AOPA Pilot Magazine - October 2013 - 24

PILOT COUNSEL

Ends of the spectrum

BY JOHN S. YODICE

Private vs. commercial/air carrier operations

JOHN S. YODICE

is a legal expert
for AOPA Pilot
Protection
Services. He will
be a featured
speaker at
AOPA Aviation
Summit 2013.

24 | AOPA PILOT October 2013

A RECENT LEGAL interpretation by the FAA chief
counsel gets into some complexity in dealing with
the important regulatory difference between “private” and “commercial” operations. At the most basic
level, pilots understand the difference. The FAA regulates both for safety. Commercial operators and air
carriers, however, have additional costly and burdensome regulations beyond the general operating and
flight rules of FAR Part 91, and other rules. So, there
is an understandable and oftentimes creative effort
to arrange flight operations to be private to avoid the
additional regulation.
At this basic level, we all can easily recognize the
classic private operation, which is a pilot flying his or
her own aircraft (or a rented or borrowed aircraft) for
his or her own purposes, specifically including carrying passengers or property. This is classically one
within the privileges of a “private” pilot certificate
(and may also be conducted by commercial and ATP
pilots exercising the lesser “private” privileges implicitly included in their certificates). At the other end of
the spectrum, we easily recognize the classic commercial and air carrier operations such as those conducted
by the airlines, air taxi operators, charter, et cetera, by
those engaged in the business of carrying persons or
property for compensation or hire.
A scenario presented to the FAA chief counsel in this
interpretation involves corporation A1, which manages
aircraft that are owned by other entities. A1 also makes
the aircraft available to “participants” in a “shareholder/
participant agreement.” To become a participant, a party
buys $1,000 worth of stock in A1 and then is made a
member of A1’s board of directors. The agreement states
that the purchase of stock “creates only the opportunity for the participant to receive the services offered by
A1 and the benefits available under the aircraft leases.”
Participants also pay a monthly management fee and an
hourly fee to use the aircraft and a pilot. Corporation A2
provides the aircraft management services for A1 and
also provides pilot services to program participants.
Sound private so far?
What colors the arrangement are the facts that all
A1 participants, although not required, always choose
to use A2 pilots, and that official filings with the state
authorities indicate that A1 and A2 are registered to
the same address and that one individual serves in
leadership positions in both corporations.

So the question addressed by the chief counsel
is whether the facts presented meet the regulatory
definition of a “commercial operator.” A commercial
operator by regulatory definition (with apologies for
the necessary complexity) is a “person who, for compensation or hire, engages in the carriage by aircraft
in air commerce of persons or property, other than as
an air carrier or foreign air carrier or under authority of Part 375.” An air carrier means “a person who
undertakes directly by lease, or other arrangement,
to engage in air transportation.” Air transportation
means “interstate, overseas, or foreign air transportation or the carriage of mail by aircraft.” Both
commercial operators and air carriers are required
to hold FAA Part 119 certificates.
A related question addressed is whether the
arrangement is a “dry” or “wet” lease. A dry lease of
an aircraft is one in which the lessor provides the
aircraft, and the lessee supplies his or her own flight
crew and retains operational control of the flight.
Clearly private. Under a wet lease, however, the lessor
provides both the aircraft and the crew and normally
retains operational control of the flight. Whether a
lease is wet or dry is determined by the FAA on a
case-by-case basis, looking to whether the companies
are acting in concert to avoid the determination that
it is a wet lease. The practical effect of engaging in a
wet lease is that the lessor retains operational control of the operation and may be required to hold an
FAA operating certificate because it is providing air
transportation.
The FAA chief counsel interpretation concludes:
“In summary, with the facts as you have presented
them in your letter, it appears that the arrangement
between A1, A2, and the program participants is in fact
a wet lease because aircraft and pilots are being provided by the same entity. If the arrangement is a wet
lease, the company providing the aircraft and crew
would need to obtain a Part 119 certificate and operate its aircraft in accordance with Part 135. However,
we note that additional facts may indicate that the
arrangement is a dry lease.”
Creative arrangements will continue, and we will
try to keep you abreast of what the FAA has to say
about them.
AOPA
WEB

www.aopa.org/yodiceassociates

http://www.aopa.org/yodiceassociates

AOPA Pilot Magazine - October 2013

Table of Contents for the Digital Edition of AOPA Pilot Magazine - October 2013