Business Aviation Law Blog : Boston Aviation Lawyer & Attorney : Harry Ekblom : Sullivan & Worcester Law Firm : FAA Regulation & Aircraft Transactions

Late last month, executives gathered in London for the Aviation Carbon 2013 summit. A few themes developed from this summit.  Among the themes was that  any adopted carbon emissions offset program must show a verifiable difference to the health of the environment, and that any carbon emissions offset program must be simple to join.  Discussion also concentrated on the International Civil Aviation Organization's (“ICAO”) meeting in September 2013.  As we reported earlier in this blog, in November 2012 the European Union suspended the inclusion of the non-EU aircraft industry in the EU Emissions Trading Scheme (“EU-ETS”) for one year until ICAO had an opportunity to develop a global consensus on a plan to reduce emissions.  The September meeting of ICAO's High-Level Group on International Aviation and Climate Change is that opportunity. 

The working group is reviewing at least three market-based mechanisms:  (No. 1) a carbon emissions offset program that requires the funding of projects that reduce carbon emissions; (No. 2) a carbon emissions offset program similar to that proposed in No. 1, but with an additional revenue mechanism, most likely a tax; and (No. 3) a global carbon emissions cap-and-trade system.  It has been reported by news outlets after the Aviation Carbon 2013 summit that the mechanism showing the most promise is No. 1, which will require participants to engage in carbon offset projects such as those that support renewable energy, promote reforestation, avoid deforestation, and boost energy efficiency.  If the working group fails to come to a consensus, then we could see a stand-off again between the EU and the non-EU aircraft industry on this controversial measure.

As this issue progresses, please check back to this blog for future posts.

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In the face of a heightened focus on aircraft emissions reduction in the industry, electric-powered and hybrid aircraft, as well as aircraft that use biofuels, offer viable alternatives.  This blog has explored the development of the electric aircraft before in “Electric Aircraft May Soon be the Standard in the Business Aviation Industry.”  Recently, the development of electric aircraft took another step with the announcement that European helicopter maker AgustaWestland has built and flown the world’s first electric tilt-rotor aircraft.  

Named “Project Zero,” the aircraft employs two electric-powered rotors, one on each wing.  The rotors, which are located within the wingspan, can be rotated more than 90 degrees so that they can be used for lift-off and as propellers during normal flight.  This model is completely electric; however, AgustaWestland is considering a hybrid model that uses a diesel engine.  For more information, please visit AgustaWestland’s website.

Photo: AgustaWestland

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This blog has discussed the regulation of lead in aviation gasoline extensively. Due to the fact that the general aviation industry is the last remaining industry to use leaded fuel, aviation gasoline has become a focal point of discussion at the Environmental Protection Agency, in the general aviation industry, and amongst environmental NGOs. Below are some of the past posts regarding lead in aviation gasoline:

• Rep. Henry Waxman Urges FAA to Immediately Address Lead in Aviation Gasoline
• Industry-Government Task Force Report Sheds Light on Future of Aviation Gasoline
• Environmental Advocacy Group Sues EPA to Regulate Emissions from Aviation Gasoline
• EPA Sets Its Regulatory Cross Hairs on Leaded Aviation Fuel
• EPA Begins Rulemaking Process to Address Lead in Aviation Gasoline

In the pending case, Friends of the Earth v. EPA, D.D.C., No. 12-363, the plaintiff environmental group is pushing EPA to issue a finding that leaded aviation gasoline endangers human health and the environment. Such a finding would require the agency to regulate lead. During a hearing last week on EPA’s motion for summary judgment, Judge Amy Berman Jackson told the parties that the question before the court was whether EPA has a mandatory or discretionary duty to make such a finding. Only if the agency has a mandatory duty could the court compel EPA to take action. Each side points to specific language in the Clean Air Act to argue that the agency does or does not have discretion.

Before this lawsuit, Friends of the Earth filed an administrative petition seeking to compel EPA to make the endangerment finding. Only after EPA denied the petition last year did the environmental group bring the suit. In denying the petition, EPA stated that it needed additional time to study lead emissions in the general aviation industry (petition denial can be found on EPA’s website here). Battling a limited amount of monitoring data to make its evaluation, EPA has been working to develop a robust model that can characterize the amount of lead in the ambient air at and around airports where piston-engine aircraft operate.

