All posts tagged 'aircraft ownership' - Page 2

Can You Barter For Aircraft Rental And Expenses? FAA Says "Yes"

As you may know, the FAA defines compensation very broadly. Compensation may include not only the exchange of money, but also the exchange of value. With this expansive view of compensation as a backdrop, the FAA was recently asked whether it was permissible to barter services in exchange for (1) a private pilot's pro-rata share of operating expenses under 14 C.F.R. § 61.113(c) and (2) rental of an aircraft.

In the first scenario presented to the FAA, a private pilot (Pilot A) who is also in the business of aircraft detailing desires to barter aircraft detailing services in exchange for Pilot A's pro-rata share of expenses on common-purpose, recreational flights in an aircraft owned by Pilot B, also a private pilot, and with Pilots A and B as the sole occupants of the aircraft during the flights. The common-purpose for the flights would be the building of pilot time as allowed by applicable regulations.

For purposes of the request, the FAA was asked to assume that the aircraft's type certificate does not require operation by two crewmembers, the flights are operated under 14 C.F.R. Part 91, and during the common-purpose flights one pilot is acting as pilot in command and the other pilot is strictly a passenger and not a required crewmember.

Pilot A would perform aircraft detailing services for Pilot B's aircraft. Pilot A and B would determine the fair market value of the aircraft detailing service and that amount would applied to Pilot A's pro-rata share of the operating expenses of the flights shared by Pilots A and B.

Based upon this first scenario, the FAA answered the following questions:

Question 1: Does Pilot A's bartering of services in exchange for Pilot A's pro-rata share of the operating expenses of a common-purpose flight with Pilot B comply with 14 C.F.R. 61.113(c)?

Answer: Yes, as long as the amount of the bartered services did not exceed Pilot A's pro-rata share of the expenses, otherwise Pilot B would be in violation of § 61.113(c).

Question 2: May Pilots A and B agree upon the fair market value of the aircraft detailing services to be bartered against Pilot A's pro-rata share of the operating expenses for the common-purpose flight?

Answer: Yes, the two parties to the transaction would need to reach an agreement with respect to the fair market value and, although FAA regulations do not require a written record of the agreement, they could certainly make such a record. (I would certainly recommend that the parties have a written agreement executed at the time of the transaction, rather than trying to later come up with documentation to prove the agreement as to fair market value.)

Question 3: May the fair market value of the aircraft detailing services be applied prospectively to Pilot A's pro-rata share of operating expenses for future/successive common-purpose flights with Pilot B?

Answer: Yes.

Question 4: What documentation, if any, would Pilots A and B need to evidence their compliance with 14 C.F.R. § 61.113(c) in this scenario?

Answer: None. The FAA does not require any documentation. (However, having appropriate documentation will definitely help in proving compliance.)

In the second scenario provided to the FAA, a private pilot (Pilot A) who is also in the business of aircraft detailing desires to barter aircraft detailing services in exchange for rental of an aircraft owned by Pilot B for personal flights operated under 14 C.F.R. Part 91 and in which Pilot A would be the sole occupant. The FAA was asked to assume for purposes of the request that the aircraft being rented is a type certificated aircraft with a standard airworthiness certificate and is not subject to the Truth-in-Leasing requirements of 14 C.F.R. § 91.23.

Question 5: Does Pilot A's bartering of services in exchange for rental of Pilot B's aircraft violate any regulations administered by the Federal Aviation Administration?

Answer: It does not violate any FAA regulations.

Question 6: May Pilot A and B agree upon the fair market value of the aircraft detailing services to be bartered against Pilot A's rental of Pilot B's aircraft?

Answer: Yes, as long as the flight is not for compensation or hire.

Question 7: May the fair market value of the bartered aircraft detailing services be applied prospectively to Pilot A's future/successive rental of Pilot B's aircraft?

Answer: Yes, as long as the flight is not for compensation or hire.

Question 8: What documentation, if any, would Pilots A and B need to evidence the barter arrangement under this scenario in order to comply with any applicable regulations?

Answer: FAA regulations do not require documentation.

Although the FAA's answers were short and sweet, without any in-depth analysis of the regulations' application to the factual scenarios, at least the FAA has provided some guidance regarding the viability of barter transactions in connection with aircraft use, rental and expenses. As with most situations when dealing with the FAA, having a paper trail to document your compliance is a good idea. Thus, if you are going to enter into a barter arrangement, make sure you have something in writing that not only explains the barter transaction but also substantiates the fair market values upon which the barter transaction is based.

Thanks to the FAA's guidance, aircraft owners and pilots now have another option for aircraft use and rental. And that's a good thing.

