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8900.1 CHG 264

VOLUME 12  INTERNATIONAL AVIATION

CHAPTER 2  FOREIGN AIR CARRIERS OPERATING TO THE U.S. AND FOREIGN OPERATORS OF U.S.-REGISTERED AIRCRAFT ENGAGED IN COMMON CARRIAGE OUTSIDE THE U.S.

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Section 9  Lease and Interchange Agreements, and Charter Arrangements

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12-349    GENERAL. The leasing of large transport category aircraft between a U.S. and foreign air carrier or between two foreign air carriers is widely used. The Federal Aviation Administration (FAA) defines an aircraft lease as a contract by which one person grants the right of exclusive possession and use of a certain aircraft to another person for a specified period or a defined number of flights. Lease agreements can be characterized as a dry lease, an interchange agreement, or a wet lease. (Additional definitions may be found in Volume 3, Chapter 13, Section 2.)

12-350    DRY LEASE. The term “dry lease” means any arrangement whereby a lessor agrees to provide an entire aircraft without crew to an operator. The lessee operator of the aircraft must hold the necessary economic and operating authority for the aircraft, and it must exercise operational control over the aircraft. Accordingly, the lessee must provide the necessary flight and cabin crewmembers, ground personnel, dispatchers, and ground facilities to operate the leased aircraft.

A.    Operations Specifications (OpSpecs). The dry leasing of U.S.- or foreign-registered aircraft (without crewmembers) by foreign air carriers operating to the United States and foreign persons engaged in common carriage outside the United States is a common practice. Where the lessor of the aircraft is a U.S. or foreign air carrier, the Federal Aviation Administration (FAA) must remove the leased aircraft from the lessor carrier’s OpSpecs and list it on the lessee’s OpSpecs, except when the lease is in the form of an interchange agreement.

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B.    Regulatory Compliance.

1)    Each foreign air carrier operating to the United States must comply with part 129 and the applicable provisions of part 91 of Title 14 of the Code of Federal Regulations (14 CFR).
2)    When operating a U.S.-registered aircraft within or outside the United States in common carriage, each foreign air carrier and foreign person also must comply with:
a)    All applicable regulatory requirements in 14 CFR, including, but not limited to, the following:

·    Parts 21 (airworthiness), 43 (maintenance) and 65 airmen other than flight crewmembers), as applicable.

·    Parts 61 (in particular, §§ 61.3 and 61.77) and 63 (in particular, §§ 63.3, 63.23, and 63.42 (personnel licensing requirements for flightcrew members (pilot, flight engineer, and flight navigator)) (see Volume 5, Chapters 2 and 4)).

·    Part 91 (in particular, §§ 91.1 and 91.701 through 91.706).

·    Part 129, §§ 129.5, 129.7, 129.9, 129.11, 129.14, 129.20, 129.24, and subparts B and C. (U.S.-registered aircraft operated solely outside the United States in common carriage by the foreign person or foreign air carrier. See § 129.1(b)).

b)    Title 49 of the Code of Federal Regulations (49 CFR) part 175 (rules for loading and carrying dangerous articles and magnetized materials in any civil aircraft in the United States and in civil aircraft of U.S.-registry anywhere in air commerce); and
c)    All applicable orders and regulations of other U.S. agencies and courts, and with all applicable laws of the United States.

C.    OpSpecs Applications and Amendments. Foreign air carriers should apply for OpSpecs or seek an amendment of their OpSpec authorizing the use of any dry leased U.S.-registered aircraft in accordance with §§ 129.5, 129.7, 129.9, and 129.11. The FAA will process such applications in accordance with Volume 3, Chapter 1.

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12-351    INTERCHANGE AGREEMENT. An interchange agreement is a form of a dry lease agreement. An interchange agreement permits two air carriers to connect two or more points on a route using the same aircraft but each operator’s crewmembers. For example: operator “a” (the primary operator) operates an aircraft from point “x” to point “y” (the interchange point). At point “y,” operator “b” (the interchange operator) assumes operational control of the same aircraft to fly from point “y” to point “z” with operator “b’s” own crew.

