Structuring potential AAM operations under current federal aviation regulations - Part 3A

As summarized in Part 1, Advanced Air Mobility (AAM) commercialization is well underway, with multiple OEM programs anticipating initial operational capability.  As shown in Part 2, AAM regulation is proceeding apace, with FAA passing significant milestones towards a coherent and comprehensive set of enabling regulations. Although local planning (such as vertiport permitting and development) is still relatively undefined, initial steps are in progress.

All of this raises the question: after AAM platforms become more generally available, how will operations be structured?

As discussed in Part 2, Special Federal Aviation Regulation (SFAR) 120/Part 194 (Powered-Lift Pilot Certification and Operation) provides a pretty coherent map of initial AAM operations. Apart from promulgating Part 194, SFAR 120 makes conforming changes to Parts 43, 60, 61, 91 (including 91K), 97, 111, 135, 136, 141 and 142. 

Accordingly, AAM flights may be operated as follows.

Part 91

Put simply, Part 91 operations consist of the use of an aircraft by its owner or lessee, employing its own pilots and under its operational control. That much is simple. After that, Part 91 can be complicated.

For example, Part 91 operations are limited to private carriage--i.e., operators cannot "hold out" air transportation to the public or receive reimbursement for providing it. Although an operator's affiliates may pay costs in some circumstances --i.e., where the carriage is "within the scope of, and incidental to, the business of the company (other than transportation by air)," this only applies to large and turbine powered multiengine aircraft, not AAM.  Members of the National Business Aviation Association (NBAA) may operate other aircraft under these rules due to the NBAA's "Small Aircraft Exemption," but that has not been held to formally apply to AAM airframes yet.

So, while AAM is clearly eligible for Part 91 operations, related cost reimbursement arrangements are still unclear.   

Part 135 

Part 135 governs common carriage, such as commuter and on-demand "air taxi" operations for hire. This is often referred to as "charter" air transportation, like chartering a vessel. Some of the AAM OEMs have already procured their own Part 135 certificates; for example, Joby and Archer. Others are expected to sell or lease aircraft to Part 135 carriers, or form strategic partnerships with them.

Part 135 is often taken to mean the charter operation of private jets, but that's only part of the picture. Part 135 operators often operate multiple aircraft types - jets, turboprops, helicopters and even piston aircraft. Adding an AAM platform to an existing Part 135 certificate might be a stretch, depending on the operator, but it's doable. 

From a legal perspective, a Part 135 carrier only requires the exclusive use of at least one aircraft that meets the requirements for at least one kind of operation on its certificate; see 14 Code of Federal Regulations (CFR) 135.25(b). That means that a Part 135 carrier's airplanes can be leased.

Mixed Part 135/91 operations

Since Part 135 operators are not required to have exclusive use of all aircraft they use, they are not prohibited from providing such aircraft for non-135 operations. It's not at all uncommon for a 135 operator to manage the maintenance and operation of private jets, almost like a ranch that boards horses. When aircraft owners want to fly, the 135 operator releases their airplane for Part 91 flights. If an owner isn't flying, the 135 operator can charter the airplane out to generate revenue.

This is a well-known business jet operations model, and it might work for AAM--or, not. Business jet cost/benefit dynamics may not fit AAM. If AAM capital and operating costs are low, and the charter revenue stream is thin, private jet business models may not apply. That being said, the mixed Part 135/91 operating model should be considered for what it is--a risk spreading, cost/benefit sharing mechanism. 

It's too early to tell how AAM will play out. Cost/benefit projections are uncertain, at best. However, proven models for spreading risk and reward may nevertheless benefit AAM, by giving it the flexibility to scale and evolve.

So, AAM operations could be Part 135 common carriage, or Part 91 private carriage, but don't have to be just one or the other, all the time. 

Fractional ownership programs

At the risk of confusing things further, we should also briefly review fractional ownership operations under Part 91K. SFAR 120/Part 194 makes conforming amendments permitting 91K operation of powered-lift AAM platforms. Someone probably lobbied for that. 

