Operating Your Jet
One frequently violated regulation is Part 91’s limitation on reimbursement. Aircraft owners mistakenly create unlawful “flight department” companies by charging affiliated companies, friends, and family while failing to comply with FAR 91.501 reimbursement limitations. Operating such an illegitimate flight department can cause needless legal problems, read here.
Business aircraft are generally operated under Federal Aviation Regulations (FAR) Part 91 or Part 135. Certain large aircraft are operated under Part 125. Some foreign aircraft may be operated under Part 375.
FAR Part 91 governs aircraft operations that are not for compensation or hire. Part 91 offers flexibility and reduced operating costs and simplifies aircraft management. Part 91 is commonly used by corporate flight departments.
General Rule: Part 91 operators may not accept compensation for a flight.
Part 135 (aircraft charter) governs aircraft operations for compensation or hire.
Part 135 operators must be certificated by the FAA and hold economic authority from the Department of Transportation. Aircraft may be leased to Part 135 certificate holders and flown under the Part 135 certificate.
Part 135 includes increased liability protection, additional maintenance requirements, specific crew training and rest and duty limitations, and additional regulatory requirements. Part 135 is ideal for corporations that want to spread the cost of the corporate aircraft among subsidiaries or sister companies. Part 135 also simplifies personal use issues and may help a company preserve its corporate aircraft deductions, even if the aircraft is used for substantial personal use and entertainment.
A dry lease is a lease of aircraft without crew. A dry lease allows an aircraft owner or operator to transfer possession of the aircraft to another operator. The FAA closely regulates dry leases, including which parties may lease and operate an aircraft, when a lease must be filed with the FAA and carried onboard the aircraft, and what language must appear in the lease. Avoid The Flight Department Company Trap, read more here.
Timeshares allow one Part 91 operator to provide its jet and flight crew to an individual or company and receive limited reimbursement for use of the aircraft. Cost reimbursement is so limited that the operator may lose money on the timeshare flights. The aircraft operator must collect and remit federal excise tax on the timeshare flight.
Registered Joint Ownership
Registered joint ownership exists when two or more individuals or entities own a direct interest in an aircraft.
An interchange is an agreement where one company leases its aircraft with crew to another company in exchange for equal time on the second company’s aircraft. No charge can be made except for the difference between the cost of owning, operating and maintaining the two jets.
Company A’s Jet – Hourly Cost (including ownership, operation, and maintenance) = $10,000/hr.
Company B’s Jet – Hourly Cost (including ownership, operation, and maintenance) = $7,000/hr.
Company A needs 15 hours on Company B’s jet.
Interchange Agreement: Company B must also have the option to use 15 hours on Company A’s Jet. Since Company B’s jet is more expensive to operate per hour, Company A may pay Company B up to $3,000 per hour to cover the operating cost difference. If Company B does not use its 15 hours on Company A’s jet, it loses them. No additional compensation may be exchanged if an unequal amount of hours are used.
Part 125 governs U.S. registered aircraft with seating configurations of 20 or more passenger seats or a maximum payload capacity of 6,000 pounds, as long as common carriage (commercial operation) is not involved. Part 125 is a substitute for Part 91. Part 125 does not apply if the aircraft is operated under Part 135.
Part 375 governs U.S. foreign civil aircraft. A U.S. foreign civil aircraft is a U.S. registered aircraft that is owned, controlled, or operated by persons who are not citizens or permanent residents of the U.S. Part 375 limits aircraft operations and reimbursements between aircraft operators and aircraft users. Ask us how to comply with Part 375 or how to avoid falling under Part 375’s regulations.
Audits, Compliance and Enforcement
The firm represents clients before the Federal Aviation Administration (FAA), Department of Transportation (DOT), Department of Justice (DOJ), Internal Revenue Service (IRS), Customs and Border Protection (CBP), and Transportation Security Administration (TSA) for regulatory compliance matters, including HAZMAT shipping violations. We counsel clients on responding to letters of investigation and audit notices and represent clients during hearings and appeals. We also advise on implementing Safety Management Systems (SMS) and Voluntary Self Disclosure programs to proactively avoid and mitigate enforcement situations.