Addressing the fractional ownership concerns

By John W. Olcott, President of NBAA, ATP/CFII. Beech Baron 55.

The National Business Aviation Association appreciates the opportunity afforded by Professional Pilot to comment on fractional ownership, a complex issue that understandably raises concern and, at times, high emotion among individuals who earn their living in business aviation. The NBAA board and professional staff are sensitive to these concerns and shape NBAA actions in response to the needs of NBAA members and the business aviation community.

Two simple words, fractional ownership, have launched many heated discussions. A small number of NBAA members have seen their flight departments close in favor of fractional operations, prompting fears among other professional aviators that their jobs may be on the line. A few sales personnel for fractional providers fuel the fires of controversy (if not animosity) by communicating directly with top management, obviously pitching their products with a salesman's spin and possibly a selective use of facts. FAA added an additional dimension by questioning whether current regulations are sufficient to maintain the excellent safety record of fractional operations as now implemented under FAR Part 91. Many legal factors are involved and the risk of unintended consequences to current FAR Part 91 operators is real. It is in the context of these conditions that NBAA addresses the fractional issue.

Fractional ownership: a threat?

Three years ago, then-NBAA Chairman Allan B. Lane said "NBAA considers fractional ownership as a means of expanding the number of companies that will utilize business aircraft and thus offers the potential for increasing the number of flight departments. Fractional ownership is one of the ways of filling the niche between chartered aircraft and full aircraft ownership. It is NBAA's belief that, as utilization increases, the well-managed and progressive flight department operating company-owned aircraft provides the most cost-effective form of business transportation."

That statement was formulated after NBAA conducted a fax survey among voting members concerning their perspectives on fractional ownership. It is still the official policy of NBAA.

Events in business aviation show NBAA's position as stated by Chairman Lane in 1996 to be well founded. According to AvData, a company which tracks aircraft ownership, over 1100 traditional flight departments were formed in the last three years. The number of companies that purchased fractional shares was about 800 during the same period. Thus, about 2000 more companies are engaged in business aviation now as opposed to when NBAA issued its first statement on fractional ownership.

Because more companies are now engaged in business aviation, more pilots are employed, more hours are being flown and more aircraft, fuel and maintenance are being sold. Also, more business people are saying good things about business aviation. But importantly, there is more job security for everyone.

Yes, fractional ownership has caused some dislocation which we at NBAA do not like to see. Some well-known flight departments have been replaced by the fractionals. According to AvData, the number of flight departments displaced is less than 10. Business aviation must reflect the nature of the business it serves. When management makes a judgment that there is an opportunity to be more cost effective, change will occur. Thus a flight department's best approach to job security is to understand the pros and cons of fractional ownership and maximize the benefits of the corporate pilot's operation to his company.

We do not see any likelihood that fractional ownership will abolish the traditional flight department, any more than management companies replaced the flight departments of the 1970s. Many of the fears and emotions being expressed today are similar to the rhetoric of 20 years ago. Look where business aviation has gone since management companies became big business. In a similar matter, charter will not disappear. In fact, the charter community has been a significant beneficiary of fractional ownership's stimulated demand for business aviation.

Help, advocacy and membership

NBAA provides support that helps flight department personnel expand their services and communicate the good news of their operation to their employer. The NBAA website contains a realistic look at costs for all travel options. Figures for charter, fractional ownership, co-ownership and full ownership are available. Travel$ense software helps a flight department demonstrate value. We work face-to-face with embattled flight departments to help them tell their story. We urge flight department managers to understand all options, focus on value and communicate with confidence the benefits of their services. Most of all, we believe that, as stated in 1996, the well-managed and progressive flight department operating company-owned aircraft provides the most cost-effective form of business transportation. The community has nothing to fear from competitive forces. In fact, competition is healthy.

NBAA is an unabashed advocate for business aviation and all those who contribute to the great community of business aviation. The scope of our actions, however, are bound by NBAA's articles of incorporation as a 501(C)6 not-for-profit association. Those articles, which were formulated over 50 years ago, provide full voting membership to "any commercial or industrial enterprise (corporation, company, partnership, financial institution, proprietorship or individual) which is engaged in business, commerce, trade or industry, and which owns or operates United States registered aircraft, primarily not for hire, as an aid to the conduct of its business..." NBAA's counsel advised us that owners of fractional shares are now and always have been entitled to full voting membership. To deny them membership would risk NBAA's status as a not-for-profit corporation. While NBAA's board of directors can change the association's bylaws, they can not affect changes that are contrary to the articles. Changing the articles of incorporation involves an extensive legal process and fundamental changes for the association.

Who does NBAA represent?

