All Aviation Articles By Greg Reigel

Tips For Renting Your Aircraft

If you own an aircraft and are not utilizing it as much as you would like or if you would like to try and recover some of the cost of owning the aircraft, you may have thought about renting your aircraft to other pilots. As a practical matter, that makes some sense. But before you actually rent your aircraft to another pilot, here are a few things you should consider.

Aircraft Owners May Rent Their Aircraft To Third Parties

It is important to understand that the FAA does not prohibit aircraft owners from renting their aircraft. In fact, the regulations specifically contemplate rental arrangements. So, renting your aircraft is permitted, provided that you comply with applicable regulations. The FAA provides guidance on what is and isn’t a permissible rental arrangement in Advisory Circular 91-37B Truth in Leasing (although truth in leasing requirements only apply to large civil aircraft, the general lease concepts discussed in the AC apply to leasing arrangements for all aircraft).

Make Sure Your Insurance Permits Aircraft Rental

Most aircraft insurance policies will extend coverage to other pilots who fly your aircraft provided that the pilots are either expressly identified in your policy or if they have the necessary experience/qualifications to meet the “open pilot” clause of the policy. However, if you are going to charge the pilot for use of your aircraft, you need to confirm that your policy allows you to rent or lease your aircraft to a third-party. Most aircraft policies issued to owners for personal/business flying do allow aircraft leasing, but it is important to confirm this with your insurance underwriter.

Also, rather than paying to obtain their own insurance policy or renter’s insurance to cover their use of your aircraft, most renter pilots will want to be named as an additional insured under your policy as this can oftentimes be done at no cost to you or the renter pilot. In that case, renters will typically ask for a certificate of insurance that reflects not only that they are added to your policy, but that they are covered for their operation and use of their aircraft. This is important because it doesn’t do the renter pilot any good if he or she is added to the owner’s policy but only covered for the owner’s operation of the aircraft, rather than his or her own use.

Renting Your Aircraft Can Trigger Tax Consequences

In most states, when an aircraft owner rents an aircraft to a third-party the owner is required to collect and remit sales tax on the rent paid by the third-party for the aircraft. If you are in one of those states, in order to rent your aircraft you will need to obtain a sales tax number so you can collect and remit sales tax to the taxing authority. This is the aircraft owner’s obligation and the taxing authority will hold the aircraft owner responsible for any sales tax the taxing authority believes the aircraft owner should have collected and remitted, regardless of whether the renter pilot actually paid the sales tax to the aircraft owner.

Also, when you rent your aircraft many taxing authorities view that activity as commercial activity which then means your aircraft could be subject to assessment of personal property tax on the value of the aircraft, or some portion of the value based upon the pro-rata rental versus personal use of the aircraft. Although not all states assess personal property tax on aircraft, if you are in a state that does you will want to determine your potential property tax exposure before you decide to rent your aircraft.

Conclusion

Although you will also have other things to consider as you decide whether to rent your aircraft to other pilots, these three issues should be near the top of your list. And if you understand and address these issues up front that will help ensure a successful aircraft rental experience for both you, the aircraft owner, and your renter pilot.

Illegal Aircraft Charter Doesn't Just Happen In Business Jets

Illegal Aircraft Charter

As you may know, the FAA has recently increased its investigations into illegal charter activities and is vigorously pursuing enforcement against operators conducting illegal aircraft charter flights. Many of the publicized cases have involved owners and operators of business jets with civil penalty assessments in excess of a million dollars. However, the FAA doesn't just pursue enforcement actions against illegal charter involving jets. It will go after any operator conducting illegal aircraft charter whether the operator is using jets or single-engine, piston aircraft.

A case in point is a recent civil penalty case, In the Matter of: Robert M. Riter d/b/a Riter Aviation. In Riter, the Respondent was the co-owner of a Cessna 172. According to the FAA, the Respondent authorized the use of his aircraft and arranged a pilot to fly two passengers on a round-trip from Torrance, CA to Las Vegas, NV in exchange for $660.00. The FAA found out about the arrangement during its investigation after the aircraft crashed shortly after departing for the return trip to California.

