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What Is The Difference Between Owning And Operating An Aircraft Under Part 91 Versus Part 135?

by Greg Reigel 24. April 2017 09:21
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Owners of business aircraft frequently face the question of whether their aircraft should be operated under 14 C.F.R. Part 91 (“Part 91”) or Part 135 (“Part 135”). And it isn’t uncommon for owners to simplistically choose Part 91 because they have been led to believe that Part 135 is far too expensive and restrictive. Unfortunately, that answer isn’t necessarily the correct answer for all circumstances. The question is more complicated and requires a thorough analysis of the facts.

Generally speaking, it is true that aircraft may be operated under Part 91 with fewer restrictions and regulatory requirements than when operating under Part 135. However, from a risk management perspective, Part 135 exposes the charter customer to the least amount of regulatory and legal liability risk. As a result, it is necessary to understand the key distinctions between operations under Parts 91 and 135 in order to determine how they apply to a particular situation.

Let’s look at some of the differences between Part 91 and 135:

RISK MANAGEMENT

The operator of an aircraft has primary legal liability for injury to persons or property arising from an aircraft accident or incident regardless of whether the operation is conducted under Part 91 or Part 135. The operator is the party who exercises authority over initiating, conducting or terminating a flight (“Operational Control”). The operator of the flight has legal liability whether the operator is the actual owner of the aircraft or merely a lessee.

Part 91

An entity that owns an aircraft may operate that aircraft under Part 91 as long as (1) that operation is incidental to its business, and (2) the operator is paying for those operations out of its normal revenue without receiving compensation or reimbursement from some other person or entity. That is, the entity must derive at least 51% of its revenue from business that is unrelated to its use of the aircraft, and then use and pay for that use incidental to that primary business activity. In such a situation the entity is exercising Operational Control of the aircraft and as the operator it has liability for its operation of the aircraft.

Expanding on this concept, an entity whose sole purpose is to own the aircraft (an “SPE”) may not operate the aircraft without certification from the FAA to act as an air carrier, i.e., it must have a “Part 135 certificate.” However, it is common under the FAA’s rules for an SPE to own the aircraft solely for the purpose of leasing it to other parties. For example, an aircraft may be owned by an SPE and then leased to an individual or business lessee who will then operate the aircraft under Part 91 pursuant to a “dry-lease,” with, as noted above, such lessee’s use being incidental to the lessee’s primary non-aviation-related business. A dry-lease is a lease for the aircraft alone, without crew, and may be with or without fuel, with the lessee then being responsible for providing its own flight crew either directly (e.g. lessee’s employee(s)), or hired as independent contractors from an outside source (e.g. a pilot services or aircraft management company). In this situation, the lessee is exercising Operational Control, and as the operator of the aircraft it has assumed all regulatory and civil liability for each of its operations of the aircraft under the lease (regardless of how it obtained its pilots, who performs the maintenance, and so forth).

Part 135

Conversely, where the Part 135 certificate holder exercises Operational Control over the aircraft and all flights, that Part 135 certificate holder has assumed regulatory and civil legal liability for injury to persons or property arising from an aircraft accident or incident. Passengers on the aircraft do not have legal liability.

An aircraft owner, whether SPE or otherwise, may lease an aircraft to a Part 135 certificate holder under a dry-lease. The Part 135 operator then provides the crew (either using the Part 135 operator’s employees or independent contractors who are then agents of the Part 135 operator) and conducts operations pursuant to its Part 135 certificate. In most cases the entity that owns the aircraft will not have any legal liability for the Part 135 certificate holder’s operation of the aircraft.

OPERATIONAL CONSIDERATIONS

In addition to risk management, various differences between operational conditions and limitations under Parts 91 and Part 135 must also be considered. These include:

 

  1. Airport Limitations:

    • Runway Length Requirements.

      Part 91 - Runway length requirements are determined solely by aircraft requirements and limitations.

      Part 135 - The aircraft must be capable of landing within 80% of the runway length. This affects/limits access to a significant number of smaller airports that may be more conveniently located to the ultimate destination.

    • Weather Reporting.

      Part 91 - An aircraft may begin an instrument approach to airports where there is no weather reporting and the pilots determine when they approach the airport whether they can land safely. Additionally, an aircraft may depart from an airport below IFR weather minimums.

      Part 135 - An aircraft may not begin an approach to an airport that has no weather reporting facility unless the alternate airport has approved weather reporting. This may not only adversely impact whether or when a flight may depart, but it again has the potential to limit access to airports that are more conveniently located to the ultimate destination. Takeoff and alternate airport minimums also restrict whether and when a flight may be conducted.

