Impact Of Counterfeit Parts Within Aviation

Published Date: 02 Nov 2017

Abstract

As DOD weapon systems age, parts required to support it may no longer be available from the original manufacturers or through franchised or authorized suppliers but could be available from independent distributors, brokers, or aftermarket manufacturers (Martin, 2010). In other words because our aircraft are getting older, parts being purchased from the original source is either very scarce or are no longer available. When obsolete replacement parts are needed, unfortunately counterfeiters see opportunities (Stradley & Karraker, 2006). The proposed study highlights the need to collect qualitative and/or quantitative data, and bring to light, a dangerous global problem within the aviation community where customers are knowingly or unknowingly purchasing counterfeit parts. Every year, with the help of the industry, FAA finds "suspected unapproved parts" in the supply chain (Clark, 2009). Because crashes frequently destroy the parts that fail, it is hard to know the exact number of counterfeit parts that escape without being noticed (Clark, 2009). For the purpose of this paper, the term "counterfeit" can be defined as materiel whose identity has been deliberately altered, misrepresented, or falsified, including but not limited to, any type of materiel that consists of: a) a substitute or unauthorized copy of a valid product from an original manufacturer; b) a product in which the materials used or the performance of the product has been changed without notice by a person other than the original manufacturer of the product. Researching and utilizing well documented data from past and ongoing studies is the starting place in directing the need for increased monitoring, surveillance, and detection of counterfeit parts within the aviation environment.

Keywords: Counterfeiting, Supply Chain, Government Accountability Office

Mitigating Counterfeit Risks

Objective

Examine aviation and industry’s responsibility in mitigating risks of counterfeit parts entering into their supply chain systems. This paper will present potential solutions, requiring both industry and the government to unite to combat the constant growing "counterfeit" problem. Because this problem exists across the various supply chains, defined roles must be established and understood within both the aviation and industry environment. The "counterfeit" plight will not be resolved if everyone within the supply chain is not involved. In addition, unless a universal definition of the term "counterfeit" part is developed the reliability and usefulness of data and any reports will be limited. Vigorous control plans need to be implemented, utilized, with accountability enforced, to aid in the mitigation processes of this rapidly growing dilemma.

Scope

Counterfeiting is a direct threat to aviation and the global supply chain. Once the supply chain has been exposed to counterfeit parts, no industry or company is immune. Investigators from the Government Accountability Office working to understand the scope of DOD's vulnerability to counterfeit parts, have identified problems with microprocessors used in F-15 flight control computers, oscillators used for Global Positioning System navigation on more than 4,000 Air Force and Navy systems, and substandard titanium used in F-15 engine mounts and F-22 and C-17 parts (Sherman, 2010). When dealing with counterfeit items, keep in mind, it is a crime to knowingly provide something that is misrepresented as something it is not. Currently the problem still exist with organizations trying to determine the scope and magnitude of the counterfeit problem and more importantly, determine how it affects or can affect them. In reality, counterfeiting is an ongoing global epidemic.

Methodology

Correlation coefficients can either be positive or negative, with the strength ranging from -1.00 to +1.00. Because both positive and negative correlations are represented by scatter grams, results will be review and utilize from documented case studies, past surveys, DOD/GAO investigative studies, local base findings and government contractors’ studies from scholarly resources for this project. Factors that will also be addressed are the magnitude/strength of the relationship of variables (cost and the part(s) being counterfeited). The project will utilize quantitative research methodology coupled with a thorough review of available literature and existing studies that fall within the project’s scope. Analysis will also compare and contrast existing knowledge of organizational learning and strategies within a local DOD program office. Researchers compute correlation coefficients when they want to know how two variables are related to each other. A positive correlation indicates that the values on two variables being analyzed move in the same direction (Urban, 2010). For the Pearson product-moment correlation, both of the variables must be measured on an interval or ratio scale, known as continuous variables (Urban, 2010).

Program Outcomes

Program Outcome one: Fundamentals of Air Transportation. Students will be able to apply the fundamentals of air transportation as part of a global, multimodal transportation system, including the technology, social, environmental, and political aspects of the system to examine, compare, analyze, and recommend conclusions.

The International Multimodal Transport Association defines multimodal transportation as "the chain that interconnects different links or modes of transport – air, sea, and land – into one complete process that ensures an efficient and cost-effective door-to-door movement of goods under the responsibility of a single transport operator, known as a Multimodal Transport Operator (MTO), on one transport document". Retrieved from: www.maritimegateway.com/mgw/index.php?option=com_content&...

In an era of Globalization the distance between origin or source materials and consumer is increasing thanks to the development of multimodal transport. But with the integration of the various transportation modes there is a requirement for a systems approach for execution with a higher degree of skill, as well as a broader knowledge of the transportation and supply chain processes that includes a control plan for the prevention, detection, reporting and disposing of counterfeit parts.

The technological aspect will address the impact of counterfeit parts on aviation’s highly

technical environment and evaluate prevention roles performed. Weapon systems deployed by the military are precise with sophisticated technologies and components designed to function as an entity (whole unit) in achieving strategic advantage during war. Substitution of any of these components for a part that has different origins than the original part requires thorough testing and evaluation to ensure that the subsystem, and ultimately the system, will perform as precisely as or better than expected. Infrequently, defective or deficient parts are unintentionally incorporated into a subsystem, which can lead to the accelerated maintenance requirement of the system, and thereby decrease availability and readiness. Retrieved from: http://wstiac.alionscience.com/quarterly

Aircraft manufactures are incorporating radio frequency identification devices (RFIDs) within aviation parts as a means of protecting technology against sophisticated attacks by professional counterfeiters.

The social aspect will address examining public opinion of aviation’s role in mitigating

risks of counterfeit parts entering into its supply chain. As markets become more global and competition intensifies, firms are beginning to realize that competition is not exclusively a firm versus firm domain but a supply chain against supply chain phenomenon (Coltman, Gadh & Michael, 2008). Visibility across operational activities—from demand forecasting, to the sourcing of raw materials, through to manufacture and dispatch—is critical to supply chain competition (Coltman, Gadh & Michael, 2008).

