Gregory J. Reigel
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September 30, 2019

Illegal Charter Doesn't Just Happen In Business Jets

As you may know, the FAA has recently increased its investigations into illegal charter activities and is vigorously pursuing enforcement against operators conducting illegal charter flights. Many of the publicized cases have involved owners and operators of business jets with civil penalty assessments in excess of a million dollars. However, the FAA doesn't just pursue enforcement actions against illegal charter involving jets. It will go after any operator conducting illegal charter whether the operator is using jets or single-engine, piston aircraft.

A case in point is a recent civil penalty case, In the Matter of: Robert M. Riter d/b/a Riter Aviation. In Riter, the Respondent was the co-owner of a Cessna 172. According to the FAA, the Respondent authorized the use of his aircraft and arranged a pilot to fly two passengers on a round-trip from Torrance, CA to Las Vegas, NV in exchange for $660.00. The FAA found out about the arrangement during its investigation after the aircraft crashed shortly after departing for the return trip to California.

Since the Respondent did not hold an air carrier or operator certificate authorizing him to operate as an air carrier or commercial operator, the FAA alleged that the Respondent's carriage of passengers for hire violated 14 C.F.R. § 119.5(g). The FAA assessed a civil penalty of $11,000 for the two flights, even though it could have assessed a civil penalty of up to $22,000 ($11,000 for each flight).

On appeal to the Department of Transportation Administrative Law Judge ("ALJ"), the ALJ confirmed the violation of § 119.5(g) but reduced the sanction to $5,700. The FAA then appealed to the FAA Administrator where the issues revolved around the amount of the sanction, and the Administrator ultimately reinstated the $11,000 civil penalty originally imposed against the Respondent.

This case is instructive not only for its discussion of how a civil penalty should be calculated in a case alleging violations of § 119.5(g), but also as an example of the the FAA pursuing claims against an operator for illegal charter in aircraft as small as a single-engine Cessna 172. The FAA will impose civil penalties against aircraft owners and/or operators who conduct illegal charter using their aircraft. And although this case doesn't mention it, I suspect the pilot also faced a certificate action for the flights which could have resulted in suspension or revocation of the pilot's airman certificates.

The moral of the story: If any money is going to be changing hands in exchange for flights in an aircraft, it is important that the aircraft owner and operator/pilot make sure the proposed operation is structured correctly in compliance with all regulations. Failure to properly structure ownership and operation of aircraft, even single-engine, piston aircraft, can result in both civil penalty and certificate actions.

Posted by Greg

August 30, 2019

DOT Releases Second Half SIFL Rates

The U.S. Department of Transportation has released the Standard Industry Fare Level (SIFL) rates for the six-month period from July 1, 2019 to December 31, 2019. These rates are needed in order to apply the IRS's aircraft valuation formula to compute the value of non-business transportation aboard employer-provided aircraft and impute the income of the employee as required by the Internal Revenue Service Rules Section 1.61-21(g). The SIFL rates for the six-month period from July 1, 2019 to December 31, 2019, are: 0500 miles $0.2322; 501-1,500 miles $0.1771; over 1,500 miles $0.1701; and Terminal Charge of $42.46.

If you are an employer and an employee or a non-employee guest or family member is flown on your aircraft, the flight is potentially taxable to the individual receiving the ride. The aircraft valuation formula applies on a per-flight, per-person basis and will be calculated using the distance in statute miles from where the individual boards the aircraft to where the individual deplanes.

Posted by Greg

July 12, 2019

Can A Person Be Chief Pilot For A Part 121/135 Operator With A Third-Class Medical Certificate?

This was the question posed and answered in a recent Legal Interpretation issued by the FAA's Office of Chief Counsel (AGC). The Interpretation specifically answered the question "whether a chief pilot who no longer holds a first-or second-class medical certificate but holds a third-class medical certificate and is qualified to serve as pilot in command (PIC) in at least one aircraft used in the certificate holder's operation may continue to hold the chief pilot position."

Under 14 C.F.R. § 119.71 the chief pilot of a Part 121 or Part 135 air carrier must hold either an airline transport pilot (ATP) certificate or a commercial pilot certificate. And as we know, under 14 C.F.R. § 61.23 a person must hold a first-class medical certificate to exercise PIC privileges of an ATP certificate and a second-class medical certificate to exercise privileges of a commercial pilot certificate. The Interpretation notes that "§ 119.71(c) and (d) only require the chief pilot to be qualified to serve as PIC in at least one aircraft in the certificate holder's operation." However, Section 119.71 does not specify that the chief pilot must be qualified to serve as pilot in command "in Part 121/135 operations."

