Flying solo: Corporate jet ownership snags

If you own a corporate jet in Hong Kong or China be mindful of these operational issues.
The Asian corporate jet market continues to expand. In August, Metrojet took delivery of a Gulfstream G550 in Hong Kong, while Execujet opened new facilities in Singapore and launched in Beijing. In the US, despite a decline in charter demand in 2008, CessnaÆs second quarter business jet sales were up by 21% with an increase in deliveries expected next year and the development of very light jets continuing apace.

Contrary to the US, China (and indeed Asia) is still an emerging market for private corporate jets. China only has 100 airports (compared with 10,000 in the US) with high import duties on aircraft, a shortage of facilities û albeit improved due to the number of corporate jet arrivals for the Olympics û and a difficult regulatory environment. And in Hong Kong (where many of the corporate jets operating into China are based) the regulatory picture is modelled on the UK but is less flexible.

Why is this relevant? Take a common situation in Europe û a private jet owned by a private company whose founder is a wealthy family or individual with an employed pilot. This clearly looks like a private operation. But what if the owner wants to generate income from the asset when he is not using it? What if a guest is taken on board? What if ôsomethingö has been given or promised in connection with the flight? In Hong Kong a flight is regarded as ôpublic transportö if any ôhire or reward [in the UK the phrase is 'valuable consideration'] is given or promised for the carriage of passengers or cargoö. Result: the operator has to obtain an Air OperatorÆs Certificate (AOC) and operate to public transport standards, which can mean having to add an operations manager, a chief pilot, an administrative person, a training captain, an operations manual and so on.

In Hong Kong, the early corporate jet operators who applied for an AOC were expected to go through the same procedures as an airline operating scheduled flights. US regulations are more flexible: FAR Part 91 (private flights) is used for fractional ownership; Part 135 is used for on-demand air charter and air taxis; and Part 121 for scheduled services. US law also allows, in certain cases, a dry lease of an aircraft for a private flight where payment is for the aircraft, not for the carriage of passengers, and the pilot is hired separately.

In Hong Kong (and the UK) the distinction between public transport and private flights is less flexible û and fractional ownership structures and dry leases create difficulties under the Air Navigation Order depending on who the operator is and what payments are made. The UK Civil Aviation Authority is not addressing the confusion and maintains that if any payment is made by a fractional owner who steps on the plane, it is public transport; in Hong Kong the Civil Aviation Department would likely be similarly inflexible û so the US model of fractional ownership (and dry leasing) has not arrived in Hong Kong. Most corporate jet operators operate under AOCs and co-ownership schemes in Hong Kong are largely managed schemes operated by the corporate jet operators with AOCs.

In March 2006 the Civil Aviation Administration of China (CAAC) announced that China was making general aviation a priority. The challenge for the future will be how the regulators and operators will adapt and develop laws to cope with new structures û and whether the civil aviation departments in the region will promote general aviation, and in particular corporate aviation.

Guy Facey is a partner at Withers law firm.
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