U.S. Department of Transportation Federal Aviation Administration Advisory Circular Subject: Fractional Ownership Programs Date: 3/31/09 Initiated by: AFS-800 AC No: 91-84 Change:
FOREWORD This advisory circular (AC) describes an acceptable means, but not the only means, to apply for and obtain authorization to conduct a fractional ownership program under Title 14 of the Code of Federal Regulations (14 CFR) part 91 subpart K. This AC also provides continuing guidance for a fractional ownership program.
ORIGINAL SIGNED BY Chester D. Dalbey for John M. Allen Director, Flight Standards Service
CONTENTS Paragraph Page
CHAPTER 1. GENERAL INFORMATION1
100. Purpose1
101. Related Regulations1
102. Related Reading Material1
103. Background2
CHAPTER 2. FRACTIONAL OWNERSHIP PROGRAMS3
200. Program Descriptions and Determinati on of Appropriate Operating Regulations3
201. Discussion of Fractional Own ership Program Elements4
202. Operational Control7
203. Owner Prohibitions and Limitations7
CHAPTER 3. APPLICATION PROCESS9
300. Process Overview9
301. Phase 1—Preapplication9
302. Phase 2—Formal Application11
303. Formal Application Attachments11
304. Phase 3—Document Compliance19
305. Phase 4—Demonstration and Inspection19
306. Proving/Validation Testing20
Table 3-1. Proving and Validation Testing Table22
307. Phase 5—Documentation22
308. FAA Oversight23
APPENDIX 1. DEFINITIONS (3 Pages)1
APPENDIX 2. FRACTIONAL OWNERSHIP VS. 14 CFR PART 135 (5 Pages)1
APPENDIX 3. CERTIFICATION OF THE EXECUTION
OF AGREEMENTS (3 Pages)1
APPENDIX 4. FIVE PHASES OF APPLICATION AND REQUIREMENTS OF
THE GATE SYSTEM FOR PART 91K (1 Page)1
APPENDIX 5. STATEMENT OF INTENT (2 Pages)1
APPENDIX 6. SCHEDULE OF EVENTS FOR PART 91K (2 Pages)1
APPENDIX 7. MAINTENANCE PROGRAMS (7 Pages)1
APPENDIX 8. DESTINATION AIRPORT ANALYSIS PROGRAM (7 PAGES)1
Table 1. Other Variable Considerations5
Table 2. Destination Airport Analysis Program Checklist6
APPENDIX 9. AVS NEW USER REQUEST FORM FOR INDUSTRY IOPSS (1 Page)1
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CHAPTER 1. GENERAL INFORMATION
100. PURPOSE.
a. This advisory circular (AC) provides background information, and describes fractional ownership programs and the application process for obtaining management specifications (MSpecs) to operate under Title 14 of the Code of Federal Regulations (14 CFR) part 91 subpart K (part 91K).
b. Federal Aviation Administration (FAA) personnel will brief applicants in as much detail as necessary during meetings. The information in this document and referenced reading material will assist you in completing the process with minimal delays and complications.
101. RELATED REGULATIONS. Title 14 CFR parts 21, 61, 91, 119, 121, 125, 135, and 142 and Title 49 of the Code of Federal Regulations (49 CFR) parts 100–177 (hazardous materials).
The Code of Federal Regulations may be found at the following FAA Web site:
http://www.airweb.faa.gov/Regulatory_and_Guidance_Library/rgFAR.nsf/MainFrame?OpenFra meSet.
102. RELATED READING MATERIAL.
a. The FAA publishes Booklet FAA-APA-PG, Guide to Federal Aviation Administration Publications. This booklet is revised annually. It has complete information on how to order ACs, Federal aviation regulations, FAA orders/handbooks, the Aeronautical Information Manual (AIM), and other publications of interest to air carrier operations. The guide may be acquired free of charge by writing to the U.S. Department of Transportation, Utilization and Storage Section, M-443.2, Washington, D.C. 20590. For approval for more than 10 copies, write to Federal Aviation Administration, APA-230, 800 Independence Avenue, S.W., Washington, D.C. 20591.
b. Related FAA and/or other U.S. Government Web sites and references:
(1) http://www.airweb.faa.gov/Regulatory_and_Guidance_Library/rgAdvisoryCircular.
nsf.
• AC 00-2, Advisory Circular Checklist (as amended), and
• ACs that are appropriate to various types of operations.
(2) http://www.faa.gov/library/manuals/.
