Exemption No. 10141 

UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, DC 20591 

 

In the matter of the petition of 

 

CITATIONSHARES 

MANAGEMENT, LLC Regulatory Docket No. FAA-2009-0083

 

for an exemption from §§ 91.1001 and 

91.23 of Title 14, Code of 

Federal Regulations 

 

 

DENIAL OF EXEMPTION 

 By letter dated January 26, 2009, Mr. Gary B. Garofalo, Garofalo Goerlich Hainbach PC, 

1200 New Hampshire Avenue, NW., Suite 800, Washington, D.C. 20036-6802, petitioned the 

Federal Aviation Administration (FAA) on behalf of CitationShares Management, LLC (CM) 

for an exemption from §§ 91.1001 and 91.23 of Title 14, Code of Federal Regulations 

(14 CFR). The proposed exemption, if granted, would permit CM to implement its proposed 

“Fractional Program Trust Structure.” 

The petitioner requests relief from the following regulation[s]:

Section 91.1001(b)(2)-(4) which prescribes that: 

(2) A dry-lease aircraft exchange means an arrangement, documented by the written 

program agreements, under which the program aircraft are available, on an as needed 

basis without crew, to each fractional owner. 

(3) A fractional owner or owner means an individual or entity that possesses a 

minimum fractional ownership interest in a program aircraft and that has entered into 

the applicable program agreements; provided, however, that in the case of the flight 

operations described in paragraph (b)(6)(ii) of this section, and solely for purposes of 

requirements pertaining to those flight operations, the fractional owner operating the 

AFS-09-131-E 
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aircraft will be deemed to be a fractional owner in the program managed by the 

affiliate. 

(4) A fractional ownership interest means the ownership of an interest or holding of a 

multi-year leasehold interest and/or a multi-year leasehold interest that is convertible 

into an ownership interest in a program aircraft. 

Section 91.23 which prescribes, in pertinent part, that the parties to a lease or contract 

of conditional sale involving a U.S.-registered large civil aircraft and entered into after 

January 2, 1973, shall execute a written lease or contract and include therein a written 

truth-in-leasing clause as a concluding paragraph in large print, immediately preceding 

the space for the signature of the parties, which contains the following with respect to 

each such aircraft: 

(1) Identification of the Federal Aviation Regulations under which the aircraft has been 

maintained and inspected during the 12 months preceding the execution of the lease or 

contract of conditional sale, and certification by the parties thereto regarding the 

aircraft’s status of compliance with applicable maintenance and inspection 

requirements in this part for the operation to be conducted under the lease or contract 

of conditional sale. 

(2) The name and address (printed or typed) and the signature of the person responsible 

for operational control of the aircraft under the lease or contract of conditional sale, and 

certification that each person understands that person’s responsibilities for compliance 

with applicable Federal Aviation Regulations. 

(3) A statement that an explanation of factors bearing on operational control and 

pertinent Federal Aviation Regulations can be obtained from the nearest FAA Flight 

Standards District Office. 

The petitioner supports its request with the following information:

CM, a fractional program manager and certificated air carrier, has petitioned the FAA to 

provide an exemption from the following regulations pertaining to part 91 subpart K 

fractional ownership operations: 

(1) CM requests an exemption from § 91.1001 to the extent necessary to clarify that 

“fractional owner or owner,” and “fractional ownership interest,” as defined in 

§ 91.1001(b)(3) and (b)(4) of subpart K, are not limited to FAA-registered owners but may 

include a beneficial owner or beneficial ownership interest arising under a single Delaware 

statutory trust structure outlined in the CM Fractional Program Trust Structure; 

(2) CM requests an exemption from § 91.1001 to the extent necessary to clarify that “drylease aircraft exchange,” as defined in § 91.1001(b)(2) of subpart K, may include the 
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arrangement for exchange of aircraft arising under the CM Fractional Program Trust 

Structure; and 

(3) CM requests an exemption from § 91.23 to the extent necessary to confirm that the 

arrangements among and between the fractional owners and CM, in its capacity as a part 135 

certificate holder, do not require further compliance with that section. 

The purpose of the exemption would be to permit CM to implement a Fractional Program 

Trust Structure for ownership, registration, and operation of fractional ownership program 

aircraft. A key feature of the proposed structure is that participating fractional owners would 

no longer hold legal title to a fractional share of a program aircraft. Instead, a Delaware 

statutory trust would hold the legal titles of all the aircraft in the fractional program, and 

fractional ownership program participants would be beneficial owners of a series in the trust 

relating to specific aircraft in the fractional program. CM would act as the fractional 

ownership program manager, would administer the statutory trust, and would continue 

operating program aircraft as a part 135 certificate holder. The CM Fractional Program Trust 

Structure would continue to follow the operational control provisions as set forth in 

§§ 91.1009–91.1013 of subpart K. 

