15. Add the following new § 120.535 through § 120.536 to read as follows: § 120.535 Standards for Lender and CDC loan servicing, loan liquidation and debt collection litigation.
(a)*Service using prudent lending standards.* Lenders and CDCs must service 7(a) and 504 loans in their portfolio no less diligently than their non-SBA portfolio, and in a commercially reasonable manner, consistent with prudent lending standards, and in accordance with Loan Program Requirements. Those Lenders and CDCs that do not maintain a non-SBA loan portfolio must adhere to the same prudent lending standards for loan servicing followed by commercial lenders on loans without a government guarantee.
(b)*Liquidate using prudent lending standards.* Lenders and Authorized CDC Liquidators must liquidate and conduct debt collection litigation for 7(a) and 504 loans in their portfolio no less diligently than for their non-SBA portfolio, and in a prompt, cost-effective and commercially reasonable manner, consistent with prudent lending standards, and in accordance with Loan Program Requirements and with any SBA approval of either a liquidation or litigation plan or any amendment of such a plan. Lenders and CDCs that do not maintain a non-SBA loan portfolio must adhere to the same prudent lending standards followed by commercial lenders that liquidate loans without a government guarantee. They are also to operate in accordance with Loan Program Requirements and with any SBA approval of either a liquidation or litigation plan or any amendment of such a plan.
(c)*Absence of actual or apparent conflict of interest.* A CDC must not take any action in the liquidation or debt collection litigation of a 504 loan that would result in an actual or apparent conflict of interest between the CDC (or any employee of the CDC) and any Third Party Lender, associate of a Third Party Lender, or any person participating in a liquidation, foreclosure or loss mitigation action.
(d)*SBA rights to take over servicing or liquidation.* SBA may, in its sole discretion, undertake the servicing, liquidation and/or litigation of any 7(a) or 504 loan. If SBA elects to service, liquidate and/or litigate a loan, it will notify the relevant Lender or CDC in writing, and, upon receiving such notice, the Lender or CDC must assign the Loan Instruments to SBA and provide any needed assistance to allow SBA to service, liquidate and/or litigate the loan. SBA will notify the Borrower of the change in servicing. SBA may use contractors to perform these actions. § 120.536 Servicing and liquidation actions that require the prior written consent of SBA.
(a)*Actions by Lenders and CDCs.* Except as otherwise provided in a Supplemental Guarantee Agreement with a Lender or an Agreement with a CDC, SBA must give its prior written consent before a Lender or CDC takes any of the following actions:
(1)Increases the principal amount of a loan above that authorized by SBA at loan origination.
(2)Confers a Preference on the Lender or CDC or engages in an activity that creates a conflict of interest.
(3)Compromises the principal balance of a loan.
(4)Takes title to any property in the name of SBA.
(5)Takes title to environmentally contaminated property, or takes over operation and control of a business that handles hazardous substances or hazardous wastes.
(6)Transfers, sells or pledges more than 90% of a loan.
(7)Takes any action for which prior written consent is required by a Loan Program Requirement.
(b)*Actions by CDCs only (other than PCLP CDCs).* SBA must give its prior written consent before a CDC, other than a PCLP CDC, takes any of the following actions with respect to a 504 loan:
(1)Alters substantially the terms or conditions of any Loan Instrument.
(2)Releases collateral having a cumulative market value in excess of 10 percent of the Debenture amount or $10,000, whichever is less.
(3)Accelerates the maturity of the note.
(4)Compromises or releases any claim against any Borrower or obligor, or against any guarantor, standby creditor, or any other person that is contingently liable for moneys owed on the loan.
(5)Purchases or pays off any indebtedness secured by the property that serves as collateral for a defaulted 504 loan, such as payment of the debt(s) owed to a lien holder or lien holders with priority over the lien securing the loan.
(6)Accepts a workout plan to restructure the material terms and conditions of a loan that is in default or liquidation.
(7)Takes any action for which prior written consent is required by a Loan Program Requirement.
(c)*Documentation requirements.* For all servicing/liquidation actions not requiring SBA's prior written consent, Lenders and CDCs must document the justifications for their decisions and retain these and supporting documents in their file for future SBA review to determine if the actions taken by the Lender or CDC were prudent, commercially reasonable, and complied with all Loan Program Requirements. 16. Remove the undesignated center heading before § 120.540 entitled “Liquidation of Collateral.” § 120.540 [Redesignated as § 120.545] 17. Redesignate § 120.540 as § 120.545, and remove paragraph
(f)from newly designated § 120.545. 18. Add new § 120.540 through § 120.542 to read as follows: § 120.540 Liquidation and litigation plans.
(a)*SBA oversight.* SBA may monitor or review liquidation through the review of liquidation plans which all Authorized CDC Liquidators and certain Lenders must submit to SBA for approval prior to undertaking liquidation, and through liquidation wrap-up reports which Lenders must submit to SBA at the completion of liquidation. SBA will monitor debt collection litigation, such as judicial foreclosures, bankruptcy proceedings and other state and federal insolvency proceedings, through the review of litigation plans, as set forth in this section.
(b)*Liquidation plan.* An Authorized CDC Liquidator and a Lender for a loan made under its authority as a CLP Lender must, prior to undertaking any liquidation, submit a written proposed liquidation plan to SBA and receive SBA's written approval of that plan.
(c)*Litigation plan.* An Authorized CDC Liquidator and a Lender must obtain SBA's prior approval of a litigation plan before proceeding with any Non-Routine Litigation, as defined in paragraph (c)(1) of this section. SBA's prior approval is not required for Routine Litigation, as defined in paragraph (c)(2) of this section.
(1)Non-Routine Litigation includes:
(i)All litigation where factual or legal issues are in dispute and require resolution through adjudication;
(ii)Any litigation where legal fees are estimated to exceed $10,000;
(iii)Any litigation involving a loan where a Lender or Authorized CDC Liquidator has an actual or potential conflict of interest with SBA; and
(iv)Any litigation involving a 7(a) or 504 loan where the Lender or CDC has made a separate loan to the same borrower which is not a 7(a) or 504 loan.
(2)Routine Litigation means uncontested litigation, such as non-adversarial matters in bankruptcy and undisputed foreclosure actions, having estimated legal fees not exceeding $10,000.
(d)*Decision by SBA to take over litigation.* If a Lender or Authorized CDC Liquidator is conducting, or proposes to conduct, debt collection litigation on a 7(a) loan or 504 loan, SBA may take over the litigation if SBA determines that the outcome of the litigation could adversely affect SBA's administration of the loan program or that the Government is entitled to legal remedies that are not available to the Lender or Authorized CDC Liquidator. Examples of cases that could adversely affect SBA's administration of a loan program include, but are not limited to, situations where SBA determines that:
(1)The litigation involves important governmental policy or program issues.
(2)The case is potentially of great precedential value or there is a risk of adverse precedent to the Government.
(3)The Lender or Authorized CDC Liquidator has an actual or potential conflict of interest with SBA.
(4)The legal fees of the Lender or Authorized CDC Liquidator's outside counsel are unnecessary, unreasonable or not customary in the locality.
(e)*Amendments to a liquidation or litigation plan.* Lenders and Authorized CDC Liquidators must submit an amended liquidation or litigation plan to address any material changes arising during the course of the liquidation or litigation that were not addressed in the original plan or an amended plan. Lenders and Authorized CDC Liquidators must obtain SBA's written approval of the amended plan prior to taking any further liquidation or litigation action. Examples of such material changes that would require the approval of an amended plan include, but are not limited to:
(1)Changes arising during the course of Routine Litigation that transform the litigation into Non-Routine Litigation, such as when the debtor contests a foreclosure or when the actual legal fees incurred exceed $10,000.
(2)If SBA has approved a litigation plan where anticipated legal fees exceed $10,000, or has approved an amended plan, and thereafter the anticipated or actual legal fees increase by more than 15 percent.
(3)If SBA has approved a liquidation plan, or an amended plan, and thereafter the anticipated or actual costs of conducting the liquidation increase by more than 15 percent.
(f)*Limited waiver of need for a written liquidation or litigation plan.* SBA may, in its discretion, and upon request by a Lender or Authorized CDC Liquidator, waive the requirements of paragraphs (b),
(c)or
(e)of this section, if one of the following extraordinary circumstances warrant such a waiver: the need for expeditious action to avoid the potential risk of loss on the loan or dissipation of collateral exists; an immediate response is required to litigation by a borrower, guarantor or third party; or another urgent reason arises. The Lender or Authorized CDC Liquidator must obtain SBA's written consent to such waiver before undertaking the Emergency action, if at all practicable. SBA's waiver will apply only to the specific action(s) which the Lender or Authorized CDC Liquidator has identified to SBA as being necessary to address the Emergency. The Lender or Authorized CDC Liquidator must, as soon after the Emergency as is practicable, submit a written liquidation or litigation plan to SBA or, if appropriate, a written amended plan, and may not take further liquidation or litigation action without written approval of such plan or amendment by SBA.
(g)*Appeals.* A Lender for loans made under its authority as a CLP Lender or an Authorized CDC Liquidator that disagrees with an SBA office's decision pertaining to an original or amended liquidation plan, other than such portions of the plan that address litigation matters, may submit a written appeal to the AA/FA within 30 days of the decision. The AA/FA or designee will make the final Agency decision in consultation with the Associate General Counsel for Litigation. A Lender or Authorized CDC Liquidator that disagrees with an SBA office's decision pertaining to an original or amended litigation plan, or the portion of a liquidation plan addressing litigation matters, may submit a written appeal to the Associate General Counsel for Litigation within 30 days of the decision. The Associate General Counsel for Litigation will make the final Agency decision in consultation with the AA/FA. § 120.541 Time for approval by SBA.
(a)Except as set forth in paragraph
(c)of this section, in responding to a request for approval under §§ 120.540(b), 120.540(c), 120.536(b)(5) or 120.536(b)(6), SBA will approve or deny the request within 15 business days of the date when SBA receives the request. If SBA is unable to approve or deny the request within this 15-day period, SBA will provide a written notice of no decision to the Lender or Authorized CDC Liquidator, stating the reason for SBA's inability to act; an estimate of the additional time required to act on the plan or request; and, if SBA deems appropriate, requesting additional information.
(b)Except as set forth in paragraph
(c)of this section, unless SBA gives its written consent to a proposed liquidation or litigation plan, or a proposed amendment of a plan, or any of the actions set forth in § 120.536(b)(5) or § 120.536(b)(6), SBA will not be deemed to have approved the proposed action.
(c)If a Lender seeks to perform liquidation on a loan made under its authority as a CLP Lender by submitting a liquidation plan to SBA for approval, SBA will approve or deny such plan within ten business days. If SBA fails to approve or deny the plan within ten business days, SBA will be deemed to have approved such plan. § 120.542 Payment by SBA of legal fees and other expenses.
(a)*Legal fees SBA will not pay.*
(1)SBA will not pay legal fees or other costs that a Lender or Authorized CDC Liquidator incurs:
(i)In asserting a claim, cross claim, counterclaim, or third-party claim against SBA or in defense of an action brought by SBA, unless payment of such fees or costs is otherwise required by federal law.
(ii)In connection with actions of a Lender or Authorized CDC Liquidator's outside counsel for performing non-legal liquidation services, unless authorized by SBA prior to the action.
(iii)In taking actions which solely benefit a Lender or Authorized CDC Liquidator and which do not benefit SBA, as determined by SBA.
(2)SBA will not pay legal fees or other costs a Lender or CDC incurs in the defense of, or pay for any settlement or adverse judgment resulting from, a suit, counterclaim or other claim by a borrower, guarantor, or other party that seeks damages based upon a claim that the Lender or CDC breached any duty or engaged in any wrongful actions, unless SBA expressly directed the Lender or CDC to undertake the allegedly wrongful action that is the subject of the suit, counterclaim or other claim.
(b)*Legal fees SBA may decline to pay.* In addition to any right or authority SBA may have under law or contract, SBA may, in its discretion, decline to pay a Lender or Authorized CDC Liquidator for all, or a portion, of legal fees and/or other costs incurred in connection with the liquidation and/or litigation of a 7(a) loan or 504 loan under any of the following circumstances:
(1)SBA determines that the Lender or Authorized CDC Liquidator failed to perform liquidation or litigation promptly and in accordance with commercially reasonable standards, in a prudent manner, or in accordance with any Loan Program Requirement or SBA approvals of either a liquidation or litigation plan or any amendment of such a plan.
(2)A Lender or Authorized CDC Liquidator fails to obtain prior written approval from SBA for any liquidation or litigation plan, or for any amended liquidation or litigation plan, or for any action set forth in § 120.536, when such approval is required by these regulations or a Loan Program Requirement.
(3)If SBA has not specifically approved fees or costs identified in an original or amended liquidation or litigation plan under § 120.540, and SBA determines that such fees or costs are not reasonable, customary or necessary in the locality in question. In such cases, SBA will pay only such fees as it deems are necessary, customary and reasonable in the locality in question.
(c)*Fees for liquidation actions performed by Authorized CDC Liquidators.* Subject to paragraph
(d)of this section, SBA will compensate Authorized CDC Liquidators for their liquidation actions on 504 loans, whether such actions are performed by the CDC or the CDC's contractor retained in accordance with § 120.975(a)(2) or (b)(2)(ii). The compensation fee will be a percentage (to be published in the **Federal Register** from time to time, but not to exceed 10%) of the net recovery proceeds realized from the sale of collateral or other liquidation actions on an individual loan, up to a fee of $25,000 for such loan, and a lower percentage (also to be published in the **Federal Register** from time to time, but not to exceed 5%) of the realized net recovery proceeds above such amounts. The compensation fee limits set forth in this paragraph
(c)do not include reasonable, customary and necessary administrative costs related to liquidation activities on such loan that are incurred in accordance with the liquidation plan, or amendments thereto, approved by SBA pursuant to § 120.540(b). The Authorized CDC Liquidator may compensate its contractor up to the amount it receives from SBA. All requests for compensation fees must be received by SBA within nine months from the date of SBA's purchase of the defaulted debenture. Fee requests not received within such timeframe will be automatically rejected.
