Introduction

Fractional ownership is a means of aircraft ownership that is usually coupled with a programme which covers various aircraft owned by more than one party, all of which are placed in an exchange pool. Through fractional ownership programmes, any aircraft in the pool can be made available to a programme participant regardless of whether the participant owns an interest in the aircraft that is performing the service. By purchasing an interest in an aircraft that is part of a programme, an owner gains close to round-the-clock access to a private aircraft. Fractional ownership programmes can be attractive to companies that seek to have private aircraft available without the need to directly deal with maintenance, insurance or other operational needs. There has been an increase in interest in fractional ownership programmes due to the COVID-19 pandemic, which has resulted in a reduction of commercial flight availability.

Scope of fractional ownership programmes

Typically, aircraft under fractional ownership programmes have shared use and expense provisions through either a co-ownership agreement or a management agreement, when the aircraft is professionally managed. An aircraft management agreement between each fractional owner and the programme manager contains the details of the allocation of the use of the planes among the owners. Included in a management agreement are terms that cover:

  • payment;
  • costs; and
  • specification of the areas of aviation expertise to be provided by the fractional programme – for example:
    • aircraft maintenance and repair;
    • scheduling;
    • identifying flight crews; and
    • training.

History of fractional ownership in Brazil

Fractional ownership has been a topic of interest in Brazil since 2015 and a few companies have implemented fractional ownership programmes. One factor which has inhibited the growth of fractional ownership in Brazil is its lack of regulation. This began to change in October 2020 with a set of regulations known as 'Vôo Simples' ('simple flight'). The Vôo Simples regulations enable new operators, both large and small, to enter into the market to provide private aviation services at a comparatively low cost.

New fractional ownership guidelines

In February 2021 the Brazilian National Agency of Civil Aviation (ANAC) approved new guidelines for fractional ownership by establishing Subpart K of Civil Aviation Regulation (RBAC) 91, which enables shareholders to share the use of aircraft under a contract with a minimum term of one year.

The Brazilian fractional ownership regulations follow a similar path to Subpart K of US Federal Aviation Agency Federal Aviation Regulation 91. Operational safety rules are similar to the operations which fall under RBAC 135, which regulates air taxi operations, with some changes for the fractional ownership business model.

Interested air operators, or those which already operate aircraft on a fractional basis, will start operating under RBAC 91(K) in August 2022, or before this date if the company's administrative specifications are issued. Operations which fall under RBAC 91(K) will be mandatory where a programme has two or more airworthy aircraft, with a maximum of 16 shareholders per aircraft and 32 per helicopter.

The operational control of the aircraft and the contractual relationship between the operator and the shareholders that operate under the fractional programme are vested in the programme manager, which must be registered with the Brazilian Aeronautical Registry (RAB).

Three terms are important to note under the new regulation:

  • 'share', which is defined as "ownership, the right to property, the right to use or possess and / or the right to use or possession convertible into property right relating to an aircraft that is part of a fractional ownership programme";
  • 'shareholders', which are defined as "individuals or entities that own an aircraft share, directly or through co-ops, and that have entered into specific contracts to define the terms and conditions of the fractional programme"; and
  • 'manager', which is defined as "the entity that offers the shareholders the programme management services and that will be responsible for meeting the requirements of RBAC 91 and for exercising the operational control of the aircraft, even when the flight is performed for the benefit of a shareholder".

The regulation prohibits the commercial transportation of people or goods on fractional ownership programme flights but it allows reimbursement of the expenses of a specific flight, which may include various costs – for example:

  • fuel;
  • crew expenses;
  • hangar;
  • insurance;
  • airport charges;
  • food;
  • land passenger transportation; and
  • charges for the use of navigation facilities.

Another important point is the mandatory management contract, which has a minimum duration of one year and must be signed by the shareholders and the programme manager. Such contract covers issues relating to management services and can establish various terms – for example, services relating to:

  • the employment, supply and hiring of pilots and crew; and
  • maintenance services for the aircraft.

The process of authorisation of operations under this programme will follow a similar procedure for issuance of certificates by the RAB and will constitute document analysis, inspection and final authorisation. The programme manager must prepare and submit to ANAC a programme-operations manual which sets out policies and procedures. The flight, ground and maintenance personnel of the programme manager must use the manual when conducting their operations.

Under RBAC 91(K), the aircraft operator – whether it is the company that manages the fractional ownership programme or the owner or the group of owners listed in the aircraft certificate – will be held liable for civil liability in the event of accidents which arise under air operations.

By August 2021 ANAC will issue supplementary instructions which detail the requirements of RBAC 91(K). Operators which already operate under fractional ownership programmes must submit the required documentation by February 2022.

Comment

The attractiveness of fractional ownership programmes may be hindered by a new tax on ownership of aircraft and other vessels. The new tax, which would be assessed as 0.1% of the value of an asset, is under review by Congress.

The Vôo Simples and the new regulations are a welcome development that is modernising Brazilian regulations in view of the demand for fractional ownership programmes. Given the clarity of the regulations and Brazil's geographical dimensions, fractional ownership programmes are expected to grow substantially in the coming years.