Gregory J. Reigel
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December 08, 2017

What Happens To An Aircraft’s Registration If The Corporation Or LLC Owner Is No Longer Qualified To Do Business?

Many aircraft owners use a corporation or limited liability company to register and hold title to their aircraft. Oftentimes, the owners set up their legal entity and then forget about it. Unfortunately, many states require legal entities to file an annual renewal/registration or pay fees to stay “active.” If an entity does not perform the required filing, the entity could become “inactive”, “suspended”, “not in good standing”, or it could be “administratively dissolved.”

Fortunately, in most of those states the entity can be reactivated/reinstated, have the suspension removed, or be placed back in good standing by accomplishing the required filing (and usually paying an associated fee). But what happens to an aircraft’s registration if this happens to a business entity that holds title to that aircraft? Can the aircraft still be legally operated while the entity is “inactive” or “suspended”?

According to a recent Legal Interpretation issued by the FAA’s Office of the Chief Counsel, the short answer is “no.” But to understand why the answer is “no”, it is helpful to look at the regulations that govern registration of an aircraft by a business entity.

14 C.F.R. §47.3(a)(3) permits a corporation (or a limited liability company, which is also treated as a legal entity similar to a corporation) that otherwise meets the U.S. citizenship requirements, to register an aircraft with the FAA. 14 C.F.R. §47.43(a)(3) tells us that an aircraft’s registration is invalid if, at the time of that registration, the business entity applicant was not qualified to submit an application under 14 C.F.R. Part 47.

This means a business entity that did not have legal status at the time it submitted its registration application to the FAA would not have been qualified to submit the application. And by extension, according to the FAA, “a business entity that does not have or has lost legal status in the State in which it has been incorporated is neither eligible to register an aircraft nor operate that aircraft.”

However, whether a business entity has “lost legal status” will depend upon the facts of the situation and also the applicable state law. As a result, the applicable state law must be analyzed to determine the business entity’s true legal status if it is in this situation.

So, how does the FAA find out about an invalid registration? Well, since the FAA does not make determinations about the legal status of a business entity at the time of registration, or even while the aircraft is registered, this issue usually comes to light during an investigation or an enforcement action.

And if the FAA learns the business entity has lost its legal status and that the aircraft’s registration is therefore invalid, it could pursue enforcement action against anyone who operated the aircraft when the registration was invalid in violation of Section 47.3(b). It could also pursue the business entity owner for failing to return an invalid or ineffective registration certificate as required by Section 47.43(b).

The Moral of the Story: If you are going to use a corporation or limited liability company to own an aircraft, don't create the entity and forget it. Make sure you keep up with the required formalities and filings, including payment of fees etc., to ensure your business entity remains active and in good standing.

Posted by Greg

December 01, 2017

Does That Certificate Of Insurance Really Say You Are Covered?

If someone operates an aircraft that is insured by another party (e.g. a lessee leasing the aircraft from the aircraft owner or another operator of the aircraft where that lessor has an existing policy insuring the aircraft) and the lessee doesn't obtain its own insurance coverage, one option is to be added to the existing policy as an "additional insured." In this situation, the lessee typically receives a "certificate of insurance" that identifies the applicable insurance policy, the policy limits, coverage, that the lessee is an additional insured and other provisions that the lessee expects are included in the insurance policy.

One issue that has recently become more common than I would like arises when the certificate of insurance does not always identify the coverage the lessee/additional insured expects and needs. For example, the certificate will state that the additional insured is covered for operations by the "insured." However, the "insured" is usually the aircraft owner or lessor who purchased the insurance policy. This means that the additional insured is covered for the aircraft owner's or lessor's operation of the aircraft. It does not say that coverage is extended to the lessee for its operation of the aircraft and, unfortunately, could leave the lessee without coverage.

In order to ensure that the lessee has the appropriate coverage, the certificate should also state the the insurance policy extends coverage to the lessee for its own operation of the aircraft. This way the insurance underwriter will know that the lessee will also be operating the aircraft and that the policy should cover the lessee for its operations, as well as for operations conducted by the aircraft owner or lessor.

