A Flight-Sharing Scheme Collides With Federal Regulations

Jul 3, 2016 - 3:00 PM

A company tried to connect private pilots with prospective passengers, but the FAA nixed its plans.

Imagine being able to fly to your destination on a private aircraft simply by helping a pilot cover his expenses for the trip. Inspired by companies like Uber and Airbnb, which connect people needing a service to ordinary folks who can provide it, some Boston-based entrepreneurs initiated a startup in 2014 called Flytenow. Their concept was simple: create an online club to connect pilots who are planning to fly a certain trip with “general aviation enthusiasts” who would like to go along.

A Flytenow member with a Tuesday trip from Chicago to St. Louis, for example, could check the company’s website to see whether any pilots happen to be flying that route on that day. The member could then ask the pilot to be included as a passenger in exchange for helping to pay for the direct operating costs. (Flytenow would reportedly receive a $10 commission for each pairing it arranged.)

Another brilliant American business innovation? Almost. Following a battle in court, the Federal Aviation Administration summarily shut down Flytenow in January.

Unlike some other Uber-inspired aviation businesses like EvoLux Transportation, Flytenow was designed for non-commercial Part 91 flights. As a result, it collided with the twin FAA roadblocks of “compensation” and “common carriage.”

Ordinarily, to receive compensation for a flight, a pilot (like a taxi driver) must have a commercial (pilot) license. “Compensation” includes any benefit received by the pilot for carrying a passenger, including help with paying for the direct operating costs of the trip, and profit is not a requirement. [See “The Consequences of Compensation,” December/January 2016, available at bjtonline.com.—Ed.] However, an FAA regulatory exception allows private pilots (pilots without a commercial license) to receive reimbursements from passengers for a pro-rata share of the operating expenses (fuel and airport and rental fees) for a flight if there is a “common purpose” for their travel. Basically, the FAA says that if my Aunt Gertrude and I are both going from Chicago to St. Louis to see the Cardinals play on Sunday, as a private pilot I can give Gertrude a ride in exchange for her paying for half the fuel.

What’s the difference between Aunt Gertrude and a Flytenow member? Well, since I know Aunt Gertrude, we arrange to get together for the flight as a private matter. I didn’t use a billboard on Lake Shore Drive to advertise that space would be available in my airplane for a fight to St. Louis. She’s a rabid Cardinals fan, so I simply asked her whether she wanted to go to the game.

The difference is captured by the concept of “common carriage,” a term that isn’t defined by statute and is left for the FAA to interpret. Thirty years ago, the FAA attempted to dispel confusion about common carriage by issuing an Advisory Circular, the agency’s way of dispensing advice about how to comply with its requirements. The Advisory Circular (AC No. 120–12A) identified four elements of the concept: “(1) a holding out of a willingness to (2) transport persons or property (3) from place to place (4) for compensation.

This statement is curious not only for its failure to mention aviation but for including the third element, which is essentially irrelevant. If I offer helicopter tours of the Grand Canyon, I can’t say I don’t engage in common carriage just because I take off and land at the same place. The FAA could argue that the tour goes from place to place around the Canyon, but that idea is already covered in the second element, which refers to the “transport” of persons or property.

These conundrums aside, if I engage in common carriage, I must have an “air carrier” certificate issued by the FAA. This certificate entitles me not only to receive compensation for transporting persons or property but to hold out a willingness to do so. This is the main stumbling block that Flytenow faced.

The company did try to play by the rules. First, the pilot posted a planned trip on the website, but only club members had access and the pilot retained discretion as to whether to accept a passenger or not. Presumably, that was supposed to militate against the pilot evincing a willingness to carry anyone—unlike a taxi driver cruising in an empty cab. The description of members as “general aviation enthusiasts” implied that they were more interested in flying in private airplanes than in trying to get from one place to another. Further, the pilot would apparently be charging only for a pro-rata share of operating expenses, as permitted by the private-pilot exception, and there was no indication of an ability to earn a profit.

Thus, Flytenow’s operators may have had high hopes when they requested an interpretation from the FAA in 2015 that their web-based service complied with the agency’s requirements. If so, they were sorely disappointed: in an August 2015 legal interpretation, the FAA concluded that pilots sharing rides through Flytenow were engaged in common carriage.

True, not just anyone could propose going on a flight; you had to be a Flytenow member. But being contacted by someone you don’t know who is a member of an organization with potentially millions of members isn’t like having a chat with Aunt Gertrude. As the FAA pointed out in the Advisory Circular, “The number of contracts must not be too great, otherwise it implies a willingness to make a contract with anybody.

In other words, the FAA viewed a pilot’s posting of a trip on Flytenow as a holding out of a willingness to transport persons. Of more substantive concern is that, by signing on to travel with pilots they don’t know, Flytenow members would have little ability to assess the pilots’ competence. Aunt Gertrude knows I’m not a habitual drunkard violating my parole by flying to St. Louis, but Flytenow members may know nothing about its pilots. And unlike charter or airline passengers, they’re not being transported by an FAA-certified air carrier flown by commercial pilots in accordance with FAA charter operating rules.

Flytenow countered by suing the FAA, arguing that its interpretation was arbitrary and capricious and inconsistent with applicable law. The U.S. Court of Appeals for the D.C. Circuit, however, sided with the FAA, which shut down Flytenow almost immediately thereafter. A competing service called AirPooler suffered a similar fate.

As Flytenow mulls a possible appeal of the court decision, Congressman Mark Sanford (R-South Carolina) seeks to amend the 2016 FAA reauthorization act to require the FAA to issue new regulations to facilitate operation of flight-sharing websites such as Flytenow. He should expect no help from the FAA.

Jeff Wieand is a senior vice president at Boston JetSearch and a member of the National Business Aviation Association’s Tax Committee.