Pilots and aircraft operators frequently misunderstand the FAA’s policy regarding “compensation” in the context of the Federal Aviation Regulations (FARs). And this concept appears frequently in the FARs.
For example, under 14 C.F.R. 61.113(a), a private pilot may not carry persons or property for compensation or hire, or act as pilot in command for compensation or hire. Additionally, if a flight or operation is conducted for compensation or hire, that flight or operation may be subject to operational requirements and/or limitations under 14 C.F.R. Parts 91, 135 or 121. Such a flight or operation may also have additional medical certification prohibitions or requirements.
So, what then is “compensation” according to the FAA?
The FAA’s longstanding policy and perspective views “compensation” very broadly. Compensation isn’t just the exchange of cash. Rather, it can be receipt of anything of value that is conditioned upon or in exchange for operation of the aircraft. And the exchange of value does not require a profit or profit motive. A beneficial economic relationship will qualify as compensation.
According to the FAA, compensation may include, but is not limited to:
Reimbursement of expenses (e.g. fuel, oil, transportation, airport expenditures, aircraft rental fees, lodging, costs of ownership etc.);
A free meal;
Logging of flight time when the pilot does not have to pay for the costs of operating the aircraft;
Salary or wages; and
Goodwill in the form of expected future economic benefit.
While some of these items can readily be understood to be compensation, the FAA determines whether an operator is receiving something of value in exchange for operating an aircraft on a case-by-case basis and its decision will depend greatly on the purpose and objective of the flight or operation.
So, pilots and operators need to analyze their flights and operations to determine whether they are, in fact, receiving compensation for those flights and operations and, if so, what impact that compensation may have on whether such flights and operations comply with the regulations. Failure to comply could subject the pilots and/or operator to legal enforcement action that could result in suspension or revocation of airman certificates or a civil penalty.