November 29, 2010

__________________________________

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 |

______________________________________|

PETITION FOR RECONSIDERATION

VIA ELECTRONIC SUBMISSION

Docket Management Facility

U.S. Department of Transportation

1200 New Jersey Avenue, SE

West Building

Ground Floor, Room W12-140

Washington, DC 20590

As provided in Section 11.101 of the Federal Aviation Regulations, (“FARs”),

CitationShares Management, LLC (“CitationAir”) respectfully asks that the Federal Aviation

Administration (“FAA”) reconsider its September 30, 2010 denial (“Denial”) of the Petition For

Exemption (“Petition”) filed by CitationAir on January 26, 2009 , which requested, to the

extent necessary, an exemption from certain sections of the FARs to implement a Fractional

Program Trust Structure ("Program") as described in the Petition. 

While the FAA concluded in the Denial that an exemption to implement the proposed

Program would not be in the public interest because of perceived significant difference with

current programs operated under subpart K of FAR Part 91, FAA acted arbitrarily by failing to

consider fully the issues involved, misinterpreted the relevant regulations and

misapprehended the relief being requested in certain circumstances. As a result, CitationAir

now requests that based on the correct interpretations and clarifications of relief sought, as

noted herein, or otherwise exercising its discretion upon reconsideration, the FAA grant the

exemption requested under the original Petition. Reconsideration and grant of the original

Petition is appropriate in such circumstances. The fact that there were objections to the

Petition (even though baseless) should not prevent the FAA from now granting the Petition on

reconsideration. In the matter of the petition of Frontier Flying Service, Inc. for an exemption,

Regulatory Docket No. FAA-2000-8086 (FAA June 29, 2001).

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BACKGROUND ON PETITION

THE FILING

On January 26, 2009, CitationAir, at the request of the FAA, filed the Petition for an

exemption to the extent necessary, from Sections 91.1001 and 91.23 of Title 14 of the Federal

Aviation Regulations to implement the Program. On March 25, 2009, the FAA filed the

petition for public comment with a comment period of 20 days. Despite the original 20 day

comment period, the comment period was subsequently extended to May 26, 2009 with the

final comments and responses filed June 5, 2009.

EVENTS LEADING UP TO FILING

The Petition was the result of months of work by CitationAir with a significant

expenditure of money and resources. While CitationAir had preliminarily begun to develop a

trust program, the final development was in response to a letter from the FAA itself requesting

the development of such a program. 

The Manager of the FAA Aircraft Registration Branch had sent a letter to CitationAir

dated April 29, 2007 asking that CitationAir consider the registration of Program Aircraft to a

stable entity, specifically referencing a trust as such a vehicle, rather than registration in the

name of each individual fractional owner (“April 2007 Letter”). The FAA letter explicitly

indicated that the FAA “stands ready to assist in the development of a stable registration

model that could bring the advantages of administrative streamlining and increased aircraft

availability inherent in this approach.” CitaitonAir understands that similar letters were sent to

other fractional program managers; however, CitationAir believes its response was the only

response and provided a comprehensive solution to the FAA’s problem. To create a program

that could provide an alternative to the current structure of CitationAir's fractional program and

respond to the FAA's request, CitationAir engaged at great expense, specialized regulatory

counsel in Washington, Registry counsel in Oklahoma City, trust counsel in Delaware, and

corporate counsel in New York.

On July 24, 2008, CitationAir with its counsel met in Oklahoma City with FAA

Aeronautical Center Counsel, Joseph Standell, and a representative of the FAA Civil Aircraft

Registry (“Registry”). Both Mr. Standell and the Registry found the trust aspects of the

Program acceptable. CitationAir then had a meeting on October 1, 2008 with FAA Chief

Counsel Kerry Long and FAA Counsel for Regulation Rebecca MacPherson to discuss the

Program. The response from the FAA at the time was positive, but indicated that additional

review was required. CitationAir held a subsequent meeting with FAA Associate

Administrator Nicholas Sabatini, FAA Chief Counsel Kerry Long, FAA Counsel for Regulations

Rebecca MacPherson, FAA Attorney Dean Griffith, and others on December 22, 2008 to

discuss the proposed alternative structure. CitationAir believed and still believes that the

proposed structure conforms to all regulatory requirements. At the meeting, the FAA’s

response to the proposal was positive. The FAA did not indicate that any portions of the

Program were not acceptable or could not be exempted as needed to comply with subpart K.

