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Title: Booz


1
Beijing, 25 September, 2009
Booz Company
General Aviation Implementation Support
(GAIS) Operators Module (Revised) 1st Revision
October, 2010 Final Revision October, 2011
This document is confidential and is intended
solely for the use and information of the client
to whom it is addressed.
2
Purpose of Document
  • The intent of this document is to provide a
    detailed handover of all analysis and materials
    relating to regulatory gap studies on Operators
    Module as part of deliverables for General
    Aviation Implementation Support (GAIS) project
    funded by the US Trade Development Administration
    (USTDA)
  • The study focuses on drawing general aviation
    (GA) regulatory experience and insights from the
    U.S. because
  • The U.S. has the most established and successful
    GA industry with a mature regulatory system that
    increases GA capacity and efficiency while
    maintaining safety
  • ACP is an U.S. organization with its members
    consisting of FAA and key GA aircraft and
    equipment manufacturers with global presence. ACP
    member firms are best able to share GA
    regulatory, management, technological and
    operational experiences from the U.S.
  • Analysis has been conducted and completed by Booz
    Company with active contribution from Civil
    Aviation Administration of China (CAAC),
    Development Research Center of the State Council
    (DRC), Aviation Industry Corporation of China
    (AVIC), ACP members and other key stakeholders
  • For further information please contact
  • Mr. Paul Fiduccia (PFiduccia_at_aol.com)
  • Mr. Frank Yu (dongfang.yu_at_ge.com)
  • Mr. Kevin Wu (kevinwu_at_textron.com)
  • Dr. Edward Tse (edward.tse_at_booz.com)
  • Mr. Yang Guang (yang.guang_at_booz.com)
  • Mr. Timothy Wong (timothy.wong_at_booz.com)

3
This is one of the seven sets of deliverables
developed for ACP GAIS project
ACP General Aviation Implementation Support
(GAIS) List of Deliverables
Executive Summary
1
2
3
4
5
6
Safety Module
Airworthiness Module
Operators Module
GA Associations Module
General Aviation Airport Module
Flight Standards Module
Main Module
GA Safety Regulation
Airworthiness Regulations
Regulatory Constraints for Operators
Roles of GA Associations
GA Airport Regulations
Flight Standards Regulations
Safety Oversight Organizational Structure
Type and Production Certifications
GA Aircraft Ownership
Case Studies
GA Airport Planning Design
Mechanics
Sub - Module
Safety Performance Measurement
Aircraft Registration and Certification
GA Airport Funding
Pilots
GA Operating Cost
Safety culture and promotion
4
In China, GA refers to all civil aircrafts
activities other than public aircraft
transportation activities
NON EXHAUSTIVE
Three Main Categories of General Aviation Flight
Activities
Definition of General Aviation
General Aviation
China General Aviation refers to all civil
aircrafts activities other than public aircraft
transportation activities. Including flight
operations associated with industrial,
agricultural, forestry, fishery and construction,
and other purpose operations such as medical and
sanitation, emergency rescue, Meteorological
sounding, ocean monitoring, scientific
experiments, education and training, culture and
sports etc.
Public Service
Economic Construction
Consumer Aviation
Agriculture
Aerial Photography
Training and Sports
Forestry
Mine Exploration
Tourism
FAA General aviation (GA) refers to all flights
other than military and scheduled airline
flights, both private and commercial.
Meteorology
Petroleum Services
Business Travel
Disaster Relief
Others2
Private Use
ICAO General aviation comprises all aircraft
that are not operated by commercial aviation or
by the military.
Others1
Non scheduled commercial operations3
() CAAC categorization (1) Others include
aircraft seeding, pest control, farming and
emergency rescue (2) Others include remote
sensing, power line services and industrial
associated applications (3) Non scheduled
commercial operations include air taxi and air
charter operations Source Committee of General
Aviation Specialist of China Aviation Industrial
Base (CAIB), CAAC and Booz Allen analysis
5
Operators Module aims to identify opportunities
to improve GA operating environment by reducing
ownership and operating costs
  • The module aims to identify opportunities to
    promote GA use by reducing ownership and
    operating costs by drawing examples from
    practices in the U.S.
  • The scope of Operator Module is as follows
  • Highlight regulatory constraints for GA operators
    in China
  • List interview findings with GA operators to gain
    understanding in challenges that facing the
    operators in China today
  • Present a case study on fractional ownership in
    the US including its impact and regulatory
    issues, including other options to reduce
    (initial) ownership costs
  • Present typical aircraft operating cost structure
    and conduct comparison with China where possible

6
New generation of GA operators differ from
current GA operators in terms of aircraft
ownership, management and usage
  • Current GA operators own the aircraft, employ the
    aircraft, mechanics and use the aircraft for
    profit in the aviation business, arrange for and
    source for maintenance of aircraft
  • In the U.S. the owner of the aircraft and the
    pilot in command have responsibility and
    authority over their aircraft
  • The new generation of GA operators exhibits the
    following characteristics
  • individual GA operators own the airplane, use
    the airplane for personal and business use,
    provide the pilot (themselves or hire someone),
    select and contract with a GA company for
    aircraft management, decide on aircraft storage
    and maintenance and make decisions on operation
    and use of airplanes, for aircraft management
    services
  • GA company aircraft management services include
    FBO services (aircraft storage, maintenance,
    fuel supply, etc.), assistance with ATC approval
    and flight planning including weather information
  • GA company may lease the aircraft from the owner
    for flight training
  • Current problem is that because of the new
    generation GA has one person owns and uses an
    airplane and another entity manages the airplane,
    the responsibility for safe operation is now
    unclear
  • This results in the dispute between the owner and
    the management company about who has authority
    over the operation of the aircraft
  • CAAC must make clear the owner has the authority
    (unless he leases the airplane to the management
    company). FAA has finally developed rules to
    address this situation