(d)*Appeals—liquidation costs.* A Lender or Authorized CDC Liquidator that disagrees with a decision by an SBA office to decline to reimburse all, or a portion, of the fees and/or costs incurred in conducting liquidation may appeal this decision in writing to the AA/FA within 30 days of the decision. The decision of the AA/FA or designee will be made in consultation with the Associate General Counsel for Litigation, and will be the final Agency decision.
(e)*Appeals—litigation costs.* A Lender or Authorized CDC Liquidator that disagrees with a decision by SBA to decline to reimburse all, or a portion, of the legal fees and/or costs incurred in conducting debt collection litigation may appeal this decision in writing to the Associate General Counsel for Litigation within 30 days of the decision. The decision of the Associate General Counsel for Litigation will be made in consultation with the AA/FA, and will be the final Agency decision. 19. Add a new § 120.546 to read as follows: § 120.546 Loan asset sales.
(a)*General.* Loan asset sales are governed by § 120.545(b)(4) and by this section.
(b)*7(a) loans—*
(1)*For loans approved on or after May 14, 2007.* The Lender will be deemed to have consented to SBA's sale of the loan (guaranteed and unguaranteed portions) in an asset sale conducted or overseen by SBA upon the occurrence any of the following:
(i)SBA's purchase of the guaranteed portion of the loan from the Registered Holder for a loan where the guaranteed portion has been sold in the Secondary Market pursuant to subpart F of this part and after default, the Lender has not exercised its option to purchase such guaranteed portion; or
(ii)SBA's purchase of the guaranteed portion from the Lender, provided however, that if SBA purchased the guaranteed portion pursuant to § 120.520(a)(1) prior to the Lender's completion of liquidation for the loan, then SBA will not sell such loan in an asset sale until nine months from the date of SBA's purchase; or
(iii)SBA receives written consent from the Lender.
(2)For loans identified in paragraph (b)(1)(i) of this section, the Lender may request that SBA withhold the loan from an asset sale if the Lender submits a written request to SBA within 15 business days of SBA's purchase of the guaranteed portion of the loan from the Registered Holder and if such request addresses the issues described in this subparagraph. The Lender's written request must advise SBA of the status of the loan, the Lender's plans for workout and/or liquidation, including and pending sale of loan collateral or foreclosure proceedings arranged prior to SBA's purchase that already are underway, and the Lender's estimated schedule for restructuring the loan or liquidating the collateral. SBA will consider the Lender's request and, based on the circumstances, SBA in its sole discretion may elect to defer including the loan in an asset sale in order to provide the Lender additional time to complete the planned restructuring and/or liquidation actions.
(3)*For loans approved before May 14, 2007.* SBA must obtain written consent from the Lender for the sale of such loans in an asset sale.
(4)After SBA has purchased the guaranteed portion of a loan from the Registered Holder or from the Lender, the Lender must continue to perform all necessary servicing and liquidation actions for the loan up to the point the loan is transferred to the purchaser in an asset sale. The Lender also must cooperate and take all necessary actions to effectuate both the asset sale and the transfer of the loan to the purchaser in the asset sale.
(c)*504 loans* —(1) *PCLP Loans.* After SBA's purchase of a Debenture, SBA may at its sole discretion sell a defaulted PCLP Loan in an asset sale conducted or overseen by SBA, after providing to the PCLP CDC that made the loan advance notice of not less than 90 days before the date upon which SBA first makes its records concerning such loan available to prospective purchasers for examination.
(2)*All other 504 loans.* After SBA's purchase of a Debenture, SBA may at its sole discretion sell a defaulted 504 loan in an asset sale conducted or overseen by SBA. Subpart H—Development Company Loan Program
(504)20. Revise § 120.826 to read as follows: § 120.826 Basic requirements for operating a CDC. A CDC must operate in accordance with all Loan Program Requirements. In its Area of Operations, a CDC must market the 504 program, package and process 504 loan applications, close and service 504 loans, and if authorized by SBA, liquidate and litigate 504 loans. It must supply to SBA current and accurate information about all certification and operational requirements, and maintain all records and submit all reports required by SBA. 21. Amend § 120.841 by revising paragraph
(c)to read as follows: § 120.841 Qualifications for the ALP.
(c)*Current reviews in compliance.* SBA-conducted oversight reviews must be current (within past 12 months) for applicants for ALP status, and these reviews must have found the CDC to be in compliance with Loan Program Requirements. 22. Amend § 120.845 by revising the first sentence of paragraph (c)(1) to read as follows: § 120.845 Premier Certified Lenders Program (PCLP).
(c)* * *
(1)The CDC must be an ALP CDC in substantial compliance with Loan Program Requirements or meet the criteria to be an ALP CDC set forth in § 120.841(a) through (h).* * * 23. Amend § 120.846 by revising paragraph (a)(3) to read as follows: § 120.846 Requirements for maintaining and reviewing PCLP Status.
(a)* * *
(3)Substantially comply with all Loan Program Requirements. 24. Amend § 120.848 by revising paragraphs
(a)and
(f)to read as follows: § 120.848 Requirements for 504 loan processing, closing, servicing, liquidating and litigating by PCLP CDCs.
(a)*General.* In processing closing, servicing, liquidating and litigating 504 loans under the PCLP (“PCLP Loans”), the PCLP CDC must comply with Loan Program Requirements and conduct such activities in accordance with prudent and commercially reasonable lending standards.
(f)*Servicing, liquidation and litigation responsibilities.* The PCLP CDC generally must service, liquidate and litigate its entire portfolio of PCLP Loans, although SBA may in certain circumstances elect to handle such duties with respect to a particular PCLP Loan or Loans. Additional servicing and liquidation requirements are set forth in subpart E of this part. 25. Amend § 120.854 by revising paragraph (a)(2) to read as follows: § 120.854 Grounds for taking enforcement action against a CDC.
(a)* * *
(2)The CDC has failed to comply materially with any Loan Program Requirement. 26. Amend § 120.970 by revising paragraphs
(a)and
(h)to read as follows: § 120.970 Servicing of 504 loans and Debentures.
(a)In servicing 504 loans, CDCs must comply with Loan Program Requirements and in accordance with prudent and commercially reasonable lending standards.
(h)Additional servicing requirements are set forth in subpart E of this part. 27. Add a new undesignated center heading after § 120.972 to read as follows: Authority of CDCs To Perform Liquidation and Debt Collection Litigation 28. Add § 120.975 to read as follows: § 120.975 CDC Liquidation of loans and debt collection litigation.
(a)*PCLP CDCs.* If a CDC is designated as a PCLP CDC under § 120.845, the CDC must liquidate and handle debt collection litigation with respect to all PCLP Loans in its portfolio on behalf of SBA as required by § 120.848(f), in accordance with subpart E of this part. With respect to all other 504 loans that a PCLP CDC makes, the PCLP CDC is an Authorized CDC Liquidator and must exercise its delegated authority to liquidate and handle debt-collection litigation in accordance with subpart E of this part for such loans, if the PCLP CDC is notified by SBA that it meets either of the following requirements to be an Authorized CDC Liquidator, as determined by SBA:
(1)The PCLP CDC has one or more employees who have not less than two years of substantive, decision-making experience in administering the liquidation and workout of defaulted or problem loans secured in a manner substantially similar to loans funded with 504 loan program debentures, and who have completed a training program on loan liquidation developed by the Agency in conjunction with qualified CDCs that meet the requirements of this section; or
(2)The PCLP CDC has entered into a contract with a qualified third party for the performance of its liquidation responsibilities and obtains the approval of SBA with respect to the qualifications of the contractor and the terms and conditions of the contract.
(b)*All other CDCs.* A CDC that is not authorized under paragraph
(a)of this section may apply to become an Authorized CDC Liquidator with authority to liquidate and handle debt collection litigation with respect to 504 loans on behalf of SBA, in accordance with subpart E of this part, if the CDC meets the following requirements:
(1)The CDC meets either of the following criteria:
(i)The CDC participated in the loan liquidation pilot program established by the Small Business Programs Improvement Act of 1996 prior to October 1, 2006; or
(ii)During the three fiscal years immediately prior to seeking such authority, the CDC made an average of not less than ten 504 loans per year; and
(2)The CDC meets either of the following requirements:
(i)The CDC has one or more employees who have not less than two years of substantive, decision-making experience in administering the liquidation and workout of defaulted or problem loans secured in a manner substantially similar to loans funded with 504 loan program debentures, and who have completed a training program on loan liquidation developed by the Agency in conjunction with qualified CDCs that meet the requirements of this section; or
(ii)The CDC has entered into a contract with a qualified third party for the performance of its liquidation responsibilities and obtains the approval of SBA with respect to the qualifications of the contractor and the terms and conditions of the contract.
(c)*CDC counsel.* To perform debt collection litigation under paragraphs
(a)or
(b)of this section, a CDC must also have either in-house counsel with adequate experience as approved by SBA or entered into a contract for the performance of debt collection litigation with an experienced attorney or law firm as approved by SBA.
(d)*Application for authority to liquidate and litigate.* To seek authority to perform liquidation and debt collection litigation under paragraphs
(b)and
(c)of this section, a CDC other than a PCLP CDC must submit a written application to SBA and include documentation demonstrating that the CDC meets the requirements of paragraph
(b)and
(c)of this section. If a CDC intends to use a contractor to perform liquidation, it must obtain approval from SBA of both the qualifications of the contractor and the terms and conditions in the contract covering the CDC's retention of the contractor. SBA will notify a CDC in writing when the CDC can begin to perform liquidation and/or debt collection litigation under this section. Dated: April 9, 2007. Steven C. Preston, Administrator. [FR Doc. E7-6946 Filed 4-11-07; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. NM370; Special Conditions No. 25-349-SC] Special Conditions: Dassault Aviation Model Falcon 7X Airplane; Side Stick Controllers, Electronic Flight Control System: Lateral-Directional and Longitudinal Stability, Low Energy Awareness, Flight Control Surface Position Awareness, and Flight Characteristics Compliance Via the Handling Qualities Rating Method; Flight Envelope Protection: General Limiting Requirements, High Incidence Protection Function, Normal Load Factor
(g)Limiting, and Pitch, Roll, and High Speed Limiting Functions AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final special conditions. SUMMARY: These special conditions are issued for the Dassault Aviation Model Falcon 7X airplane. This airplane will have novel or unusual design features when compared to the state of technology envisioned in the airworthiness standards for transport category airplanes. These design features include side stick controllers, electronic flight control systems, and flight envelope protections. These special conditions pertain to control and handling qualities of the airplane and protection limits within the normal flight envelope. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. EFFECTIVE DATE: April 4, 2007. FOR FURTHER INFORMATION CONTACT: Joe Jacobsen, FAA, Airplane and Flight Crew Interface Branch, ANM-111, Transport Airplane Directorate, Aircraft Certification Service, 1601 Lind Avenue SW., Renton, Washington 98057-3356; telephone
(425)227-2011; facsimile
(425)227-1149. SUPPLEMENTARY INFORMATION: Background On June 4, 2002, Dassault Aviation, 9 rond Point des Champs Elysees, 75008, Paris, France, applied for FAA type certificate for its new Model Falcon 7X airplane. The Dassault Model Falcon 7X airplane is a 19 passenger transport category airplane powered by three aft mounted Pratt & Whitney PW307A high bypass ratio turbofan engines. Maximum takeoff weight will be 63,700 pounds, and maximum certified altitude will be 51,000 feet with a range of 5,700 nautical miles. The airplane is operated using a fly-by-wire
(FBW)primary flight control system. This will be the first application of a FBW primary flight control system in an airplane primarily intended for private/corporate use. The Dassault Aviation Model Falcon 7X design incorporates equipment that was not envisioned when part 25 was created. This equipment includes side stick controllers, and an electronic flight control system that provides flight envelope protection. Therefore, special conditions are required that provide the level of safety equivalent to that established by the regulations. Type Certification Basis Under the provisions of 14 CFR 21.17, Dassault Aviation must show that the Model Falcon 7X airplane meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-108. If the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for the Model Falcon 7X airplane because of novel or unusual design features, special conditions are prescribed under the provisions of § 21.16. In addition to the applicable airworthiness regulations and special conditions, the Dassault Model Falcon 7X airplane must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36. The FAA issues special conditions, as defined in § 11.19, under § 11.38, and they become part of the type certification basis under § 21.17(a)(2). Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design features, these special conditions would also apply to the other model under § 21.101. Novel or Unusual Design Features The Dassault Falcon 7X airplane will incorporate the following novel or unusual design features: • Side stick controllers; • Electronic flight control system: lateral-directional and longitudinal stability, low energy awareness, • Electronic flight control system: flight control surface position awareness, • Electronic flight control system: flight characteristics compliance via the handling qualities rating method (HQRM); • Flight envelope protection: general limiting requirements, • Flight envelope protection: high incidence protection function, • Flight envelope protection: normal load factor
(g)limiting, • Flight envelope protection: pitch, roll, and high speed limiting functions. Because of these rapid improvements in airplane technology, the applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. These special conditions address equipment which may affect the airplane's structural performance, either directly or as a result of failure or malfunction. These special conditions are identical or nearly identical to those previously required for type certification of other airplane models. Discussion Because of these rapid improvements in airplane technology, the applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. Therefore, in addition to the requirements of part 25, subparts C and D, the following special conditions apply. Special Condition No. 1. Side Stick Controllers The Falcon 7X will use side stick controllers for pitch and roll control. Regulatory requirements for conventional wheel and column controllers, such as requirements pertaining to pilot strength and controllability, are not directly applicable to side stick controllers. Certain ergonomic considerations such as armrest support, freedom of arm movement, controller displacement, handgrip size and accommodations for a range of pilot sizes are not addressed in the regulations. In addition, pilot control authority may be uncertain, because the side sticks are not mechanically interconnected as with conventional wheel and column controls. Pitch and roll control force and displacement sensitivity must be compatible, so that normal inputs on one control axis will not cause significant unintentional inputs on the other. These special conditions require that the unique features of the side stick must be demonstrated through flight and simulator tests to have suitable handling and control characteristics. Special Condition No. 2. Electronic Flight Control System: Lateral-Directional Stability, Longitudinal Stability, and Low Energy Awareness In lieu of compliance with the regulations pertaining to lateral-directional and longitudinal stability, these special conditions ensure that the Model Falcon 7X will have suitable airplane handling qualities throughout the normal flight envelope. The unique features of the Model Falcon 7X flight control system and side stick controllers, when compared with conventional airplanes with wheel and column controllers, do not provide conventional awareness to the flightcrew of a change in speed or a change in the direction of flight. These special conditions require that adequate awareness be provided to the pilot of a low energy state (low speed, low thrust, and low altitude) below normal operating speeds. a. *Lateral-Directional Static Stability:* The electronic flight control system
