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AIRCRAFT USAGE REIMBURSEMENTS:

UNDERSTANDING THE FAA REGULATORY REQUIREMENTS

David M. Hernandez, Esq.[1]

As an increasing number of corporations embrace the use of aircraft as effective tools to increase productivity, efficiency, and security, they must determine how to allocate the various expenses associated with the aircraft use.  While Federal Aviation Regulation (FAR) Section 91.501(b)(5)[2] (hereinafter “Section 501(b)(5)”) is the starting point for making such a determination, Section 501(b)(5) is far from straightforward.  Rather, a whole host of issues arise when Section 501(b)(5) is read in context of the complexities of modern corporate aircraft usage because specific corporate entities may only seek reimbursement for specific expenses under certain circumstances.

To further complicate matters, a company’s failure to comply with Section 501(b)(5) could result in the Federal Aviation Administration’s (FAA’s) issuance of a Notice of Proposed Civil Penalty seeking a penalty of $11,000 per flight.[3]  Fortunately, with sufficient front-end planning, a well-informed company can avoid regulatory problems and maximize its productivity, efficiency, and security.  This article is intended to provide companies with a basic understanding of Section 501(b)(5) to enable them to conduct sufficient front-end planning to ensure regulatory compliance.

As with any regulatory interpretation, the appropriate starting place is the regulation itself.  Section 501(b)(5) provides that a company may conduct non-common carriage[4] operations under Subpart F to Part 91, which include:

Carriage of officials, employees, guests, and property of a company on an airplane operated by that company, or the parent or a subsidiary of the company or a subsidiary of the parent, when the carriage is within the scope of, and incidental to, the business of the company (other than transportation by air) and no charge, assessment or fee is made for the carriage in excess of the cost of owning, operating, and maintaining the airplane, except that no charge of any kind may be made for the carriage of a guest of a company, when the carriage is not within the scope of, and incidental to, the business of that company.[5]

As an initial matter, Section 501(b)(5) must be read in the context of two very important rules of statutory construction.  First, Section 91.501 in its entirety is to be strictly construed.  In other words, any doubt regarding whether a corporation may seek reimbursement for intra-company aircraft use should be resolved in favor of the corporation either refraining from seeking reimbursement or obtaining the appropriate operating certificate and conducting operations as a “commercial operator.”[6]  Second, Section 501(b)(5) should be read in the context of the plain meaning rule, which provides that when language or terms are clear, they must be interpreted as what language or terms plainly express.[7]  For example, the word “company” in Section 501(b)(5) means a company as opposed to a natural person.[8]  Likewise, the terms “parent” and “subsidiary” mean exclusively a parent or a subsidiary company, and not a parent’s parent company or a subsidiary’s subsidiary company.[9]

Finally, with respect to tax issues, corporations must also be aware that the FAA’s interpretation of Section 501 is not dependent upon or affected by Internal Revenue Service (IRS) regulations.[10]  The FAA is not concerned with the tax consequences associated with intra-company aircraft use.  However, this dual regulatory exposure poses potential problems to companies that mistakenly believe that the FAA’s position is consistent with the IRS’s position.  This is a particular concern since reimbursements may be subject to a Federal Excise Tax (FET).  As a practical matter, the FAA’s primary concern is safety, not tax issues, and when in doubt whether reimbursement may be sought, the FAA will always advise companies to err on the side of caution and either refrain from seeking reimbursement or obtain the appropriate operating certificate.

Such a position, however, fails to address the realities of corporate aircraft usage, including the impact that such advice has in terms of the increased costs and reduced operating capabilities associated with operating under Parts 125 or 135, as opposed to Part 91.  More importantly, absolutely no reason exists for a company to obtain a Part 125 or 135 operating certificate when a company’s flight operations fall exclusively within the ambit of Section 501(b)(5).

