Pilot Counsel

Fractional aircraft ownership, Part 2

October 1, 2001

Last month we traced the regulatory background against which the current fractional aircraft ownership programs developed, and how they exist today (see " Pilot Counsel: Fractional Aircraft Ownership, Part 1," September Pilot). We concluded by identifying the FAA's concern about how to regulate these programs ( www.aopa.org/members/files/topics/fractional.html). Now we will discuss how the FAA addresses this concern.

The FAA and fractional ownership

As we said last month, fractional ownership programs have been in existence for well over a decade, operating under the current provisions of FAR Part 91. To address regulating them beyond that, the FAA convened a committee of persons interested in the programs. These persons included fractional ownership managers, fractional owners, aircraft manufacturers, corporate flight departments, traditional aircraft management company representatives, on-demand charter operators, as well as government and industry leaders — essentially, anybody with a significant interest in fractionals. The FAA asked them to come up with a regulatory structure specific to this new concept. After intensive deliberation, the committee presented to the FAA a set of recommendations. Based on the recommendations, the FAA recently published a notice of proposed rulemaking. Essentially, the committee, and the FAA notice, proposed a new Subpart K to Part 91, specifically and exclusively applying to fractional ownership programs. The FAA is now inviting comments on the proposal. They are due to the FAA on or before October 16, 2001.

The proposed rules

The proposed rules include a new Subpart K to Part 91, called "Fractional Ownership Operations," formalizing a new regulatory concept of a fractional ownership program. In other words, what fractional owners are now doing under Part 91 would be formally recognized in the regulations.

The proposed rules ( www.aopa.org/whatsnew/regulatory/fractional_nprm.pdf) would impose regulatory requirements on fractional owners and program managers that are in excess of those required of Part 91 operators, including the Part 91 operators of large and turbine-powered airplanes under Subpart F. These increased requirements are, for the most part, ones that are voluntarily being met currently by the fractional ownership programs.

We won't go into all of the proposed increased requirements because that is outside the scope of this column. But some examples of the increased requirements of proposed Subpart K include a formal contract with a fractional program manager, who must have management specifications issued by the FAA, and must create and use a program operating manual acceptable to the FAA. There are requirements for dispatch and scheduling personnel, background checks on pilots, flight crew experience and pairing requirements, six- and 12-month pilot checks, a substance abuse program, extensive recordkeeping, and, in general, many but not all of the requirements for commercial operations. One of the most basic requirements, which really legitimizes the concept under Part 91, is that fractional owners must contractually acknowledge that they are the operators of the aircraft and as such, they have substantial control over and bear substantial responsibility for the airworthiness and operation of their aircraft.

No adverse effect on other Part 91 operations

The main reason we wrote these columns is to address what effect the new Subpart K would have on typical general aviation operations involving light aircraft. The news is good. It is clear that the proposal does not intend to adversely affect operations other than those using the precisely defined fractional ownership concept. The proposal does not intend to affect the traditional co-ownership, partnership, or flying club operation, where the owner, co-owner, partner, or flying club member (who, in the technical legal sense, could be considered a fractional owner) is the pilot and clearly accepting operational control and responsibility. In the same way, the proposal does not intend to affect operations of "large and turbine-powered multiengine airplanes" now operating under FAR Part 91, Subpart F. There are even some arrangements, blessed by some local FAA offices, where one or more co-owners are not pilots and a commercial pilot co-owner provides the piloting. These should not be affected.

AOPA followed the work of the committee to satisfy itself that the recommended new rule would not adversely affect these and other Part 91 operations.

Any advantages?

OK. No adverse effect. But does the proposal hold any benefit for the typical general aviation operation involving an owner-flown or renter-piloted aircraft? (Some light-aircraft fractionals already exist.) Well, that remains to be seen. At present, the benefits of the proposed rule seem to apply to fractional programs in which the aircraft are flown by paid professional crews. That could change in the final rule. And even the current proposal contemplates that the FAA may grant individual deviations from some of the requirements if they impose unnecessary burdens on operators of smaller equipment. Depending on how the FAA will administer these deviations, and how the rule is finalized, the proposed Subpart K programs might become more practical for light general aviation aircraft and have some advantages.

Could the concept be used to share aircraft ownership with nonpilots? At present, the answer seems to be "yes." But a word of caution: The proposal seems to have been drafted to prevent what would really be air charter under the guise of a fractional ownership program. An example the proposal gives is the selling of a 1/1000 interest in a light typical general aviation aircraft for a very small dollar amount, entitling the purchaser to an "ownership" interest equivalent to a few hours of occupied flight time in the aircraft, with a pilot provided. The FAA intends to discourage this by requiring a minimum 1/16 fractional ownership interest (1/32 of a rotorcraft).

What could also make a mix of pilot and nonpilot owners impractical in a Subpart K fractional program are the requirements related to providing professional crews. Whether the program manager is to provide pilots to a nonpilot co-owner who wants to use his or her aircraft, or the other co-owner pilots intend to perform the piloting chores for the nonpilot owners, the crew requirements of Subpart K come into play, significantly increasing the costs and regulatory burdens of the program. Even this statement needs to be qualified. Maybe an arrangement could be structured that would parse out the crew requirement costs to the nonpilot owners, saving those costs to the piloting co-owners. This all could shake out in the final rule.

Advantages for non-Subpart K fractionals?

What about not using Subpart K, but adopting some of the concepts developed in the fractional programs? For example, aircraft co-ownerships of only pilots could be arranged adopting the management company concept (for maintenance, scheduling, insurance, etc.) and coupling it with the ability to share other nonowned aircraft in the program on a dry lease basis (other aircraft with different co-owners) when the owned aircraft is not available. This approach would avoid the disadvantages of the increased regulatory requirements of the proposed Subpart K, especially the crew requirements. It might even be called a fractional ownership arrangement, though that could be very confusing in the long run. Such an arrangement could be structured legally right now for owners who are pilots qualified in the aircraft they co-own and would fly in the program. A new regulation is not needed for this kind of program.

In summary, the FAA has proposed a new rule to formalize fractional aircraft ownership programs already in operation. The agency has solicited public comment on the proposal and probably will issue a final rule in due course.