The Changing Face of Business Aviation

Aviation
October 13, 2020
 

The Calfee Flyer is published by Jerry Eichenberger, Senior Counsel, Aviation Law, with assistance from other members of that practice group and sometimes draws in lawyers from across the firm to cover areas of interest.



Business aviation got its start in the late 1960s. In that era, business airplanes were primarily the Beechcraft Model 18, commonly referred to as the Twin Beech (Beech 18), and various models of Aero Commanders. There were other models, but those were the most widely used aircraft. They were piston engine airplanes with cruising speeds in the neighborhood of 180 knots. 

Fast forward 50 years to today, when a typical business airplane is a jet going around 450 knots, and the Beech 18 has probably been long retired and recycled. But jet engines and the speeds that they give us aren’t the only changes in business aviation since the 1960s. Back in the days when those Beech 18s and Aero Commanders carried business executives around, the airplanes were typically owned by the companies whose people they were transporting. The pilots were employees of those same companies, as were the mechanics who maintained the airplanes. A corporate flight department was a close-knit group of professionals, all employed by the same company.

This model of flight department organization still exists, but it no longer represents the norm. Now business people have a myriad of organizational vehicles available to facilitate their travel needs. Equipment leasing was in its infancy in the 1960s. Now, many business items are leased, from furniture in an office to large industrial machinery. For example, a car dealer recently shared that 80% of his new car transactions are actually leases. 

The same phenomenon has come to aviation. A great many of the business airplanes carrying people to meetings, sales presentations and marketing events are now leased. Future issues of The Calfee Flyer will discuss the types of leases used, such as a dry lease and a wet lease, and differentiate between the two. That differentiation is vitally important, because when operating under a wet lease – where the lessor furnishes the airplane, crew, fuel, insurance and maintenance and retains operational control of the flight – the lessor is required to have an air carrier certificate issued by the FAA. A charter flight conducted under a wet lease, where the lessor does not have an air carrier certificate, would be an illegal flight. 

Other companies that use private business aviation may fly aircraft under time-sharing agreements. These arrangements allow an aircraft owner or lessee to fly others around – and furnish the airplane and flight crew – and do so without having an air carrier certificate. But the charges that the operator of the flight can legally make to the “consumer” are tightly limited by FAA regulation. These charges are designed to be insufficient to compensate the airplane owner for all the costs of the flight, let alone provide a profit margin.

Interchange agreements also have become popular. These arrangements take multiple owners of different aircraft and structure mechanisms for “trading” time among the participants. The aircraft involved in the interchange agreements don’t need to be of the same type or even the same size and class. One company that owns a Citation may interchange with another company that operates a Gulfstream. The beauty of these arrangements is that the owner of the Citation will have the larger Gulfstream available for those times that it needs the larger capacity. Likewise, the owner of the Gulfstream may choose to use the Citation to fly one or two people a few hundred miles – missions that the smaller jet can easily perform and do so at a reduced cost versus the cost to fly the much larger Gulfstream.

Fractional ownership is an entire subset of business aviation has emerged in the past 40 years. While leisure and sport airplanes have had shared ownership for much longer, the concept of businesses and high-net-worth individuals sharing the ownership of larger airplanes is a fairly recent phenomenon and is becoming an increasingly important factor in the industry.

In a similar way, private charter flying is rapidly increasing. In this era of COVID-19 and the fears associated with mass transport, many people who can afford it have eschewed airline travel and are gravitating to private charter operators to satisfy their travel needs. One large charter company recently reported that its passenger loads have increased 200% since early 2020.

Each of these arrangements has different pluses and minuses, as well as different regulatory requirements and pitfalls. Stay tuned for future issues of The Calfee Flyer, when we'll delve into each arrangement more deeply and dissect the advantages, disadvantages and potential legal issues.


For additional information on this topic, please contact your regular Calfee attorney or one of the attorneys listed below.

 
 
 
 
 
 
 

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