• Flight Standards Information Management System (FSIMS), FAA Order 8900.1,
• FAA notices, and
• FAA orders.
(3) http://www.faa.gov/about/office_org/headquarters_offices/avs/offices/aam/drug_alc ohol/policy/. Aviation Industry Anti-drug & Alcohol Misuse Prevention Program.
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103. BACKGROUND.
a. The fractional ownership concept began in 1986 with the creation of an industry program that offered increased flexibility in aircraft ownership and operation. At that time this program used existing aircraft acquisition concepts, including shared aircraft ownership, and provided for the management of the aircraft by an aircraft management company. The aircraft owners that participated in the program purchased a minimum share of an aircraft, shared that specific aircraft with others having an ownership interest in that aircraft, and participated in an aircraft exchange program with other owners in the program. The aircraft owners used a common management company to maintain the aircraft, lease the aircraft among the owners, and provide other aviation expertise and professional management services.
b. Since then, the number of companies offering fractional ownership programs has grown. During the 1990s this growth was substantial and sustained. While growth in new fractional ownership programs is minimal, the FAA expects existing programs to continue increasing in size.
c. As fractional ownership programs grew in size, complexity, and number, there was considerable controversy within the aviation community as to their appropriate regulatory structure. Additionally, the FAA had growing concerns regarding issues of accountability, operational control, and regulatory compliance. The debate centered on whether these operations were private or commercial. In October 1999, the FAA convened a special aviation rulemaking committee, the Fractional Ownership Aviation Rulemaking Committee (FOARC), to address the issues surrounding the regulation of fractional ownership program operations. The FOARC presented its recommendations to the FAA, which became the basis for the fractional ownership final rule and oversight program.
d. The Fractional Ownership Rule, published on September 17, 2003, identifies fractional ownership programs as private, general aviation programs conducted under part 91K. This subpart provides the regulatory definitions and safety standards for fractional ownership programs; defines the program and program elements; allocates operational control responsibilities and authority to the owners and program manager; and provides increased operational and maintenance safety requirements for fractional ownership programs. Additional requirements can be found in part 91 subpart F.
e. Fractional ownership programs are subject to an FAA oversight program similar to that provided to air carriers, with the exception of line checks and en route inspections. FAA aviation safety inspectors (ASI) conduct scheduled and unscheduled inspections, and surveillance of personnel, aircraft, records, and other documents to ensure compliance with the regulations.
CHAPTER 2. FRACTIONAL OWNERSHIP PROGRAMS
200. PROGRAM DESCRIPTIONS AND DETERMINATION OF APPROPRIATE OPERATING REGULATIONS. This paragraph defines a fractional ownership program under Title 14 of the Code of Federal Regulations (14 CFR) part 91 subpart K (part 91K). It also describes other air carrier or ownership options.
a. Fractional Ownership Program. A fractional ownership program is a program of shared aircraft ownership that is conducted under the requirements of part 91. As defined in part 91K, a fractional ownership program must contain all of the following elements:
(1) Single program manager who provides aviation expertise and management services,
(2) Two or more airworthy aircraft,
(3) One or more fractional owners per program aircraft,
(4) Possession of at least a minimum fractional ownership interest in one or more program aircraft by each fractional owner (1/16th for airplanes/1/32nd for helicopters),
(5) Dry-lease exchange agreements among owners, and
(6) Multiyear contracts or program agreements for management services and aircraft dry-lease exchange.
NOTE: See Appendix 1 for all definitions pertaining to fractional ownership programs and program elements.
NOTE: See Appendix 2 for a summary of the key differences between a fractional ownership program and 14 CFR part 135.
b. Operating Under Both Part 91K and Part 135. A program manager can hold authority to operate under both part 91K and under 14 CFR part 121 or 135. Aircraft used in a fractional ownership program can be leased to an air carrier for operations under part 135 or 121.
Part 91K has provisions for these dual operations. Part 91, § 91.1007(b) allows a program manager who also holds an air carrier certificate under 14 CFR part 119 to conduct a flight for a fractional owner under part 135 or 121 if the program aircraft is also listed on that certificate holder’s operations specifications for part 135 or 121. If there is a difference between the part 91K requirements (operations/flightcrew/company requirements, etc.) and part 135 or 121, as applicable, the flight must comply with the rules applicable to that particular flight.
c. Operating Under Part 121 or Part 135 Instead of Part 91K. There are a number of scenarios under which a flight will be conducted under either part 121 or 135 instead of under part 91:
(1) There may be business or tax benefits for the purchase of an aircraft; however, the owner may not want the operational control responsibility or liability inherent in a fractional ownership program. In such cases the owner will not sign the operational acknowledgment Par 200 Page 3
Page 4 Par 200 required by part 91, § 91.1013. Instead, the owner can elect to have all of his or her flights conducted under air carrier rules, provided the program manager also holds a certificate under part 119 to operate under either part 121 or 135.
