AFS-11-068-E

Exemption No. 10141A

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 PETITION FOR RECONSIDERATION

 By letter dated November 29, 2010, Mr. John R. Copley, Garofalo Goerlich Hainbach PC, 

1200 New Hampshire Avenue, NW., Suite 800, Washington, D.C. 20036-6802, on behalf of 

CitationShares Management, LLC (CitationAir), filed a petition for reconsideration of the 

Federal Aviation Administration’s (FAA) September 30, 2010, denial of CititionAir’s petition 

for exemption from §§ 91.1001 and 91.23 of Title 14, Code of Federal Regulations (14 CFR). 

The petitioner requests relief from the following regulation:

Section 91.1001(b)(2) through (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 
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operating the 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 United States (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:

CitationShares Management, LLC (CitationAir), a fractional program manager and 

certificated air carrier, has petitioned the Federal Aviation Administration for reconsideration 

of its denial of an exemption from the following regulations pertaining to part 91 subpart K 

fractional ownership operations:

(1) CitationAir 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 CitationAir Fractional Program Trust 

Structure;
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(2) CitationAir requests an exemption from § 91.1001 to the extent necessary to clarify 

that “dry-lease aircraft exchange,” as defined in § 91.1001(b)(2) of subpart K, may 

include the arrangement for exchange of aircraft arising under the CitationAir

Fractional Program Trust Structure; and

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

the arrangements among and between the fractional owners and CitationAir, 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 CitationAir 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. CitationAir 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 CitationAir

Fractional Program Trust Structure would continue to follow the operational control 

provisions as set forth in §§ 91.1009 through 91.1013 of subpart K. 

Additionally, CitationAir seeks to clarify that § 91.1001 pertaining to dry-lease aircraft 

exchanges would apply to its proposed fractional ownership arrangement. Under the 

CitationAir Fractional Program Trust Structure, there would not be a dry-lease aircraft 

exchange arrangement among all of the fractional owners. Instead, CitationAir 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 CitationAir. 

Finally, CitationAir 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 CitationAir Fractional Program Trust 

Structure because CitationAir is a part 135 certificate holder.

In its petition for reconsideration, CitationAir asserts that ownership of a beneficial interest in 

a trust that holds legal title to an aircraft is the equivalent of actual ownership, with the 

possibility of gain or loss to the beneficial owner, and has been treated as such from the 

initiation of fractional ownership programs. It contrasts beneficial ownership with multi-year 

leaseholds, in particular those which are not finance based but are mere operating leases, 

which are quite distinct from actual ownership of an aircraft and the responsibilities that come 

with it. CitationAir also asserts that the FAA refused to consider CitationAir’s assertion that 

any doubt as to the placement of operational control in the fractional owner participant would 

be dispelled by the unique provision of § 91.1013, requiring briefings on operational control 
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and signing of an acknowledgement by the fractional owner participant acknowledging 

operational control of the aircraft. 

CitationAir also asserts that the FAA misapprehended the basis for relief with regard to the 

dry-lease arrangement proposed in the program because it was merely seeking confirmation 

that its program could be operated under the current dry-lease provision of § 91.1001(b)(5). It 

also asserts that the FAA failed to consider that a program aircraft may be included in the drylease aircraft exchange to supplement program operations, which shows that subpart K does 

not require that fractional owners lease their aircraft to each other and that its proposed 

program already meets the plain language requirement of subpart K as to dry-lease exchange.

CitationAir further states that the FAA’s concern about the effect of granting the petition on 

international subpart K operations is vague and undefined without substance and should not 

form the basis for rejecting the petition. It also states that the exemption would only apply to 

CitationAir and other fractional operators would not be affected if the FAA approves the 

program.

Finally, CitationAir asserts that the FAA did not fully consider the April 2007 letter from the 

Aircraft Registration Branch of the FAA’s Flight Standards Service stating that the growth of 

fractional ownership programs, and their associated aircraft registration needs, have placed an 

administrative burden on the Registry reducing its ability to meet the registration needs of 

fractional operations and all other aircraft owners. 

The FAA's analysis is as follows:

Upon reconsideration, the FAA finds that a grant of exemption would not be in the public 

interest. 

When considering a petition for exemption from the FAA’s aviation safety rules, the FAA 

must consider whether granting the petition would be in the public interest, and whether 

granting the exemption would adversely affect safety, or how the exemption would provide a 

level of safety at least equal to that provided by rule. See 14 CFR § 11.81.

