Kate Sarsfield/LONDON
There is considerable unease among the US fractional ownership community as it braces itself for the outcome of an 18-month investigation by the Federal Aviation Administration, which will determine if this burgeoning market sector should continue to operate under current Federal Airworthiness Regulation, FAR Part 91 general aviation rules, or should be brought under stricter Part 135, commercial aviation rules.
Although the debate has been raging for nearly two years, it has intensified in the past six weeks. The FAA declines to discuss the issue, commenting only that it is "-reviewing all of Part 91 and Part 135 regulations and is waiting for input from individuals and associations before a decision is made".
Fractional ownership providers, however, have responded vociferously. "The FAA has been overseeing fractional ownership and has had total involvement in it for nearly a decade. All of a sudden they are looking at changing the rules - it doesn't make any sense," says Raytheon Travel Air president Gary Hart. The Wichita, Kansas-based company which operates 27 aircraft on behalf of 120 customers is one of three major fractional ownership companies in the USA, the programmes of which could be adversely affected if the FAA favours a change in regulation.
The other fractional ownership players include Dallas, Texas-based Bombardier Business JetSolutions, which manages 60 aircraft for its 250 clients, and Executive Jet's Netjets, the world's oldest and largest programme, which manages 140 aircraft for over 1,000 owners from its Montvale, New Jersey site. "We have invested a lot of money to put these companies in business and it is not fair to suddenly change the rules half way through the game," adds Hart.
The FAA is primarily concerned with operational control - who controls the scheduling dispatch and re-routing of the fractionally owned aircraft, the owners or the companies that manage the aircraft on their behalf?
"The FAA has always wanted to say that operational control means exercise of aviation expertise," says aviation lawyer Kent Jackson. He argues that many companies today hire management companies to manage the aircraft, and consequently owners do not have any direct responsibility or even any understanding of how the aircraft operates.
AVIATION EXPERTISE
"The FAA is now asking if it is OK for companies who don't know anything about aviation to be in aviation, and should there be some requirement for having aviation expertise," he adds. Travel Air's Hart maintains that, although the owners recruit management companies to look after the aircraft, they still have responsibility under the management agreement and under the FAR to make sure their aircraft is operating correctly.
"The FAA is saying they don't know who to go after if they have an incident, but it is all laid down in the regulations that the owner is still responsible to make sure the aircraft is airworthy and that it can fly - they simply buy expertise through a management company," he says. Hart also believes that, whether you own a fraction or a whole aircraft, the definition of operational control is the same.
"What is the difference whether four owners go out and buy an aeroplane and then get the management company to manage it, and if this management company has one, 20 or 100 aircraft, isn't the concept the same? These people are aircraft owners and they are no different to any other aircraft owner," he argues.
Two industry trade bodies have so far embraced the fractional ownership cause. The US General Aviation Manufacturers Association has openly declared its support, and on 2 October, the National Business Aviation Association (NBAA) published a policy statement declaring that the industry should remain under the current regulations. "Part 91 provides sufficient governance and oversight for the FAA to monitor operations and identify unsafe practices. It gives all the authority they need to exercise safety, and we see no reason to have a new set of regulations," says NBAA president Jack Olcott.
The NBAA asserts that the FAA has a clear mandate from the US Government to look only at issues of safety. "It is a safety agency which has been specifically told not to get into the area of aviation promotion," adds Olcott.
As safety is the mandate of the FAA, the fractional ownership community believes it has a cast-iron case. "There have been no fatal accidents in the past 13 years that it has been practised in the USA, we have an exemplary safety record," says Bombardier Business JetSolutions vice-president Mark Self.
The Washington DC-based NBAA states that Part 91 turbine operators have a safety record which is the best in the business: equal to, if not better than, Part 121 (airline) operators. Aviation lawyer Jackson supports this claim. "The programmes are about selling aircraft, and the manufacturers have a huge stake in making sure the aircraft are safe - after all the ones writing the cheques are sitting in the back," he says.
REGIONAL DISAGREEMENT
The FAA examination of fractional ownership was driven by several factors, although many observers believe the inability of the FAA's regional offices to find a general consensus on the operating status (Part 91 or Part 135) of fractional ownership programmes has been the catalyst. "There has been controversy in the USA about this issue for years, but it wasn't until a small start-up programme applied to its regional office for clarification on its operating status that the subject became came to the fore," maintains Jackson.
Members of the charter community opposed to fractional ownership have also been urging the FAA to change the regulations. "Members of the charter industry have been vehemently opposed to fractional ownership because they see its as a threat," says Jackson. The NBAA believes that these operators are attempting to deal a marketing blow to fractional ownership. "The charter community that says we should impose [Part] 135 on fractional ownership should not use the air regulations to try to get a more even playing field," says NBAA's Olcott.
