Fractional rules divide EBAA

 - September 25, 2006, 8:11 AM

The European Business Aviation Association (EBAA) has been split by a major disagreement over what operating rules should apply to fractional ownership in Europe.

The final report of the joint EBAA/NBAA industry working group on business aircraft operations (IWG-BAO) was approved by just one vote at an EBAA board of governors meeting last fall. And a significant number of EBAA members still oppose the working group’s recommendation that fractionals should be considered partly private. In fact, feelings are running so high on the subject that some in the industry have accused major fractional provider NetJets Europe of violating the EU’s rules on company ownership.

Late in December the IWG-BAO sent its final report with a set of recommendations to both the European Commission and the European Civil Aviation Conference (ECAC). The report was unavailable to AIN at press time.

To date there is no specific fractional regulation in Europe (no equivalent of FAR Part 91K). Most European countries consider fractional operations to be conducted under the commercial air transport JAR-OPS 1 rules, which also cover charter operators and scheduled airlines. It is on this basis that NetJets Europe’s fleet of business jets is operated under a Portuguese commercial air operator’s certificate (AOC).

EBAA chief executive Brian Humphries, a supporter of the IWG-BAO report’s findings, insisted the working group is offering fairer rules for fractional operations but is not recommending that these should be deemed private in all circumstances. “When the owner is the operator the flight should be private,” he explained to AIN.

However, “When the owner is not the operator, he or she is not legally accountable and the flight should be commercial,” he said.

Humphries emphasized the report also covers corporate and commercial aircraft operations. He said it is only a first step toward leveling the playing field between the regulatory structures on either side of the Atlantic. However, the focal point of the row is what the report says about fractional rules.

EBAA chairman Rodolfo Baviera voted against the report. He fears that more favorable private rules will add to the advantage NetJets Europe has from the financial might of its parent Berkshire Hathaway, and that the company would kill the European executive air charter industry in three years.

According to David Marcus, managing director of NetJets Transportes Aéreos (NTA), the Portugal-based AOC holder for NetJets Europe, the fractional-ownership provider would not necessarily choose to benefit from such a change in fractional European rules. “It does not really matter whether we operate under private or commercial rules; we think of safety first,” he told AIN.

However, he acknowledged that, as long as its existing safety standards are met, a taxation advantage might lead NetJets Europe to choose new rules in the future. NetJets Europe is the dominant fractional player in its market.

In fact, the possible switch to a European equivalent of FAR 91K stands to benefit NetJets for its U.S. and European operations.

First of all, flexibility would be greatly improved if U.S.-based fractional aircraft could be operated under private rules (under FAR 91K) in Europe, without the operator being required to have an AOC license. This might happen, for example, when a U.S.-registered NetJets aircraft is in Europe for a few days, having flown an owner across the Atlantic. While waiting to fly the return leg, it might be used to operate some intra-European flights, thereby increasing the capacity of the NetJets Europe fleet.

In some cases, NetJets Europe might find it useful to fly under private rules. For example, duty-time rules are less strict for private operations. Those who oppose the IWG-BAO report’s recommendations essentially alleged that NetJets would cheat under the en- visioned new regime, using private rules for commercial flights.

Two EBAA members have made another serious accusation against NetJets. They suggested to AIN that NetJets Europe operates illegally, alleging that NTA is a U.S.-owned company and that European rules call for any AOC holder in a member state to be owned in majority by Europeans.

According to Hipolito Pires, an EBAA governor and the CEO of Portugal-based charter operator Heliavia, in 2002 the nation’s association of air carriers, Aportar, filed such an allegation with the Portuguese civil aviation authorities (INAC). The group never received a response, but an INAC spokeswoman told AIN that she could find no record of this correspondence.

Surprisingly, no formal complaint was made to the European Commission. However, NetJets opponents told AIN that the next EBAA board meeting will give the fractional operator the opportunity to answer their questions. Opponents said they are ready to complain formally if they are not satisfied with the answers.

According to Marcus, NTA is owned in majority by Europeans. The rest of the shares–less than 50 percent–belong to NetJets.

A statement on the NetJets Web site seems to substantiate the accusation about the legal status of NetJets Europe. There, NTA is described as “a wholly owned subsidiary of NetJets.” Marcus’s response to this was that the statement is “probably a marketing statement” and that it should be corrected.

Gilles Gantelet, a deputy to the head of the air transport regulation unit at the European Commission, confirmed that the holder of an AOC should be owned in majority by Europeans or European-owned companies. In addition, as majority shareholders, they must have the casting vote in any decision.

NetJets’ Dominance Backlash

In further evidence of the resentment of NetJets, another EBAA governor alleged that NetJets lobbied to have EBAA France’s former president, Olivier de l’Estoile, forced out of office last October. “Strangely enough, he resigned just before the crucial vote, where we expected him to vote against the IWG-BAO’s report,” the governor told AIN.

Others close to EBAA have said that de l’Estoile was forced to resign after it became apparent that the Brussels-based group’s articles of association prevent any employee of a manufacturer from having a seat on the board. But de l’Estoile, a Dassault executive, maintains that he resigned for “personal reasons.”

The apparent fury inside EBAA contrasts with the calm at both the European Civil Aviation Conference and the European Commission. Glenn Cronin, chairman of the ECAC’s Task Force on fractional ownership, told AIN that the IWG-BAO report “gathers interesting ideas on how business aviation could develop.”

The IWG-BAO was created just after the task force in 2004. Since then, ECAC has even suggested that FAR Part 91K U.S. operators should be exempt from the need to obtain an AOC to fly into Europe, at least until European rules are formulated.

Daniel Calleja Crespo, director of air transport for the European Commission, deemed the report “very interesting” and “useful” but insisted that the EC is not in a hurry. Further consultation will be conducted, with an economic analysis and impact study.