The FAA initially denied CitationAir’s petition because of a determination that it would not 

be in the public interest. Specifically, the FAA denied the petition after finding that: (1) the 

proposed Fractional Trust Program structure would be inconsistent with the requirements of 

subpart K; (2) the proposed structure’s lack of dry-lease aircraft exchange agreement among 

the owners would raise operational control questions; (3) a beneficial interest in a Delaware 

Statutory Trust is not the equivalent of a fractional ownership interest as contemplated by 

subpart K; and (4) a grant of the petition could call into doubt the view, held by foreign civil 

aviation authorities, that the fractional aircraft operations are general aviation operations. 

Additionally, the FAA found that the precedential nature of an exemption, and the previously 

anticipated costs to the FAA of administering subpart K mitigated against granting the petition 

for exemption. 
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Upon denial of a petition for exemption, the petitioner may ask the FAA to reconsider its 

petition for exemption. The petition for reconsideration must show that the petitioner has a 

significant additional fact that was not considered, that the FAA made an important factual 

error in the denial, or that the FAA did not correctly interpret a law, regulation, or precedent. 

See 14 C.F.R. § 11.101. As discussed below CitationAir asserts that, in denying its petition, 

the FAA did not correctly interpret the regulations from which CitationAir seeks the 

exemption.

In its petition for reconsideration, CitationAir states that the FAA “misunderstood the 

essential nature of trust ownership and leasehold interest in an aircraft,” arguing that 

“traditional fractional programs treat beneficial owners of single trusts as fractional owners 

under subpart K.” CitationAir also noted that owners of beneficial trusts share the possibility 

of financial gains or losses as do traditional aircraft owners. The petitioner also highlighted 

that a beneficial owner in a Delaware statutory trust shares in the profits and losses of the 

beneficial interest. 

The FAA agrees that fractions of aircraft may be owned in trust, however, the distinction 

between the ownership arrangement under subpart K and the one proposed by CitationAir is

that, currently under subpart K, trusts are the registered fractional owner of an aircraft. A trust 

is not the sole owner of the aircraft with the fractional interest arising from a beneficial 

interest sold to program participants. CitationAir argued in its petition for exemption that 

ownership interest does not require the owner to be an FAA registered owner evidenced by the 

acceptability of a long-term lease for fractional ownership. 

Upon reconsideration, the FAA maintains its determination that the term “fractional 

ownership interest” must be read narrowly and the fact that the regulation considers a leasehold an ownership interest does not open the door to other forms of ownership interest other 

than an interest in the aircraft itself. In this case, the FAA does not believe that selling an 

interest in a trust that owns the aircraft is the same as purchase of a share of the aircraft in 

trust.

CitationAir also stated that the FAA refused to consider its assertion that mandatory briefings 

and written acknowledgment that the fractional owner maintains operational control would 

dispel concerns with which entity maintains operational control under its proposed beneficial 

ownership structure.

Under CitationAir’s proposed program fractionally owned aircraft would be subleased from 

CitationAir to the fractional owner. As program manager, CitationAir would also provide the 

flight crew. This arrangement would be a wet lease because the aircraft and the crew are 

provided by the same source. The underlying assumption is that under a wet lease operational 

control remains with the registered owner of the aircraft. However, determinations of 

operational control are fact specific and made on a case-by-case basis. See Legal 
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Interpretation to Leonard Kirsch, from Rebecca B. MacPherson, Assistant Chief Counsel for 

Regulations (June 17, 2011). 

The FAA acknowledges that provided the terms of § 91.1009 pertaining to the operational 

control of fractional program aircraft are met, the written acknowledgement by the program 

participant that he or she has operational control of a flight could indicate operational control 

by that person. However, because the proposed ownership structure would not be consistent 

with the traditional assumptions associated with what person holds operational control under a 

wet lease, the proposed change could create scenarios where operational control remains in 

question. Additionally, the proposed ownership structure would create a new barrier for 

oversight between the FAA and registered owners because the FAA would have to contact the 

fractional ownership program manager to determine the parties holding beneficial interest in a 

trust. Such a fundamental change to the fractional ownership model would be more 

appropriately made by rulemaking.

CitationAir also stated the FAA misunderstood the nature of its request with respect to the dry 

lease provision of subpart K asserting that its proposed program already meets the plain 

language requirement of subpart K and had only asked the FAA for confirmation of that

statement. The FAA acknowledges that the initial petition asked for an exemption from that 

provision “to the extent necessary to clarify that ‘dry lease exchange’ . . . includes the 

arrangement for exchange of aircraft arising under” the proposed trust ownership structure. It 

adds in its petition for reconsideration that “[s]ubpart K does not require that the fractional 

owners lease their aircraft to each other.”