The environmental aspect will be addressed by understanding how aviation

maintainers’ duties affect the environment in a repair and service environment in the U.S. and/or a foreign country. An increasing number of counterfeit parts are entering the supply chain, putting quality, brand reputation and sales revenue in jeopardy, as well as creating risks to health and safety. The electronics supply chain is still tackling with how to mitigate the peril of counterfeits. However, many companies in the sector already are putting in place

effective programs aimed at reducing, if not eliminating, the counterfeit risk.

The political aspect will address the need for greater collaboration both within industry and the government to understand the scope of DOD's vulnerability to counterfeit parts entering aviation’s supply chain system. Though it is known counterfeit parts enter aviation’s supply chain, the time and place of their entry is unpredictable. The first step to control the problem is to create a plan. Industry and government agencies worldwide need to cooperate and create radical programs to address this very serious issue. Together, an industry united with global cooperation and government assistance can make a difference and help mitigate the counterfeit parts problem. Retrieved from http://www.aia-aerospace.org/assets/counterfeit-web11.pdf2010

Program outcome two: Fundamentals of Statistics Analysis in Aviation and Aerospace: The student will be able to identify and apply appropriate statistical analysis, to include techniques in data collection, review, critique, interpretation, and inference in the aviation and aerospace industry.

The data collection will be addressed by the collection of reliable quantitative data on the design, operation, and maintenance of systems to detect and avoid counterfeit parts from entering into the supply chain(s).

The review aspect will be address by relating the difference between statistics and then appropriately apply the data to analyze a wide range of aviation applications

The critique aspect will be addressed by presenting statistical findings in appropriate formats obtained from within technical data/information, scholarly studies and reports

The interpretation aspect will be addressed by the use of descriptive statistics within an acceptable context as they relate to aviation Data gathering obtained from past and ongoing DOD/GAO studies, reports, findings, and surveys, which contain two fundamental characteristics of correlation coefficients known as continuous variables will be presented in this project. Correlation coefficients such as the Pearson are very powerful statistics (Leedy & Ormond, 2010). They allow us to determine whether on the average the values on one variable are associated with the values on the second variable. When researchers calculate correlation coefficients they often want to know whether a correlation found in sample data represents the existence of a relationship between two variables in the population from which the sample was selected. In other words they want to test whether the correlation coefficient is statistically significant. To test whether a correlation coefficient is statistically significant the researcher begins with the null hypothesis that there is absolutely no relationship between the two variables in the population, or that the correlation coefficient in the population equals zero. The alternative hypothesis is in fact, a statistical relationship between the two variables in the population and that the population correlation coefficient is not equal to zero. So what will be tested is whether the correlation coefficient is statistically significantly different from 0 (Urban, 2010).

Program outcome three: Fundamentals of Human Factors in Aviation and Aerospace. The student will be able – across all subjects – to use the fundamentals of human factors in all aspects of the aviation and aerospace industry, including unsafe acts, attitudes, errors, human behavior, and human limitations as they relate to the aviator’s adaptation to the aviation environment to reach conclusions.

The unsafe acts aspects will be addressed by analyzing documented circumstances with the involvement of counterfeit parts contributing aviation accidents. On March 28, 2009, inside the Air Force highlighted the problem, reporting an "unknown number of counterfeit aircraft parts are being fastened into U.S. military weapon systems after infiltrating supply depots, posing new safety risks and potentially driving up maintenance bills by hundreds of millions of dollars annually." Retrieved from http://search.proquest.com.ezproxy.libproxy.db.erau.edu/docview/968892745?accountid=27203

The attitudes aspects will address industry and aviation’s decision making and its impact on mental workload, stress level, and situational awareness due to obsolescence or diminishing parts. When aviation parts are no longer available this leads to Diminishing Manufacturing Sources and Material Shortages (DMSMS) as well as obsolescence. So where does the maintainer go to obtain parts they need? To better understand how counterfeit items enter the

DOD supply chain, there is the need to know who the suppliers are and their roles. Think of DOD suppliers by levels, with Level 1 suppliers being the most trustworthy and Level 3 suppliers being the most risky. Government and industry, as well as indi­vidual companies, have responded to the rising threats posed by counterfeits. The Government Industry Data Exchange Program (GIDEP), for example, provides a Web-based system for sharing information on counterfeits parts. Users of the system can submit information about suspected counterfeit parts, and this information is then shared through a database.

The human behavior aspect will be address the importance of communicating, the key to successful counterfeit risk mitigation within the aviation environment. There is the need to emphasize, communication is key to a successful counterfeits risk mitigation progress. The mitigation process also entails influencing the customer as part of the redesign process. Educate them on obsolescence issues as early as possible and discuss how to avoid using the independent market as an alternative solution.

The human limitations aspects will be addressed by evaluating the effects of information retention and working conditions. Reporting of counterfeits is crucial to aerospace and defense companies and government entities as it allows them to search their inventory for possible receipt of the suspected counterfeit part. However companies may not always report outside their organization for a variety of reasons.

Program outcome four: Fundamentals of Research and Solving Problems. The student will be able to develop and/or apply current aviation and industry-related research methods, including problem identification, hypothesis formulation, and interpretation of findings to present as solutions in the investigation of an aviation/aerospace related topic, in particular to solve problems from real life case examples.

The Research Methods aspect will be addressed using quantitative and descriptive statistics that provide data analysis to support the stated hypothesis:

H1 There is a correlation between the cost of the part and the likelihood that it will be counterfeited.

H0 There is no correlation between the cost of the part and likelihood that it will be counterfeited.

The Problem Identification aspect will be addressed by posing the research question, is there a correlation between the cost of a part and the likelihood that it will be counterfeited?

The Hypothesis Formation aspect will be addressed from the perception coupled with past data and studies the effects of cost on determining whether a part will be counterfeited

The Interpretation of Findings aspect will be interpreted by utilizing the "Pearson" correlation coefficients to determine both the direction and the strength of the relationship between variables.

Program outcome seven: Aviation Aerospace Management: The student will investigate, compare, contrast, analyze and form conclusions to current aviation, aerospace, and industry related topics in management, including aircraft maintenance, industrial safety, production and procurement, international policy, research and development, logistics, airport operations, and airline operations.