Since the Respondent did not hold an air carrier or operator certificate authorizing him to operate as an air carrier or commercial operator, the FAA alleged that the Respondent's carriage of passengers for hire violated 14 C.F.R. § 119.5(g). The FAA assessed a civil penalty of $11,000 for the two flights, even though it could have assessed a civil penalty of up to $22,000 ($11,000 for each flight).

On appeal to the Department of Transportation Administrative Law Judge ("ALJ"), the ALJ confirmed the violation of § 119.5(g) but reduced the sanction to $5,700. The FAA then appealed to the FAA Administrator where the issues revolved around the amount of the sanction, and the Administrator ultimately reinstated the $11,000 civil penalty originally imposed against the Respondent.

This case is instructive not only for its discussion of how a civil penalty should be calculated in a case alleging violations of § 119.5(g), but also as an example of the the FAA pursuing claims against an operator for illegal charter in aircraft as small as a single-engine Cessna 172. The FAA will impose civil penalties against aircraft owners and/or operators who conduct illegal charter using their aircraft. And although this case doesn't mention it, I suspect the pilot also faced a certificate action for the flights which could have resulted in suspension or revocation of the pilot's airman certificates.

The moral of the story: If any money is going to be changing hands in exchange for flights in an aircraft, it is important that the aircraft owner and operator/pilot make sure the proposed operation is structured correctly in compliance with all regulations. Failure to properly structure ownership and operation of aircraft, even single-engine, piston aircraft, can result in both civil penalty and certificate actions.

Can A Person Be Chief Pilot For A Part 121/135 Operator With A Third-Class Medical Certificate?

This was the question posed and answered in a recent Legal Interpretation issued by the FAA's Office of Chief Counsel (AGC). The Interpretation specifically answered the question "whether a chief pilot who no longer holds a first-or second-class medical certificate but holds a third-class medical certificate and is qualified to serve as pilot in command (PIC) in at least one aircraft used in the certificate holder's operation may continue to hold the chief pilot position."

Under 14 C.F.R. § 119.71 the chief pilot of a Part 121 or Part 135 air carrier must hold either an airline transport pilot (ATP) certificate or a commercial pilot certificate. And as we know, under 14 C.F.R. § 61.23 a person must hold a first-class medical certificate to exercise PIC privileges of an ATP certificate and a second-class medical certificate to exercise privileges of a commercial pilot certificate. The Interpretation notes that "§ 119.71(c) and (d) only require the chief pilot to be qualified to serve as PIC in at least one aircraft in the certificate holder's operation." However, Section 119.71 does not specify that the chief pilot must be qualified to serve as pilot in command "in Part 121/135 operations."

As a result, the Interpretation concludes as long as the person (a) continues to hold either an ATP or commercial pilot certificate with appropriate ratings, (b) is qualified to serve as PIC in at least one aircraft used in the certificate holder's operation (which can include just Part 91 operations), and (c) has satisfactory experience (or has been granted a deviation from the experience requirements), then he or she may serve as chief pilot for the air carrier while holding only a third-class medical certificate.

So, in addition to holding at least a third-class medical certificate, the key issue for the chief pilot will be that he or she is qualified to act as PIC in at least one of the aircraft that the carrier is authorized to operate under its certificate. And this qualification can be limited to Part 91 operations rather than Part 121/135 operations.

As a practical matter I think this Interpretation probably has limited impact on most carriers since they typically expect the individual designated as chief pilot to also act as PIC in Part 121 or Part 135 flight operations. But where the chief pilot is not expected to act as PIC in Part 121/235 flight operations, this Interpretation does provide some flexibility to a carrier considering an individual without a first or second class medical certificate for the chief pilot position.

 

GlobalAir

Avoiding Drug And Alcohol Testing "Gotchas"

Avioding Drug and Alcohol Testing Gotchas in Aviation Law

The drug and alcohol testing requirements of 14 C.F.R. Part 120 and 49 C.F.R. Part 40 continue to cause issues for aviation employers. An initial decision in a recent civil penalty action, In the Matter of Regency Air, LLC, highlights two areas of potential confusion and risk faced by an aviation employer.