(EFCS)on the Falcon 7X contains fly-by-wire control laws that result in neutral lateral-directional static stability. Therefore, the conventional requirements of the regulations are not met. The Model Falcon 7X airplane has a flight control design feature within the normal operational envelope in which side stick deflection in the roll axis commands roll rate. As a result, the stick force in the roll axis will be zero (neutral stability) during the straight, steady sideslip flight maneuver of § 25.177(c) and will not be “substantially proportional to the angle of sideslip,” as required by the regulation. With conventional control system requirements, positive static directional stability is defined as the tendency to recover from a skid with the rudder free. Positive static lateral stability is defined as the tendency to raise the low wing in a sideslip with the aileron controls free. These special conditions are intended to accomplish the following: • Provide additional cues of inadvertent sideslips and skids through control force changes. • Ensure that short periods of unattended operation do not result in any significant changes in yaw or bank angle. • Provide predictable roll and yaw response. • Provide acceptable level of pilot attention (i.e., workload) to attain and maintain a coordinated turn. b. *Longitudinal Static Stability:* The longitudinal flight control laws for the Falcon 7X provide neutral static stability within the normal operational envelope. Therefore, it is inappropriate to require the airplane design to comply with the static longitudinal stability requirements of §§ 25.171, 25.173, and 25.175. Static longitudinal stability on conventional airplanes with mechanical links to the pitch control surface means that a pull force on the controller will result in a reduction in speed relative to the trim speed, and a push force will result in higher than trim speed. Longitudinal stability is required by the regulations for the following reasons: • Speed change cues are provided to the pilot through increased and decreased forces on the controller. • Short periods of unattended control of the airplane do not result in significant changes in attitude, airspeed, or load factor. • A predictable pitch response is provided to the pilot. • An acceptable level of pilot attention (i.e., workload) to attain and maintain trim speed and altitude is provided to the pilot. • Longitudinal stability provides gust stability. The pitch control movement of the side stick is a normal load factor or “g” command which results in an initial movement of the elevator surface to attain the commanded load factor. That movement is followed by integrated movement of the stabilizer and elevator to automatically trim the airplane to a neutral
(1g)stick-free stability. The flight path commanded by the initial side stick input will remain stick-free until the pilot gives another command. This control function is applied during “normal” control law within the speed range from the speed at the angle of attack protection limit to initiation of the angle of attack protection limit. Once outside this speed range, the control laws introduce the conventional longitudinal static stability as described above. As a result of neutral static stability, the Falcon 7X does not meet the part 25 requirements for static longitudinal stability. It would not be appropriate to apply the conventional part 25 requirements for static longitudinal stability to the unconventional control systems of the Falcon 7X. These special conditions require that the airplane be shown to have suitable static longitudinal stability in any condition normally encountered in service. c. *Low Energy Awareness:* Static longitudinal stability provides an awareness to the flightcrew of a low energy state (low speed and thrust at low altitude). Past experience on airplanes fitted with a flight control system which provides neutral longitudinal stability shows there are insufficient feedback cues to the pilot of excursion below normal operational speeds. The maximum angle of attack protection system limits the airplane angle of attack and prevents stall during normal operating speeds, but this system is not sufficient to prevent stall at low speed excursions below normal operational speeds. Until intervention, there are no stability cues because the airplane remains trimmed. Additionally, feedback from the pitching moment due to thrust variation is reduced by the flight control laws. Recovery from a low speed excursion may become hazardous when the low speed is associated with low altitude and the engines are operating at low thrust or with other performance limiting conditions. Because § 25.173 requires that the pilot receive speed change cues through increased or decreased forces on the controller, it would be inappropriate to apply those requirements for feedback cues to the Falcon Model 7X systems. These special conditions require that the airplane provide adequate awareness of a low energy state to the pilot. Special Condition No. 3. Electronic Flight Control System: Flight Control Surface Position Awareness With a response-command type of flight control system and no direct mechanical coupling from cockpit controller to control surface, the controller does not provide the Falcon 7X pilot with an awareness of the actual surface deflection position during flight maneuvers. Some unusual flight conditions, arising from atmospheric conditions or airplane or engine failures or both, may result in full or nearly full surface deflection. Unless the flightcrew is made aware of excessive deflection or impending control surface deflection limiting, the pilot or auto-flight system may encounter situations where loss of control or other unsafe handling or performance characteristics occur. These special conditions require that suitable annunciation be provided to the flightcrew when a flight condition exists in which nearly full control surface deflection occurs. Suitability of such a display must take into account that some pilot-demanded maneuvers (e.g., rapid roll) are necessarily associated with intended full or nearly full control surface deflection. Therefore, simple alerting systems which function in both intended or unexpected control-limiting situations must be properly balanced between needed crew awareness and nuisance warnings. Special Condition No. 4. Electronic Flight Control System: Flight Characteristics Compliance Via the Handling Qualities Rating Method
(HQRM)The Model Falcon 7X airplane will have an electronic flight control system (EFCS). This system provides an electronic interface between the pilot's flight controls and the flight control surfaces (for both normal and failure states). The system also generates the actual surface commands that provide for stability augmentation and control about all three airplane axes. Because EFCS technology has outpaced existing regulations-written essentially for unaugmented airplanes with provision for limited ON/OFF augmentation-suitable special conditions and a method of compliance are required to aid in the certification of flight characteristics. These special conditions and the method of compliance presented in Appendix 7, FAA Handling Qualities Rating Method, of AC 25-7A, Flight Test Guide Certification of Transport Category Airplanes, provide a means to evaluate flight characteristics—for example, “satisfactory,” “adequate,” or “controllable”—to determine compliance with the regulations. The HQRM in Appendix 7 was developed for airplanes with control systems having similar functions and is employed to aid in the evaluation of the following: • All EFCS/airplane failure states not shown to be extremely improbable and where the envelope
(task)and atmospheric disturbance probabilities are each 1. • All combinations of failures, atmospheric disturbance level, and flight envelope not shown to be extremely improbable. • Any other flight condition or characteristic where 14 CFR part 25 proves to be inadequate for proper assessment of unique Falcon Model 7X flight characteristics. The Handling Qualities Rating Method provides a systematic approach to the assessment of handling qualities. It is not intended to dictate program size or need for a fixed number of pilots to achieve multiple opinions. The airplane design itself and success in defining critical failure combinations from the many reviewed in Systems Safety Assessments dictate the scope of any HQRM application. Handling qualities terms, principles, and relationships familiar to the aviation community have been used to formulate the HQRM. For example, we have established that the well-known COOPER-HARPER rating scale and the FAA three-part rating system are similar. This approach on the flying qualities of highly augmented/ relaxed static stability airplanes in relation to regulatory and flight test guide requirements is reported in DOT/FAA/CT-82/130, Flying Qualities of Relaxed Static Stability Aircraft, Volumes I and II. Special Condition No. 5. Flight Envelope Protection: General Limiting Requirements These special conditions and the following ones-pertaining to flight envelope protection-present general limiting requirements for all the unique flight envelope protection features of the basic Model Falcon 7X Electronic Flight Control System
(EFCS)design. Current regulations do not address these types of protection features. The general limiting requirements are necessary to ensure a smooth transition from normal flight to the protection mode and adequate maneuver capability. The general limiting requirements also ensure that the structural limits of the airplane are not exceeded. Furthermore, failure of the protection feature must not create hazardous flight conditions. Envelope protection parameters include angle of attack, normal load factor, pitch angle, and speed. To accomplish these envelope protections, one or more significant changes occur in the EFCS control laws as the normal flight envelope limit is approached or exceeded. Each specific type of envelope protection is addressed individually in the special conditions that follow. Special Condition No. 6. Flight Envelope Protection-High Incidence Protection Function The Falcon 7X is equipped with a high incidence protection function that limits the angle of attack at which the airplane can be flown during normal low speed operation and that cannot be overridden by the flightcrew. This function prevents the airplane from stalling and therefore, the stall warning system is not needed during normal flight conditions. If there is a failure of the high incidence protection function that is not shown to be extremely improbable, the flight characteristics at the angle of attack for C <sup>LMAX</sup> must be suitable in the traditional sense, and stall warning must be provided in a conventional manner. These special conditions address these and other unique features of this function on the Model Falcon 7X. These special conditions define a minimum steady flight speed, V <sup>MIN</sup> , to be demonstrated during flight test, at which the airplane can develop lift normal to the flight path and equal to its weight at the angle of attack limit of the protection function. It further defines procedures for establishing the reference stall speed, V <sup>SR</sup> , to be used for defining reference speeds during takeoff and landing. In the absence of specific regulations in 14 CFR part 25, these special conditions present High Incidence Protection Function requirements for the capability and reliability of the function, stall warning with a failure condition, handling qualities and characteristics at high incidence or angle of attack flight maneuvers, and specific applications of the newly defined V <sup>MIN</sup> in lieu of current regulations. Special Condition No. 7. Flight Envelope Protection: Normal Load Factor
(G)Limiting The Falcon 7X flight control system design incorporates a normal load factor limiting function on a full time basis that will prevent the pilot from inadvertently or intentionally exceeding the positive or negative airplane limit load factor. This limiting feature is active in the normal flight control mode and cannot be overridden by the pilot. There is no requirement in the regulations for this limiting feature. This normal load factor limit is unique in that traditional airplanes with conventional flight control systems (mechanical linkages) are limited in the pitch axis only by the elevator surface area and deflection limit. The elevator control power is normally derived for adequate controllability and maneuverability at the most critical longitudinal pitching moment. The result is that traditional airplanes have a significant portion of the flight envelope in which maneuverability in excess of limit structural design values is possible. Part 25 does not require a demonstration of maneuver control or handling qualities beyond the design limit structural loads. Nevertheless, some pilots have become accustomed to the availability of this excess maneuver capacity in case of extreme emergency, such as upset recoveries or collision avoidance. Because Dassault has chosen to include this optional design feature on the Falcon 7X, for which part 25 does not contain adequate or appropriate safety standards, special conditions pertaining to this feature are included. These special conditions establish minimum load factor requirements to ensure adequate maneuver capability during normal flight. Other limiting features of the normal load factor limiting function, as discussed above, that affect the upper load limits are not addressed in these special conditions. The phrase “in the absence of other limiting factors” has been added relative to past similar special conditions to clarify that while the main focus is on the lower load factor limits, there are other limiting factors that must be considered in the load limiting function. Special Condition No. 8. Flight Envelope Protection: Pitch, Roll, and High Speed Limiting Functions The Model Falcon 7X will incorporate pitch attitude and high speed limiting functions via the Electronic Flight Control System
