International

Recent EU Issues Affecting Regulatory Compliance Of Corporate Jets

By January 16, 2018 September 5th, 2018 No Comments
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If your company owns or operates business aircraft, three significant issues arose in the European Union (EU) in 2016 involving the ownership and operation of business aircraft. These issues will affect company aircraft which operate in the EU regardless of the jurisdiction in which the aircraft is registered. United States registered aircraft are subject to the United States regulatory requirements for non-commercial operations (see 14 C.F.R. Part 91) even if the flights are conducted wholly outside of the United States, except to the extent that these requirements are inconsistent with the applicable requirements in the foreign country where the aircraft is being operated (14 C.F.R. § 91.703(a)(3)).

NCC (Non-Commercial Operations with Complex Motor-Powered Aircraft)

The first issue is called NCC which is short for “Non-Commercial Operations with Complex Motor-Powered Aircraft”. The final opt-out period ended on 24 August 2016 for this European Aviation Safety Agency (EASA) regulation. The description, regulations and diagrams can be found here. Operators had until 26 August 2016 to declare themselves compliant.

The regulation applies to European registered aircraft; however, the focus is on the “operator” and aircraft registered outside the EU that are based in the EU and operated from the EU are also subject to this regulation.

The regulation was adopted to add safety requirements for non-commercial aircraft operations and to try to eliminate “grey charter”. Grey charter involves an aircraft operated under the non-commercial/private regulations but which receive compensation or consideration for flights.

One example of how NCC might impact an operator is the effect on company accounting practices such as charge-backs to subsidiaries. Charge-backs are a common accounting action to appropriately allocate costs within a company or group of companies. In the EU, the aviation definition of a group that is acceptable for chargebacks may only include affiliates where the equity share is greater than 51%. If the accounting department uses a broader definition of group for aircraft charge-backs, the company may have additional risk of both regulatory non-compliance and of denial of coverage by its insurance in the case of an accident.

It is common for there to be confusion regarding who is the operator of the aircraft if the company utilizes a third party management company to provide management, pilots and maintenance for the aircraft. Even with a management company, the operator (which is usually not the management company) is responsible for regulatory compliance and for the proper operation of the aircraft both under NCC and the United States federal aviation regulations. It is best practice to have an annual review of the aircraft ownership and operations as well as the insurance coverages to confirm whether any change in regulations, corporate structure, aircraft operations or accounting procedures has inadvertently caused regulatory non-compliance or created a need to update the insurance coverages.

Operational Restrictions under Temporary Importation in EU

The second compliance risk issue can arise from what seems like a standard business flight carrying EU-resident company personnel from one facility to another within the EU on a company aircraft which is registered outside the EU. If the aircraft entered the EU under temporary admission, the limitations and conditions must be satisfied in order to properly utilize temporary admission. The conditions should be carefully reviewed in connection with accurate information on the ownership and operation of the aircraft to confirm that the temporary admission conditions are satisfied.

New EU regulations were proposed in 2016 to address this risk and to help with conditional relief from customs duties and value added tax (VAT) for company aircraft registered outside the EU. The proposed regulation can be found here.

As of 2016, temporary admission has been expanded and with the implementation in Denmark it can now help those who want to avoid uncertainty and maintain regulatory compliance for internal flights in the EU with EU resident personnel on-board. The Isle of Man also has a temporary admission system which may be utilized by some aircraft operators. The entity which provides the pilots may be the party which applies for and obtains the temporary admission. If the company uses a third-party Management Company to provide pilots for the aircraft, that management company should be involved in the temporary admission planning. The management company may also request indemnification for any customs duties and taxes which become due if the temporary admission conditions are violated.

If the company changes to a different third-party management company, the aircraft will generally need to go through another temporary admission procedure with the new management company. Operators should ask how frequently the selected temporary admission procedure must be renewed and obtain a clear understanding of what operations are allowed as well as any restrictions on operations. Violations can become costly if they cause VAT to be imposed or cause the aircraft to be seized by EU governmental authorities which believe the aircraft is not operating pursuant to the temporary admission conditions.

BREXIT

A third issue impacting business aviation was the “Brexit” vote in June, 2016 for Britain to exit from the EU. Brexit will likely have an impact on business aviation, but what impact it will have is still uncertain.

 

Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (mwade@jetstreamlaw.com)

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