The Regulation of Fractional Ownership: Have the Wings of the Future Been Clipped Eileen M
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Journal of Air Law and Commerce Volume 67 | Issue 2 Article 4 2002 The Regulation of Fractional Ownership: Have the Wings of the Future Been Clipped Eileen M. Gleimer Follow this and additional works at: https://scholar.smu.edu/jalc Recommended Citation Eileen M. Gleimer, The Regulation of Fractional Ownership: Have the Wings of the Future Been Clipped, 67 J. Air L. & Com. 321 (2002) https://scholar.smu.edu/jalc/vol67/iss2/4 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Journal of Air Law and Commerce by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. THE REGULATION OF FRACTIONAL OWNERSHIP: HAVE THE WINGS OF THE FUTURE BEEN CLIPPED? EILEEN M. GLEIMER* TABLE OF CONTENTS I. INTRODUCTION .................................. 322 A. THE GROWTH OF FRACTIONAL OWNERSHIP ...... 323 B. THE GENESIS OF SUBPART K .................... 328 II. THE FRACTIONAL OWNERSHIP AVIATION RULEMAKING COMMITTEE ..................... 332 A. THE DEVELOPMENT OF THE FOARC RECOMMENDATION .............................. 334 B. THE FOARC's PROPOSED REGULATION OF PROGRAM MANAGERS ............................ 343 C. FOARC's PROPOSED REVISIONS TO PART 135 ... 350 D. THE ROAD FROM THE FOARC RECOMMENDAITON TO THE NPRM ................................. 352 III. THE ISSUANCE OF THE NPRM .................. 355 IV. THE RESPONSE TO THE NPRM ................. 370 V. WHERE IS THE FRACTIONAL OWNERSHIP MARKET GOING? ................................. 388 A. THE ONGOING DEVELOPMENT OF THE FRACTIONAL OWNERSHIP MARKET ............... 388 B. WHAT DOES THE FUTURE HOLD? ............... 395 * Eileen Gleimer is Counsel at Crowell & Moring, LLP, a law firm based in Washington, D.C., where she specializes in aviation law, with an emphasis on business aviation. She has authored several articles and is a frequent speaker on the topic of corporate aircraft operations and fractional ownership. Ms. Gleimer has participated in industry committees and was actively involved in the Fractional Ownership Aviation Rulemaking Committee ("FOARC") which developed the recommendations that form the basis of the FAA's proposed rule governing fractional ownership. She was also involved in the FAA/industry committee that developed the guidance and training material for the proposed rule. Ms. Gleimer graduated from The American University, B.S., cum laude, in 1979, Emory University School of Law, J.D., with distinction, in 1982 and received a Certificate in Executive International Business from Georgetown University School of Business, Center for International Business Education and Research in 1996. 322 JOURNAL OF AIR LAW AND COMMERCE [67 I. INTRODUCTION Over the past several decades, business aviation has grown substantially.' Although there has been some slowdown as a re- sult of the economy,2 the long term prospects for business avia- tion remain strong. Part of the growth is a result of dissatisfaction with commercial airlines.' A greater portion, how- ever, stems from the heightened awareness of the value of busi- I See, e.g., Teal Predicts 6,908 Business Aircraft Will Be Built in 2002-2011, DEFENSE SYSTEMS DAILY, May 7, 2002 (the business aircraft industry tripled in value be- tween 1995 and 2000); Business Aircraft Deliveries Continue Record Pace, AIN Alerts, AVIATION INT'L NEWS, July 31, 2001 (the business aircraft industry shipped a re- cord number of business aircraft in the first six months of 2001); Andersen, Busi- ness Aviation in Today's Economy - A Shareholder Value Perspective, THE WHITE PAPER, series number 4, Spring 2001, at 2 [hereinafter Andersen White Paper] (the total billings for business aircraft manufacturers in 2000 exceeded $8.6 billion, an increase of 9.1% over the previous year). Part of the increased demand for busi- ness aviation is a result of the development of new and derivative aircraft models. See Honeywell Forecasts Strong Rebound in BusinessJet Deliveries, WKLY. Bus. AVIATION, Sept. 17, 2001, at 128. 