(EFCS)normal operating mode. In addition, positive spiral stability and partial pitch compensation will be introduced in the lateral and pitch axes through the control laws for bank angles greater than 35 degrees. The purpose of the pitch attitude limiting function, in conjunction with the high incidence protection function, is to prevent airplane stall during low speed, high angle of attack excursions. The high speed limiting protection function prevents the pilot from inadvertently or intentionally exceeding the airplane maximum design speeds, V <sup>D</sup> /M <sup>D</sup> . Part 25 does not address such a function that would limit or modify flying qualities in the high speed region. There are no specific hard limits on the Falcon 7X for bank angle. At bank angles up to 35 degrees, side movement of the controller commands roll rate depending on the amount of deflection. Bank angle is immediately accomplished by the control law function and deflection of the control surfaces. With the stick released to its neutral point, the airplane will maintain the commanded bank angle (neutral spiral stability). Positive spiral stability is introduced at and above 35 degrees band angle such that a stick force is required to maintain bank angle, and releasing the stick will return the airplane to 35 degrees. In addition to the requirements of § 25.143, this special condition establishes requirements to ensure that pitch and high speed limiting functions do not impede normal maneuvering and that pitch and roll limiting functions do not restrict or prevent attaining bank angles necessary for emergency maneuvering. Discussion of Comments Notice of proposed special conditions No. 25-07-06-SC for the Dassault Aviation Model Falcon 7X airplanes was published in the **Federal Register** on February 26, 2007 (72 FR 8296). No comments were received, and the special conditions are adopted as proposed. Applicability As discussed above, these special conditions are applicable to the Dassault Aviation Model Falcon 7X airplanes. Should Dassault Aviation apply at a later date for a change to the type certificate to include another model on the same type certificate incorporating the same novel or unusual design features, these special conditions would apply to that model as well. For Final Special Conditions Effective Upon Issuance Under standard practice, the effective date of final special conditions would be 30 days after the date of publication in the **Federal Register** ; however, as the certification date for the Dassault Aviation Model Falcon 7X airplanes is imminent, the FAA finds that good cause exists to make these special conditions effective upon issuance. Conclusion This action affects only certain novel or unusual design features on model Falcon 7X airplanes. It is not a rule of general applicability. List of Subjects in 14 CFR Part 25 Aircraft, Aviation safety, Reporting and recordkeeping requirements. The authority citation for these special conditions is as follows: Authority: 49 U.S.C. 106(g), 40113, 44701, 44702, 44704. The Special Conditions Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Dassault Aviation Model Falcon 7X airplanes. 1. Side Stick Controllers In the absence of specific requirements for side stick controllers, the following special conditions apply: a. *Pilot strength:* In lieu of the “strength of pilots” limits shown in § 25.143(c) for pitch and roll, and in lieu of the specific pitch force requirements of §§ 25.145(b) and 25.175(d), it must be shown that the temporary and maximum prolonged force levels for the side stick controllers are suitable for all expected operating conditions and configurations, whether normal or non-normal. b. *Pilot control authority:* The electronic side stick controller coupling design must provide for corrective and/or overriding control inputs by either pilot with no unsafe characteristics. Annunciation of the controller status must be provided, and must not be confusing to the flightcrew. c. *Pilot control:* It must be shown by flight tests that the use of side stick controllers does not produce unsuitable pilot-in-the-loop control characteristics when considering precision path control/tasks and turbulence. In addition, pitch and roll control force and displacement sensitivity must be compatible, so that normal inputs on one control axis will not cause significant unintentional inputs on the other. d. *Autopilot quick-release control location:* In lieu of compliance with § 25.1329(d), autopilot quick release (emergency) controls must be on both side stick controllers. The quick release means must be located so that it can readily and easily be used by the flightcrew. 2. Electronic Flight Control System: Lateral-Directional and Longitudinal Stability, and Low Energy Awareness In lieu of the requirements of §§ 25.171, 25.173, 25.175, and 25.177(c), the following special conditions apply: a. The airplane must be shown to have suitable static lateral, directional, and longitudinal stability in any condition normally encountered in service, including the effects of atmospheric disturbance. The showing of suitable static lateral, directional and longitudinal stability must be based on the airplane handling qualities, including pilot workload and pilot compensation, for specific test procedures during the flight test evaluations. b. The airplane must provide adequate awareness to the pilot of a low energy (low speed/low thrust/low height) state when fitted with flight control laws presenting neutral longitudinal stability significantly below the normal operating speeds. “Adequate awareness” means warning information must be provided to alert the crew of unsafe operating conditions and to enable them to take appropriate corrective action. c. The static directional stability—as shown by the tendency to recover from a skid with the rudder free—must be positive for any landing gear and flap position and symmetrical power condition, at speeds from 1.13 V <sup>SR1</sup> up to V <sup>FE</sup> , V <sup>LE</sup> , or V <sup>FC</sup> /M <sup>FC</sup> (as appropriate). d. In straight, steady sideslips (unaccelerated forward slips), the rudder control movements and forces must be substantially proportional to the angle of sideslip, and the factor of proportionality must be between limits found necessary for safe operation throughout the range of sideslip angles appropriate to the operation of the airplane. At greater angles—up to the angle at which full rudder control is used or a rudder pedal force of 180 pounds (81.72 kg) is obtained—the rudder pedal forces may not reverse, and increased rudder deflection must produce increased angles of sideslip. Unless the airplane has a suitable sideslip indication, there must be enough bank and lateral control deflection and force accompanying sideslipping to clearly indicate any departure from steady, unyawed flight. 3. Electronic Flight Control System: Flight Control Surface Position Awareness In addition to the requirements of §§ 25.143, 25.671 and 25.672, the following special conditions apply: a. A suitable flight control position annunciation must be provided to the crew in the following situation: A flight condition exists in which—without being commanded by the crew—control surfaces are coming so close to their limits that return to normal flight and
(or)continuation of safe flight requires a specific crew action. b. In lieu of control position annunciation, existing indications to the crew may be used to prompt crew action, if they are found to be adequate. Note: The term “suitable” also indicates an appropriate balance between nuisance and necessary operation. 4. Electronic Flight Control System: Flight Characteristics Compliance Via the Handling Quantities Rating Method
(HQRM)a. Flight characteristics compliance determination for electronic flight control system
(EFCS)Failure Cases: In lieu of compliance with § 25.672(c), the HQRM contained in Appendix 7, FAA Handling Qualities Rating Method, of the Flight Test Guide for Certification of Transport Category Airplanes, AC 25-7A (or an equivalent method of compliance found acceptable to the FAA), must be used for evaluation of EFCS configurations resulting from single and multiple failures not shown to be extremely improbable. The handling qualities ratings are:
(1)*Satisfactory:* Full performance criteria can be met with routine pilot effort and attention.
(2)*Adequate:* Adequate for continued safe flight and landing; full or specified reduced performance can be met, but with heightened pilot effort and attention.
(3)*Controllable:* Inadequate for continued safe flight and landing, but controllable for return to a safe flight condition, safe flight envelope and/or reconfiguration, so that the handling qualities are at least Adequate. b. Handling qualities will be allowed to progressively degrade with failure state, atmospheric disturbance level, and flight envelope, as shown in Figure 12, “Minimum HQ Requirements,” of Appendix 7. Specifically, for probable failure conditions within the normal flight envelope, the pilot-rated handling qualities must be satisfactory in light atmospheric disturbance and adequate in moderate atmospheric disturbance. The handling qualities rating must not be less than adequate in light atmospheric disturbance for improbable failures. Note: AC 25-7A, Appendix 7 presents a method of compliance and provides guidance for the following: • Minimum handling qualities rating requirements in conjunction with atmospheric disturbance levels, flight envelopes, and failure conditions (Figure 12), • Flight Envelope definition (Figures 5A, 6 and 7), • Atmospheric Disturbance Levels (Figure 5B), • Flight Control System Failure State (Figure 5C), • Combination Guidelines (Figures 5D, 9 and 10), and • General flight task list, from which appropriate specific tasks can be selected or developed (Figure 11). 5. Flight Envelope Protection: General Limiting Requirements a. *General Requirements.*
(1)Onset characteristics of each envelope protection function must be smooth, appropriate to the phase of flight and type of maneuver, and not in conflict with the ability of the pilot to satisfactorily change the airplane flight path, speed, or attitude, as needed.
(2)Limit values of protected flight parameters (and if applicable, associated warning thresholds) must be compatible with the following:
(a)Airplane structural limits,
(b)Required safe and controllable maneuvering of the airplane, and
(c)Margins to critical conditions. Dynamic maneuvering, airframe and system tolerances (both manufacturing and in-service), and non-steady atmospheric conditions—in any appropriate combination and phase of flight—must not result in a limited flight parameter beyond the nominal design limit value that would cause unsafe flight characteristics.
(3)The airplane must be responsive to intentional dynamic maneuvering to within a suitable range of the parameter limit. Dynamic characteristics, such as damping and overshoot, must also be appropriate for the flight maneuver and limit parameter in question.
(4)When simultaneous envelope limiting is engaged, adverse coupling or adverse priority must not result. b. *Failure States:* EFCS failures, including sensor failures, must not result in a condition where a parameter is limited to such a reduced value that safe and controllable maneuvering is no longer available. The crew must be alerted by suitable means, if any change in envelope limiting or maneuverability is produced by single or multiple failures of the EFCS not shown to be extremely improbable. 6. Flight Envelope Protection: High Incidence Protection Function a. *Definitions.* For the purpose of this special condition, the following definitions apply: *Electronic Flight Control System (EFCS):* The electronic and software command and control elements of the flight control system. *High Incidence Protection Function:* An airplane level function that automatically limits the maximum angle of attack that can be attained to a value below that at which an aerodynamic stall would occur. *Alpha Limit:* The maximum angle of attack at which the airplane stabilizes with the high incidence protection function operating and the longitudinal control held on its aft stop. *V* MIN : The minimum steady flight speed is the stabilized, calibrated airspeed obtained when the airplane is decelerated at an entry rate not exceeding 1 knot per second, until the longitudinal pilot control is on its stop with the high incidence protection function operating. *V* MIN1g : V <sup>MIN</sup> corrected to 1g conditions. It is the minimum calibrated airspeed at which the airplane can develop a lift force normal to the flight path and equal to its weight when at an angle of attack not greater than that determined for V <sup>MIN</sup> . b. *Capability and Reliability of the High Incidence Protection Function*
(1)It must not be possible to encounter a stall during pilot induced maneuvers, and handling characteristics must be acceptable, as required by paragraphs e and f below, titled High Incidence Handling Demonstrations and High Incidence Handling Characteristics respectively.
(2)The airplane must be protected against stalling due to the effects of environmental conditions such as windshears and gusts at low speeds, as required by paragraph g, Atmospheric Disturbances, below.
(3)The ability of the high incidence protection function to accommodate any reduction in stalling incidence resulting from residual ice must be verified.
(4)The reliability of the function and the effects of failures must be acceptable, in accordance with § 25.1309 and Advisory Circular 25.1309-1A, System Design and Analysis.
(5)The high incidence protection function must not impede normal maneuvering for pitch angles up to the maximum required for normal maneuvering, including a normal all-engines operating takeoff plus a suitable margin to allow for satisfactory speed control. c. *Minimum Steady Flight Speed and Reference Stall Speed.* In lieu of the requirements of § 25.103, the following special conditions apply:
(1)V <sup>MIN</sup> : The minimum steady flight speed, for the airplane configuration under consideration and with the high incidence protection function operating, is the final stabilized calibrated airspeed obtained when the airplane is decelerated at an entry rate not exceeding 1 knot per second until the longitudinal pilot control is on its stop.
(2)The minimum steady flight speed, V <sup>MIN</sup> , must be determined with:
(a)The high incidence protection function operating normally.
(b)Idle thrust.
(c)All combinations of flap settings and landing gear positions.
(d)The weight used when V <sup>SR</sup> is being used as a factor to determine compliance with a required performance standard.
(e)The most unfavorable center of gravity allowable, and
(f)The airplane trimmed for straight flight at a speed achievable by the automatic trim system.
(3)V <sup>MIN1g</sup> is V <sup>MIN</sup> corrected to 1g conditions. V <sup>MIN1g</sup> is the minimum calibrated airspeed at which the airplane can develop a lift force normal to the flight path and equal to its weight when at an angle of attack not greater than that determined for V <sup>MIN</sup> . V <sup>MIN1g</sup> is defined as follows: ER12AP07.007 Where— n <sup>zw</sup> = load factor normal to the flight path at V <sup>MIN</sup>
(4)The Reference Stall Speed, V <sup>SR</sup> , is a calibrated airspeed selected by the applicant. V <sup>SR</sup> may not be less than the 1g stall speed. V <sup>SR</sup> is expressed as: ER12AP07.008 Where— V <sup>CLMAX</sup> = Calibrated airspeed obtained when the load factor-corrected lift coefficient ER12AP07.009 is first a maximum during the maneuver prescribed in paragraph (5)(h) of this special condition. n <sup>zw</sup> = Load factor normal to the flight path at V <sup>CLMAX</sup> W = Airplane gross weight S = Aerodynamic reference wing area, and q = Dynamic pressure.
(5)V <sup>CLMAX</sup> must be determined with the following conditions:
(a)Engines idling or—if that resultant thrust causes an appreciable decrease in stall speed—not more than zero thrust at the stall speed
(b)The airplane in other respects, such as flaps and landing gear, in the condition existing in the test or performance standard in which V <sup>SR</sup> is being used.
(c)The weight used when V <sup>SR</sup> is being used as a factor to determine compliance with a required performance standard.
(d)The center of gravity position that results in the highest value of reference stall speed.
(e)The airplane trimmed for straight flight at a speed achievable by the automatic trim system, but not less than 1.13 V <sup>SR</sup> and not greater than 1.3 V <sup>SR</sup> .
(f)[Reserved]
(g)The high incidence protection function adjusted to a high enough incidence to allow full development of the 1g stall.
(h)Starting from the stabilized trim condition, apply the longitudinal control to decelerate the airplane so that the speed reduction does not exceed one knot per second.
(6)The flight characteristics at the angle of attack for C <sup>LMAX</sup> must be suitable in the traditional sense at FWD and AFT center of gravity in straight and turning flight at IDLE power. Although for a normal production EFCS and steady full aft stick this angle of attack for C <sup>LMAX</sup> cannot be achieved, the angle of attack can be obtained momentarily under dynamic circumstances and deliberately in a steady state sense with some EFCS failure conditions.
(7)The reference stall speed, V <sup>SR</sup> , is a calibrated airspeed defined by the applicant. If V <sup>SR</sup> is chosen equal to V <sup>MIN1g</sup> , an equivalent safety finding to the intent of § 25.103 may be considered to have been met. The applicant may choose V <sup>SR</sup> to be less than V <sup>MIN1g</sup> but not less than V <sup>S1g</sup> if compensating factors are provided to ensure safe characteristics. d. *Stall Warning.*
(1)*Normal Operation.* If the conditions of paragraph b, Capability and Reliability of the High Incidence Protection Function, of this special conditions are satisfied, a level of safety equivalent to that intended by § 25.207, Stall Warning, must be considered to have been met without provision of an additional, unique warning device.