Aircraft Bailment And The Duties Owed By A Maintenance Facility To An Aircraft Owner

A maintenance facility recently asked me to explain what duties it may owe to an aircraft owner when the owner leaves his or her aircraft with the facility for service, other than the responsibility for performing repair or maintenance services on the aircraft as requested by the aircraft owner. This situation creates what many states refer to as a "bailment" and it does impose certain additional duties upon the maintenance facility.

So, what is a bailment? Well, the bailment relationship is created when:

  1. the aircraft owner (the "bailor") delivers the aircraft to the maintenance facility (the "bailee");
  2. the aircraft owner/bailor does not transfer ownership of the aircraft to the maintenance facility/bailee;
  3. the maintenance facility/bailee accepts the aircraft based upon an agreement with the aircraft owner/bailor that the aircraft will be returned to the aircraft owner/bailor; and
  4. return of the aircraft to the aircraft owner/bailor, the aircraft must be in at least the same condition it was in when delivered to the maintenance facility/bailee.

Once the bailment relationship is created, as a bailee of the aircraft, the maintenance facility has a duty to exercise reasonable care with respect to the aircraft based upon the maintenance facilities acceptance of possession of the aircraft and its subsequent exclusive custody and control over the aircraft. The maintenance facility/bailee must ensure that the aircraft is in at least the same condition as it was when it was delivered to the maintenance facility/bailee.

If the aircraft is damaged while it is in the exclusive custody and control of the maintenance facility/bailee and it is damaged (e.g. the aircraft is lost, stolen, damaged or destroyed), the maintenance facility/bailee will be responsible for the damage unless the damage occurred in spite of the maintenance facility's/bailee's exercise of reasonable care. And, the maintenance facility/bailee will have the burden of proving that it was not at fault and the damage occurred despite its use of reasonable care.

To be clear, the maintenance facility/bailee doesn't become an insurer of the aircraft under the bailment relationship. However, the maintenance facility/bailee must use reasonable care; the type of care a reasonably prudent maintenance facility would exercise with respect to its own aircraft under similar circumstances which, of course, may vary depending upon the time and place or the custom and usage of maintenance facility.

Additionally, if the maintenance facility/bailee fails or refuses to deliver the aircraft to the aircraft owner upon demand, or if it uses or permits others to use the aircraft contrary to the aircraft owner's/bailor’s instructions, then the maintenance facility/bailee could also be liable for conversion. In that situation, the maintenance facility/bailee could be responsible for the value of the aircraft at the time of the conversion plus interest from that time.

However, the duty to return the aircraft is qualified: a maintenance facility/bailee may condition return of the aircraft upon the aircraft owner proving that the owner has title or right to possession of the aircraft, so long as the maintenance facility/bailee then does, in fact, provide an opportunity for the aircraft owner/bailor to present proof of title or right to possession. This rule is intended to protect the maintenance facility/bailee from being placed in the difficult position of risking a suit by the rightful owner of the aircraft for converting the aircraft when the maintenance facility/bailee gives the aircraft to another person who claims to be the owner of the aircraft. If the maintenance facility/bailee does not receive such proof, the maintenance facility/bailee will likely not be liable for conversion.

Unfortunately, this can potentially leave a maintenance facility/bailee in the unenviable position of having to decide to whom it should release the aircraft and to suffer the consequences if its decision turns out to be incorrect. In situations where the maintenance facility/bailee may be presented with multiple bills of sale or documents indicating security interests held by creditors, it may be difficult to figure out which party has the right to delivery and possession of the aircraft.

Another situation that may impact the decision to deliver the aircraft may arise if the maintenance facility/bailee has no been paid for its services. Depending upon the state in which the maintenance facility/bailee is located, it may be necessary for the maintenance facility/bailee to retain possession of the aircraft if it wants to assert a mechanic's or artisan's lien against the aircraft to secure payment of the amount owed for the work it performed. Retaining possession of the aircraft to perfect the lien would excuse the maintenance facility/bailee from complying with the aircraft owner's request for return of the aircraft and, as long as the lien claim was valid, the maintenance facility/bailee would likely not be liable for conversion of the aircraft.

So, what can a maintenance facility do to protect itself from potential liability under a bailment relationship? For starters, the maintenance facility should ensure that it is, in fact, exercising reasonable care with respect to the aircraft in its custody. Maintaining custody and control of the aircraft and taking reasonable precautions to minimize the opportunities for damage to aircraft will go a long way to avoiding claims.

Another option is to include language in the work order or service request signed by the aircraft owner that limits the maintenance facilities liability for negligent damage to an aircraft. This may include exclusion of damages for loss of use or diminution of value and it may cap or limit the total amount of damages for which the maintenance facility could be liable. Other language may be included to require that the aircraft owner carry certain minimum insurance and that the maintenance facility be protected by the owner's insurance.

