UPS 2015 Annual Report Download - page 25

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Government Regulation
We are subject to numerous laws and regulations in connection with our package and non-package businesses in the
countries in which we operate. A summary of certain laws and regulations are described below.
Air Operations
The U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”), and the U.S. Department
of Homeland Security, through the Transportation Security Administration (“TSA”), have regulatory authority over United
Parcel Service Co.’s (“UPS Airlines’”) air transportation services. The Federal Aviation Act of 1958, as amended, is the
statutory basis for DOT and FAA authority and the Aviation and Transportation Security Act of 2001, as amended, is the basis
for TSA aviation security authority.
The DOT’s authority primarily relates to economic aspects of air transportation, such as insurance requirements,
discriminatory pricing, non-competitive practices, interlocking relations and cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international routes, fares, rates and practices, and is authorized to
investigate and take action against discriminatory treatment of U.S. air carriers abroad. International operating rights for U.S.
airlines are usually subject to bilateral agreement between the U.S. and foreign governments or, in the absence of such
agreements, by principles of reciprocity. We are also subject to current and potential aviation regulations imposed by foreign
governments in the countries in which we operate, including registration and license requirements and security regulations.
UPS Airlines has international route operating rights granted by the DOT and we may apply for additional authorities when
those operating rights are available and are required for the efficient operation of our international network. The efficiency and
flexibility of our international air transportation network is dependent on DOT and foreign government regulations and
operating restrictions.
The FAA’s authority primarily relates to safety aspects of air transportation, including aircraft operating procedures,
transportation of hazardous materials, record keeping standards and maintenance activities and personnel. In 1988, the FAA
granted us an operating certificate, which remains in effect so long as we meet the safety and operational requirements of the
applicable FAA regulations. In addition, we are subject to non-U.S. government regulation of aviation rights involving non-
U.S. jurisdictions and non-U.S. customs regulation.
UPS aircraft maintenance programs and procedures, including aircraft inspection and repair at periodic intervals, are
approved for all aircraft under FAA regulations. The future cost of repairs pursuant to these programs may fluctuate according
to aircraft condition, age and the enactment of additional FAA regulatory requirements.
The TSA regulates various security aspects of air cargo transportation in a manner consistent with the TSA mission
statement to “protect the Nation’s transportation systems to ensure freedom of movement for people and commerce.” UPS
Airlines, and specified airport and off-airport locations, are regulated under TSA regulations applicable to the transportation of
cargo in an air network. In addition, personnel, facilities and procedures involved in air cargo transportation must comply with
TSA regulations.
UPS Airlines, along with a number of other domestic airlines, participates in the Civil Reserve Air Fleet (“CRAF”)
program. Our participation in the CRAF program allows the U.S. Department of Defense (“DOD”) to requisition specified UPS
Airlines wide-body aircraft for military use during a national defense emergency. The DOD compensates us for the use of
aircraft under the CRAF program. In addition, participation in CRAF entitles UPS Airlines to bid for military cargo charter
operations.
Ground Operations
Our ground transportation of packages in the U.S. is subject to regulation by the DOT and its agency, the Federal Motor
Carrier Safety Administration (the “FMCSA”) and the states’ jurisdiction with respect to the regulation of operations, safety,
insurance and hazardous materials. We also must comply with the safety and fitness regulations promulgated by the FMCSA,
including those relating to drug and alcohol testing and hours-of service. We are subject to similar regulation in many non-U.S.
jurisdictions.
The Postal Reorganization Act of 1970 created the U.S. Postal Service as an independent establishment of the executive
branch of the federal government, and created the Postal Rate Commission, an independent agency, to recommend postal rates.
The Postal Accountability and Enhancement Act of 2006 amended the 1970 Act to give the re-named Postal Regulatory
Commission revised oversight authority over many aspects of the Postal Service, including postal rates, product offerings and
service standards. We sometimes participate in the proceedings before the Postal Regulatory Commission in an attempt to
secure fair postal rates for competitive services.