(2)*Failure Cases.* Following failures of the high incidence protection function not shown to be extremely improbable, if the function no longer satisfies paragraph b, Capability and Reliability of the High Incidence Protection Function, paragraphs b(1), (2), and
(3)of this special condition, stall warning must be provided in accordance with § 25.207. The stall warning should prevent inadvertent stall under the following conditions:
(a)Power off straight stall approaches to a speed 5 percent below the warning onset.
(b)Turning flight stall approaches with at least 1.5g load factor normal to the flight path at entry rate of at least 2 knots per second when recovery is initiated not less than one second after warning onset. e. *High Incidence Handling Demonstrations.* In lieu of the requirements of § 25.201, the following special conditions apply: Maneuvers to the limit of the longitudinal control in the nose up direction must be demonstrated in straight flight and in 30 degree banked turns under the following conditions:
(1)The high incidence protection function operating normally.
(2)Initial power condition of:
(a)Power off.
(b)The power necessary to maintain level flight at 1.5 V <sup>SR1</sup> , where V <sup>SR1</sup> is the reference stall speed with the flaps in the approach position, the landing gear retracted, and the maximum landing weight. The flap position to be used to determine this power setting is that position in which the stall speed, V <sup>SR1</sup> , does not exceed 110% of the stall speed, V <sup>SR0</sup> , with the flaps in the most extended landing position.
(3)[Reserved]
(4)Flaps, landing gear and deceleration devices in any likely combination of positions.
(5)Representative weights within the range for which certification is requested, and
(6)The airplane trimmed for straight flight at a speed achievable by the automatic trim system. f. *High Incidence Handling Characteristics.* In lieu of the requirements of § 25.203, the following special conditions apply:
(1)In demonstrating the handling characteristics specified in paragraphs (2), (3), (4), and
(5)below, the following procedures must be used:
(a)Starting at a speed sufficiently above the minimum steady flight speed to ensure that a steady rate of speed reduction can be established, apply the longitudinal control so that the speed reduction does not exceed one knot per second until the control reaches the stop.
(b)The longitudinal control must be maintained at the stop until the airplane has reached a stabilized flight condition and must then be recovered by normal recovery techniques.
(c)The requirements for turning flight maneuver demonstrations must also be met with accelerated rates of entry to the incidence limit, up to the maximum rate achievable.
(2)Throughout maneuvers with a rate of deceleration of not more than 1 knot per second, both in straight flight and in 30 degree banked turns, the airplane's characteristics must be as follows:
(a)There must not be any abnormal airplane nose-up pitching.
(b)There must not be any uncommanded nose-down pitching that would be indicative of stall. However, reasonable attitude changes associated with stabilizing the incidence at alpha limit as the longitudinal control reaches the stop would be acceptable. Any reduction of pitch attitude associated with stabilizing the incidence at the alpha limit should be achieved smoothly and at a low pitch rate, such that it is not likely to be mistaken for natural stall identification.
(c)There must not be any uncommanded lateral or directional motion, and the pilot must retain good lateral and directional control by conventional use of the cockpit controllers throughout the maneuver.
(d)The airplane must not exhibit buffeting of a magnitude and severity that would act as a deterrent to completing the maneuver.
(3)In maneuvers with increased rates of deceleration, some degradation of characteristics is acceptable, associated with a transient excursion beyond the stabilized alpha-limit. However, the airplane must not exhibit dangerous characteristics or characteristics that would deter the pilot from holding the longitudinal controller on the stop for a period of time appropriate to the maneuvers.
(4)It must always be possible to reduce incidence by conventional use of the controller.
(5)The rate at which the airplane can be maneuvered from trim speeds associated with scheduled operating speeds, such as V <sup>2</sup> and V <sup>REF</sup> , up to alpha-limit must not be unduly damped or significantly slower than can be achieved on conventionally controlled transport airplanes. g. *Atmospheric Disturbances.* Operation of the high incidence protection function must not adversely affect aircraft control during expected levels of atmospheric disturbances or impede the application of recovery procedures in case of windshear. Simulator tests and analysis may be used to evaluate such conditions but must be validated by limited flight testing to confirm handling qualities at critical loading conditions. h. *[Reserved]* i. *Proof of Compliance.* In addition to the requirements of § 25.21, the following special conditions apply: The flying qualities must be evaluated at the most unfavorable center of gravity position. j. *Longitudinal Control:*
(1)In lieu of the requirements of § 25.145(a) and (a)(1), the following special conditions apply: It must be possible—at any point between the trim speed for straight flight and V <sup>min</sup> —to pitch the nose downward, so that the acceleration to this selected trim speed is prompt, with: The airplane trimmed for straight flight at the speed achievable by the automatic trim system and at the most unfavorable center of gravity;
(2)In lieu of the requirements of § 25.145(b)(6), the following special conditions apply: With power off, flaps extended and the airplane trimmed at 1.3 V <sup>SR1</sup> , obtain and maintain airspeeds between V <sup>min</sup> and either 1.6 V <sup>SR1</sup> or V <sup>FE</sup> , whichever is lower. k. *Airspeed Indicating System.*
(1)In lieu of the requirements of § 25.1323(c)(1), the following special conditions apply: V <sup>MO</sup> to V <sup>min</sup> with the flaps retracted.
(2)In lieu of the requirements of § 25.1323(c)(2), the following special conditions apply: V <sup>min</sup> to V <sup>FE</sup> with flaps in the landing position. 7. Flight Envelope Protection: Normal Load Factor
(g)Limiting In addition to the requirements of § 25.143(a)—and in the absence of other limiting factors—the following special conditions apply: a. The positive limiting load factor must not be less than:
(1)2.5g for the Electronic Flight Control System
(EFCS)normal state.
(2)2.0g for the EFCS normal state with the high lift devices extended. b. The negative limiting load factor must be equal to or more negative than:
(1)Minus 1.0g for the EFCS normal state.
(2)0.0g for the EFCS normal state with high lift devices extended. Note: This special condition does not impose an upper bound for the normal load factor limit, nor does it require that the limit exist. If the limit is set at a value beyond the structural design limit maneuvering load factor “n,” indicated in §§ 25.333(b) and 25.337(b) and (c), there should be a very positive tactile feel built into the controller and obvious to the pilot that serves as a deterrent to inadvertently exceeding the structural limit. 8. Flight Envelope Protection: Pitch, Roll, and High Speed Limiting Functions In addition to § 25.143, the following special conditions apply: a. Operation of the high speed limiter during all routine and descent procedure flight must not impede normal attainment of speeds up to the overspeed warning. b. The pitch limiting function must not impede airplane maneuvering, including an all-engines operating takeoff, for pitch angles up to the maximum required for normal operations plus a suitable margin in the pitch axis to allow for satisfactory speed control. c. The high speed limiting function must not impede normal attainment of speeds up to V <sup>MO</sup> /M <sup>MO</sup> during all routine and descent procedure flight conditions. d. The pitch and roll limiting functions must not restrict nor prevent attaining bank angles up to 65 degrees and pitch attitudes necessary for emergency maneuvering. Positive spiral stability, which is introduced above 35 degrees bank angle, must not require excessive pilot strength on the side stick controller to achieve bank angles up to 65 degrees. Stick force at bank angles greater than 35 degrees must not be so light that over-control would lead to pilot-induced oscillations. Issued in Renton, Washington, on April 4, 2007. Stephen P. Boyd, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-6888 Filed 4-11-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. NM371; Special Conditions No. 25-350-SC] Special Conditions: Dassault Aviation Model Falcon 7X Airplane; Sudden Engine Stoppage, Operation Without Normal Electrical Power, and Dive Speed Definition With Speed Protection System AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final special conditions. SUMMARY: These special conditions are issued for the Dassault Aviation Model Falcon 7X Airplane; Sudden Engine Stoppage, Operation Without Normal Electrical Power, and Dive Speed Definition with Speed Protection System. This airplane will have novel or unusual design features that include engine size and torque load, which affect sudden engine stoppage; electrical and electronic systems which perform critical functions, which affect operation without normal electrical power; and dive speed definition with speed protection system. These special conditions pertain to their effects on the structural performance of the airplane. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. EFFECTIVE DATE: April 4, 2007. FOR FURTHER INFORMATION CONTACT: Tom Rodriguez, FAA, International Branch, ANM-116, Transport Airplane Directorate, Aircraft Certification Service, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone
(425)227-1503; facsimile
(425)227-1320. SUPPLEMENTARY INFORMATION: Background On June 4, 2002, Dassault Aviation, 9 rond Point des Champs Elysees, 75008, Paris, France, applied for an FAA type certificate for its new Model Falcon 7X airplane. The Dassault Model Falcon 7X airplane is a 19 passenger transport category airplane powered by three aft mounted Pratt & Whitney PW307A high bypass ratio turbofan engines. Maximum takeoff weight will be 63,700 pounds, and maximum certified altitude will be 51,000 feet with a range of 5,700 nautical miles. The airplane is operated using a fly-by-wire
(FBW)primary flight control system. This will be the first application of a FBW primary flight control system in an airplane primarily intended for private/corporate use. The Dassault Aviation Model Falcon 7X design incorporates equipment that was not envisioned when part 25 was created. This equipment affects sudden engine stoppage, operation without normal electrical power, and dive speed definition with speed protection system. Therefore, special conditions are required that provide the level of safety equivalent to that established by the regulations. Type Certification Basis Under the provisions of 14 CFR 21.17, Dassault Aviation must show that the Model Falcon 7X airplane meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-108. If the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for the Model Falcon 7X airplane because of novel or unusual design features, special conditions are prescribed under the provisions of § 21.16. In addition to the applicable airworthiness regulations and special conditions, the Dassault Model Falcon 7X airplane must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36. The FAA issues special conditions, as defined in § 11.19, under § 11.38, and they become part of the type certification basis under § 21.17(a)(2). Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under § 21.101. Novel or Unusual Design Features The Dassault Aviation Model Falcon 7X airplane will incorporate novel or unusual design features that will affect: • Sudden engine stoppage. • Operation without normal electrical power. • Dive speed definition with speed protection system. These special conditions address equipment which may affect the airplane's structural performance, either directly or as a result of failure or malfunction. These special conditions are identical or nearly identical to those previously required for type certification of other airplane models. Discussion Because of these rapid improvements in airplane technology, the applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. Therefore, in addition to the requirements of part 25, subparts C and D, the following special conditions apply. Special Conditions for Sudden Engine Stoppage The Dassault Model Falcon 7X will have high-bypass ratio turbofan engines. Engines of this size were not envisioned when § 25.361, pertaining to loads imposed by engine seizure, was adopted in 1965. Worst case engine seizure events become increasingly more severe with increasing engine size because of the higher inertia of the rotating components. Section 25.361(b)(1) requires that for turbine engine installations, the engine mounts and the supporting structures must be designed to withstand a “limit engine torque load imposed by sudden engine stoppage due to malfunction or structural failure.” Limit loads are expected to occur about once in the lifetime of any airplane. Section 25.305 requires that supporting structures be able to support limit loads without detrimental permanent deformation, meaning that supporting structures should remain serviceable after a limit load event. Since adoption of § 25.361(b)(1), the size, configuration, and failure modes of jet engines have changed considerably. Current engines are much larger and are designed with large bypass fans. In the event of a structural failure, these engines are capable of producing much higher transient loads on the engine mounts and supporting structures. As a result, modern high bypass engines are subject to certain rare-but-severe engine seizure events. Service history shows that such events occur far less frequently than limit load events. Although it is important for the airplane to be able to support such rare loads safely without failure, it is unrealistic to expect that no permanent deformation will occur. Given this situation, the Aviation Rulemaking Advisory Committee
(ARAC)proposed a design standard for today's large engines. For the commonly-occurring deceleration events, the proposed standard requires engine mounts and structures to support maximum torques without detrimental permanent deformation. For the rare-but-severe engine seizure events such as loss of any fan, compressor, or turbine blade, the proposed standard requires engine mounts and structures to support maximum torques without failure, but allows for some deformation in the structure. The FAA concludes that modern large engines, including those on the Model Falcon 7X, are novel and unusual compared to those envisioned when § 25.361(b)(1) was adopted and thus warrant a special condition. The special condition contains design criteria recommended by ARAC. The ARAC proposal was to revise the wording of § 25.361(b), including §§ 25.361(b)(1) and (b)(2), removing language pertaining to structural failures and moving it to a separate requirement that discusses the reduced factors of safety that apply to these failures. Special Conditions for Operation Without Normal Electrical Power The Dassault Aviation Model Falcon 7X airplane will have electrical and electronic systems which perform critical functions. The Model Falcon 7X airplane is a fly-by-wire control system that requires a continuous source of electrical power for the flight control system to remain operable, since the loss of all electrical power may be catastrophic to the airplane. The airworthiness standards of part 25 do not contain adequate or appropriate standards for the protection of the Electronic Flight Control System from the adverse effects of operations without normal electrical power. Section 25.1351(d), “Operation without normal electrical power,” requires safe operation in visual flight rule
(VFR)conditions for at least five minutes with inoperative normal power. This rule was structured around a traditional design utilizing mechanical control cables for flight control surfaces and the pilot controls. Such traditional designs enable the flightcrew to maintain control of the airplane, while providing time to sort out the electrical failure, re-start the engines if necessary, and re-establish some of the electrical power generation capability. The Dassault Aviation Model Falcon 7X airplane, however, will utilize an Electronic Flight Control System for the pitch and yaw control (elevator, stabilizer, and rudder). There is no mechanical linkage between the pilot controls and these flight control surfaces. Pilot control inputs are converted to electrical signals, which are processed and then transmitted via wires to the control surface actuators. At the control surface actuators, the electrical signals are converted to an actuator command, which moves the control surface. To maintain the same level of safety as that associated with traditional designs, the Dassault Model 7X airplanes with electronic flight controls must not be time limited in their operation, including being without the normal source of electrical power generated by the engine or the Auxiliary Power Unit
(APU)generated electrical power. Service experience has shown that the loss of all electrical power generated by the airplane's engine generators or APU is not extremely improbable. Thus, it must be demonstrated that the airplane can continue safe flight and landing—including steering and braking on ground for airplanes using steer/brake-by-wire—after total loss of normal electrical power with the use of its emergency electrical power systems. These emergency electrical power systems must be able to power loads that are essential for continued safe flight and landing. Special Conditions for Dive Speed Definition With Speed Protection System Dassault Aviation proposed to reduce the speed margin between V <sup>C</sup> and V <sup>D</sup> required by § 25.335(b), based on the incorporation of a high speed protection system in the Model Falcon 7X flight control laws. The Falcon 7X is equipped with a high speed protection system which limits nose down pilot authority at speeds above V <sup>C</sup> /M <sup>C</sup> and prevents the airplane from actually performing the maneuver required under § 25.335(b)(1). Section 25.335(b)(1) is an analytical envelope condition which was originally adopted in Part 4b of the Civil Air Regulations to provide an acceptable speed margin between design cruise speed and design dive speed. Freedom from flutter and airframe design loads is affected by the design dive speed. While the initial condition for the upset specified in the rule is 1g level flight, protection is afforded for other inadvertent overspeed conditions as well. Section 25.335(b)(1) is intended as a conservative enveloping condition for all potential overspeed conditions, including non-symmetric ones. To establish that all potential overspeed conditions are enveloped, the applicant will demonstrate that the dive speed will not be exceeded during pilot-induced or gust-induced upsets in non-symmetric attitudes. In addition, the high speed protection system in the Falcon 7X must have a high level of reliability. Discussion of Comments Notice of proposed special conditions No. 25-07-07-SC for the Dassault Aviation Model Falcon 7X airplanes was published in the **Federal Register** on March 1, 2007 (72 FR 9273). No comments were received, and the special conditions are adopted as proposed. Applicability As discussed above, these special conditions are applicable to the Dassault Aviation Model Falcon 7X airplane. Should Dassault Aviation apply at a later date for a change to the type certificate to include another model on the same type certificate incorporating the same novel or unusual design features, these special conditions would apply to that model as well. For Final Special Conditions Effective Upon Issuance Under standard practice, the effective date of final special conditions would be 30 days after the date of publication in the **Federal Register** ; however, as the certification date for the Dassault Model Falcon 7X is imminent, the FAA finds that good cause exists to make these special conditions effective upon issuance. Conclusion This action affects only certain novel or unusual design features on model Falcon 7X airplanes. It is not a rule of general applicability. List of Subjects in 14 CFR Part 25 Aircraft, Aviation safety, Reporting and recordkeeping requirements. The authority citation for these special conditions is as follows: Authority: 49 U.S.C. 106(g), 40113, 44701, 44702, 44704. The Special Conditions Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Dassault Aviation Model Falcon 7X airplanes. 1. Sudden Engine Stoppage In lieu of the requirements of § 25.361(b) the following special condition applies:
(a)*For turbine engine installations* , the engine mounts, pylons and adjacent supporting airframe structure must be designed to withstand 1 g level flight loads acting simultaneously with the maximum limit torque loads imposed by each of the following:
(1)Sudden engine deceleration due to a malfunction which could result in a temporary loss of power or thrust; and
(2)The maximum acceleration of the engine.