  2. Flightcrew Member Restrictions:

    • Pilot Agency.

      Under both Parts 91 and 135 Flightcrew members must be agents of the party exercising operational control. This agency may be established by employment or contract. Flightcrew members who are employees of an entity other than the Part 135 certificate holder may be paid by their employer and still be agents of the Part 135 certificate holder provided the flightcrew members have entered into an appropriate agency agreement with the Part 135 certificate holder.

    • Flightcrew member Duty Time Limitations and Rest Requirements.

      Part 91 - Flightcrew member duty time and rest requirements are not imposed. This means the flightcrew members may operate the aircraft on multiple flights as long as they feel they are adequately rested and safe to fly.

      Part 135 - Flightcrew members are requirement to comply with specific duty time and rest requirements. The rules are complicated, but generally provide for a maximum assigned 14 hour duty day, limitations on the number of flight hours during a 24-hour period and required rest periods. Once a flightcrew member has reached his or her limit, that flightcrew member may not fly until the applicable rest requirements have been satisfied.

    • Drug and Alcohol Testing.

      Part 91 - Drug and alcohol testing of flightcrew members is not required.

      Part 135 - Certificate holders must comply with the same drug and alcohol testing requirements as air carriers operating under Part 121. Flightcrew members are subject to pre-employment/transfer, random, reasonable suspicion/cause, post-accident, return to duty, and follow up drug and alcohol testing pursuant to the Part 135 operator’s drug and alcohol testing program.

  3. Restrictions and Fees in Foreign Countries:

    Part 91 - Operations may be subject to some additional fees, but are typically not required to obtain additional licensing to operate in foreign countries.

    Part 135 – Certificate holders operating within foreign countries are subject to bilateral air transport agreements between the U.S. and those countries. These agreements subject the Part 135 operator to fees, regulations and additional licensing imposed by foreign countries for its commercial operations. The fees are typically passed on to the customer, increasing the cost of the charter flight.

  4. Maintenance and Equipment:

    Any U.S. registered aircraft must be maintained under some form of approved maintenance program. Under Part 91 this is typically done under the manufacturer’s basic recommended maintenance program, and so long as the operator meets those requirements, no further compliance or oversite by the FAA is required. Under Part 135, the aircraft must be maintained in accordance with a program that has been specifically approved by the FAA for that particular operator, and while these plans are commonly based on a manufacturer’s programs, they also typically include additional requirements imposed on top of the manufacturer’s requirements. Thus, depending upon the age and condition of the aircraft and whether it is currently enrolled in any maintenance or warranty programs, the cost of maintenance for an aircraft operated under Part 135 is potentially higher than if the aircraft were operated solely under Part 91. Because a Part 135 certificate holder cannot operate an aircraft unless it can document that the aircraft has been continuously maintained under its FAA-approved program, the practical effect of this is that if the aircraft is held in an SPE and then leased to both a Part 91 operator for its occasional use and to a Part 135 certificate holder for its use, then the aircraft will need to be maintained at all times under the approved Part 135 program, so the cost differential between Part 91 and Part 135 maintenance programs will largely become irrelevant.

  5. TSA Security Requirements:

    Part 91 – Operations are not subject to TSA security program requirements. Part 91 operators are not permitted to operate within sterile areas at airports.

    Part 135 - Certificate holders operating aircraft with a gross take-off weight in excess of 12,500 pounds are required to have a TSA approved security program in place. The Part 135 operator’s flightcrew members are subject to criminal history records checks and certain training requirements. The security program requires timely transmittal of crew and passenger lists in advance of flights. This means that last-minute changes of passengers on a particular flight is usually not possible. Also, if the flight will be enplaning or deplaning within the sterile area of an airport then additional screening requirements must be met.

CONCLUSION

As you can see, operations under Parts 91 or 135 have both advantages and disadvantages. Owners and operators of business aircraft need to carefully consider each in the context of their own circumstances. An in-depth discussion with a knowledgeable aviation attorney is also recommended to make sure their decision is the right one for their situation.

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Greg Reigel

Private aircraft for sale under 5 million, what to buy?

by GlobalAir.com 19. April 2017 12:23
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What kind of private jet can I purchase for 5 million dollars?

We hear that question alot!  The quick answer, there are all kinds of private jets that can be purchased for 5 million or less.  But, there are many factors that you must consider first.  The most important decision you must make is what is your “Mission Profile”? Just like cars and trucks what are you going to do with it? You buy a truck to haul stuff, you buy a Volkswagen to save gas, you buy a van to haul kids. All three could be priced exactly the same given the year of manufacture and condition. If you don’t know your mission profile I will promise you that the 5 million will go right out the window and maybe without ever flying what you purchased.