7
Summary of observations and recommendations for
Module 5 Operators
Module 5 Operators
Key Areas U.S. (FAA) Observations China (CAAC) Observations Recommendations
Regulatory constraints for operators The U.S. has well developed GA infrastructure (airports and accessible airspace) and other supporting functions The U.S. also has appropriate level of regulations that do not create constraints to operators There are no onerous administrative rules imposed on GA operators for granting approval FAA policies help create a conducive operating environment for GA FAA does not charge usage fee for airspace FAA issue policies to guide equitable airport fees There are various options for GA aircraft ownership and usage Resource consuming administrative requirements for aircraft purchase approval Unreasonable requirements to have base airport, management company in order to purchase an aircraft High aircraft import tax and duties totaling 22.85 GA market management regulations such as CCAR 285 imposes duplicative document submission requirements Lack of policies on airport and airspace usage charges Limited choice of GA aircraft ownership and usage options Review tax and duty regime for GA aircraft and spare parts to lower cost of GA aircraft ownership and operation Streamline requirements in CCAR 285 to avoid regulatory and administrative duplications, ambiguity and inconsistencies in non-commercial GA operations
8
Regulatory constraints for operatorsGA aircraft
ownershipGA operating costAppendix
9
GA operators and users in China face many
challenges - lack of GA airports and high pilot
training cost are two key ones
EXAMPLE - NON EXHAUSTIVE
Key Challenges for GA Operators in China
  • Ownership
  • Cost of ownership is high due to high import tax
    - 22 for helicopter 5 for fixed wings
  • Fees for managing airplanes owned by others are
    high and authority over airplanes unclear
  • Difficult and lengthy aircraft
  • registration procedures and processes
  • Pilot
  • Source of GA pilots are mainly from veterans
  • It is increasingly difficult for military
    transfer of helicopter pilots to civil aviation
  • -- Pilot training costs are
    high

Key Challenges for GA Operators in China
  • Operating costs
  • There are unforeseeable and often high operating
    costs in China e.g. airspace costs are one of the
    grey areas
  • Aviation gas is difficult to obtain, locations
    are uncertain
  • Airport
  • There is no regulation on GA airport
  • Its very expensive and takes a long time to
    build a GA airport in China - almost the same as
    build a normal civil airport

Source Interview findings
10
In China, private aircraft owners face regulatory
constraints that results in the low utilization
of their aircraft
EXAMPLE Typical Aircraft Registration
Process CAAC
Documents Required
Acquire Credentials
Resource Constraints
  • Purchasing purpose
  • ID document
  • Police record
  • Feasibility study
  • Pilot license
  • Intent Contract with base airport
  • Resource consuming aircraft purchasing processes
    e.g. registration process on the left chart takes
    about 2-3 month
  • Unreasonable regulatory requirements imposed -
    must have base airport, management company etc
  • Inaccessible airspace - resulting in extremely
    low utilization and depreciation cost

Submit Aircraft Logo Marking Plan
Apply for Aircraft ID Number
Submit as one document
Apply for Aircraft Registration
  • Registration application
  • Evidence of ownership
  • Applicant ID document
  • Evidence of the aircraft not registered elsewhere
  • Other documents required

Submit Application
INTERVIEW QUOTES My client has decided to sell
his helicopter to Africa, despite taking the pain
to import from the U.S., without realizing the
difficulty to use it
Airworthiness Contact Office Process the
Application
Aircraft Certification Obtained
  • Applicant to fill in Non-Commercial GA
    Registration Administration

Aircraft Registered
11
Aircraft tax is another burden for GA operators
as China imposes 23 import tax on imported GA
aircraft
  • International practice on aircraft tax
  • US has set the import tariff and VAT to less than
    1 for aircraft weight exceeding 2,000 kg and not
    tax on aircraft weight less than 2,000kg
  • In some US States, luxury tax is charged to GA
    aircraft or some of the States are proposing the
    luxury tax bill
  • e.g. In 2005, Oregon State proposed luxury tax on
    GA aircraft - this was strongly opposed by AOPA
  • Other countries such as Germany, Japan, UK and
    France do not impose import tax on aircraft
  • China aircraft tax (import)
  • China currently propose aircraft import tax of
    22.85 - this is significantly higher than the US
    and other developed countries - the high import
    tax makes aircraft ownership less affordable and
    not suitable for GA development in China

