The publication of new regulations governing fractional ownership operations has fuelled a rift between the UK and USA

It has been a painfully long wait for publication of US Federal Aviation Regulation Part 91 Subpart K, the new rules governing fractional ownership operations. And when it finally appeared in the federal register on 17 September, the fractionals were in no mood to celebrate.

Not only did the published rule throw up a couple of unexpected and unwelcome changes, it also brought to the fore the protracted dispute between the USA and the UK over the operation of US-registered fractional aircraft in the UK. Although pressure is building on the two nations to reach a consensus, the stakes are high for the business aviation industry, whatever the outcome.

Central to the debate is the differing interpretation of a private aircraft operation versus a commercial one and, in particular, the role of the management company.

The US Federal Aviation Administration has always regarded the relationship between the fractional aircraft owner and its management company as private, whereas in Europe a management company is deemed commercial because it is being paid to operate the aircraft. Consequently, European fractionals are regulated under the Joint Aviation Authority JAR OPS 1 regulations, as public transport, and are subjected to more restrictive operating and administrative practices than their corporate counterparts.

Bob Blouin, senior vice-president operations for the US National Business Aviation Association (NBAA), says: "The USA has grown up with an evolutionary exposure to fractional ownership. Now the idea has come to Europe all at once and they don't know how to deal with it".

Surprising growth

The growth in fractional ownership programmes did, however, take the US industry by surprise. According to aviation research data issued by leading fractional NetJets, there are over 4,850 companies or individuals who own aircraft through fractional ownership programmes in the USA. These numbers are predicted to grow to 1,600 aircraft and 13,500 owners by 2006.

In 1999, prompted by a growing need to regulate this burgeoning sector and appease a growing army of disgruntled Part 135 ad hoc charter companies calling for a level operating and commercial playing field with fractionals, the FAA formed the Fractional Ownership Rulemaking Committee (FOARC) to reach a consensus on the differing demands of corporate flight departments, charter operators and fractionals.

"The UK government was invited to sit on the 27-member committee, but its representatives chose to attend only one of the 11 meetings, stated their position and left," says Ian Clark, aviation lawyer and partner of London-based law firm Clark Ricketts. Clark and other industry representatives are unanimous in their rebuke of the UK's actions. "How can you hope to influence the debate if you are not in on it from the start," says Blouin.

Others suggest the dispute between the UK and the USA may have been avoided if the UK had been prepared to play a greater part in the rule-making process. A FOARC committee member says: "They probably wouldn't have changed their minds, but they would have had more information on how this thing has developed and how comprehensive the rule is."

The FAA has, through Part 91 Subpart K, tightened the rules covering fractional programmes. They now also reflect the current aircraft technology and certification standards, and include updated and improved the rules for on-demand charter.

For fractionals, however, the final rule has thrown up a couple of unwelcome and significant additions to the FOARC is final submission, establishing a 14h flight and duty time limitation and reducing the allowable landing distance from 80% to 60% of runway length - although approval will be granted by the FAA for an 80% landing if a safety analysis of the destination airport is completed, the NBAA says. In Subpart K, the FAA for the first time clearly places responsibility and authority for safety and oversight of flight operations with the owner.

This is at odds with the UK and Europe's position, however, which states that the management company and not the fractional owner has overall control of the operation, a position which means that the fractional operation must therefore be regarded as public transport.

This stance is dismissed by Clark. "Private companies, heads of state and flight departments sometimes all use management companies. Some are holders of air operators certificates and use the managed aircraft for the transportation of fee-paying passengers under public transport [commercial] - some are not". He adds: "Do you apply the UK's logic across the board? If so it would throw corporate aviation into chaos."

The legal argument is this, Clark says: under Article 113 of the UK's Air Navigation Order, where a foreign aircraft is operating commercially, the Transport Secretary's permission is required for the picking up and setting down of passengers. This is based on two tests - safety and economic. The safety concerns are believed to have been addressed, "the CAA having now been persuaded that the safeguard in Subpart K is of a high enough standard", says Clark, although the authority has yet to state its position publicly.

So what is the economic issue? The UK says it normally gives permission where there is reciprocity, or where the right would be granted equally in the USA. Here, the UK government says there is not reciprocity because there are no fractional ownership schemes in the UK. "It is ridiculous to use this as a case for non-reciprocity," Clark says. "Logically, they have defeated their argument."

