Aviation is one of the most heavily regulated industries in the United States. Thousands of complex Federal Aviation Regulations (“FARs”) exist governing the operation, ownership and maintenance of aircraft. This article is an analysis of the consequences of alleged FAR violations. Specifically, the Federal Aviation Administration (the “FAA”) alleged that the Hinman Company (“Hinman”) was operating as a de facto charter air carrier for compensation without the required FAA approvals and as a result, the FAA proposed a $3.3 million civil penalty against Hinman for the related FAR violations. Given the complexity of the FARs, a massive multi-million dollar civil penalty was not a question of if it would happen, but when. This enforcement action represents the largest proposed civil penalty in FAA history received by any company purporting to operate business aircraft under 14 C.F.R. part 91 (“Part 91”). Despite the complexity of FAR compliance and the enforcement process, many companies simply try to handle matters internally without seeking advice from knowledgeable aviation counsel (until it’s too late).

As discussed in detail below, Hinman owned two aircraft that apparently were not being fully utilized, so it decided to lease the aircraft to local businesses and the parties entered into FAA-regulated arrangements, called time sharing agreements (“TSAs”). A TSA is “an arrangement whereby a person leases his airplane with flight crew to another person, and no charge is made for the flights conducted under that arrangement other than” very specific charges. Here, the FAA alleges that Hinman charged more than those specific charges to the TSA lessees, and as a result, was acting as a commercial charter air carrier without FAA approval. When the FAA became aware of Hinman’s action, it sent Hinman a letter requesting an explanation, called a “Letter of Investigation.” Hinman promptly responded to the Letter of Investigation, and its responses to the Letter of Investigation and Civil Penalty Letter provide rare and fascinating insight into how easy it is for a company to receive a proposed multi-million dollar fine.