(b)*For auxiliary power unit installations* , the power unit mounts and adjacent supporting airframe structure must be designed to withstand 1 g level flight loads acting simultaneously with the maximum limit torque loads imposed by each of the following:
(1)Sudden auxiliary power unit deceleration due to malfunction or structural failure; and
(2)The maximum acceleration of the power unit.
(c)*For engine supporting structures* , an ultimate loading condition must be considered that combines 1 g flight loads with the transient dynamic loads resulting from:
(1)The loss of any fan, compressor, or turbine blade; and separately
(2)where applicable to a specific engine design, any other engine structural failure that results in higher loads.
(d)The ultimate loads developed from the conditions specified in paragraphs (c)(1) and
(2)above are to be multiplied by a factor of 1.0 when applied to engine mounts and pylons and multiplied by a factor of 1.25 when applied to adjacent supporting airframe structure. In addition, the airplane must be capable of continued safe flight considering the aerodynamic effects on controllability due to any permanent deformation that results from the conditions specified in paragraph (c), above. 2. Operation Without Normal Electrical Power In lieu of the requirements of 14 CFR 25.1351(d), the following special condition applies: It must be demonstrated by test or combination of test and analysis that the airplane can continue safe flight and landing with inoperative normal engine and APU generator electrical power (i.e., electrical power sources, excluding the battery and any other standby electrical sources). The airplane operation should be considered at the critical phase of flight and include the ability to restart the engines and maintain flight for the maximum diversion time capability being certified. 3. Dive Speed Definition With Speed Protection System In lieu of the requirements of § 25.335(b)(1)—if the flight control system includes functions which act automatically to initiate recovery before the end of the 20 second period specified in § 25.335(b)(1)—the following special condition applies. The greater of the speeds resulting from the conditions of paragraphs
(a)and (b), below, must be used.
(a)From an initial condition of stabilized flight at V <sup>C</sup> /M <sup>C</sup> , the airplane is upset so as to take up a new flight path 7.5 degrees below the initial path. Control application, up to full authority, is made to try and maintain this new flight path. Twenty seconds after initiating the upset, manual recovery is made at a load factor of 1.5 g (0.5 acceleration increment) or such greater load factor that is automatically applied by the system with the pilot's pitch control neutral. The speed increase occurring in this maneuver may be calculated, if reliable or conservative aerodynamic data is used. Power, as specified in § 25.175(b)(1)(iv), is assumed until recovery is made, at which time power reduction and the use of pilot controlled drag devices may be used.
(b)From a speed below V <sup>C</sup> /M <sup>C</sup> with power to maintain stabilized level flight at this speed, the airplane is upset so as to accelerate through V <sup>C</sup> /M <sup>C</sup> at a flight path 15 degrees below the initial path—or at the steepest nose down attitude that the system will permit with full control authority if less than 15 degrees. Note: The pilot's controls may be in the neutral position after reaching V <sup>C</sup> /M <sup>C</sup> and before recovery is initiated.
(c)Recovery may be initiated three seconds after operation of high speed warning system by application of a load of 1.5 g (0.5 acceleration increment) or such greater load factor that is automatically applied by the system with the pilot's pitch control neutral. Power may be reduced simultaneously. All other means of decelerating the airplane, the use of which is authorized up to the highest speed reached in the maneuver, may be used. The interval between successive pilot actions must not be less than one second.
(d)The applicant must also demonstrate that the design dive speed, established above, will not be exceeded during pilot-induced or gust-induced upsets in non-symmetric attitudes.
(e)The occurrence of any failure condition that would reduce the capability of the overspeed protection system must be improbable (less than 10 −5 per flight hour). Issued in Renton, Washington, on April 4, 2007. Stephen P. Boyd, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-6889 Filed 4-11-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-27552; Directorate Identifier 2007-NE-11-AD; Amendment 39-15019; AD 2007-08-02] RIN 2120-AA64 Airworthiness Directives; Hartzell Propeller Inc. Model HC-E4A-3( )/E10950( ) Propellers AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule; request for comments. SUMMARY: The FAA is adopting a new airworthiness directive
(AD)for Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers. This AD requires initial and repetitive inspections and rework of the propeller blade retention radius, and replacement of the propeller blade thrust bearing, for each blade. This AD results from reports of excessive propeller vibration and of damaged or broken propeller blade thrust bearings found during routine and investigative propeller disassembly. We are issuing this AD to prevent propeller blade separation, damage to the airplane, and possible loss of airplane control. DATES: This AD becomes effective April 27, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulations as of April 27, 2007. We must receive any comments on this AD by June 11, 2007. ADDRESSES: Use one of the following addresses to comment on this AD: • *DOT Docket Web site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • *Government-wide rulemaking Web site:* Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001. • *Fax:*
(202)493-2251. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Hartzell Propeller Inc. Technical Publications Department, One Propeller Place, Piqua, OH 45356; telephone
(937)778-4200; fax
(937)778-4391, for the service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Tim Smyth, Aerospace Engineer, Chicago Aircraft Certification Office, FAA, Small Airplane Directorate, 2300 East Devon Avenue, Des Plaines, IL 60018; e-mail: *tim.smyth@faa.gov; telephone:*
(847)294-7132; fax:
(847)294-7834. SUPPLEMENTARY INFORMATION: We have received reports of excessive propeller vibration, and of damaged or broken propeller blade thrust bearings on Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers found during routine and investigative propeller disassembly. At least 15 propellers have been reported with broken propeller blade thrust bearings. During teardowns, instances of bearing failures have been progressively more severe, with more internal damage to the hub noted. Service history shows the propellers can safely accumulate 2,000 operating hours time-since-overhaul
(TSO)before the unsafe conditions start to appear. A broken thrust bearing can lead to damage to the propeller hub and blade shank, and blade separation from the hub. These damaged or broken parts can also lead to damage to the internal propeller pitch change mechanism, resulting in loss of propeller pitch control or in difficulty in feathering the propeller. This condition, if not corrected, could result in propeller blade separation, damage to the airplane, and possible loss of airplane control. Repairing the propeller blade retention radius using the instructions cited in Hartzell Propeller Inc. Service Bulletin
(SB)No. HC-SB-61-287, Revision 2, dated October 24, 2006, allows the propeller to safely operate for 3,000 hours before requiring bearing replacement. Relevant Service Information We reviewed and approved the technical contents of Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006. That SB describes procedures for initial and repetitive propeller blade inspection, rework, and thrust bearing replacement, for each blade. Differences Between This AD and the Service Information Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006, states in paragraph 3.G.(6) of the Accomplishment Instructions, to install new blade thrust bearings if required. However, this AD removes the option of “if required,” and mandates that operators must always install new blade thrust bearings. FAA's Determination and Requirements of this AD The unsafe condition described previously is likely to exist or develop on other Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers of the same type design. For that reason, we are issuing this AD to prevent propeller blade separation, damage to the airplane, and possible loss of airplane control. You must use the service information described previously to perform the actions required by this AD. This AD requires: • For propellers with 4,000 or more operating hours TSO, initial inspection and rework of the propeller blade retention radius and replacement of the propeller thrust bearing for each blade, within 100 operating hours after the effective date of the AD; and • For propellers with 2,000 or more operating hours TSO, but fewer than 4,000 operating hours TSO, inspection and rework of the propeller blade retention radius and replacement of the propeller thrust bearing, for each blade, at the next propeller disassembly; and • Thereafter, after every 3,000 additional operating hours time-in-service, inspection and rework of the propeller blade retention radius and replacement of the propeller blade thrust bearing, for each blade. You must use the service information described previously to perform the actions required by this AD. FAA's Determination of the Effective Date Since an unsafe condition exists that requires the immediate adoption of this AD, we have found that notice and opportunity for public comment before issuing this AD are impracticable, and that good cause exists for making this amendment effective in less than 30 days. Interim Action These actions are interim actions and we may take further rulemaking actions in the future. Comments Invited This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment; however, we invite you to send us any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under ADDRESSES . Include “AD Docket No. FAA-2007-27552; Directorate Identifier 2007-NE-11-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify it. We will post all comments we receive, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this AD. Using the search function of the Docket Management System
(DMS)Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78) or you may visit *http://dms.dot.gov.* Examining the AD Docket You may examine the docket that contains the AD, any comments received, and any final disposition in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility (telephone
(800)647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them. Authority for this Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES . List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Under the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new airworthiness directive: **2007-08-02 Hartzell Propeller Inc.:** Amendment 39-15019; Docket No. FAA-2007-27552; Directorate Identifier 2007-NE-11-AD. Effective Date
(a)This airworthiness directive
(AD)becomes effective April 27, 2007. Affected ADs
(b)None. Applicability
(c)This AD applies to Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers. These propellers are installed on, but not limited to, Raytheon Beechcraft 1900D airplanes.
(d)The parentheses appearing in the propeller model number indicates the presence or absence of an additional letter(s) that varies the basic propeller model. This AD still applies regardless of whether these letters are present or absent in the propeller model designation. Unsafe Condition
(e)This AD results from reports of excessive propeller vibration and of damaged or broken propeller blade thrust bearings found during routine and investigative propeller disassembly. We are issuing this AD to prevent propeller blade separation, damage to the airplane, and possible loss of airplane control. Interim Action
(f)These actions are interim actions and we may take further rulemaking actions in the future. Compliance
(g)You are responsible for having the actions required by this AD performed within the compliance times specified unless the actions have already been done. Initial Inspection, Rework, and Replacement
(h)For propellers with 4,000 or more operating hours time-since-overhaul (TSO, initially inspect and rework the propeller blade retention radius and replace the propeller thrust bearing for each blade, within 100 operating hours.
(i)For propellers with 2,000 or more operating hours TSO, but fewer than 4,000 operating hours TSO, inspect and rework the propeller blade retention radius and replace the propeller thrust bearing, for each blade, at the next propeller disassembly.
(j)Use paragraphs 3.G.(1) through 3.G.(8) of the Accomplishment Instructions of Hartzell Propeller Inc. Service Bulletin No. HC-SB-61-287, Revision 2, dated October 24, 2006, to do the actions in paragraphs
(h)and
(i)of this AD.