Fractional ownership operations are sometimes referred to as business aircraft "time shares." An owner buys or leases a fractional share of a business aircraft from the program manager and signs a management agreement, as well as a joint ownership agreement with the other owners, and a dry lease exchange agreement with all program members, allowing them to swap the use of program aircraft. It's called a "dry" lease because the aircraft are supplied without pilots. The program manager supplies pilots under the management agreement, or an owner can supply its own. This structure allows fractional owners many of the tax benefits of owning their share of an airplane.

Part 91K was developed by the FAA to more comprehensively regulate fractional ownership programs after they evolved out of earlier regulations at 14 CFR 91.501(c). Those regulations allowed the operation of large and turbine powered multiengine aircraft under a time-sharing agreement (the lease of aircraft with flight crew between different aircraft owners), an interchange agreement (allowing the reimbursement of variable costs between different aircraft types), or a joint ownership agreement (between multiple owners of the same aircraft).

The first fractional ownership programs leveraged these FAA-sanctioned agreements by combining all of them with program management and fractional purchase/sale agreements. These linked and nested transactions allowed fractional program managers to syndicate and operate fleets of aircraft on behalf of hundreds of owners, typically high-net-worth individuals (HNWIs), VIPs and Fortune 500 companies. 

As fractional ownership programs grew, and less well-funded startups tried to emulate them, Part 135 operators and other competitors lobbied the FAA for increased regulation and oversight on fractional operations. Those complaints, the sheer volume of fractional operations, and the FAA's desire for a clearer regulatory landscape eventually led to the promulgation of Part 91K.

The reason for the history lesson here is that the time sharing, interchange and joint ownership agreements at 14 CFR 91.501(c) are still on the books. However, they do not apply to powered-lift aircraft. SFAR 120/Part 194 made no changes to these sections. They are still limited to the operation of large and turbine powered multiengine aircraft, apart from potential operations under the NBAA's Small Aircraft Exemption.

Trying to write AAM into Part 91K means squeezing an unproven technology into a regulatory regime designed for a well developed industry. AAM will not be anywhere near that level of development for some time. It may get there, but in the interim, we might well consider how it got there. The less comprehensive regulations at 91.501(c) may provide a suitable regulatory model for ramping up AAM operations, particularly for near-term AAM pilot programs. The rules at 91.501 facilitated the evolution of fractional ownership, and they might work similarly for AAM.

Until then, an existing Part 91K operator could add AAM operations to its FAA-approved management specifications, but even that might be a protracted, complex and uncertain process. However, note that many fractional ownership programs also have Part 135 certificates. This suggests they could operate hybrid programs-- fractional ownership of business jets, etc., with charter operation of AAM assets. 

Part 136 Commercial Air Tours 

In addition to Part 135, SFAR No. 120/Part 194 made conforming changes to Part 136, which states operating regulations for sightseeing flights, a potentially good fit for AAM operators. Electric aircraft should have a lower operating cost per hour than the helicopters often used for such trips. Sightseeing flight bases and routes are already established, so new vertiport approvals should be streamlined, even if existing sightseeing heliports don't suffice. 

Part 136 operations typically operate in accordance with the "25-mile rule": operations that begin and end at the same airport, and are conducted within a 25-statute mile radius of that airport are more lightly regulated. See 14 CFR 119.1(e)(2). A 25-mile flight radius is a good fit for the range and battery/charge time limitations of current AAM platforms. The FAA seems to be well aware of the fit, as Part 194 includes very specific rules on Part 136 operations by powered-lift aircraft. See 14 CFR 194.308. 

Sightseeing flights may seem a homespun sideshow when compared to the typically futuristic vision of fleets of robot skycabs that you summon with your phone. However, sightseeing flights may be a valuable steppingstone towards wider adoption of AAM in some markets.

Conclusion: This concludes our survey of how AAM platforms will be operated. Part 3B of the series will assay how such transportation may be bought and sold.