The industry is closely following this case and issue. So will this blog. Please check back for updates.

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As other countries witnessed their general aviation sectors shrink during the economic downturn, Brazil’s has thrived. According to top Brazilian domestic aviation experts, the industry is expected to grow by 9.5% this year. This follows a 7.14% increase year over year in 2012 and a 6.4% increase in 2011. This growth has come from all sectors of the general aviation industry, but especially from business aviation, according to Dorieldo Luis dos Prazeres, an air-control expert at the Brazilian Civil Aviation Agency. Brazil has the world’s sixth largest economy and the second largest general aviation fleet behind only the United States. Late last year, Brazil hosted the Latin American Business Aviation Conference and Exhibition (“LABACE”) in San Paulo, an event that organizers said was the second largest general aviation show in the world after the one in Oshkosh, Wisconsin. The country is home to close to 1,700 corporate aircraft, a number which is expected to rise as Brazil’s economy continues to flourish. Brazil is also home to Embraer, the world’s third largest commercial aircraft manufacturer, behind Boeing and AirBus. Embraer began manufacturing business aircraft in 2002 and has several available models.  

Couple this extraordinary growth with Brazil’s playing host to two major international events in the next three years, the 2014 World Cup and the 2016 Olympics, and you see an enormous need for aviation infrastructure to move people and cargo. To meet this need, last month, Brazil’s government unveiled an ambitious plan to build eight new mega-airports and 800 new regional airports. According to President Dilma Rouseff, any city with a population close to 100,000 people should have an accessible airport within 60 kilometers. In doing so, the Government clarified its goals to boost the general aviation industry, especially the existence of small- to medium-sized airplanes and private aircraft ownership.

The Brazilian general aviation market could present industry participants with numerous business opportunities over the next several years in a variety of areas. As this issue progresses, please check back to this blog for future posts.

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As part of the American Taxpayer Relief Act of 2012 -- the legislation that was the product of the “fiscal cliff” negotiations in Washington -- Congress extended 50% bonus depreciation for qualifying aircraft acquired prior to January 1, 2014. This provision was scheduled to expire and would not have been available for aircraft acquired after December 31, 2012. Bonus depreciation is subject to certain limitations, as noted below. However, if the limitations are met, the effect is that an aircraft purchaser can deduct half of the cost in the first year of use. The 50% bonus depreciation has been available for some time, and has been routinely extended by Congress.

Bonus depreciation is available pursuant to §168(k) of the Internal Revenue Code. In order to qualify, the following requirements must be met:

• The original use of the aircraft must commence after December 31, 2007;
• The aircraft must be acquired (or be subject to a written binding contract entered into) after December 31, 2007 and before January 1, 2014; and
• The aircraft must be placed into service prior to January 1, 2014 (or January 1, 2015, for aircraft that qualify as “longer production period property” and certain non-commercial aircraft).

These requirements are unchanged from those in existence prior to the passage of the American Taxpayer Relief Act of 2012 -- the legislation merely pushes out the acquisition and in service deadlines by one year.

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Earlier this year, the Internal Revenue Service issued a Chief Counsel Advice (CCA 2012-10026) that addresses the taxability of aircraft management fees as amounts “paid for the taxable transportation of persons” that are subject to the 7.5% Federal Transportation Excise Tax imposed by §4261 of the Internal Revenue Code (the “FET”). The CCA’s analysis suggests that the IRS will insist that aircraft management companies collect FET on management fees and other amounts paid by owners under most garden-variety aircraft management arrangements. This is an unwelcome surprise, not only for management companies (which had assumed -- for decades -- that no such obligation existed), but also for their aircraft owner clients. In light of the CCA, management companies and owners may want to consider reviewing and re-casting their aircraft management arrangements – before the issue comes up on audit.

The CCA focusses on what were hitherto considered very customary arrangements between aircraft owners and aircraft management companies. In the scenarios addressed in the CCA, an aircraft owner hires a management company to manage aircraft operations, perform maintenance, and ensure regulatory compliance. The management company also provides qualified pilots, who are employees of the management company. The owner pays a monthly management fee and an hourly fee for each hour of flight time. In addition, the aircraft owner reimburses the management company for the costs of employing the pilots and any crew and for pilot training. In one of the scenarios, the management company is allowed to charter the aircraft to third parties under Part 135 of the Federal Aviation Regulations when the owner is not using it, and the management company and owner share the charter revenue.