Finally, it is important to understand that the certificate of insurance is NOT an insurance policy. Rather, it is for informational purposes to confirm information that should be in the actual insurance policy issued by the insurer. Certificate holders should always get a copy of the actual insurance policy to ensure that the information on the certificate matches what is actually in the policy. But since it takes an insurer time to issue a new or updated policy including the new additional insured, the certificate of insurance is a good place to make sure the necessary coverage will be in place once the policy is issued.

Insurance coverage is critical when you are operating aircraft. Don't simply rely on an insurance broker's promises that you are covered. Review the certificate to confirm that it states the terms you need included in the policy. And if you are unsure whether the certificate/policy includes what you need, contact me and I will be happy to review the certificate/policy and work with your insurance broker/insurer to make sure you are covered.

Posted by Greg

November 17, 2017

How Should An Employer Handle Employee Use Of A Private Aircraft?

What happens when one of your employees, who also happens to be a pilot, comes to you and says that he or she wants to fly an aircraft that is not owned or leased by you, the employer, for the purposes of your business? And, by the way, the employee also says he or she would like to be reimbursed for use of the aircraft.

It certainly can be beneficial to have an employee yo use private aviation rather than driving or flying with the airlines. But how should you, the employer, deal with the employee's request? Well, in light of your potential liability exposure for these types of operations by your employee, you need to carefully evaluate whether you want to agree to your employee's request.

If this is the type of request you are willing to grant, you should establish a policy for how these situations will be handled. This means you will need to evaluate and consider a variety of issues and factors that may be addressed in your policy.

For a discussion of the issues you may want to consider and include in your policy, please read my latest article on the topic: Drafting A Policy For Employee Use Of Private Aircraft.

Posted by Greg

November 10, 2017

What Does The Word "Current" Mean In The Context Of Aircraft Maintenance?

Unfortunately, the word "current" does not necessarily mean the same thing in each of the regulations in which it is used. Which makes some sense, since different regulations address different issues and situations. So, let’s take a look at a few maintenance regulations to see what the FAA means when it references "current" in each.

14 C.F.R. § 43.13(a)

In the context of Section 43.13(a), "current" means what the dictionary says it does, i.e., "belonging to the present time." So, current refers to the latest version of the Manufacturer's Maintenance Manual or Instructions for Continued Airworthiness in effect at the point in time of use. It does not necessarily mean "the latest" or "the most current version" of a Manufacturer's Maintenance Manual or Instructions for Continued Airworthiness ("ICA") for the aircraft or its components.

14 C.F.R. § 91.409(f)(3)

Section 91.409(f)(3) provides an aircraft owner or operator with the option of selecting "a current inspection program recommended by the manufacturer" for the aircraft. If an inspection program is selected that is "current" at that moment in time, then the selected program would be acceptable to the FAA for future inspections of the aircraft unless some part of the selected program was later deemed unacceptable because of changes required by an Airworthiness Directive ("AD") or some other FAA rule.

It is also important to distinguish between "selection of an inspection program" for current and future inspections of an aircraft, and "maintenance to be performed on the aircraft using a maintenance manual." If a program is selected (making it mandatory for subsequent inspections) and the manufacturer later revises the program, the originally selected program would no longer be the manufacturer's "current" inspection program as of that later date, but it would still be an acceptable inspection program to use because it was current at the time the aircraft owner or operator selected it for use with the aircraft.

As a result, a manufacturer may issue changes to its recommended maintenance and inspection programs, but those changes do not unilaterally have future effect on aircraft owners and operators. However, an aircraft owner or operator could voluntarily choose to adopt those changes. Or the aircraft owner or operator could simply exercise Section 43.13(a)’s option of using "other methods, techniques, and practices acceptable to the Administrator" rather than those of the manufacturer.