The Management aspect will be addressed by exploring current management philosophies, policies, and procedures in mitigating the risks of counterfeit parts within the supply chain system

The Aircraft Maintenance aspect will be addressed by exploring the current and future role of industry and aviation operations in the handling of the counterfeiting problem

The Industrial Safety aspect will be addressed by exploring aircraft related accident reduction programs using safety and risk assessment approaches

The Production and Procurement will be addressed by examining anti-counterfeit approaches employed by both industry and aviation. Both aviation and industry must be diligent in ensuring that all components and subsystems perform as designed

The International policy aspect will be addressed by examining the problems and findings of drawing from a large network of global suppliers and what initiatives are being placed in the detection of counterfeiting

The Research and Development aspect will be addressed by providing advance concepts, inspection and testing methods to fight the counterfeiting war

The Logistics Aspect will be addressed exploring the integrated logistics framework in the movement of goods and services, supplier visibility, detection, reporting and deposal of counterfeit parts

The Airport Operations aspect will be addressed internal control and security measures such as examining markings in distinguishing genuine from counterfeit packaging in the identification of counterfeit products

The Airline Operations aspects will be addressed examining the ever changing airport requirements that have evolved/are evolving since the attacks of September 11, 2001 and compare those current challenges with proposed counterfeit detection methods

References

(March 2011), A Special Report Counterfeit Parts: Increasing Awareness and Developing Countermeasures

Retrieved November 28, 2011 from, http://www.aia-aerospace.org/assets/counterfeit- web11.pdf2010 Aerospace Industries Association of America, Inc.

Coltman, T., Gadh, R., & Michael, K. (Apr 2008). RFID and supply chain management:

Introduction to the special issue. Journal of Theoretical and Applied Electronic

Commerce Research, 3(1), III-IV,V,VI. doi:210857111

Kevin McLean. (2011). Counterfeiting's real costs. Electrical Wholesaling, 92(5), 42-n/a.

Retrieved from

http://search.proquest.com.ezproxy.libproxy.db.erau.edu/docview/867306370?accountid=

27203

Leedy, P. &. O.,J. (2013). In Jeffery W. Johnson (Ed.), Practical research (10th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.

Mitigating the risk of counterfeit parts. The WSTIAC Quarterly, Volume 10, Number 1

Retrieved from: http://wstiac.alionscience.com/quarterly

Sherman, J., (2010). GAO: Pentagon supply chain lacks safeguards against counterfeit

parts Inside the Pentagon, 26(18), n/a. Retrieved from http://search.proquest.com.ezproxy.libproxy.db.erau.edu/docview/1010762207?accountid

=27203

Stradley, J., & Karraker, D. (2006). The electronic part supply chain and risks of counterfeit

parts in defense applications. Components and Packaging Technologies, IEEE

Transactions on, 29(3), 703-705.

UNESCAP Training Module: Multimodal Transport Operations

Retrieved from: Module%20-Multimodal%20Transport%20Operations

Urban, T. (2010). Statistics in plain english (Third ed.). New York, NY: Taylor and Francis

Group, LLC.

Impact of Counterfeit Parts within Aviation

Latisha C. Falana

Embry-Riddle Aeronautical University – Worldwide

ASCI 691 Graduate Capstone

Submitted to the Worldwide Campus

In Partial Fulfillment of the Requirements of the Degree of

Masters of Aeronautical Science

March 3 2013

Abstract

Despite how counterfeit parts (whether electronic, mechanical or other) enter the aviation and aerospace supply chain they put at risk in the performance, reliability and safety of airframes and aerospace platforms. Though we know counterfeit parts enter the aviation supply chain, the time and place of their entry is unpredictable. Managing this uncertainty has become more important due to the recent rise in the incidence of counterfeit reporting. The purpose of the study is to bring to light that all stakeholders from industry and government must work together to effectively reduce the introduction of counterfeit parts into the aviation and aerospace supply chain and minimize their impact. Stakeholders must reduce the entry and effects from counterfeit parts through increased diligence and active control measures. To accomplish this, it is necessary to have greater collaboration both within industry and with government. A quantitative study was performed in identifying aviation parts counterfeited. The study results depicted a part’s unit cost is not significantly correlated to that part being counterfeited.

Key words: Counterfeit, Supply Chain, Government Accountability Office

A Study of Counterfeit Impacts on Aviation

Project Introduction

Counterfeiting is a serious concern that poses a major threat to our Nation’s security and safety.

Within the last ten years, strenuous studies have been performed by various countries and governments, as well as industries, all focusing on the economic impact of counterfeiting.

Counterfeit materiel is defined as materiel whose technical properties and characteristics has been deliberately offered as an unauthorized product substitution or altered without legal right to do so under the laws of the United States. Common items counterfeited in aviation include, but are not limited to: electronic components, microelectronics, fasteners, brackets, bolts, pins, metals, fuses, o-rings and other elastomeric products to name a few. According to the International Anti-Counterfeiting Coalition (I.A.C.C.) counterfeiting thrives not only because of lax legal attitudes and non-enforcement abroad and ineffective legislation in the U.S., but also because lack of consumer awareness and public indifference towards the problems resulting from product counterfeiting. (http://www. acrwebsite.org/volumes/displays.asp?id=6411&print=1) Counterfeiting of aviation parts unfortunately has tangible and intangible negative impacts. Primary tangible impact is the loss of revenues not only within the US but globally. The U.S. economy loses $250 billion a year to counterfeit products, according to a recent report. Yet just a fraction of the illicit goods are detected and confiscated by federal authorities. The U.S. Chamber of Commerce estimates the global market for counterfeit electronics may be as high as $10 billion. An intangible impact includes the customer’s lack of confidence in obtaining genuine parts. Aviation and aerospace industries have been concerned for number of years with the continual increase and the potential dangers and/or consequences of counterfeit parts (mainly electronic and semiconductors) entering into their supply chain. Because aerospace platforms have the capability to travel worldwide it is critical that the aircraft as well as satellites contain reliable electronic parts. Failure of airplanes in service or platforms deployed in orbit can be catastrophic. The researcher examines several aspects of aviation to determine if adequate emphasis and anti-counterfeit measures are being implemented by DOD organizations, commercial airlines and industry leaders. The examination begins with the Fundamentals of Air Transportation. The researcher goes on to discuss Fundamentals of Statistics Analysis in Aviation and Aerospace, Fundamentals of Human Factors in Aviation and Aerospace, Fundamentals of Research and Problem Solving and finally Aviation Aerospace Management.

