HB 354-AK CAPSTONE AVIONICS REVOLVING LOAN FUND  CHAIR P. WILSON announced that the first order of business would be HOUSE BILL NO. 354, "An Act relating to eligibility for loans from the Alaska capstone avionics revolving loan fund." 1:33:57 PM MATTHEW JOHNSON, Staff, Representative Wes Keller, Alaska State Legislature, paraphrased from the sponsor statement, which read as follows [original punctuation provided]: In 2008 the Alaska Legislature commissioned the Capstone Avionics Loan Program. It was designed to provide access to a new generation of avionics for Alaskan aircraft owners and operators. The impetus for the program was an FAA pilot program that confirmed the substantial value and effectiveness of the technology. The results of the pilot program revealed a 47 percent decrease in accident rates in the trial area, and the FAA estimates that full implementation will result in 33 percent fewer fatalities statewide. HB 354 is being proffered to amend existing statute in order to carry out the mission and original intent of the Capstone Avionics Program more effectively. As initially conceived, the program was intended to provide loans that would allow in-state operators and carriers to upgrade their avionics. However, there is an unforeseen gap in eligibility standards precluding significant portions of the target market from participation. Because the threshold for eligibility is predicated upon ownership of aircraft, an owner or carrier that chooses to lease its aircraft or fleet is deemed ineligible to access the program. This bill seeks to redress this deficiency by allowing for maximal participation. HB 354 is being offered only as an improvement to the Capstone Avionics Program because we believe it is in the interest of public safety, especially as it pertains to flights in and out of rural Alaska. MR. JOHNSON commented on the zero fiscal note attached to the bill. 1:37:17 PM CHAIR P. WILSON recalled that Capstone Avionics assist pilots by providing the next generation of technology to improve flight safety. MR. JOHNSON offered that the "Automatic Dependent Surveillance - Broadcast (ADS-B)" allows aircraft equipped with the avionics to interact with ground infrastructure and satellite stations to provide pilots their exact location, airspeed, rate of ascent and descent, surrounding terrain, other aircraft and real time weather, which is essential data needed for a safe flight. 1:38:53 PM GREG WINEGAR, Director, Division of Investments, Department of Commerce, Community, & Economic Development (DCCED), introduced himself. CATHY JEANS, System Branch Manager, Division of Investments, Department of Commerce, Community, & Economic Development (DCCED), introduced herself. 1:39:29 PM REPRESENTATIVE GRUENBERG referred to the sponsor statement and related his understanding that owners who lease their planes are excluded from participating in the Capstone Avionics Program. MR. WINEGAR explained that the lessee cannot obtain a state loan for the Capstone Avionics equipment. In further response to Representative Gruenberg, he clarified that the state can only make loans to owners from the Alaska Capstone Avionics Revolving Loan Fund. CHAIR P. WILSON explained that some companies buy aircraft for the purpose of leasing. The owners are not willing to purchase the Capstone Avionics equipment, but the lessees want the safety equipment installed in the planes. Thus, the lessees desire to participate in the Capstone Avionics Loan Program. 1:40:50 PM REPRESENTATIVE GRUENBERG asked whether any law currently would prevent an owner who leases a plane from qualifying for the loan. MR. WINEGAR clarified that the Division of Investments can make a loan to an owner, but HB 354 would allow lessees to also qualify for the Capstone Avionics loans. In further response to Representative Gruenberg, he agreed that owners are not willing to take out loans for the Capstone Avionics equipment for planes the owners lease out. 1:41:55 PM REPRESENTATIVE GRUENBERG asked whether the loans are collateralized by the planes. MR. WINEGAR agreed that the Capstone Avionics loans would require collateral, but the division might also need other collateral. REPRESENTATIVE GRUENBERG expressed his concern that if an owner refused to take out a loan he/she may also not allow the plane to be used as collateral. MR. WINEGAR agreed. He explained that unless the lessee has some way to collateralize the Capstone Avionics loan the division would not make the loan. This bill would provide the legal authority to make loans to lessee/operators. He provided a scenario in which a commercial carrier owned a hangar free and clear, but leased a plane from a company in Sweden. The company would offer the deed of trust on the hangar to secure the loan. In further response to Representative Gruenberg, he answered that he doubted that a long-term lease would be allowed. 