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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

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

How Does The FAA Calculate A Civil Penalty?

by Greg Reigel 28. February 2017 08:16
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Every so often the Federal Aviation Administration ("FAA") will issue a press release about its proposed assessment of a civil penalty action against an air carrier, maintenance facility or some other business. In some instances the penalties proposed by the FAA may be millions of dollars. And while the FAA’s press release may cite to some of the violations the carrier or facility allegedly committed, the FAA never explains exactly how it arrived at the amount of the civil penalty it proposes to assess.

To provide a little background, when the FAA believes a certificate holder (whether an airman, air carrier, repair station or otherwise) has violated a regulation, it may pursue legal enforcement action against the alleged violator. The action can be against the party's certificate, also known as a "certificate action." In this situation the FAA seeks to suspend or revoke the party's certificate. Alternatively, the FAA could seek to impose a civil penalty or fine against the alleged violator, also known as a "civil penalty action."

Civil penalty actions are typically used against companies or entities, as opposed to individuals, that hold FAA certificates. The FAA may also pursue civil penalty actions against companies or individuals who do not hold FAA certificates (e.g. companies or individuals who violate hazmat regulations or individuals who violate passenger regulations such as interfering with a flight crewmember).

Sometimes, the FAA will bring a civil penalty action to avoid the six month limitation of the NTSB's stale complaint rule in a certificate action, and benefit from the longer two year limitation applicable to civil penalty actions. For example, if the FAA fails to initiate a certificate action within six months of discovering an alleged violation, it will resort to a civil penalty action which allows the FAA two years within which to initiate the action.

In order to determine the appropriate amount of the civil penalty for a given regulatory violation, the FAA uses the Sanction Guidance Table in FAA Order 2150.3B, Appendix B. If the amount of the proposed civil penalty is less than $50,000, then the FAA handles the action. However, if the proposed civil penalty is more than $50,000, then the United States Attorney's office handles prosecution of the action.

The Sanction Guidance Table provides a range of penalties based upon the type and size of the violator, the type of alleged violation and the number of alleged violations. The sanction guidance indicates a minimum and maximum range civil penalty for each instance of a violation of various regulations. And while the Sanction Guidance Table’s sanction ranges generally account for different types of violations, as well as the nature, extent and gravity of each general type of violation, a sanction isn’t calculated through a “strict mathematical formula”, but rather is determined based upon a judgment “of where a case lies along a spectrum of gravity.”

To calculate a civil penalty sanction, the FAA first determines the type and size of the violator and also whether the violator is a Small Business Concern. Next, the FAA starts with the middle of the range for the particular act or omission that caused the violation. It then specifically looks at a variety of factors that may be considered aggravating factors, which would result in increase in sanction, or mitigating factors which would decrease the sanction. These factors include:

  1. the nature of the violation;

  2. whether the violation was inadvertent and not deliberate;

  3. the certificate holder’s level of experience;

  4. the attitude of the violator (Note: The FAA does not consider a good compliance attitude, by itself, a basis for reducing a sanction. Fortunately, the FAA also does not consider a violator’s failure to respond to a letter of investigation, representation by counsel or contesting of a violation a poor compliance attitude);

  5. the degree of hazard;

  6. whether an employer or other authority has taken any action (i.e. if the employer took disciplinary action or criminal prosecution was involved);

  7. use of a certificate;

  8. violation history (i.e. a history of prior violations. Since compliance is expected, a violation-free history is not considered a mitigating factor);

  9. decisional law;

  10. the violator’s ability to absorb the sanction (i.e. whether the violator is able to pay a civil penalty and the effect the civil penalty will have on the violator’s ability to continue in business);

  11. consistency of sanction;

  12. whether the violation was reported voluntarily (this takes into consideration whether the violator reported the violation through a program such as the Aviation Safety Reporting Program, the Voluntary Disclosure Reporting Program or the Aviation Safety Action Program); and

  13. corrective action (e.g. corrective action that exceeds the minimum regulatory or statutory requirements. Corrective action taken after the violator becomes aware of the deficiency and before the FAA learns of the violation warrants greater mitigation than if the action is taken after the FAA takes enforcement action).

In some cases, where the degree of the violator’s fault is minimal, the potential hazard is very low, and no aggravating circumstances are present, the FAA may select a civil penalty amount that is below the range specified in the Sanction Guidance Table. Conversely, the FAA may select a civil penalty above the range if the violator’s fault was significant, the violation involved significant safety risks, the violator failed to take corrective action over an extended period of time, the violator has a poor compliance attitude or history, or the FAA feels it needs to make an example of the violator (or, as the FAA puts it, “to provide an economic disincentive or regulatory noncompliance”).

What happens if the case involves multiple violations (e.g. multiple violations of a single regulation, a single violation of multiple regulations, or multiple violations of multiple regulations)? Fortunately, the FAA doesn’t just determine the amount for each violation and then add them up. Rather, the FAA is required to consider the totality of the circumstances relating to the multiple violations, paying special attention to the seriousness of the potential hazard caused by the violations as well as the degree of the violator’s fault for the multiple violations.

At the end of the day, the Sanction Guidance Table is just that, guidance. And while the FAA, and its inspectors and attorneys, are required to follow the guidance, the FAA still has prosecutorial discretion. That is, the FAA ultimately has the discretion and authority to determine not only whether to pursue a civil penalty action, but also the type and amount of the sanction. But at least the Sanction Guidance Table provides some insight as to how the FAA may have arrived at a proposed sanction and what aggravating or mitigating circumstances it may, or should, have considered.

