Single-aircraft business aviation operations with a handful of pilots are usually lean, sharp and ready to launch at a moment’s notice. That also means everyone wears many hats. “Whoever is running that flight department has to be really good at issue spotting,” said Kali Hague, a partner and COO at Jetlaw. Some issues, like aircraft transactions, insurance and the operation’s legal structure, require legal counsel.
Trust between a flight team and its principal is essential to survival. “Pilots at smaller operations are often thrust into management roles without the background necessary to manage millions of dollars’ worth of assets,” said Dave Coleman, president of Coleman Jet Solutions. “This makes them highly vulnerable. Any hint of unethical or illegal activity will break the trust necessary to run the department and may result in its closure.”
“The most basic questions are: how are they going to structure their ownership and operations, and how and why will they operate the aircraft?” said John Copley, president of Garofalo, Goerlich & Hainbach PC in Washington, DC. “Will they have related company executives or others fly on the aircraft? Will those people reimburse the company?” Speaking to an attorney who doesn’t understand – or isn’t aware of – aircraft or aviation regulatory issues can point a department leader in the wrong direction, Copley said.
For example, a common problem that catches some managers of smaller operations off guard – especially single aircraft operators – is creating an LLC to limit liability exposure – but only to own and/or operate the airplane. While this may usually be a sound risk management strategy, “unfortunately, it’s a terrible way to set it up from the FAA’s standpoint,” said Copley.
“The FAA has determined that a single-purpose entity that only owns and operates an aircraft is operating for compensation in transporting person or property, because it has no other income of its own to fund the aircraft’s operations.” Therefore, Copley said, the owner/operator should hold a commercial Part 135 certificate because the primary business is providing transportation for compensation.
Another issue related to an incorrect structure is how the aircraft is insured. “Purchasing aircraft hull and liability insurance is one of the most important ways to mitigate risk,” said Hague. “But many operators do not ask the right questions when they choose their insurance coverage.”
For example, “a client might decide that $250 million is sufficient liability coverage. But if the coverage does not ensure the correct entity, then no coverage is adequate. Perhaps they forgot to name the pilot, or there’s another flaw in how coverage is bound,” Hague said. “If the [operator] had an event or an accident, the company might not actually have the coverage they thought they did.
“Clearly communicating with your insurance broker about how an aircraft will be owned and operated is essential to purchasing and binding the correct coverage,” added Hague. No matter what, “safety should lead every discussion about legal considerations. Sometimes, there’s a tendency to say it’s a legal issue, not a safety issue. Separating them can be really dangerous. Finding a legal structure that is also safe is key to mitigating risk.”
International Business Aviation Council Ltd.