Who Is Really in Control? Continued from page 17 “operational control” over that flight. The FAA further defines a “commer- cial operator” as “a person who, for compensation or hire, engages in the carriage by aircraft and air commerce of persons or property…. Where it is doubtful that an operation is for ‘com- pensation or hire,’ the test applies whether the carriage by air is merely incidental to the person’s other busi- ness or is, in itself, a major enterprise for profit.” Stated another way: If the person who is exerting operational control over a flight is an “operator” carrying “persons or property” for “compensation or hire,” then that per- son is acting as a “commercial opera- tor.” But what does that really mean? When looking at who, exactly, the FAA considers to be the operator of a flight, the starting presumption is the registered owner of the aircraft. If it is not the registered owner, then it should be a person (again, be it a company or an individual) who has taken over possession and use of the aircraft from that registered owner through some form of lease or operat- ing agreement (which must be in writing if you are dealing with what the FAA defines as a “large aircraft”). At least three misunderstandings commonly attach to the FAA’s defini- tions regarding aircraft operators. First, note that you can have mul- tiple legal operators on any aircraft. This does not mean that you can have more than one operator con- ducting a particular flight. What it does mean is that different operators can have access to a specific aircraft on different days or for different flight segments on any given day. Examples of this range from the pool of aircraft that are owned by flight schools and rented for the purpose of individual flight instruction all the way up to complex business aircraft held in leasing companies that are then “dry leased,” i.e., leased without crewmembers, to differ- ent operators on different days. Second, pilots are generally not operators in a business aviation setting. A pilot can be an operator if that pilot owns or leases the aircraft for his or her own purposes. But, when the pilot is hired solely as a professional to serve as the pilot- in-command for someone else, or when an aircraft manager is engaged solely to provide those individual pilots for someone else, that does not mean—even though the pilot is responsible for insuring the flight is conducted safely—that the pilot or the manager is the legal “operator” of the aircraft (i.e., the person who gets to say where that airplane is going on a given day). That right still rests with the registered owner or a dry lessee. Finally, there is a very big differ- ence between the FAA’s rules and the IRS’s rules regarding the status of aircraft operators. While the IRS recognizes the concept of “disre- garded” or “pass through” entities in certain limited circumstances dealing with income tax reporting, the FAA does not. Under the FAA’s rules (and in most, if not all, other areas of the law), just because a person (referred to here as “Ms. A” for the purpose of illustration) owns a disregarded- entity limited liability company (referred to as “AirplaneCo, LLC” or simply “AirplaneCo”); and AirplaneCo in turn owns an airplane, that does not mean that Ms. A owns an air- plane—she owns AirplaneCo, and AirplaneCo owns the airplane, and those are very bright and solid lines of separation under the FAA’s rules. Once you have identified who the operator of the aircraft is on a particular flight, the next question is whether or not that operator is car- rying “persons or property.” Here the person that the FAA is talking about is basically any individual person other than a required crew member (and in a similar vein, the property component is anything of value other than something belonging to that crewmember) that is being moved from point to point with the aircraft. And, just like the concept of individu- als who are owners or members of companies that in turn own airplanes, if Ms. A gets on board the aircraft owned by AirplaneCo as a passenger, then Ms. A is no different than any other passenger and this separate “person” element of the commercial operator definition has been met. Finally, the last element of this “commercial operator” definition is the “compensation or hire” element. One of the big problems in this area is that most people commonly think of the “or hire” element—where someone is holding out to the public and making the aircraft available to anyone who wants to pay for the flight—as the only commercial opera- tor circumstance. While that is clearly one kind of commercial operation, what many people miss is that the definition is not “compensation and hire,” it is “compensation or hire,” and that simply paying some amount of compensation to the operator—in 18 Aviation Business Journal | 1st Quarter 2017