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Greg Reigel

Documenting Maintenance and Inspection Records

by Greg Reigel 30. January 2017 09:38
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The primary job of an aircraft mechanic is to service and repair aircraft and their components/systems. And once he or she has completed an inspection or item of maintenance, 14 C.F.R. §§ 43.9(a)(maintenance) and 43.11(a)(inspections) require the mechanic to “make an entry in the maintenance record of that equipment.” Typically, this means writing the information in the aircraft’s maintenance records (e.g. the aircraft’s log books).

But what happens if the aircraft owner or operator does not provide the mechanic with the aircraft’s log books? Sometimes the log books are not with the aircraft or the owner or operator simply forgot to bring them with the aircraft. In other cases, the aircraft owner or operator refuses to bring the aircraft’s log books to the mechanic, preferring to maintain possession of the aircraft’s log books. Can the mechanic require the aircraft owner or operator to deliver the aircraft’s log books before the mechanic will sign off on an inspection or maintenance?

The regulations do not require that the mechanic have physical custody of the aircraft’s log books or maintenance records. While the mechanic may make delivery of the aircraft’s log books a condition for performing the applicable inspection or maintenance, the implications of that business practice are beyond the scope of this article. So, if the mechanic does not have the aircraft’s log books, how is he or she supposed to make the required entry?

Well, according to a recent Legal Interpretation issued by the FAA’s Office of the Chief Counsel, the mechanic does not need to have the aircraft’s log books in order to make the required entry. Rather, a mechanic may simply make the required maintenance entry, even including an approval for return to service, on a piece of paper and provide it to the aircraft owner or operator for inclusion in the aircraft’s log books or maintenance records.

Remember, under 14 C.F.R. § 91.417 an aircraft owner, not the mechanic, is required to keep the aircraft’s maintenance record to document that required inspections and maintenance have been accomplished. However, since making an entry in an aircraft’s log books exposes a mechanic to the potential for both regulatory and civil liability, it is also a good practice for the mechanic to keep copies of all of the entries he or she has made in the maintenance records for customers’ aircraft.

And whether an entry is made in the aircraft's log books or simply written on a piece of paper and delivered to the aircraft owners or operators, it is also important for the mechanic to exercise the same care with what he or she writes, or does not write, in connection with aircraft service and repair as the mechanic does in actually performing the work. After all, by making that entry the mechanic will be responsible for that inspection or maintenance.

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Fixed Based Operators (FBO) | Greg Reigel | Maintenance

What Happens To A Certificate When The FAA Suspends Or Revokes It?

by Greg Reigel 3. January 2017 10:06
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Is a certificate suspension or revocation the end of the story for a certificate holder? Not usually. A certificate holder (whether airman, mechanic, air carrier, medical etc.) has some additional responsibilities, as well as liability exposure if he or she fails to fulfill those obligations. However, before we talk about the aftermath of certificate suspension or revocation, we should briefly discuss how a certificate holder can find him or herself in that position.

Once the FAA has determined that legal enforcement action is appropriate, the FAA will either issue a Notice of Proposed Certificate Action (“NPCA”) to the certificate holder seeking to suspend or revoke a certificate for alleged violation of the FARs, or it will issue an emergency order suspending or revoking the certificate. The difference between the two is significant: the emergency order is effective immediately (e.g. the certificate is revoked as soon as the FAA issues it), while the NPCA is not.

Both an NPCA and an emergency order will provide a recitation of the facts supporting the FAA’s allegations. The NPCA also includes a list of options from which a certificate holder may choose how he or she wants to respond to the NPCA. Under the first option, the certificate holder may elect to simply admit or concede the FAA’s allegations and surrender the certificate to the FAA. The emergency order, on the other hand, requires the certificate holder to immediately surrender the certificate to the FAA.

Suspension or revocation of a certificate may also be imposed by an NTSB administrative law judge (“ALJ”) after the certificate holder has received a hearing on the merits of the allegations contained in the NPCA. In the case of suspension or revocation following a hearing, the ALJ will order that the certificate holder surrender the suspended or revoked certificate to the FAA. The FAA may also follow up with a letter to the certificate holder demanding surrender of the certificate. But, does the certificate holder really have to surrender the certificate? If the case is not appealed, the answer is “yes.”

If a certificate holder fails to surrender the certificate, the FAA can and oftentimes will try to assess a civil penalty against the certificate holder for failure to surrender the certificate as required by the order of suspension or revocation. Under 14 CFR 383.2, depending upon the type of operator (e.g. individual, small business, air carrier etc.), the civil penalties for failure to surrender a certificate can range from $1,414 for an individual (and in some cases a small business) up to $32,140 per day.

So, what do you need to know if you find yourself in this situation? First, if you receive a NPCA or emergency order you need to take action immediately (especially in the case of an emergency order where the time limits are very short) and, if you dispute the FAA’s allegations, you need to properly and timely appeal the order and request an evidentiary hearing. Second, if your appeal is unsuccessful and your certificate is suspended or revoked, you are required to physically surrender your certificate to the FAA. If you fail to do so, you risk being assessed a civil penalty that could potentially be very expensive. And, of course, if you receive an emergency order or NPCA and are unsure of your rights and responsibilities, contact an aviation attorney who can answer your questions and help you through the process.

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Flying | Greg Reigel



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