INTERVIEW QUOTES We cant find suitable and
reliable aircraft type manufactured locally for
our operation - imported aircraft is expensive
Source New search, Booz Company analysis
12
Similarly, some of the GA operating costs are not
transparent and difficult to estimate making
economic analysis impossible
GA Operator Interview Findings
AIRSPACE We have canceled our Aircraft
Management function due to it is very difficult
to apply for the airspace usage - youll need
relationship with the military
PENSION COST After restructuring, some of the GA
companies carry heavy burdens on giving out
pensions to a large group of people
AVIATION GAS Its difficult to get aviation gas
in China - we sometimes go to the military office
to get gas
AIRPORT Most of the GA companies needs to share
airport facilities with air carrier - the usage
control of the airport is limited - hence
aircraft utilization rate is low resulting in
relative high costs
Source Interview findings
13
CAAC has also implemented market regulations for
non-commercial operation management which are
restrictive
Restrictions on Non-Commercial GA Operations
CCAR 285 Non-Commercial GA Registration
Administration ??????????????
Documents Required from CCAR 285
  • This has introduced excessive paper work for the
    CAAC and at the same time created burden for GA
    operators
  • Some of the documents required from CCAR 285 are
    duplicative and inconsistent with other
    regulations which make it difficult for operators
    to comply with
  • Operators do not see any benefits of this rule
    which has significant costs
  • Signed application
  • ID document
  • Living address
  • Personal CV and police record
  • Activity purpose and source of funding and
    insurance documents (copy)
  • Aircraft registration certificate, airworthiness
    certificate and radio license
  • Pilot license or intention to hire a pilot
  • Intent contract with airport
  • Aircraft management company contract, activity
    scale and length of time and other necessary
    proceedings
  • This rule is applied to anyone who wish to use GA
    aircraft for non-commercial purpose
  • The applicant must obtain aircraft registration
    certificate and airworthiness certificate
    beforehand
  • Forms and materials required are included in this
    document
  • FAA does not have equivalent of this rule

