How do you and your friend use each other’s aircraft occasionally in compliance with the FAA regulations?
Facts
You and your friend both operate aircraft. His jet is best for long trips and yours is best for shorter trips. You each employ your own flight crew for your plane. You want to utilize his jet for your long trips and let him utilize yours for his short trips.
Aircraft Interchange Defined
An interchange agreement means an arrangement whereby a person leases his airplane to another person in exchange for equal time, when needed, on the other person’s airplane, and no charge, assessment, or fee is made, except that a charge may be made not to exceed the difference between the cost of owning, operating, and maintaining the two airplanes.
Which Aircraft Can be Interchanged
Only certain aircraft may utilize an interchange so check the rules before you try to interchange your aircraft with your friend for his aircraft. Only large (more than 12,500 pounds, maximum certificated takeoff weight) airplanes of U.S. registry and turbojet-powered multiengine civil airplanes of U.S. registry, in operations not involving common carriage can be interchanged per FAR 91.501. Operators of helicopters and smaller aircraft can look at the NBAA Exemption to determine if they fit within the requirements of the exemption and can utilize an interchange agreement.
Interchange Means
Interchange is an “equal time” arrangement and allows payment for only the cost difference.
Equal Time
The Federal Aviation Regulations do not have a mechanism for the other aircraft operator paying you any consideration other than equal time in their plane. If the other operator sells their plane or it is down for maintenance, the balance of hours you are owed by them can only be paid to you through time in their plane.
Cost of Owning, Operating and Maintaining the Two Planes
As with all Part 91 aircraft operations, note the limit on consideration. Under an interchange agreement, if two identical aircraft are interchanged, the differential for the cost of owning, operating and maintaining the two planes might be zero or very nominal. If a larger plane is interchanged with a smaller plane, the differential for the cost of owning, operating and maintaining the two planes might be significant.
Avoid Common Carriage when Interchanging
Common carriage includes at least three essential elements:
- holding out
- to carry people or property
- for compensation or hire
Truth-In Leasing Applies to Interchange Agreements
Federal Aviation Regulation 91.23 applies to most interchange agreements. This means that you need a written interchange agreement, mailed within 24 hours of its execution to the FAA and a copy carried on each aircraft.
Federal Excise Tax is Applicable to Interchange Agreements
Tax laws change frequently so check on whether the IRS is imposing the federal excise tax (FET) on interchange agreements at the time you read this.
Can an Interchange be Utilized when an Aircraft has Multiple Owners
Allen and Bob each own one-half interest in jet1 and each operates jet1. Mary, Nancy, Owen and Parker each own one-quarter interest in jet2 and each operates jet2. Each obtains their own flight crew.
First, look at the definitions to determine whether any owners can use an interchange agreement to fly on the other aircraft. Do jet1 and jet2 fit within the definition of aircraft that can be interchanged under FAR 91.501?
If Allen enters into an interchange agreement with Mary, that interchange agreement doesn’t allow Nancy, Owen or Parker to use Allen’s plane under the interchange agreement Allen has with Mary. Allen and Nancy may be able to separately enter into a distinct interchange agreement if Allen and Nancy agree to interchange their respective aircraft.
Note that the FAA definition of an Interchange Agreement says “a person leases his airplane to another person”. There should not be one interchange agreement between all owners of jet1 and all owners of jet2. Federal Aviation Regulation 91.23, truth-in-leasing, applies to interchange agreements and each agreement should clearly reflect who will be in operational control of the flights for each aircraft under that interchange agreement.
The nuances involved in FAA regulations can be confusing. Work with experienced business aviation counsel to help avoid expensive regulatory violations when setting up your aircraft interchange agreement.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