Questions to consider (just to name a few); Are you carrying a lot of passengers or is it going to be you and your cat? Are you going to fly it or hire professional pilots. Are you flying cross country or over the Atlantic once a week or just going to a vacation spot once a year.

The second thing to consider is the cost to operate and cost to maintain. Most single aircraft (not all) corporate flight departments in general have an operating expense of one million US dollars per year (again depending on several different factors).

So with that all said here is a list that you can review:

Gulfstream IV - Priced in the 4–5 million dollar range. This aircraft can fly from Chicago to London non-stop on almost all conditions. Carries around 15 people in jetsetter style. Maintenance though is going to be well over a million plus each year.

Gulfstream IV private aircraft under 5 Million dollars

 

The new “Fly it yourself” aircraft the Cirrus Vison SF50 - holds 3.5 people comfortably and you fly it yourself. Other wise know as “Dr. Killers”. Around 3 million.

Cirrus SF50 private aircraft under 5 Million dollars

 

Another newbie on the block the Hondajet - Base price is about 4.5 million. Seats 4–5 comfortably and has a range around 1200 nm at about 420 knots.

HondaJet private aircraft under 5 Million dollars

 

If you are looking at an aircraft with less cost to operate but shorter in range and capacities then the Pilatus PC12 is a good choice.

Pilatus PC 12 private aircraft under 5 Million dollars

 

We could go on and on about what to buy for 5 million bucks. Bottom line there are several different types of aircraft to choose from. Your best bet right off the bat is to look on line at an aircraft for sale website like Globalair.com, and look at the many different type aircraft there are. Then do yourself a favor and hire a good qualified aircraft broker that can help you figure out what you mission profile is. That in itself will save you at least a million!

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Aircraft Sales | GlobalAir.com

Oldies But Goodies, the decision to buy a new aircraft versus old(er) aircraft

by David Wyndham 18. April 2017 15:32
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The majority of manufacturers of new turbine business aircraft are still having difficulties selling their new aircraft. Sales remain sluggish. According to GAMA 2016 was the worst year for business jet deliveries since 2004. Ref: http://aviationweek.com/bca/business-jet-shipments-lowest-2004-gama-says

When I talk to brokers of pre-owned aircraft, many are reporting that 2016 was a very good year and that 2017 is continuing the upward trend. Why is that? One reason is that there are still a lot of quality pre-owned aircraft for sales at prices that have not recovered since the last recession. 

A friend in the finance industry who frequently works with high net worth individuals reports that for them, buying new is not financially the best option. Ten, 15 or 20-year old business jets are safe, have relatively low time versus their life, and, if you understand the maintenance requirements, can offer years of excellent service. 

Business jets still depreciate at alarming rates. A rule of thumb for a new business jet? Try 8% to 10% per year! Sources like Vref and the Aircraft Bluebook Price Digest support this with historical data. For a number of models, you can easily buy a seven-year old for about half or less than acquiring new. The manufacturers' sales people stress the new aircraft have much lower operating costs due to the lower maintenance costs, have the latest avionics, and new aircraft warranties. They are right, but still - that market depreciation! Being a numbers person, I ran some numbers.

looked at several popular large cabin business jets and the below is an average of a couple models. I used Vref pricing and ran operating costs to include the costs aging aircraft maintenance using our Life Cycle Cost software. Here are a couple things to consider.

Acquisition

New aircraft list = $44 million 

7-Year old model = $7.5 million

15-Year old model = $3 million

 

Knowing that acquisition is only part of the costs, what about the variable operating costs - including all the older aircraft maintenance?

Variable Cost Per Hour (on engine hourly maintenance program)

New aircraft = $3,800 per hour 

7-Year old aircraft = $4,900 per hour

15-Year old aircraft = $5,100 per hour

$1,300 per hour in operating cost is a lot - 34% greater than for the new model. The new jet, $44 million and you are good to fly right away. The 15-year old might need $2 million to $4 million in upgrades, new paint & interior, ADS-B, and some engine work. Even the 7-year old will need some upgrades. 

But when you look at residual values as a financier does, that difference in the operating cost budget pales in comparison to what (may) happen to the value. After seven years, that new jet may be worth half of new (or less) based on recent history. That $44 million jet may decline by $22 million! The older jet's value will be dependent on the maintenance status, especially the engines. It's possible that after seven years the now 15-year old may still get $2 million or more if the engines are in good shape. Even if you park the 15-year old jet after seven years' use, you are only out $4 to $6 million. 

