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.
Par 201 Page 5
(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.
Page 6 Par 201
Par 202 Page 7
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.
Page 8 Par 203
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.
Page 10 Par 301
Par 302 Page 11
302. PHASE 2—FORMAL APPLICATION. Under the regulations, an application for MSpecs must be made in a form and manner acceptable to the FAA. You should make a formal application by a letter that includes a request to be issued MSpecs to conduct operations under part 91K. The letter should include a mailing address and indicate the full name, title, and address of the designated agent for service, if other than you. Paragraph 303 lists the items addressed in the attachments that must accompany the formal application letter.
a. You should submit the formal application at least 90 days before operations will begin, and preferably as far in advance of the proposed startup date as possible. When you have fully developed the formal application, forward it to the assigned FSDO.
b. The FAA will notify you by letter whether it accepts or rejects your formal application.
FAA acceptance of a formal application does not constitute approval or acceptance of individual attachments. These documents will be thoroughly evaluated during subsequent phases of the application process. If the formal application is not accepted, it will be returned with a written explanation of the reasons for its return.
(1) Application Processing. At this time, the FSDO will form an application team and assign an inspector as the project manager. The project manager will be your point of contact at the FSDO for all matters related to your application.
(2) FSDO Team Actions. After you submit your application, the FSDO team will:
(a) Review the application package to confirm that it contains the required information and attachments. If there are omissions or errors, the team will return the formal application and all attachments to you with a letter outlining the reasons for its return.
(b) Initiate electronic MSpecs installation and training.
Note: In 2009, MSpecs will be issued under WEBOPSS.
(3) Formal Application Meeting. Once the application team has reviewed your application, it will schedule a formal application meeting. All of your key management personnel should attend the formal application meeting. If you have a comprehensive understanding of the requirements of part 91K, you should be able to resolve any omissions, deficiencies, or open questions during this meeting. The meeting will focus on the practicality of the SOE. The FAA team will fully discuss and explain the subsequent phases of the application process. You should ask for clarification of any item or event that you do not clearly understand.
303. FORMAL APPLICATION ATTACHMENTS.
a. Management Personnel Documentation. Identify personnel authorized to sign MSpecs and designated as a company points of contact. Additionally, if you request a Continuous Airworthiness Maintenance Program (CAMP), you must provide a résumé outlining the qualifications and experience for applicable management personnel.
b. Requests for Deviations. Part 91K permits you to request a deviation from certain regulations. The formal application should include the requested deviations and supporting justification. The only permissible deviations to part 91K are:
• Part 91, § 91.1041(g), proving tests—reduction of proving test hours,
• Part 91, § 91.1049(b), single-pilot operations,
• Part 91, § 91.1049(d), two-pilot operations,
• Part 91, § 91.1053, crewmember flight experience requirements,
• Part 91, § 91.1055, crew pairing requirements,
• Part 91, § 91.1063(b), part 121 training requirements, and
• Part 91, § 91.1063(c), part 135 training requirements.
c. Program Operating Manual (POM). This manual or sections of manuals contain information about your general policies, duties, responsibilities of personnel, operational control policy, and procedures. Part 91K requires that your manuals include instructions and information that allow your personnel to perform their duties and responsibilities. You should provide a draft outline of the major parts of all required manuals before Gate II.
NOTE: This draft outline will help ensure that all required material is accounted for and that the major parts of any incomplete manual are listed in the SOE with proposed dates for submission to the FAA.
(1) POM General Requirements.
(a) Part 91, § 91.1023 requires you to prepare and keep current a POM that sets forth procedures and policies acceptable to the FAA. As applicable, the manual must contain the contents required by part 91, § 91.1025 in enough detail so that your flight, ground, and maintenance personnel may properly perform their assigned duties. During the preparation of the POM, you should ensure that no conflict with the regulations exists that would prevent the FAA’s acceptance of the POM.
