Should Your Aircraft Fly Part 135?
The risks of operating a business aircraft are very low- but they are not zero- warns David Wyndham. In the event of an accident- an owner can face a significant liability issue - thus a corporation may look to insulate itself from some of the risk by having a degree of separation between itself and the aircraft.
Insulating oneself may involve having the company aircraft placed into a single-purpose entity- a flight department company (Bizplane1- LLC). In the case of the business aircraft- the regulation governing a commercial operation is FAR Part 135. Without this certificate- our hypothetical flight department's pilots can have their licenses revoked for providing illegal charter. This issue even comes into consideration if a senior executive wants to reimburse the company for personal use of the business aircraft.
If the parent company wants to have the additional liability protection that separation may provide- having the aircraft in a Part 135 charter entity is one way to do it. The aircraft operator has command and control of the aircraft in FAA terms. Thus- the parent corporation has that level of separation for risk management and the CEO can charter the airplane for personal use if so desired. So why not just get your own Part 135 operating certificate? Let us count the reasons. The process can be time and money consuming.
OBTAINING & MAINTAINING PART 135
The FAA has very specific requirements for obtaining and maintaining a commercial operating Part 135 certification. In order to become certified that these requirements are met- there is a lengthy review and approval process. Issuing new Part 135 certificates is not the FAA's primary mission and with budget restraints the process can be very long - 18 to 24 months long!
OPERATING & MAINTENANCE SPECIFICS
The Part 135 operator also must have very specific aircraft operating and maintenance procedures in place- and they must be fully documented and approved by the FAA. The organizational structure of the operator is mandated by the FAA to have certain positions such as chief pilots and directors of maintenance. These positions must comply with certain experience and training requirements. The operator must comply with drug testing and record-keeping too.
A possible issue with some corporations owning a Part 135 operation is the actual owners' citizenship. The Part 135 rules stipulate that the entity's ownership as well as several of the major management positions be held by US citizens. If your corporation does not meet the FAA defined citizenship requirement- it cannot own a Part 135 operation.
There is- however- another way to achieve separation: You can place the aircraft with an existing charter company- and the aircraft can still be in a separate LLC owned by the parent company while the crew can be employees of the existing charter company.
With the execution of specific management and charter agreements- the parent company can charter its own aircraft. In this case- the charter-management agreement can also allow the charter operator to charter out your aircraft while not in use by your company. This chartering can generate some revenues to offset the costs of owning an aircraft.
For this procedure to work well- there needs to be a clear understanding between all parties involved- however- not only for legal and operation purposes- but also for financial considerations. To make the operation legal to the FAA- the crew does need to be under the control of the charter company- not the aircraft owner/parent company.
While the primary means of risk management for a business aircraft are training and insurance- the option to operate the aircraft under Part 135 may be one to consider if additional risk management strategies are desired by your company.
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