EBACE Convention News

Fractional regs remain contentious

 - November 28, 2006, 11:05 AM

The leadership of the European Business Aviation Association (EBAA) believes it has now reached a workable consensus on the complex and contentious issue of how to regulate fractional ownership operations. According to EBAA chief executive Brian Humphries, the key to achieving a solution that all parts of the industry can accept is an anticipated breakthrough in getting U.S. authorities to ease market access restrictions that are bitterly resented by European executive charter operators.

Through an industry working group for business aircraft operations (IWG-BAO) established under the auspices of the European Civil Aviation Conference, EBAA and the U.S. National Business Aviation Association (NBAA) have been developing proposals for a new category of operating regulations that would formalize the legal status of fractional ownership along the lines of the existing U.S. Part 91 Subpart K rules.

As part of the same package of reforms, the IWG also called for an easing of U.S. Part 129 rules [which limit non-U.S. charter operators to just six flights into the U.S. each year, without having to apply for a Part 129 license for foreign airlines], faster processing of applications for commercial flights into the U.S., a relaxation on whole-plane charters so that foreign operators can make such flights into the U.S. without falling foul of cabotage restrictions.

Last summer, the EBAA board of directors voted by a majority of just one to back this IWG report–with Humphries voting for and EBAA chairman Rodolfo Baviera (who runs Italian charter firm Eurofly Service) voting against. This opened up divisions within the EBAA membership and provoked a string of uncomfortable public disagreements on the issue.

According to Humphries, the opposition of almost half the EBAA board to the proposals really did not surface until the final vote–despite the fact that the issue was discussed repeatedly at meetings throughout 2004 and into 2005. “We did take it all the way through the board, but I don’t think people realized its full implications or how it would unfold,” he told EBACE Convention News.

In his view, opponents became completely fixated on the proposed changes to fractional ownership regulation and didn’t consider the balancing effect of improved market access for charter operators.

Humphries acknowledged that the bad-tempered arguments played out all too publicly since the board vote proved to be an unwanted distraction for EBAA. Nonetheless, he insisted that progress is now being made on both sides of the Atlantic and that a lasting solution could at last be in sight.

On the fractional side of the issue, both the European Aviation Safety Agency (EASA) and the transport directorate of the European Commission (EC) have responded positively to the IWG report. EASA rulemaking director Claude Probst has asked for an industry study on what rules would be appropriate for non-commercial business aircraft in the context of the envisioned new EU-OPS 2 operating rules (in place of the never-concluded JAR-OPS 2 regime). Meanwhile, EC air transport director Daniel Calleja has said that he is willing to seek approval for the Commission to have the authority to negotiate with U.S. officials on behalf of business aviation to secure the long-desired level playing field in the marketplace.

Across the Atlantic in Washington, D.C., NBAA officials believe they have convinced the U.S. Department of Transportation (DOT) to speed up the process under which foreign aircraft operators apply for permission to make commercial flights into the U.S. They hope that this will result in a five-day lead-time for the first such application by an operator, falling to just 48 hours for each subsequent case. “I have told the NBAA that if they don’t deliver on the speeding up of approvals there will be a lot of disappointed people in Europe,” declared Humphries.

EBAA and NBAA lobbyists also believe they have, in principle, won the argument for allowing foreign charter operators to conduct up to 12 flights per year into the U.S. without having to go through the costly and troublesome process of getting a Part 129 airline certificate. This would be twice the current annual limit of six flights.

However, Humphries conceded that this issue could take up to two more years to resolve finally. Another market access goal that the NBAA/EBAA team is still working on is getting the DOT to allow multi-city-routings for single manifest charters (i.e. allowing whole-airplane charters to fly to and between several U.S. cities without picking up new passengers en route).

The industry groups are also seeking transatlantic equality on rules governing runway length requirements for different categories of operator. When the U.S. government introduced Part 91K rules for fractional ownership it allowed some relaxation of runway requirements for both Part 91K and 135 rules.

“So theoretically you could have an American operator getting into an airfield that a European operator operating an identical aircraft can’t get into,” explained Humphries.

