AINsight: Managing To Fly

 - November 12, 2021, 11:04 AM

Many first-time and experienced aircraft buyers have entered the market to purchase a private jet and travel far away from commercial airports. But the aircraft they plan to fly may be no more than an expensive paperweight until the right management organization helps the owners get their aircraft safely off the ground.

Since Covid-19 disrupted air travel in 2020, the demand of first-time and repeat aircraft purchasers of whole and fractional aircraft has climbed sharply and reduced the available inventory of aircraft to historical lows. At the same time, Part 135 operators have experienced a burst in demand for chartering, creating significant pressure to provide services to customers beyond the operator's normal capacity. The stress makes the careful selection of a management company more important than ever before.

Management Company Business Models and Services

Although many business models of aircraft management exist, including corporate flight departments, this blog concentrates on management companies who hold certification as an air carrier or commercial operator under FAR Part 119 and operate as commercial or on-demand air carriers under a Part 135 FAA air carrier certificate.

As providers of commercial transportation services, these companies manage private aircraft for their owners and, when permitted by the owners, also operate the aircraft for third-party charter customers.

In the aircraft acquisition process, purchasers who intend to hire a management company may not address the management company's selection until near the date of taking title to their aircraft. However, by doing that, purchasers may throttle the management company's timing to start conforming the aircraft to the company's “op specs” and commencing flight operations under Part 135.

An owner can and should ideally begin searching for a management company soon after deciding the likely size, make, and model of the aircraft the owner plans to purchase. It is only then that the size, type, and qualifications of a management company start to come into focus.

Early use of management companies has clear benefits. In the initial start-up of their contract term, qualified management companies can provide insight into the scope of pre-buy inspections, advise on changes the aircraft may need in the conformity process, and begin to search for and hire a crew to operate the aircraft starting on its delivery date.

After delivery, the management company provides extensive services described in contracts with the owner, including arranging aircraft maintenance, insuring the aircraft, planning travel, marketing for charter customers (if permitted), and hangaring the aircraft.

Management Company Selection

Thousands of Part 135 operators conduct flight operations globally for owners and charter customers. The operators come in all sizes and types, and most can deliver quality services, but not all of them do so. Certain companies conduct illegal charter operations built on the back of unwary owners and passengers—avoid these operators.

Consequently, there is no substitute for thorough due diligence when selecting a management company and evaluating its business model, capability, legal compliance, safety record, services, and character. At the top of all lists, an owner must confirm that a management company places the highest priority on safety throughout its business enterprise. After all, these people hold the life of the owner and others in their hands.

The prospective management company should offer the highest maintenance standards and robust insurance coverage as part of a comprehensive risk management regime. The company should enjoy a good relationship with the FAA that it describes to the owner. It is best if the prospective management company has had no reportable accidents with its aircraft for at least five years.

When hiring crew and other employees, the company should describe rigorous standards it uses for employing an owner’s crew and other personnel, including comprehensive screening for all employees. The management company should have developed and continuously execute appropriate health, safety, and security policies and procedures.

For example, the management company should have deployed Covid-19 health and safety protocols, cybersecurity techniques to prevent intellectual property theft and protect privacy, and preventative measures to control access to the aircraft. And when the owner discusses costs or fees for all services, the company should prove its functions transparently in accounting for all costs and expenses for the owner’s account under a system that provides complete data and supporting documentation.

Regardless of the size, business model, or qualifications of a management company, when an owner performs diligence and converses with management company personnel, the owner should intuitively feel he or she can trust the people who will manage and operate their aircraft.

An owner should feel comfortable that all management company representatives exude sincere integrity, competency, likability, and caring for the owner and the aircraft. In short, the interpersonal relationship with a management company's people is critical to a positive aircraft owner experience.

Personal Liability Risk Management

When dispatched under Part 135, a management company exercises “operational control” of an aircraft under the regulations. That term means the manager has the authority to initiate, conduct, and terminate flights. Put differently, the Part 135 air carrier is responsible for the safety and regulatory compliance for a particular flight. The management company retains the primary responsibility to third parties associated with its flight operations and aircraft management subject to contracts with the owner, FARs, and FAA oversight. In short, each management company that operates under Part 135 has a liability target on its back.

In contrast, Part 91 regulates non-commercial—private flight operations by a qualified operator such as an owner that is an individual or a large enterprise for profit. The FAR does not require certification for Part 91 operators. Like a management company, though, the Part 91 operator exercises “operational control” of the aircraft and has the primary responsibility to third parties.

It is a “zero-sum” proposition. The Part 91 operator wears the liability target on its back instead of the management company for its Part 91 operations. Conversely, when the management company operates under Part 135, the management company alone wears the liability target on its back; the owner does not. The takeaway: an owner significantly mitigates personal liability risk by directing the management company to conduct flight operations under Part 135 rather than operating under Part 91.

Last Thoughts

For first-time owners and experienced private aircraft owners, the urgency to travel by air has created unprecedented demand to buy and charter private aircraft. To navigate the purchase and operation of the aircraft, owners can and should assemble a highly-experienced aviation team to help sort out the complexities of aircraft ownership, including aircraft management services.

With safety being the paramount standard, an owner should diligently evaluate management companies, understand their core values and accept only the optimal service model for themselves. It seems appropriate to caution owners that settling on anything less may ultimately be a choice the owner may not live to regret.