A.    Definitions. The following definitions apply to interchange agreements:

1)    The Primary Operator. The primary operator under an interchange agreement is the U.S. or foreign air carrier that would normally operate the aircraft if the interchange were not in effect. The primary operator always retains responsibility for the maintenance control of an aircraft that is the subject of an interchange agreement.
2)    The Interchange Operator. The interchange operator is the other U.S. or foreign air carrier party to the interchange agreement.
3)    The Interchange Points. The interchange points are those airports where an aircraft may be transferred between the primary operator and the interchange operator. The transfer involves the replacement of the flightcrew of one operator with the flightcrew of the other operator.

B.    Sample Scenarios. The following scenarios may arise when amending OpSpecs to document interchange agreements involving foreign air carriers and operations to the United States:

1)    If the primary operator under an interchange agreement is either a U.S. operator or a foreign air carrier operating to the United States, the aircraft subject to the interchange will be identified in paragraph A029 of the primary operator’s OpSpecs and included in the list of the primary operator’s aircraft in paragraph A003 of its OpSpecs.
2)    If the primary operator under an interchange agreement does not provide service to the United States, then the interchange points must be located outside the United States. The FAA would not issue OpSpec A029 to the primary operator.
3)    If the interchange operator provides service to the United States, the aircraft subject to the interchange will be identified in paragraph A029 of the interchange operator’s OpSpecs. If the interchange operator does not serve the United States, the FAA would not issue OpSpec A029 to the interchange operator. The interchange points must be located outside the Untied States in that case.
4)    When U.S.-registered aircraft are included under an interchange agreement between two part 129 air carriers, those aircraft shall also be listed in paragraph D085 of the primary operator’s OpSpecs.
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NOTE:  The parties to the interchange agreement may transfer operational control of the aircraft only at an interchange point designated in the appropriate OpSpecs.

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C.    U.S. or Foreign Registry. Under an interchange agreement, the aircraft may be of either U.S. or foreign registry. However, if the aircraft is foreign-registered, it must specifically comply with 14 CFR part 121, § 121.153(c) or part 135, § 135.25(d), as appropriate, in order to be operated by a U.S. certificate holder. If the aircraft is of U.S. registry, the foreign air carrier or foreign person must comply with the applicable 14 CFR requirements while it has operational control of the aircraft (see Volume 3, Chapter 13, Section 5).

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12-352    WET LEASE. As defined in 14 CFR part 110, § 110.2 and part 119, § 119.53 a wet lease is any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember. A wet lease is a commercial arrangement whereby an aircraft owner leases both the aircraft and at least one crewmember to another person for his/her exclusive use for a specified period or a defined number of flights. A wet lease does not include a code-sharing arrangement.

NOTE:  When an air carrier provides less than an entire aircraft crew, the wet lease is occasionally referred to as a “damp lease.” Title 14 CFR authorizes only a wet lease or dry lease; therefore, the term "damp lease" is used for commercial purposes only.

A.    Office of the Secretary of Transportation (OST) Characterization. When the OST characterizes a lease as a wet lease, the OST’s definition of the term applies to economic authority. The OST’s characterization of wet lease does not necessarily make the lessor responsible for operational control, which is one of the safety considerations for a wet lease authorized by the FAA. Therefore, the FAA’s definition of “wet lease” in § 110.2 and in OpSpec A002 is different from the OST definition and applies solely to the safety authority falling under FAA’s oversight.

B.    FAA Restriction. A U.S. air carrier may not wet lease an aircraft from any foreign air carrier or foreign person, as described in part 119, § 119.53(b): part 121, § 121.153(c), and part 135 § 135.25(d). This restriction is based in part on the prohibition on cabotage under Title 49 of the United States Code (49 U.S.C.) Chapter 411, § 41703, and partially on safety oversight considerations under § 44701.

NOTE:  OST may authorize a U.S. air carrier to obtain an entire aircraft with crew under certain arrangements characterized as wet lease agreements by parties involved. The FAA and OST refer to these agreements as provision of airraft with crew arrangements. More details may be found in paragraph 12-354.