“Part of the longer-term work program would be to get some levelling of the playing field in this respect. The whole thing about this is to get a fairer and more level playing field for all, not making life easier just for the fractionals.”

But given the bad feeling that the IWG initiative has engendered among EBAA members, would it not have been better for EBAA to take no action at all on reforming fractional ownership operating rules if no meaningful consensus could be reached?

While stressing that there can now be no turning back on the reform process, Humphries acknowledged that lessons have been learned about how the association handles future decision-making. “What we have agreed for the future is that if we get into a situation like this again we will concentrate on those issues where there is agreement,” he said.

For Humphries it really is not an option to simply leave the regulation of fractional ownership in Europe as it is. He explained that U.S. Part 91K operators are currently in a sort of legal limbo when they operate into Europe because the European authorities don’t have any direct equivalent to this set of rules. In simple terms, the logic of Humphries’ position might be summarized as follows: there can be no level playing field unless the authorities enforce the rules governing flight operations, and they cannot enforce rules that do not currently exist.

The European Union requirement for security screening for commercial flights by aircraft weighing more than 10 tons or having 20 or more seats is another reason why the legal status of fractional ownership needs to be firmed up. “There are certain bodies that are saying that fractional operations are always private and therefore won’t be subject to security,” said Humphries. “That’s not right. They are not all private. There is confusion.”  

“One of the things I have been saying to the EBAA board is that it is not a question of people trying to break the rules; it’s a question of having the appropriate rules and asking the authorities to enforce those rules,” Humphries continued.

“If someone is breaking the rules–such as the problems we have had in the past with illegal N-registered charter flights in Europe–the operators quite rightly appeal to the authorities and report the breach of rules. Our concern is that without a rule there is nothing to enforce and this is why we are getting a blurring of the edges and misunderstanding.”

That said, Humphries does empathize with those who have opposed a perceived relaxation in the rules governing fractional ownership. “I understand commercial operators fearing for their business. The marketing strategy of some of the fractional operators can be very aggressive,” he said, reflecting on his previous position as managing director of the Shell Aircraft corporate flight department and attempts made by NetJets to get Shell’s top management to close this in favor of a fractional ownership package.

Where Does the Buck Stop?

Along the lines of Part 91K, the IWG’s proposed rules on fractional ownership would allow for operations to be categorized as private or commercial, according to whether–for any given flight–the fractional shareowner or the fractional program provider can be legally defined as the aircraft operator. “If the [fractional share] owner is the legal operator, that means he is carrying the responsibilities signed for in a legal document for the safe and correct operation of that flight,” explained Humphries. “And if anything goes wrong with that flight, even though the operator [i.e. the fractional provider] is operating it for him, he is the accountable manager.” He added that, due to interchange agreements in fractional contracts, legally this can apply to any aircraft in a fractional fleet, even if it is not the specific tail number that the owner technically holds a share in.

“So if the owner is the legal operator, in my view, it is reasonable that this should be judged non-commercial because he is carrying a vast raft of responsibilities just the same as a corporate operation. This is not the same situation as people sitting in a public transport flight (such as an airliner),” Humphries stated.

On the other hand, Humphries maintained that if the fractional provider is the operator–as is the case with so-called jet card flight hour programs, which are effectively block charter–or if the owner opts not to legally shoulder the responsibility of the operator, then the operation should be covered by commercial rules.

In effect, the shareowner can either have the greater flexibility of private operating rules in return for the legal responsibility of being operator or can accept the constraints of commercial rules but not carry the operator’s burden. (For instance, a fractional shareowner may opt for private operating status when flying from Europe into the U.S. to avoid the need for a charter clearance.–Ed.)

The owner would have to indicate on the flight plan before departure whether or not it was being conducted under private or commercial rules. In either case, the EBAA president argued that there is no difference in the safety standards to which the aircraft is flown and that it is no more than an economic and legal distinction. He added that in Europe, many operators–even fractionals and corporate flight departments–will in fact choose to remain under commercial rules because of issues such as taxes and fuel charges.