(Updates with Flytenow starting in ninth paragraph.)
Aug. 15 (Bloomberg) -- The trend in sharing services popularized by Uber Technologies Inc. and Airbnb Inc. will take longer to gain a foothold in the world of aviation, if at all.
The U.S. Federal Aviation Administration reviewed its rules and determined that AirPooler Inc. and Flytenow Inc., which connect pilots with passengers willing to split fuel costs and other expenses for travel, aren’t operating legally.
The decision this week erects a barrier to extending the so-called sharing economy into air travel. Car-hailing service Uber and room-rental company Airbnb have faced similar legal hurdles as traditional industry competitors -- and the legacy rules that apply to them -- confront technological changes in the way customers seek to use and pay for day-to-day services.
“There’s a really deep underlying economic basis” for the shared-services model, AirPooler Chief Executive Officer Steve Lewis said today in a telephone interview. “It’s much more than a fad for the shared economy because you have all these assets around that are being underutilized.”
Investors including Goldman Sachs Group Inc. and Google Ventures are pouring cash into the burgeoning market for sharing apps, including those that let users order taxis and cars or share rides. San Francisco-based Uber, which is active in more than 40 countries, raised $1.2 billion in funding in June, giving it a value of $17 billion.
Airbnb, a short-term room rental service for travelers, was valued at about $10 billion after its last round of fundraising.
In the AirPooler case, the FAA’s legal interpretation rejects the idea that the air-travel service simply amounts to cost-sharing rather than a commercial aviation operation. The service is equivalent to charter flights and would require additional licenses and regulatory oversight, the FAA said in an Aug. 13 letter to a lawyer for AirPooler.
The pilots or the company may face FAA enforcement action should they continue. The letter was in response to a May 19 letter in which AirPooler asked the FAA whether its pilots needed commercial licenses.
The FAA responded yesterday to a similar request by Flytenow’s Rockville, Maryland-based lawyer, Gregory Winton.
Both companies plan to continue discussions with the FAA to see whether there is a way for the business model to operate within the agency’s regulations.
AirPooler will ask the FAA to reconsider the decision and will study ways of adjusting the service to make it legal within existing regulations, Lewis said.
“There’s often an issue that regulators don’t completely understand” the sharing-services industry, said Arun Sundararajan, a professor of information, operations and management sciences at New York University. “It’s particularly interesting in the area of aviation regulation as it is by far the most regulated transport industry, so it’s going to be a tough transition.”
AirPooler has had “massive support” from pilots and several thousand travelers signed up mostly in the San Diego and San Francisco areas, Lewis said. The service has had “hundreds” of operations since the plane sharing began April 1, he said. Most of the planes are single-engine propeller aircraft and don’t include jets and larger turboprop planes.
A challenge to the FAA ruling in court may be considered as an “extreme resort,” Lewis said.
The FAA declined to comment beyond the rulings, said Laura Brown, an agency spokeswoman. The legal opinion is consistent with prior rulings the FAA has made, according to the letter.
The letters were sent by Mark Bury, the FAA’s assistant chief counsel for international law, to Rebecca MacPherson, a lawyer at Jones Day representing AirPooler, and to Winton.
The services provided by AirPooler are different from other Uber-like companies in that the pilots receive only partial reimbursement for fuel and other costs and can’t make a profit, MacPherson said in an interview.
As a result, the company believes it’s no different from a private pilot accepting partial payment for fuel from a friend on a flight that the pilot intended to take anyway, MacPherson said. That type of financial transaction is permitted under a 1964 rule imposed by the FAA, she said.
“You’re not going to make any money doing this,” she said. “All you’re going to do is defray some of your costs, which the FAA has said is OK in the past. The only thing that is different is you’re using social media.”
While there’s no order to cease operations, each pilot is responsible for following FAA regulations, said Winton, the lawyer for Flytenow.
Instead of the nascent industry disappearing, plane-share services will probably adjust the way pilots and passengers are matched to meet current regulations, he said.
“Everybody is going to go back to the drawing board and conform the operation to meet the regulatory scheme the FAA has in place,” he said.
Throughout its history, the FAA has treated flights carrying passengers for hire differently than private aviation.
Pilots on charter or airline flights must have a commercial license that subjects them to additional training and requires greater experience. Commercial flight operations also receive additional FAA inspections and must document such items as employee drug tests and maintenance work.
While private pilots must adhere to FAA safety regulations, they receive significantly less scrutiny.
--With assistance from Molly Schuetz and Caelainn Barr in New York.