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C.    Operational Control. Depending on the laws of the State of Operator, a foreign air carrier may be able to wet lease aircraft from a U.S. air carrier or from another foreign air carrier. Although the FAA permits U.S. air carriers to wet lease aircraft to foreign air carriers and foreign persons, those operators usually prefer to dry lease aircraft in order to have operational control of the leased aircraft.

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1)    FAA’s policy requires each U.S. air carrier to retain operational control of each wet-leased aircraft listed on its OpSpecs regardless of whether the aircraft is U.S.- or foreign-registered. This policy applies to aircraft wet-leased to any foreign air carrier and to any foreign person. If there is any ambiguity in the terms of the lease agreement (e.g. operational control, or whether the arrangement should be referred to OST for review as a provision of aircraft with crew or other charter agreement), the PI should refer the lease to the Regional Counsel for a determination.
2)    To make a proper determination of operational control, it may be necessary to ask the lessor to submit any clarifying or supplemental information regarding the lease arrangement. Section 119.53 provides that the FAA will determine that a party has operational control of flights if that party exercises authority and responsibility for a specified number of operational functions. In cases where doubt or controversy exists, the Administrator will also consider additional factors such as who is responsible for maintenance, servicing, and crewmember training.
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D.    OpSpecs Amendments. Prior to engaging in a wet lease operation to or from the United States, a foreign air carrier must apply for, or seek an amendment of its OpSpecs to list the aircraft in OpSpec A028. The FAA requires such an amendment whether the other party to the wet lease is a U.S. or foreign air carrier. In support of the amendment, the foreign air carrier must submit to the FAA a copy of the wet lease arrangement or a written memorandum of the pertinent terms of the wet lease. The FAA will review the documents pertaining to the wet lease as follows:

1)    Identify the aircraft that are subject to the wet lease. If the lessor is a foreign air carrier, OpSpec A003 of the lessor’s OpSpecs must list the aircraft, and in addition, if the aircraft is U.S.-registered, OpSpec D085 must also list the aircraft. If the lessor is a U.S. air carrier, OpSpec D085 must list the aircraft.
2)    Determine if the lessor or grantor transfers legal, or actual possession (i.e, custody) of the entire aircraft (see Volume 3, Chapter 18, Section 3, and OpSpec A028). If not, the arrangement is not covered by the § 119.53 wet lease prohibition, and the arrangement should be referred to OST (see paragraph 12-354).
3)    Determine which air carrier will exercise operational control over the wet lease operations. If the lessor is a U.S. air carrier, it must retain operational control of each wet-leased aircraft.
4)    Confirm that each party to the wet lease arrangement holds the necessary operating and economic authority to conduct the wet lease. Each foreign air carrier must hold the appropriate economic authority from the OST to conduct wet lease operations to the United States.
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E.    FAA/OST Differences. Because of differences in the way the FAA and the OST define and apply the term “wet lease,” the analysis of a wet lease transaction can be complicated. For example, the OST also includes wet lease transactions within the scope of what constitutes a charter (see paragraph 12-354).

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F.      Wet Lease Types. Operational control under an FAA-defined wet lease will be one of two types.

1)    The Lessor/U.S Certificate Holder Will Have Operational Control of the Listed Aircraft. If the lessor certificate holder will have operational control, that certificate holder is authorized to conduct operations in accordance with each applicable wet lease arrangement identified in the first table of OpSpec A028.
a)    The certificate holder issued this authorization must at all times be responsible for and maintain operational control and airworthiness of each aircraft identified in each lease arrangement. The first table of the OpSpec must list the lease arrangement(s).
b)    The nationality, registration, and serial number of each aircraft used under the terms of the wet lease arrangement will be identified in paragraph D080 or D087, as applicable, and D085 of the certificate holder’s OpSpecs.
c)    While conducting operations under this authorization, the lessor may be authorized to use the call sign and flight number(s) of the lessee, provided that, for all flights the lessor certificate holder explains, in the remarks section of the applicable flight plan, that the lessor is conducting the flight under the call sign and flight number(s) of the lessee.
d)    Both lessor and lessee certificate holders will have their role and information on the wet lease arrangement documented in OpSpec A028 of their respective OpSpecs.
2)    The Lessor/U.S. Certificate Holder Will Not Have Operational Control of the Listed Aircraft. This type of arrangement is rare. For the FAA to approve such an arrangement, the parties will have to establish, to the FAA’s satisfaction, how the lessee will exercise operational control of the aircraft. For the party to each applicable wet lease who will not have operational control, that determination must be stated in the second table of the respective certificate holder’s OpSpec A028. Under this example, the lessor certificate holder not having operational control will exercise the wet lease arrangement(s) listed in the second table with the following limitations and provisions:

·    The lessee, as the party exercising operational control, is solely responsible for the safety and regulatory compliance of the flights.

·    The lessee, as the party having operational control in the wet lease arrangement listed in the second table, must at all times be responsible for, and maintain, the operational control and airworthiness of the aircraft identified in each wet lease arrangement listed.

·    The lessor certificate holder is not authorized to have, and may not have, operational control of any operation conducted by the lessee certificate holder under this paragraph of the OpSpec.

·    Both lessor and lessee certificate holders will have their role and information on the wet lease arrangement documented in OpSpec A028 of their respective OpSpecs.

12-353    CHARTERS.

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A.    Definition. A charter is an agreement whereby a person agrees to provide all, or part of, the lift capacity of an aircraft it operates to another person for a defined period of time or number of flights. In short, a charter is the provision of a flight service.

B.    Elements. In a charter arrangement, the following elements are usually present and distinguish a charter from a wet lease arrangement.

·    The provision of all or part of the aircraft’s lift capacity to another person;

·    The person contracting for the lift capacity is not the operator of the aircraft;

·    A specific aircraft is not identified; and

·    There is no transfer of exclusive possession and use of that aircraft to the other person. For example, the person providing the lift capacity either:

·    retains the right to substitute other aircraft for the aircraft identified in the agreement; or

·    retains the right to use the aircraft identified in the agreement for its own purposes when the aircraft is not needed by the operator receiving the lift capacity.

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C.    Economic Authority. A foreign air carrier conducting charter operations to or from the United States must hold the appropriate economic authority from OST under 14 CFR part 375. The FAA does not issue OpSpecs to those operators. However, part 129 operators conducting nonscheduled flights to or from any point in the United States must provide prior notification, in accordance with the reporting requirements of OpSpec A001.

12-354    PROVISION OF ENTIRE AIRCRAFT WITH CREW. Under an OST-approved provision of aircraft with crew arrangement, a foreign air carrier may provide an entire aircraft with crew to a U.S.-certificated air carrier without acting contrary to the FAA’s regulations that generally prohibit a foreign air carrier from wet leasing aircraft to a U.S-certificated air carrier. This agreement has features that are characteristic of a charter, however, the parties to the agreement may characterize it as a wet lease. If the lessor/grantor never transfers legal possession of the entire aircraft, the arrangement is not a prohibited § 119.53 wet lease. Likewise, if the arrangement makes it clear that the lessor/grantor never transfers actual possession (custody) of the entire aircraft, the arrangement is not a § 119.53 wet lease. In both cases, the arrangement might actually be a charter (a services agreement for provision of a flight service to a customer).

A.    Approval Process. Under regulatory guidance issued by the OST, the foreign operator providing the lift capacity for the U.S. air carrier will include in its application a copy of the agreement. The FAA will review the agreement against the essential elements in this paragraph 12-354(B) and provide its recommendation to the OST. The OST will review the FAA’s recommendations and determine if the operation meets the requirements of 14 CFR part 212, is in the public interest, and whether to grant the authorization.

NOTE:  The responsible Flight Standards District Office (FSDO), International Field Office (IFO), and International Field Unit (IFU) for the operator providing the entire aircraft with crew must maintain a copy of the agreement as specified in Volume 12, Chapter 5, Section 1, paragraph 12-454.

B.    Essential Elements of the Provision. The essential elements of a provision of an entire aircraft with crew arrangement by a foreign air carrier to a U.S. air carrier are as follows:

1)    Operational control remains with the operator providing the lift capacity.