14
Chinas Operating Certificate centralized
management in general aviation is stricter than
that of the U.S.
Comparison of Operating Certificate Rules of FAA
and CAAC
Key Points FAA Rules Research Findings of CAAC
Key requirements on Operating Certificate (CFR Part 119.1) A person who is not authorized to conduct direct air carrier operations, but who is authorized by the Administrator to conduct operations as a U.S. commercial operator, will be issued an Operating Certificate Certificate is not required when common carriage is not involved conducted with airplanes having a passenger-seat configuration of 20 seats or more or a payload capacity of 6,000 pounds or more Certificate is not required for many usages i.e. student instruction, Ferry or training, crop dusting, aerial photography, fire fighting, pipeline patrol, sightseeing Civil Aviation Administration of China (CAAC) is responsible for the centralized management of GA Operating Certificate Any organization and individual cannot establish GA companies or participate in GA activities using civil aviation facilities without the approval from CAAC
Type of Operating Certificate (CFR Part 119.49) There is only operating certificate for general aviation, but there are different specifications for operating certificate Domestic, flag or commuter operations Supplemental operations On-demand operations A-type onshore oil service, offshore oil service, helicopter sling load flight, artificial precipitation, medical aid, mineral exploration aviation, aerial touring, business flight, flight training (private and commercial flight license), helicopter pilotage, aircraft custody, flight taxi, GA chartered flight B-type aerial photography, aerial advertising, marine monitoring, flight for fishery, meteorological detection, science experiment, fire-fighting, aerial inspections C-type aerial sowing, aerial fertilizing, aerial sprinkling of plant growth regulator, aerial weeding, insect prevention for agriculture and forestry, deratization, pest prevention for health, aerial forestry preservation, aerial photography
Classification Criteria The characteristics of operation Business activities of GA companies
Follow-up (CFR Part 119.63) Tests and inspections at any time by authority Generally 30 days for domestic, flag, or commuter operations and 90 days for supplemental or on-demand operations recency period Special deviation authority are needed for emergency operations and operations under U.S. military contract Certificate validity period 3 years renew certificate when it expires To be examined according to requirements on national security and technologies Report business activities to CAAC and report cross-region activities to the local CAAC accordingly Inspection at least once a year Operation information and statistical data should be reported to regulatory authorities
Others (CFR part 119.65-71) Qualifications for management and technical personels Define the details of various GA activities Set minimum amount of equity fund in aircraft purchase
Source literature research Booz Company
analysis
15
Operating Certificate application procedure for
GA in China is much more complicated than in US
with more key steps
Operating Certificate Application Procedure in
China
Operating Certificate Application Procedure in
U.S.
Submit the application to the Administrator at
least 90 days before the date of intended
operation
Submit preparation application documents
Make decision within 20 days and notify the
result for preparation
Submit an application in a form and manner
prescribed by the Administrator to the Flight
Standards District Office
Start to Prepare the materials and documents for
OC
Each change shall notify the Administrator within
10 days
Submit all the preparation work for OC application
Issue OC within 20 days after the submission
List the situation that certificate will be
issued or denied
Documentation at local industry and business
authority
File application to amend its certificate with
the certificate-holding district office at least
15 days before the date proposed for the
amendment to become effective
Complete the certificate for future test
inspection
General Steps
Source FAA,CAAC, Booz Company analysis
Key Steps
16
The categories and definitions of GA in FAA (1/2)
Types of GA FAA Definition
Commuter Operation Any scheduled operation conducted by any person operating one of the following types of aircraft with a frequency of operations of at least five round trips per week on at least one route between two or more points according to the published flight schedules Airplanes, other than turbojet-powered airplanes, having a maximum passenger-seat configuration of 9 seats or less, excluding each crewmember seat, and a maximum payload capacity of 7,500 pounds or lessor Rotorcraft, Direct air carrier means a person who provides or offers to provide air transportation and who has control over the operational functions performed in providing that transportation
Domestic Operation Any scheduled operation conducted by any person operating any airplane described in paragraph (1) of this definition at locations described in paragraph (2) of this definition (1) Airplanes (i) Turbojet-powered airplanes (ii) Airplanes having a passenger-seat configuration of more than 9 passenger seats, excluding each crewmember seat or (iii) Airplanes having a payload capacity of more than 7,500 pounds. (2) Locations (i) Between any points within the 48 contiguous States of the United States or the District of Columbia or (ii) Operations solely within the 48 contiguous States of the United States or the District of Columbia or (iii) Operations entirely within any State, territory, or possession of the United States or (iv) When specifically authorized by the Administrator, operations between any point within the 48 contiguous States of the United States or the District of Columbia and any specifically authorized point located outside the 48 contiguous States of the United States or the District of Columbia.
Flag Operation Any scheduled operation conducted by any person operating any airplane described in paragraph (1) of this definition at the locations described in paragraph (2) of this definition (1) Airplanes (i) Turbojet-powered airplanes (ii) Airplanes having a passenger-seat configuration of more than 9 passenger seats, excluding each crewmember seat or (iii) Airplanes having a payload capacity of more than 7,500 pounds. (2) Locations (i) Between any point within the State of Alaska or the State of Hawaii or any territory or possession of the United States and any point outside the State of Alaska or the State of Hawaii or any territory or possession of the United States, respectively or (ii) Between any point within the 48 contiguous States of the United States or the District of Columbia and any point outside the 48 contiguous States of the United States and the District of Columbia. (iii) Between any point outside the U.S. and another point outside the U.S.
When common carriage is not involved / operations not involving common carriage Noncommon carriage Operations in which persons or cargo are transported without compensation or hire Operations not involving the transportation of persons or cargo Private carriage
Source FAA,Booz Company analysis
17
The categories and definitions of GA in FAA (2/2)
Types of GA FAA Definition