FUNDAMENTAL OF AIR TRANSPORTATION

Multimodal Aspect

The International Multimodal Transport Association defines multimodal transport as "the chain that interconnects different links or modes of transport – air, sea, and land into one complete process that ensures an efficient and cost-effective door-to-door movement of goods under the responsibility of a single transport operator, known as a Multimodal Transport Operator.

Retrieved from: http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Thoughtware/Intermodal%20and%20Multimodal%20Logistics.pdf The main stakeholders involved in the multimodal system of transportation are regulatory authorities, customs, shippers, multimodal transport operators, logistics intermediaries like ocean carriers, freight forwarders, terminal operators, ancillary service providers, etc. The MTO acts as an agent for the shipper. Their relationship is governed by a single multimodal transport contract. The MTO, in turn, enters into separate contracts with transporters, cargo consolidators, ports, airports etc., coordinates customs procedures and thus manages end-to-end freight movement.

Benefits such as speed, time, cost, and complexity distinguish aviation from other transportation modes. Currently, the transportation industry is challenged with improving aging infrastructure, increasing transportation safety and transportation security in the face of extremely limited funding. Without adequate infrastructure, minor improvements of intermodal/multimodal transport will be insignificant. For air cargo, cost plays a primary role in choosing aviation over other transportation modes. Today, transport and multimodal transport in particular, is acknowledged as a sub-function of logistics, which itself is part of supply chain management. Multimodal transport decisions have an impact on the feasibility and reliability of supply chains to include promoting counterfeit awareness. IEM, Disaster and Emergency Management Company, has been working with government agencies and private sectors around the world to improve protection and security for lives and infrastructure. Applying multi-modal transportation expertise and state-of-the-art technologies, IEM provides cost-effective solutions that address the critical issues of transportation planning, safety, security, and commodity flows. Technology applications utilized in fighting the counterfeiting of aviation parts will now be examined.

Retrieved from: (http://www.iem.com/market-solutions)

Technological Aspect

Technologically speaking, this field in the past was somewhat neglected mainly because of limitation of suitable technologies and the perception of implementing those technologies would just not be cost effective. However with counterfeiting mounting, aviation and aerospace industries are becoming increasingly aware of a potential disastrous event on the horizon, attitudes have changed. Today, there are numerous technologies, such as holograms, smart cards, biometric markers and special fibers, which allow customs officials, aviation distributors, retailers, and consumers to verify the authenticity of goods. As an electronic identification technique, radio frequency identification RFID offers a potential solution to the item/object transparency problems that have plagued supply chains in the past. For example, RFID technology can be used to: (1) reduce the time taken to reorder shipments, (2) reduce product shrinkage and theft, (3) improved tracking of pallets, cases and individual products, and (4) provide better planning and optimization of inventory and reusable assets. (Coltman, Gadh & Michael). Although none of the systems is foolproof, the technology is constantly improving, and depending on the circumstances, incorporating one of these technologies into a product or its packaging can be a sound investment. These devices vary considerably in the degree of sophistication and cost. However, in order to be implemented the technology must be cost-effective, compatible with the product and distribution chain, resistant and durable. Cloning, or counterfeiting, a part is what happens when someone designs a part that looks like the original manufacturer’s part but has not gone through FAA certification and inspection processes. Manufacturers are concerned about unauthorized parts for two major reasons. Unauthorized parts will likely compromise the safety of the aircraft, and they cut into the revenue generated by parts sales. The Crypto Firewall system is designed to prevent cloning and remanufacturing. The company embeds the chip in the part; the manufacturer wants to prevent being cloned. The chip then communicates with a host computer in the aircraft, or even another chip elsewhere on the aircraft, using a challenge/response protocol that verifies the chip is an authentic part. The counterfeit part will not have the chip and the aircraft will recognize it as an imposter. Section 818 of the National Defense Authorization Act (NDAA) is now being phased in. One of the requirements related to the act will require DNA marking on electronic microcircuits managed by the Defense Logistics Agency (DLA). DLA has authorized Applied DNA Sciences to provide a signature mark consisting of botanical DNA. The mark can be either visible or invisible. Anti-counterfeiting technology is constantly being developed and improved to counteract this problem. Advances in technology seek to mark genuine parts in a way that is difficult, hopefully impossible, to duplicate. Due to this challenge, new and better anti-counterfeiting technology is constantly in demand.

Social Aspect

The use of counterfeit parts can lead to decreased performance and reliability of the final product, loss of income and an overall decrease in customer confidence. Counterfeit goods are second-rate products that often times present serious safety risks to users. Industry-wide collaboration is another effective tool to mitigate the problems of counterfeiting. Unfortunately, in the competitive business world, collaboration does not often come naturally. But without the collaboration, the reputation of the industry as a whole may suffer. When a client encounters a final product that does not meet expectations, they do not recognize exactly what component is at fault. They can blame a whole group of manufacturers, including those who provided authentic, high-performance components. The fight against counterfeiting problem will require a huge effort on the part of the world, government regulators, combined with a strong commitment and collaboration with distributors and manufacturers alike. Even then, some parts are likely to pass through the cracks. But while the problem of counterfeiting may seem insurmountable, mitigation of its consequences is not.

.

Environmental Aspect

Counterfeit parts purchased through the grey markets are more difficult to track and collect through e-waste management. Electronic waste, e-waste, e-scrap, or Waste Electrical and Electronic Equipment (WEEE) describe loosely is discarded, surplus, obsolete, or broken electrical or electronic devices. Environmental groups claim that the informal processing of electronic waste in developing countries causes serious health and pollution problems. Some electronic scrap components, such as cathode ray tubes (known as CRTs), contain contaminants such as lead, cadmium, beryllium, mercury, and brominated flame retardants. Activists claim that even in developed countries recycling and disposal of e-waste may involve significant risk to workers and communities and great care must be taken to avoid unsafe exposure in recycling operations and leaching of material such as heavy metals from landfills and incinerator ashes. Aviation parts because of the counterfeiter’s design features are more than likely not meeting regulatory requirements of certain markets including health and safety regulations. Some of these parts could contain elements that are above allowable amounts or may have been banned. The grey market has been expanding rapidly, leading to a number of problems including loss of revenue, damage to the carrier relationship, devaluation of a brand name, possible liability and safety concerns, misalignment of budgets, and reduced inventory turnover. Over $140B of the semiconductors are used by the computer and telecommunication industry. While the impact to the military may be more dangerous, the percentage of semiconductors used by the military is small (only $245M) compared to the worldwide market for semiconductors. "According to interviews conducted with electronics industry executives in the distribution sector, almost four in ten stated that the Internet has become a major highway for news and solicitations for gray market product offers. According to a KPMG/AGMA (the audit, tax and advisory firm) study conducted in 2009, the grey market for IT products was estimated to be 8% of global IT sales. According to the study, grey market activities are costing the IT industry over $10B in profits annually and negatively impact brands and customer perceptions.