Under the CitationAir proposal, parties would not enter into a dry lease; rather, CitationAir 

“will have an arrangement to sublease all of the aircraft to each of the fractional owners.” 

Petition for Exemption at 4. As defined in the regulation, a dry-lease aircraft exchange is “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.” 

CitationAir asserts that its sublease arrangement provides the requisite access to program 

aircraft and therefore meets the definition of a “dry-lease aircraft exchange.” The FAA does 

not agree. In reviewing the definition, we look to the meaning of the words used in the 

regulation. The regulation requires a “dry-lease aircraft exchange agreement.” Under 

CitationAir’s reading of the regulation the term “dry-lease” would be read out of the definition 

thereby permitting any type of “aircraft exchange agreement” that meets the remainder of the 

definition. A review of the preambles to the NPRM and Final Rule implementing subpart K 

shows no evidence that CitationAir’s reading is the preferred interpretation. 

The FAA interprets the term “dry lease” as being a critical element of the definition. A “dry 

lease” is defined as a lease of an aircraft in which the owner provides the aircraft and the 

lessee supplies his or her own flight crew and retains operational control of the flight. See 

Legal Interpretation to George C. Douglas, Jr., from Rebecca B. MacPherson, Assistant Chief 

Counsel for Regulations (July 21, 2009). Here, the aircraft owner (the trust) dry-leases an 

aircraft to CitationAir which, in turn, subleases the aircraft to the program participants who 

own a share in the trust that owns the aircraft. Importantly, CitationAir also provides the 
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flight crew to the participants, creating a wet lease. See Legal Interpretation to Jerry A. 

Eichenberger, from Rebecca B. MacPherson, Assistant Chief Counsel for Regulations 

(August 26, 2011). 

As noted in the underlying denial, 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 . . .” would not be subject to subpart K regulations. Accordingly, the FAA is not 

altering its determination that the aircraft exchange proposed by CitationAir does not meet the 

requirement for a dry-lease exchange agreement in subpart K.

CitationAir stated that the FAA’s and DOT’s concerns with a grant of exemption on the 

ability of fractional ownership aircraft to operate under part 91 in foreign countries are vague 

and undefined and should not be used as the basis for rejecting the petition. The FAA 

disagrees and reiterates its statement in the underlying denial that, along with the DOT, Office 

of the Secretary, Aviation and International Affairs Division, it believes that granting the 

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

fractional ownership programs are not considered commercial operations. Also, as noted, the 

fact that fractional ownership program participants are the registered owners of the aircraft 

they operate is key to fractional aircraft operations being considered international general 

aviation operations. 

CitationAir stated that the FAA’s determination that a grant of exemption would be 

precedential was incorrect and asserted that a grant of petition would not be a blanket change 

for fractional ownership programs. CitationAir is correct that a grant of exemption would not 

require other programs to change the aircraft ownership model used by other companies, and

that a summary grant of exemption would not be available to petitioners that did not want to 

run a program set up the same way as CitationAir’s. 

Nevertheless, if this exemption is granted and another petitioner submitted a program to the 

FAA proposing fractional aircraft ownership by beneficial trust, similar to what was proposed 

here, the FAA would likely grant that exemption because of the similarity of the facts 

presented. We reiterate the conclusion reached in the denial of exemption that such a change, 

which would allow for an industry-wide change in the method of ownership of aircraft under 

subpart K is more appropriately accomplished through rulemaking.

Finally, CitationAir argued that the FAA’s determination that the costs of re-registration of

fractionally owned aircraft were accounted for in the rule implementing subpart K are 

mitigated by the April 2007 letter from the FAA Registry noting that the growth of such 

programs have, in fact, created a burden on the Registry. In the denial of the underlying 

petition, the FAA noted the letter and its statement that a stable registration model may reduce 

the burden on the FAA Registry. Nevertheless, the FAA determined that any cost savings 

would not outweigh the public interest considerations weighing against granting the petition. 

Upon reconsideration, the FAA is not revising this determination.
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In conclusion, the FAA maintains that the proposed Fractional Program Trust Structure would 

be inconsistent with the regulations governing fractional ownership operations, and any such 

change would be appropriately made through rulemaking and not by exemption.

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, the 

petition for reconsideration from CitationShares Management, LLC for an exemption from 

14 CFR §§ 91.1001 and 91.23 is denied.

Issued in Washington, D.C., on June 23, 2013.

/s/

Michael P. Huerta

Administrator