Flight department managers and personnel often ask if NBAA represents them. The answer is an emphatic yes. Unlike the AOPA, NBAA's members are companies rather than individuals. Member representatives, who are generally the flight department manager but possibly a company executive, speak for the company. NBAA communicates with the representatives as well as with all personnel associated with the flight department. Companies consist of people and it is the employees of companies whom we serve.

NBAA, however, is not a union. Unlike a union, it focuses on management issues and needs. Incidentally, many years ago the issue of whether or not NBAA should be a union surfaced. It was rejected and has not resurfaced since.

Governance of NBAA is through its Board of Directors, which is elected by the representatives of voting members. The board is assisted by the Associate Membership Advisory Council, which consists of representatives of non-voting or associate members. Employees of associate members as well as all personnel of members are entitled to NBAA services. In fact, the law requires NBAA to provide services also to the community from which we obtain our members. The only differentiation between services to members and non-members allowed by law is the cost of those services. Thus non-NBAA members are entitled to attend all NBAA seminars.

The board makes decisions that are consistent with our association's vision, mission and values (see sidebar), which were developed by the board with due consideration to member needs and desires as expressed in many surveys. The top three member expectations for NBAA are political representation in Washington, operational support and business aviation advocacy.

Our professional staff takes direction from the board. As NBAA President, I am employed by the board and my performance is measured by how well I and the rest of the staff carry out board direction. Board members all are associated with traditional flight departments and work daily with the professionals who are responsible for the safety, efficiency and acceptance of business aviation (bylaws require that the majority of board members be from corporate members of NBAA).

Why Part 91 for fractional ownership?

Early in 1998, attention was drawn to fractional ownership being regulated by FAR Part 91. This issue came to a boil in the late summer when FAA informally requested input from NBAA and other general aviation associations. NBAA's board and representatives of the business aviation community met with FAA personnel from both the Office of Chief Counsel and Flight Standards on September 1. At that meeting the point was made that what we know as fractional ownership does not exist in the FARs. Basically, what we call fractional ownership is a combination of several operations allowed by FAR Part 91, particularly FAR 91.501. Very capable lawyers on both sides of the Part 91/135 issue have argued the case since at least 1986 and have concluded that fractional operations are legal under Part 91. FAA representatives stated that some regulation would have to change or be created if fractionals were moved to Part 135. They also cautioned that if NBAA were to influence FAA thinking, the board had to state NBAA's intentions by October 1, 1998.

FAA emphasized that its only concern was safety as fractional operations grew. FAA was satisfied, in fact impressed, with the safety record of current fractional providers operating under Part 91. However they were concerned that future operations might not follow the same best practices. In particular, they questioned the extent to which fractional owners knew and accepted their responsibilities for operational control.

After careful debate and research into the safety record of Part 91 operations, NBAA's board voted overwhelmingly to recommend that fractional operations remain under Part 91. The board saw no justification for changes in Part 91, particularly since the safety record of Part 91 flight departments is outstanding and changes to Part 91 would affect all NBAA members needlessly. The board felt, however, that fractional ownership should follow a strong safety culture and a program of best practices to ensure safety.

NBAA's board and professional staff offered to work with the general aviation community to develop guidelines that applied best community practices and safety culture to fractional ownership within the regulatory framework of FAR Part 91. Since FAA said that time was of the essence, NBAA agreed to provide its recommendations by the first week in January.

Many meetings were held between September 1 and early January 1999. All deliberations were posted on NBAA's website at www.nbaa.org. On January 11th, after full board approval, NBAA's Safety Guidelines & Responsibilities for fractional aircraft owners and fractional aircraft program managers were submitted to FAA Administrator Garvey, the FAA's Office of Chief Counsel and FAA's Office of Flight Standards. NATA and GAMA participated in the document and agreed to support it before the FAA. The guidelines, which are available on NBAA's website along with minutes of the meetings that resulted in their preparation, follow best practices of the business aviation community and call for retention of Part 91 for fractional operations.

In addition to its guidelines, NBAA plans to launch a new educational campaign this Spring focusing on safety culture relevant to all users of general aviation for business travel, including fractional owners. We believe a fully informed community is best prepared to capitalize on opportunities and deal with challenges.

NBAA appreciates the concerns of its member companies and their employees. We firmly believe that traditional flight departments offer value that is not threatened by fractional ownership. Furthermore, many more flight departments will be formed as a result of fractional ownership, thus producing growth for all engaged in business aviation.

John Olcott has been president of the National Business Aviation Association since 1992. Prior to joining NBAA, Olcott was publisher and editorial director of Business & Commercial Aviation. Olcott owns and operates a Beech Baron 55. He is an ATP/CFII with Learjet, Citation, King Air 300 and Falcon 50/900 type ratings.

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