
[Federal Register: July 8, 2010 (Volume 75, Number 130)]
[Proposed Rules]               
[Page 39196-39197]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy10-28]                         

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 91

[Docket No. FAA-2010-0667]

 
Proposed Legal Interpretation

AGENCY: Federal Aviation Administration (FAA)

ACTION: Proposed interpretation.

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SUMMARY: The FAA is considering revising its broad prohibition on pro 
rata reimbursement for the cost of owning, operating and maintaining a 
company aircraft when used for routine personal travel by senior 
company officials and employees under certain conditions.

DATES: Comments must be received on or before August 9, 2010.

ADDRESSES: You may send comments identified by Docket Number FAA-2010-
0667 using any of the following methods:
     Federal eRulemaking Portal: Go to http://
www.regulations.gov and follow the online instructions for sending your 
comments electronically.
     Mail: Send comments to Docket Operations, M-30; U.S. 
Department of Transportation, 1200 New Jersey Avenue, SE., Room W12-
140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Bring comments to Docket 
Operations in Room W12-140 of the West Building Ground Floor at 1200 
New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., 
Monday through Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at 202-493-2251.

FOR FURTHER INFORMATION CONTACT: Rebecca B. MacPherson, Assistant Chief 
Counsel, Regulations Division, Office of the Chief Counsel, Federal 
Aviation Administration, 800 Independence Avenue, SW., Washington, DC 
20591; telephone: 202 267-3073.

SUPPLEMENTARY INFORMATION: 
    The Federal Aviation Administration (FAA) generally prohibits 
aircraft operators from seeking reimbursement for the costs associated 
with flights conducted under part 91 of Title 14 of the Code of Federal 
Regulations (CFR). Certain exceptions to this general prohibition may 
be found in 14 CFR 91.501. One of the exceptions, located in Sec.  
91.501(b)(5), provides for limited reimbursement for the ``carriage of 
officials, employees, guests, and property of a company on an airplane 
operated by that company, or the parent or a subsidiary of the parent, 
when the carriage is within the scope of, and incidental to, the 
business of the company (other than transportation by air) and no 
charge, assessment or fee is made for the carriage in excess of the 
cost of owning, operating, and maintaining the airplane, * * *. ''
    In 1993, the FAA's Office of the Chief Counsel issued a legal 
interpretation of this provision that addressed officials and employees 
of a company using the company aircraft for personal travel. 
Interpretation 1993-17, August 2, 1993. This letter is commonly 
referred to as the ``Schwab Interpretation.'' In the Schwab 
Interpretation, the FAA noted that the personal travel was not within 
the scope of the company's business and so did not meet the two-part 
test set forth in Sec.  91.501(b)(5), i.e., that it be within the scope 
of and incidental to the company's business.
    On March 1, 2010, the National Business Aviation Association (NBAA) 
requested the FAA consider revising the long-standing Schwab 
Interpretation to address highly placed officers and employees of a 
company who could be recalled at any moment, or whose travel plans 
could be altered immediately prior to the individual going on personal 
travel. The FAA is considering narrowing the broad prohibition provided 
in the Schwab Interpretation; the agency is publishing this notice to 
seek comment on its revised interpretation.
    In the Schwab Interpretation, the FAA rejected the argument that a 
need to communicate with a senior company official justified an 
assertion that the personal travel was within the company's business. 
Instead, the FAA noted that ``[i]t may very well be that the Company 
wants to maintain prompt communications with Mr. Schwab when he is on 
pleasure trips. That desire, however, does not alter the fact that he

