© 1998 By Michael P. Fleming

With this examination of issues in mind, I will now address individual tools for sharing. The subsequent section examines the use of these tools in specific planning scenarios.

Private Carriage. Several sharing options allow operations under Part 91’s private carriage rules, with its related operating flexibility.

Time Sharing. Specifically allowed under §91.501(c)(1), Time Sharing is "an arrangement whereby a person leases his airplane with flight crew to another person, and no charge is made" other than for the direct, out-of-pocket expenses associated with the flight including twice the cost of fuel. This charging restriction is its main limitation. There also should be a true sharing: an occasional exception to the "time sharor’s" use of the aircraft for its own business. Despite the FAA’s inclusion of Time Sharing under Part 91’s private carriage provisions, the IRS has determined that it is "commercial" and therefore subject to the FET. Time Sharing constitutes a lease and is therefore subject to the FAA’s "Truth-in-Leasing" provisions.

On the other hand, Time Sharing is very useful as a planning device because it allows provision of the aircraft and flight crew (commonly referred to as a "wet lease") with compensation, albeit limited, in return. It is most useful for short-term arrangements where fully-allocated cost-recovery is not essential.

Interchange. Also specified under §91.501(c)(2), Interchange is a very narrow arrangement useful for two (or more) companies, each of which owns an aircraft, to swap time. The exchange must be hour-for-hour (i.e., you can’t trade two hours on a Citation for one hour on a Gulfstream), but an hourly charge may be made for the differential operating costs. The IRS has deemed it to be commercial so the FET applies. Interchange is also a lease, meaning Truth-in-Leasing provisions must be followed. While the regulations do not say specifically, it appears the FAA intended to permit "wet" interchanges, whereby each party provides its aircraft and crew to the other. "Dry" interchanges have also been conducted (each lessee providing its own crew; see Fractionals), and logically should not be problematic because "dry" leasing has always been more clearly in the private carriage camp than "wet" leasing.

Dry Leasing. Dry Leasing is not a product of §91.501. Rather, it simply refers to an arrangement where the lessor provides the aircraft and the lessee is in "operational control," usually meaning that the lessee is providing (or contracting with independent parties for) its own flight crew and otherwise controls the operation of the aircraft. While subject to Truth-in-Leasing, Dry Leasing is private carriage from an FAA perspective, is not subject to the FET, and there is no apparent limit on the ability to charge. These attributes make it an extremely useful planning tool for sharing use.

Co-Ownership. For decades, companies have agreed to share ownership of aircraft. There is no prohibition on doing so in the FARs. Each co-owner may operate the aircraft independently, or contract out individually or collectively for management services. These arrangements would ordinarily be private from an FAA perspective, and not subject to the FET or Truth-in-Leasing provisions. The co-owners, though, would be unable to charge each other for operating the aircraft. Sometimes useful, this structure should be distinguished from Joint Ownership.

Joint Ownership. Joint Ownership should be viewed as a very specific arrangement whereby the FAA, in §91.501(c)(3), allows more charging flexibility among co-owners that are also the joint registered owners. One owner may furnish the flight crew for the aircraft and "each of the registered joint owners pays a share of the charge specified in the agreement" (note that an agreement is required). This structure is cumbersome, however, when large numbers of users are involved (especially dealing with registration and insurance aspects) and care should be taken to ensure that "holding out" does not occur (which could amount to common carriage). The FET and Truth-in-Leasing do not apply.

Fractional Ownership. Fractional Ownership does not appear in §91.501, but amounts to a combination of concepts derived from Co-Ownership, "dry" Interchange and the use of a Management Company. As in any combination structure (see the discussion of the nature of Subpart "F", above), Fractionals operating under Part 91 carry some degree of regulatory ambiguity. Program documents typically include an Ownership Agreement among the co-owners of each aircraft, a Master Interchange Agreement by which all Program Participants swap aircraft, and a Management Agreement in which each Program Participant contracts with the Program Manager (analogous in this role to a Management Company) for management services.

Fractionals are useful sharing tools for Industry Players only if many parties and multiple aircraft are involved, and one party has significant resources and operational expertise to act as the Program Manager (including the ability to acquire and operate multiple "core-fleet" aircraft to support its contractual requirements). Fractionals are subject to the FET and the Master Interchange Agreements are subject to Truth-in-Leasing.

Charter. In addition to these private carriage options, chartering should always be considered. Charter customers and Flight Departments can charter in for occasional flight requirements. Industry Players holding Part 135 certificates can charter out and enjoy a great degree of charging flexibility. Other parties can charter out by placing the aircraft on an Industry Player’s Part 135 certificate, often in conjunction with aircraft management, with the owner typically receiving 15-20% of the charter revenues. Charter is too often overlooked when developing sharing devices, and is especially useful if lower operating flexibility is acceptable.

Combination Structures. Complex planning often involves using alternating mechanisms for various travel purposes. For example, an aircraft might be managed, chartered out to unrelated third parties, Time Shared to an Occasional Relationship User, Interchanged with another company, and Dry Leased to an employee for Personal Use.

Planning Attributes. Figures 1 and 2 present graphically some of the planning attributes of various structures in comparison to each other. These diagrams summarize much of the information addressed in this section for the four planning factors that tend to be the most critical: operating flexibility (Part 91 versus Part 135), charging flexibility, complexity (and related transaction expense), and utility in the planning environment.