Political Aspect

America’s innovation and creativity have long been the driving forces behind America’s competitiveness and economic growth. However, the theft of intellectual property (IP), through counterfeiting and piracy, is a growing problem that has a damaging economic impact on America’s IP-industries and poses serious risks to consumers around the world. In late September 2008, the U.S. Senate and the U.S. House of Representatives passed legislation that seeks to enhance the resources and tools necessary to counter IP infringement and counterfeiting. The bill, entitled Prioritizing Resources and Organization for Intellectual Property Act of 2008, or the "PRO IP Act," was signed into law by President George W. Bush on October 13, 2008. Recognizing that IP is critical to our nation's fiscal health and our leading position in the world economy, U.S. Congress passed this bipartisan legislation to bolster the federal government's ability to enforce IP rights. According to studies examined by the House, counterfeiting and piracy cost the United States between $200 billion and $250 billion in annual lost sales and have caused the loss of 750,000 jobs. In an attempt to counteract these losses, the PRO IP Act makes significant changes to copyright and trademark laws and provides more staffing and greater resources for IP enforcement efforts. The legislation also provides for enhanced IP enforcement and prosecutorial resources to the Department of Justice (DOJ) and improves IP coordination across executive branch agencies by establishing the first-ever position of the U.S. intellectual property enforcement coordinator (IPEC) within the executive office of the president. As mandated by the 2008 PRO-IP Act, the Obama Administration appointed Victoria Espinel, who was later confirmed by the U.S. Senate, as the nation's first-ever IPEC. In this position, Ms. Espinel was tasked with crafting a national IP enforcement strategy that proposes how the government can best utilize its various agencies and resources to confront the growing problem of IP theft. The plan, called the Joint Strategic Plan, was delivered to Congress on June 22 by Vice President Joe Biden and Ms. Victoria Espinel with numerous cabinet members in attendance. The Global Intellectual Property Center (GIPC) fully supports the strategy and has continued to build support and awareness for it. The GIPC established in 2007 is an affiliate of the U.S. Chamber of Commerce. In the past year, the GIPC has worked with Congress to secure funding for programs and personnel authorized by the PRO-IP Act. Our efforts have helped secure funding of $8 million for new FBI agents, $2 million for DOJ prosecutorial activities, and $20 million for state and local IP enforcement grants. Furthermore, since the PRO-IP was implemented, numerous advancements have taken place to boost IP enforcement efforts. These include the deployment of more than 50 new FBI agents, dedicated solely to IP enforcement, across the country and the creation of four enhanced enforcement squads in Los Angeles, the Washington Field Office, New York, and San Francisco. Additionally, 15 new Assistant U.S. Attorneys have also been appointed and assigned to focus on IP issues. We have also begun working with Congress to ensure the IPEC has the authority, staff and resources to successfully implement the Joint Strategic Plan. June 2010 –Victoria Espinel submitted to Congress the 2010 Joint Strategic Plan on Intellectual Property Enforcement. Retrieved from: http://www.tokugikon.jp/gikonshi/259/259tokusyu6e.pdf

The United States' Fight Against the Menace of IP Theft by Rob Calia

FUNDAMENTALS OF STATISTICS ANALYSIS IN AVIATION AND AEROSPACE

Review Aspect

One of GAO studies stated that Commerce and FBI officials rely on industry statistics on counterfeit and pirated goods and do not conduct any original data gathering to assess the economic impact of counterfeit and pirated goods on the U.S. economy or domestic industries. However, according to experts and government officials, industry associations do not always disclose their proprietary data sources and methods, making it difficult to verify their estimates. Counterfeit and pirated products that act as substitutes for genuine goods can have a wide range of negative effects on industries. Sources further noted that the economic effects vary widely among industries and among companies within an industry. The most commonly identified effect cited was lost sales, which leads to decreased revenues and/or market share. Many industries lose sales because of consumers’ purchases of counterfeit and pirated goods, particularly if the consumer purchased a counterfeit when intending to purchase a genuine product. In such cases, the industry may lose sales in direct proportion to the number of counterfeit products that the deceived consumers purchased. Industries in which consumers knowingly purchase counterfeits as a substitute for the genuine good may also experience lost sales. Lost revenues can also occur when lower-priced counterfeit and pirated goods pressure producers or IP owners to reduce prices of genuine goods. In 2010, the Government Accountability Office (GAO) published two reports on counterfeit risk and impact: Defense Supplier Base - DOD Should Leverage Ongoing Initiatives in Developing Its Program to Mitigate Risk of Counterfeit Parts (Defense Supplier Base report) and Intellectual Property – Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods (Observations on Efforts report). The Defense Supplier Base report noted that "DOD is limited in its ability to determine the extent to which counterfeit parts exist in its supply chain because it does not have a department wide definition of the term "counterfeit" and a consistent means to identify instances of suspected counterfeit parts." The report also identified some examples of counterfeit parts in DOD’s supply chain, such as GPS receiver frequency standard oscillators, dual transistor, self-locking nuts and brake shoes. The Intellectual Property GAO report focused more on the impact of counterfeiting and piracy on U.S. industry, the economy and government. Retrieved from: http://www.aia-aerospace.org/assets/counterfeit-web11.pdf (AIA Counterfeit Parts: Increasing Awareness and Developing Countermeasures March 2011)

Data Collection

The objective is centered on the growing concern of counterfeit parts within DOD supply chain and the implementation of anti-counterfeit processes. Answering the question: what is the correlation between the two variables, involved four sub questions: Does an association exists? What is the extent of the association? What is the direction of the association? What is the nature of the association? Parts data was obtained from the Government Accountability Office website, literature studies and reports. Next the data type was determined, based on the previous question and correlation of the two variables (parts counterfeited and their unit cost). Quantitative data (parts counterfeited) was then obtained, and consolidated into two columns. The direction of an association is also given by a measure of association unless the variables are nominal, in which case the direction is not meaningful. Most measures are defined so that a negative value indicates that as one variable increases the other decreases and that a positive value indicates that the variables increase or decrease together. Review of the available data was conducted to determine if data supports a rejection of the null hypothesis, there is no correlation between the cost of the part and likelihood that it will be counterfeited.

