April 8, 2000

Redefining Fractionals

Chair of industry working group tells how conclusions were reached — and their far- reaching impact

By Jim Christiansen, COO/Executive Vice President, TAG Aviation

April 2000

As the Fractional Ownership Aviation Rulemaking Committee (FOARC) nears completion of its project, there is considerable interest in the committee process and the recommendations that it produced. While most of the attention has been directed at fractional program managers, this process produced much deeper ramifications for our industry.

Fractional ownership has grown in popularity over the past decade and along with it the controversy over whether these programs should be governed under Part 91 or 135 of the Federal Aviation Regulations.

Jim Christiansen currently serves as COO/executive vice president for TAG Aviation and is based in White Plains, NY. A veteran of the air charter industry for some 30 years, he has held senior positions with various aircraft management and charter firms. He holds a B.S. in business administration and served in Vietnam as a army helicopter pilot.

The programs legally utilize existing FAR structure. However, as they grew, many industry members contended that fractional programs are, in fact, more like commercial operations than Part 91 operations. Charter operators, required to conduct their flights under the more restrictive 135 regulations, felt that fractional programs had an unfair competitive advantage. Likewise, many traditional flight department personnel felt threatened by this new method of access to private aircraft, and voiced concerns about how the programs were organized.

Meanwhile, fractional providers argued that their owners were no different than any other business aircraft owners, and that they deserved to enjoy the benefits of operating their aircraft under Part 91.

The debate heated up as fractional programs grew. In October, 1999, after several aborted attempts to address the fractional aircraft ownership issue, the FAA appointed a special committee of industry members to address it. Considering the contentious nature of the issue, the committee was given a tall order.

As the FAA listened to the arguments surrounding the debate, it concluded that, while fractionals operated legally under existing regulations, they were indeed different from traditional private aircraft operations, and that their regulatory status should be examined.The FAA decided that a regulatory change was required to make them comfortable with fractional programs, and the committee's charge was to create those changes. The FAA's mandate did not include addressing commercial or market considerations. Consequently, complaints about unfair competitive advantage were not within the FAA's purview.

The FAA Administrator created the FOARC to "propose such revisions to the Federal Aviation Regulations and associated guidance material as may be appropriate with respect to fractional ownership programs." The committee consisted of 27 members, supported by legal counsel and various experts. Repre-sentatives of FAA, DOT, and foreign aviation authorities also participated.

At the last minute, literally as I was boarding the aircraft on my way to Washington for the first meeting of the committee, I was informed that I had been appointed chairman.

The process the committee followed was straight forward. After laying the groundwork for how committee business was to be conducted, each committee member was provided an opportunity to present his or her views on the subject. While this was, at times, a strained process due to the emotions surrounding the issue, it laid the foundation for fruitful discussions. Time was also set aside for the public to address the committee and present their points of view.

The committee quickly agreed on one important point. Regardless of any given member's point of view, if the committee were not successful in creating a regulatory solution for this complex issue, the FAA would create a solution. This resulted in total agreement that it was highly unlikely that the industry would like the FAA's solution. So, we agreed that we had a unique opportunity to develop a viable solution that we all could live with. Once we came to that realization, the process, though arduous, actually worked fairly smoothly.

Examination of safety data proved that, operating under Part 91, fractional programs have achieved one of the best safety records in aviation. The committee concluded that the strong safety culture practiced by the major program managers provided the foundation for this record. We agreed that our end product should codify the practices of this safety culture into a regulation specifically designed for fractionals.

The committee spent significant time examining the components of existing fractional programs and decided unanimously to recommend that they continue to operate under Part 91. After further debate, we agreed that we would use a previously developed industry guideline as a starting point for our work. We also agreed that safety was paramount on our list of priorities as we designed the new proposed regulation.

While the committee unanimously agreed to keep fractional operations under Part 91, we also recognized that a stringent regulatory framework was appropriate to insure future safety. Our rationale was that, while current operators are conducting their operations to a very high standard, it is important to insure that new entrants also do so. Interestingly, the existing fractional providers were strong advocates of this approach because they have so much at stake. They simply cannot afford to risk having fractional programs get a black eye because of the actions of a marginal operator.

