Early this year, the Brazilian National Civil Aviation Agency (ANAC) finally issued the new Directive nr. 606/2021, which specifically regulate the operation of private aircrafts based on a fractional ownership program, mostly under the newly created Subpart K in the RBAC/Part 91.
The creation of the new regulation is the result of an in-depth discussion between ANAC and the Industry stakeholders over the years – mainly under two separate Public Hearings carried out by the Agency in 2015 and 2019 – and was intended to follow guidelines adopted abroad, especially by the Federal Aviation Administration, the civil aviation authority of the United States of America.
Despite the fact that companies in Brazil had already implemented contractual structures intended to allow the operation of aircraft in similar models, based on interpretations of the existing regulations, this new ruling has now implemented very specific conditions for the structuring of such operations.
In this line, the operation under Subpart K will be mandatory for the implementation of a sharing program involving two or more aircrafts, with a maximum of 16 shareholders per airplane and 32 per helicopter. Though the regulation has set many details and requirements that will need to be observed by the involved parties, we would say that the following aspects should be particularly taken into consideration:
(a) Structure of the Fractional Ownership Program
According to the Subpart K, the program is comprised of (i) a single manager and (ii) two or more airworthy aircrafts, with at least one aircraft having two or more shareholders.
To further clarify some of the concepts that are relevant for better understanding the regulation, the manager of the program is the party generally responsible for complying with all requirements set by the agency for the operation under the subpart K. In this line, the manager is responsible for seeking the mandatory registrations and approvals with ANAC, as well as to make sure that all specific requirements in connection with the operation under the Subpart K are properly observed, such as keeping an updated list of all shareholders, information on the aircraft operation, completion of the safety procedures, among others.
The shareholder of the program, on its turn, is defined as the individual or legal entity who owns an aircraft share, directly or indirectly, as long as they have entered into a specific contract to regulate the operation under the Subpart K. The regulation allows the participation of shareholders in a fractional ownership program indirectly, i.e., represented by partnerships or associations of shareholders, as long as the end-user of the program is properly identified.
The manager and the shareholders must formalize a program management agreement – covering the details associated with the operation of the aircraft in favor of the shareholders and the mechanisms for sharing expenses and costs associated with the operation of the aircraft, among other conditions – for a minimum term of one year.
The effective implementation of the fractional ownership program is subjected to the issuance by ANAC of administrative specifications for the operation under the Subpart K, which will detail the shareholders involved, authorizations and limitations applicable to the operation intended by the parties, location of the operational base and contact information of the manager, among other information. The administrative specifications are, to some extent, similar to the operational specifications issued for carriers and air taxi companies.
When properly formalized, from a practical perspective, the fractional ownership model allows shareholders to benefit from the operation of the aircraft, for a smaller portion of the investment that would be required for its effective acquisition or rental, since variable costs will be charged proportionally to the effective time of use of the aircraft per shareholder, while the fixed costs are equally divided among the shareholders.
Lastly, although the manager may be reimbursed for specific expenses associated with a certain flight (such as, insurance, fuel, hangar, among others), it is very important to note that the regulation expressly prohibits commercial transportation of people or cargo under the Subpart K operation. The violation of this limitation may mischaracterize the Subpart K operation and attract joint liability for the parties involved.
(b) Operational Control
As a general comment, the operational control over the aircraft and the proper registration of the operator with the Brazilian Aeronautical Registry is one of the key elements when it comes to allocation of liability in connection with the operation of aircrafts in Brazil. To briefly clarify, the Brazilian Aeronautical Code sets forth that the owner is responsible for damage associated with the operation of the aircraft, except when the operator is properly registered with the RAB. In the latter case, the operator properly registered with the RAB is solely responsible for the operation of the aircraft.
That being said, according to the Subpart K, the manager of the fractional ownership program will be the party responsible for the effective operation of the aircraft and, as such, will be registered with the Brazilian Aeronautical Registry (RAB) as the operator.
In other words, although the manager and the shareholder may allocate between them the responsibility in connection with the costs and any events involving the operation of the aircraft, the manager will in principle be deemed as the party responsible for the operational control of the aircraft and, therefore, would be liable before third parties for any damages in connection therewith.
Therefore, despite the fact that the operation will be in fact performed in favor of different shareholders, it will be strongly advisable to respect the manager’s operational control over the aircraft, in order to mitigate risks of mischaracterization of the operation, which may attract liability to the shareholders.
In any case, it is yet to be seen how Courts will interpret the liability of the shareholders in this system, especially in case of an accident involving by-standards, which may attract the application of more protective principles and rules toward affected third parties.
(c) Safety rules
In general lines, the operation under Subpart K requires compliance with safety rules that are very similar to the requirements applicable to air taxi companies, under the RBAC/Part 135. Thus, operators used to comply with requirements associated with the private operation of aircrafts (under RBAC/Part 91) will certainly need to implement adjustments to comply with the safety rules under Subpart K.
In this line, among the rules that need to be observed, the operation under the fractional ownership program requires compliance with very specific procedures related to aircraft maintenance, the implementation of operational safety management system, as well as a manual of operation for the program. Also, the manager of the program needs to observe specific requirements associated with the hiring, training and qualification of crew members, which are mentioned in detail in the regulation.
To confirm compliance with the safety rules, Subpart K expressly authorizes ANAC’s to inspect, at any time, the manager's compliance with the applicable rules and administrative requirements.
As briefly mentioned above, even though there are several requirements and specific approvals that need to be observed to operate under the Subpart K, the implementation of this long-waited regulation certainly represents another improvement for the local regulatory environment, which shows ANAC’s commitment to continuously adopt measures to develop the local aviation Industry.
It is essential though that the operation under the Subpart K is carefully structured and organized, so that all parties involved can benefit from the potentially lower costs and related advantages associated with this structure. In particular, parties need to devote special attention to the rules and limitations applicable to the operation of the aircraft by the manager, in order to mitigate risks associated with joint liability for damages and potential infractions assessed by ANAC.
Finally, the requirements associated with the Subpart K will need to be mandatorily observed as of September 1st, 2022, or sooner if the manager applies and ANAC issues the administrative specifications beforehand. In any case, ANAC is still expected to issue additional regulations on this matter, in order to detail specific aspects of the operation.