The CCA concludes that the amounts paid by the aircraft owner to the management company under the described scenarios, including management fees and a variety of costs separately reimbursed by the aircraft owner, are subject to the FET. Because such payments are subject to the FET, the management company has the obligation to collect the FET from the aircraft owner and remit the collected tax to the IRS. Should the management company fail to do so, the FET can be collected from the management company directly by the IRS. 

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Last week, the United States House of Representatives approved the European Union Emissions Trading Scheme Prohibition Act of 2011 , which would allow aircraft operators to dodge participation in the European Union Emissions Trading Scheme (”EU-ETS”).  The EU’s cap-and-trade policy has been the subject of much discussion and controversy over the last few years because many industry leaders say that the policy is a unilateral tax on the American aircraft industry and a violation of international law. As we posted on this blog before, the U.S. Senate passed a similar bill (S. 1956) in September 2012.  After reconciliation, the bill heads to the desk of President Obama for his signature.

The passage of this bill comes on the heels of a surprising suspension of the ETS provisions for a year. The International Civil Aviation Organization (“ICAO”) recently  announced that it would work to develop a plan to reduce global emissions of the aviation industry, thus prompting the EU to delay the inclusion of the aviation industry until after the ICAO General Assembly meeting in fall 2013. If ICAO fails to resolve the issue or make substantial headway, the recent suspension will only serve to postpone the controversial measure.  

As this issue progresses, please check back to this blog for future posts.

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As previously posted in “U.S. District Judge Dismisses Environmental Group's Legal Suit to Force EPA to Regulate Aircraft Engine Emissions,” in March 2012, the United States District Court for the District of Columbia granted the Environmental Protection Agency’s (“EPA”) motion for summary judgment and refused to force the agency to determine if emissions from aircraft and ships “cause or contribute to dangerous air pollution.” On November 2, 2012, the Court denied a motion for reconsideration filed by the plaintiff environmental groups, finding that neither EPA’s proposed Power Plant Rule, 77 Fed. Reg. 22392, nor the Court of Appeal’s decision in Coalition for Responsible Regulation, Inc. v. EPA, 684 F.3d 102 (D.C. Cir. 2012) constitute newly discovered evidence. Nor did they demonstrate that the Court’s earlier order was based on an error of law or fact.

The environmental groups had argued that EPA’s newly proposed regulations for power plants could be applied to other sources, such as aircraft, and constituted new evidence that warrants reconsideration by the Court. But, the Court found that the regulations were only proposed and that the agency was still accepting public comment. Further, the Court did not accept the argument that the regulations could be applied to other sources because the proposed regulations relate to an entirely different section of the Clean Air Act. The Court went on to find that these facts, even if considered, would have no influence on the issue in the case: “whether Defendant EPA has unduly delayed in promulgating an endangerment determination for aircraft engines.”

A copy of the order can be found here.

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As mentioned in an earlier posts, "Industry-Government Task Force Report Sheds Light on Future of Aviation Gasoline," "Environmental Advocacy Group Sues EPA to Regulate Emissions from Aviation Gasoline," and "EPA Sets Its Regulatory Cross Hairs on Lead Aviation Fuel," leaded aviation gasoline, or avgas, remains a concern in the general aviation sector.

A joint industry-government task force is currently tackling the problem, and in a June 2012 report stated that the goal of the task force is to advance unleaded aviation gasoline by 2018.  However, this timetable is too long for some, including Rep. Henry A. Waxman (D. Calif.). In a recent letter to Federal Aviation Administration Acting Administrator, Michael Huerta, Rep. Waxman asked the agency to promote the use of unleaded alternatives for piston engine aircraft that are available today.

In the letter, Rep. Waxman noted the detrimental health effects of lead and that general aviation fuel accounts for half of all lead emissions in the United States. These effects are exacerbated by the fact that many of the smaller aircraft that use leaded gasoline fly out of airports near densely-populated areas.

A press release from Rep. Waxman’s office can be found here. As this issue progresses, please check back to this blog for future posts.

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