Recognizing the excellent safety record of 135 operators utilizing turbine equipment, we decided to compare 135 to previously developed voluntary guidelines. This would result in melding components of successful safety cultures, existing Part 135 regulations, and the previously developed guidelines to create a new regulation, Part 91 - subpart K, specifically designed for fractional programs. An added consideration was, since to a large extent existing major fractional program's operations already mirrored Part 135, the economic impact of the new regulation would be minor. We would simply operate from actual practice to rule.

It may be an understatement to say the committee was populated with strong personalities. At times it was a challenge to keep our momentum going. But, in the very beginning, we set standards for the conduct of our discussions. We agreed that every point of view was valid, that we would treat each other with respect, and that professional, "adult behavior" would be the rule of order.

The process itself was tedious. The committee went carefully through each section of the guidelines and Part 135, compared the two, compared those provisions to the existing practices of the program managers, and debated the merits of each item. From that process we developed a draft regulation and preamble, modeled after an NPRM. After the draft was fleshed out, we went through it again, word for word, to be sure we had captured exactly what the committee envisioned.

During this process, we identified areas of the 135 regulations that were outdated, based on new technology and knowledge now available. We crafted revisions to Part 135 modernizing it to reflect more current best practices, and to provide relief to 135 operators in several areas that have been contentious for years.

An example is the 60 percent runway landing distance rule. This regulation requires that aircraft operating under Part 135 must be able to land in the first 60 percent of the available runway at any airport they are dispatched to. As a result, there are many airports routinely visited by business jets operating under 91 where that the same aircraft, operated under Part 135, is not authorized to operate.

An examination of this rule indicated that it was created in the 1940s and was arbitrary at best. The fact is, at that time our industry was much less sophisticated, and calculating landing distance was not an exact science. Therefore, a regulation was created that added a significant cushion to landing distance requirements. Today, the data on aircraft performance is much more reliable.

Further, we have 15 years of experience operating business aircraft within fractional programs, under Part 91, to draw from. The fact is, those operations do not have significantly more runway overrun incidents than do the same types of aircraft being operated under Part 135. So, the conclusion can be completely supported that, with the appropriate safety culture in place, Part 135 aircraft can in fact operate safely using the same criteria that Part 91 aircraft utilize.

(In order to gain a full appreciation of all of the content and nuances of the proposed regulation, along with an explanation of the thought process and justification the committee developed for many of its recommendations, the entire preamble of the proposed subpart K must be read.)

However, as I mentioned in the beginning of this article, there are important ramifications to how this issue is resolved. Fractional programs have become a major force in our industry. They consume huge numbers of airframes, and vast quantities of products and support services. Should the regulatory environment change and consequently reduce the flexibility that fractional aircraft owners enjoy, there could be a cascade of lost business throughout industry.

Another impact is the positive effect the recommended changes to 135 will have on the industry and many communities. Because of the 60 percent rule, many communities with adequate airport facilities are not accessible by business jets under Part 135. If the committee's recommendation is implemented, many communities will benefit from improved access. This has proven to be a major plus for communities as they try to attract new industry. Obviously, it is also a plus for FBOs and airports, bringing higher sales for fuel and support services.

The question has been asked whether this process is appropriate to be used for other issues faced by the regulatory agencies. My opinion is that it is a viable process that develops an excellent solution. When a situation is approached in an honest way, who is better equipped than industry members, who operate within the environment every day, to write a workable regulation?

The onus is now on FAA to take our work product and complete the process. The industry has spent thousands of hours creating the draft regulation, carefully crafting it to meet the needs of all constituents. In addition, the more than $1 million expended by committee members on legal fees and other support functions has saved at least that much in government resources. If this process is to be a viable methodology for solving complex issues, then it is important for FAA to prove the concept through direct application of the committee's work.