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burse for the flight (e.g., senator who is chair of the
Senate Health, Education, Labor and Pensions Committee
provides keynote speech about jobs at your company’s
new factory.)
Considering the stature of elected officials, your aircraft
liability insurance policy and limits must be reviewed
with your insurance broker to ensure appropriate coverage when transporting elected officials.
For carriage of Federal candidates, operators that have a
FAR Part 135 Certificate (discussed below) or have their
aircraft on a FAR Part 135 Certificate always must accept
reimbursement at the charter rate – the first class/coach
airfare method may not be used.
FAR Part 135 for Business Aircraft Operations
Business aircraft available for charter generally are operated
under FAR Part 135. Some aircraft operators decide to operate
under a FAR Part 135 certificate as opposed to Part 91. There
are advantages and disadvantages associated with both
arrangements; each operator must weigh its own needs and
obligations when making this decision.
The principal advantage of operating under a Part 135 certificate is that an operator then can lease the aircraft to gain additional utilization of the aircraft and, therefore, offset the fixed
costs of owning the aircraft. These commercial operations can
be most beneficial and compatible if the aircraft is used infrequently by its owner.
Some disadvantages also exist. As a Part 135 operator, the
company is a certificate-holding entity in the eyes of the FAA
and must comply with specific requirements in regard to
paperwork, maintenance and training. As a certificate holder,
the operator is subject to additional surveillance from FAA
inspectors and has less flexibility in conducting flight operations, e.g. legality of starting instrument approaches when
weather is below minimums, takeoff minimums (there are
none for Part 91), flying to airports with no weather reporting
equipment, crew rest, etc.
Scheduling flexibility and control are more complex because
aircraft may be obligated to lease or charter commitments.
Insurance, accounting and tax considerations all will change
under any lease or charter arrangement.
Rather than obtaining their own FAR Part 135 certificate,
some aircraft owners will place their aircraft on someone else’s
135 certificate. This is known as piggybacking, or managed
charter. The owner of the aircraft will pay for the conformance
of the aircraft to the Part 135 regulations, but the 135 certificate holder will hold FAA operational control of the aircraft
when conducting charter flights. Piggybacking situations can
take many forms; therefore, key issues such as who supplies
the crew, whose insurance policy covers, who dispatches flights
when the aircraft is operated Part 91 for the owner of the aircraft, etc. must be addressed in advance and included in the
air charter management agreements.
Flight Department Companies
Companies engaging in any type of business will seek to isolate risk, whether it be financial, operational, market or political in nature. A common tool for companies to isolate liability
is to set up an LLC, S-Corp or some other corporate entity in
which the risk is placed; therefore, it is presumed that the
company is free from risk, as it is under the veil of another
corporate entity. At other times, even when not trying to avoid
risk, companies will use other corporate structures such as
LLCs to create favorable tax structures. In the world of business aviation, we refer to these companies as flight department
companies, which are a trap for those unfamiliar with the
Federal Aviation Regulations and FAA Chief Counsel
Opinions on the subject.
Now that you have learned something about private operations versus commercial operations, you should understand
that isolating the risk of operating a company aircraft is not as
easy as placing the aircraft and all of its operations in a separate entity and operating that aircraft under FAR Part 91 for
the other businesses within the corporate family.
Risk is a natural component of every action we take, including
flight operations. The only true ways to manage your company’s risk and liability with regard to your corporate aircraft are
to operate the aircraft to the highest possible standards and
ensure you have adequate insurance to cover your liability in
the event of an incident or accident.
As you know, companies that operate their aircraft under FAR
Part 91 do so within the scope of, and incidental to, the business of their company. If a separate company is set up and
funded with the sole purpose of operating the aircraft, then
the business of that separate company is the transportation of
people or property. When a company is in the business of air
transportation, it must have an air carrier certificate to operate
legally. Generally, for business aircraft, that would be a FAR
Part 135 certificate.
Several FAA Chief Counsel Opinions (Chief Counsel
Opinions 1981-6, 1982-12, and 1989-22) clearly state this case.
The FAA argues that:
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Operations that may be conducted in accordance with
Section 91.501 Subpart F include, when common carriage
is not involved, the carriage of company officials, employees and guests of the company on an airplane operated by
that company “when the carriage is within the scope of,
and incidental to the business of the company (other than
transportation by air).”
When the concept of “incidental” was being adopted,
it was contemplated that the company’s aviation activities
would be secondary to the overall business of the
company.
The business structure described, when viewed as
a whole, does not fit the literal language of FAR
91.501(b)(5), which does not provide for flight department companies. Additionally, it is clear that these flight
department companies are organized solely for the pur-