Fractional Ownership - Is a licence required from the Agency?
Table of contents
The intent of this document is to provide information to guide those who may be considering the operation of an air service by way of a fractional ownership program in Canada.
What is fractional ownership?
Although there are variations in individual fractional ownership programs, their structure is fundamentally similar. In general terms, fractional ownership programs are multi-year programs which allow more than one party (i.e., program participant) to acquire an interest in a specific serial-numbered aircraft. Typically, the acquisition cost of the fractional ownership in an aircraft is the list price of the specific aircraft multiplied by the fractional interest. The interest in the aircraft itself is often sold in increments of one-sixteenth, one-eighth, one-quarter or one-half and is based on the number of hours that the participant expects to use the aircraft annually. Most programs offer to repurchase the interest based upon the fair market value of the aircraft at the time of sale, less a remarketing fee.
On behalf of the multiple owners of the aircraft, the management company offering the fractional interest program places the aircraft in a dry lease (i.e., without crew) pool with other aircraft in the program to ensure that each program participant has access, on an as-needed basis and subject to specified conditions, to the aircraft in which it owns an interest in addition to the other aircraft in the program if the owner's aircraft is unavailable. As an integral part of these programs, the management company supports every aspect of the aircraft's maintenance and operation and accordingly typically receives from each participant a monthly fee to cover costs, including pilots' wages, training, crew costs, insurance, hangaring and administration as well as an occupied hourly fee for costs such as fuel, maintenance, and engine reserves.
Is a licence required from the Agency?
The Agency issues licences pursuant to Part II of the Canada Transportation Act, (the CTA) to those who propose to operate a publicly available air service in Canada. As fractional ownership programs have grown in number, size, and complexity since their inception in the United States in 1986 and have since expanded into markets such as Canada, the Agency undertook to assess whether or not such programs offer air services which require a licence issued by the Agency. After significant study and consultation with parties which have a special interest in fractional ownership programs, Agency staff are of the view that an air service offered via a fractional ownership program by a management company using program aircraft generally does not appear to be a publicly available air service within the ambit of subsection 55(1) and section 57 of the CTA. However, due to the potential for variation in individual fractional ownership programs, any such proposed air service will need to be assessed on a case-by-case basis given that such air services could become publicly available in certain instances where, for example, the program aircraft are made publicly available for charter or for other purposes.
Considering fractional ownership?
For the reason above, parties contemplating managing and operating a fractional ownership program in Canada are encouraged to discuss their program with Agency staff and request an Agency ruling as to whether or not their proposed air service is publicly available and thus avoid any possible licensing concerns in the future. Before such a request is made to the Agency, parties are advised to discuss their program with Agency staff in order to ensure that they provide the relevant information and documentation (e.g., executed agreements between the parties) to assist the Agency in making such a ruling.