Private operations

The USA argues that as fractionals are considered private operations there should be no requirement to seek permission under Article 113. On the other hand, why is the USA opposed to fractionals operating under Part 135 and applying for permission from the Secretary of State for Transport? "Because it's unacceptable" says NBAA's director of operations Doug Carr. "The very nature of fractional ownership is that you can fly at short notice. If you have to apply for clearances, which can typically take two days, you lose a lot of the advantages."

Even if they have permission to fly transatlantic under Part 135, operators are not permitted to undertake internal domestic flights in Europe. "This is a hindrance if you are a fractional owner planning business in several European destinations," Carr adds.

The frustrations felt by the US industry towards the UK's stance resulted late last month in a top level meeting in Washington between UK and US government officials and industry leaders. This was followed last week by a second meeting in London, although the outcome of these discussions has not been disclosed.

The UK appears to be the solitary voice of dissent in Europe as the rest of the continent, throughout which Article 113 is not standardised, has yet to declare their positions. While France is known to be renewing its position on fractional ownership, Clark adds: "Many countries haven't applied their minds to it and because of that there is no unified voice."

Meanwhile, as the international business aviation community is keen to see an end to this dispute, the ramifications of either outcome are wide-ranging. "If the UK insists on putting up barriers to US fractionals, what is to stop the US from reciprocating?" says Brian Humphries, chairman of the European Business Aviation Association and managing director of Shell Aircraft International, the corporate aircraft department and aviation policy advisor for the Shell Group. "If the US decides to play hard-ball with corporate operators from the UK, it will be chaos," says Blouin.

The USA may in the end think this issue is significant enough to influence the current bilaterals on air traffic rights with the UK, says Clark. He adds: "The UK stands a chance of having its industry curtailed if it doesn't recognise Subpart K."

On the other hand, if the UK and eventually the rest of Europe accept Subpart K operations, what would be the knock-on effect for Europe public transport operators? "It would certainly make the competitive and operating playing field uneven if fractionals were allowed to operate under a different and less restrictive set of rules", EBAA's Humphries says.

Of particular concern for Europe's air- taxi operators is the freedom for US fractionals, if considered private, to by-pass cabotage rules and drop off and pick up passengers, "We are totally against this," says David Antrobus, managing director of Manchester-based charter operator Northern Executive Aviation.

Another scenario is the European fractionals pushing for parity with their US stablemates and forcing the equivalent of Part 91 Subpart K, which also raised the shackles of the ad hoc charter community.

However, Clark suggests: "There is no sign of Europe contemplating the equivalent of Subpart K - JAR OPS 2, [now under review] for corporate operators, would have been the place to do it after all." One fractional ownership company says that "no scenario is ideal. But it looks like the industry in Europe will be where the USA was in the late 1990s."

Heated debate

This current dispute has spawned a debate on the effectiveness of international regulations. The unequivocal business aviation industry has thrown down the gauntlet to international regulators and is pushing for globally harmonised rules, covering private and commercial operations. "There is a desperate need to overhaul the system," Humphries says. "And now seems the perfect time to do it."

The USA seems to be taking a clean- sheet approach to its regulations, says Clark, while Europe is working on old concepts. For example, FOARC has formed the basis of a major review of 135 operations, which the FAA accepts have changed little since they were written in the mid-1960s. In Europe the basis of the present regulations, such as JAR OPS 2, were formulated in an era when the idea that an individual or group of individuals might own something the size of a Boeing Business Jet was unheard of.

Limiting horizons

The JAA, Clark adds, "is limiting its horizons" because of the creation of the European Aviation Safety Agency (EASA). Their remit to deal with operational issues doesn't begin until 2005, and at least two years on top of that for rule-making. "It's a pity, at a time when we are looking for harmonisation of regulations we seem to be, with the JAA and EASA, formulating a set of rules quite separate from the way the USA is evolving and revising its rules. This could be a time for complete harmonisation but it doesn't seem to be happening," Clark says.

Don Spruston, president of the Montreal-based International Business Aviation Council, the umbrella organisation for five business aviation trade bodies, including the EBAA and NBAA, says the dispute between the UK and USA has "opened a can or worms", and it is incumbent on the industry to decide what it wants to harmonise. "We must get the authorities to back off temporarily and encourage states to back and develop a long-term solution."

Whatever the outcome of the talks between the UK and US governments, it will be many years before business aviation is operating to globally harmonised rules.

After all, if two staunch international allies cannot reach a consensus, what hope is there for the international community.

Source: Flight International