(k)Although Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006, states in paragraph 3.G.(6) of the Accomplishment Instructions, to install new blade thrust bearings if required, this AD requires always installing new blade thrust bearings. Repetitive Inspection, Rework, and Replacement
(l)Thereafter, after every 3,000 additional operating hours time-in-service, inspect and rework the propeller blade retention radius and replace the propeller blade thrust bearing, for each blade.
(m)Use paragraphs 3.G.(1) through 3.G.(8) of the Accomplishment Instructions of Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006, to do these actions.
(n)Although paragraph 3.G.(6) of the Accomplishment Instructions of Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006, states to install new blade thrust bearings if required, this AD requires always installing new blade thrust bearings. Definition
(o)For the purpose of this AD, next propeller disassembly is defined as any maintenance requiring separating of the propeller hub halves. Previous Credit
(p)Previous credit is allowed for inspections, rework, and replacements that were done using the Original or Revision 1 of Hartzell Propeller Inc. SB No. HC-SB-61-287, before the effective date of this AD. Alternative Methods of Compliance
(q)The Manager, Chicago Aircraft Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19. Related Information
(r)Contact Tim Smyth, Aerospace Engineer, Chicago Aircraft Certification Office, FAA, Small Airplane Directorate, 2300 East Devon Avenue, Des Plaines, IL 60018; e-mail: *tim.smyth@faa.gov;* telephone:
(847)294-7132; fax:
(847)294-7834, for more information about this AD. Material Incorporated by Reference
(s)You must use the Hartzell Propeller Inc. service information specified in Table 1 of this AD to perform the checks required by this AD. The Director of the Federal Register approved the incorporation by reference of the documents listed in Table 1 of this AD in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Hartzell Propeller Inc. Technical Publications Department, One Propeller Place, Piqua, OH 45356; telephone
(937)778-4200; fax
(937)778-4391, for a copy of this service information. You may review copies at the FAA, New England Region, Office of the Regional Counsel, 12 New England Executive Park, Burlington, MA; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Table 1.—Incorporation by Reference Hartzell Propeller Inc. Service Bulletin No. Page Revision Date HC-SB-61-287, Total Pages: 32 ALL 2 October 24, 2006. Appendix to HC-SB-61-287, Total Pages: 2 ALL 2 October 24, 2006. Issued in Burlington, Massachusetts, on April 3, 2007. Peter A. White, Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service. [FR Doc. E7-6586 Filed 4-11-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2005-22898; Directorate Identifier 2005-NE-10-AD; Amendment 39-15021; AD 2007-08-04] RIN 2120-AA64 Airworthiness Directives; McCauley Propeller Systems Models 3A32C406/82NDB-X and D3A32C409/82NDB-X Propellers AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive
(AD)for McCauley Propeller Systems models 3A32C406/82NDB-X and D3A32C409/82NDB-X propellers, installed on Teledyne Continental Motors
(TCM)IO-520, TSIO-520, or IO-550 reciprocating engines. These propellers are herein referred to as C406 and C409 propellers, respectively. This AD requires adding an operational revolutions per minute
(RPM)restriction on the C406 and C409 propellers, and installing an RPM restriction placard in the cockpit. This AD also adds a 10,000-hour total time-in-service
(TIS)life limit for these propellers. This AD also removes from service any propeller that has 10,000 hours or more total TIS, or that has an unknown total TIS. Also, this AD requires initial and repetitive propeller blade inspections for damage, and repair if necessary. This AD results from testing by the manufacturer that identified stress conditions that affect the fatigue life and damage tolerance of C406 and C409 propellers, when installed on TCM IO-520, TSIO-520, or IO-550 reciprocating engines. We are issuing this AD to prevent blade or hub failure that could result in separation of a propeller blade and loss of control of the airplane. DATES: This AD becomes effective May 17, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulations as of May 17, 2007. ADDRESSES: You can get the service information identified in this AD from McCauley Propeller Systems, P.O. Box 7704, Wichita, KS 67277-7704; telephone
(800)621-7767. You may examine the AD docket on the Internet at *http://dms.dot.gov* or in Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC. FOR FURTHER INFORMATION CONTACT: Jeff D. Janusz, Aerospace Engineer, Wichita Aircraft Certification Office, Small Airplane Directorate, 1801 Airport Road, Room 100, Wichita, KS 67209, *telephone:* 316-946-4148, *fax:* 316-946-4107. SUPPLEMENTARY INFORMATION: The FAA proposed to amend 14 CFR part 39 with a proposed AD. The proposed AD applies to McCauley Propeller Systems C406 and C409 propellers, installed on TCM IO-520, TSIO-520, or IO-550 reciprocating engines. We published the proposed AD in the **Federal Register** on Nov. 16, 2005 (70 FR 69472). That action proposed to require adding an operational RPM restriction on the C406 and C409 propellers, and installing an RPM restriction placard in the cockpit. We coordinated the proposed placard placement with the responsible Aircraft Certification Offices within the Small Airplane Directorate, and all proposed installations include a manifold pressure gauge. That action also proposed to add a 10,000-hour total time-in-service
(TIS)life limit for these propellers. That action also proposed to remove from service any propeller that has 10,000 hours or more total TIS, or that has an unknown total TIS. Finally, that action proposed to require initial and repetitive propeller blade inspections for damage, and repair if necessary. Examining the AD Docket You may examine the docket that contains the AD, any comments received, and any final disposition in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone
(800)647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comments received. Financial Burden and Potential Unsafe Condition One commenter states that this AD will impose a financial burden on owners and operators of airplanes with this propeller installation because of the increased number of inspections and additional wear on the propeller system increasing the probability of the propeller system failing. The commenter also suggests that stamping a letter on the propeller model to designate a life-limited propeller could create a potentially unsafe condition because the stamping can create stress risers and if improperly treated after stamping, could contribute to corrosion. The commenter also notes that the airplane model designations are incorrect and we omitted one model from the airplane model listing. Finally, the commenter asks why we did not immediately ground the fleet using this propeller because of the described severity of the unsafe condition. We partially agree with the comments. Each is addressed in turn. The increased inspections required by this AD are necessary to resolve the unsafe condition. Owner operators must maintain their aircraft in an airworthy condition, which includes paying for maintenance. We considered that cost and discussed it in the cost section below. We did not change the AD. This AD will not result in additional wear and tear on the propellers, or in increased failures. This AD resolves an unsafe condition. All actions required are either performed with the propeller installed, or coincident with the next overhaul or major disassembly. An experienced, appropriately rated mechanic can do the inspection and rework without removing the propeller. We did not change the AD. The manufacturer carefully considered where to stamp the life limit indication to minimize any stress riser. We have no indications that his choice was wrong. We did not change the AD. We agree that this AD should include additional models. We changed the AD to include the Beech 35-A33 and 35-B33. The Beech 35-A33 and 35-B33 are now included in Applicability paragraph
(c)Table (1). Grounding the fleet that has the suspect propellers installed is not required. The unsafe condition identified is due to material fatigue. The actions required by this AD adequately address the unsafe condition. We did not change the AD. Eliminate the Repetitive Inspections of This AD Another commenter states that the AD does not include a terminating action to eliminate the recurring inspections necessary to comply with it. Even if an operator replaces the existing propeller with a new propeller, the recurring inspections are necessary as long as the replacement propeller is one of same models identified in the airworthiness directive. Additionally, the commenter notes that aircraft performance is also a consideration. This AD will require operating the engine and propeller combination in a less than full engine power regime, which could compromise safety in particular situations associated with departures, arrivals and clearing obstacles. We partially agree. This AD imposes the RPM and life limit to correct an unsafe condition. The recurring inspections are required to enhance safety. The RPM restriction, imposed propeller life limit, and periodic propeller blade inspection/rework provide a cost effective means to correct the unsafe condition without prematurely retiring the propeller. The RPM restriction does not affect the engine full power ratings. Takeoff, climb, and descent values remain unchanged. Therefore, this AD does not compromise safety during departures, arrivals, and in clearing obstacles. We did not change the AD. Recall Impacted Propellers Another commenter believes that the FAA should require a recall of all propeller models listed in the AD so the manufacturer will be responsible for the cost of repair and replacement. We do not agree. The FAA cannot dictate commercial business decisions related to AD actions. We identified the unsafe condition and are imposing appropriate corrective action. We did not change the AD. Extend the Comment Period Two commenters asked that we extend the comment period for the proposed rule to give the general aviation community added time to review non-proprietary data used to substantiate the proposed action and to make additional comments. We agree, and extended the comment period to give the aviation community time to respond. The comments that we responded to above include any additional comments that came in. Correct Date of Service Bulletin The proposed rule referenced McCauley Propeller Systems Alert Service Bulletin
(ASB)No. ASB248, dated January 17, 2005. The correct date is April 19, 2005. We changed the AD to indicate the correct date of the service bulletin. Conclusion We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD. Costs of Compliance This AD will affect about 2,350 C406 and C409 propellers installed on airplanes of U.S. registry. We estimate it will take three work-hours per propeller to perform the proposed inspections and repairs. We also estimate it will take about 0.5 work-hour to install the proposed cockpit placard, and about 950 airplanes will require the placard. The average labor rate is $80 per work-hour. A replacement propeller blade set will cost about $5,200. We estimate 500 propellers in the fleet (or about 21 percent) would require propeller blade set replacement. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $3,202,000. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:
(1)Is not a “significant regulatory action” under Executive Order 12866;
(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and
(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES . List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new airworthiness directive: **2007-08-04 McCauley Propeller Systems:** Amendment 39-15021. Docket No. FAA-2005-22898; Directorate Identifier 2005-NE-10-AD. Effective Date
(a)This airworthiness directive
(AD)becomes effective May 17, 2007. Affected ADs
(b)None. Applicability
(c)This AD applies to McCauley Propeller Systems models 3A32C406/82NDB-X and D3A32C409/82NDB-X propellers, herein referred to as C406 and C409 propellers, respectively. These propellers are installed on, but not limited to, the airplanes in the following Table 1: Table 1.—Airplanes That Propellers Are Installed On, But Not Limited To Airplane models With engine model Beech: A35, B35, C35, D35, E35, F35, G35, H35, J35, K35, M35, N35, P35, S35, V35, V35A, V35B, 35-33, 35-A33, 35-B33, 35-C33, 35-C33A, E33, E33A, E33C, F33, F33A, F33C, 36, A36, A45, and D45 Teledyne Continental Motors
(TCM)IO-520 series and IO-550 series reciprocating engines. Beech: A36TC, B36TC, S35, V35A, V35B TCM TSIO-520 series reciprocating engines. Navion: A (L-17B, C), B, D, E, F, G, and H TCM IO-550 and TSIO-520 series reciprocating engines. Unsafe Condition
(d)This AD results from testing by the manufacturer that identified stress conditions that affect the fatigue life and damage tolerance of C406 and C409 propellers, when installed on TCM IO-520, TSIO-520, or IO-550 reciprocating engines. We are issuing this AD to prevent blade or hub failure that could result in separation of a propeller blade and loss of control of the airplane. Compliance
(e)You are responsible for having the actions required by this AD performed within the compliance times specified unless the actions have already been done. Installation of Cockpit Placard for RPM Restriction
(f)Within 10 hours time-in-service
(TIS)after the effective date of this AD, install a placard on the instrument panel as close to the tachometer as possible, that states, in 1/8 inch-high or higher characters, “Continuous operation between 2,350-2,450 RPM at or above 24″ manifold pressure is prohibited”. The placard shall have red letters, on a white contrasting background with a red border. For example: Continuous operation between 2,350-2,450 RPM at or above 24″ manifold pressure is prohibited Propellers With Unknown Total Hours TIS, or 10,000 or More Hours Total TIS on the Effective Date of This AD
(g)For propellers that the total TIS is unknown, or that have 10,000 or more hours total TIS on the effective date of this AD, remove the propeller from service within 50 hours TIS after the effective date of this AD. Propellers With Fewer Than 10,000 Hours Total TIS on the Effective Date of This AD
(h)For propellers with fewer than 10,000 total hours TIS on the effective date of this AD, do the following:
(1)Perform an inspection of the propeller blades and repair if necessary, within 100 hours after the effective date of this AD, using paragraphs 2.B. through 2.F. of Accomplishment Instructions of McCauley Propeller Systems Alert Service Bulletin
(ASB)No. ASB248, dated April 19, 2005.
(2)At the next propeller overhaul or next major propeller disassembly, life-limit-stamp the letter “L” on the propeller hub and blades, using paragraph 3 of Accomplishment Instructions of McCauley Propeller Systems ASB No. ASB248, dated April 19, 2005.
(3)Thereafter, within every 100 hours TIS or at next annual inspection, whichever occurs first, inspect, and repair if necessary, the propeller blades using paragraphs 2.B. through 2.F. of Accomplishment Instructions of McCauley Propeller Systems ASB No. ASB248, dated April 19, 2005.