I.          WITHIN THE SCOPE OF, AND INCIDENTAL TO

Before a company may seek reimbursement for the expenses associated with a given flight, the company must ascertain whether the carriage is within the scope of, and incidental to, business of that company or its parent or subsidiary, or its parent’s subsidiary.[11]  Specifically, Section 501(b)(5) provides that a company may only charge for the carriage of a company’s officials, employees, guests, or property on a company aircraft when carriage is within the scope of, and incidental to, the business of the aircraft owner/operator, its parent or its subsidiary, or its parent’s subsidiary.[12]  If the carriage is not within the scope of, and incidental to, the business of that company, a company may still perform the carriage under Subpart F to Part 91, but may not seek reimbursement for expenses.  However, simply refraining from seeking reimbursements must be distinguished from a situation where a parent company provides funding to the subsidiary.  The FAA would likely view a parent company’s infusion of funds as an indirect and unauthorized form of reimbursement.

A.        Flight Department Companies

In an effort to limit liability, many companies often make the mistake of creating a separate flight department subsidiary whose sole business function is the ownership and operation of aircraft.  Typically, the subsidiary owns the aircraft, employs pilots, leases the aircraft with crew (a wet lease) to other members of the corporate family, and then seeks reimbursement.   A separate flight department company is problematic because the subsidiary’s carriage of people or cargo, albeit for intra-company use, is within the scope of the business of the company; it is not incidental to business of the company.  According to the FAA, it is the subsidiary’s “major enterprise” or “primary business,” i.e., transportation by air, for which it receives compensation.[13]  Such an operation falls squarely within the definition of a commercial operator.

The prohibition against flight department companies also extends to individuals who own aircraft solely for personal use and then set up a flight department company.  A good example would be an officer of a company who owns an aircraft for his personal use who is then solicited by his company to use the aircraft for company business and is then reimbursed.  The officer would have to create a company such as a limited liability company because individuals are prohibited from receiving reimbursement and in doing so the officer would have created a flight department company in violation of Section 501(b)(5).[14]

The FAA would clearly view such an entity as operating for compensation or hire for which an appropriate operating certificate would be required.[15]  A solution would be to create a flight department division within a parent or subsidiary and avoid creating a separate subsidiary.  As a practical matter, any potential reduced liability sought by creating a flight department subsidiary must be weighed against the risk of whether an insurance company would honor a policy in the event of an accident since the policyholder is operating in violation of the FARs .

B.        Case-by-Case Basis

The determination of whether a company’s carriage of persons or cargo is within the scope of, and incidental to, the company’s business must be made on a case-by-case basis after the facts have been evaluated in the context of the company’s business.[16]  Clearly, under Section 501(b)(5), not all of a company’s carriage is within the scope of, and incidental to, a company’s business.  While the FAA has provided little guidance on the subject, some guidance can be gleaned from a few FAA Chief Counsel Interpretations, preambles to the Notice of Proposed Rulemaking (NPRM) and the Final Rule (FR) as well as subsequent amendments.

1.         Vacation, Pleasure, or Similar Carriage

According to the FAA, vacation, pleasure, or similar carriage is not within the scope of, and incidental to, the business of a company.  Specifically, in a Chief Counsel Interpretation, the FAA concluded that a company was prohibited from charging its officer for his carriage on vacation, pleasure, or similar purposes.[17]   The company claimed that the use of aircraft allowed it to maintain prompt communications with its vacationing officer and, therefore, the carriage was within the scope of the company’s business, which was financial planning and investing.[18]   In rejecting the company’s position, the FAA stressed that while the company may very well want to maintain prompt communications with its officer, it does not alter the fact that the officer is traveling for pleasure, which is not within the scope of, and incidental to, the company’s business.[19]  The FAA also added that ability to communicate with its officer was in no way dependent upon charging him for carriage of such purposes.[20] 

Obviously, in view of the FAA’s position on the issue of vacation, pleasure, or similar travel, a company ought not to seek reimbursement for such travel.  Nevertheless, with sufficient front-end planning it might be possible to incorporate some business at the vacation destination such as a client meeting, which in turn may make the carriage, at least in part, business.  However, such a determination should be made only after consulting a knowledgeable aviation attorney.

