Flying on borrowed time

Business Jet Traveler » April 2012
Flying on borrowed time
While the chances of getting caught “borrowing” or “loaning” an aircraft are small, the risks if you are caught are huge.
Monday, April 23, 2012 - 12:15pm

Perhaps you have access to a private jet through an owner you know. It seems like a great deal: the aircraft is available almost any time, you fly with the same crew the owner uses and you pay considerably less than standard charter rates.

Or perhaps you own a jet that’s being borrowed. For you, the arrangement can seem just as attractive: You’re not using the jet as much as you did before the economy tanked and modest compensation from another user can help offset ownership costs while keeping the airplane and crew from sitting idle for long periods.

So what could be better then friends helping friends? In this case, many things, as the arrangement we’ve described presents major risks for the borrower, the owner and the crew.

In fact, it’s illegal.

The business aviation community calls these flights “Part 134½,” in mocking reference to the FAA’s Part 135 rules, which regulate air charter operators and operations. No statistical data exists on the extent of the practice, but business aviation insiders readily acknowledge that Part 134½ is widespread. It occurs “on a pretty regular basis,” according to Mike Nichols, vice president of operations, education and economics at the National Business Aviation Association. A charter-management company executive, meanwhile, said, “Every legitimate charter operator out there is frustrated and losing a ton of business to plane owners running 134½.” The executive, who requested anonymity, noted that airport businesses often sell fuel, maintenance and other services to such owners, and thus hesitate to report suspected illegal charter activity.

The truth is, if such flights proceed without incident, as they almost invariably do, there’s little likelihood of any enforcement agency finding out or taking action. The FAA and the DOT already have their hands full trying to regulate shady providers in the commercial charter world. But while the chances of getting caught “borrowing” or “loaning” an aircraft are small, the risks in the event you are caught–say, in the wake of an accident–are huge.

In general, the FAA allows compensation from passengers only for flights operated by a commercial carrier, such as an airline or Part 135 charter operator. Some exceptions apply to privately operated multi-engine large aircraft (minimum 12,500 pounds) under FAR 91.501. For example, compensation is permissible for demo flights conducted pursuant to the purchase or sale of the aircraft. But none of these exceptions apply to flights involving a loaned or borrowed business jet.

Many owners are ignorant of these strictures and possible penalties, according to experts. “What I see mostly in this context are [owners] who are unaware or turn a blind eye,” said aviation attorney Paul Lange of Stratford, Conn., who specializes in aviation law and enforcement actions. “Perhaps they’re not sufficiently paranoid.”

Part 135 charter operators must comply with higher standards than Part 91 operators in crew training, aircraft maintenance, recordkeeping and other requirements, and Part 135 aircraft have a better safety record. Your friend’s crew and aircraft likely do not meet these requirements, let alone the even higher standards mandated by business aviation auditing firms, which many charter customers demand. Maybe you feel if it’s safe enough for your buddy, it’s safe enough for you. But Part 135 rules also include insurance requirements to ensure adequate coverage in the event an accident occurs. Whatever insurance your friend carries on the jet may be voided if an accident occurs while it is illegally carrying a passenger for hire.



“Most aviation insurance policies require compliance with FARs as a condition of coverage,” said Lange. “The problem for the passenger, or any claimants involved if someone gets hurt or killed, [is that] if the insurer disclaims coverage, the passenger may only have recourse to [sue] the operator, and that’s likely an entity holding nothing but debt. So there’s nobody to get compensation from.”

If you’re the owner, you’re putting your crew’s licenses on the line every time you “lend” out your aircraft–even if the crew has no inkling the flight is illegal. “That’s reason number one why owners should care,” said Nichols. “They’ve invested in crew training and built rapport, so they should care about their employees’ livelihoods. The pilot doesn’t know if there is compensation. That happens without the crew knowing.”

In addition to having their licenses suspended or revoked, crewmembers could be assessed significant fines, as could the owner. As noted above, moreover, your aircraft insurance policy may be voided if you operate a Part 91 aircraft for compensation. If an accident occurs on one of these flights, you could face millions of dollars in claims and find yourself in a legal battle with both your erstwhile friend and his insurer. This would doubtless come to the attention of the FAA, which can levy penalties of up to $11,000 per FAR violation per flight.

How much could that amount to? “I don’t think anyone has ever counted that high,” said Lange, noting that scores of FARs would be violated on every such mission. “You easily get up into the hundreds of thousands of dollars per flight.”

And while the FAA and DOT haven’t put Part 134½ operations in their crosshairs, pressure could mount for them to make an example of someone. “What we need in this industry is a couple of high-profile busts to make this go away,” said Joe Moeggenberg, president and CEO of aviation consulting firm ARGUS and a strident critic of Part 134½. “In all the years I’ve been in this business, I can think of only one instance when a Part 91 operator was fined for operating an illegal charter.”

And just because you escape notice from the FAA and your insurance company doesn’t mean you’re home free. “Usually these Part 134½ operators get caught by the IRS, not the FAA,” said Nel Stubbs, vice president and co-owner of aviation consulting firm Conklin & de Decker. If an audit reveals that you supplied an aircraft and the crew and received money in return, the IRS may determine you owe the Federal Excise Tax that operators are obliged to collect and pay for every charter flight, and possibly penalties as well. “The IRS is much better at enforcement than the FAA,” said Stubbs.

There are, of course, plenty of ­perfectly legal ways to access business jets or to derive revenue from one you own. If you’re looking for flights, see the recently revised NBAA Aircraft Charter Consumer Guide (nbaa.org/charter). If you’re an aircraft owner who wants to generate income, consider dry leases, time-sharing agreements or putting the airplane on a Part 135 certificate.

“Selling time is a good thing; it chips away at cost of ownership,” said Toby Batchelder, sales manager at charter-management company Elliott Aviation. “If you want to do it, sit down and talk to your insurance company and your aviation legal team to make sure you’re not exposing yourself and your pilots to any risk.”

The bottom line: It’s nice for friends to help friends, but when it comes to business aircraft, it’s best to observe Shakespeare’s advice from Hamlet: “Neither a borrower nor a lender be.”

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Chris Coombs
on April 23, 2012 - 5:41pm

"Part 135 charter operators must comply with higher standards than Part 91 operators in crew training, aircraft maintenance, recordkeeping and other requirements, and Part 135 aircraft have a better safety record."

135 operators are required to do more "maintenace" items than a 91 operator in theory, I've seen quite a few 135 operations that have less than stellar maintenance practices. Its all paperwork, the FAA cares more about the dotted i's and crossed t's than about the physical condition of the aircraft. Its a rather large problem now days with the people in charge who think because the paperwork looks good the aircraft must be good. Small time 135 operations scrimp where they can to make ends meet, and one of the simplest ways to do that is maintenance. Now I am not saying Part 91 is any better, but required crew training is probably the biggest reason there are not more accidents in the 135 world.

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kent
on April 23, 2012 - 5:54pm

I wonder if the author could address a situation where 2 separate flight departments cover each others trips occasionally when, for example, one operator is down for maintenance or their pilot is sick. No money is changing hands and they simply try to pay back roughly hour for hour. What say you?

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Art Johnson
on April 23, 2012 - 10:04pm

To further comment on the above problems involved with this activity: For the aircraft operator, the IRS will not only collect excise tax on those 'charters' but on every single flight, including the perfectly legal Part 91 trips with the owner or Corporation going back for years.

For the passengers, their personal insurance policy's will likely deny payment for any loss suffered during any non-FAA Certified 'charter' flight.

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