As a result, the Interpretation concludes as long as the person (a) continues to hold either an ATP or commercial pilot certificate with appropriate ratings, (b) is qualified to serve as PIC in at least one aircraft used in the certificate holder's operation (which can include just Part 91 operations), and (c) has satisfactory experience (or has been granted a deviation from the experience requirements), then he or she may serve as chief pilot for the air carrier while holding only a third-class medical certificate.

So, in addition to holding at least a third-class medical certificate, the key issue for the chief pilot will be that he or she is qualified to act as PIC in at least one of the aircraft that the carrier is authorized to operate under its certificate. And this qualification can be limited to Part 91 operations rather than Part 121/135 operations.

As a practical matter I think this Interpretation probably has limited impact on most carriers since they typically expect the individual designated as chief pilot to also act as PIC in Part 121 or Part 135 flight operations. But where the chief pilot is not expected to act as PIC in Part 121/235 flight operations, this Interpretation does provide some flexibility to a carrier considering an individual without a first or second class medical certificate for the chief pilot position.

Posted by Greg

May 17, 2019

Avoiding Drug And Alcohol Testing “Gotchas.”

The drug and alcohol testing requirements of 14 C.F.R. Part 120 and 49 C.F.R. Part 40 continue to cause issues for aviation employers. An initial decision in a recent civil penalty action, In the Matter of Regency Air, LLC, highlights two areas of potential confusion and risk faced by an aviation employer.

In Regency the FAA assessed a civil penalty of $17,400 against the employer for alleged violations of drug and alcohol testing regulations in connection with its hiring and use of mechanics. As you may know, aircraft maintenance is a “safety-sensitive function” that may only be performed by an employee who is included in the employer’s drug and alcohol testing program. Regency appealed the FAA’s order and a hearing was held before a Department of Transportation Administrative Law Judge (“ALJ”) which highlighted several drug and alcohol testing “gotchas.”

In one instance, Regency argued that the mechanic performed his work as a favor to Regency and since Regency did not compensate the mechanic for the work, the mechanic was thus not an employee subject to drug and alcohol testing. However, the ALJ rejected that defense stating that an "employee is an individual who is hired, either directly or by contract, to perform a safety-sensitive function for an employer”, and an individual is “hired” for a safety-sensitive function when he or she is retained “as a paid employee, as a volunteer, or through barter or other form of compensation.” Thus, even though the mechanic was a volunteer working without compensation, he was still considered an employee when he was performing safety-sensitive functions on behalf of Regency.

Another issue in the case arose from a mechanic’s employment by two separate employers. Although the mechanic was included in the first employer’s drug and alcohol testing program, Regency had not added the mechanic to its program. In analyzing the issue, the ALJ initially observed that “an employer may use a contract employee without including the contract employee in its own drug and alcohol testing program if: (1) the contract employee is subject to testing under the contractor’s drug and alcohol testing program, and (2) the work is performed on behalf of that contractor. The ALJ then determined that the mechanic performed the work in question it was performed on behalf of the first employer as a contractor for Regency, and as a result, the mechanic did not need to be included in Regency’s drug and alcohol testing program.

Drug and alcohol testing regulations can be tricky and complicated. However, misunderstandings and/or non-compliance with the regulations are serious and potentially very expensive. If you have questions about the regulations or whether you are complying with the regulations please contact me and I will be happy to help.

Posted by Greg

May 03, 2019

Use Of A Registered Agent's Address On An Application For Aircraft Registration Is Not Acceptable

Many companies organized as corporations or limited liability companies routinely use a registered agent in states where the company does business. This is especially true when a company is set up under the laws of other states, such as Delaware. And a company's use of a registered agent and the agent's address is certainly acceptable in many business contexts. However, the FAA recently issued a Legal Interpretation rejecting this practice when an applicant submits an FAA Form 8050-1 Application for Aircaft Registration.