However, in the context of performing maintenance using a Manufacturer’s Maintenance Manual, which is different than simply selecting an inspection program, an earlier version of a manual is no longer "current." But that doesn't mean that version of the manual may no longer be used. Depending on the circumstances, it may be acceptable for use by the aircraft owner or operator. In fact, a repair station may use a "prior" version of a Manufacturer's Maintenance Manual that was applicable to the model of aircraft that was being maintained, unless the FAA shows that the prior version has somehow become unacceptable.

14 C.F.R. § 145.109(d)

Section 145.109(d) requires a repair station to maintain certain specified documents and data including ICAs, ADs, maintenance manuals, overhaul manuals, and service bulletins. These items must also be "current" and accessible when the repair stations performs its work on an applicable aircraft. In the context of this regulation, a repair station would have to keep versions of the listed documents and data "up-to-date." This requirement exists even though Section 43.13(a) permits the use of a prior version of the document or data when performing maintenance, so long as the portion being used is still acceptable to the FAA.

As you can see, it is important to understand the context in which the FAA is using the word "current" in order to know what it means in each regulation. Understanding the differences will ensure that you are able to comply with the applicable regulations.

For more information on this topic, you can read my article Complying With A Manufacturer's "Current" Maintenance Instructions and also a recent Legal Interpretation issued by the FAA. And, of course, if you have additional questions, please do not hesitate to contact me directly.

Posted by Greg

November 03, 2017

What Do You Do When The FAA Denies Your Medical Application Because Your Physician Made The Wrong Diagnosis?

I was recently asked this question by an airman in this very difficult situation. When the airman was younger, the airman was diagnosed as having bipolar disorder. More recently the airman was evaluated by a new doctor who told the airman that, in the doctor’s opinion, the previous diagnosis was wrong and the airman did not, in fact, have bipolar disorder.

Based upon the current doctor’s opinion, the airman applied for a medical certificate. However, despite submitting all of the airman’s medical records, including the earlier bipolar diagnosis as well as the current doctor’s opinion and evaluation, the FAA denied the airman’s application.

So, what are the airman’s options? Well, an airman may appeal the FAA's denial of a medical certificate by filing a petition with the NTSB requesting a hearing before an administrative law judge ("ALJ"). But an airman may only appeal the denial of an unrestricted medical certificate. Since the decision to grant a special issuance is at the discretion of the FAA, the NTSB will not entertain an appeal of the denial of a special issuance.

A hearing is then held at which both the airman and the FAA present evidence through documents and testimony from doctors, medical experts, the FAA and the airman. Oftentimes the airman's treating physician(s), who usually don't have aviation medicine training or experience, will testify that the symptoms and/or condition do not pose a threat to aviation safety and that the airman should be able to fly safely. However, when this type of opinion is presented at the hearing in contradiction to the FAA's expert witnesses, the Board will usually give greater weight to the FAA's expert witnesses based upon the Board’s perception that they have "superior" qualifications in aviation medical standards.

Also, depending upon the condition, an actual diagnosis of a disqualifying medical condition may not be required for the FAA to deny a medical application. Simply presenting with the disqualifying symptoms or condition, or having experienced the symptoms or condition in the past, regardless of whether the airman currently has the symptoms or condition, may be sufficient justification for the FAA to deny the medical certificate.

In order for the ALJ to reverse the FAA's denial, the airman must prove by substantial, reliable and probative evidence that the airman is qualified for the medical certificate for which he or she applied, without limitations. In light of the NTSB's deference to the FAA's medical experts, this can be a very difficult burden to meet. Additionally, an appeal is expensive: Expert medical testimony and attorney fees required for the appeal process can be quite costly.

In this airman's situation, bipolar disorder is a disqualifying condition that prevents the FAA from issuing an unrestricted medical certificate. While the FAA may consider the airman for a special issuance, that decision is solely up to the FAA and may not be appealed. So, the airman would have to fight the FAA's determination that the airman has bipolar disorder.

