Thursday, May 30, 2013

Part 91 vs. Part 135. Which Makes the Most Sense for Business Aircraft Operators?

Part 91 vs. Part 135.  Which Makes the Most Sense for Business Aircraft Operators?

Generally speaking, the provisions of 14 CFR Part 91 (“Part 91”) are less stringent, and offer numerous benefits, when compared to operating under 14 CFR Part 135 (“Part 135”).  There are, however numerous areas that should be reviewed when making this decision

Operating for Compensation or Hire.  One benefit of operating under Part 135 is the ability to be compensated for aircraft operations.  Under Part 91 you cannot operate for compensation or hire.  So if the aircraft is to be used by others under Part 91, those using the aircraft could only reimburse the operator of the aircraft for the actual cost to operate that flight.   If the FAA determines that you have operated for compensation or hire (and therefore unauthorized Part 135 flights) the owner of the aircraft, and the aircraft’s pilots, are subject to monetary penalties and certificate actions. 
The solutions here are to ensure the aircraft leases are properly drafted and that the appropriate amount, if any, is charged to anyone using the aircraft.

Wet lease vs. dry lease.  The FAA has determined that operations conducted under a wet lease are Part 135 flights and cannot be conducted without a Part 135 certificate (there are a few exceptions such as operating under a timeshare or interchange agreement).  The FAA defines wet lease as “a lease in which the lessor provides both the aircraft and the crew….”  In order to operate under Part 91 then, an operator generally must ensure they are operating under a dry lease.  This can be done by ensuring the pilots are provided by an entity other than the lessor and is often done by using a flight services agreement.  

Operational Control.  A major area of focus by the FAA is operational control.  The entity responsible for the safety and regulatory compliance of a particular flight has operational control.  Under Part 135 this issue is easily resolved as the Part 135 certificate holder is deemed to have operational control. 
Under Part 91 the issue of operational control faces more scrutiny by the FAA.  If the owner of the aircraft leases the aircraft to one or more lessees the operational control issue can be resolved through language in the aircraft leases.  I highly recommend that operators have their leases reviewed by an experienced aviation attorney.    

Flight restrictions.  Under Part 91 an operator is not subject to numerous Part 135 requirements that restrict landing at certain airports and runways.  In addition, Part 91 operators are not subject to Part 135 crew rest regulations.

Taxes.  Under Part 135 operators are required to pay Federal Excise Tax (FET).  Under Part 91, generally the taxes paid would be limited to use tax as required by the Washington Department of Revenue.  This issue is ever changing and I recommend you speak to a tax adviser when determining payment of taxes.

Depreciation.  Another benefit of changing to Part 91 is that the aircraft can be depreciated in 5 years rather than 7.  Again, this issue should be discussed with a tax adviser.    

May 30, 2013, James M. Waldon, Managing Partner, Paramount Law Group, PLLC.  Jim has been practicing aviation law for fifteen years.  He can be reached at 206.612.7938, jwaldon@paramountcounsel.com and at www.paramountcounsel.com.  

No comments:

Post a Comment