Aviation Certification and Risk Management
July 2011
One of the most frequently overlooked
aspects of the business aircraft operation is how you fly the aircraft—under
what Federal Aviation Regulations (FARs)—and how you manage the Internal
Revenue Service, your insurer, and your overall liability of
operations.
by Adam
Webster
Marcil Technology
Group, Inc.
To make it overly simplistic, the world of business aviation can be
divided into two categories: Part 91 and Part 135 of the FARs. Part 91
outlines using an aircraft for your own needs exclusively, while Part 135
affords you the ability to do that as well as rent the aircraft to third
parties.
Part 135 typically has more onerous training and maintenance
requirements, though in the league of $1 million and more aircraft, not as
much as you might think. Due to high annual fixed costs, many perhaps
ill-informed companies opt to remain Part 91 in the interest of keeping it
simple and because of the perception of saving money. What these flight
departments fail to include in their analysis are three potential nasty
pitfalls: liability from operations, safety, and the taxman.
Liability of
Operations
Due to the changes in the industry in 2005 with respect
to operational control (who has operational control and how it is defined),
the aircraft owner who operates under the umbrella of a Part 135 operation
has significant advantages when it comes to catastrophic events. Depending
on how each flight is operated (either with company people, clients, or
third parties), the adroit flight department manager will highlight at all
times how operational control remains squarely in the hands of the firm—that
is, the air carrier.
While it is possible for individual companies to
obtain their own air carrier certificate, most opt to form agreements with a
local Part 135 air carrier who, in effect, serves as a babysitter for the
aircraft when it is not flying and for the air carrier when it is. To the
prudent risk manager, few other scenarios are as attractive as clearly
delineating operational control away from the principal firm and asset.
Real Safety
The simple fact that you've decided to open your
aircraft up to further scrutiny enables you to reach another level of
safety. The increased training, limitations on flight and duty time, and
aircraft inspection intervals actually lower a firm's exposure to real
problems. While many flight departments prefer not to deal with the Federal
Aviation Administration (FAA) more than is necessary and endure additional
screening and checkrides more than they might otherwise, the win for
management is simple: A drug program is in place and required, the training
is frequent and audited by the FAA, and safety items on the aircraft become
mandatory, not optional.
While many of us are not fans of excessive
regulation and intrusion, it is hard to argue that the government's heart
would be in the wrong place when it comes to blessing operations for which
it has responsibility as the safety agency, which regulates the same
airlines that carry the rest of us.
The Taxman
From a tax
perspective, there is no question that Part 135 shows that the aircraft
operator, while perhaps using the aircraft for personal use, is also
deriving real income to offset the cost of the aircraft ownership and
ultimately trying to build a business of making it available for hire. From
a taxation perspective, the aircraft is very hard to attack as a purely
luxury item when there are advertising, increased safety standards, etc.
Many clients who come to us seeking to better understand how to design a
flight department are surprised to find out that, in the league of
turboprops and jets, the increased cost to operate a for-hire aircraft
versus one strictly for private use is not that much more. Once the
accountant has a chance to apply the appropriate rules for your particular
state (or country), you will generally find that you want to be in the
income-producing bracket for a host of reasons—for example, it keeps the
taxman at bay, and your bottom line for the flight department looks better.
To learn more about operational control, safety, and other aviation
guidelines, don't hesitate to visit my blog at
adamwebster.com or contact me
at .
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