On-demand Operation Any operation for compensation or hire that is one of the following (1) Passenger-carrying operations conducted as a public charter under part 380 of this chapter or any operations in which the departure time, departure location, and arrival location are specifically negotiated with the customer or the customer's representative that are any of the following types of operations (i) Common carriage operations conducted with airplanes, including turbojet-powered airplanes, having a passenger-seat configuration of 30 seats or fewer, excluding each crewmember seat, and a payload capacity of 7,500 pounds or less, except that operations using a specific airplane that is also used in domestic or flag operations and that is so listed in the operations specifications as required by 119.49(a)(4) of this chapter for those operations are considered supplemental operations (ii) Noncommon or private carriage operations conducted with airplanes having a passenger-seat configuration of less than 20 seats, excluding each crewmember seat, and a payload capacity of less than 6,000 pounds or (iii) Any rotorcraft operation. (2) Scheduled passenger-carrying operations conducted with one of the following types of aircraft with a frequency of operations of less than five round trips per week on at least one route between two or more points according to the published flight schedules (i) Airplanes, other than turbojet powered airplanes, having a maximum passenger-seat configuration of 9 seats or less, excluding each crewmember seat, and a maximum payload capacity of 7,500 pounds or less or (ii) Rotorcraft. (3) All-cargo operations conducted with airplanes having a payload capacity of 7,500 pounds or less, or with rotorcraft. Passenger-carrying operation means any aircraft operation carrying any person, unless the only persons on the aircraft are those identified in 121.583(a) or 135.85 of this chapter, as applicable. An aircraft used in a passenger-carrying operation may also carry cargo or mail in addition to passengers.
Supplemental Operation Any common carriage operation for compensation or hire conducted with any airplane described in paragraph (1) of this definition that is a type of operation described in paragraph (2) of this definition Airplanes (i) Airplanes having a passenger-seat configuration of more than 30 seats, excluding each crewmember seat (ii) Airplanes having a payload capacity of more than 7,500 pounds or (iii) Each propeller-powered airplane having a passenger-seat configuration of more than 9 seats and less than 31 seats, excluding each crewmember seat, that is also used in domestic or flag operations and that is so listed in the operations specifications as required by 119.49(a)(4) of this chapter for those operations or (iv) Each turbojet powered airplane having a passenger seat configuration of 1 or more and less than 31 seats, excluding each crewmember seat, that is also used in domestic or flag operations and that is so listed in the operations specifications as required by 119.49(a)(4) of this chapter for those operations. (2) Types of operation (i) Operations for which the departure time, departure location, and arrival location are specifically negotiated with the customer or the customer's representative (ii) All-cargo operations or (iii) Passenger-carrying public charter operations conducted under part 380 of this chapter.
Source FAA,Booz Company analysis
18
Regulatory constraints for operatorsGA aircraft
ownership and useGA operating costAppendix
General ownership optionsFractional
ownershipOther uses (aircraft rental and flying
clubs)
19
In the US, there are many different ownership
options for GA operators to consider (1/2)
Type of Aircraft Ownership (1/2)
Whole Aircraft Ownership Whole Aircraft Ownership Operating Leasing Operating Leasing
Most basic form of ownership - the aircraft owner may directly employ pilots, mechanics and other personnel necessary to the operations of an aircraft Alternatively, the owner can hire an aircraft management company Most basic form of ownership - the aircraft owner may directly employ pilots, mechanics and other personnel necessary to the operations of an aircraft Alternatively, the owner can hire an aircraft management company A short-term lease in which rental payments are made by the lessee and full ownership rights are kept by the lessor An operating lease contrasts with a capital lease in which ownership of the asset effectively passes from the lessor to the lessee This is similar to whole aircraft ownership but without initial cash investment in the aircraft A short-term lease in which rental payments are made by the lessee and full ownership rights are kept by the lessor An operating lease contrasts with a capital lease in which ownership of the asset effectively passes from the lessor to the lessee This is similar to whole aircraft ownership but without initial cash investment in the aircraft
Pros Complete flexibility on scheduling usage on an ad hoc, short-notice basis Tax benefits associated with depreciation Reduced operating costs, through generation of charter revenue Opportunities for appreciation in the value of the aircraft Cons Large capital outlay Cost inefficiencies for low utilization users or users with many extended trips Inflexibility on aircraft size / type Requires personal supervision Risk of market value deprecation Pros Lender can leverage tax benefits to buy down the financing costs Depending on the lease terms, the lessee may not be at risk for unanticipated market downturns Cons Inherent inflexibility in exiting the lease at points other than two or three early buy-out options The lender benefits from appreciation in the value of the aircraft
Source World Aircraft Sales Magazine, AvBuyer.com
20
In the US, there are many different ownership
options for GA operators to consider (2/2)
Type of Aircraft Ownership (2/2)
Joint Ownership Joint Ownership Fractional Ownership Fractional Ownership
Joint ownership, whereby two or more owners jointly acquire an aircraft and share the ownership costs, but has been hampered by the logistical issues of coordinating an acquisition and aircraft scheduling with another party Capital costs and fixed operating costs are spread out among two or more owners Each individual owner provides the pilot (even if there is a management company provides the pilot) Joint ownership, whereby two or more owners jointly acquire an aircraft and share the ownership costs, but has been hampered by the logistical issues of coordinating an acquisition and aircraft scheduling with another party Capital costs and fixed operating costs are spread out among two or more owners Each individual owner provides the pilot (even if there is a management company provides the pilot) This type of ownership combines many of the advantages, while eliminating may of the disadvantages of both whole ownership and joint ownership In a classic fractional ownership program, the applicant purchase un-divided tenants in common interest in a particular aircraft The management company provides the pilot This type of ownership combines many of the advantages, while eliminating may of the disadvantages of both whole ownership and joint ownership In a classic fractional ownership program, the applicant purchase un-divided tenants in common interest in a particular aircraft The management company provides the pilot
Pros Significantly lower ownership and operating costs Cons Difficulty in managing competing usage schedules and other coordinated activities Most lenders will require that all joint owners be jointly and severally liable for the entire indebtedness Each joint owners investment is at risk in the event of a default by any other joint owner Pros Access to the entire fleet of aircraft in the program Sharing fixed costs among multiple owners Guaranteed buy-back provisions Flexible operating parameters under FAR Part 91K (similar to Part 135) Cons Increased management and infrastructure costs Increased market value depreciation due to high utilization of the aircraft Increased Federal Taxes on operations
Source World Aircraft Sales Magazine, AvBuyer.com
21
There are also aircraft ownership leasing
companies and banking institutions to help make
aircraft more affordable
EXAMPLE
National Aircraft Finance Company
AOPA Aircraft Financing Program with Bank of
America
  • Type of aircraft covered for loan
  • Single Engine and Twin Engine 
  • Corporate Turbine 
  • VLJ's 
  • Completed Experimental Aircraft 
  • Experimental Aircraft in Kit Form 
  • War Bird Trainers 
  • Engine Overhauls Re-Furbishing
  • Avionics Up-Grades 
  • Loan options
  • Pre-Approval Credit
  • Variable Rate Loans
  • Fixed Rate Loans
  • Balloon Payment Loans
  • AOPA Aircraft Financing Program makes aircraft
    financing easy and aircraft ownership affordable
    through Bank of America
  • This loan can be used for purchasing new or used
    aircraft, avionics, refinancing and upgrades
  • AOPA also provide tips for first time buyers on
    how to finance aircraft purchasing more effective
    and efficient