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FAA DENIAL OF EXEMPTION

On September 30, 2010, twenty (20) months after the filing meeting and after

countless attempts to determine the status of the Petition by CitationAir, FAA denied the

Petition. In so doing, FAA rejected CitationAir’s position that beneficial ownership constitutes

“ownership” for subpart K purposes; the FAA also rejected CitationAir’s dry lease exchange

arrangement which obviated the need for separate truth-in-leasing (FAR Section 91.23)

filings.

RECONSIDERATION OF PETITION

The FAA rejected CitationAir's assertion that ownership of an aircraft through a trust

was sufficient to make an entity an owner for purposes of subpart K. 14 C.F.R. § 1001(b)(3)

(2010). The FAA reasoned that although multi-year leasing is considered ownership for such

purposes, “[o]wnership 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.”1

In rejecting CitationAir's proposed use of a trust to make entities fractional owners for

purposes of subpart K, the FAA misunderstood the essential nature of trust ownership and

leasehold interest in an aircraft. CitationAir would note that traditional fractional programs and

the FAA from the beginning have treated and continue to treat beneficial owners of single

trusts as fractional owners under subpart K. The objectors during the initial consideration of

the Petition noted as well that placing ownership of a fractional share in trust was one of many

ownership options always available as part of traditional fractional ownership programs. See

Comment of NetJets dated May 26, 2009 at 5. Unlike many of the multi-year leases used

under fractional ownership programs, which are mere operating leases rather than financing

leases, beneficial owners of an aircraft under a trust agreement such as that proposed in the

Program assume liability for the asset, bearing the consequences of a loss in the value of the

aircraft or gaining from an increase in its value. For example, Delaware law provides as

regards beneficial owners of statutory trusts (such as proposed in the Program) that as a

default “a beneficial owner shall have an undivided beneficial interest in the property of the

statutory trust and shall share in the profits and losses of the statutory trust in the proportion

(expressed as a percentage) of the entire undivided beneficial interest in the statutory trust

owned by such beneficial owner.” Del. Code Tit. 12 Sec. 3805 (2010). That is, a fractional

beneficial owner will share in the appreciation or loss of value of an aircraft held in trust in

proportion to such beneficial owner's interest in such aircraft. As a general matter, a lessee

under an operating lease does not have any connection to the appreciation or loss of value in

the aircraft being leased. Thus, in real terms, 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 program, whereas multi-year leaseholds, in particular those which are not financed

based, but mere operating leases, are quite distinct from actual ownership of an aircraft and

the responsibilities that come with it (even though the FAA accepted such leasehold interest

as ownership for purposes of subpart K). Thus, to state that beneficial ownership is “too far

removed from actual ownership” is wrong; to reach that conclusion when multi-year

1 As noted below, FAA's conclusions in this regard apply equally to single aircraft owner trust, which upon

information and belief are widely used in fractional programs including those of the objectors.

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leaseholds are not deemed too far removed from actual ownership is the height of

arbitrariness.

Because of its sweeping language the Denial indicates that beneficial ownership even

in a single aircraft trust cannot constitute ownership for fractional ownership purposes. Yet,

as pointed out in the Petition, there are a large number of such single aircraft interest trusts

associated with fractional programs. As above noted, even the objectors to the Petition noted

that single aircraft interest trusts were and are an option for ownership used by fractional

owner participants in traditional fractional ownership programs. CitationAir submits that the

use of owner trusts generally, whether single aircraft interest trusts or CitationAir's Program

trusts, meets the definition of owner for subpart K purposes; thus, the effect of the Denial will

be to throw into doubt the legitimacy of the operation under fractional ownership programs

those large number of fractional shares that are now held in single aircraft interest trust.2 

In denying the Petition, the FAA found that “[g]ranting the proposed exemption to §

91.1001, thereby allowing the Fractional Program Trust Structure to operate without 'a drylease 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.” The FAA asserted that the regulations do not

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

fractional owners because the fractional manager also provides pilots and such an

arrangement would be tantamount to allowing the program manager to conduct commercial

operations without a FAR part 119 certificate. This, according to the FAA's reading of the

preamble to the Final Rule was not the intent of subpart K. 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 FAR § 91.1013,

requiring briefings on operational control and signing of an acknowledgment by the fractional

owner participant that acknowledging operational control of the aircraft, because “the FAA

does not believe that such an arrangement should be used in operations under subpart K of

part 91.” As a consequence, the FAA found the Petition not to be in the public interest. 