2.         Specialized Private Carriage and Profit Motive                             

The FAA issued an extremely narrow interpretation of “within the scope of, and incidental to” when it addressed whether the carriage of a for-profit youth counseling Agency’s staff and its youth clients was within the scope of, and incidental to, the Agency’s principal business purpose.[21]  The Agency was in the business of counseling “at risk youth.”  The Agency proposed to charge the City of Oakland, California, a flat fee per trip to transport the youths from Oakland to the Agency’s headquarters located in Tucson , Arizona .[22]  The FAA did not address whether the flat fee was associated with the cost of owning, operating, or maintaining the aircraft.

In sum, the FAA concluded that the Agency’s carriage of the  youths would not be incidental to its business, but rather a “specialized form of private carriage” for compensation or hire requiring an operating certificate and that the carriage of its staff would be incidental to its business.[23]  What is interesting about the FAA’s handling of this example is that it highlights the FAA’s willingness to completely ignore the express language of “within the scope of, and incidental to” and create a new form of carriage, i.e., “specialized private carriage.”  Clearly, the Agency’s carriage of youths would have been within the scope of, and incidental to, its primary business purpose, which was youth counseling.  Such an interpretation arguably extends beyond a strict interpretation of Section 501(b)(5).

One reason for the FAA’s position may stem from the fact that the Agency was a for-profit entity and that the reimbursement originated from outside the corporate family.  While Section 501(b)(5) does not prohibit such reimbursements, it appears that the FAA was troubled by that fact and that the flat fee was not associated with the costs of owning, operating, and maintaining the aircraft.  In the preamble to the FR, which expanded the use of a company aircraft to a company’s parent or subsidiary or a parent company’s subsidiary, the FAA stated that it “does not believe that there would be a profit motive in connection with dealings within a corporate family . . ..”[24]

Conversely, does the FAA believe that a profit motive exists simply because the reimbursement originates outside the corporate family?  It would appear so.  In the above example, it is quite possible that the FAA’s decision would have been different if the reimbursement originated from within the corporate family or if the flat fee was tied directly to the costs of owning, operating, and maintaining the aircraft.  Still, companies must be aware of the perceptions involved with similar reimbursements, particularly if the reimbursements originate outside the corporate family and involve the carriage of guests.

3.         Transportation of Goods

A company aircraft used for the carriage of the company’s goods to and from its plants during the processing stage is a typical example of what would be covered within the scope of, and incidental to, the business of the company.[25]  Such use is distinguishable from a situation where a company’s primary purpose or major enterprise is the provision of air transportation.[26]  Specifically, the FAA stressed that:

Some operators, however, have attempted to use [the major enterprise or primary business test] as a means of circumventing the application of commercial operator rules of Part 121 to their operations.  This is particularly true in the case of the so-called meat or lobster haulers who allege that their primary business is the processing and sale of meat and lobsters, when in actuality it is the carriage of such products by airplane, for their own account, to a place where it is sold for a substantial profit.[27]

Companies must be careful to avoid the perception that the carriage is above and beyond carriage of goods during the processing stage.   For example, assume a company transports unfinished goods to one location and on the return trip transports finished goods back to the company for sale.  The FAA would likely find, at least with respect to the return trip, that such an operation is carriage for which an appropriate operating certificate would be required. 

4.         Carriage of Guests

The carriage of distributors of a company’s products, or guests for the purposes of Section 501(b)(5), to a company facility for training sessions, as long as no sales were conducted or arranged,[28] would be covered by the meaning of “within the scope of, and incidental to, the business of the company.”[29]   With respect to guests, Section 501(b)(5) is quite clear that “no charge of any kind may be made for the carriage of a guest of a company, when the carriage is not within the scope of, and incidental to, the business of that company.”[30]  Section 501(b)(5) also does not differentiate between company guests and employee guests.  Any person on the aircraft, who is not an official or an employee of the company, is a guest and only if that person’s presence on the aircraft is within the scope of, and incidental to, the business of that company, may the company seek reimbursement.

