Understanding the new Subpart K frax rules

 - August 4, 2008, 7:38 AM

As fractional ownership programs grew in size, complexity and number, considerable controversy within the aviation community arose as to their appropriate regulatory structure. The main question was whether they should be conducted under FAR Part 91 or, as in the case of on-demand charter operators, Part 135.

At the FAA, evolving concerns regarding issues of accountability and responsibility for compliance emerged, especially because of an agency regional ruling that originally allowed fractional programs to be conducted under Part 91 without any restrictions. Consequently, during the 1990s the agency continued its analysis of the appropriate regulatory environment for these programs.

In October 1999 the FAA convened a special aviation rulemaking committee–the Fractional Ownership Aviation Rulemaking Committee (FOARC)–to address the issues surrounding the regulation of fractional-ownership program operations. The FOARC was composed of 27 members representing on-demand charter operators; fractional-ownership program managers and owners; aircraft manufacturers; corporate flight departments; aircraft management companies; aircraft financing and insurance companies; and industry trade associations. Representatives of the FAA, Department of Transportation and foreign civil aviation authorities were also included.

FOARC members met for nine days in November and December 1999, and two of those days were set aside for public hearings. The committee presented its initial recommendations to the FAA on Feb. 23, 2000.

The order that established the committee was further extended to allow continued discussions with the committee and to reconvene to discuss issues and provide further input after the FAA’s internal review of the committee’s recommendations. In early deliberations, committee members agreed they would attempt to reach consensus recommendations and that, absent consensus, majority and minority reports would be provided to the FAA.

In the end, and making a major achievement for committee chairman Jim Christiansen, FOARC members reached unanimous consensus on all the committee’s recommendations, including those with respect to changes in both Parts 91 and 135. Those recommendations were the basis of a notice of proposed rulemaking (NPRM), issued July 18, 2001, that created Part 91 Subpart K to regulate fractional operations and amend Part 135 “to level the playing field” between the fractional and charter providers.

Since the NPRM comment period ended in October 2001, the rule has wended its way through various government agencies (a process slowed by some external events, including 9/11) and at press time was finally on the desk of FAA Administrator Marion Blakey, its last stop before publication as a final rule and addition to FAR Part 91. NBAA said the Administrator has been made aware of the importance of the new regulations and action was expected “very soon.”

Nuances of Subpart K

Since proposed Subpart K would establish new regulatory requirements for fractional-ownership programs, program managers and owners, it was important that these terms be clearly defined. The definition relies substantially on industry guidelines developed in early 1999.

If an aircraft ownership arrangement does not fit within these definitions, it may well fit within one or more of the existing operating models in Part 91 Subpart F, including interchange, joint ownership or a timeshare. In these circumstances Subpart K would not apply.

The five requirements for a fractional-ownership program to be regulated by Subpart K are:

• A designated program manager;

• One or more owners per fractional-ownership program aircraft, with at least one aircraft having multiple owners;

• Possession of a fractional-ownership interest in one or more program aircraft by each fractional owner consisting of a minimum fractional ownership interest of at least 1/16th for a subsonic, fixed-wing or powered-lift fractional ownership program aircraft or at least 1/32nd share for a rotorcraft fractional ownership program aircraft;

• A dry-lease aircraft-exchange agreement among all the owners; and

• Multi-year program agreements.

Additional requirements under the new subpart (compared with the existing Part 91) include an operations manual, stricter IFR weather minimums (to match those of the amended Part 135), cockpit voice recorders, employee drug-testing programs, stricter flight crew experience and training requirements, hazmat training and additional aircraft maintenance requirements.

The new rule also amends Part 91 Subpart F (“Large and Turbine Powered Aircraft”) to include all aircraft under a fractional-ownership program–not just large turbine aircraft–and clarifies and lends some relief under this subpart regarding over-water operations. Further, it adds clarifying definitions of some terms used under Subpart F regarding fractional-ownership programs. Those terms include “requirements of a fractional program,” “operational control issues” and “management responsibility.”

To level the playing field between fractional and charter operations, the subpart adds runway- length requirements for “large turbine aircraft fractional-ownership operations” that permit landing only on a runway that will allow a full-stop landing within 85 percent of the effective length of the runway being used. The new subpart also incorporates similar relief to charter operators under changes to Part 135. In addition, the same relief under Part 91 Subpart F “Over-water Operations” is extended to Part 135 operations, and IFR minimums are amended.

A lesser known change is an amendment to FAR 13.19 to ensure that the suspension or revocation of management specifications would be analogous to similar FAA certificate action, and that the users of the management specifications–a prerequisite to all program operations–would be afforded similar procedural protections. This includes the right to appeal any suspension or revocation to the NTSB.

What Does it Mean for Share Owners?

Perhaps the largest controversy for fractional owners is the concept of “operational control.” The rule clarifies current law and policy by providing that the fractional-owner is in operational control whenever the owner has directed that a fractional ownership program aircraft carry passengers or property designated by that owner and the aircraft is in fact carrying those passengers or property.

This section requires, as a condition of the owner’s being considered to be in operational control, that the owner has the ability to obtain adequate information to determine that the program is being conducted safely; does not engage in commercial operations without the appropriate authority; has advance notice when a chartered aircraft is substituted for a fractional ownership program aircraft on a flight for the owner; and is fully aware of the responsibilities and implications of being in
operational control.

Under the new fractional rules, the owner–as the entity in operational control–remains responsible for the safe operation of the flight and for compliance with the regulations governing the flight under this definition. However, the fractional- ownership program manager is jointly and severally responsible with the owner for the safe operation of the flight and compliance with the FARs affecting that flight.

According to Santa Monica, Calif. law firm Bailey & Partners, the operational control requirement of Subpart K is met when the share owner chooses the schedule and destinations. The operator of the fractional program is required to comply with all safety regulations concerning maintenance and crew. This combination of Part 91 and Part 135 gives the fractional owner control over when and where the aircraft is used, and ensures both the government and owner that safety standards are being followed.