In the end, when the maintenance facility accepts an aircraft owner's aircraft for service, in most cases a bailment relationship will result. Maintenance facilities should understand the duties and liability to which they may be exposed as a bailee in that relationship. With proper procedures and contractual planning, maintenance facilities can comply with their duties and limit their liability exposure in the bailment relationship.

Jurassic Jets

Are older business aircraft even sellable? And how old is OLD?

At the recent NBAA convention in Las Vegas, I sat in on several briefings about the state of aircraft sales and residual values. It was unanimous that older aircraft are not selling. No news there. It's been that way since 2008. What was interesting is the speakers' definition of "old."

I've been going with older than 15 years as "old" in terms of the ability to sell at a reasonable price within a reasonable amount of time. Age 15 also works with getting financing: The Aircraft Age + Length of Lease/Loan should not exceed 20 years. Age 15 allows for a five year financial deal. It seems like the new "old" is younger than that. And no, we can blame it on the Millennials. Blame it on the economic booms of the late 1990s and again in the mid-2000s.

An "old" business airplane is now older than age 10 in terms of maintaining a residual value and being sellable.

Glancing through the GAMA shipment database by year, business aviation saw significant increases in sales and deliveries during the past 15 years. Many manufacturers saw their sales double, peaking in delivery backlog in about 2008. Thus, there are a large number of relatively recent vintage airplanes available that are in the 5 to 15 year group, and especially aged 5 to 10.

The future air navigation systems that have been developing are in place or will be in the next decade. New or nearly new aircraft are either capable of using the full airspace, or can be easily upgraded. Older aircraft may not be so easily updated, especially older business jets that need the upper altitudes for efficient flight.

Older business aircraft, especially jets, have operating costs significantly higher than their new equivalents. A second or third overhaul on most turbine engines will be very costly due to retirement components within the engine. Unscheduled maintenance is also much higher for these older aircraft.

Lastly, emerging markets outside the US can, and do, purchase mostly new or newer aircraft. Developing nations are adopting the EASA regulations as it relates to aircraft aging issues. Some even place an age limit on imported aircraft.

So we have a large number of recently produced aircraft, many with updated avionic systems, that can be purchased for quite reasonable prices. Financial institutions have the money to lend, provided the credit is excellent. The 20 or 30-year old airplane costly to maintain, and sending them to a developing nation to sell isn't viable. These aircraft are just not selling. Let’s take a look at an example.

Jet Years produced Percent Fleet For Sale Average Days Listed For Sale
Gulfstream GIII 1979-1987 18% 828
Gulfstream GIVSP 1992-2002 13.56% 375
Gulfstream G450 2005-current 7% 239

You can buy a used GIII for under $1 million. But almost no one wants one even at that price. Newer GIVSPs and especially the G450 have a market.

One of the speakers referred to the oldest business aircraft as "Jurassic Jets." They are from a bygone era of cheap gas. They are not selling and the financial institutions do not want them on their books. From what the speakers say, and I agree, this is not going to change. Many of these aircraft are with their last owner.

Why go the Extra Mile?

Sometimes it pays!

Jim Odenwaldt
Elliott Aviation Aircraft Sales Manager

www.elliottaviation.com

In our previous articles we talked about the technical side of our deals; now it is time for a discussion about the power of relationships. Dealer/Brokers thrive on repeat business from our core customer base. We all need new customers to keep our database alive but we must nurture relations with customers who have already used our services. As our client’s needs change, we need to be willing to adjust, stay intelligent and supportive.

I spent my first 16 years in the Aircraft Sales business with a full-service dealership. Our sales team represented a full line of new piston through turboprop products and enjoyed a large protected territory. We had the backing of an MRO division that grew to several OEM Authorized Service Centers. We were stocking dealer and did our own demos, deliveries and often customer training . This offering was ideal for many owners as they had local and complete support as they moved up the product line.

In the late 90’s I met an owner of a cabin-class single who was ready to move up and purchased a new twin turboprop. He would base with us and be a perfect customer… buying airplanes, hangar, fuel and maintenance. My company was happy with the deal and also happy to tell me that I would personally be doing the 200 hrs of transition training that the insurance company had decided to require. It was immediately obvious he was excellent pilot, fun to fly with and the mission was complete in four months.

The next two years went smoothly with his ownership experience and he was ready for the next logical transition to a light jet. He was a new airplane buyer and the OEM we were representing did not have a single pilot jet to offer. I painfully sat on the sideline while he bought a new airplane from the competition. We still had a fuel customer but had lost the sales and MRO business.

