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©
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.
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