New FAA rules rattle the charter industry

Chances are, you haven't heard of A008, which sounds like a new secret agent. In fact, there's nothing secret about it-but there might as well be, considering how little many business aircraft owners know about its potentially deadly impact.

Before we discuss that impact, here's some background. Many owners put their airplanes out for charter to help defray their fixed ownership costs. A008 is a paragraph in the Operations Specifications for charter businesses operating under Part 135, the regulations the FAA uses to oversee charter operations. Charter companies must have a certificate from the agency allowing such operations.

Obtaining such a certificate on your own can prove cumbersome, expensive and time-consuming, and running a charter business even more so. As a result, most business jet owners who want to charter out their aircraft arrange to put it on someone else's certificate. In a typical deal, the owner's crewmembers fly the airplane on the charter flights, but the certificate holder assumes what the FAA calls "operational control" of those flights-the "exercise of authority over initiating, conducting or terminating" them.

To have operational control, the certificate holder must ensure that it maintains the aircraft to Part 135 standards and controls various aspects of the aircraft's activities; and its flight crew must satisfy the requirements of Part 135, including the certificate holder's pilot requirements. Moreover, the FAA not only wants the certificate holder
to have operational control; it wants everyone-the owner, passengers, crew and FAA-to know that the certificate holder has this control.

Every industry has its scofflaws, and although I think most charter operators try to comply meticulously with FAA requirements, some fall short. As a result of some particularly lamentable and well-publicized recent violations, the FAA decided to provide more specific guidance on operational control by revising paragraph A008.

The notice revising A008, which took effect last December 28, instructs local FAA officials to amend the operations specifications of each of their charter operators to conform to the new template. FAA regulations give charter operators an opportunity to request changes to paragraph A008, which are unlikely to be approved, and to appeal if they are not. Barring a battle with the FAA, then, A008 tells the charter industry how it must maintain operational control of its flights. The deadline for compliance was this past March 15.

A frequent complaint in business aviation is that "the FAA doesn't understand us." The FAA did conduct a nationwide road show to discuss the proposed A008 changes,  and many experts, including charter operators, aviation attorneys and industry groups, provided feedback. Still, when the agency released the new A008, it greatly disappointed the National Business Aviation Association and many others because, although it addressed some industry concerns, A008 suggested that the FAA still didn't understand how charter works.

Another problem is that the "guidance" in A008 is often vague or ambiguous. Confronted with nonspecific language, many FAA inspectors will apply the most conservative possible interpretation, even though it may be at odds with what the agency intended. Legitimate charter operations could effectively be shut down because they are unable to comply with these draconian interpretations. At the same time, other FAA inspectors may fail to appreciate the business and economic issues the agency is attempting to regulate, and may accordingly fail to rein in the operators that the FAA really has in mind.

The single biggest problem with A008, however, is its treatment of pilots. To ensure that the charter operator really has operational control of its flights, the FAA would like that operator to employ the pilots and pay all their compensation for such flights. This causes a dilemma because most aircraft owners who put their airplanes on a charter certificate to help defray their fixed costs want their own pilots to be used for the charter flights. Moreover, several prominent management companies, which employ pilots to fly the aircraft they manage, are owned or controlled by non-U.S. citizens and can therefore provide charter to their customers only via a charter certificate held by a third party.

In the past, such cases haven't been viewed as posing an insurmountable regulatory problem. The charter operator would make sure the owner's pilots were trained and qualified and that they understood who was in charge in the case of a charter flight.

But the new A008 creates barriers here. First, each pilot on a charter flight must be a "direct employee or agent" of the charter operator. Presumably, this permits the aircraft owner's pilots to act as such "agents." But A008 also says the owner can't require the certificate holder to use his pilots; the owner cannot even have veto power over the pilots who will fly what is, after all, his own aircraft.

Effectively, this means that the owner must let the charter operator provide any pilots it deems qualified. And if it happens that the owner's pilots always end up flying charter flights on the owner's airplane, A008 says this will be a factor in determining whether the charter operator really has operational control of the flights. Thus, to be safe, it appears that a charter operator should make sure that
at least sometimes pilots other than the owner's fly charter flights.

Such requirements are bound to seem silly to aircraft owners-a triumph of form over substance. Several days after A008 appeared, a representative of one charter certificate holder told me that aircraft owners had already withdrawn five airplanes from their certificate because the owners refused to permit the charter operator to use pilots other than the owners'. As noted earlier, A008 not only addresses which pilots a charter operator may use, it delves into who pays them. "If the pilot receives monetary compensation for serving as a flight crewmember on a [charter] flight operated by the certificate holder," says the FAA, "the certificate holder and not the aircraft owner must pay such monetary compensation to the pilot."

In a typical scenario, the pilots are paid a salary by the owner and receive no additional compensation for charter flights.

But many industry experts worry that FAA officials will view the pilot's salary as, in part, "monetary compensation" for charter flights.

If this is true, A008 will cause much of the business charter industry to come to a grinding halt. Some owners already report that the FAA has asked them to produce W-2s and other payroll documentation concerning pilot compensation.

Shortly after the new A008 was published, NBAA president Ed Bolen wrote to FAA Administrator Marion Blakey, requesting that the agency suspend its implementation. Bolen followed up with a second letter, providing detailed comments on the new A008. As of this writing, it is not clear whether these letters will succeed in fending off some of the more difficult challenges posed by A008.

Before the FAA released the final version of A008, it appeared already to have had a negative impact on the charter market. Not only had owners begun to withdraw their aircraft from charter, but fewer owners were adding their aircraft to charter certificates. The most recent issue of the Air Charter Guide posted about 25 percent fewer aircraft added to charter certificates than the previous issue.

Ironically, the FAA should be encouraging operations under Part 135 because it promotes safety better than Part 91. The agency should make clear that its  clarification of  A008 is designed not to kill the charter industry, but simply to stop some flagrant violations that have recently come to light.