Jul 22, 2010

Executive Reimbursement for Personal Flights

On July 8, 2010, the Federal Aviation Administration (FAA) announced that it 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. Public comments on this proposed legal interpretation are due no later than August 9, 2010.

The FAA generally prohibits aircraft operators from accepting reimbursement for the costs associated with flights conducted under Part 91 of Title 14 of the Code of Federal Regulations. A limited exception exists for carriage of officials, employees, guests and company property “when the carriage is within the scope of, and incidental to, the business of the company.”

In 1993, the FAA issued a legal interpretation referred to as the “Schwab Interpretation” that held that Mr. Schwab could not reimburse his company for the cost of carrying him for vacation, pleasure trip or similar purposes as such travel is not “within the scope of, and incidental to, the company’s business.” Mr. Schwab could enter into a “time sharing agreement” permitting reimbursement of only part of the pro rata cost.

The FAA is now revisiting and proposing to relax the Schwab Interpretation. The FAA’s proposed interpretation would 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 rejected the arguments that a company needs to stay in touch with its officials or that its officials needed to be able to work while in the air, but found persuasive that certain individuals may not be able reliably to schedule personal travel because of the nature of their employment. Accordingly, the FAA “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.”

Even with this new interpretation, the FAA contemplates that not all personal travel will meet these conditions, such as emergency travel and personal travel that is unlikely to be canceled for the convenience of the company (i.e., wedding or funeral for a close family member). Further, the FAA proposes that the board of a company wishing to take advantage of this interpretation should maintain and regularly update a list of individuals whose position within the company requires him or her routinely to change travel plans within a very short period of time. This list will be shared with the FAA if it is requested. The FAA also proposes that the company keep records demonstrating that a determination has been made that the flight in question was of a routine personal nature.

The interpretation is not final and is subject to comment from the public. If you would like assistance in filing public comments before the August 9, 2010 deadline, please contact Walter Hinton.

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