5.         Overview

Given the complexities of Section 501(b)(5), a company could establish that certain carriage is within the scope of, and incidental to, the business of the company by a Board of Directors’ resolution that fully explains why the carriage at issue was within the scope of, and incidental to, the business of that company.[31]  Given the complexities involved with most business carriage, including the differences in the nature of each company’s operations, it is virtually impossible to create a test to determine whether a given carriage is within the scope of, and incidental to, the business of that company.  Suffice it to say, the best starting point is to establish a thorough understanding of intricacies of Section 501(b)(5) and what impact they may have upon a company’s flight operations.   Otherwise, there are significant negative consequences, such as FAA civil penalties and FET payments.

II.     PARENT-SUBSIDIARY RELATIONSHIP

Section 501(b)(5) only applies to the company operating the aircraft, its parent or subsidiary, or a subsidiary of the parent.[32]  The parent-subsidiary relationship is strictly construed, in that there must be objective evidence of a true parent-subsidiary relationship.[33]   Further, the entity receiving the reimbursement, i.e., the company, parent, or subsidiary, must be a company as opposed to an individual.[34]  This stance in all likelihood stems from the FAA’s narrow interpretation of the term “company” in Section 501(b)(5). 

Regarding the issue of organizational relationship, Section 501(b)(5) does not permit reimbursements from non-related “sister corporations,” even if the “sister corporations” share a degree of ownership and management, which may be functionally as great as a parent-subsidiary.[35]  Stock ownership is also not the standard by which a parent-subsidiary relationship is determined.  For example, the FAA concluded in a Chief Counsel Interpretation that a company that owned 25 percent of another company was not the parent company of the second company.[36]  The FAA reasoned that 25 percent stock ownership was insufficient to establish the existence of a parent-subsidiary relationship; rather, “there must be objective evidence, which establishes that a parent-subsidiary plan exists” beyond stock ownership.[37] 

Moreover, given the complexities of various corporate structures, there must be a clearly identified organizational relationship between the company and its parent or subsidiary, or between the parent and subsidiary, with evidence that the parent exerts a degree of control over its subsidiary.[38]  Theoretically, a vertical organization structure would be preferable to a horizontal organization structure, unless a company takes advantage of the “or a subsidiary of the parent” clause.  To illustrate, assume that a subsidiary such as Subsidiary A in Figure 1 owns and operates an aircraft and its parent company has several other subsidiaries.  Subsidiary A would be able to seek reimbursement from every entity with the exception of the Parent’s Parent Company and Subsidiary D1.

     Figure 1.

Unfortunately, the FAA failed to expand on the meaning of “a parent-subsidiary plan,” nor is there any indication how the FAA would have responded in a situation where a company owned 50% of another company’s voting stock.  Despite the FAA’s unwillingness to recognize the significance of stock ownership, according to Black’s Law Dictionary, a parent company is a “Company owning more than 50% of the voting shares or otherwise a controlling interest, of another company, call the subsidiary.”[39]  In short, it would be pretty difficult for the FAA to defend such a position should a company with greater than 50% ownership in another company seek to operate as its parent company under Section 501(b)(5).

However, on one occasion the FAA took the position that a company could not seek reimbursement from subsidiaries that formed a group of family-owned companies engaged in a common business.[40]  The facts involved twelve family-owned companies that engaged in retail and wholesale lumber operations.  The companies maintained their headquarters at the same location and all used use the company aircraft.[41]  After reviewing a listing of the owners, officers, general partners, limited partners, and directors for the twelve affiliated companies, the FAA concluded that there was no corporate parent or subsidiary relationship in existence among the twelve companies.  The FAA disregarded the fact that principals of the parent company served in various official capacities in the other companies.[42]  The FAA stated: “each company appears to be autonomous, being controlled by different combinations of directors, owners, and parties” and, therefore, could not operate under Section 501(b)(5).[43]  The FAA stressed that Section 501(b)(5) “was devised specifically for companies that have a corporate parent-subsidiary relationship, whose aircraft are used for the carriage within the scope of, and incidental to, the business of the company.”[44]

Although the FAA has not addressed whether the parent and subsidiary must be in the same line of business, the above example suggests that being in the same line of business is not a relevant factor in determining the existence of a parent-subsidiary relationship.  Accordingly, it is unlikely that the FAA would ever place such a restrictive requirement on Section 501(b)(5).  Significantly, such a restriction would severely hamper the ability of corporations to conduct flight operations under Section 501(b)(5), would not be supported by the regulation or the regulatory history, and would probably be deemed arbitrary and capricious if even challenged. 