The applicant can borrow up to 90 of the
aircraft value
The applicant can finance up to US 500,000
22
Similarly, pilot training is also offered
different financing options
EXAMPLE
US Pilot Training Financing Options
AOPA Flight Training Funds Program
  • The candidate can contact local pilot training
    schools for cost/lesson and make decision on
    frequency of lesson and payment to the school

Self-Funded
  • AOPA Flight Training Funds offers
  • Predictable payments
  • No annual fee
  • No collateral needed
  • Renewable source of cash
  • Credit line up to 25,000
  • Support AOPA and General Aviation

In association with
  • The airline scholarship is the most common one
  • However, there are industry associations and
    individual funds that offers scholarship - e.g.
    EAA Young Eagles Scholarship

Scholarship
The program gives perspective pilots flexibility
to structure training - the applicant can use the
account to pay for a rating or certificate
program, get additional training hours, aircraft
rental, instructor fees, books and supplies
  • This options can help people to pay part of the
    training fee
  • The most noticeable one are offered by AOPA -
    AOPA Flight Training Funds Program

Line of Credit
Source AOPA, Booz Company analysis
23
Regulatory constraints for operatorsGA aircraft
ownership and useGA operating costAppendix
General ownership optionsFractional
ownershipOther uses (aircraft rental and flying
clubs)
24
Part 91K and AC 91-84 oversees the fractional
ownership and ensure safe operations
Fractional Ownership Definition and Regulatory
Oversights
  • A fractional ownership program is a program of
    shared aircraft ownership that is conducted under
    the requirements of part 91. As defined in part
    91K, a fractional ownership program must contain
    all of the following elements
  • Single program manager who provides aviation
    expertise and management services
  • Two or more airworthy aircraft
  • One or more fractional owners per program
    aircraft
  • Possession of at least a minimum fractional
    ownership interest in one or more program
    aircraft by each fractional owner (1/16th for
    airplanes/1/32nd for helicopters)
  • Dry-lease exchange agreements among owners, and
  • Multiyear contracts or program agreements for
    management services and aircraft dry-lease
    exchange
  • Subpart K provides the regulatory definitions and
    safety standards for fractional ownership
    programs defines the program and program
    elements allocates operational control
    responsibilities and authority to the owners and
    program manager and provides increased
    operational and maintenance safety requirements
    for fractional ownership programs

Source AC 91-84
25
Fractional program can also operate under Part
135 with key differences identified
Fractional Ownership vs. Part 135
Fractional Ownership Part 135
Operational Control The fractional owner is responsible, if under Part 91K The fractional program provider is responsible, if under Part 135 Air carrier (in this case fractional program provider) has all responsibility for operational control
Management Specifications There is no certificate issued. The program manager receives MSpecs on behalf of the collective owners Content similar to air carrier operations specifications Certificate issued (14 CFR part 119). Operation specifications are issued to the air carrier
Pilot Qualifications Must have adequate number of pilots per program aircraft to meet program needs Two pilots required unless deviation issued Pilot in Command (PIC) must have 1,500 hours/second in command (SIC) 500 hours No set number of pilots PIC for IFR must have 1,200 hours/airline transport pilot (ATP) or Commercial depending on type of aircraft and authorized operation Single-pilot operations authorized PIC for VFR must have 50 hours PIC for IFR must have 1,200 hours No regulatory time specified for SIC Eligible on-demand operator must use two pilotsPIC 1,500 hours/SIC 500 hours (other on-demand operator only requires one pilot)
Aircraft There is no aircraft size limit. Aircraft size or type does not affect the minimum ownership share, but the share remains at 1/16th for airplanes and 1/32nd for helicopters On demand Airplanes 30 or fewer passenger seats and 7,500 lb payload or less, and helicopters Scheduled Airplanes, except turbojets, 9 or fewer passenger seats and helicopters
FAA Oversight Assigned principal inspectors. Subject to inspections except for line checks and en route inspections Assigned principal inspectors and inspection program. Subject to all types of FAA inspections
Source AC 91-84
26
Fractional ownership has played a significant
role in revitalizing the general aviation jet
manufacturing industry in the 90s
3
Fractional Ownership Development
1999
1986
2000
1995
Today
  • FAA OVERSIGHT
  • Today, fractional ownership programs are subject
    to an FAA oversight program
  • FAA aviation safety inspectors (ASI) conduct
    scheduled and unscheduled inspections, and
    surveillance of personnel, aircraft, records, and
    other documents to ensure compliance with the
    regulations
  • FORAC
  • In October 1999, the FAA convened a special
    aviation rulemaking committee, the Fractional
    Ownership Aviation Rulemaking Committee (FOARC),
    to address the issues surrounding the regulation
    of fractional ownership program operations
  • PART 91K
  • The Fractional Ownership Rule, published on
    September 17, 2003, identifies fractional
    ownership programs as private, general aviation
    programs conducted under part 91K
  • DEVELOPMENT
  • During the 1990s this growth was substantial and
    sustained. While growth in new fractional
    ownership programs is minimal, the FAA expects
    existing programs to continue increasing in size

Number of Aircraft in Fractional Fleet (1986-2001)
  • EMERGENCE
  • The fractional ownership concept began in 1986
    with the creation of an industry program that
    offered increased flexibility in aircraft
    ownership and operation

2001
2000
1999
1998
1997
1996
Fractional Ownership Program has bring
discontinued growth
1995
1994
1993
1992
1991
1990
1989
1988
1987
of A/C in Fractional Ownership Fleets
1986
Source AC 91-84, Wilbur Smith Associates, NBAA
27
Fractional ownership can make aircraft more
affordable, economical and enable more people to
use GA aircraft
Fractional Ownership Advantages NetJets Example
Efficient Use of Capital
  • The fractional owner actually purchase an
    undivided interest in a specific, serial numbered
    aircraft
  • The size of the undivided interest purchased is
    directly proportional to the number of hours
    flown each year

Comments
  • NetJets pioneered the concept of fractional
    ownership in 1986 by allowing businesses to
    purchase shares in a jet to reduce costs
  • Aside from regular fractional ownership program,
    NetJets also offers flight card program, Marquis
    Jet Card

Predictability of Expenses
  • Once a fractional ownership contract is signed,
    which is typically five years, the cost of using
    the aircraft is guaranteed and predictable for
    the entire term of the contract

Guaranteed Liquidity
  • Once the fractional owner meet the minimum
    commitment term, the aircraft management company
    normally offers the guaranteed liquidity and
    guaranteed repurchase of the fractional owners
    interest at fair market value less a remarketing
    fee

Guaranteed Availability
  • Aircraft is guaranteed available when the
    fractional owner requests it - sometimes the
    aircraft in demand may not be the owned aircraft
    but a comparable or a larger one in the fleet

Source NetJets, AvBuyer.com and Booz Company
analysis
28
Significant savings can be made with Fractional
Ownership - the operating cost can reduce by 80
with 1/8 of fractional ownership

