““[Bill Gates] has been historically one of my best supporters…One of my favorite e-mails he ever sent me…I proposed this crazy project. And he sent back this two-line response: ‘This has got to be the craziest thing you’ve ever suggested. Please proceed.’” ”
The whole truth about two parts
One of the first things you hear about when you begin using business aviation in the U.S. is the mysterious but important distinction between Part 91 and Part 135 operations. Many people still think about the difference in simplistic terms: Part 91–good; Part 135–bad. The facts are considerably more complicated.
Part 91 is the section of the Federal Aviation Regulations that provides general operating and flight rules for civil aircraft (see chart). Whether you're flying a Cessna 182 or a Boeing 777, you have to comply with these rules. However, Part 91 rules are "non-commercial"; they generally don't contemplate that any compensation, or even reimbursement, will be paid for carriage of passengers or cargo.
To receive payment for air transportation, you need a commercial certificate from the FAA–basically, a license to charge–and in some cases approval from the Department of Transportation. Given the size of most business aircraft, the vast majority of commercial certificates are issued for operations under Part 135 (the FAA's charter rules) and are often called "charter certificates," though their technical name is "air carrier certificates." Obtaining a new charter certificate is an involved and time-consuming process, and as of this writing the FAA has put a hold on new applications anyway, so most people who want to fly under Part 135 make arrangements with an existing charter company.
At first glance, it may seem odd that the FAA has two sets of rules for operating the same aircraft, depending on whether paying passengers are aboard. But the agency thinks the public has a right to expect that people in the business of providing transportation will be especially careful in doing so. Part 135 rules are designed to hold pilots, aircraft, operations and even passengers to a higher standard than would pertain to someone providing his own transportation. (Part 91 still applies, unless trumped by a more restrictive Part 135 rule.)
Under Part 91, your caffeine-swilling pilots can fly your aircraft around for days without ever taking a break. Part 135, on the other hand, has specific flight-duty-time and rest requirements. This is one of the most significant differences from Part 91, for when the duty day is over, it's over, and it doesn't start again until the rest requirement is satisfied. Part 135 also imposes a higher standard of pilot qualifications and requires that flight crew be subjected to drug and alcohol testing. An aircraft on a Part 135 certificate must be maintained to Part 135 standards, and in some cases, must have different equipment than would be mandated under Part 91, including fire-blocking of the interior.
Part 135 operational requirements also differ from Part 91's. Under Part 91, but not Part 135, it is theoretically possible to take off under conditions of zero visibility. Aircraft operated under Part 135 cannot generally use airports that lack on-site weather reporting. Under Part 91, moreover, necessary runway length is determined by the aircraft's performance limitations, while Part 135 requires a 40-percent "cushion" of additional runway length.
Under Part 91, passenger identification is not ordinarily required for trips within the U.S. For charter flights, however, passengers are subject to identification checks; those at least 18 years old will be asked for government-issued photo identification, just as when riding on the airlines.
Given that Part 135 operations are "commercial," they have potential adverse federal tax consequences. Though the IRS wields its own definition of "commercial" operations and isn't bound by the FAA regulations, an aircraft owner's surrender of operational control of a flight to a charter operator is generally sufficient to cause the tax agency to view the flight as commercial under its rules–even if the owner is the passenger. Part 135 can thus trip you up on two principal tax issues: a longer tax-depreciation schedule (seven years instead of five, for example) and exposure to the transportation excise tax (7.5 percent of the amount paid for air transportation.)
If Part 135 sounds as if it involves a lot of regulation, red tape and government interference, that's because it does. But there are advantages. Unlike Part 91, which allows compensation to be paid for air transportation only under limited circumstances–and even then limits the amount payable–the sky's the limit, so to speak, under Part 135. Once the aircraft is on a charter certificate, it can be made available for revenue charter to help offset the fixed costs of aircraft ownership. In some states, operating under Part 135 can mitigate exposure to sales, use and/or property taxes, and there are often federal tax benefits as well. Operating under Part 135 means the certificate holder, not the aircraft owner, is responsible for safe operation, which greatly reduces the liability risk to the owner as a result of accidents or incidents involving the aircraft.
Making your aircraft available for charter is one thing; operating your own flights under Part 135 is something else again. Does that make sense? In the absence of significant tax benefits or a need to charge for flights, I would say no. [See "Chartering Your Own Aircraft" in our August/September 2011 issue.–Ed.] Convenience is a major advantage of business aviation, and the operational flexibility of Part 91 offers the maximum convenience while still providing for safe operations. Abundant liability insurance is still available at reasonable prices. But there is no question that the issue merits careful consideration from a variety of perspectives and an in-depth discussion with your aviation attorney.