(b) You are responsible for developing the policy and procedures contained in the POM. The district office will provide you with guidance for developing your POM, should time and resources be available. The district office will not draft, or otherwise prepare, nor accept responsibility for developing the content of the manual. Acceptance of the POM depends upon your organizational ability to develop and manage your proposed operation.
(c) The FAA will review and accept your POM to ensure that it meets the requirements of part 91K.
(d) Program managers that are also certificated to operate under part 121 or 135 may be authorized to use the operating manual required by those parts to meet the program operating manual required by part 91K provided the policies and procedures are consistent for both operations, or, when the policies and procedures are different, the applicable policies and procedures are identified and used.
Page 12 Par 303
NOTE: MSpec MA059, Authorization to Use Alternate Manuals, Programs, or Systems, provides information about authorization for alternate manuals, programs, and systems.
(2) POM Revisions. Usually, the program manager initiates POM revisions; however, the FAA may require changes in accordance with § 91.1025. You must have a system that ensures all manuals, publications, checklists, and airport analyses that are continually revised are kept current and have a means to ensure regulatory compliance. You may amend your manuals and incorporate new or revised policies and procedures, provided they comply with the appropriate regulations.
(a) The FAA will review and approve all revisions to the MSpecs you make before you distribute and use the approved material.
(b) The program manager should not distribute sections of the POM that require approval without first obtaining such approval from the FAA.
(c) The program manager should establish procedures for manual system distribution. You must copy the manual(s) or the appropriate portions of the manual (including revisions) available to all of the program crewmembers, maintenance, and ground operations personnel. You must also issue a copy of the POM to the FAA. Each individual issued a POM, or appropriate portions, must keep it up to date with all revisions, as required by part 91, § 91.1023(a).
(d) When you revise the POM, the manual should have a tracking system to record the revisions made to the manual, the date the revision was inserted into the manual, and the date the revision became effective. Manual users should keep a record of manual revisions to provide evidence of currency. As of the effective date of a revision, all people required to have such revisions should have received and inserted the revision or the manual holder will be considered to have noncurrent manuals.
(3) Components of the POM. Section 91.1025 requires you to include the following in the POM:
• Weight and balance procedures;
• Applicable sections of the MSpecs;
• Accident notification requirements;
• Procedures ensuring the pilot in command (PIC) knows that the required maintenance inspections have been completed;
• PIC reporting and recording of mechanical irregularities before, during and after flight;
• PIC procedures regarding previous flight irregularities or deferred items;
Par 303 Page 13
• PIC procedures for maintenance and servicing of the aircraft at out stations and/or acting in behalf of the operator;
• Minimum equipment list (MEL) procedures;
• Refueling procedures;
• Passenger briefings;
• Crewmember emergency procedures;
• Approved aircraft inspection program, if applicable;
• Evacuation procedures for persons needing assistance;
• Performance planning;
• Destination Airport Analysis Program (DAAP), if applicable;
• Maintenance recordkeeping;
• Flight locating and scheduling procedures; and
• Other procedures and policy required by the FAA or deemed necessary by the program manager.
d. Aircraft Inspection Program/Maintenance Manual. See Appendix 7.
e. Internal Safety Reporting Procedures and Incident/Accident Response Procedures, 14 CFR § 91.1021. For additional information, see AC 120-92, Introduction to Safety Management Systems for Air Operators.
f. Training Program. The training curriculum must be attached to the formal application letter. If authorized by the FAA, § 91.1063 allows a program manager to comply with the applicable training and testing sections of part 121 or 135, except for the operating experience requirements, instead of part 91, §§ 91.1065 through 91.1107. Training curricula must include at least the following curriculum segments appropriate to each crewmember position:
• Basic indoctrination training,
• Emergency training,
• Initial aircraft ground/flight training,
• Upgrade/Transition/Recurrent/Requalification training,
• Differences training, and
• Hazardous materials recognition.
g. Aircraft Operations Manual (AOM). An AOM is not required for part 91K operators who choose to use the manufacturers approved Aircraft Flight Manual (AFM). The AFM is not Page 14 Par 303