Additionally, CM seeks an exemption from § 91.1001 pertaining to dry-lease aircraft 

exchanges. Under the CM Fractional Program Trust Structure, there would not be a dry-lease 

aircraft exchange arrangement among all of the fractional owners. Instead, CM would hold a 

lease to the program aircraft entered into a statutory trust, and fractional owners would have 

access to all of the program aircraft, without crew, on an as needed basis through a sublease 

directly from CM. 

Finally, CM requests an exemption from § 91.23, the truth-in-leasing requirements in leases 

and conditional sales contracts, to confirm that those requirements would not be applicable to 

the dry-lease exchange component of the CM Fractional Program Trust Structure because CM 

is a part 135 certificate holder. 

CM identified several reasons why the requested exemption will be in the public interest. It 

states that the current model of fractional ownership creates inefficiencies and burdens for 

fractional owners, fractional ownership program managers, the FAA Civil Aviation Registry 

(Registry), and other users of the Registry. CM notes that its proposed trust structure would 

alleviate the administrative burden resulting from the frequent re-registration of program 

aircraft that is required upon any change in the ownership of the aircraft. CM states that the 

proposed program trust structure would also result in fewer filings of powers of attorney, bills 

of sale, and registration applications because each program aircraft will only be registered 

once upon its purchase and placement into the Delaware statutory trust. Likewise, CM states 

that there would potentially be only one declaration of international operations for the aircraft, 

rather than 16 declarations and request for expedited registration. CM also states that its 

proposal would reduce the need to monitor which program aircraft involved in a recent sale 

are operating on “pink copy” temporary authority and, therefore, would be ineligible for 
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international flights. CM further states that the burden on CM to return the “white copy” of 

the certificate of registration to the FAA upon a change of ownership, and the corresponding 

burden on the Registry to review these submissions, would be eliminated. 

CM further asserts that its program would not affect the FAA’s ability to identify each holder 

of a Fractional Ownership Beneficial Interest for informational or security purposes. It states 

that § 91.1015(b), which requires fractional program managers to maintain a list of all 

fractional owners at its principle place of business and make the list of owners available to the 

FAA for inspection, would still apply to its program. CM notes that it would provide the 

necessary safeguard as it currently does for fractional owners who do not register their 

interest in their names, qualifying for participation in fractional programs through multi-year 

leasehold interests, or as beneficial owners of individual trusts. CM states that the internal 

operating costs associated with its proposal would lead to cost reductions and greater 

efficiencies for fractional owners. 

CM also states that its proposed trust structure would not adversely affect safety and would 

provide an equivalent level of safety to the current regulation. It states that its management 

specifications, associated with its part 91K operations and its operations specifications 

associated with its part 135 operations, would remain the same if this exemption is granted. 

CM also states that its maintenance of the program aircraft would not change if this 

exemption were granted. Furthermore, CM states that fractional ownership beneficial owners 

would continue to receive operational control briefings and sign acknowledgment of 

operational control, as is current practice for fractional owners and required by regulation. 

Finally, CM states that its program aircraft and fractional owners operate internationally and 

asks for its proposed trust program to apply to operations outside of the United States. It 

states that it is unaware of any reason why the Fractional Program Trust Structure would not 

be in compliance with the requirements of the Standards of the International Civil Aviation 

Organization. 

A summary of the petition was published in the Federal Register on March 25, 2009 

(74 Fed. Reg. 12924). The FAA received comments opposing the grant of this exemption 

from NetJets Aviation, Inc., AlphaFlying, Inc., and Bombardier Aerospace Corporation 

(Flexjet), as well as a response to these comments from CM. These comments are available 

for review in the rulemaking docket. 

