Many executives are uncomfortable asking the provider of their on-demand transportation to subject themselves to review.  It is the same dynamic that causes us to be reluctant to ask our doctor for a second opinion.

"FAA approved" is a basic certification and does not address many of the issues that affect the risk or efficiency of using on-demand transportation.  

Regular audits or reviews for any business unit or vendor is "Business 101," yet many companies do not subject their transportation provider, in-house or outsourced, to the same discipline.

Most aviation providers do not subject themselves to best practice reviews.  There are numerous "compliance" audits that are used in the industry (Wyvern, ARGUS, Flight Safety Foundation) that provide a snapshot of basic standards.  

The next higher level of audit is an IS-BAO (the ISO Standard for Business Aviation Operations).  As of 2013, less than 5 percent of the operators in North America are ISO-registered.

The provider of on-demand transportation should have a regular audit cycle of IS-BAO (at least Stage II) and an independent Safety and Business Review that examines compliance, culture, strategic purpose and business practices.

It is critical for senior leaders to define "why" on-demand transportation will be used and by "whom."  There are many justified reasons to use business aviation:

• Increased efficiency of time
• Employee retention and compensation
• Information security or physical security risk mitigation
• Emergency business continuity
• Internal or external branding
• Developing client relationships

The development of accurate business purpose use is necessary to retain the tax deductibility of a business expense.  Additionally, the business use policies should be reviewed at least annually by the board of directors, risk managers, tax advisers, legal advisers and compliance groups.

The use of on-demand transportation for personal use requires specific documentation and calculation of imputed income.  If employees are required, or allowed, to reimburse the company for use of the on-demand transportation, a very specific review should be conducted to determine if it is allowable.  In some instances, reimbursement may be illegal.  

Historically, aviation groups have been lead by the "most senior pilot."  Even today the business acumen of most aviation professionals is low.  Many operators we review have the following characteristics:

• No performance based reviews  (If they exist, it is a basic technical evaluations.)
• No intentional development programs
• No understanding of financial best practices
• Strong entitlement and seniority based cultures
• Disconnection from their users strategic purpose (for companies that own and operate their own aircraft)
• Compliance-based approach versus a continuous improvement culture
• Undisciplined hiring processes

Transportation providers should be lead by individuals with a strong business background.  We like to see at least a CAM Certification (Certified Aviation Manager) and ideally an MBA from a non-aviation focused university.

Companies are not properly documenting business travel using a method that provides a defensible explanation of the business purpose of the trip.  Proper documentation should include at least:

• The business purpose of the trip
• The business purpose for each passenger
• If the business purpose is different for different legs of the trip, that should also be documented.
• If the trip is personal, additional documentation is required to satisfy IRS requirements.
• Trip approval compliance
• Employee and non-employee status
• Control and non-control employees

The IRS has been aggressive in pursuing companies that have a mix of business and personal use. Particularly challenging is allowing guests or spouses on the aircraft. The threshold for business justification for a spouse is specific and difficult to meet.

FAA compliance in aviation is divided into five major categories.

• FAA Part 135:  These are the operators that hold their aircraft out to the public for hire.  They charge others for the use of their aircraft.  The operator must be approved by the FAA to operate under FAA Part 135.

• FAA Part 121: This is what is traditionally thought as the "airlines."  These are operators that provide scheduled transportation to the public on a large aircraft. The operator must be approved by the FAA to operate under FAA Part 135.

• FAA Part 91: If you own an aircraft and do not offer it to the public for hire, most likely you will operate under Part 91.  There are some exceptions for limited reimbursement and the operation of large aircraft.  Companies that own and operate their own aircraft only for their own use operate under these rules.

• FAA Part 91K: These rules were created recently to provide oversight on fractional aircraft (NetJets, FlexJet, Flight Options, etc.).  It provides some of the regulatory compliance of Part 135 on aircraft operators that were previously operating under Part 91.

• FAA Part 125:  This section of the regulations applies to operators of large (airline type) aircraft that are not operated for hire

There are significant differences in operational standards, risk appetites, and cultures in other countries.  Generally, the United States, Western Europe, and Canada are similar in operational requirements with the United States being the most liberal of the three.  Operations in South America, the Pacific Rim, Russia, China and Africa each present unique challenges.

Using on-demand transpiration in second and third world countries may be preferable to using the domestic airlines, but vetting the operators is critical and difficult.

Here's what you need to know if you are considering using on-demand transportation in another country:

• Are you a kidnapping risk? (Anybody is a risk in certain countries.)

• Are your movements or business confidential in nature?

• Is there a chance you will need to change your plans and leave the country quickly?

• Is your travel itinerary rigid?

• Do you need to work in privacy?

Determining domestic operators in other countries is exponentially more difficult than in the United States. The due diligence process and travel coordination must be intentional.

• They ask you to sign a document that the flight is being flown as a "sales demo."

• They ask you to sign a temporary "lease" or "timeshare" agreement.

• You are not charged federal excise tax (7.5 percent).

• They ask you to sign an agreement that you are "sharing the costs."

• They will not provide a copy of their Air Carrier Operating Certificate. This certificate should have the name or d/b/a name of the entity that you are hiring.

Using an aircraft that is being operated under the incorrect section of the FAA regulations may invalidate the insurance coverage provided by the operator.