(2) If a non-program aircraft is used to substitute for a program flight, the flight must be conducted under part 121 or 135.
(3) If a person or property is carried for compensation or hire, or the carriage of persons does not meet the exceptions listed in part 91, §§ 91.501 and 91.321 the flight must be conducted under either part 121 or 135.
(4) If an owner exceeds the number of flight hours associated with the fractional owner’s share of ownership, the additional flights must be conducted under either part 121 or 135 unless the owner purchases additional shares.
(5) If a person sells or leases an aircraft interest in a fractional ownership program that is smaller than the minimum fractional ownership interest, flights associated with that interest must be operated under either part 121 or 135.
d. Fractional Ownership Business Model. An operator electing to use a fractional ownership business model, but conducts all flights under part 121 or 135, as applicable, must meet the following criteria:
• Be certificated under part 119 to conduct operations under either part 121 or 135,
• Inform the owners that owner flights must be conducted under either part 121 or 135, as applicable,
• The provisions of part 91K, including operational control responsibilities and acknowledgements do not apply, and
e. Other Shared Aircraft Ownership/Arrangements. Any shared aircraft ownership or management arrangements that do not fit within the regulatory definitions or applicability of part 91K should be reviewed to determine the appropriate regulatory requirements (e.g., a shared aircraft arrangement where the owners pilot their own aircraft might more appropriately fit the definition of a flying club or other ownership option not subject to part 91). Operations that involve compensation should be closely examined to determine if they can be operated under the provisions of § 91.501 (interchange, joint ownership, or time share); under exceptions to part 119, 121, or 135; or whether they are subject to the rules applicable to air carriers or commercial operators. Programs marketed as fractional ownership programs that do not meet the regulatory definitions of a fractional ownership program should not continue to market the programs as a fractional ownership program. These programs are encouraged to change their marketing names to reflect the appropriate regulatory requirements.
201. DISCUSSION OF FRACTIONAL OWNERSHIP PROGRAM ELEMENTS. This paragraph provides additional information and guidance on elements of a fractional ownership program.
a. Two or More Airworthy Aircraft. To establish the dry-lease exchange provision of the program, at least two aircraft are necessary. A program with a single aircraft and multiple owners does not meet the definition of fractional ownership and is more appropriately classified as either a joint ownership, partnership, or another form of shared aircraft ownership. An aircraft that is briefly or temporarily unairworthy because of mechanical failure or required maintenance or inspection does not affect this definition of airworthy aircraft or the ability of the program to continue to operate under part 91K.
b. One or More Owners per Fractional Ownership Program Aircraft, with at Least One Aircraft Having More Than One Owner. The owners’ names are depicted on an aircraft’s registration certificate. A long-term lease arrangement is considered to be a method of financing an ownership interest and is considered equivalent to an ownership interest.
c. Possession of a Minimum Fractional Ownership Interest in One or More Program Aircraft by Each Fractional Owner. A substantive ownership interest is the essential element to validate fractional ownership as a private operation under part 91. A minimum share is at least 1/16th for a subsonic, fixed-wing or powered-lift fractional ownership program; aircraft or at least 1/32nd for a rotorcraft fractional ownership program aircraft. Programs that provide more than 16 owners per aircraft, including subleased shares that result in an ownership interest smaller than 1/16th, or 1/32nd for rotorcraft, must operate under either part 121 or 135, as applicable. Ownership interests are converted to a number of hours based on a predetermined ratio or formula. Each owner’s use of the program aircraft cannot exceed the ownership share.
Other methods of allocating owner’s hours of use may include a points system or allocated number of days of use, provided the formula is predetermined and equates to hours of use, and the owner’s use does not exceed the ownership share. The need for additional hours or use can be obtained through a number of means, including:
• Charter,
• Purchase of additional shares within that program, and
• Purchase of additional aircraft outside of that program.
d. Aircraft Owned in Whole or Part by the Program Manager. A program manager may own an entire aircraft or shares in an aircraft, which are used to supplement the program.
