The Federal Aviation Administration's official stamp of approval for Boeing's new 757 jetliner was issued Dec. 21 with an unusual provision that, in effect, assured financially troubled Eastern Airlines that it could sell millions of dollars in 1982 tax benefits.
The provision centered on an observer's seat in the cockpit. The FAA didn't like the location of the seat because safety inspectors sitting in it could not see what the pilot and copilot were doing.
If that sedentary subject had not been resolved in time for Boeing to deliver the new planes to Eastern in December, the unidentified buyer of Eastern's tax benefits would have lost as much as $20 million in credits and deductions for 1982 and Eastern would have lost whatever the buyer had agreed to pay for those benefits.
The solution: the FAA issued an approval for the Boeing 757-200 that expires June 21 unless the seat is moved. This is the first time anyone in aviation circles can recall an expiration date appearing on a "type certificate," the formal FAA approval document that is life itself for any type of civil airplane. When the FAA grounded the McDonnell Douglas DC10 after the Chicago crash in 1979, what it technically did was withdraw the DC10's type certificate.
The Eastern transaction involves a tax-break sale called safe-harbor leasing, a creation of the Reagan administration's Economic Recovery Tax Act of 1981 that permits companies to sell unused tax benefits to other companies that need deductions and credits.
The estimate of $20 million in potential tax credits and deductions was made by the Internal Revenue Service on a hypothetical basis and assumed that Eastern bought the planes at the list price of about $40 million each. Under complicated tax laws, Eastern can sell those benefits for whatever it can get.
Tom Myers, a normally voluble spokesman for Eastern, was terse on this one. The sale of tax benefits "was involved," he said. The benefits "definitely were applied to 1982. That's when we got them the airplanes ."
Did you need to take delivery in 1982?
"It certainly helped," Myers said.
Charles R. Foster, director of the FAA's Northwest Mountain Region and the man who signed the type certificate, said "you shouldn't hold up a type certificate" over the seat issue. "It's not an airworthiness issue at all," he said. Airworthy is the FAA word meaning safe.
Foster said he hadn't heard anything about tax-break issues in his discussions with Boeing. Boeing, he said, "wanted to get it out" to Eastern, its first 757 customer, before Christmas.
The limitation requiring the movement of the seat by June 21 was "the best way" to solve the problem, Foster said. "Efforts were going on to make that seat acceptable, and that was why it got down to the wire," he said.
A type certificate with an expiration date is "unusual if not unique," Foster said. "We normally don't do it."
Boeing spokesman James Boynton said that Eastern wanted the 757s "by year's end." He referred questions about safe-harbor leasing to Eastern.
The problem with the seat cropped up as the 757 was going into production and after extensive flight testing and engineering checks by Boeing experts and the FAA.
Eastern originally had ordered the plane with a three-man cockpit--a pilot, a first officer and a flight engineer--as well as an inspector's seat. Late in 1981, however, a special panel appointed by then-Transportation Secretary Drew Lewis ruled there was no discernible safety requirement in modern, highly automated jetliners for a flight engineer.
That panel had been appointed under pressure from the Air Line Pilots Association, which had threatened a nationwide walkout to require a three-man crew. ALPA agreed in advance to abide by its decision.
When the panel ruled in favor of two-man crews, Eastern and other airlines put in change orders on their 757s to rebuild the cockpit for two people. The location of the observer's seat is being worked out, officials said, and has been found satisfactory in configurations for other 757 buyers, including American Airlines and British Airways.
The 757 is a two-engine, standard-body-width plane that can carry between 162 and 224 passengers depending on how the seats are arranged. Its range is about 2,800 miles.