1. FAA is preparing to ramp up scrutiny and enforcement of non-intuitive Part 91 compliance rules & policies.
2. Links to two resources for getting prepared:
JetLaw article on FAA base inspections of Part 91 flight departments.
Free NBAA webinar on avoiding unintended "illegal charter."
3. Answers to the questions
Why this is happening?
Who should be paying attention?
PART 91 DEPARTMENT INSPECTIONS
We have been hearing more and more about specific customer instances of increasing FAA scrutiny. In the April 2020 issue (p.59) of Business & Commercial Aviation we finally see why: "Part 91 Department Inspections--The FAA is Coming." We recommend you read this Point of Law article by aviation attorney and Contributing Editor, Kent Jackson, Jet Law LLC.
If you are flying or managing aircraft under Part 91 rules, there are a number of surprising regulatory traps for the unwary. They are often grouped under the label "Illegal Charter." But, this can be misleading to many pilots and operators. Beware! Even an owner-pilot flying personal and business trips can fall into the illegal charter trap. The use of an LLC to register or operate the aircraft can cross the line of an FAA policy or case law interpretation of what constitutes "exchange of value" or "inter-company reimbursements". If you're a corporate/contract pilot, owner/operator, or an aircraft manager, we recommend you register for the free NBAA webinar "How to Avoid Illegal Charters as We Emerge From COVID-19".
WHY IS THIS HAPPENING?
The specter of Part 91 flight department inspections arises from mandates in the FAA Reauthorization Act of 2018. You can read about these mandates in Kent Jackson's article above, but (in fits and starts) we are seeing increased scrutiny of part 91 dry leasing and situations involving invoicing, reimbursements, or capital contributions between related or unrelated parties.
WHO SHOULD PAY ATTENTION?
Anyone involved in a FAR part 91 flight operation using one of the following structures:
FLIGHT DEPARTMENT COMPANY: In an attempt to isolate liability, or for privacy, the owner(s) formed a corporation or LLC specifically to acquire one or more aircraft and to register such aircraft with the FAA. The registered owner company itself has no major business activity other than owning, leasing and/or operating aircraft.
An aircraft was purchased by a group of people each using the aircraft for his or her own business and personal use.
An owner, wishing to offset costs, etc., leases the aircraft to one or more other persons or companies.
A business person who owns multiple separate companies and has one LLC "operator" conducting flights in support of travel for other related companies owned by the same business person (or partners, etc.).
PERSONAL USE OF BUSINESS AIRCRAFT: An owner/CEO uses an aircraft operated by his or her company for personal entertainment, recreation or vacation travel, or to carry friends and family along on an otherwise business trip--but without carefully structuring the operations within FAA compliance limitations.
OFFSHORE ENTITIES: An aircraft is registered to a trust company and is operated by a person or company through an offshore entity (e.g. shell company). FAA paperwork only shows the trust company and the offshore entity. The users of the aircraft either fund the offshore entity to pay for aircraft expenses or aircraft expenses are paid out of one or more other companies that is not a named "operator".
HOW DO I REDUCE REGULATORY RISK?
If you are dry leasing your aircraft, make sure each Lessee has its own set of Part 91 LOAs. LOA's include the following:
RVSM / NAT HLA / RNP-10/RNP-4 / LNAV-VNAV-LPV / CPDLC / MEL / MMEL
Contact your aviation attorney or CPA who set up the operational structure. If they have dry leases in place already, make sure all LOAs match the names of the Lessee(s).
If you are not working with an aviation attorney or CPA, you can call John Clark, Jet RVSM's Chief Counsel, for more information about Part 91 compliant flight operations.
(877) 538-7876 (JET-RVSM)
Copyright © 2020 Jet RVSM Services, LLC, All rights reserved.