Aviation: USA Overview - May 2013

Regulation of aviation operations

Regulatory bodies and laws

Aviation in the United States is regulated primarily by the Department of Transportation and the Federal Aviation Administration (FAA) pursuant to Title 14 of the Code of Federal Regulations (the Federal Aviation Regulations), 49 USC (the Transportation Code) and the corresponding regulations.

Safety regulation

The FAA regulates the safety of commercial and private air transport. Screening passengers and ensuring onboard security is the responsibility of the Department of Homeland Security's Transportation Security Administration. The National Transportation Safety Board conducts non-criminal aircraft accident investigations.

The Federal Aviation Regulations (14 CFR Section 1.1) define a 'commercial operator' as:

"A person who, for compensation or hire, engages in the carriage by aircraft in air commerce of persons or property... [W]here it is doubtful that an operator is for 'compensation or hire', the test applied is whether the carriage by air is merely incidental to the person's other business or is, in itself a major enterprise for profit."

An 'air carrier' means "a person who undertakes directly by lease, or other arrangement, to engage in air transportation". The operations of US air carriers and commercial operators are regulated by Parts 119, 121 and 135 of the Federal Aviation Regulations. All other private operations are regulated under Part 91. Large private operations are also regulated under Part 125.

Market access

Applicants seeking air carrier operating authority must acquire a certificate of public convenience and necessity, granted by the Department of Transportation under Chapter 411 of the Transportation Code and Part 201 of the Federal Aviation Regulations. For certain smaller operations, an exemption application may be filed pursuant to Part 298 of the Federal Aviation Regulations. Application for a certificate of public convenience and necessity must be made in writing and verified, and the carrier must demonstrate that it is "fit, willing and able" to provide the proposed operations and comply with the rules and regulations. The applicant must:

have the managerial skills and technical ability to provide the service; have access to financial resources to begin operations without posing undue risk to consumers; abd show a willingness and ability to comply with applicable regulations. If the applicant certifies fitness and the Department of Transportation learns of any special issues, the application is handled with a show cause order. The certificate specifies the terminal and intermediate points between which the air carrier is authorised to engage in transportation. The operating authority is not effective until the applicant has been certified by the FAA to conduct operations under the relevant category and it has obtained adequate liability insurance.(1)

If seeking an exemption, the applicant may file an application pursuant to Part 298 of the Federal Aviation Regulations, which establishes a class of air carrier known as 'air taxi operators' and provides certain exemptions from the economic regulations of the Transportation Code. An air taxi operator:

does not generally use large aircraft; does not hold a certificate of public convenience and necessity; has liability insurance; and has registered with the Department of Transportation as an air taxi operator. Financial fitness requirements

To acquire a certificate of public convenience and necessity, an applicant must demonstrate financial fitness. The Department of Transportation has not identified specific financial fitness criteria. However, for a new applicant, the Department of Transportation imposes a 90-day 'zero revenue' test. This test requires proof of available funding to cover pre-operating costs plus a working capital reserve adequate to fund projected expenses for three months of flight operations without revenue.(2) Filing for bankruptcy is grounds for enhanced scrutiny by the Department of Transportation.

Nationality of ownership and control requirements

The Department of Transportation requires that an applicant for a certificate of public convenience and necessity be a US citizen. The president and two-thirds of the board of directors and other managing officers of the corporation must be US citizens and 75% of the voting interest in the corporation must be owned or controlled by US citizens.(3) The Department of Transportation has interpreted this requirement to mean that US citizens must also be in actual control of the carrier and must have control of at least 51% of non-voting equity and 75% of voting equity.(4) Foreign entities may control up to 25% of the stock and no more than 49% of the combined stock and debt. Furthermore, the air transport agreement executed by the United States and the European Union in 2007 provides that an EU national's ownership of...