These aircraft are referred to as “core aircraft.” For example, the program manager may own shares of an aircraft during initial establishment of a program or may buy back shares in accordance with contract requirements. The percentage of core aircraft in a fleet may vary;
however, this percentage should be a minority percentage, except during the initial inception of the program. Core aircraft must be included in the dry-lease exchange agreement.
e. Contracts and Program Agreements. An owner and program manager will sign contracts concerning the sale or long-term lease of the aircraft, provision of management services, and for the dry-lease exchange provisions of the program. Program agreements are multiyear agreements. The regulation does not specify the number of years in a multiyear contract; however, the industry average is 3–5 years.
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(1) Required Contracts and Agreements.
(a) Management Contract. The management contract must include:
1. Requirements for the program manager to comply with specified regulations.
2. The owners’ right to audit program records directly related to the operational safety of the program, and compliance with management specifications (MSpecs) and applicable regulations.
3. The designation of the program manager as the owner’s agent for service.
Normally most correspondence, program approvals and coordination, and other contact will take place between the Federal Aviation Administration (FAA) and the agent for service or identified points of contact.
4. Acknowledgement of the FAA’s right to directly contact an owner(s), if the Federal Aviation Administration (FAA) determines that direct contact is necessary.
5. An operational control acknowledgement must be included with the management contract.
(b) Dry-Lease Aircraft Exchange Agreement Among All the Owners. The Dry-Lease Exchange Agreement requires all owners to provide their share of their aircraft to other owners in the program. The agreement also includes core aircraft. It allows an owner to use any aircraft in the “program aircraft pool” for that program manager or affiliate of that program manager. An owner’s share of an aircraft equates to a predetermined number of flight hours, or ratio of flight hours, in the type or types of aircraft in the program fleet. The dry-lease exchange provision applies to affiliate programs, but does not allow the dry-lease exchange among other fractional ownership programs that are not affiliates.
(2) Contract and Agreement Review. The program manager is responsible to prepare, execute, and maintain all required program agreements and contracts. The owner is responsible to review and sign all required program agreements and contracts. The program manager does not need to submit these documents for FAA approval. The FAA retains the right to inspect all program contracts and agreements. The program manager must certify to the FAA that these agreements and contracts have been executed and contain the provisions required under part 91K.
NOTE: See Appendix 3 for a copy of the Certification of the Execution of Agreements.
(3) Amendments to Contracts and Agreements. The program manager may amend required contracts and agreements without FAA notification or reissuance of the Certification of the Execution of Agreements as long as they contain the provisions required under part 91K. The program manager is required to maintain the current contracts and agreements.
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202. OPERATIONAL CONTROL.
a. Part 91, §§ 91.1009 through 91.1013. These sections set forth operational control responsibilities inherent in a fractional ownership program.
(1) An individual owner is in operational control when he or she directs the carriage of people or property, and the aircraft is carrying those people or property. That owner has operational control regardless of whether he or she owns the aircraft, or uses it under the dry lease exchange agreement.
(2) The program manager has operational control when using the aircraft for administrative purposes such as training, sales demonstration, ferry, or positioning flights.
(3) A part 135 or 121 air carrier has operational control when it leases and operates a program aircraft.
b. Fractional Owner. The fractional owner is ultimately responsible for safe operations and compliance with the regulations. The owner(s) may delegate the performance of tasks to the program manager and can rely on the program manager for aviation expertise and management services, but an owner cannot delegate his or her operational control responsibilities. When tasks are delegated, both the owner and the program manager are jointly and individually responsible for compliance. Enforcement of violations of the regulations could penalize the fractional owner, the program manager, or both, depending on the nature of the violation, and will be reviewed on a case-by-case basis. Enforcement could result in suspension or revocation of MSpecs, which could ultimately affect all owners in the program.
c. Acknowledgment of Owner’s Operational Control Responsibilities. At the time an owner initially signs, renews, or extends a management contract, the program manager must brief the owner on the owner’s operational control responsibilities. At this time, the owner must sign an “Acknowledgment of Owner’s Operational Control Responsibilities.” The owner’s signature serves as an affirmation that he or she has read, understands, and accepts the operational control responsibilities. The Acknowledgment must:
(1) Define when a fractional owner is in operational control.
(2) Define the owner’s responsibilities and liabilities under the program. These include:
• Responsibilities for compliance with MSpecs and applicable regulations, including owner prohibitions and limitations;
• Enforcement actions for noncompliance; and
• Liability risks in the event of a flight-related occurrence that causes personal injury or property damage.