ILLUSTRATIVE
Whole Aircraft Ownership vs. Fractional
Ownership Gulfstream V
Others
US 1,926 / Hour
Total Cost US 1,926 / Hour
1
100
100
9
Engine Reserve
Variable Cost
Fuel Cost
With Fractional Ownership Program, costs are
shared among fractional owners including both
ownership and operating cost
Maintenance
Fixed Cost
Insurance
Hanger
1/8 Fractional Ownership US 240 / Hour
Training
7
Hourly Variable Cost
Hourly Variable Cost
29
Regulatory constraints for operatorsGA aircraft
ownership and useGA operating costAppendix
General ownership optionsFractional
ownershipOther uses (aircraft rental and flying
clubs)
30
In the U.S. other ways of using aircraft, not
involving ownership are significant
  • People who fly more hour usually own aircraft
    through sole ownership or joint ownership
  • In the U.S. significant part of GA piston
    airplane usage is aircraft rental and for major
    part of flight training
  • Aircraft rental from FBO
  • Hourly rental - pilots must be previously
    checked out and authorized by FBO flight
    instructors, or flying with the instructors
  • Flying clubs
  • Pilots pay annual, monthly and hourly fees to fly
    aircraft. Use by pilots who fly more hours per
    year than those using aircraft rental, but less
    hour per year by those owning aircraft

31
AOPA indicates that in the U.S. two third of
pilots dont own an airplane, they rent airplanes
and are charged on a hourly basis
EXAMPLE
Brief Descriptions of Platinum Aviation Rental
Business
On Line Scheduling
  • Platinum Aviation is a South Florida based family
    of companies which team up with Cirrus to provide
    flight training, aircraft rentals, aircraft
    maintenance services for the newest
    Technologically Advanced Aircraft market
  • Basic minimum requirements for rentals and solo
    flight are aircraft type dependent. Requirements
    for renting Cirrus SR22 Turbo are
  • Private Pilot Certificate
  • Instrument Rating
  • High Performance Endorsement
  • 250 Hours Total Time
  • 10 Hours Aircraft Make and Model
  • Cirrus Transition Training Course Completed
  • Cirrus Turbo Transition Course Completed
  • Platinum Instructor Sign Off
  • Pilots that are interested in renting aircraft
    will be required to do an aircraft checkout with
    one of its instructor pilots prior booking any
    rental flights which include
  • A standard aircraft checkout with a review of a
    few ground topics such as regulations, airspace
    and aircraft systems
  • In addition, the instructor will go over
    procedures and policies of the rental company
  • This will be followed by a flight for the
    instructor to evaluate your ability to operate
    the aircraft safely

Clear information on aircraft type and rates
Less than US300 per hour (not inclusive of fuel
cost)
Source Platinum Aviation Company website, Booz
Company analysis
32
The Flight Card and Block Charter programs, which
derived from fractional ownership, can
accommodate some ad hoc flying needs
Block Charter Program
Flight Card Program
  • This program is similar to card program
    associated with large fractional programs but
    usually provide for access to charter fleets
    rather than fractional fleets
  • Aircraft in charter fleets tend to be older on
    average and do not have standardized interiors
    and amenities like fractional fleets
  • The customer may have access to only the charter
    fleet of a single charter operator
  • A type of fractional ownership made available to
    persons with aircraft utilization requirements of
    less than 50 hours per year
  • For example, with a Jet Card Program, a customer
    generally pre-pays for a certain number of flight
    hours (typically 25) on a certain make and model
    of aircraft, and thereby gain access to the
    fractional fleet
  • Whenever the customer flies, the total number of
    flight hours flown is debited from the card -
    when the card is used up, the customer has no
    further obligation

Source World Aircraft Sales Magazine, AvBuyer.com
33
Regulatory constraints for operatorsGA aircraft
ownershipGA operating costAppendix
34
China share very similar GA operating cost
structure to the U.S. with difference in
proportions
Aircraft Operating Cost Breakdown
Categories Comparison / Comments Comparison / Comments
Categories US China
Fixed Costs Insurance Basic insurance costs about 2-3 of the aircraft value Same as the US
Fixed Costs Hanger Depending on the hanger location and condition Same as the US
Fixed Costs Training This includes pilot certificate cost and continuous training Much more expensive than the US
Variable Costs Maintenance Depending on where the maintenance is done i.e. local certified mechanics or repair station - the latter is more expensive Most of GA companies maintain their own aircraft Private users either DIY or find a local 4S shop
Variable Costs Fuel cost Depending on the type of engine used and type of aircraft Hard to get aviation fuel/gas in China
Variable Costs Engine reserve Depending on the type of engines used Depending on the type of engines used
Variable Costs Airport cost Most of the GA airport in the US do not charge depending on the ownership Charged by MTOW
Variable Costs Airspace cost No charge per use. ATC cost paid through fuel tax Variable, hard to know in advance and significant expense for flight outside of the local area
) Detailed information on China GA operating
cost is difficult to obtain - only partial
information available Source PlaneQuest.com,
industry interviews and Booz Company analysis
35
The US allows free usage of GA airports and
airways through AATF which existing GA operators
contribute to via tax charges
Airport and Airway Trust Fund
  • The Airport and Airway Trust Fund (AATF), created
    by the Airport and Airway Revenue Act of 1970,
    provides funding for the federal commitment to
    the nations aviation system through several
    aviation-related excise taxes
  • Funding currently comes from collections related
    to passenger tickets, passenger flight segments,
    international arrivals/departures, cargo
    waybills, aviation fuels, and frequent flyer mile
    awards from non-airline sources like credit cards