It should initially be noted that the FAA in the Denial simply misapprehended the basis

for relief requested in the Petition with regard to the dry-lease arrangement proposed in the

Program. Simply stated, there was no request to permit the Program to operate “without a

dry-lease aircraft exchange arrangement among all of the fractional owners.” As the Petition

explained, “[w]hile the basis for meeting certain elements required of a fractional program as

defined in FAR part 91 may change under the [Program], such as how participants become

fractional owners and how program aircraft are leased to them, all of the elements of a

fractional program will continue to be met.” As the Petition noted with regard to the dry-lease

exchange, subpart K defines a “dry lease aircraft exchange” in terms of an “arrangement” by

which the fractional owners have access to the program aircraft. Subpart K does not require

that the fractional owners lease their aircraft to each other. The Program already meets the

plain language requirement of subpart K as to a dry-lease exchange. CitationAir has only

asked that FAA confirm such fact, not that the Program be permitted to operate without

2 CitaitonAir also notes that the trust as provided in its Program includes, as specifically contemplated under

Delaware law, a series feature where each aircraft is held in a separate series that makes CitationAir's

Program trust indistinguishable from single aircraft interest trust.

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meeting the element of a dry-lease exchange.

While the FAA may have correctly noted from the preamble to the Final Rule that “[t]he

dry-lease 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,”

the FAA failed to consider the broader definition of a program aircraft under FAR Section

91.1001(a)(6) of subpart K. While FAR Section 91.1001(a)(6) of subpart K does define a

fractional ownership program aircraft as “an aircraft in which a fractional owner has a minimal

fractional ownership interest and that has been included in the dry-lease aircraft exchange

pursuant to the program agreement,” it also includes as a program aircraft “an aircraft owned

in whole or in part by the fractional program manager that has been included in the dry-lease

aircraft exchange and is used to supplement program operations." In other words, an aircraft

owned by the fractional program manager, who provides pilots, is leased to the fractional

owners under subpart K. Thus, despite the Denial's assertion to the contrary, subpart K

contemplates that the fractional program manager may provide an aircraft with operational

control residing in the fractional owner even though the pilots are also provided by the

fractional program manager and all without a part 119 certificate. Such operations are

standard in the industry. The rejection of CitationAir dry-lease exchange arrangement on the

basis that CitationAir may be providing aircraft and crew is yet another example of arbitrary

decision making by FAA.

The Program's use of a lease of aircraft from the manager to the participants as

opposed to an exchange of aircraft among the participants simply is not “contrary to

longstanding legal interpretations regarding an operator’s responsibility for maintaining

operational control and the intent of subpart K.” The Program's use of a lease from the

manager is consistent with the definition of Program Aircraft in subpart K, even if not currently

the common method used by fractional program managers. The fact that the aircraft in the

Program leased to each of the fractional owner participants will not be owned by the manager,

but by the fractional owner participants themselves, should not detract from the conclusion

that fractional program managers are permitted under subpart K to both lease an aircraft to a

participant and provide pilots without holding a certificate under part 119. Therefore, Granting

the Petition does not require the FAA “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.”3

3 Arguably, this type of “traditional” dry lease exchange had already altered the FAA's “long-standing” policy of

what constitutes a wet-lease in that the manager would be furnishing directly or indirectly a program aircraft

and crew through the mangement agreement;this argument would be overcome by FAR Sections 91.1009

and 91.1013 in the same way that these provisions of subpart K dis-spell any lingering doubt that operational

control for purposes of the the Program resides with the owner participant in a specific set of circumstances.