In order to have the FAA’s denial reversed, the airman has to convince the ALJ. This means the airman would need to have the current doctor testify not only that the airman does not suffer from bipolar disorder, but also that the airman’s current condition, to extent the airman has other disclosed medical conditions, still meets the standards for issuance of an unrestricted medical certificate. It may also be beneficial to have an independent doctor evaluate the airman and provide an opinion that athe airman does not have bipolar disorder.

Additionally, the current doctor would need to explain why the earlier bipolar diagnosis was incorrect. Depending upon the circumstances, this can be a very tough battle for the airman to win.

Unfortunately, at a time when more and more doctors are “diagnosing” kids with ADD, ADHD and other such conditions, this situation is becoming more and more common. And as we have seen, a misdiagnosis as a youth may come back to haunt an adult who wants to become a pilot and needs a medical certificate.

If you find yourself in this situation or have a medical condition that may disqualify you from obtaining a medical certificate, get help BEFORE you apply for a medical certificate. Talk to an aviation attorney or the medical certification professionals at AOPA or NBAA.

By taking a pro-active approach and getting help, you will be able to "pick your battles" wisely to maximize your chances of being able to earn your wings and/or successfully obtaining a medical certificate if necessary.

Posted by Greg

October 27, 2017

Using An LLC To Own An Aircraft: A Potential Trap For The Unwary.

Do you own your aircraft with a limited liability company ("LLC")? If the LLCs members and/or guests are flying on the aircraft, are you confident that you have structured your ownership and operation in a way that complies with the regulations? If not, you may want to reevaluate how you are doing things and seek some help to address your situation, and to bring your ownership/operation into compliance. With the FAA's increased focus on "illegal charter", "Part 134 1/2 operations", and "flight department companyies", improper structuring of aircraft ownership and operation can leave you in a position with lots of explaining to do to the FAA, and that could result in some unpleasant consequences.

Using an LLC to own an aircraft is perfectly legitimate. And the LLCs' members and guests can use/fly on the aircraft, provided that things are structured the right way. If you would like to learn more on this issue, please read my latest article on the topic: Are You Using A Limited Liability Company To Own An Aircraft And Fly The Company’s Members/Guests? Be Careful.

Posted by Greg

October 23, 2017

Can A Private Pilot Share Expenses With A Passenger?

Yes, in certain circumstances. FAR 61.113(a) tells us that "no person who holds a private pilot certificate may act as pilot in command of an aircraft that is carrying passengers or property for compensation or hire; nor may that person, for compensation or hire, act as pilot in command of an aircraft." Fortunately, that isn't the end of the story. In addition to other exceptions, Section 61.113(c) says "[a] private pilot may not pay less than the pro rata share of the operating expenses of a flight with passengers, provided the expenses involve only fuel, oil, airport expenditures, or rental fees."

Operating expenses fuel and oil consumed on a flight and ramp or tie-down fees at the destination airport, or if the aircraft is rented from an FBO or other third-party, the hourly rental fee plus the cost of fuel, if that is not included in the rental fee. These expenses may be shared. However indirect expenses such as insurance, maintenance, depreciation or other capital costs (e.g. costs of ownership) can not be shared.

Although the amount the pilot and passenger(s) must each pay doesn't need to be calculated penny for penny, according to the FAA if the private pilot pays less than an equal share of the total operating costs or flight, the FAA will assume the private pilot was not actually sharing expenses. So, if you divide the total allowed costs for the flight by the number of people in the aircraft during the flight that should get you close enough to satisfy the FAA.

Also, don't forget that the private pilot and passengers must have a common purpose for the flight as well: they must be flying to the same destination for a common reason. If the private pilot doesn't have any business at the destination, that wouldn't be a common purpose flight. Similarly, building flight time or getting flight instruction isn't a common purpose unless that is the purpose of the passenger(s) as well.

So, as a private pilot you have the opportunity to share expenses in certain limited situations. But if you don't meet the requirements of those exceptions and the FAA finds out, you could be looking at a certificate action.

Posted by Greg

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