Can the fractional ownership industry head off moves by traditionalists to impose stricter rules on its operation?
Kate Sarsfield/LONDON
These are anxious times for the US fractional ownership community. Flourishing aircraft manufacturers and suppliers herald it as the saviour of the business aircraft industry, yet it has attracted the wrath of most traditional corporate flight departments and business aircraft charter operators. They oppose fractional ownership being regulated under general aviation rules and see it as a threat to their livelihoods.
Their concerns have prompted one of the hottest and most drawn-out of recent business aviation debates, which the US Federal Aviation Administration is being forced to settle.
The questions being asked are: should fractionals continue to operate under Federal Aviation Regulation Part 91, which governs general aviation, should they be moved under stricter Part 135 regulations, governing commercial aircraft, or under some yet to be determined hybrid of the two?
Until recently, the industry's representative trade bodies - the US National Business Aviation Association (NBAA), National Air Transport Association and the General Aviation Manufacturers Association - were in consensus that fractionals should remain under the existing Part 91 regulations until a permanent solution could be drawn up.
The preliminary results, however, of a recent opinion poll of NBAA members - consisting mainly of traditional corporate flight departments - has forced the Washington-based association to reconsider its position. The poll indicates that of the 940 poll respondents (around one-fifth of the 6,000 NBAA members had responded by early September), 60% want fractionals surgically removed from Part 91 regulations and placed under Part 135 rules, while maintaining Part 91 for the current and prospective activities of their flight departments.
NBAA president Jack Olcott says: "Three reasons are given by the corporate flight departments to justify their choice: safety [of second and third tier programmes]; the levelling of an economic playing field between themselves and fractionals; and the preservation of Part 91 for non-commercial turbine-powered aircraft that are used for business reasons."
Although the bulk of the membership had not replied by late September, the NBAA concedes that the trend is not likely to alter in the final results, which will be published at this month's convention. "This is a complex and emotional issue. We have and will continue to represent the interests of the traditional flight department, but have always maintained that fractionals should remain under Part 91," adds Olcott.
Fractional argument
The fractional ownership providers are vociferously opposed to a change in operating status, claiming that the playing field is level and their safety standards exemplary. Raytheon Travel Air president Gary Hart is concerned that operating under Part 135 regulations will be costly and restrictive, and will not enhance safety.
"The restrictions are numerous. As an example, we will have to land in the first 60% of any runway without using reversers and will only be able to fly to an airport with approved weather and weather reporting, which will reduce airport access by around 30%. These factors alone will affect the efficiency and accessibility of business aircraft [which is their hallmark]," he says.
Recent statistics published by research company Aviation Data (AvData) seem to overturn suggestions that fractional ownership poses a threat to the traditional flight department. "In the past eight years, we have identified only 18 traditional flight departments that have closed. One, Alberto-Culver, re-opened in August following the purchase of a Gulfstream IV-SP, not as a direct result of fractional ownership, but due to factors like consolidation, acquisition and cost cutting," says AvData.
Wichita, Kansas-based AvData believes that most fractional shareholders maintain their traditional flight departments and use fractional aircraft for "extra lift", when necessary. It says: "Preliminary indications show that 46 of 344 companies operating aircraft in the 500 largest industrial companies identified by Fortune magazine in the USA have fractional involvement. At best, 26 companies ranked 501-1,000 by Fortune are fractional participants."
AvData also reveals that, by last month, the US fractional fleet, operated by the five major programmes - Executive Jets' Netjets, Bombardier's Flexjet (above), Travel Air, Flight Options and Starshares - totalled 329 aircraft, owned by 1,567 shareholders. The number of flight departments, however, stood at 8,625, including the five fractional-operators' flight departments, operating a total of 12,938 business turbine-powered aircraft. It adds that, in the five years from January 1994 to 31 December last year, the number of flight departments increased by 22% and the fleet by 30%. In AvData's opinion "traditional flight departments have never been so strong".
Aviation lawyer Kent Jackson declares that the corporate flight departments most likely to oppose fractionals are those that operate fewer than 300h a year, as they are potential targets for takeovers. Large flight departments such as those in operation at Houston, Texas-based Texaco and Dow Chemicals of Saginaw, Michigan, which use their fleets heavily and employ fractional aircraft as back-up, openly support the industry, he says.
Such is the concern for the respective industry trade associations to prevent the FAA from tightening the regulations surrounding fractional ownership that they have drawn up a strict set of safety and operational guidelines for fractional owners and programme managers "that manage at least two airworthy powered aircraft equipped with one or more turbine engines, or at least two internal combustion engines. Each aircraft much be substantially dedicated to the fractional ownership programme".
In brief, the guidelines include:
• the creation of anonymous safety reporting procedures;
• the employment of at least three pilots per aircraft;
• the acknowledgement by fractional owners of their operational responsibilities
The NBAA declares its 18-page document to be part of an evolution towards a culture of safety and will be a condition for membership.
Dilemma for NBAA
Jackson believes the association's concerns are far reaching. "Although the majority of the respondents want Part 135 for fractionals, they don't want the elements of Part 91 [aircraft management, joint ownership, interchange, timeshare] to be moved along with them. There are so many aspects of fractional ownership and flight department operations that overlap. This is posing a concern for the NBAA and the FAA," he says.
There is a general consensus that, before the NBAA's Atlanta convention - to be held from 12-14 October - the FAA will announce it is to form an aviation committee made up of representatives of the fractional ownership, charter and traditional flight department communities and their respective trade bodies, which have insight on the issues concerned. Pete West, NBAA senior vice-president of government affairs, says: "The committee will have to find a consensus of opinion and come up with recommendations to the FAA. This process is likely to take about six months - and it will be up to three years by the time the new regulations, if any, are drawn up."
The NBAA believes that a compromise will be met, which will not require the removal of fractionals to Part 135.
"If I had to make a wager, fractionals will not be squeezed out of Part 91, but pushed close to the edge, probably with a new part of the regulation written for them," says Olcott.
Industry observers believe that, as fractional ownership increases in size, popularity and political might, retaining their membership will become increasingly important for the NBAA. "Fractionals account for nearly 30% of aircraft sales and the largest programmes are going to have an increasingly powerful voice. The NBAA wants to be singing from the same hymn book," says an industrial source .
Olcott, however, refutes any suggestion that they are, or ever will become, dependent on the fractionals, saying: "They form only a very small percentage of our membership. Only 50 member companies [out of 6,000] operate one or more pure fractionals, and only 120 traditional flight department members have a share in an aircraft as well as owning their own." He adds: "All the fractional providers [for example Executive Jet] are associate non-voting members who contribute under $11,000 of our total annual billings of $1.6 million".
Reaching a satisfactory conclusion in this two-year debate is paramount to the business aviation community. Jackson concedes: "The feelings of the community are reaching boiling point and something has to give. What everyone now wants is a speedy solution."
Source: Flight International