2 Deliveries have dropped and several manufacturers have cut production and jobs. See Bizav Shipments: Second Quarter Up, But First Half Down, AIN Alerts, AVIA- rION INT'L NEWS, July 23, 2002; NetJets Delays Part of Boeing Order, THE WICHITA EAGLE, May 1, 2002; Paul Lowe, Business Aviation is the Only Bright Spot in FAA GA Forecast, AINONLINE, Apr. 2002, at http://www.ainonline.com/issues/04_02/ 04_02_babritspotpg2o.html (the increased growth in fractional ownership com- panies and corporate flying has expanded the jet aircraft market) [hereinafter Lowe, GA Forecast]; Layoffs Mount as Aviation Industry Preparesfor Financial Hits, WKLY. Bus. AVIATION, Oct. 1, 2001, at 155; Intelligence, WKLY. Bus. AvIATION, Oct. 22, 2001, at 185. See also U.S. GA Manufacturers Maintain Record Billings Despite Stall in Deliveries, WKLY. Bus. AVIATION, Oct. 22, 2001, at 187; Aftermath of Attacks Affect- ing Aviation Businesses in Different Ways, WKLY. Bus. AVIATION, Sept. 24, 2001, at 139, 140, 143. Backlogs, however, may help weather this storm. See Intelligence, WKLY. Bus. AvIAION, Oct. 15, 2001, at 175 (Cessna has had 20-25 cancellations this year which is four or five times higher than normal, but it also has an order backlog for more than 700 Citations). - See Dennis Quick, Local Companies Take Off On Air-Travel Trend, CHARLESTON REGIONAL Bus. J., Feb. 25, 2002 ("high-end business travelers, increasingly frus- trated with the delays and flight reductions in commercial airline travel, had been gravitating toward fractional ownership"); Joe Sharkey, Business Travel: The CorporateJet Business is Booming, Even as the Airlines Complain About a Softening Econ- omy, N.Y. TIMES, May 2, 2001, at C6 ("corporate jets - once derided as symbols of decadence and wretched excess - have become practical travel alternatives for a steadily growing number of companies" due in part to commercial airline delays, rising business fares and inconvenient airline scheduling). See also CIT's Annual CorporateAircraft Outlook Predicts Cautious, Continued Optimism for 2000-2001; Follow- ing a Record Year, CIT Identifies Factors Leading to Ongoing Industry Expansion, Bus. WIRE, Oct. 4, 2000 (the growth of business aviation is partially a result of growing negative reaction to commercial flight delays). 2002] THE REGULATION OF FRACTIONAL OWNERSHIP 323 ness aviation as an economic tool.4 Following the tragic events of September 11, 2001, business aircraft and fractional owner- ship programs are also viewed by many companies as a way in which to increase security for their employees.5 A. THE GROWTH OF FRACTIONAL OWNERSHIP PROGRAMS As public awareness has grown, so too has the variety of acqui- sition alternatives; or perhaps, public awareness has grown be- cause of the variety of alternatives. In either case, one of the most popular methods of acquiring business aircraft is through fractional ownership programs6 which allow a party to acquire 4 For a general discussion of the benefits and value of business aviation, see Andersen White Paper, supra note 1. See also Lowe, GA Forecast, supra note 2; Jay Palmer, The New Jet Set, BARRON'S ONLINE, Nov. 19, 2001; David A. Lombardo, Bizav Will Weather Economic Turbulence, AVIATION INT'L NEWS, Aug. 2001, at 36 (corporate aircraft are viewed as a tool and not as a luxury or perk); Kirby J. Harrison, Bizjet Market Thriving at $94B Over Next Decade, Predicts Teal, AVIATION INT'L NEWS, July 2001, at 22 (business jets have become "less of an elite product and more of a commodity"); Richard Aboulafia, Quest for CorporateEfficiency Helps Buoy BusinessJet Market, AViATION WK. & SPACE TECH.,Jan. 15, 2001, at 99 (corpo- rate jets are "held in high esteem due to what could be termed a 'cult of produc- tivity"'); Intelligence, WKLv. Bus. AVIATION, Oct. 2, 2000, at 147 (there has been "'almost a contagious acceptance of business aircraft use' because of its obvious benefit to productivity and efficiency"); Anthony L. Velocci, Jr., Bizjet Demand Ro- bust; Asian Market Taking Off AVIATION WK. & SPACE TECH., Oct. 9, 2000, at 131 (the use of business aircraft has spread as businesses realize the value of the air- craft, "not only in their daily operations, but as a tool to make business more productive"); The (Private)JetSet, FORTUNE, May 14, 2001, at S8; Business Aircraft Utilization Strategies: A Guidefor Management, NAT'L Bus. AVIATION ASS'N ("NBAA") 1999. 5 See Lowe, GA Forecast, supra note 2 ("the fallout from September 11 appears to have spurred the interest in fractional or corporate aircraft ownership"); Tom Incantalupo, Demand Up for CharterPlanes: Boost in Business After TerrorActs, NEws- DAY (New York), Nov. 4, 2001, at A14; Palmer, supra note 4; Mark Phelps, Pax Flocking to Charterand Fractional Operations,AVIATION INT'L NEWS, Nov. 2001, at 5; Aftermath, supra note 2, at 139-40, 143 (fractional ownership programs have re- ceived "renewed interest and new interest"); Alex Kuczynski, Private Skies of the Very Rich, N.Y. TIMES, Oct. 7, 2001, sec. 9, at 1; Micheline Maynard, Corporate Planes: Perks or Necessities?, N.Y. TIMES, Sept. 23, 2001, at C6 ("[i]n the aftermath of the attacks, many corporations are expected to rely even more heavily on pri- vate planes - through leases, purchases and fractional ownership deals..."). 6 See, e.g., Andersen White Paper, supra note 1, at 2 (fractional ownership, which increased by more than 50% per year for the past three years, is the fastest grow- ing segment of business aviation); Chad Trautvetter,