Section 91.1009 states explicitly that an owner has operational control when the owner “(1) Has the rights

and is subject to the limitations set forth in §§ 91.1003 through 91.1013; (2) Has directed that a program

aircraft carry passengers or property designated by that owner; and (3) The aircraft is carrying those

passengers or property.” An owner does not have operational control when “(1) A program aircraft is used for

a flight for administrative purposes such as demonstration, positioning, ferrying, maintenance, or crew

training, and no passengers or property designated by such owner are being carried; or (2) The aircraft being

used for the flight is being operated under part 121 or 135 of this chapter.”

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The FAA misapprehends the significance of the operational control briefings now

provided in subpart K. The use of such briefings and acknowledgment in subpart K grew out

of the fact that participant owners will likely not fly in their own aircraft, but will be flying either

in an aircraft leased from another fractional owner participant or from the program manager

and the fact that fractional owner participants do not have control or oversight in a meaningful

way over the crew that will fly them. The preamble to the Final Rule noted that the

requirement for briefing was imposed precisely because “[f]ractional owners need[ed] to

understand that when safety requirements are not met they are subject to FAA enforcement

actions or liability risks.” 68 Fed. Reg. 54520 at 54539 (2003). The FAA had recognized that

in fractional programs fractional owner participants' exercise of operational control derived

primarily not from direct involvement in the operation of the aircraft, but from the owner's

“responsibility . . . to choose a program and a program manager, [and] also to ensure that the

tasks are completed in accordance with the regulations and the contractual agreements.” Id.

at 54531. The briefing and acknowledgment requirements in subpart K combined with an

explicit static definition of when fractional owner participants have operational control in FAR

Section 91.1009, to avoid any need to interpret any particular situation, serve to place

responsibility for operational control squarely with the fractional owners despite the fact that

the aircraft being flown is an aircraft provided by the fractional program manager directly as

owner, lessor, or indirectly through its role as administrator of the dry lease exchange and

piloted by crew employed by the fractional program manager. This is precisely what was

intended by subpart K and is intended by CitationAir’s concept in the Program. 

The FAA concluded that granting CitationAir's Petition would negatively impact the

ability of fractional ownership aircraft to operate under rules pertaining to international private

aviation in foreign countries. The FAA noted that foreign civil aviation authorities generally

consider fractional ownership programs to be non-commercial “general aviation operations

largely due to the understanding that fractional ownership program participants remain the

registered owners of the aircraft they operate.”

In the objections to the Petition and in the Denial there is no reference as to any

particular negotiation on-going or specific countries at issue as to a change in the treatment of

fractional ownership programs as non-commercial general aviation in the event of

implementation of the Program. While the FAA, and DOT, may be worried that any change

could have an effect on the treatment of fractional ownership programs, such concern is

vague and undefined without substance at best and should not form the basis for rejecting the

Petition. In addition, if the Petition were to be granted the exemption would only apply to

CitationAir and other fractional operators would not be affected by this approval.

More fundamentally, in reaching its conclusion with regard to the effect on foreign civil

aviation authorities the FAA failed to recognize that as currently structured many fractional

ownership program participants are not registered owners of the aircraft they operate. In fact,

most fractional owners do not fly in their own aircraft, but obtain an aircraft from the dry-lease

exchange. Moreover, the major fractional program managers either hold an air carrier

certificate or partner with an air carrier to provide commercial transportation services to

fractional owner participants. As above noted, many current fractional ownership program

participants are fractional owners through means of mere operating leases, many times

through either the fractional ownership program manager directly or through a corporate

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affiliate of the fractional ownership program manager. Other fractional ownership program

participants hold their ownership through a single aircraft interest trust. As such, the FAA's

concern that foreign civil aviation authorities will treat fractional ownership programs

differently after the implementation of the Program is unfounded given that the current

operation of the programs involves varied manners or ownership and program managers who

also hold or associate for transportation of fractional owner participants with air carriers.

Foreign civil aviation authorities are undoubtedly already aware that there are various means

of ownership in fractional ownership programs and that in certain cases ownership is

established via a leasehold obtained through either the fractional ownership program

manager or an affiliate of the ownership program manager and in other cases through a trust.

CitationAir is unaware of, nor have the objectors or FAA cited to, any instances in which

fractional ownership through an owner trust, let alone, a multi-year leasehold, has created an

international incident. Thus, it is safe to say that the granting of the Petition would not change

foreign govenments current view or treatment of fractional ownership programs.

