1. 1 Report of the Controller and Auditor-General Civil Aviation Authority: Certification and Surveillance Functions CAA Progress Report To Select Committee on Transport & Industrial Relations 25 May 2006

2. 2 Background The Auditor-General’s Report completed in June 2005. The Auditor-General’s Report completed in June 2005. Follows two previous reports completed in 1997 and 2000. Follows two previous reports completed in 1997 and 2000. The relationship between the Office of the Auditor-General and the CAA can be described as open, cooperative and cordial. The relationship between the Office of the Auditor-General and the CAA can be described as open, cooperative and cordial.

3. 3 Audit Timeline 1 st meeting with the CAA Executive November 2003. 1 st meeting with the CAA Executive November 2003. Audit proper commenced December 2003. Audit proper commenced December 2003. 1 st draft report received November 2004. 1 st draft report received November 2004. CAA provided list of proposed remedial actions January 2005. CAA provided list of proposed remedial actions January 2005. 2 nd draft report received March 2005. 2 nd draft report received March 2005. Updated list of proposed CAA remedial actions provided April 2005. Updated list of proposed CAA remedial actions provided April 2005. Final Report 17 June 2005 and tabled on 21 June 2005. Final Report 17 June 2005 and tabled on 21 June 2005.

4. 4 Audit Findings This report covers two of the CAA’s core regulatory functions: This report covers two of the CAA’s core regulatory functions:  Certification  Surveillance Some areas of improvement noted from 1997 and 2000, but some persistent areas of concern as well, particularly with respect to client risk analysis. Some areas of improvement noted from 1997 and 2000, but some persistent areas of concern as well, particularly with respect to client risk analysis. Six key findings and 10 recommendations have been made in the report. Six key findings and 10 recommendations have been made in the report.

5. 5 Notes to Findings A significant proportion of the findings had been noted by CAA internal audit enabling a rectification plan to be quickly drawn up against the Auditor-General’s recommendations. A significant proportion of the findings had been noted by CAA internal audit enabling a rectification plan to be quickly drawn up against the Auditor-General’s recommendations. At the time of the 1997 and 2000 audits a mature risk analysis system simply did not exist. Even now, the systems developed by the CAA are just reaching a useful level of maturity. At the time of the 1997 and 2000 audits a mature risk analysis system simply did not exist. Even now, the systems developed by the CAA are just reaching a useful level of maturity.

6. 6 Key Findings 1 Certification of clients in the Airline sector is generally sound, but needs to be more rigorous in the General Aviation sector. Significant concerns with the surveillance function noted in 1997, 2000 and this Report, includes the following:   Risk analysis and risk assessment processes need to be more effective.   Risk analysis needs to “feed through” to the surveillance process.   High risk clients need to be appropriately targeted in the terms of both audit depth and frequency. During audits, Finding Notices are not always raised for non- compliances or non-conformances, and closure of Findings by auditors is not always timely.

7. 7 Key Findings 2 CAA Inspectors have not logged all their hours worked on surveillance duties. This affects the resourcing of the CAA and the accuracy of the risk assessment systems. Because of financial pressure, resource demands and the high cost of specialised technical training, only essential training of CAA staff has been carried out over the last three years. While CAA internal audits had raised many of the issues noted in the Report, the operational Groups did not always “buy in” to the internal auditors recommendations. Issues raised by internal audit included the following:   Raising Finding Notices where appropriate   Consistency in certification and surveillance activities between operational Groups   Operational Group resourcing   Logging all time spent on surveillance activities

8. 8 Recommendation Actions The 10 Recommendations made by the Auditor-General have resulted in 29 action items for the CAA. The 10 Recommendations made by the Auditor-General have resulted in 29 action items for the CAA. 10 action items are complete or are now absorbed into CAA’s day-to-day operational business processes. 10 action items are complete or are now absorbed into CAA’s day-to-day operational business processes. The remaining action items have been absorbed into major projects that address the aspects of the CAA’s core business. The remaining action items have been absorbed into major projects that address the aspects of the CAA’s core business.