203. OWNER PROHIBITIONS AND LIMITATIONS. There are certain prohibitions and limitations on an owner specified in part 91K that should be addressed in program contracts and agreements. These include:
a. An owner cannot carry persons or property for compensation or hire on a program flight except for the carriage of candidates in Federal, State, and local elections or as provided in the exceptions listed in § 91.501.
b. During the term of the multiyear agreement an owner’s flight hours are limited to the total hours associated with his or her share of ownership.
c. Prohibits the sale or lease of aircraft interest that is lesser than the “minimum fractional ownership interest” unless the flights associated with that interest are operated under either part 121 or 135 and are conducted by an air carrier or commercial operator certificated under part 119.
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CHAPTER 3. APPLICATION PROCESS
300. PROCESS OVERVIEW.
a. The Application Process. The application process is designed to ensure that you, the prospective program managers and owners, understand and are capable of fulfilling this duty. If satisfactorily completed, the application process will ensure that you comply with Title 14 of the Code of Federal Regulations (14 CFR), Title 49 of the United States Code (49 U.S.C.) and all other applicable regulations.
b. Qualifications for 14 CFR Part 91 Subpart K (Part 91K) Management Specifications (MSpecs).
(1) There are five phases in the application process which consists of the following:
• Preapplication,
• Formal application,
• Document compliance,
• Demonstration and inspection, and
• Documentation.
(2) Included in the five phases are three gates. The three gates are points in the process at which requirements must be met before proceeding to the next part of the application process.
NOTE: See Appendix 4 for additional guidance on the Five Phases of Application and Requirements of the Gate System for part 91K.
NOTE: Certain cases may dictate that the guidance and suggested sequence of events in this advisory circular (AC) be modified. In such situations, the fractional program manager and the local Flight Standards District Office (FSDO) should consider existing conditions and circumstances. The Federal Aviation Administration (FAA) will not issue MSpecs until it determines that: (1) all requested authorizations can be conducted in a safe manner; and
(2) all applicable FAA regulations, guidance, and policy have been complied with.
301. PHASE 1—PREAPPLICATION. A prospective part 91K applicant should plan as far in advance as possible so that the formal application is submitted no less than 90 days before the anticipated start of operations. As an applicant, you should contact the nearest FSDO and inform them of your intent to apply for MSpecs. You will be asked to schedule an appointment to discuss the proposed operation and to meet with an FAA representative.
NOTE: See the FAA Web site: http://www.faa.gov/about/office_org/ field_offices/fsdo/ to locate your nearest FSDO.
a. Initial Contact Meeting. The FAA will use this meeting to ensure that you fully understand the application process by providing detailed explanations of specific requirements.
Key management personnel must attend this meeting and be prepared to discuss, in general Par 300 Page 9
terms, the plans of the proposed operation. Many problems can be avoided by discussing all aspects of the proposed operation and the requirements that must be accomplished before being issued MSpecs by the FAA.
(1) At this meeting FSDO personnel will brief you on the basic information and general application requirements. If you intend to proceed with the application process, complete and sign a statement of intent (SOI) and return it to the FSDO.
NOTE: See Appendix 5 for an example of a SOI.
(2) The FSDO will review the phases and gates concept with you, as depicted in Appendix 4. Emphasis should be placed on the importance of thorough familiarization with the gate system before continuing with the process.
(3) The FSDO should provide you with an application package that includes the following documents, or direct you to the FAA Web site to retrieve these documents. (Refer to chapter 1, paragraph 102 for a list of Web sites from where to retrieve many of the documents):
(a) Applicable sections of FAA Order 8900.1, Flight Standards Information Management System (FSIMS), including associated notices and bulletins.
(b) Applicable FAA orders.
(c) Fractional ownership rule and preamble.
(d) SOI (see Appendix 5).
(e) Parts 91, 119, 121, and 135, as applicable.
(f) Schedule of Events (SOE) that outlines the approval process (see Appendix 6).
(4) Be prepared to discuss, in general terms, the plans of your proposed operation.
b. Second Meeting/Contact. During the second meeting, you should be prepared to:
(1) Identify locations for training, maintenance, and principal base of operations.
(2) Submit documentation to substantiate a fractional ownership program or business plan.
(3) Submit the completed SOI.
(4) Submit proposed application SOE.
(5) Identify management representatives.
c. Once the FSDO has accepted everything in the preapplication phase and all Gate 1 requirements have been met, you may begin Phase 2.
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