Aircraft Interchanges
By Jeff Wieand - June 1, 2009
One seemingly enticing opportunity for business jet owners presented by the Federal Aviation Regulations (FARs) is the interchange agreement. The rule lets you “interchange” your jet with someone else’s, allowing you, in the FAA’s words, “to augment or more fully utilize” your aircraft. Ideally, the interchange would maximize use of both jets, and in many cases allow you to target a more appropriate aircraft for a given mission.
The origin of the interchange idea requires explanation. Unless your airplane is on a commercial certificate, you ordinarily can’t use it to provide transportation in exchange for compensation. You could lease it to someone who provides his own pilots, but if you furnish the airplane and even one crewmember and compensation is involved, the FAA will deem the flight commercial. Traditionally, this was true even if the compensation wasn’t money; it could have been any valuable benefit, including your passenger providing you with transportation on his aircraft. In other words, trading time on your aircraft for time on someone else’s required a commercial certificate from the FAA.
But then in 1972, when the agency recognized that these time-trading arrangements were going on, it decided to legalize them. Because the FAA had been using the term “time sharing” to refer to a quite different arrangement, it chose to call the arrangements “interchanges.” According to FAR 91.501, in an interchange agreement, “a person leases his airplane to another person in exchange for equal time, when needed, on the other person’s airplane, and no charge, assessment or fee is made.”
That sounds simple. But say I’m trading time on my Global 5000 for time on your Cessna Citation Bravo. The hourly operating cost (never mind the fixed costs) is almost four times higher for my Global than for your Bravo, so if we trade hour for hour, you’re making out like a bandit.
Permissible Charges
Luckily, the FAA took this problem into account. In an interchange agreement, the agency lets me charge you an amount “not to exceed the difference between the cost of owning, operating and maintaining the two airplanes.” That can clearly mean more than direct operating costs.
However, the FAA’s largess has confused many jet owners. Say hourly flying costs are $10,000 for my Global and $2,500 for your Bravo. We sign an interchange agreement in which I fly 10 hours on your Bravo and you fly 10 on my Global. Since my Global costs four times more to operate than your Bravo, I just bought the most expensive Bravo flight time in history. But here’s what saves the day: Our interchange agreement can provide that you pay me the difference between the cost of owning, operating and maintaining the two aircraft, which in this case will be $75,000 ($7,500 per hour times 10 hours).
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