As companies increasingly lift restrictions on travel via business aircraft amid the Covid-19 pandemic, the time seems right to reconsider aircraft use policies and plan for the future reliance on business aviation.
Proven by extensive research, business aviation in general and the use of business aircraft by companies in particular support the success of many business enterprises. Business aircraft are time machines. They consistently save travel time over airline travel and access many more airports than airlines serve. Companies typically acquire private aircraft to foster personal engagement, an objective that electronic media like Zoom will never replicate.
Companies also realize that business aircraft can provide their personnel with a healthy and safe environment—a huge concern during the pandemic. From small cabin to ultra-long-range aircraft, each aircraft should also offer travelers personal security, connectivity, and privacy in a comfortable place that fosters efficiency and productivity.
In writing an aircraft use policy, a company can expect to balance the perceived benefits of using business aircraft with the company’s associated business, cultural, legal, and financial circumstances.
Purpose and Intent of a Policy
A travel policy often starts with a clear statement of its purpose and intent, which is the foundation for actionable guidelines and procedures. It should capture the fundamental reasons for acquiring and operating business aircraft. It might refer to fleet planning for aircraft acquisitions or sales.
Although one company can look at another’s aircraft use policies for precedent, every policy is unique. For example, each management team has different ideas on who can use the company jet, when, and why.
A policy can specify whether and how much a company will reimburse the owner or user of the aircraft for business or non-business entertainment travel. It may cover the protection and security of the CEOs and their immediate family accompanying the CEOs on personal or business trips. Public companies may orient their aircraft use policies to anticipate public disclosure concerning their aircraft.
Acknowledging the FAA’s current campaign to stop illegal charters, policies may express the company’s intent generally to avoid any manager, pilot, or commercial operator that does not emphasize a core value of operating safely in compliance with the applicable FARs.
Covered Aircraft and Operators
An aircraft use policy may cover one or more whole aircraft owned or leased by the company or a senior executive. It may direct that the company manage aircraft in its flight department under FAR Part 91. For greater flexibility, the policy may also allow a commercial operator, duly certificated under FAR Part 119, to manage and legally operate the aircraft under FAR Part 135 or hire an outside management organization while using a company-employed crew.
The board of directors or other governing body may identify specific employees or establish categories of officers, directors, partners, managers, and members permitted to use the company aircraft.
Normally, certain directors and C-suite or other top management executives get the nod to fly on the company aircraft. But the policy can, and perhaps should, include upcoming executives, in part as a tool to attract, mentor, and retain them in a hot job market. The proximity to senior leadership on board may allow the newer talent to demonstrate their value and feel valued by company leaders.
Federal Income Tax on Personal Use
An aircraft use policy may allude to the tax ramifications of business and personal/non-business transportation of permitted travelers on an employer-provided aircraft. If such a permitted traveler takes a flight on an employer-provided aircraft as contemplated by IRC section 61 and its regulations (26 CFR §1.61-21), the company, with exceptions, imputes the flight’s “fringe benefit” value to the permitted travelers in their IRS Form W-2 unless the traveler otherwise pays for the flight consistent with the FARs.
Usually, companies and permitted travelers calculate the fringe benefit income under the Standard Industry Fare Level (SIFL). Published semi-annually by the IRS, SIFL is a mathematical formula to determine the amount of the imputed income. Although infrequently used, companies may also determine the fringe benefit income by valuing the flight at the fair charter price, an amount that invariably exceeds SIFL (see Rev. Ruling 2021-11).
Given the complexity of these tax rules, if mentioned in a policy, brevity or generality seems apt to express the policy’s intent without materially impacting the personal tax planning of permitted travelers.
Compliance with the FARs
A travel policy can authorize the company to enter into a type of aircraft lease of a company’s U.S.-registered aircraft with a permitted traveler under FAR 91.501(c)(1), called a “time-sharing agreement.” Commonly used by CEOs, directors, or other senior executives for the personal use of the aircraft, this regulation allows the executive to reimburse the company for enumerated flight expenses, including two times fuel for a specific flight under FAR 91.501(d). Alternatively, the company can lease an aircraft to permitted travelers and others without crew under a dry lease on commercial terms.
A situation may arise when permitted travelers who pilot their owned aircraft ask the company to reimburse them for flight costs incurred on company trips. This request is fraught with regulatory restrictions under the FARs, including FAR 61.113, which prohibit any person with a private pilot certificate from acting as a pilot in command of an aircraft carrying passengers or property for compensation or hire.
The company can authorize time-sharing agreements, dry leases, and executive-flown aircraft without descending into the details. However, the company should seek advice from an aviation lawyer who can assist with an analysis of the applicable FARs and transaction structuring.
SEC and Public Company Disclosure
In public companies, federal securities regulations may require proxy statement disclosure to shareholders of perquisites and other fringe benefits associated with transportation on the registrant’s business aircraft.
Although an aircraft use policy may touch on public reporting, public companies understand and use appropriate counsel to comply with reporting executive compensation, including related personal transactions, such as an economically material lease to the company by an aircraft owned by a highly compensated executive officer of the company (see 17 CFR § 229.404 of Regulation S-K).
Administration of Policy
A trusted person like a company’s general counsel or chief financial officer can administer the policy in consultation with other senior management, flight department personnel, and other aviation experts. The administrator coordinates drafting policy procedures and addresses, among other issues, scheduling priority, status as a permitted traveler, the categorization of a flight as business or personal, the selection of aircraft managers or commercial operators, personal security of company officials, compliance with public disclosure rules, and the determination of reimbursement or charges for trip costs.
The time to create or update aircraft use policies has arrived. Each aircraft use policy is unique and should evolve with, and anticipate the evolution of, the company’s business and aircraft fleet. As the future appears on the horizon, companies perhaps should now consider broadening the list of individuals who will be permitted to use the company jet in recognition that business aircraft are tools that can help lift the fortunes of all company stakeholders.
This blog is purely informational and reflects the author’s experience and legal practice. It does not, and should not be construed to, provide legal advice of any kind, express or implied, or create a lawyer-client relationship. Persons involved directly or indirectly in any issue covered in this blog should inquire of their flight departments, appropriate counsel, senior executives, and other trusted advisors on the subject matter herein.