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

Apart from how Advanced Air Mobility (AAM) aircraft will be operated, we should also touch on how air travel is bought and sold. The Federal Aviation Regulations at 14 CFR Parts 1 to 199 largely relate to aircraft operations. The Department of Transportation regulations at Parts 200 to 399 largely relate to economic and procedural regulations and policy. To put it simply, operating an airplane is one thing; selling transportation is another.

Block charter ("jet card") programs

The success of fractional ownership programs and their expansion into fractional leasing (for example, with purchases as low as 25 hours of flight time) forced competitors to sell charter time differently. Rather than booking traditional one way or round-trip charters between city pairs, charter companies and brokers started offering prepaid "jet cards" providing charter transportation in blocks of time--for example, 25 hours.

Block charter is basically a subscription model, with all flights operated by Part 135 carriers. Jet card program documentation and agreements can thus be pretty simple, apart from required disclosures by aircraft "charter brokers," as discussed further below.

If we consider the boom in private jet travel as precedent, we may posit that jet cards emerged as a more economical, less complex alternative to fractional ownership. Similar subscription models may serve AAM markets in the same way. Until there are enough AAM airframes and pilots in service to support more complex options like fractional ownership programs, "AAM cards" may appeal to customers testing the waters.

Charter brokerage and ticket agents 

Apart from flight regulations, AAM will need to comply with regulations on the sale of air transportation--more particularly, Parts 295, 298, 380 and/or 381. For example, Part 135 charters have traditionally been whole aircraft bookings (a.k.a. "single entity charters") under Part 295, not a purchase of flight time by each passenger, by the seat. In charter operations, sales by the seat have only been permitted in narrow circumstances, such as where passengers "self-aggregate to form a single entity for flights to be operated using small aircraft"; see 14 CFR 295.5(h).

Will AAM sales hold to these business models? The AAM industry anticipates a future where AAM trips are sold via ride hailing apps, like Uber. That's possible, but we're not talking about cars and drivers--we're talking about airplanes and their operators, which are regulated quite differently.

Any cell phone application selling AAM flights will likely be deemed an "air charter broker," "ticket agent" or "indirect air carrier," with the Part 135 operator being the "direct air carrier"; see 14 CFR 295.5(b), (f), (g), 399.79 and 399.80. Both parties will have disclosure obligations to parties booking flights; see for example 14 CFR 295.24, 298.80. Both parties will also be prohibited from engaging in any "unfair or deceptive practice or unfair method of competition"; see 14 CFR 295.22, 295.50(b) and 298.90(b).

That's not to say you won't be able to hail an AAM flight from your phone. The point is, that process will be more highly regulated than calling a car. That app on your phone is going to have to make and document a few required disclosures before you push "Confirm."

Commuter air carrier

A Part 135 operator that carries passengers on at least five round trips per week on at least one route between two or more points according to published flight schedules may qualify as a commuter air carrier and thereby sell air transportation by the seat. See 14 CFR 298.2, 298.3(b). This applies to rotorcraft or non-turbojet aircraft with nine seats or less, with fewer than 7,500 lbs. payload capacity. In short, this model may be a good fit for AAM prototypes now in development.

Operating the same type of aircraft on less than five roundtrips per week still permits the operator to sell flight time by the seat, but the operator is classified as an on-demand operation.

Will scheduling AAM routes provide a viable means of selling AAM travel by the seat? Perhaps. For the time being, note that other forms of transportation--buses, trains, even major airline routes--run on daily schedules. AAM doesn't have to proceed straight to a ride hailing model. Scheduled routes might work if the market supports it.

Note also that SFAR 120/Part 194 made no changes whatsoever to how air transportation is sold. Parts 295 and 298 still apply to the purchase and sale of AAM.

In theory, so does Part 380.

Part 380 Public Charters 

Simply put, a public charter is a set of charter flights performed by one or more direct air carriers that is arranged and sponsored by a "public charter operator." The public charter operator is an indirect air carrier that files a prospectus with DOT listing the proposed flight schedule, origin and destination cities, dates, types of aircraft, number of seats and charter price for each flight.

This structure is commonly used for charter tours--for example, "Enjoy 5 European Cities in 7 Days!" If you've bought a packaged tour including air travel, it probably had a Part 380 component. Part 380 features strict requirements for operator-passenger contracts, flight cancellations and other issues, but it allows the sale of air transportation by the seat.

All in all, Part 380 would seem to be a cumbersome way to conduct AAM operations. However, apart from travel tours, Part 380 has been used as a way to sell flights by the seat on small aircraft, rather than single entity, whole aircraft charters. A prominent example is the operation of business or regional aircraft by JSX, SkyWest and other carriers on scheduled routes.

These operations have not been without controversy, including pressure on FAA and DOT from traditional scheduled airlines to revise related regulations. However the controversy plays out, note that Blade Mobility, recently acquired by Joby, has operated in the New York area as a Part 380 operator, particularly on seasonal helicopter trips from NYC to the Hamptons. Will Joby continue those operations using powered-lift?

Although Part 380 may seem cumbersome compared to the on-demand, app-based operations that AAM aspires to, it does present a potential precedent for selling regional air transportation by the seat. Until Part 380 is amended to disallow AAM operations, it presumably remains an option for structuring them, particularly to seasonal destinations--for example, the Hamptons, Martha's Vineyard, wine country, or ski resorts.

Part 381, Special Event Tours

This Part applies to tours "organized for the purpose of attending a sporting, social, religious, educational, cultural, political or other event of a special nature and limited duration, [...] including admission to that event. Examples of such events include, but are not limited to, college and professional sporting events, the Olympics, concerts, the Passion Play in Oberammergau, etc." See 14 CFR 381.5.

Apart from revealing that someone at DOT has a thing for the Passion Play at Oberammergau, Part 381 provides a pretty clear runway to AAM operations at the 2028 Olympics. Note that apart from providing special event destinations, stadium or arena parking lots may be good sites for vertiports. Stadiums and arenas not only have experience managing traffic and noise, they are also politically connected and presumably astute. Related permitting and zoning approvals and ensuing AAM operations may be less controversial compared to new vertiport proposals for other, primarily residential neighborhoods.

Conclusion 

The FAA's plan to integrate AAM into the existing National Airspace System essentially means that AAM will be integrated with existing aviation business structures. A new kind of airplane should not require a completely unique business model. The business and regulatory models already on the books should be able to accommodate the launch of AAM operations.

If this extended survey above seems tedious or picayune, please consider that the contracts and other transactions for AAM programs can't be written or funded until we know what kind of contracts are required. The operating structures chosen--Part 91, 91K, 135, block charter, 135/91 managed operations, etc. --will determine not only what kind of transactions are required (for example, dry leases), but also their essential terms.

If we're really going to launch a new transportation revolution, it's going to take a lot of paperwork. Before any of us wade blindly into a morass, it might be better to anticipate the tasks at hand. Hindsight may be 20/20, but foresight can get close to that if you're willing to squint.

Please take this series in the spirit intended. We're just trying to give you the lay of the land before someone drops you in the middle of it.

Part 4 of this series will discuss some of the transactional work that will most likely be required to further implement AAM operations. Part 5 will be a rough and very preliminary assessment of other legal tasks, including potential litigation scenarios.

Please feel free to move about the cabin. Our next flight will begin shortly.