NetJets raised several concerns in its comments generally based on the differences between 

the current fractional ownership structure and CM’s proposed Fractional Program Trust 

Structure. First, NetJets argued that a grant of the exemption would dilute key concepts of 

ownership that the FAA relied upon in issuing subpart K and in determining that fractional 

ownership program operations are private, general aviation operations. Second, it commented 

that the exemption would violate the clear language of part 91, subpart K because the dry 

lease under the CM program would not be “among all of the fractional owners” as required in 

the regulation but would also include the program manager. Third, NetJets commented that 
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the proposed Fractional Program Trust Structure would potentially betray the trust and 

understandings developed during the Fractional Ownership Aviation Rulemaking Committee 

(FOARC) and subpart K rulemaking. Fourth, it argued that the proposed Fractional Program 

Trust Structure might cause other U.S. Government agencies to reconsider their treatment of 

fractional ownership program operations in areas such as tax, civil aviation security, and 

customs. Fifth, it commented that approval of the fractional program structure could have an 

adverse impact on the ability of fractional ownership programs to conduct international 

operations as private, general aviation operations. Sixth, NetJets argued that an approval of 

the CM program would be more appropriately dealt with through rulemaking because of the 

broad impact a grant of this petition might have on the fractional ownership industry and 

potential unintended consequences apart from fractional ownership program operations. 

Finally, NetJets commented that the Fractional Program Trust Structure may create 

difficulties with registering security interests in the fractional beneficial interests and will 

result in a loss of public transparency regarding the ownership of civil aircraft interests. 

The comments received from AlphaFlying, Inc., and Flexjet mirror the comments raised by 

NetJets. 

CM filed a response to these comments. In its response, CM noted that, if granted, this 

exemption would not affect other subpart K programs. CM also argued that the FAA should 

review its proposal on its merits within the context of the regulations and the review should 

not be influenced by its competitors’ opposition to the Fractional Program Trust Structure. 

CM stated that there are no regulatory issues with the proposed structure, which, if granted, 

would address a need expressed by the FAA Registry for a stable registration model for 

fractionally owned aircraft. CM argued that the proposed Fractional Program Trust Structure 

conforms to the fractional ownership program required and contemplated by subpart K. It 

contended that because the rights associated with ownership of a beneficial interest in a 

Delaware statutory trust are indistinguishable from ownership of an aircraft interest in a 

statutory or common law trust now widely used in the fractional industry, and thus the 

proposed Fractional Program Trust Structure would conform to the fractional ownership 

program contemplated by subpart K. 

CM also argued that the lease/sublease structure of its Fractional Program Trust Structure is 

not substantially different from the current fractional ownership dry-lease structure. Further, 

CM stated that operational control of fractional ownership aircraft is specifically established 

under §§ 91.1009, 91.1011, and 91.1013, which would still govern its operations. CM noted 

that it is unaware of any issues that approval of its structure will create with foreign aviation 

authorities. Further, it stated that CM has limited international operations and it should, 

therefore, not be assumed that an exemption would cause other entities to reevaluate the 

nature of fractional programs. It argued that the exemption will only address CM’s program 

and will not affect other programs that would be free to continue operating under their current 

practices. Finally, CM asserted that the Fractional Program Trust Structure would streamline 

and increase the efficiency of registration of fractional ownership interests at the FAA 

Registry and that if such a program is unappealing to lenders, the marketplace will constrain 
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its use. It further noted that its program will not create security concerns because fractional 

ownership programs require fractional managers to maintain a list of all fractional owners and 

associate aircraft, which would still apply to owners under the Fractional Program Trust 

Structure. 

The FAA's analysis is as follows: 

The FAA finds that a grant of exemption would not be in the public interest. 

After evaluating CM’s petition, the FAA has concluded that there are significant differences 

between the structure of fractional ownership programs as established by part 91, subpart K, 

and the proposed Fractional Program Trust Structure detailed in CM’s proposal. Due to the 

significant alterations to fractional ownership programs that would result from a grant of this 

petition, including an impact on fractional ownership operations conducted internationally, 

the FAA concludes that granting this exemption would not be in the public interest. 

When developing the fractional ownership rules, the FAA established the FOARC, which was 

composed of 27 representatives of the various constituencies interested in developing 

regulations creating fractional ownership programs. The FOARC reached unanimous 

consensus on all of its recommendations for changes to parts 91 and 135. The FAA notes that 

these recommendations did not include the concepts currently proposed by the petitioner. 

Likewise, neither the preamble to the notice of proposed rulemaking (NPRM) nor the final 

rule considered alternative ownership arrangements or definitions such as those proposed by 

the petitioner. See 66 Fed. Reg. 37520 (Jul. 18, 2001); 68 Fed. Reg. 54520 (Sept. 17, 2003). 

The FAA notes that both the final rule and NPRM that implemented subpart K stressed the 

importance of maintaining operational control and having clear delineation of regulatory 

responsibility for all fractional owners. The final rule noted that the “fractional owner has the 

ultimate responsibility to ensure the safety of the operation and compliance with the rules.” 

See 68 Fed. Reg. 54531. 