(4)Remove the propeller from service upon reaching the life limit of 10,000 hours total TIS. Alternative Methods of Compliance
(i)The Manager, Wichita Aircraft Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19. Related Information
(j)Contact Jeff D. Janusz, Aerospace Engineer, Wichita Aircraft Certification Office, Small Airplane Directorate, 1801 Airport Road, Room 100, Wichita, KS 67209; telephone: 316-946-4148, fax: 316-946-4107, for more information about this AD. Material Incorporated by Reference
(k)You must use McCauley Propeller Systems Alert Service Bulletin No. ASB248, dated April 19, 2005, to perform the actions required by this AD. The Director of the Federal Register approved the incorporation by reference of this service bulletin in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact McCauley Propeller Systems, P.O. Box 7704, Wichita, Kansas; telephone
(800)621-7767, for a copy of this service information. You may review copies at the FAA, New England Region, Office of the Regional Counsel, 12 New England Executive Park, Burlington, MA; or the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Issued in Burlington, Massachusetts, on April 4, 2007. Peter A. White, Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service. [FR Doc. E7-6831 Filed 4-11-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-27709; Directorate Identifier 2007-CE-028-AD; Amendment 39-15020; AD 2007-08-03] RIN 2120-AA64 Airworthiness Directives; Cessna Aircraft Company Models 172R, 172S, 182T, T182T, 206H, and T206H Airplanes AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule; request for comments. SUMMARY: The FAA is adopting a new airworthiness directive
(AD)to supersede AD 2006-17-04, which applies to certain Cessna Aircraft Company (Cessna) Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes. AD 2006-17-04 currently requires you to inspect the two end fittings on each of the flexible fuel hoses located in the engine compartment for the correct torque values, and, if any incorrect torque values are found during the inspection, tighten the hose end fittings to the correct torque values. This AD results from four reports of loose fuel lines connected to the fuel servo or fuel flow transducer. Two reports were of in-flight engine failure on a Model T182T airplane. A third report was of in-flight engine failure on a Model 206H airplane. A fourth report was of a Model 172S airplane losing engine power on final approach. Consequently, this AD would require you to establish the correct torque values of the end fittings on fuel hoses for certain Cessna Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes. This AD clarifies that the torque values need to be physically established and visual inspection only is not sufficient. We are issuing this AD to detect and correct potential loss of fuel flow, which may result in partial or complete loss of engine power and/or uncontrolled engine compartment fire due to fuel leakage forward of the firewall. DATES: This AD becomes effective on May 2, 2007. On May 2, 2007 the Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD. We must receive any comments on this AD by June 11, 2007. ADDRESSES: Use one of the following addresses to comment on this AD. • *DOT Docket Web site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001. • *Fax:*
(202)493-2251. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • *Federal eRulemaking Portal:* Go to *http://www.regulations.gov.* Follow the instructions for submitting comments. To get the service information identified in this AD, contact The Cessna Aircraft Company, Product Support, P.O. Box 7706, Wichita, Kansas 67277-7706; telephone:
(316)517-5800; facsimile:
(316)942-9006. To view the comments to this AD, go to *http://dms.dot.gov.* The docket number is FAA-2007-27709; Directorate Identifier 2007-CE-028-AD. FOR FURTHER INFORMATION CONTACT: Trenton Shepherd, Aerospace Engineer, Wichita ACO, 1801 Airport Road, Room 100, Wichita, Kansas 67209; telephone:
(316)946-4143; fax:
(316)946-4107. SUPPLEMENTARY INFORMATION: Discussion One report of loose fuel hose connections to the fuel injector servo on a Cessna Model 172S airplane caused us to issue AD 2006-17-04, Amendment 39-14725 (71 FR 47711, August 18, 2006). AD 2006-17-04 on certain Cessna Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes, currently requires you to: • Inspect the two end fittings on each of the flexible fuel hoses located in the engine compartment for the correct torque values; and • Tighten the hose end fittings to the correct torque values, if any incorrect torque values are found during the inspection. Since issuing AD 2006-17-04, we have received four additional reports of loose fuel lines connected to the fuel servo or fuel flow transducer. Two reports were of in-flight engine failure on a Model T182T airplane. A third report was of in-flight engine failure on a Model 206H airplane. A fourth report was of a Model 172S airplane that lost engine power on final approach. In issuing AD 2006-17-04, our intent was for the torque values provided in Table 4 of the AD to be verified. However, the actions we specified in AD 2006-17-04 resulted in visual-only inspections being accomplished in some cases. Visual inspection of torque paint or putty is not sufficient to address the unsafe condition. This AD clarifies that the torque values need to be physically established. This condition, if not corrected, could result in loss of fuel flow resulting in partial or complete loss of engine power and/or uncontrolled engine compartment fire due to fuel leakage forward of the firewall. Relevant Service Information We reviewed Cessna Service Bulletin No. SB07-71-01, original issue dated March 2, 2007, Revision 1, dated March 16, 2007. The service information describes procedures for a physical inspection of the fuel hose connections on each of the hoses by loosening each connection and then reapplying the correct torque value to make sure that they are correctly torqued. FAA's Determination and Requirements of This AD We are issuing this AD because we evaluated all the information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design. This AD requires you to establish the correct torque values of the end fittings on fuel hoses for certain Cessna Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes. This AD clarifies that the torque values need to be physically established and visual inspection only is not sufficient. In preparing this rule, we contacted type clubs and aircraft operators to get technical information and information on operational and economic impacts. We did not receive any information through these contacts. If received, we would have included a discussion of any information that may have influenced this action in the rulemaking docket. FAA's Determination of the Effective Date Since an unsafe condition exists that requires the immediate adoption of this AD, we determined that notice and opportunity for public comment before issuing this AD are impracticable, and that good cause exists for making this amendment effective in fewer than 30 days. Comments Invited This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and an opportunity for public comment. We invite you to send any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under the ADDRESSES section. Include the docket number “Docket No. FAA-2007-27709; Directorate Identifier 2007-CE-028-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the AD. We will consider all comments received by the closing date and may amend the AD in light of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive concerning this AD. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:
(1)Is not a “significant regulatory action” under Executive Order 12866;
(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and
(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. Examining the AD Docket You may examine the AD docket that contains the AD, the regulatory evaluation, any comments received, and other information on the Internet at *http://dms.dot.gov;* or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone
(800)647-5227) is located at the street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by removing Airworthiness Directive
(AD)2006-17-04, Amendment 39-14725 (71 FR 47711, August 18, 2006), and by adding a new AD to read as follows: **2007-08-03 Cessna Aircraft Company:** Amendment 39-15020; Docket No. FAA-2007-27709; Directorate Identifier 2007-CE-028-AD. Effective Date
(a)This AD becomes effective on May 2, 2007. Affected ADs
(b)This AD supersedes AD 2006-17-04; Amendment 39-14725. Applicability
(c)This AD applies to the following airplane models and serial numbers that are certificated in any category: Table 1.—Applicability Model Serial Nos.
(i)172R 17281244 through 17281364, 17281366 through 17281372, 17281374 through 17281376, and 17281379.
(ii)172S 172S9809 through 172S10349, 172S10351 through 172S10374, 172S10376 through 172S10423, 172S10425 through 172S10426, 172S10428 through 172S10430, 172S10432 through 172S10444, 172S10446 through 172S10450, and 172S10452 through 172S10454.
(iii)182T 18281527 through 18281889, 18281892, 18281895, 18281897, 18281899, 18281901, and 18281904.
(iv)T182T T18208381 through T18208659, T18208661, T18208663 through T18208678, T18208680 through T18208686, T18208689, and T18208690.
(v)206H 20608231 through 20608285.
(vi)T206H T20608515 through T20608662, T20608664 through T20608697, T20608699 through T20608714, and T20608717. Unsafe Condition
(d)This AD is the result of four reports of loose fuel lines connected to the fuel servo or fuel flow transducer. Two reports were of in-flight engine failure on a Model T182T airplane. A third report was of in flight-engine failure on a Model 206H airplane. A fourth report was of a Model 172S airplane that lost engine power on final approach. We are issuing this AD to detect and correct potential loss of fuel flow, which may result in partial or complete loss of engine power and/or uncontrolled engine compartment fire due to fuel leakage forward of the firewall. Compliance
(e)To address this problem, you must do the following, unless already done: Table 2.—Actions, Compliance, and Procedures Actions Compliance Procedures
(1)*For all airplanes not equipped with the Garmin G1000 System:* Establish the correct torque values of the end fittings on each of the following hoses in the engine compartment:
(i)Fuel strainer to engine fuel pump.
(ii)Engine fuel pump to fuel injector servo (except T206H). Within the next 5 hours time-in-service
(TIS)after May 2, 2007 (the effective date of this AD). Follow Cessna Service Bulletin No. SB07-71-01, Revision 1, dated March 16, 2007; the procedures of the appendix to this AD; and the torque values from the table *Torque Values for Hose End Fittings* in the appendix to this AD.
(iii)T206H only: Engine fuel pump to the union at the aft vertical cooling baffle.
(iv)T206H only: Union at the aft vertical cooling baffle to the fuel injector servo.
(v)Fuel injector servo to fuel manifold valve (except turbo models).
(vi)Turbo models only: Fuel injector servo to fuel flow transducer.
(vii)Turbo models only: Fuel flow transducer to fuel manifold valve.
(viii)Fuel injector servo fuel return to firewall fitting.
(2)*For all airplanes equipped with the Garmin G1000 System:* Establish the correct torque values of the end fittings on each of the following hoses in the engine compartment:
(i)Fuel strainer to engine fuel pump.
(ii)Engine fuel pump to fuel injector servo (except T206H). Within the next 5 hours TIS after May 2, 2007 (the effective date of this AD). Follow Cessna Service Bulletin No. SB07-71-01, Revision 1, dated March 16, 2007; the procedures of the appendix to this AD; and the torque values from the table *Torque Values for Hose End Fittings* in the appendix to this AD.
(iii)T206H only: Engine fuel pump to the union at the aft vertical cooling baffle.
(iv)T206H only: Union at the aft vertical cooling baffle to the fuel injector servo.
(v)Fuel injector servo to fuel flow transducer.
(vi)Fuel flow transducer to fuel manifold valve.
(vii)Fuel injector servo fuel return to firewall fitting. Special Flight Permit
(f)Under 14 CFR 39.23, we are allowing special flight permits for the purpose of compliance with this AD under the following conditions: Only operate under day visual flight rules (VFR). Alternative Methods of Compliance (AMOCs)
(g)The Manager, Wichita Aircraft Certification Office (ACO), FAA, ATTN: Trenton Shepherd, Aerospace Engineer, Wichita ACO, 1801 Airport Road, Room 100, Wichita, Kansas 67209; telephone:
(316)946-4143; fax:
(316)946-4107, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector
(PI)in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.
(h)AMOCs approved for AD 2006-17-04 are not approved for this AD. Material Incorporated by Reference
(i)You must use Cessna Service Bulletin No. SB07-71-01, Revision 1, dated March 16, 2007, to do the actions required by this AD, unless the AD specifies otherwise.
(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.
(2)For service information identified in this AD, contact The Cessna Aircraft Company, Product Support, P.O. Box 7706, Wichita, Kansas 67277-7706; telephone:
(316)517-5800; facsimile:
(316)942-9006.
(3)You may review copies at the FAA, Central Region, Office of the Regional Counsel, 901 Locust, Kansas City, Missouri 64106; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.* Appendix to AD 2007-08-03—Inspection Instructions—Cessna Aircraft Company Models 172R, 172S, 182T, T182T, 206H, and T206H Airplanes 1. Remove upper and side cowlings to perform torque procedure. 2. Remove all signs of old torque putty or paint. 3. Using a suitable tool loosen the hose end fitting of each joint, while using a suitable tool to restrain the other end fitting of the joint to preclude rotation. 4. Using the applicable fitting torque from the table Torque Values for Hose End Fittings of this appendix to AD 2007-08-03, torque the hose end fitting to the proper torque, while using a suitable tool to restrain the other end fitting of the joint to preclude rotation. 5. After proper torque has been applied to the hose end fitting, apply the applicable torque paint or putty to the hose end fitting joint. 6. If during any torque procedure any of the non-hose end fittings rotate, stop the torque procedure. Totally disconnect the hose end joint and remove any fitting that has rotated. After the cleaning, visual examination, and/or replacement of the fitting and/or any seals or sealant, reinstall the fitting and torque it to the applicable requirement. Then reconnect the hose end fitting and repeat Step 4. of this appendix to AD 2007-08-03. 7. Use the table below *Torque Values for Hose End Fittings* for the correct torque values to tighten the hose end fittings as required in paragraphs (e)(1) and (e)(2) of this AD: Torque Values for Hose End Fittings Flare hex sizes in fractions of an inch Hose size Correct torque in inch-pounds Minimum Maximum 9/16 −4 135 150 11/16 −6 270 300 7/8 −8 450 500 Issued in Kansas City, Missouri, on April 5, 2007. Kim Smith, Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-6826 Filed 4-11-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA-2007-27110; Airspace Docket No. 07-AGL-1] Modification of Class E Airspace; Peru, IL AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Direct final rule; confirmation of effective date. SUMMARY: This document confirms the effective date of the direct final rule which revises Class E airspace at Peru, IL. EFFECTIVE DATE: 0901 UTC, May 10, 2007. FOR FURTHER INFORMATION CONTACT: Grant Nichols, System Support, DOT Regional Headquarters Building, Federal Aviation Administration, 901 Locust, Kansas City, MO 64106; telephone
(816)329-2522. SUPPLEMENTARY INFORMATION: The FAA published this direct final rule with a request for comments in the **Federal Register** on February 26, 2007 (72 FR 8266). The FAA uses the direct final rulemaking procedures for a non-controversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on May 10, 2007. No adverse comments were received, and thus this notice confirms that this direct final rule will become effective on that date. Issued in Forth Worth, Texas, on March 21, 2007. Ronnie L. Uhlenhaker, Manager, System Support Group, ATO Central Service Area. [FR Doc. 07-1803 Filed 4-11-07; 8:45 am]
Connectionstraces to 12
Traces to 12 documents
U.S. Code
9 references not yet in our index
- 13 CFR 120
- 5 USC 601-612
- Pub. L. 106-554
- 14 CFR 25
- 14 CFR 34
- 14 CFR 36
- 14 CFR 39
- 1 CFR 51
- 14 CFR 71
Citation graph
cites case law
Rules and Regulations
Final rule
Cite13 CFR 120
Cite5 USC 601-612
Pub. L.Pub. L. 106-554
Cites 21 · showing 12Cited by 0 across 0 sources