One area not covered in these numbers is availability and utilization. A aircraft age, they require more maintenance and the extra maintenance burden requires more downtime. When the aircraft is in for maintenance, it is not available for flight. I you need high utilization, that older aircraft will likely make it difficult to maintain a busy flight schedule. But, for the lower utilization owner, such as many high net worth individuals, 200 hours a year is plenty and that 15-year old jet can easily keep up that schedule. 

Can you keep an older jet flying 30-hours a month? Maybe but not every month. I don't have an exact number as there are too many variables, but maintaining consistent 500-600 annual hours will be very difficult in all but newer models. A new aircraft can sustain that use with ease. That seven-year old model can probably sustain that level save for the "once every 8-year" type of heavy maintenance. 

Consider a company like NetJets. They need to minimize downtime. NetJets and the other fractional aircraft providers all tend to operate newer models. They do this to be able to offer the 800-occupied hours per year for their share owners. They cannot consistently get the revenue hours with older aircraft. 

can't ascertain that the new aircraft sales are going to the high utilization operators while the infrequent-fliers are buying the older models. But that can be one reason while the pre-owned aircraft brokers are enjoying a good year. 


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Aircraft Sales | Aviation Technology | David Wyndham

3 Ways to Study More Effectively

by Lydia Wiff 15. April 2017 09:00
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It’s that time of year again!  Yes, Finals are just around the corner and this is when life get exceptionally busy for college students.  We’re all busy finishing up last projects, presentations, papers, and preparing for our last round of exams plus our Final exams (yes, some professors give two tests back to back).  The great thing about college and higher education, you learn several ways to study.  I’ll cover three ways you can study more effectively and hopefully it will save you some effort whether you’re taking a final exam or studying for your next checkride.

#3: Do Less & Not More

Now, I know this seems a little backwards, but cramming more material versus being strategic about your study time has been shown to be more productive.  In a study done by the University of California – Las Angeles (UCLA), cramming for a test or burning through a pile of homework was less beneficial than getting the extra sleep and picking up again in the morning. 

The pattern of cramming more homework in a few hours at night is often derived from habits in high school when most students are at school for hours a day only to come home to that many more hours of homework.  In addition to these habits, colleges often suggest two to three hours of studying for every one credit hour.  For the average student, taking the average full-time load of 12 credits, this is at least 24 hours of study per week.

Now, add the “recommended” 24 hours of studying, if you’re only taking 12 credits, and add your part time job (or jobs).  Most students are taking above the full-time limit to either finish programs on time, or just to quality for scholarships and financial aid.  Pretty soon, your “recommended” study time creeps well above 30 hours, not to mention your work schedule.

You end up being stuck with a few hours at night to accomplish everything you need to and you end up at the point of diminishing returns – less sleep, a propensity to become sick, and reduced attention spans.  This is where it is important to come to grips with the fact that sometimes doing less is actually more.

#2: What Worked Once Won’t Always Work Twice

A few years ago, I remember an individual asking me how I studied for my classes – I think they wondered if my study methods directly correlated to how well I did in class.  Moreover, it seems a common misconception is that a student uses exactly the same method for every class – this is far from the truth. 

We learn many study methods over the course of high school as well as college.  However, I have found what works in one class does not work in others.  For instance, if you’re taking a class that is full of facts and numbers, such as a science class, you may find yourself using a lot of flash cards to memorize terms and definitions.  On the other hand, you may find yourself in a class that requires understanding concepts, and not just recognizing terms.  You will probably have to understand the context behind a definition and connect that to a real-world example.  This does not even account for the fact that no two professors teach or write tests and assignments the same.  For these reasons, I find myself adapting in almost every class when implementing my studying strategy. 

                                              

For instance, I am currently in a class that prepares me for a certification exam in airport operations and administration.  The study material is almost entirely context-based, meaning I need to understand what something does rather than just memorize a term or a name.  I probably won’t get asked to select the correct year for a piece of important aviation legislation, but I’ll be given the name and date of that act and asked what it accomplished for the airport industry. 

So, it’s important to get a feel first for how the professor teaches and what they test on and then adjust your techniques accordingly.

#1: Take a Break

I saved this tip for last because I think it’s the most underappreciated tip out there.  We all think “of course I take breaks!”  However, those breaks are probably after we’ve done an all-night study session and we want to grab a few hours of sleep before our big comprehensive final.  The most important piece of advice I got while in community college was to do intense periods of studying (30 minutes max) followed by 10 minutes of break.