Granting the proposed exemption to § 91.1001, thereby allowing the Fractional Program 

Trust Structure to operate without “a dry-lease aircraft exchange arrangement among all of 

the fractional owners,” would be contrary to longstanding legal interpretations regarding an 

operator’s responsibility for maintaining operational control and the intent of subpart K. 

Under a dry-lease arrangement, the lessee retains operational control of the aircraft. The drylease provision of subpart K was implemented to facilitate the use of the owner’s aircraft 

using the program manager to schedule the aircraft from within the dry lease exchange pool, 

while at the same time ensuring that operational control continues to reside with the lessee. 

See 68 Fed. Reg. 54537. 

Under the proposed Fractional Program Trust Structure, a program participant would own a 

beneficial interest in a particular aircraft but would have access to all of the aircraft in the 

fractional program. In order to facilitate use of the owner’s interest in a particular program 

aircraft by other fractional owners within the same program, CM would dry lease the aircraft 

to the CM, who would then sublease the aircraft to program participants. CM stated in its 
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petition that, under its proposal, the program participants would sublease the aircraft from CM 

without crew. Nevertheless, we note that the “employment, furnishing, or contracting of 

pilots” is a fundamental service provided by fractional ownership program managers. See 

§ 91.1001(b)(8)(ii); 68 Fed. Reg. 54526. Accordingly, although it is possible that fractional 

owners would pilot program aircraft, or independently arrange for flightcrew, we anticipate 

that CM will continue to provide flightcrew for flights conducted under the fractional 

ownership program. In the event that a program aircraft is operated under a sublease from 

CM to a program participant, and CM is providing the flightcrew, according to long held 

understanding, the arrangement would be considered a wet lease and operational control of 

the flight would reside with CM, rather than the lessee, which is contrary to the intent of 

subpart K. See Legal Interpretation to George C. Douglas, from Rebecca B. MacPherson, 

Assistant Chief Counsel for Regulations (Jul. 31, 2009); Legal Interpretation to Fred Meier, 

from Rebecca B. MacPherson, Assistant Chief Counsel for Regulations (Jun. 12, 2009). 

Moreover, the final rule emphasized the importance of the dry-lease provision by cautioning 

that management arrangements which do not “meet all of the definitional elements of a 

fractional program under subpart K, i.e., dry lease aircraft exchange agreement . . .” could not 

take advantage of subpart K regulations. See 68 Fed. Reg. 54526. The regulations do not 

contemplate the program manager providing an aircraft operated pursuant to subpart K to the 

fractional owners. See 68 Fed. Reg. 54537. (“The program manager does not provide the 

aircraft . . . .”) Such an arrangement would be tantamount to allowing the program manager 

to conduct commercial operations without a part 119 certificate, which was not the intent of 

subpart K. Accordingly, the FAA does not believe that broadening these principles would be 

in the public interest. 

Accordingly, to accomplish what the petitioners seek, the FAA would be required to alter the 

long-held understanding that operational control lies with the lessor under a wet-lease 

agreement and alter the definitional elements of subpart K. Although CM stated that program 

participants would continue to receive briefings on operational control and sign an 

acknowledgment that they are in operational control of the aircraft, as currently provided for 

in subpart K, the FAA does not believe that such an arrangement should be used in operations 

under subpart K of part 91. Rather, such flights would be required to be operated pursuant to 

a part 119 certificate. 

Next, the FAA does not agree with CM’s contention that the current rule’s inclusion of a 

multi-year leasehold interest in the definition of “fractional ownership interest” opens the 

door to fractional ownership structures other than actual ownership or lease of the aircraft. 

CM argues that other ownership arrangements, such as its proposed Fractional Program Trust 

Structure, would be consistent with current regulations because the option for a leasehold 

interest in the definition of “fractional ownership interest” demonstrates that ownership is not 

restricted to holders of legal title to an aircraft or a requirement to register that ownership 

interest with the FAA Registry. 