Interestingly, it became evident that the new jet service center being 200 miles away was very inconvenient, especially compared to the on-field service that he had become accustomed to with our product. My company was supportive of my idea to provide shuttle service to and from the competition’s facility, as needed. Yes, it was usually a piston airplane but it was a ride and he was very appreciative. This offer of support proved key, since after two years, our OEM had a single-pilot jet to offer and the customer was ready for an upgrade. We participated in the new delivery, got our local facility MRO Factory Authorization for the new jet and sold the trade!

The decision to think outside the box and offer the extra support with this client proved to be very worthwhile. He has provided countless referrals and has personally owned eight airplanes, bought two for his company and had us involved in 13 transactions. Without the decision to offer the support when he went with the completion it would have most likely ended with just the one sale. We have remained loyal to each other and that’s a win-win.

Jim Odenwaldt has extensive flying and technical experience with all Beechcraft products and sales expertise with all models of Hawker/Beech, Citation and Gulfstream. After graduating from Embry-Riddle in 1989, Jim worked as a CFI and maintenance technician. While with American Beechcraft Company, he was responsible for aircraft sales in the mid-Atlantic region. In addition to his ATP, Jim is an A&P and type rated in the Beechcraft Premier.

Elliott Aviation is a second-generation, family-owned business aviation company offering a complete menu of high quality products and services including aircraft sales, avionics service & installations, aircraft maintenance, accessory repair & overhaul, paint and interior, charter and aircraft management. Serving the business aviation industry nationally and internationally, they have facilities in Moline, IL, Des Moines, IA, and Minneapolis, MN. The company is a member of the Pinnacle Air Network, National Business Aviation Association (NBAA), National Air Transportation Association (NATA), and National Aircraft Resale Association (NARA).

The Future of Aviation in the U.S.

By: Brent Owens
Owner/Publisher: iflyblog.com

future of aviationWhen the group was deciding on a theme for this month’s Blogging in Formation series (#blogformation), we agreed to anchor it around July 4th (U.S. Independence Day). We settled on The Future of Aviation in the U.S., but we encouraged each other to explore the edges, good or bad, as we saw fit.

We Are The Future of Aviation In The United States

 
Aviation in the U.S. is at an interesting crossroads. We have enjoyed large populations of pilots and a commensurate number of airplanes through the bulk of the last century. Now with Baby Boomers aging and economies melting, the population of aviators has reached historically low levels. Couple that with the cost to fly at unprecedentedly high levels, things aren’t looking good. Also, we have more regulation, more oversight, more scrutiny, and our safety record, although good, is not good enough in the eyes of regulators. Combine all this with our modern distractions and it is very tough to recruit young men and women into our ranks, especially as a career. Flying for fun, or for a living, in the U.S. has proved to be a very difficult proposition in recent decades.

So with all this as the backdrop you would think that aviation here has gone the way of CB radios or Disco, but you’d be wrong. The group that has remained in this new era is more vibrate, engaged, and resourceful than ever. If you have been to Oshkosh, you know what I mean. It is truly amazing to be in the presence of such an awesome group of dedicated people.

The passion from those of us left is infectious. We are constantly looking for alternative ways to continue to do what we love and spread the gospel of flying. The organizations that represent us, are as strong as ever and are working hard to make sure we don’t give up any more of our freedoms to bureaucracy and security theatre.

Since we are in the eve of Independence Day in the United States, it is more than appropriate to celebrate our successes and put behind us our losses. Looking forward is the only way to get where we want to be in the future. It is incumbent on us to be leaders in our small family and do our part to light the way for future generations.

In a related article I wrote about how the EAA is working on a program to bridge the gap between Young Eagles prospects and future pilots (to be announced at Oshkosh 2013). This endeavor, will tap into a great deal of grassroots energy and it is bound to succeed. With it, we may come away with our own version of a “pilot boom” that hasn’t been seen since the Baby Boomers took up wings.

New pilot starts is really an important concept, because this is what will fuel the industry into the future. If we don’t have this, our ranks will keep dwindling away and soon we will have no voice to counter opposition and no economy of scale. If that occurs it’s only a matter of time before flying will be completely inaccessible to the average American. Several organizations have recognized this decades ago and started working on plans to stave off the bleeding, but it hasn’t been enough. Our current economic climate hasn’t helped either.

My plan is to do my part to support all these new (and old) efforts, because I know the greater good is the end goal. That also means; giving rides to people who are interested in flying; getting involved in local and national organizations that support us; writing my politician when our freedoms are under attack; volunteering at events; flying for charity, if possible; speaking at functions about aviation; (add your ideas here). See related article here.

We all have a choice to make, fly and be free or accept a fate of mediocrity. WE are the future of aviation in the United States and with that comes an awesome responsibility. What are your intentions?

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