Critique Aspect

Statistical methods for comparing groups are important to GAO in at least three situations: (1) comparison of the characteristics of populations (2) determination of program and (3) the comparison of processes. The questions that arise from these situations lead to a

variety of data analysis methods. Factors that determine an appropriate data analysis methodology include (1) the number of groups to be compared, (2) how cases for the groups were selected, (3) the measurement level of the variables, (4) the shape of the distributions, and (5) the type of comparison (measure of central tendency, measure of spread, and so on). A further complexity is that, when sampling, the researcher needs to know if the observed differences between groups are real or most likely stems from sampling fluctuation. The researcher utilized the Pearson r for the data analysis. A scatter plot was also shown to show the linear or nonlinear correlation between the two variables. Retrieved from: http://www.gao.gov/special.pubs/pe10111.pdf

Interpretation

There is no single methodology to collect and analyze data that can be applied across industries to estimate the effects of counterfeiting or piracy on the U.S. economy or industry sectors. The nature of data collection, the substitution rate, value of goods, and level of deception are not the same across industries. Due to these challenges and the lack of data, researchers have developed different methodologies. Valuation of the fake goods constitutes another set of assumptions that has a significant impact. There are several measures of value that can be used, such as the production cost, the domestic value, or the manufacturer’s suggested retail price. Counterfeiting and piracy are illicit activities, which makes data on them inherently difficult to obtain. In discussing their own effort to develop a global estimate on the scale of counterfeit trade, OECD officials told us that obtaining reliable data is the most important and difficult part of any attempt to quantify the economic impact of counterfeiting and piracy. OECD’s 2008 report, The Economic Impact of Counterfeiting and Piracy, further states that available information on the scope and magnitude of counterfeiting and piracy provides only a crude indication of how widespread they may be, and that neither governments nor industry were able to provide solid assessments of their respective situations. The report stated that one of the key problems is that data have not been systematically collected or evaluated and, in many cases, assessments "rely excessively on fragmentary and anecdotal information; where data are lacking, unsubstantiated opinions are often treated as facts." Nonetheless, the studies and experts we spoke with suggested that counterfeiting and piracy is a sizeable problem, which affects consumer behavior and firms’ incentives to innovate. The most commonly used methods to collect and analyze data, based on our literature review and interviews with experts, and are presented below.

FUNDAMENTALS OF HUMAN FACTORS IN AVIATION AND AEROSPACE

Innovation and creativity are the foundation of global economic development. IPR infringement hinders growth by destroying the foundation that is necessary to support and encourage innovation and creativity. Counterfeiting also damages the economies of the countries in which it occurs as they lose potential tax revenue. Since, counterfeiters typically do not pay taxes or duties. In many cases, they forge the paperwork of their transactions to significantly reduce the value of their trades, or in other cases, exploit Free Trade Zones to circumvent taxes and duties. International cooperation regarding IPR issues are discussed at a number of forums including the G-8, the US-EU summit, and the Organization for Economic Cooperation and Development (OECD). The Office of the United States Trade Representative (USTR) lists some of the various mechanisms they are promoting to ensure adequate protection and enforcement of IPR issues. Initiatives such as the World Trade Organization agreements and the Council for Trade Related Aspects of Intellectual Property Rights (TRIPS), bilateral and regional initiatives including free trade agreements, and the Anti-Counterfeiting Trade Agreement (ACTA), are just some on the international collaboration. International cooperation among government enforcement agencies could also assist in combating the counterfeit problem. The U.S. and the European Union recently conducted a joint operation that resulted in over 360,000 fake computer components being seized. Continued cooperation could help mitigate and combat the problem.

Unsafe Acts

The researcher found in several studies, counterfeit instances are occurring and affecting various airframes. Report GAO-10-389 stated the Air Force required microprocessors that were no longer produced by the original manufacturer for its F-15 flight control computer (http://www.gao.gov/htext/d10389.html). These microprocessors were procured from a broker and F-15 technicians noticed additional markings on the microprocessor and character spacing inconsistent with the original part (http://www.gao.gov/htext/d10389.html). A total of four counterfeit microprocessors were found and as a result were not installed on the F-15’s operational flight control computers (http://www.gao.gov/htext/d10389.html).

On Sept. 8, 1989, a small turboprop aircraft carrying 55 passengers and crew flying to Hamburg, Germany, from Oslo, Norway, crashed into the North Sea. Everybody died. The plane literally fell out of the sky (McIntosh, 1995). Three years later, investigators figured out that a few small metal pins that held the plane's tail to the rest of the aircraft had failed, the tail ripped off and the plane broke apart in mid-air (McIntosh, 1995). Normally, the steel in the pins must meet rigid standards requiring the metal to be heat-treated and specially hardened. The pins recovered from the crash wreckage were made of ordinary steel (McIntosh, 1995).Further checks found that the pins were installed in the plane by totally unsuspecting mechanics at an aircraft-overhaul firm in Kelowna, B.C. Shock waves swept through the world's aviation industry (McIntosh, 1995). Investigators from GAO are working to understand the scope of DOD's vulnerability to counterfeit parts, have identified problems with microprocessors used in F-15 flight control computers, oscillators used for Global Positioning System navigation on more than 4,000 Air Force and Navy systems, and substandard titanium used in F-15 engine mounts and F-22 and C-17 parts (Sherman, 2010).