In sum, the parent-subsidiary relationship is strictly construed and there must be sufficient evidence to establish organizational control.  A company that merely owns stock, or has a controlling interest in a company, would probably not be characterized as a parent company, absent sufficient evidence of organizational control over a subsidiary.  Likewise, an entity that merely makes a profit for another company would not be a subsidiary absent sufficient evidence of organizational control.  Again, given the complexities of any given company’s situation, when in doubt, a company should present its unique situation to a knowledgeable aviation attorney, who should be able to advise the company of the best course of action to pursue.

III.       REIMBURSABLE EXPENSES

A company may seek reimbursement for expenses that are directly related to cost of owning, operating, and maintaining the aircraft.[45]  Because the expenses vary with each company and aircraft, the FAA has chosen not to create a comprehensive list of expenses.[46]   Rather, the FAA has stated that the expenses may be ones commonly identified by a company’s accounting department as expenses associated with the use of the aircraft.[47]   At a minimum, the cost of owning, operating, and maintaining an aircraft should include a pro rata portion of all fixed and variable overhead costs.[48]   Common examples of fixed operating costs include: crew salaries, hangar, insurance, recurrent training, aircraft modernization, refurbishment, and a computer maintenance program.  Common examples of direct costs include fuel, fuel additives, lubricants, maintenance labor, parts (airframe/engine/avionics), engine restoration, thrust reverser overhaul (if applicable), APU overhaul (if applicable), and landing and parking expenses.

In addition to the foregoing expenses, an argument could be made for the inclusion of a wide variety of expenses associated with owning, operating, and maintaining an aircraft, such as capital costs (e.g., interest expenses) and market depreciations.  However, such a position would be aggressive since the FAA has yet to address the issue and the consequences could be a hefty civil penalty and a finding of violation.

IV.       ENFORCEMENT RISKS

As noted above, should the FAA cite a company for violating Section 501(b)(5), the company may be subject to a proposed civil penalty in the amount of $11,000 per flight.  Prior to the issuance of any proposed civil penalty, the FAA will assess the company’s compliance attitude, its size, the nature of the violation, and the associated enforcement guidance.[49]   In the case of Section 501(b)(5), the only guidance available is the regulation, regulatory history, and Chief Counsel Interpretations.  While Chief Counsel Interpretations are not enforceable documents, they are a means by which the FAA disseminates information concerning its enforcement and regulatory policies.  Nevertheless, it is general principle of administrative law that a reviewing judge will defer to the FAA’s interpretation of its own regulations unless its interpretation is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.  In the case of Section 501(b)(5), as currently interpreted by the FAA, it does not appear to be vulnerable to such a challenge.  Further, if the legitimacy of Section 501(b)(5) were ever challenged, the FAA would probably not pass up the opportunity to create new law in this area at the expense of a company that the FAA believes is operating in violation of Section 501(b)(5). 

V.        CONCLUSION

While Section 501(b)(5) allows corporations to use aircraft to increase productivity, efficiency, and security for their officials and employees, it is important that corporations possess a thorough understanding of Section 501(b)(5) to ensure regulatory compliance.  Specifically, understanding the meaning of within the scope of, and incidental to is crucial to conducting intra-corporate operations under Section 501(b)(5).   As long as corporations ensure that any carriage is within the scope of, and incidental to, the business of the corporation before any reimbursement is sought, and that the reimbursements are limited between parent and subsidiary, the company should be in compliance with the regulations.  Finally, when in doubt, the corporation should read Section 501(b)(5) very carefully, consult an aviation attorney, and with the aid of the aviation attorney, determine whether reimbursement may be sought.

