APPLICATION OF BENEFIT- COST ANALYSIS DURING THE FUEL TANK FLAMMABILITY REDUCTION RULEMAKING PROCESS Presented to the Society for Benefit-Cost Analysis Allen Mattes, FAA Office of Aviation Policy and Plans February 21, 2013
NEED FOR RULEMAKING July 17, 1996, TWA Flight 800 (B-747-100) explosion over Long Island Sound 230 fatalities, no survivors Cause: An explosion in the fuel tank located in the main body of the airplane the Center Wing Fuel Tank (CWFT) Two factors necessary for fuel tank explosion 1. Explosive atmosphere: Addressed by a joint industry/faa committee 2. Ignition source: Addressed by FAA 2
Aviation Rulemaking Advisory Committee (ARAC) Formed to address the issue of reducing or mitigating the explosive atmosphere Aviation fuel is kerosene FAA chooses an ARAC to take advantage of industry technological expertise Established the Fuel Tank Harmonization Working Group (FTHWG) 60 industry representatives (ALPA, Airlines, Manufacturers, Airports, API, FAA) Chartered January 23, 1998; 6 months to write report FTHWG FINDINGS TWA Flight 800 Explosion similar to a May 11, 1990 Philippine Airlines B-737-300 Explosion on the ground in Manila; 8 fatalities, 30 injuries, 82 unharmed CWFT faces increased risk when the air conditioning units are placed adjacent to it making it a Heated CWFT or HCWFT Only Boeing and Airbus airplanes have HCWFTs Estimated that the probable risk of explosion was an explosion every 60 million Boeing and Airbus flight hours (One every 6 years) 3
FTHWG Report Performed a technological and benefit-cost evaluation of the following options to reduce risk of explosion 1. Explosion Suppression 2. Fuel Tank Inerting 3. Foam 4. Aviation Fuel Vapor Reduction (Fuel Cooling) 5. Changing Aviation Fuel Properties (Including Effects on Infrastructure) Most options technologically infeasible None cost less than $2.5 Billion (10 Years) One Half million dollars per airplane on up Recommended further study on fuel tank inerting 4
SECOND ARAC WORKING GROUP ARAC established the Fuel Tank Inerting Harmonization Working Group (FTIHWG) Chartered December 1999; 30 members; 6 months to write report Evaluated Technological Feasibility and Cost-Benefit Analysis Inert HCWFT defined as one that has a maximum level of 10 percent Oxygen Risk of explosion re-evaluated to one explosion every 100 million Boeing and Airbus flight hours (one every 10 years) 6 Different Inerting systems evaluated No system passed the cost-benefit test On-board Inert Gas Generating System most promising but would still cost about $2 Billion Problem is generating enough Nitrogen. All gas generating designs required a large compressor weighing between 250 and 1,000 pounds to get to 10 percent Oxygen level in fuel tank FTIHWG did recommend that all future type certificated transport category airplanes be designed to minimize fuel tank flammability exposure FAA adopted FTIHWG recommendation on May 7, 2001 5
POST FTIHWG FUEL TANK EXPLOSION Thai Airlines Boeing 737-700 exploded on the ground in Bangkok on March 23, 2001; 1 fatality Of the 3 fuel tank explosions, 1 occurred in-flight and 2 occurred on-the-ground 6
FAA ADDRESSES FUEL TANK IGNITION SOURCES Parallel to the fuel tank flammability ARACs, the FAA developed a rule to minimize the potential for an ignition source in the fuel tank FAA used normal notice and comment procedures for this rule FAA published an NPRM Special Regulation (SFAR) 88 on October 26, 1999 FAA published the final SFAR 88 on May 7, 2001 Engineering analysis of all (not just heated) CWTs for potential ignition sources within 2 years Maintenance program changes to include physical inspection within 3 years Inspections to begin 2 years after manual changes Present Value estimated cost of rule was $170 Million (10 Years) Did not quantify a benefit Average prevented in-flight explosion worth about $400 million If one such accident prevented by 2013, SFAR 88 would be cost-beneficial 7
NITROGEN INERTING POTENTIALLY COST BENEFICIAL Early in 2002, the FAA Technical Center in N.J. determined that an Oxygen level of 12 percent would be sufficiently safe to inert a HCWFT Eliminates the need for a compressor Bleed air volume can generate sufficient Nitrogen to inert HCWT May 2002, FAA developed an on-board Nitrogen Gas Generating System Prototype using an air filtering membrane and shared the prototype with the aviation industry In preparation for a proposed rule, FAA forms an FAA-industry group to estimate the potential costs to install Nitrogen inerting systems on production airplanes and on existing airplanes 8
NOTICE OF PROPOSED RULEMAKING (NPRM) FAA develops a proposed rule to require Boeing and Airbus airplanes to have systems that reduce the flammability of HCWFTs : Note, the NPRM was a performance rule that did not require nitrogen inerting Proposed Compliance Time Production passenger airplanes: 2 years Existing passenger airplanes: 7 years after design approvals ANALYSIS ASSUMPTIONS Time of analysis is 35 years (10 years to retrofit fleet and 25 years for fleet to retire) Accident every 60 million flight hours Boeing and Airbus airplanes with HCWTs have an equal probability of an explosion SFAR effectiveness rate is 50 percent Based on an engineering analysis, 92 percent of the time a HCWT is flammable, it is in-flight Value of a statistical life is $3 Million Did not include in the benefits any potential adverse market demand or government reaction to an in-flight explosion 9