Attitudes

Visibility across operational activities—from demand forecasting, to the sourcing of raw materials, through to manufacture and dispatch—is critical to supply chain competition (Coltman, Gadh & Michael, 2008). To better understand how counterfeit items enter the DOD supply chain, consumers need to know who the suppliers are and their roles. Think of DOD suppliers by levels, with Level 1 suppliers being the most trustworthy and Level 3 suppliers being the most risky. Level 1 suppliers are the Original Manufacturer (OM) or Authorized Manufacturer (AM). An OM is the company that originally designed or engineered the product. An AM is a company authorized by the original manufacturer to manufacture a product on its behalf. The authorized manufacturer often acts on behalf of the OM and the products are held to the standards of the OM. Level 1 suppliers typically offer the least risk of counterfeiting. They are in direct control of the product and all of the material required producing the product.

Level 2 suppliers are the franchised distributors or manufacturer authorized distributors. These companies are under contract to the original manufacturers to handle their products. These companies must adhere to the OM quality controls; they offer the full OM warranties and buyers can use the OM technical support for the products. Often these companies are audited and inspected by the original manufacturers to ensure they are meeting all of the required safety and product handling requirements. Purchasing from Level 2 suppliers adds a little more risk for the buyer. Level 2 suppliers may buy the same product from multiple OMs, therefore adding more risks for crossing counterfeit products with authentic ones (Dallosta, Kobren, Limo, & Brown, 2012). Level 3 suppliers are the independent distributors and brokers. They are often used for hard-to-find or hard-to- procure, or obsolete parts. They are not bound by any contractual agreement with the manufacturer. Usually the independent distributor does not know that the product is counterfeit. Gray markets include independent distributors. Independent distributors use other distributors and manufacturers to support customer requests at the lowest price or best availability possible. That means the parts they purchase may not always be from the OM’s stock. Sometimes the items are purchased from other sources’ stock. There is not as much control over these items. Because the focus of the independent distributor is on price, whoever is offering the lowest price may be the counterfeiters or the counterfeits’ distribution chain (Dallosta et al., 2012). However, sometimes the price is so much lower than the legitimate product it should put the independent distributor on notice that the product may be counterfeit.

Level 3 suppliers are the end of the supply chain. Products purchased from Level 3 suppliers are the riskiest. There is often no manufacturer warranty or support for the products. It is not recommended that military buyers utilize Level 3 suppliers as a normal course of business. To help customers further understand the different levels of suppliers as well as their risk, Defense Acquisition University established the web-based training course Preventing Counterfeit Parts from Entering the DoD Supply System. The course has high visibility and is being pushed by DOD due to the increasing counterfeit problem with possible safety consequences.

Human Behavior and Limitations

The production and sale of counterfeit goods is a global, multi-billion dollar problem and one that has serious economic and health ramifications for Governments, businesses and consumers. Counterfeiting is everywhere. Often the temptation for consumers can be too strong to resist, with many not understanding the risks and ramifications attached to this illegal industry. Buying a counterfeit handbag or pair of jeans, for example, might not be regarded as an illegal transaction - simply a cheaper way to wear the latest fashion goods. However, often little thought is given to how industries that rely on legitimate sales suffer. From researching literature works, pertaining to counterfeiting, the studies focused on the attitudes and behavior patterns of consumers who knowingly purchased counterfeit products. One such study conveyed, price in most cases is utilized by the consumer in judging the quality of what they will or will not purchase. The study went on to say consumers make associations about the quality of goods based on the price charged. A consumer who more strongly believes in the price-quality inference has a more negative attitude toward counterfeits (Matos & Ituassu, 2007). Sellers will manipulate prices when they can to control information conveyed (Matos & Ituassu, 2007). Additional studies focused on and identified factors that may influence consumer’s intention towards counterfeit products. These factors are called influential factors, described in the study; operate at a consumer’s individual and interpersonal level. There were several terms described but listed the two terms, price-quality correlation and risk aversion and perceived risk, which relates to cost. Price-quality correlation is the belief that many consumers equate product quality from its price and the level of guarantee offered (Matos & Ituassu, 2007). Specifically, many theorists believe that the typically lower cost of pirated goods leads the consumer to assume lower quality also (Matos & Ituassu, 2007). Another influential term, risk aversion and perceived risk states research has proven that some consumers possess a personality trait making them averse to risk taking and has shown this trait to be a significant factor in whether or not the consumer will make purchases deemed risky (Matos & Ituassu, 2007). Some consumers perceive more specific risks that can relate not only to price and quality but also to safety, finance, performance, social or psychological (Matos & Ituassu, 2007).

AVIATION AEROSPACE MANAGEMENT

Aircraft Management

Today, commercial aircraft are now capable of making trips of up to 18 hours in duration. The technology exists to create a more efficient, environmentally friendly aviation system.

The world both needs and benefits from air travel. The airplane is one of the fastest and most reliable means of transportation and supports our ever-growing demand for global mobility. It facilitates economic and social progress, provides access to international markets and generates trade and tourism. In essence, the aircraft allows us to forge links between nations and cultures. Within the commercial and business aviation industry, we help to connect communities and extend the global transportation network to remote locations. Over the last decades, there have been significant advances in aviation technology. Today’s aircraft are 50 per cent more fuel-efficient and 30 decibels quieter than their predecessors were 40 years ago. They also fly three times farther on the same amount of fuel than they did 30 years ago. Although the aviation industry only contributes two per cent of the world’s greenhouse gas emissions, it is perceived as more harmful to the environment than the road transport and electricity-generation industries that respectively account for 18 per cent and 35 per cent of worldwide carbon emissions. This erroneous perception about our impact on the environment has gathered strength over the last few years perhaps because we operate "off-the-ground," making our products highly visible and an easy target. According to Bombardier Aerospace end-of-life challenges need to be addressed. Over the next 20 years, approximately 5,000 commercial airliners are expected to be withdrawn from service at a rate of approximately 250 per year. More than half of these aircraft are abandoned in the desert or in warehouses due to the lack of dedicated infrastructure and profitable recycling processes. We must talk about this highly visible problem and discuss our projects to recover, revalorize and redistribute reusable and disposable parts and materials at the end of an aircraft’s life. Openly acknowledging our environmental impact throughout the life cycle of our products is another important step in building trust with the public.