Subpart K defines a fractional ownership interest as the ownership of an interest or holding of 
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a multi-year leasehold interest, or a multi-year leasehold interest that is convertible into an 

ownership interest in a program aircraft. See 14 CFR § 91.1001(b)(4). In the preamble to the 

final rule, the FAA noted that a “long-term lease [is] equivalent to an ownership interest” thus 

permitting leasing under subpart K. See 68 Fed. Reg. 54536. This statement, and the 

regulatory requirements of subpart K, must be read narrowly. In the NPRM, the FAA stated, 

“[i]f an aircraft ownership arrangement does not fit within [the definitions of a fractional 

ownership program,] it may well fit within one or more of the existing operating models in 

part 91, subpart F . . . . In these circumstances, proposed subpart K would not apply.” See 

66 Fed. Reg. 37524. The FAA reiterated this concept in the final rule by stating that 

“traditional management companies and other management arrangements may not meet all of 

the definitional elements of a fractional program under subpart K . . . and therefore would not 

be subject to regulation under subpart K.” See 68 Fed. Reg. 54526. Therefore, the FAA does 

not agree with CM that because a long-term lease may constitute a fractional ownership 

interest, the FAA would also consider a beneficial interest in a trust that holds actual title to 

the aircraft to also be a fractional ownership interest. Ownership of a beneficial interest in a 

trust which holds legal title to an aircraft is too far removed from actual ownership, unlike the 

multi-year leasehold of the actual aircraft. 

Third, granting CM’s petition for exemption could negatively impact the ability of fractional 

ownership aircraft to operate under rules pertaining to international private aviation in foreign 

countries. Foreign civil aviation authorities generally consider fractional ownership programs 

to be international general aviation operations largely due to the understanding that fractional 

ownership program participants remain the registered owners of the aircraft they operate. As 

a result, fractional ownership aircraft operating in countries outside of the United States are 

generally not subject to those countries’ regulations governing commercial aviation. 

Both the FAA and the DOT, Office of the Secretary, Aviation and International Affairs 

Division, share the concern that removing the registered ownership link to the aircraft by 

granting this petition would cause foreign countries to reevaluate whether fractional 

ownership operations may be conducted under the operating rules for general aviation. CM 

argued that the exemption would only apply to its operations and that its aircraft perform 

limited international operations. However, the FAA and DOT have determined that granting 

this petition would indicate, to foreign civil aviation authorities, a shift in the FAA’s policy 

that fractional ownership programs are not considered commercial operations. 

Fourth, although CM is correct that a grant of this exemption would apply only to its program 

and would not have an immediate impact on the fractional ownership industry as a whole, 

such a grant would be precedential. Any subsequent petition for exemption that is materially 

similar to the one at hand would likely be summarily granted. Therefore, the FAA does not 

agree with CM that a grant of this exemption would have a limited impact on the fractional 

ownership industry. Given the industrywide effect on the structure of fractional aircraft 

ownership, such a change would be more appropriately accomplished through rulemaking. 

Finally, CM contends that the proposed Fractional Program Trust Structure would result in 
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cost savings to the FAA because it would reduce workload on the FAA Registry associated 

with processing, reviewing, and filing of documents associated with fractional ownership 

programs. See CM Petition for Exemption at 10-12 (Jan. 26, 2009). CM also included in its 

filing a letter from FAA’s Flight Standards Service Aircraft Registration Branch supporting 

an alternative ownership program for fractional aircraft and noting that such a model may 

reduce the burden placed on the FAA Registry. See CM Petition for Exemption at Exhibit B 

(Jan. 26, 2009). When implementing subpart K, the FAA considered the costs that would be 

incurred by the FAA for administering the rule and determined that such costs were 

acceptable given the anticipated safety benefits of the rule. See 68 Fed. Reg. 54556-57. 

Further, even assuming that the FAA may realize a cost savings under the Fractional Program 

Trust Structure, the FAA believes that such a cost savings would not outweigh the public 

interest considerations discussed above. 

In summary, this exemption, if granted, could significantly alter the way FAA, the public, and 

foreign civil aviation authorities view operational control, and its associated responsibilities, 

for fractional ownership operations. Additionally, if granted, this exemption would 

significantly alter the structure of fractional ownership programs as established in subpart K 

of part 91. Such a fundamental change to the structure of the fractional ownership rule as 

proposed by the petitioner is not appropriate for petition for exemption and would require 

rulemaking. Accordingly, the FAA does not find this petition to be in the public interest. 

Finally, the FAA finds that the proposed Fractional Program Trust Structure would be 

inconsistent with the regulations governing fractional ownership operations and could, 

therefore, not be implemented without an exemption from those regulations. 

The FAA’s Decision: 

In consideration of the foregoing, I find that a grant of exemption would not be in the public 

interest. Therefore, pursuant to the authority contained in 49 U.S.C. §§ 40113 and 44701, 

delegated to me by the Administrator, the petition of CitationShares Management, LLC for an 

exemption from 14 CFR §§ 91.1001 and 91.23 is hereby denied. 

Issued in Washington, D.C., on March 29, 2010. 

/s/ 

John W. McGraw 

Acting Director, Flight Standards 

 Service