What's At Stake?
By Stephen P. Prentice
You probably have heard about fractional interests in aircraft ownership by now. It seems like they have bought out all corporate jet production for years to come. Sales are booming, but have you thought anything about the status of employees of the management arms of such companies or what the impact will be in maintenance field? These companies now employ hundreds of technicians and pilots and have a significant impact in the commercial corporate flight environment. Are they here to stay? Will their structure change? Will they be regulated?
Fractional owners don't retain their own technicians, but maybe they should. Current arrangements call for the management company to supply all maintenance. Many companies are closing their flight departments and moving to a fractional arrangement because of the perceived dollar savings. In addition, individual aircraft manufacturers have set out on a plan to provide in-house maintenance services for most of the routine inspection process. This is the area that is of concern to some. Will these arrangements impact the average technician?
What Is Meant By Fractional?
Fractional aircraft operators are essentially time-share operators with a manager. For years, owners of large and small aircraft have attempted to offset the costs of ownership by attempting to operate their aircraft for profit, and usually came face to face with the air carrier certificate requirements. Indeed, they were and still are, sanctioned and fined for such operations by the FAA. The big difference with the fractionals lies in the fact that the paperwork involved makes each participant an "owner" of the particular aircraft they are involved with. Their investment is usually a lump sum initial payment plus a monthly share payment for the total aircraft operating costs including routine and other maintenance. The registration documents for the aircraft should reflect the multiple owners who share the use and not incidentally, the liability, for operations of that aircraft and that they are individually responsible for the operating costs of that aircraft. However, the way it works is simply that any other aircraft in the "fleet" can be used by these "owners" making the whole operation seem very much like an air carrier operating under the rules of Part 91. This is typically accomplished by way of an interchange agreement and is the essence of the argument that this is really a commercial air carrier arrangement that should be regulated. This is the dirty little secret that upsets much of the certificated operation community who have to spend large amounts of their investment on the demands of complying with FAA and FAR 135 and 121 requirements that include duty and flight time limitations and airport restrictions, among others. Needless to say, the air carrier people have some concern that their business is already badly eroded. The fractional operators say their business is in effect, new business and therefore should not take away from the air carrier people. They say they make new jobs for technicians and pilots. The certificated people say, I don't think so!
FAR 121, 135 or 91.501?
True, all of the current fractional operations are conducted under the rules of FAR 91 although the aircraft are usually registered as Part 135 aircraft for a lot of reasons, not the least of which is tax avoidance. FAR 91 does of course provide for time-share arrangements. FAR 91.501 defines and describes managed aircraft rules so long as "common carriage" is not involved. But, there is much to argue that air carrier rules should apply and that this operation is really common carriage. Needless to say, the operators want to remain under the cloak of FAR 91 for quite obvious reasons. Some operators claim they follow air carrier maintenance rules although there is no requirement in the Part 91 scheme. There is no substantial operations surveillance akin to air carrier inspection however, so who knows? Does it make any difference to the average technician? Maybe it should. Let's look.
Maintaining a Part 91 aircraft is pretty simple. Annual inspection, 100-hour, or factory schedule — any one will suffice. Records can be superficial and need not be verified. Air carrier operations are much more complicated and certainly more expensive. They provide more opportunity for FAA surveillance of your work, as most of us know. This opens the door for sanctions and other certificate actions against you for any errors. Part 91 clearly has far less scrutiny by FAA and therefore is most desirable by the fractional operators and obviously their employees. One has to keep in mind however, that a fractional operator may choose to define his aircraft as Part 135 while operating under Part 91 — if the "owners" are aboard it's Part 91, if otherwise, then it can be Part 135.
If however, all but line service maintenance is provided by factory personnel, then little of the business activity will trickle down to the field technicians and independent providers. Indeed, much of the routine work may and could be accomplished by non-certificated employees who are supervised by others. We all know this is a common practice in some parts of our industry.