Retrieved from: Aerospace reducing its environmental impact

By Hélène V. Gagnon, VP, Public Affairs, Communications and Corporate Responsibility, Bombardier Aerospace

Aircraft Maintenance

Aircraft maintenance is the overhaul, repair, inspection or modification of an aircraft or aircraft component. Maintenance includes the installation or removal of a component from an aircraft or aircraft subassembly. Preventive aircraft maintenance is maintenance performed in an attempt to avoid failures, unnecessary production loss and safety violations. As equipment cannot be maintained at all times, some way is needed to decide when it is proper to perform maintenance. Normally, this is done by deciding some inspection/maintenance intervals, and sticking to this interval more or less affected by what you find during these activities. The result of this is that most of the maintenance performed is unnecessary and it even adds substantial wear to the aircraft equipment. Also, you have no guarantee that the equipment will continue to work even if you are maintaining it according to the maintenance plan. Corrective aircraft maintenance is probably the most commonly used approach, but it is easy to see its limitations. When aircraft equipment fails, it often leads to downtime in production. In most cases this is a costly business. Also, if the equipment needs to be replaced, the cost of replacing it alone can be substantial. It is also important to consider health, safety and environment (HSE) issues related to malfunctioning equipment. Corrective aircraft maintenance can be defined as the maintenance which is required when an item has failed or worn out, to bring it back to working order. Corrective maintenance is carried out on all items where the consequences of failure or wearing out are not significant and the cost of this maintenance is not greater than preventive maintenance. Aircraft maintenance is highly regulated. In 1993, the Suspected Unapproved Parts Program (SUP) was established to coordinate efforts and address issues posed by the entry of "unapproved" parts into the U.S. aviation system. The FAA has published FAA Order 8120.10A, establishing procedures for FAA Inspectors involved in coordination, investigation and processing SUPs. The order provides definitions of terms that are used for the counterfeit parts issue. According to the Order, an unapproved part could have been manufactured in accordance with a Parts Manufacturer Approval (PMA), A Technical Standard Order (TSO), or other legitimate production approval. What makes these parts become unapproved is when they no longer conform to their FAA approved design. This occurs when the part is no longer serviceable; it has been repaired by a person or repair station who is not authorized to perform the repair and returned to service by that person or repair station; or if the repair was performed improperly. Just to reiterate, a legitimate part can become an unapproved part even if it was manufactured legally but was not maintained in accordance with the manufacturer's instructions, or it was repaired by a person or repair station that is not authorized to perform the maintenance and has then approved it for return to service.

Retrieved from: http://www.aviationwatchindia.com/aviation/aviationsafety/aircraftmaintenance

Production and Procurement

Stakeholders need to understand first, what is the attraction of counterfeiting aerospace and aviation parts? The answer is tremendous "profit", the number one incentive for any type of counterfeiting. But there are unique conditions such as long life cycles and DMSMS, that make aerospace and aviation assets more susceptible to counterfeiting. Aerospace and aviation products are generally designed for a long life cycle. For example in February 1955, the B-52 went into service and now has a projected retirement date of 2040. Procurement and production practices over the years have created vulnerabilities as well. Parts needed for aging equipment and the effort to save money has resulted in the surge of microelectronics being counterfeited. After the collapse of the Soviet Union in the mid-1990s, "buying commercial and commercial-off-the-shelf" (COTS) item manufacturers and suppliers’ initiative was launched by the Clinton Administration. In addition to the conventional pattern of purchasing equipment from original manufacturers and their authorized distributors, the Pentagon began doing business with smaller U.S. parts brokers that sprang up to offer low-cost items. Federal affirmative-action goals encouraged the military to favor suppliers that qualify as "disadvantaged and seek to make 22% of its purchases from small contractors (measured by staff and revenue) including those run by women, military veterans, or members of certain ethnic minority groups.

Retrieved from: U.S. Military Aircraft Contain Potential Chinese Spy Chips Dark Government April 21 2009

The number of small brokers grew rapidly after 1994, when Congress stopped requiring government contractors to certify that they were either original manufacturers or authorized distributors. Brokers were required to obtain a contractor code but receive little or no oversight. Hundreds are now working out of basements and even second bedrooms. A Business Week analysis of a contracting database identified at least 24 active brokers that list residential homes as their place of business. Several have won chip contracts for "critical applications," which the Pentagon defines as "essential to weapon system performance…or the operating personnel." In many cases these entrepreneurs comb Web sites such as brokerforum.net and netcomponents.com, which connect them with traders in Shenzhen and Guiyu, China. The brokers sell either directly to Pentagon depots or via suppliers to defense contractors such as BAE Systems. Retrieved from: U.S. Military Aircraft Contain Potential Chinese Spy Chips Dark Government April 21 2009

As a result, major chip manufactures blame the Pentagon and its practice of buying from small brokers for the spread of counterfeit military-grade chips. "We’ve been telling people [at Defense] for 10 years to buy only from us or our authorized distributor," says Chuck Mulloy, a spokesman for Intel (INTC). "The military is slavishly following the low-cost paradigm but not following the idea of checking the quality as well." Retrieved from: U.S. Military Aircraft Contain Potential Chinese Spy Chips Dark Government April 21 2009.

International Aspect

Stakeholders from industry and government must work together to effectively reduce the introduction of counterfeit parts into the supply chain and minimize their impact not only in the US but globally as well. Organizations such as INTERPOL and the World Customs Organization are also central to tackling this sort of crime, particularly given the cross-border nature of the operations behind counterfeiting. This provision of a crucial link between law enforcement agencies is a good example of the kind of actions necessary to curb transnational organized crime networks. The problem of exports and trans-shipments of counterfeits is a growing one. Counterfeiters are increasingly shipping their products around the world for final assembly and distribution, thereby minimizing the risk of seizures in the countries where components are produced. Trademark owners are increasingly finding counterfeit production and distribution operations in Russia and the former Soviet Republics, China, India, the Philippines, the Middle East and Africa and some Latin American countries. There is also a great need to build more awareness of the scale of the problem. The responsibility for this is widespread, with international organizations, public health authorities, trade organizations, consumer groups and concerned citizens all able to play their part and make people aware of the dangers of counterfeit goods to health and safety. Private companies complicit in this trade should, for instance, be named and shamed, and codes of conduct more rigorously enforced.

Research and Development Aspect

For the purpose of this paper,