In Regency the FAA assessed a civil penalty of $17,400 against the employer for alleged violations of drug and alcohol testing regulations in connection with its hiring and use of mechanics. As you may know, aircraft maintenance is a “safety-sensitive function” that may only be performed by an employee who is included in the employer’s drug and alcohol testing program. Regency appealed the FAA’s order and a hearing was held before a Department of Transportation Administrative Law Judge (“ALJ”) which highlighted several drug and alcohol testing “gotchas.”

In one instance, Regency argued that the mechanic performed his work as a favor to Regency and since Regency did not compensate the mechanic for the work, the mechanic was thus not an employee subject to drug and alcohol testing. However, the ALJ rejected that defense stating that an "employee is an individual who is hired, either directly or by contract, to perform a safety-sensitive function for an employer”, and an individual is “hired” for a safety-sensitive function when he or she is retained “as a paid employee, as a volunteer, or through barter or other form of compensation.” Thus, even though the mechanic was a volunteer working without compensation, he was still considered an employee when he was performing safety-sensitive functions on behalf of Regency.

Another issue in the case arose from a mechanic’s employment by two separate employers. Although the mechanic was included in the first employer’s drug and alcohol testing program, Regency had not added the mechanic to its program. In analyzing the issue, the ALJ initially observed that “an employer may use a contract employee without including the contract employee in its own drug and alcohol testing program if: (1) the contract employee is subject to testing under the contractor’s drug and alcohol testing program, and (2) the work is performed on behalf of that contractor. The ALJ then determined that the mechanic performed the work in question it was performed on behalf of the first employer as a contractor for Regency, and as a result, the mechanic did not need to be included in Regency’s drug and alcohol testing program.

Drug and alcohol testing regulations can be tricky and complicated. However, misunderstandings and/or non-compliance with the regulations are serious and potentially very expensive. If you have questions about the regulations or whether you are complying with the regulations please contact me and I will be happy to help or any professional aviation law attorney, but don't wait until it is too late.

Greg Reigel
Shackelford, Bowen, McKinley & Norton, LLP
9201 N. Central Expressway, 4th Floor, Dallas, Texas 75231
Direct: (214) 780-1482 - Fax: (214) 780-1401
E-mail:  greigel@shackelford.law
Website:  www.shackelford.law
Twitter:  @ReigelLaw

Use Of A Registered Agent's Address On An Application For Aircraft Registration Is Not Acceptable

Many companies organized as corporations or limited liability companies routinely use a registered agent in states where the company does business. This is especially true when a company is set up under the laws of other states, such as Delaware. And a company's use of a registered agent and the agent's address is certainly acceptable in many business contexts. However, the FAA recently issued a Legal Interpretation rejecting this practice when an applicant submits an FAA Form 8050-1 Application for Aircaft Registration.Federal Aviation Administration

The FAA gave two reasons why this practice is unacceptable: (1) the registered agent’s address is not the mailing of the applicant; and (2) the registered agent’s address is not the physical address of the applicant. The FAA stated "if the applicant’s physical address is not listed on the Form 8050-1, it is our opinion that the Application for Registration is not completed in accordance with 14 C.F.R. §47.31(b)(1)." Additionally, §47.45 requires that an applicant/aircraft owner provide a physical address/location if different from a new mailing address.

Although a registered agent is permitted to sign an application for aircraft registration on behalf of the applicant/aircraft owner, the applicant must comply with §47.13 (the agent must sign as agent/attorney-in-fact and include a power of attorney signed by the applicant/aircraft owner). And even then the aircraft owner's address must be used on the application (because the application asks for the owner's address, not the address of the owner's agent).

If the FAA determines that a registered agent's address has been used, the FAA will reject the application. This will result in delays in getting the aircraft's registration transferred to the applicant/aircraft owner and in obtaining the hard-card registration certificate.

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