NBAA2013 News Bureau

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Experts Shed Light on Gray Areas of FAA and DOT Compliance

October 24, 2013

As Part 91 and Part 135 operators know too well, there are a host of FAA and Department of Transportation (DOT) regulations defining how they’re allowed to operate, the ways they can structure ownership of their aircraft and how they advertise air travel. When the laws don’t line up exactly with the reality of business aviation, this can create gray areas that trip up operators.

One of the more common – but least understood – pitfalls is the “flight department company trap,” where the FAA prohibits Part 91 certificate holders from setting up a single-purpose company that has no business other than operating the airplane, explained Gary Garofalo, a partner with aviation law firm Garofalo Goerlich Hainback PC. “What this means is the company’s operation of the airplane has to be incidental to the company’s other business.”

To avoid the flight department company trap, operators have the option of putting the aircraft on a Part 135 certificate, putting it inside the business company or setting up a dry-lease arrangement.

On Oct. 23 during NBAA2013, Garofalo and other experts pointed out this and five other tricky areas in a session on FAA and DOT regulatory compliance.

Part 135 Pitfalls: Full Fare Advertising, Empty Legs and Air Charter Brokers

For both Part 91 and Part 135 operators, the consequences of running afoul of these regulatory gray areas can include fines, insurance liability or an invalidated air carrier certificate. Part 135 operators face a unique dilemma, in that some DOT regulations hold them to the same standard as scheduled airlines.

The DOT’s full fare advertising law, for example, went into effect in January 2012, and applies to any commercial air carrier, including Part 135 operators. As detailed in 14 CFR Part 399.84, the law requires that for air travel, “the price stated is the entire price to be paid by the customer,” said Allan Mann, director of operations for charter operator Reynolds Jet Management.

“These regulations were written for the likes of JetBlue, American, Southwest and the other Part 121 carriers, but the Part 135 industry, by its very nature, operates slightly differently,” said Mann. For example, charter operators often quote fares as an hourly rate, which can vary depending on the length of the flight, whether it is operated domestically or internationally and other factors. “However, at present we are held to the same standards as the airlines.”

Charter operators can also encounter a gray area when advertising seats on empty leg flights. The FAA regulates scheduled operations under Part 121 and on-demand operations under Part 135, but the complication arises in how the FAA defines “scheduled operations.”

Basically, charter clients must have significant room to negotiate one of three elements of the flight: the departure time, the departure location or the arrival location, in order for the FAA to consider it an on-demand rather than a scheduled operation. “A departure timeframe of less than 48 hours might be seen by the FAA as too restrictive,” said Mann. “As for the departure or arrival location, it must be suitably vague, for example, ‘the East Coast’ or ‘the Greater Dallas area.’”

Aaron Goerlich, a partner at the same firm as Garofalo, also discussed the confusing way the DOT differentiates between air charter brokers as “agents” – either for customers or charter operators – and “indirect air carriers” (IACs), acting as principals entering into back-to-back contracts with both customers and charter operators. Currently, the DOT does not authorize air charter brokers to operate as IACs, but has issued a notice of proposed rulemaking, which if finalized, would allow them to do so.

Review an NBAA Tax Committee resource on the flight department company trap.