BENEFITS ESTIMATION METHODOLOGY (I) Based on previous 3 years for each airplane model Calculated average number of seats, average load factor, and average number of crew Estimated other ancillary benefits from preventing an explosion (value of airplane, costs of investigation, etc.) Average benefit from preventing an explosion In-Flight On the ground Forecasted numbers of each airplane model in every year for a 35 year time period Projected future production, future retirements, and number of airplanes retrofitted Calculated number of total future flight hours by year Production Passenger Airplanes Retrofitted Passenger Airplanes Production Cargo Airplanes Retrofitted Cargo Airplanes 10
BENEFITS ESTIMATION METHODOLOGY (II) Applied risk of an explosion to each model s total flight hours Obtained total number of projected accidents (8) Calculated benefits based on the average accident value weighted by number of flight hours Reduced number by 50% due to SFAR 88 effectiveness rate 11
INDIVIDUAL AIRPLANE COSTS Cost of Kit: $100,000 - $175,000 Production Airplane Cost: $90,000 - $145,000 Retrofitted Airplane Cost: D Check: $140,000 - $225,000 Dedicated Session: $180,000 - $275,000 Increased Annual Fuel Cost ($1 a gallon): $1,500 - $5,350 Increased Annual Maintenance Cost: $2,250 - $3,000 Replace Air Separation Module (ASM) Every 8 Years: $5,250 - $30,000 12
PROPOSED RULE COST-BENEFIT RESULTS Present Value of Benefits (35 Years) Production Passenger Airplanes: $182 Million Retrofitted Passenger Airplanes: $313 Million Total Passenger Airplanes: $495 Million Cargo Airplanes: <$0.1 Million Present Value of Costs (35 Years) Production Passenger Airplanes: $278 Million Retrofitted Passenger Airplanes: $530 Million Total Passenger Airplanes: $808 Million Cargo Airplanes: $111 Million Total Cost of NPRM $919 Million Benefit/Cost Ratio Production Passenger Airplanes: 0.65 Retrofitted Passenger Airplanes: 0.59 Total Passenger Airplanes: 0.61 Cargo Airplanes 0.001 Benefit/Cost Ratio for NPRM 0.54 13
DOT Issues DOT and OST Review Proposed Rule was not cost-beneficial Did not want FAA to reference the possibility that an inflight fuel tank explosion could be mistaken for a terrorist attack with resultant impact on the airspace OMB Issues Proposed rule was especially not cost-beneficial for cargo They took the potential faux terrorist implication into consideration Published in Federal Register on November 28, 2005 14
COMMENTS TO NPRM REG EVAL Retrofit should be completed in: 4 years (NTSB and Victim s Families 10 years (ATA) Accident Rate should be 1 every 160 million flight hours (480 million flight hours/3 accidents = 160 million flight hours) Airbus has never had an accident SFAR effectiveness rate should be 75 percent Cost of kit is $250,000 - $500,000 Aviation Fuel costs more than $1 per gallon 15
FAA RESPONSES TO COMMENTS Maintained 7 years to retrofit after design approval Engineering analysis supported an accident every 100 million flight hours Airbus has same basic CWFT design as Boeing Sandia Laboratories reviewed the analysis and concluded that SFAR 88 effectiveness was probably between 25 percent and 75 percent We used a 50 percent SFAR 88 effectiveness rate but performed a sensitivity analysis also using a 25 percent rate and a 75 percent rate Shaw Aerospace/United/Air Liquide kit was developed with kit costs of $75,000 - $175,000 Aviation fuel cost per gallon: $2 16
FINAL RULE BENEFITS Final Rule published on July 21, 2008 Projected Number of Future Explosions: 3.6 Number of Future Prevented Explosions: 1.5 Value of a statistical life: $5.5 Million Value of the resultant decline in air travel due to perceptions of safety hazard: $290 Million Potential cost to the aviation industry and traveling public if explosion seen as a terrorist act and the airspace is restricted for one day: $1.5 billion This analysis is incorporated in an Appendix and not an official part of the analysis 17
FINAL RULE COSTS INDIVIDUAL AIRPLANE COSTS Cost of Kit: $75,000 - $175,000 Production Airplane Cost: $100,000 - $210,000 Retrofitted Airplane Cost: D Check: $100,000 - $225,000 Dedicated Session: $140,000 - $290,000 Increased Annual Fuel Cost ($2 a gallon): $6,000 - $13,000 Increased Annual Maintenance Cost: $3,250 - $5,150 Replace Air Separation Module (ASM) Every 8 Years: $30,000 - $150,000 18
FINAL RULE COST-BENEFIT RESULTS Present Value of Benefits (35 Years) Production Passenger Airplanes: $271 Million Retrofitted Passenger Airplanes: $386 Million Total Passenger Airplanes: $657 Million Production Cargo Airplanes: <$0.1 Million Present Value of Costs (35 Years) Production Passenger Airplanes: $537 Million Retrofitted Passenger Airplanes: $438 Million Total Passenger Airplanes: $975 Million Production Cargo Airplanes: $ 37 Million Total Cost of Final Rule $1.012 Billion Benefit/Cost Ratio Production Passenger Airplanes: 0.72 Retrofitted Passenger Airplanes: 0 62 Total Passenger Airplanes: 0.67 Production Cargo Airplanes: 0.003 Benefit/Cost Ratio of Final Rule 0.65 19
POSTMORTEM Cargo airplanes not required to retrofit based on benefit-cost analysis Even though the final rule was not costbeneficial on its face, OMB let it be published The FAA underestimated the kit costs by about 50 percent largely due to the merger between the two kit suppliers There have been no fuel tank explosions since 2001 20