December 1, 2003
By John S. Yodice
The Federal Aviation Administration has issued its final rules governing fractional ownership of aircraft. The federal aviation regulations contain a new subpart K to Part 91, which became effective just last month.
In this column we have been following this emerging type of aircraft ownership, and the rulemaking that has been developing to regulate it. In " Pilot Counsel: Fractional Ownership, Part 1" (September 2001 Pilot), I outlined the legal framework within which fractionals have been operating. I explained how the FARs are generally structured to reflect two different levels of safety regulation, one for private aviation and one for commercial aviation. Private aviation is regulated to assure a "reasonable standard of care," as reflected in the operating and flight rules of FAR Part 91. Commercial aviation, on the other hand, is held to the "highest standard of care," and must not only meet the requirements of Part 91, but also the added requirements imposed by such regulations as parts 121 and 135. The theory is that airline and charter passengers, for example, exercise little or no control over the operation and airworthiness of the aircraft in which they fly. They are therefore entitled to the higher standard of care that the commercial regulations require. Distinguish that from persons, and particularly pilots, who operate aircraft they own, lease, or rent for their own personal or business use. They exercise full control over the operation and airworthiness of their aircraft, and consequently they can accept more responsibility. In that situation, the reasonable standard of care of Part 91 is sufficient. In the early development of fractional ownership programs, they were mostly conducted under Part 91 (some operated under Part 135), though many operators voluntarily observed some of the higher operational requirements of commercial operators.
As the fractional ownership programs grew (by September 2001, fractional programs had grown to involve 625 aircraft, mostly business jets, and more than 3,000 owners), the FAA became concerned about how to regulate them. In " Pilot Counsel: Fractional Aircraft Ownership, Part 2" (October 2001 Pilot), I reported how the FAA had convened a committee of persons interested in these programs and asked the committee to come up with a regulatory structure to govern them. Based on the work of the committee, which was conducted over a period of almost two years, in July 2001 the FAA published a notice of proposed rulemaking. It proposed a new subpart K to Part 91 specifically for fractionals. It sought to impose regulatory requirements on fractional owners and program managers that are higher than those required of strictly Part 91 operators, including the requirements imposed on the Part 91 operators of large and turbine-powered airplanes under subpart F of the regulations. The proposed increased requirements were essentially equivalent to the higher standards that most fractionals were already observing voluntarily.
Since then, the government has been shepherding this proposal through the rulemaking process, which took some time. The rulemaking is now complete, and we have a final rule. It raises the operational and flight rules above basic Part 91 and subpart F. The requirements are slightly higher than the committee proposed. They are essentially up to the level of the requirements for on-demand charter operators, but not as high as those imposed on scheduled airlines.
In analyzing the final rule, my first concern was with the effect the rule would have on typical general aviation operations, especially shared ownership arrangements. The good news is that the rule does not affect operations other than those using the precisely defined fractional ownership concept. The rule, by its own terms, does not intend to affect the traditional shared ownership arrangements, such as co-ownership, partnership, or flying club operations, where the owner, co-owner, partner, or flying club member is the pilot and clearly accepts operational control and responsibility. The rule also is not intended to affect operations of "large and turbine-powered multi-engine airplanes" now operating under FAR Part 91, subpart F, i.e., time-sharing, interchanges, and joint ownership.
It works as an "opt in" regulation. Unless you intentionally want subpart K to apply to your operation, there should be little danger that you could inadvertently fall under it. For example, there are a couple of elements that must be met in order to fall within the rule. There must be a formalized arrangement with a fractional ownership program manager (including the provision for furnishing or contracting crews, and the training and qualification of crews), and there must be a written dry-lease aircraft exchange arrangement (a lease to fly someone else's program aircraft if yours is not available). If either one of these elements is missing, the ownership arrangement doesn't come within the rule.
OK, no adverse effect.
My second concern was whether the rule holds any benefits for the typical general aviation operation involving an owner-flown or renter-piloted aircraft. For example, does the rule allow a pilot to buy a fractional ownership interest in an aircraft that is in a fractional program (and get the benefit of professional management of such things as maintenance and scheduling), and then be able to pilot his or her aircraft free of the stringent crew requirements of subpart K, such as crew pairing, experience, flight, duty, and rest time requirements? The answer is no. The FAA has made it clear that "a fractional owner who desires to act as a flight crewmember on a program flight may do so only if the owner meets the pilot experience and qualification requirements of subpart K."
So, except for those who want to participate in a fractional ownership program, the rule turns out to be relatively neutral. The positive benefit of the new rule is to legitimize the existing fractional programs and to provide a regulatory environment in which others may develop.
There are some fractional ownership programs utilizing light aircraft. It remains to be seen if these programs will now opt to operate under the new subpart K, or whether they will operate under the more traditional co-ownership arrangements. The FAA recommends that programs not meeting the elements of the new subpart K "discontinue the use of the term fractional ownership to avoid confusion" with the subpart K programs.
Starting when the FAA convened a Fractional Ownership Aviation Rulemaking Committee (FOARC) in 1999 to develop the rule on Fractional Ownership Regulations, AOPA worked to ensure that traditional joint ownership scenarios where not affected. To make this happen, AOPA staff worked closely with the members of the FOARC and subsequently with the FAA as it developed the final rule.
These efforts on behalf of shared or joint aircraft ownership arrangements and flying clubs paid off. Under the new Fractional Ownership regulations, arrangements must include part ownership in an aircraft and an assigned aircrew; otherwise it is not considered a fractional ownership arrangement.
"Our goal was simple, not to allow a rule being developed for this new form of primarily turbine powered aircraft ownership to change joint ownership agreements by piston engine pilots," explained Melissa Bailey, AOPA's vice president, Regulatory Affairs.
The FAA's new Fractional Aircraft Ownership rule takes effect November 17, 2003.
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