For more information, please contact David M. Hernandez at (202) 775-9824 or via e-mail at dhernandez@pillsburywinthrop.com.

David M. Hernandez

Associate, Washington Office
Pillsbury Winthrop
(202) 775-9824
dhernandez@pillsburywinthrop.com

PRACTICE DESCRIPTION

Aviation

Represents airports, aerospace companies, domestic and foreign air carriers, governments and aircraft lenders and lessors in a variety of regulatory, certification, litigation, antitrust, environmental, enforcement, privatization, and finance matters. 

Recent assignments include: preparing pleadings and other documentation in matters before the U.S. Department of Transportation, National Transportation Safety Board, and the Federal Aviation Administration on behalf of airports, air carriers and other aviation clients; advising companies regarding compliance with the Federal Aviation Regulations involving issues such as maintenance, hazardous materials shipments, drug and alcohol testing, security, and certificate matters; representing aerospace companies regarding parts manufacturer approvals and FAA certification matters; and advising air carriers and aerospace companies during the course of FAA/NTSB investigations and enforcement proceedings.

Education

J.D., Northwestern University, 1996 (National Trial Team).

M.B.A., Monmouth University , 1991.

B.S., International Relations, U.S. Air Force Academy , 1988.

Professional Experience

Enforcement Division, Office of the Chief Counsel, Federal Aviation Administration, 1998-2000; Office of Counsel to the President, Executive Office of the President (Detail), 1997; Honors Program, Office of General Counsel, U.S. Department of Transportation, 1996-1998; and United States Air Force, 1988-1993.

Frequent speaker and author on an assortment of FAA regulatory and enforcement issues; “Aircraft Usage Reimbursements: Understanding the FAA Regulatory Requirements,” (National Business Aviation Association Annual Conference/Web Site, October 2000); Member of the American Bar Association Forum on Air & Space Law and the Hispanic National Bar Association.

Aviation and Aerospace

Pillsbury Winthrop’s aviation and aerospace practice is unique.  We regularly represent all segments of the aviation industry, which gives our global aviation practice both depth in practical experience and breadth of industry perspective.  Lawyers in London , Los Angeles , Hong Kong , New York , San Francisco , Sydney , Tokyo , and Washington , linked by advanced communications technology, offer comprehensive services to the international aviation industry.

Regulatory Matters

Most of our regulatory practice is centered in Washington , D.C. , including representation of aerospace companies, airports and governments, U.S. air carriers on specific matters, cargo carriers, foreign air carriers, charter operators, travel companies, and computer reservations systems.  Much of this work is done before the U.S. Department of Transportation, the Department of Justice, the Federal Aviation Administration, the Congress, and the National Transportation Safety Board.  The practice involves administrative adjudication, rulemakings, legislation, air service negotiations, antitrust, enforcement, environmental, export licensing, immigration, customs and tax matters.  This practice also includes airline safety, regulatory and aircraft certification matters, accident investigations, and employment matters.

Aerospace Manufacturers

We have represented several European aircraft and engine manufacturers in connection with the sale of their equipment and with various manufacturer-assisted financing structures, some of which we helped to create.  In addition, we have acted on behalf of numerous U.S. aerospace manufacturers in connection with applications for equipment certification before U.S. regulatory agencies, and in FAA enforcement or regulatory matters.  Recent assignments include representing repair stations with respect to litigation, FAA enforcement, and accident liability; representing aircraft engine manufacturers in certification–related matters; litigating against the FAA in enforcement actions for a manufacturer; representing major corporations in hazardous materials issues; representing a coalition of aerospace companies before the FAA-related activities; and representing an aircraft manufacturer regarding FAA certification and export licensing requirements.

Airport Representation

We represent cities and airport authorities on issues such as privatization, international air service, slots, revenue retention, rates and charges, collateral land use, environmental law, congestion, finance, competition, and litigation matters.  Our airport clients include the busiest U.S. airports on both coasts and in the Midwest .  In addition, we have represented secondary and general aviation reliever airports on noise abatement and other matters.  We have participated in virtually every bilateral air service negotiation over the past decade between the U.S. and its major aviation partners, including Canada , China , France , Germany , Hong Kong , India , Japan , and the United Kingdom .