NOTE:  The operational control determination will be based on the terms of the agreement and all other relevant factors, such as authority over initiating, conducting, or terminating a flight.

2)    Legal, and actual possession (custody) of the aircraft remains with the operator providing the lift capacity. Factors relevant to the determination of legal and actual possession include:

·    The right to substitute other aircraft for the aircraft identified in the agreement; or

·    The right to use the aircraft identified in the agreement for its own purposes when the aircraft is not needed by the operator receiving the lift capacity.

3)    The country that issued the air operator certificate (AOC) of the operator providing the lift capacity will oversee the operations and would be continuously rated as Category 1 under the FAA’s International Aviation Safety Assessment (IASA) program;
4)    The U.S. air carrier obtaining the lift capacity has assessed the level of safety of the service to be provided by the foreign air carrier involved and has found it to be satisfactory.
5)    Both parties to the agreement must apply to the OST for any necessary amendments to their economic permits.

NOTE:  The operator providing the lift capacity must provide all necessary flight and ground crew, crew training, ground handling, communications, dispatch of the aircraft, decision of the particular aircraft to be used in any given operation, and authority over the pilot in command (PIC) in all matters concerning flight operations, and be carried out in accordance with standards and practices as set out in its Flight Operations Manual (FOM).

NOTE:  Agreements between part 129 air carriers, or between a foreign person and a part 129 air carrier to wet lease aircraft, or provide an entire aircraft with crew must also be reviewed against the principles described in paragraphs 12-353 and 12-354 to determine whether the arrangement is a wet lease, typical charter, or provision of an entire aircraft with crew.

12-355    ARTICLE 83 BIS. Under international law, the State of Registry of an aircraft is responsible for overseeing the airworthiness of the aircraft, the licensing of its flightcrew members, and compliance by the operator of the aircraft with the applicable rules of the air.

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A.    Diminished Ability to Carry Out Oversight Responsibilities. When an operator certificated in one country operates an aircraft registered in another country, the ability of the State of Registry to carry out its oversight responsibilities may be diminished or less efficient. In such cases, the State of Registry and the State of Operator may enter into an agreement pursuant to Article 83 bis of the Convention on International Civil Aviation (the Chicago Convention), transferring some or all of the oversight responsibilities of the State of Registry to the State of Operator.

NOTE:  The term “bis” is a Latin term used throughout the convention to designate the articles created between existing sequentially numbered articles. For further information on the Chicago Convention, refer to Volume 12, Chapter 1.

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B.    Transfer of Oversight Responsibility. Among the visible effects of a transfer of oversight responsibilities pursuant to an Article 83 bis agreement are the following:

1)    If the State of Registry transfers its airworthiness oversight responsibilities under the Article 83 bis agreement, the State of Operator will issue a certificate of airworthiness to the aircraft and oversee the continuing airworthiness of the aircraft in accordance with its laws and regulations.
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2)    If the State of Registry transfers its personnel licensing oversight responsibilities under an Article 83 bis agreement, the flightcrew members will hold airman certificates issued or validated by the State of Operator pursuant to its laws and regulations. Each person acting as a flightcrew member must hold a certificate or license that shows the person’s ability to perform duties in connection with the operation of the aircraft.
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3)    An aircraft that is subject to an Article 83 bis agreement will continue to be registered in the State of Registry and to bear that State’s registration marks. The State of Registry will issue the registration certificates, which must be carried aboard the aircraft. A copy of the Article 83 bis agreement may also be carried aboard the aircraft.

C.    Article 83 Bis Agreement. A State of Registry and State of Operator are not required to enter into an Article 83 bis agreement as to a particular aircraft. However, once they execute such an agreement, it becomes effective as to third party States only when they register it with the International Civil Aviation Organization (ICAO) and when ICAO makes it public, or when one of the parties to the agreement communicates the existence and scope of the agreement to those third party States.

D.    Certification Oversight of Air Carriers Transfer of Responsibilities. The State of Operator cannot transfer the responsibilities for the certification and oversight of an air carrier to another State pursuant to an Article 83 bis agreement.

RESERVED. Paragraphs 12-356 through 12-370.