1:43:15 PM REPRESENTATIVE GRUENBERG asked whether the lessee/operator would have the ability to collateralize. MR. WINEGAR stated he was unsure. He explained that some people expressed interest to do so and in those instances, the potential lessees/operators have the ability to collateralize. He was unsure whether all operators who may be interested in the Capstone Avionics loans have sufficient collateral to qualify for the loans. 1:43:57 PM REPRESENTATIVE GRUENBERG asked for the typical amount needed for Capstone Avionics loans. MR. WINEGAR answered that the average Capstone Avionics loan would be $87 thousand for commercial aircraft. He stated that general aviation loans are less expensive, typically ranging from $12,000-$18,000. 1:44:34 PM REPRESENTATIVE PETERSEN asked whether the loans ranging from $12,000 to $100,000 are to retrofit existing aircraft. MR. WINEGAR agreed that the typical loan would be to add Capstone Avionics to existing aircraft. REPRESENTATIVE PETERSEN asked whether new aircraft already are equipped with Capstone Avionics technology. MR. WINEGAR answered probably not. He said that the Capstone Avionics technology is relatively new technology currently being tested in Alaska. The technology will subsequently be used in the Lower 48 since the Federal Aviation Administration (FAA) is currently implementing Capstone Avionics infrastructure at airports. Additionally, the FAA is currently working on regulations that will likely allow for additional manufacturers. The proposed regulations are anticipated to be finalized in April 2010. Thus, as new manufacturers enter the market, the price of the Capstone Avionics technology should also go down. 1:46:10 PM REPRESENTATIVE PETERSEN inquired as to whether Alaska is testing this equipment since it is a rugged environment and if it works well in Alaska the prediction is that Capstone Avionics will work anywhere. MR. WINEGAR agreed. He related that testing Capstone Avionics technology was initiated about six years ago and was found to be "the way to go." Thus, the Capstone Avionics technology will be implemented throughout the country, he stated. 1:46:46 PM CHAIR P. WILSON asked whether the FAA will provide any funding. MR. WINEGAR answered yes. He stated that the FAA is providing a "huge amount of money" for the ground infrastructure. He characterized the FAA's involvement as a very large capital investment. The FAA has been working on portions of the state. He said the federal government has signaled that it would like Alaska to also invest. He related that it does not make a lot of sense to equip airports if the aircraft cannot take advantage of the Capstone Avionics technology. He offered that Southeast Alaska and the Anchorage-Fairbanks corridor are now completed and the FAA has a plan in place for the remainder of the state. 1:48:23 PM MR. WINEGAR, in response to Representative Munoz, reported that the Alaska Capstone Avionics Revolving Loan Fund started out at $4.8 million and current fund balance is $4.3 million. In further response to Representative Munoz, he related that the $4.3 million balance represents the state funds in the Alaska Capstone Avionics Revolving Loan Fund. The funding for airport infrastructure will be all FAA funds. He recalled that the federal contribution would be in the $50 to $100 million range to cover Alaska. 1:49:26 PM REPRESENTATIVE JOHNSON asked whether the Capstone Avionics loan would cover the installation of the Capstone Avionics technology in aircraft. MR. WINEGAR answered yes. He noted that certified installers must install the Capstone Avionics, but the costs of installation can be part of the loan. REPRESENTATIVE JOHNSON related his understanding that the installation could not be collateralized so the lessee/operator must provide additional collateral. MR. WINEGAR agreed. 1:50:07 PM REPRESENTATIVE GRUENBERG referred to page 1, lines 8-10, of HB 354. He opined the definition for applicant is vastly superior to the general definition contained in Title 1. He offered, for the benefit of members serving on other committees, that he thought this definition should be used as the model for other statutory definitions for a person. 1:51:23 PM CHAIR P. WILSON reported that no public member wishes to testify during public testimony. REPRESENTATIVE JOHNSON remarked he has been familiar with the Capstone Avionics program since its inception. He offered his belief that Alaska is in the forefront on this issue. He professed that he is proud the state is encouraging Capstone Avionics installations in aircraft. He predicted that the sooner airplanes are equipped with Capstone Avionics, the sooner lives will be saved. He said, "I wholeheartedly encourage the passage of this legislation." REPRESENTATIVE JOHNSON moved to report HB 354 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 354 was reported from the House Transportation Standing Committee. 1:52:46 PM The committee took an at-ease from 1:52 p.m. to 1:53 p.m. 1:53:28 PM