Examples of our airport representation include serving as legal advisor on the potential privatization of two major airports in the largest city in the U.S. , as well as in airport arbitration and litigation matters.  For one of the world’s busiest airports, the firm has long represented the airport’s interest in international air service negotiations, frequency allocation proceedings, capacity and demand management, slot exemption applications, legislation, competition and both domestic and international air service matters.  Recent projects include testifying before the House Judiciary Committee regarding the state of airline competition and the successful passage in AIR-21 of a bill phasing out of the High Density Rule.  Also, we recently participated successfully for a major West Coast airport in the U.S. frequency allocation proceedings for U.S.-China routes.  We also represented two cities regarding noise and access restrictions.  We have also represented fixed-base operators regarding Part 16 and grant assurance compliance.

Aircraft Finance

Much of our aviation work involves the financing of new and used aircraft, engines and parts, including pre-delivery financings.  We represent a wide range of international banks, leasing companies, trading companies and aircraft financing specialists in international and U.S. loads, leases, leveraged leases, receivables financings, capital markets securitization and progress payment facilities.  These transactions have involved airlines all over the world, including major carriers from North America , Europe , Asia , Africa , and South America .  Pillsbury Winthrop lawyers have represented financial institutions from all over the world in aircraft finance matters.

An essential element of our aircraft finance practice for non-U.S. carriers is our familiarity with the policies and procedures of Export-Import Bank of the United States .  In recent years, we have successfully negotiated and documented Eximbank financings for equipment valued at over $2 billion.  We are also experienced with other government-supported programs, such as those of the Japan Eximbank, ECGD, COFACE and HERMES.

Our extensive experience with cross-border and tax-advantaged transactions includes U.S. leveraged leases, Japanese leveraged leases, U.S. FSC transactions and Pickle-Dole lease structures.

Equipment Purchases

We routinely assist our airline clients in Asia, Europe, Latin America, and the United States in aircraft, engine and other equipment purchases involving Boeing, McDonnell Douglas, Airbus, Rolls Royce, General Electric, Pratt & Whitney and other aircraft, engine and parts manufacturers.  We assisted Eastern European and Asian airlines in their first purchases of U.S. , manufactured aircraft, including negotiating the Boeing and McDonnell Douglas purchase contracts and the related spare engines and engine parts agreements.  Major carriers in South America and the Middle East have retained us for their equipment purchases for the past 45 years.

We have extensive knowledge of the used aircraft market and work with many of the active aircraft brokers and traders on re-deployment of used aircraft.  For example, we served as aviation counsel in connection with the remarketing of the bulk of the Eastern Airlines fleet, which involved over 65 aircraft.  We have experience in the repossession of aircraft in Turkey and the United Kingdom and in obtaining the release of detained aircraft.

Capital Markets Experience

Lawyers in the global network of Pillsbury Winthrop offices have the expertise to advise on any domestic or international securities offering.  Each year we represent non-U.S. and U.S. clients in many public offerings and private placements.  We are experienced in U.S. public offerings, Rules 144A transactions, the issuance of American Depositary Receipts and conventional Section 4(2) placements for foreign insurers, and in combining such transactions with Regulation S offerings in the Euromarket and other international markets.  We have represented aviation clients in privatizations involving the issuance of securities on three continents.

General Commercial Matters

Pillsbury Winthrop acts a general legal adviser to U.S. airlines and to both head offices and U.S. branch offices of international airlines.  Many of our international clients do not have internal counsel in the United States and for these airlines, we frequently fill the role of U.S. general counsel.  In this capacity, we advise and assist managerial personnel and other counsel with a wide range of commercial issues and agreements, including office and airport leases, architect and construction contracts, ground and ramp handling agreements, catering contracts, contracts for telephone equipment, computer software and hardware, and other office and airport equipment and furnishings, CRS agreements, fuel agreements, advertising contracts, agreements relating to promotional programs and marketing agreements.  We also handle passengers and cargo claims, litigation and bankruptcy matters, employee relations issues and tax, customs and immigration matters.  Services of this nature are usually performed on a flat fee retainer basis or other agreed billing arrangements.

