Operational Control: Relationship to LOAs
Determining the appropriate applicant name for an FAA Letter of Authorization is very important to the validity of any LOA issued by a FSDO or IFO. It can be complicated, but It’s worth your effort to analyze your options and make the correct choice. Aircraft owners who don’t do this analysis almost always fall into the flight department company trap: a special purpose entity that has no significant activity other than owning and operating an aircraft.
We see it every day, and it’s better to avoid it upfront. In fact, most LOAs issued would not survive an investigation following an incident or accident; but the burden of validity (compliance) is on the operator, not the FAA. (FAA Order 8900.1 advises FAA inspectors not to review or evaluate operational control structures which affect the actual validity of the LOAs they issue.)
Here’s where the problem starts: the FAA Aircraft Registry, unlike other countries, is based on ownership. They key requirements is that the owner or entity registering the aircraft must be a “U.S. Citizen.” However, when it comes to FAA approvals to fly an aircraft in “Special Areas of Operation,” such as RVSM airspace, ownership and citizenship do not matter…but “operational control” does matter, a lot!
DEFINITIONS PER U.S. TITLE 14 Aeronautics and Space PART § 1.1 DEFINITIONS
- Operate, with respect to aircraft, means use, cause to use or authorize to use aircraft, for the purpose…of air navigation including the piloting of aircraft, with or without the right of legal control (as owner, lessee, or otherwise).
- Operational control, with respect to a flight, means the exercise of authority over initiating, conducting or terminating a flight.
FLIGHT DEPARTMENT COMPANY TRAP
Too often we see requests for assistance with applications in some name like, Acme Aviation LLC, or N555XX Inc. These names are a dead giveaway that a special purpose entity has been used to register an aircraft. Unfortunately, these types of entities are not legally allowed to operate an aircraft under Part 91—they fall into the trap of the flight department company.
According the FAA, a “flight department company” is any special purpose entity (Corp/LLC/LP/etc.) whose major enterprise activity is related to the operation of an aircraft for “compensation” or “hire” to transport persons or property. Numerous FAA interpretations have made clear that there need not be any profit motive or revenue generated by the flight department company—capital contributions to the special purpose entity, which fund aircraft operating expenses, is enough to be considered “compensation” or “hire.” The FAA considers a Part 91 flight department company to be an “illegal charter.”
When determining who the Operator will be for RVSM and other Special Areas of Operation, ask yourself the following questions:
- What is the major NON-aviation revenue-generating activity of the proposed “operator”?
- Will the aircraft be flown incidental to this major enterprise activity?
- Is the revenue sufficient to cover the costs of operating the aircraft?
- Will any other related or unrelated persons or entities be using and/or making contributions towards aircraft operating costs?
This is a complicated area of law, especially if multiple parties will be using the aircraft, but Jet RVSM’s Chief Counsel will spend 20-minutes discussing these issues for no additional charge if you order any services from Jet RVSM.
IMPACT ON INSURANCE & OTHER CONTRACTS + PERSONAL LIABILITY
Violations of Part 91 can retroactively total $11,000 per day of flying. Possibly worse would be your insurance company refusing to cover a claim due to operating outside of Part 91 compliance. Check the fine print in your policies to see if your insurance company has given themselves a backdoor exit on your policy. Furthermore, if operating outside the boundaries of Part 91, a person in possession and control of an aircraft (regardless of the ownership structure) faces unlimited personal liability (no protection from the operator’s limited liability business entity). It is critical that flight operations comply with Part 91 at all times. Pilots flying the aircraft will have their licenses suspended pending investigation which can result in sanctions.
PART 91 COMPLIANT FLIGHT DEPARTMENT
To legally operate a business aircraft under Part 91 requires that the entity operating the aircraft engages in some non-aviation “major enterprise” activity, and that the entity must contain non-aviation assets and resources, etc. appropriate to the size and scope of its business. It is critical that the flight department operations within the company be merely “incidental” to its actual business. If the registered owner is a special purpose entity, then dry leases must be executed transferring operational control to each party that will have possession, use, command and control of the aircraft for either business or personal use.