The FAA gave two reasons why this practice is unacceptable: (1) the registered agent’s address is not the mailing of the applicant; and (2) the registered agent’s address is not the physical address of the applicant. The FAA stated "if the applicant’s physical address is not listed on the Form 8050-1, it is our opinion that the Application for Registration is not completed in accordance with 14 C.F.R. §47.31(b)(1)." Additionally, §47.45 requires that an applicant/aircraft owner provide a physical address/location if different from a new mailing address.

Although a registered agent is permitted to sign an application for aircraft registration on behalf of the applicant/aircraft owner, the applicant must comply with §47.13 (the agent must sign as agent/attorney-in-fact and include a power of attorney signed by the applicant/aircraft owner). And even then the aircraft owner's address must be used on the application (because the application asks for the owner's address, not the address of the owner's agent).

If the FAA determines that a registered agent's address has been used, the FAA will reject the application. This will result in delays in getting the aircraft's registration transferred to the applicant/aircraft owner and in obtaining the hard-card registration certificate.

Posted by Greg

April 26, 2019

The UN Convention on the International Sale of Goods: Does it Apply to Your Business Aircraft Transaction?

Do you use aircraft purchase agreements in business aircraft transactions? (Hint: You should!) If you do, you are probably aware that all good aircraft purchase agreements have a choice of law provision in which the parties are agreeing to the state law that will govern the agreement and any disputes arising from the agreement. But what happens when a business aircraft transaction involves a buyer and a seller who are each businesses from different countries? Will the parties' choice of law selection still apply? Not necessarily. It is possible that the UN Convention on the International Sale of Goods ("CISG") could pre-empt that choice of law provision.

For a more detailed discussion of the CISG and how it may apply to a business aircraft transaction, please read my latest article on the subject: Application of the UN Convention on Contracts for the International Sale of Goods to Business Aircraft Transactions.

Posted by Greg

April 12, 2019

Operation Safe Pilot All Over Again

In August, 2018, the Department of Justice issued a Press Release announcing that it had indicted four pilots for making false statements on their medical applications. In each case, the airman failed to disclose that the airman was receiving Veterans Administration ("VA") benefits for a medical condition that would likely have either disqualified the airman from receiving a medical certificate, or would have certainly subjected the airman to additional scrutiny and/or testing requirements by the FAA's Office of Aerospace Medicine.

The airmen were "caught" when the FAA cross-checked its database of airmen holding medical certificates with the VA's disability benefits database. Initially the investigation has been limited to California and has discovered 70 “hits” that are currently being investigated and may result in additional indictments. It is our understanding that this cross-checking is going to be expanded to the entire country at some point, which could very well disclose a significantly higher number of “hits.”

This is reminiscent of the FAA's 2002 Operation Safe Pilot in which it performed a similar cross-check, but with the Social Security Administration's ("SSA") disability database. Operation Safe Pilot resulted in prosecution of forty pilots who were receiving SSA disability benefits for conditions that would have either disqualified the airmen from receiving a medical or would have triggered further inquiry by the FAA. After Operation Safe Pilot, the FAA revised the application for medical certificate to broadly request in Question 18(y) regarding “medical disability benefits.”

Depending upon the circumstances, airmen have at least two options for dealing with the situation:
  1. An airman can contact the FAA via letter and disclose the previously omitted information regarding both the medical condition and the receipt of disability benefits. It is also helpful to provide an explanation for the non-disclosure, to the extent that the airman has a reasonable explanation for failing to disclose the information. This may persuade the FAA that the failure to disclose was not intentional, but merely a misunderstanding etc.; or

  2. The airman can apply for a new medical certificate and disclose the medical condition and receipt of benefits on the application. Then when the airman goes to his or her aviation medical examiner ("AME") for the medical examination the airman can explain the situation to the AME.

In either instance, the airman will want to have all of his or her VA medical/disability records available to provide to the FAA. However, an airman should keep in mind that any information he or she provides to the FAA could potentially be used against the airman in a criminal prosecution. So, it is important for the airman to be very careful about what he or she says to the FAA or AME.

Although pursuing one of these two options does not guarantee that the airman will not be prosecuted, coming clean and correcting the record before the airman is "caught" may convince the DOJ that prosecution is unnecessary. However, even if an airman is not prosecuted, it is quite possible that the FAA will follow its standard playbook and revoke all of the airman's certificates (pilot, mechanic and medical) as a sanction for falsifying the airman's medical application(s).

If you find yourself in this situation, please give me a call and I will be happy to assist you in working through this process.

Posted by Greg

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