FAA is hard pressed at the moment to come up with a regulatory scheme to apply to the fractional operators and their maintenance programs. Some suggest that it should be called FAR 134.5 since it is almost 135 operations. FAA lawyers are presently still wrestling with the fractional concept and whether or not it is disguised common carriage. Now, we have already seen and discussed the upcoming changes to the certification requirements under the new proposed Part 66 two "tier" licensed technicians, more training, ad nauseum. Perhaps because of the huge group of fractional aircraft, maybe we should provide for a third "tier" in Part 66 called fractional technician. Then, we would have the general aviation tech, the air transport tech, and then the fractional tech. What do you think?
We could suggest that new Part 66 could be the vehicle to integrate fractional operations into the real world of regulation, or perhaps, a hybrid form of Part 135. Some have also referred to this as "135 Lite" (Not a new beer). After all, sections of Part 121 were modified and used to create Part 125 to provide for large aircraft operations in a modified regulatory environment. Alternatively, the door may be opening for regulation via the new (still) proposed duty and flight time changes for pilots. Duty time rules in some form would also apply to technicians like Part 121. The plan would be to apply any new duty-flight time rules to fractionals as well as certificated air carriers. Wow, would we lose Part 91 completely?
The fractional operators are growing so large that they are even bigger than some regional airlines, so the argument goes why aren't their operations regulated? Just think, from the maintenance standpoint, how much money can be saved by not having to have all the operations structure for remote maintenance, MEL requirements, and the other air carrier nonsense that costs a fortune to manage.
On the other side of the coin however, Canada considers arrangements like fractional ownership as a commercial undertaking similar to time-shares. Canadian rules involve their securities regulations and the need to conform to commercial standards; therefore, air carrier rules — definitely a more expensive and complicated road. Current Canadian rules would not permit fractional operations as known in the States.
In addition, Canada's geography argues against a fractional system simply because of the long flight legs and deadheading costs, all of which are borne by the so-called fractional owners. Fractional operations lend themselves to the traditional hub and spoke setup from the center of a country. This allows for more efficient use of the aircraft and maintenance resources and reduces considerably the deadheading costs to the owners.
Fractional operations under Part 91 don't require drug and alcohol testing that are an integral part of the air carrier system today. Anyone performing an air carrier safety sensitive function, including all pilots, technicians, and dispatchers, among others, must be included in a drug and alcohol testing pool. There is no question that this adds considerable expense to an air carrier operation while fractional operations need not comply with this expensive program. Moreover, technicians and pilots with questionable histories may find a safe haven in this non-regulated environment.
Background checks under pilot record and maintenance requirements are not mandated for fractionals simply because they don't apply to private Part 91 flight operations. Although not strictly required, many employers do find it prudent however, to require some checks as a matter of course including drug and alcohol testing. Insurance companies sometimes require these checks. They can include a check of the National Driver's Record in Washington, DC. If you have had a problem with alcohol or drugs as it relates to driving it would show up on this record. Cost is the driving force and no one wants to face the obvious increased cost of air carrier flight operations.
Adding additional costs under air carrier rules is the need for recurrent training. Fractional pilots and technicians have no operational FAR mandate for such training, thus the cost savings can be enormous. Air carrier training records are also a fertile area for violations. Inspectors spend all kinds of time looking at training records to ensure FAR compliance. Fractional operational maintenance and flight records are free from regular inspection.
The difference between fractional operations under FAR 91 and under FAR 135 rings similar to a comparison between FAR 125 and FAR 121 supplemental air carrier operations. One has little or no surveillance and the other has full 135/121 scrutiny — a big difference that spells large cost savings.
The Bottom Line
Money is always the driving force. The cost savings to the fractional style of air carrier have been estimated at one-third less than a FAR 135 operation. I would think the savings could be much more. Perhaps this could translate into higher pay scales for technicians since the savings are so great.
We should note however, that Uncle Sam has succeeded in taxing fractional operations as air carriers by demanding their ten-percent excise tax on every flight. Tax Courts looked at it and said that no way is this private carriage, but is simply a commercial activity demanding payment of the air carrier taxes! They paid. Now, think about this . . . if they are taxed as air carriers, will they be required by their insurance people to carry much larger air carrier insurance coverage?
In addition, there are many labor-related issues that become of concern in the regulated scheme. When the first accident occurs you can rest assured the lawyers will define this playing field before the FAA ever gets around to it, and I can assure you it won't be considered a private operation. Just wait and see.