The US National Air Transport Association (NATA), which represents the interests of the charter community, is expected to produce a draft position statement by the end of October. "It has been a wrestling match," says NATA vice-president Andrew Cebula. In 1997, the Alexandria, Virginia-based association announced that that fractional ownership should remain under Part 91, following complaints from members, however, it was forced to reconsider its position.
"You have to see it from the charter operator's point of view. They spend a great deal of money to operate their aircraft under Part 135, by having to install the latest technology, and the Part 91 operators, which many feel are poaching their business, can operate at a fraction of the cost and with comparatively more freedom," Cebula says.
The NATA recently surveyed its 1,900 members to seek their position on the issue. From the replies, around 40% were in favour of retaining the status quo, 40% wanted the programmes to moved under Part 135 and 20% believed that new regulations should be drawn up for fractional ownership. "It is a very emotional issue, but once you get beyond the intensity of the argument it becomes complicated," according to Cebula.
NATA, like its aviation counterparts, concedes that many charter companies have blossomed since the start of fractional ownership. All the programmes guarantee that an aircraft will be available to the owner within 4-8h. If this pledge cannot be met, the company will often approach a charter operator to supply the aircraft. According to the NBAA, Executive Jet purchased around 8,000 charter hours for its Netjets programme in 1997 alone. "Fractional ownership has been the best thing that has ever happened to these operators and we have to consider their future," concedes Cebula. He adds that the major fractional ownership providers are also members of the NATA through their charter subsidiaries, and therefore have their feet in both camps.
Executive Jet Management oversees 40 aircraft, Bombardier offers charter and management services through its Alliance Charter subsidiary, while Raytheon Aircraft Services provides a similar service through its 14-strong network of fixed-based operators. One source close to the charter industry believes it is a very small minority who are forcing a change in regulations. "The outspoken minority will always get their voices heard. These Part 135 operators seem to be the ones who are not getting any business from fractionals, probably because their standards are not high enough," he says.
Travel Air's Hart maintains that the sheer size of the market has also prompted concern. "Unscrupulous companies may be tempted to set up a programme on the cheap," he says. The NBAA believes that the FAA is simply trying to be proactive. "They agree that the existing programmes offer exemplary safety records but they are concerned that the same level of safety may not be maintained if sharks start to swim in the water," says Olcott.
SAFETY FIRST
The fractional ownership community is concerned that operating under Part 135 regulations will place a host of unnecessary restrictions on their programmes. "The main issue is airport access. We will be forced to land in the first 60% of the any runway without using reversers, and will have fly to an airport with approved weather and weather reporting," says Bombardier's Self.
According to the NBAA, these restrictions alone will reduce airport access by nearly 30%. "How do you tell the owner that you successfully went into that airport for the last two or three years but you cannot go into it now. It will reduce the efficiency and accessibility of business aviation," says Olcott.
Travel Air's Hart maintains that Part 135 will also drive up the costs for the management companies which have to comply with specific pilot training requirements and duty times, although the major programmes claim to exceed these conditions. "What regulations would need to be changed to draw fractional ownership into Part 135? At the same time, would you say that management companies would be Part 135, and would you carry it even further and say that professional pilots should be Part 135, where do you draw the line?" says Olcott.
The industry fears that if management companies are moved under Part 135, the charter community will also suffer, as the increased costs will force the private owners to take their aircraft elsewhere. Aviation lawyer Jackson believes that the implications of operating under Part 135 go deeper. "Right now, a corporate flight department may never see an FAA inspector, but 135 operators could see one every month. If you're Part 135 you're married to the FAA, if you're Part 91 you're just dating," he says.
Jackson also believes that the tax issue is fundamental. "There is a tremendous tax incentive for being in aviation because when you buy an aircraft you can depreciate it. Under Part 91, the term is about five years, but under 135 this is extended to seven years," he claims.
Supporters of fractional ownership believe the FAA should allow the business aviation industry to draw up it own a voluntary code of conduct for fractional providers, supported by the NBAA. "To become a member of the NBAA you will have to agree to these standards. If the company was not a member we would hope that the potential buyer or sharer will know that and think twice about dealing with this company," says Olcott.
The association also plans to approach the owner community to provide clear guidance on operational control. "What are their responsibilities, how do you exercise them and what can you do to maintain the highest level of safety?" asks Olcott. Some observers believe that the FAA may draw up separate regulation for fractional ownership programmes, although what form this would take is not known.
The fractional operators are now hoping that NATA will issue a policy statement in support of their industry which may then force the FAA to leave the regulations as they are. "If the industry says leave it alone, it is just fine, and if the FAA still decides to mandate a change, we will fight our corner at government level," says Travel Air's Hart.
Meanwhile, the fractional ownership community, which has long been regarded as the saviour of business aviation, is now awaiting the outcome of what is widely regarded as one of the most hotly debated corporate aviation issues in recent years.
Source: Flight International
