Aircraft Ownership Choices and Regulatory Restrictions

1. Aircraft Ownership Choices and Regulatory Restrictions John R. Copley, Esquire Garofalo Goerlich Hainbach PC 1200 New Hampshire Avenue Washington, DC 20036 Telephone: 202-776-3970 Email: jcopley@ggh-airlaw.com

2. Basic Aviation Regulations • Federal Aviation Regulations • Civil Aircraft Registration Regulations • Safety Related Regulations • Part 91 applicable to general aviation • Part 135 applicable to commercial aviation • Department of Transportation Regulations • Economic (Consumer Protection) Regulations • Direct Air Carriers • Indirect Air Carriers (resellers of air transportation)

3. Civil Aircraft Registration • Citizenship requirement for registration as owner of U.S. civil aircraft • Limited ability of non-U.S. citizens to register aircraft • Limited liability companies subject to additional scrutiny • Some partnership forms, even if they consist of all U.S. citizens, may be considered non-U.S. citizens • Registration (as opposed to pink copy) required for any operation outside of U.S. air space

4. Advantages of FAR Part 91 • Operation under FAR Part 91 does not require any FAA licensing of the operator and is less restrictive • No flight and duty time restrictions on pilots • No drug and alcohol testing of pilots • Less restrictive maintenance requirements for aircraft • Less direct FAA oversight • Limited compensation permitted under FAR Section 91.501 (e.g. intra-company chargebacks, time sharing, interchange, and joint ownership.)

5. Disadvantages of FAR Part 91 • Operation under FAR Part 91 places safety responsibility with owner/operator • Owner/operator is responsible for compliance with and for any violation of FARs • Owner/operator bears primary civil liability • Ability to operate for compensation is limited as to parties and amounts

6. Advantages of FAR Part 135 • Operation under FAR Part 135 places safety responsibility with the air carrier, not owner • Air carrier, not owner, is responsible for compliance with and any violation of FARs • Air carrier bears primary civil liability as operator • Compensation of any amount from any party can be received by air carrier

7. Disadvantages of FAR Part 135 • Operation under FAR Part 135 requires licensing as an air carrier • Flight and duty time restrictions • Drug and alcohol testing • Enhanced maintenance requirements • Additional equipment requirements • FAA approval of general operating manuals

8. Disadvantages of FAR Part 135 • Direct FAA oversight and surveillance • Limitation on available destination airports • Additional weather restrictions • TSA security requirements

9. Disadvantages of falling under DOT regulations • Certification as an air carrier varies from a simple registration under Part 298 to a full DOT financial fitness review of the operator • Indirect air carriers must show financial responsibility through escrow accounts and/or bonding arrangements and file prospectuses with DOT prior to operation of flights • No practical enabling DOT regulations for an indirect air carrier reselling on-demand transportation on corporate size aircraft operated under FAR Part 135

10. Whole Aircraft Ownership - FAR Part 91 • Owner is registered owner and retains operational control of aircraft • Owner can enter into management agreement with professional management company for support services including pilot services and maintenance oversight while retaining operational control • So long as owner retains operational control, operations can be conducted under FAR Part 91 • Owner can engage in operations for limited compensation as permitted by FAR Section 91.501

11. Whole Aircraft Ownership - FAR Part 135 • Owner may lease whole aircraft to FAA licensed FAR Part 135 air carrier • FAR Part 135 air carrier will have operational control • FAR Part 135 air carrier may charter aircraft back to owner or owner may retain operational control for owner flights • FAR Part 135 air carrier may charter to owner affiliates or third party charterers at agreed upon rates

12. Whole Aircraft Ownership - FAR Part 135 • Owner may not hold itself out as providing air transportation or resell transportation on the aircraft when operated by air carrier • FAA will exercise additional scrutiny if pilots are employed by owner and used by air carrier • Federal Excise Tax of 7.5% may apply even to owner flights if owner relinquishes possession, command and control of aircraft to air carrier

13. Fractional Ownership - Subpart K or FAR Part 135 • Fractional Owner is a registered owner • Most fractional programs permit operations under either Subpart K of FAR Part 91 or under FAR Part 135 • Some fractional programs permit flight by flight election between Subpart K and FAR Part 135 • Even if FAR Part 91 is elected, fractional manager will provide all support services and retain some liability for violations of the FARs

14. Fractional Ownership -Subpart K or FAR Part 135 • If FAR Part 135 chosen, fractional manager will have operational control and assume liability for violations of the FARs • Receiving limited reimbursement from owner affiliates is possible under Subpart K through FAR Section 91.501 operations • Fractional Manager may charter aircraft to owner affiliates depending on fractional program and structure

15. Fractional Ownership -Subpart K or FAR Part 135 • Fractional Owner may be considered an indirect air carrier subject to DOT regulation if the fractional owner charges for transportation provided on fractional aircraft operated under FAR Part 135 • Fractional Owner may be considered an unlicensed air carrier under the FARs if it holds out the provision of transportation in its own name • Potential foreign government restrictions on international flights if FAR Part 135 chosen because flights are commercial; restrictions may be imposed on Subpart K flights as well

16. Travel Card Programs -FAR Part 135 • Major fractional programs also offer sub-fractional travel card programs • Most programs do not involve ownership or registration • All sub-fractional travel card programs are operated under FAR Part 135 • No ability to charge out to non-card holding entities

17. Charter - FAR Part 135 • All operations will be conducted under FAR Part 135 by air carrier offering charter service • Charter service may be purchased on a flight by flight basis or in blocks • No need for registration as there is no ownership • Payment of Federal Excise Tax of 7.5%

18. Summary • Each ownership type is subject to specific FAA and DOT regulations • Depending on how operations are structured and ownership type, it may be possible to operate flights under more than one part, minimizing disadvantages and maximizing advantages of regulations

19. Other Considerations • Operational costs related to ownership structure and applicable regulatory regime • Tax advantages of ownership such as depreciation • Tax disadvantages of ownership such as sales or use tax, property tax • Advantages and disadvantages to employing crew • Matching ownership to projected use • Matching aircraft to mission