The FAA concluded that any grant of the Petition would be precedential and therefore

would have an industry-wide impact on the fractional ownership industry. As such, the FAA

concludes that such change would be more appropriately accomplished through rulemaking. 

The assertion that the grant of the Petition would be precedential is incorrect as it

would be limited to the very particular Program offered by CitationAir. Grant of the Petition

would be no more precedential than the grant of any exemption is precedential. Grant of the

Petition would not be a blanket change in the way that fractional program managers operate.

To its knowledge, CitationAir is unaware of any other fractional program manager who has a

Delaware Statutory Trust developed similar to that of the Program. If granted, the Petition

would only apply to those aircraft owned by fractional owner participants who have beneficial

interests in a trust. Grant of the Petition would not necessarily apply even to another

fractional program manager who develops a similar program using common law trust or trust

from another state. 

The fact that similar exemptions may be provided to or sought by a number of similarly

situated entities does not make it precedential or more appropriate for rulemaking. This is the

essential nature of an exemption. For example, CitationAir was only recently granted an

extension of Exemption 8740 by the FAA to allow CitationAir “to temporarily operate U.S.-

registered aircraft in domestic operations without the registration or airworthiness certificates

on board.” In its original grant of Exemption 8740 on June 22, 2006, the FAA specifically

acknowledged that it “has issued a grant of exemption in circumstances similar in all material

respects to those presented in your petition.” The FAA further attached that prior grant of

exemption (Exemption No. 8377 granted to Spirit Airlines) as a copy to its grant of Exemption

8740. Nevertheless, the FAA did not feel compelled to initiate a rulemaking to apply the

same exemption to all entities in similar circumstances. The Petition is an appropriate subject

for an exemption and does not by its nature require a rulemaking. 

Lastly, the FAA rejected the contention that initiation of a stable registration platform

such as the Program would result in a significant cost savings in the public interest. The FAA

states that when it issued subpart K on September 17, 2003 it “considered the costs that

would be incurred by the FAA for administering [subpart K] and determined that such costs

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were acceptable given the anticipated safety benefits of [subpart K].” The FAA further

indicated that because of its view of the impact of granting the Petition as outlined in the

Denial any “cost savings would not outweigh the public interest considerations.” 

While the Denial notes that the FAA considered the costs that would be incurred by the

FAA for administering subpart K when issuing the rule in 2003, four (4) years later in April of

2007, CitationAir received a letter from the Aircraft Registration Branch, which was attached

as an exhibit to the Petition . In the April 2007 Letter, the FAA indicated that while individual

registered co-ownership had been useful for fractional ownership programs, “[u]nfortunately,

as the fractional programs have grown, the review of supporting documents such as dry

leases, interchange agreements, and share-owner powers of attorney have become an

administrative burden for the Civil Aviation Registry (Registry).” Thus, the FAA found, despite

its initial finding in 2003 regarding the impact of costs in administering subpart K, by 2007, the

actual cost had become extraordinary, in part because of the unanticipated burden imposed

“by the frequent ownership changes that require priority registration of aircraft as individual

co-owners transfer shares.” The burden has increased so much that the FAA indicated that

“[t]he growing workload associated with the fractional co-ownerships is reducing the ability of

the Registry to meet the registration needs of fractional operations and all other aircraft

owners.” Thus, the cost savings represented by the Program, which are directly in response

to the FAA Registry's plea for help in the April 2007 Letter, clearly are significant and in the

public interest. In light of the April 2007 Letter, these cost savings also render as obsolete or

outdated the FAA's finding in 2003 that the cost of compliance with subpart K are acceptable.

As to such cost savings being outweighed by the impact of granting the Petition, the FAA's

consideration of such impact as demonstrated herein was based upon on either

misinterpretation of the relevant regulation or misapprehension of the relief sought. There

would be no significant public interest cost to granting the Petition. Indeed, it is clearly in the

public interest to grant the Petition.

Based upon the foregoing, CitationAir respectfully request that FAA reconsider the

Denial and grant the Petition. 

Sincerely,

John R. Copley

Counsel for CitationShares Management,

LLC

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