9. 9 CAA Response to Recommendations The CAA has approached the Auditor-General’s recommendations in the context of its life cycle approach to regulating the aviation industry. “Life Cycle” approach where Civil Aviation Rules = Safety Boundary ENTRY CONTROL (CERTIFICATION) CONTINUED OPERATION CORRECTIVE ACTIONS CONFIDENCE SURVEILLANCE SUPPORT TO MAINTAIN GOOD RELATIONS RULES FOR EXIT CONTROL Ê

10. 10 Projects The CAA has commenced three major projects as follows: The CAA has commenced three major projects as follows:  Certification Review  Surveillance Review  Risk Assessment and Intervention These projects address CAA core regulatory functions that have not changed substantially since 1995. These projects address CAA core regulatory functions that have not changed substantially since 1995.

11. 11 Project Timelines Surveillance Review Project: User test June – mid August User test June – mid August Training June - November Training June - November Technical full functionality mid December Technical full functionality mid December Operational full functionality November – mid January Operational full functionality November – mid January

12. 12 Project Timelines Certification Review Project Manual functionality November – December Manual functionality November – December Automated functionality mid 2007 Automated functionality mid 2007 Risk Assessment & Intervention Project Complete early August Complete early August

13. 13 Improvement in Industry Safety Performance Since the re-organisation in 2000 the CAA has put major effort into building relationships with the industry and increasing the safety performance overall. Since the re-organisation in 2000 the CAA has put major effort into building relationships with the industry and increasing the safety performance overall. The results of these efforts by both the CAA and the industry are only now becoming apparent. The results of these efforts by both the CAA and the industry are only now becoming apparent.

14. 14 Reduction in Annual Accident Rate YearAccidents Hours Flown Accidents/ 100,000 hrs 200369465,27614.76 200459474,24312.37 200552487,04410.68 200650492,62410.22

15. 15 This is a 30.77% reduction in the General Aviation accident rate in period 2003 - 2006

16. 16 Accident Rates v Social Cost Using accident rates can be misleading Using accident rates can be misleading  Consequence of accidents can be very different This can be demonstrated by looking at previous information in terms of social cost This can be demonstrated by looking at previous information in terms of social cost

17. 17 Social Cost of GA Accidents Year Social Cost 2003 44.30M $44.30M 2004$45.10M 2005$38.60M 2006$35.43M

18. 18 In terms of Social Cost, General Aviation accidents have reduced by 20.02% in the period 2003 - 2006

19. 19 Safety Targets for 2010 Safety targets have been set in terms of social cost/unit of exposure - $ per seat hour Safety targets have been set in terms of social cost/unit of exposure - $ per seat hour 13 safety outcome target groups redefined to range from: $0.10 per seat hour $20.00 per seat hour 13 safety outcome target groups redefined to range from: Airline Operations – Large Aeroplanes $0.10 per seat hour Private Operations – Sport $20.00 per seat hour

20. 20 Safety Outcome Targets 2010 Target Group Target Set-up Est 1 Jul 05 1 Apr 06 Airlines – Large aeroplanes $0.10$0.13$0.03$0.03 Airlines – Medium aeroplanes $0.10$0.13$0.04 Airlines – Small aeroplanes $6.50$65.18$85.91$0.00 Airlines – Helicopters $6.50$55.46$0.00 Sport Transport $13.00$113.21$11.00 Commercial Ops Aeroplanes $6.50$6.44$21.31$21.41 Commercial Helicopters $6.50$36.76$0.07$1.87 Ag Ops Aeroplanes $14.00$141.90$109.05$338.53 Ag Ops Helicopters $14.00$85.44$18.45$0.00 Ag Ops Sport Aircraft $28.00$0.00 Private Ops – Aeroplanes $10.00$115.51$0.22$48.99 Private Ops – Helicopters $10.00$98.31$454.22 Private Ops – Sport $10.00$174.06$137.27$30.45

21. 21 Agricultural Operations - Aeroplane

22. 22 Agricultural Operations - Helicopter

23. 23 Private Operations - Helicopter

24. 24 Conclusion The CAA intends to maintain its current momentum on improving industry safety performance while introducing better, more efficient and effective operational systems and processes. The CAA intends to maintain its current momentum on improving industry safety performance while introducing better, more efficient and effective operational systems and processes. The CAA Vision: The CAA Vision: “New Zealand aviation free from safety and security failure and contributing to an integrated, responsive and sustainable transport system.”