Aviation Insurance

We are familiar with all aspects of aircraft hull, liability, war risk, and political risk insurance.  No other firm has greater experience in aircraft repossession/deregistration insurance, which has served as a commercial substitute for export credit agency guarantees.  We have negotiated and documented a large number of such policies involving many airlines, including the two largest facilities of this type completed to date for two major African airlines.

Aviation Privatization

Pillsbury Winthrop’s aviation privatization team includes a unique combination of all of the disciplines necessary to successfully structure, finance, negotiate, and document an aviation privatization project.  We believe that no other firm can match out unique blend of project finance, public finance, capital markets, and aviation/airport expertise, which is critical to the successful privatization of an airport, airline, or other aviation-related entity.  Pillsbury Winthrop is the only law firm that combines the sophisticated expertise in project and public finance and capital markets traditionally found at top-tier Wall Street law firms with a proven track record in complex real estate transactions and environmental issues, and a leading international aviation practice.

Airline Representation

Pillsbury Winthrop assists domestic and foreign airlines with contract negotiations and commercial agreements and in disputes between airlines and tour operators, cruise lines, hotels and casinos.  We advise start-up airlines with DOT and FAA regulatory issues, fitness review issues and operating authorizations and defend airlines in DOT and FAA enforcement proceedings.

Corporate Aviation Practice

Pillsbury Winthrop assists clients with all aspects of their corporate aircraft planning.  We possess a thorough understanding of corporate flight departments, charter operators, aircraft management companies, fractional ownership programs, manufacturers, and airports.  We offer a wide variety of services, which include developing ownership and operating structures for flight departments, management companies, charter operators, fractional ownership programs, and individual owners.  We also advise clients on various business and legal issues allowing clients to maximize the benefits of their aircraft.  We conduct all aspects of aircraft purchase and sale negotiations and document preparation to protect clients’ interests and to ensure compliance with FAA, DOT, and other regulations.

Media & Advertising Law

We advise travel industry clients (airlines, cruise lines, hotels, casinos, major travel agencies, on-line travel companies and tour operators) with respect to the special U.S. Department of Transportation (DOT) and state travel advertising regulations; review print, broadcast and on-line media advertising, promotional e-mails, sales and ticketing materials, and other forms of regulated advertising for compliance with DOT “unfair or deceptive practices” rules and enforcement policies; conduct seminars for legal and marketing departments on advertising regulatory compliance; and assist clients in connection with defending DOT compliance investigations and enforcement actions/civil penalty proceedings.

Leisure Travel – Cruise Lines, Hotels and Resorts, and Charter Operations

Pillsbury Winthrop assists cruise lines on regulatory and commercial matters including advising on DOT regulatory and enforcement matters; negotiating contracts and commercial agreements with charter and scheduled airlines; reviewing advertising materials and web-sites for compliance with DOT and state advertising rules; defending against enforcement proceedings; advising with respect to DOT and Federal Maritime Commission bond issues and cruise line/maritime legislation in Congress as well as federal rulemakings.

We also advise hotels and resorts with respect to DOT advertising rules; represent hotels in negotiations and commercial agreements with airlines and air/hotel package arrangements; defend clients in DOT enforcement actions for advertising violations.  We advise tour and charter operators on issues involving Part 380 of the DOT charter regulations and other charter regulatory issues; draft and negotiate contracts with airlines; assist with DOT bonding/escrowing and special DOT consumer protection rules for charter flights; review advertising for compliance with DOT and state advertising laws and regulations; and defend clients in enforcement proceedings involving advertising and charter rule violations.

We also have considerable experience with respect to DOT casino junket regulations, single entity rules and special advertising requirements.  We advise casinos and casino charter operators on regulatory and commercial issues, especially matters relating to casino deals and negotiations with airlines.

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