This break could be on social media, listening to music, or some other relaxing activity such as walking.  The point is that you concentrate on studying with no distractions for a certain period of time followed by a real break.

Similar publications and articles suggest between 30 and 50 minutes of concentrated studying along with five to ten minutes of a break.  The goal is to get quality study time in which you actually retain knowledge versus pulling an all-night session and not being able to retain even half of the information.

Happy Studying!

Honestly, few people actually enjoy spending hours studying, but hopefully you have a few new ideas how to study more effectively.

Remember:

·       Study less, not more;

·       Be strategic in your methods;

·       And, take a break!

For all of you out there in the final throes of the semester (like me), keep up the good work and study smarter, not harder!

Image courtesy of Google.com.

 

 

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Lydia Wiff | UND

Ignore the Terms of Your Aircraft Insurance Policy at Your Own Risk

by Greg Reigel 1. April 2017 13:52
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When you purchase an aircraft insurance policy you expect that the policy will provide coverage when you need it. However, that isn’t always the case. All aircraft insurance policies contain requirements, conditions and provisions with which you, the insured, must comply in order for the policy to provide coverage. These requirements often mandate the condition of the aircraft (e.g. airworthiness), qualifications and currency of the pilot and accuracy of the information provided by the insured to the insurance company. If an accident or loss occurs, and a policy provision has been breached, the insurer may have the right to deny coverage.

Most, if not all, aircraft insurance policies have provisions relating to the pilot(s) who will be operating the aircraft. These provisions typically require that the pilot have a current and valid medical certificate and that the pilot be in compliance with all recency of flight regulations. The policy may also limit coverage to certain identified pilots. Insurers have denied coverage based upon breaches of these provisions when the aircraft was flown by an unapproved pilot.

This was the situation in the aftermath of an accident involving a P-51D Mustang. The case, U.S. Specialty Insurance Company v. Estate of Earley, arose after the Mustang crashed, killing both Pilot A, the aircraft owner and named insured on the policy, and another pilot, Pilot B, who was flying with Pilot A.

The Mustang, originally built as a single-seat aircraft, was modified to (1) add a second, rear seat and (2) add limited controls to the rear seat: a control stick, rudder pedals, and a throttle control. These modifications were intended to allow an experienced pilot to instruct a new pilot from the rear seat. However, the modifications to the Mustang were limited and did not provide access to the following controls from the rear seat: the landing gear; the trim; the fuel selector; the propeller pitch; the brake; the hydraulics; the starter and magneto controls; the fuel boost pump; and the electrical controls.

On July 4, 2014, Pilots A and B took off in the Mustang for an instructional flight with Pilot A in the forward seat and Pilot B in the rear seat. Shortly after takeoff the Mustang crashed. At the time of accident, Pilot B was identified on the aircraft’s insurance policy as a pilot who was approved to operate the aircraft, while Pilot A was not.

After the accident, the insurance company who insured the aircraft took the position that it was not obligated to cover the accident because (1) Pilot A was receiving instruction in the aircraft and (2) he was the pilot actually flying the aircraft, which violated the terms of the insurance policy. The district court agreed and then Pilot A’s estate appealed the decision to the Tenth Circuit Court of Appeals.

Unfortunately for the Estate, the Court agreed with the district court’s decision. The Court observed that the policy language was clear in stating that the policy did not provide coverage if the Mustang was “operated in flight” by someone other than one of the approved pilots. So, the question was whether Pilot B, one of the approved pilots, could have operated the Mustang from the rear seat.

The Court concluded that Pilot A was, in fact the pilot operating the Mustang in flight because “he was the only pilot with access to all of the controls and instruments needed to ‘control the functioning’ of the Mustang.” Not only was the rear seat passenger unable to access 21 of the 24 most critical of the flight controls and instrumentation required to fly a Mustang, but the FAA’s approval of the two-seat Mustang conversion was valid only if the Mustang was placarded to be flown from the forward seat only. Thus, the Court affirmed the district court’s finding that the insurance policy did not cover any potential claims that may have arisen from the accident.

Conclusion

Although this case is an unfortunate result for Pilot A’s estate, it is a good example of why you need to make sure you comply with all of the provisions and requirements contained in your policy. Failure to comply could very well result in a denial of coverage if you are ever involved in an accident or loss. In the aftermath of an accident or loss, the last thing you want to do is fight with your insurer for coverage. To avoid this type of situation and to ensure that you will have coverage when you need it, you need to be aware of and comply with the requirements and conditions of your aviation insurance policy.


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Greg Reigel



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