[[Page 39197]]

is traveling for pleasure. As stated, the Agency's interpretations have 
held that such carriage is not within the scope of, and incidental to, 
the company's business. The ability of the Company to communicate with 
him is in no way dependent upon charging him for carriage for such 
purposes.'' The NBAA made similar arguments in its recent request that 
company officials have the ability to conduct meaningful, real-time 
work aboard company aircraft, and so personal travel can be within the 
scope of the company's business even though it is incidental to that 
business. The FAA rejects this argument as sufficient to merit a change 
in agency interpretation of Sec.  91.501(b)(5). If anything, the 
advances in communication technology weaken any argument that the use 
of company aircraft is necessary for personal travel. The advent of 
laptop computers and handheld PDAs has led to greater communication 
than ever before.
    The FAA finds more compelling the argument that certain, highly-
placed officials and employees may be unable to reliably schedule 
personal travel due to the nature of their employment.
    Recalling an individual from a vacation because of an emergency is 
clearly within the scope of a company's business. To the extent that 
using company aircraft is the most efficient way to transport the 
individual in an emergency situation, the FAA would not object to 
company aircraft being used; although there could be some question as 
to whether the transport was still incidental to the company's 
business, such that both prongs of Sec.  91.501(b)(5) apply.
    However, the FAA believes there is merit to the position that even 
the first leg of the trip could, under limited circumstances, be within 
the scope of a company's business, even though there were no emergency 
circumstances at play. The FAA recognizes that fairly routine personal 
travel, such as a summer vacation or weekend ski trip, could be 
cancelled up to the last moment because of compelling business 
concerns. As such, the company may determine that it is more efficient 
to provide the company aircraft than to reimburse the individual for 
the cost of cancelled commercial airfare. In addition, the company may 
be able to accommodate the individual's altered plans by providing the 
company aircraft as soon as possible after the compelling business 
concern has been resolved. As such, while the personal travel is not 
within the scope of the company's business, indeed it is clearly 
incidental to that business, the need to modify the travel on very 
short notice may well be. Likewise, to the extent that the return trip 
is not compelled by emergency circumstances, the ability of a company 
to alter an individual's travel plans on very short notice may render a 
particular flight both within the scope of and incidental to the 
company's business. Thus, the FAA has tentatively determined that a 
company could be reimbursed for the pro rata cost of owning, operating, 
and maintaining the aircraft when used for routine personal travel by 
an individual whose position merits such a high level of company 
interference into his or her personal travel plans.
    The FAA notes that not all personal travel would meet these 
conditions. As noted above, truly emergency circumstances would likely 
obviate a company's ability to demonstrate that a particular flight is 
incidental to the company's business. By the same token, there are 
certain types of personal travel that are unlikely to be altered or 
cancelled, even for compelling business reasons. For example, absent an 
emergency, it is highly unlikely that a senior officer or employee 
would be expected to miss a significant event, such as a wedding or 
funeral of a close family member. It is also unlikely that the 
individual would be expected to cancel or reschedule necessary surgery 
or other medical treatment.
    In order to prevent companies from abusing the proposed change in 
the Schwab Interpretation, the FAA believes that a company wishing to 
take advantage of the interpretation should maintain and regularly 
update a list of individuals whose position within the company require 
him or her to routinely change travel plans within a very short period 
of time. The company should be prepared to share this list with the FAA 
if requested. The FAA recognizes that the Securities Exchange 
Commission and Internal Revenue Service employ the concept of 
``specified individuals'' in the context of certain reporting 
requirements and taxation issues. These individuals generally include 
officers, directors, and more than 10 percent owners of a company. The 
FAA does not believe that all officers of a company are likely to be 
subject to the level of company control discussed above, nor are all 
directors. Rather than issue a blanket description of which individuals 
may be covered by the proposed revision, the FAA believes it is 
appropriate for the company's board, or equivalent governing body, to 
list which company individuals are so situated. In addition, the 
company would need to keep records indicating that a determination has 
been made by the company that the flight in question was of a routine 
personal nature.

    Issued in Washingon, DC, on June 30, 2010.
Rebecca B. MacPherson,
Assistant Chief Counsel for Regulations.
[FR Doc. 2010-16385 Filed 7-7-10; 8:45 am]
BILLING CODE 4910-13-P