GA Contribution to AATF
GA Benefits from AATF
  • General aviation operators pay into the Airport
    and Airway Trust Fund through a fuel tax of 21.9
    cents per gallon for aviation jet fuel and 19.4
    cents per gallon for aviation gasoline
  • Furthermore, on-demand air charter operators pay
    the same ticket and fuel taxes as scheduled
    airlines due to their classification as
    commercial operators
  • This funds helps guarantee free usage of FAA
    funded airports and airways which makes GA more
    affordable and available to people

This is believed by US GA Industry as the best
method for non-commercial GA paying into the AATF
because it guarantees a consistent and efficient
stream of funding and promote more flying as the
result of safe operation
Source NATA, FAA, Booz Company analysis
36
The new proposals for GA user fees has raised
many oppositions from the GA industry
Impact on GA
GA User Fee
  • Increased cost to nonscheduled operators
  • All operations should be charged the same fee
    because air traffic control does not
    differentiate between types of aircraft
  • Less general aviation activity
  • Due to the increased costs of using the aviation
    system, many GA operators would fly on a less
    frequent basis
  • A tremendous administrative burden
  • Virtually all countries that have implemented a
    user fee system have adopted a method of billing
    users of the system for the air traffic services
    used after their particular flight - given the
    large amount of GA activities in the US, this
    would create significant burden for GA pilots
  • For over a year, the FAA has claimed that the
    existing aviation tax revenues are falling short
    of the FAA's expenses, noting that ticket prices
    are not linked to their productivity costs
  • They also claim that the current tax-based
    funding system promotes an unstable operating
    environment for the FAA, making long-term
    financial planning impossible
  • Stating tight budget years make continued funding
    from the General Fund unlikely, the
    administration proposes to implement a
    user-fee-based system of revenue collections

Source AOPA and NATA
37
For airspace charges, Australia has a set of
rules on when and how to charge aircraft that
using low altitude airspace (Class E to G)
EXAMPLE
Australia Airspace Classification and Charges
Australia Air Traffic Service (ATS) Enroute
Charges
The Main features of NAS Australia airspace are
  • Complies with ICAO Classifications with minimum
    differences
  • Based primarily on the North American airspace
    system
  • Provides a continuous Search-and-Rescue (SAR) and
    IFR traffic service for IFR services to the
    terminal area
  • Allows for IFR aircraft to operate on a
    self-announce, no enroute charge basis in Class G
    airspace
  • Facilitates VFR climb and descent in Class E
    airspace for aircraft which have filed an IFR
    flight plan
  • Changes the MBZ calling in the blind procedures
    to proven FAA style CTAF/UNICOMs with a third
    party operator
  • Ensures that ATC frequencies remain free of
    aircraft self-announce broadcasts
  • Provides an IFR separation service to 700 AGL at
    non tower terminal airspace at selected
    locations.
  • Provides a full radar based advisory service on a
    workload permitting basis for VFR aircraft
  • Simplifies procedures and makes the maximum use
    of modern technology
  • En-route ATS charges apply to aircraft that have
    filed IFR flight plans with the ATS provider
  • There will be no charge to aircraft that have not
    filed IFR flight plans but require a short term
    IFR clearance to climb or descend in Class E
    airspace, or a clearance to cross a Class E
    corridor
  • There will be no charge for a workload permitting
    RAS, flight following service for VFR aircraft
  • There will be no charge for SAR alerting services
    to VFR flights over water

Source National Airspace System, Australia
38
In China, some of the operating costs may not
seem very transparent and difficult to capture
GA Operator Interview Findings
AIRSPACE We have canceled our Aircraft
Management function due to it is very difficult
to apply for the airspace usage - youll need
relationship with the military
PENSION COST After restructuring, some of the GA
companies carry heavy burdens on giving out
pensions to a large group of people
AVIATION GAS Its difficult to get aviation gas
in China - we sometimes go to the military office
to get gas
AIRPORT Most of the GA companies needs to share
airport facilities with air carrier - the usage
control of the airport is limited - hence
aircraft utilization rate is low resulting in
relative high costs
There is a need to establish fee policies to
guide charges for GA airport and airspace access
Source Interview findings
39
Regulatory constraints for operatorsUS
fractional ownership modelGA operation
costAppendix
40
Cost breakdown examples for a single engine prop
t
ILLUSTRATIVE
Typical Operating Cost of Cessna 172XP (Single
Engine Prop) U.S. Example
Total cost for a Cessna 172XP is US 68,500
US 78 / Hour
100
5
Others
11
Engine Reserve
US 4,294 / Year
Fuel Cost
100
Annual Insurance
Maintenance
Fixed Cost
Annual Hanger / Tie Down
Training
4
Hourly Cost
Annual Fixed Cost
Source PlaneQuest.com, Booz Company analysis
41
and a twin-engine business jet
t
ILLUSTRATIVE
Typical Operating Cost of Gulfstream V
(Twin-Engine BizJet) U.S. Example
Total cost for a Gulfstream V is US 45 million
US 1,926 / Hour
100
1
9
Others
Engine Reserve
US 206,134 / Year
Fuel Cost
100
Annual Insurance
Maintenance
Annual Hanger / Tie Down
Fixed Cost
Training
19
Hourly Cost
Annual Fixed Cost
Source PlaneQuest.com, Booz Company analysis
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