South Pacific Flying Club v. State of Hawaii Department of Transportation, Hawaii – No. 16-21-15
FAA Docket No:
16-21-15
Author:
Michael W. Helvey, Director, Office of Airport Compliance and Management Analysis
Complainant(s):
South Pacific Flying ClubRespondent(s):
State of Hawaii Department of Transportation (HDOT)Airport(s):
Daniel K. Inouye International Airport (HNL)
Holding:
No Violation, Grant Assurance 19, Operations and Maintenance; Violation, Grant Assurance 22, Economic Nondiscrimination; No Violation, Grant Assurance 23, Exclusive RightsAbstract:
Complainant, South Pacific Flying Club (SPFC), filed a Part 16 complaint against the State of Hawaii Department of Transportation (HDOT), sponsor and operator of Daniel K. Inouye International Airport (HNL), alleging that HDOT (1) violated Grant Assurance 19, Operations and Maintenance, by failing to provide safe and serviceable conditions on the South Ramp; (2) violated Grant Assurance 22, Economic Nondiscrimination, (a) and (h), by failing to treat similarly situated users uniformly and by denying SPFC a revocable hangar permit at noncommercial rates; and (3) violated Grant Assurance 23, Exclusive Rights, by granting exclusive rights to other aeronautical users and preventing SPFC from renting hangar space at standard noncommercial tenant rates. (Order, p. 1.) SPFC also alleged that HDOT discriminated against it by denying reasonable access to the Airport Operations Area (AOA) and to the club’s aircraft. (Order, p. 1.)
Grant Assurance 19, Operations and Maintenance
Complainant alleged that HDOT operated the airport in a manner inconsistent with the obligations in Grant Assurance 19, Operations and Maintenance, permitting activity and action that interferes with the use of facilities for airport purposes, and failing to appropriately maintain facilities for aeronautical users of the airport. (Order, p. 12.) This included allowing other tenants to store vehicles and nonaviation items in hangars and park cars on the airport’s South Ramp as well as allowing homeless individuals to live in facilities (i.e., hallways) meant for aeronautical use. (Order, p. 12.)
HDOT denied violating Grant Assurance 19, Operations and Maintenance, arguing that during the flight operation and maintenance of aircraft, parking vehicles near hangars was appropriate and, in many cases, convenient. (Order, p. 12.) It also explained that building conditions resulted from lack of funding and resources, with facilities shown “as-is” to potential tenants. (Order, p. 12.) HDOT further noted that Complainant had “never applied” for the use of office space on the South Ramp in its application for hangar space, meaning its complaints about facility maintenance had no bearing on its allegations. (Order, p. 12.)
The Director was not persuaded that HDOT violated Grant Assurance 19, Operations and Maintenance. (Order, p. 12.) While FAA hangar use policies describe certain requirements and limitations for the use of hangars for automobile storage, they do not explicitly preclude the use of automobiles to support airport/aeronautical activities, and Complainant had failed to demonstrate any unsafe conditions caused by the alleged vehicle use. (Order, p. 12.) The Director also found that “as-is” leases are common practice and that there was no evidence that the facilities in disrepair interfered with airport operations or were necessary for aeronautical use. (Order, p. 13.) Without evidence of unsafe acts or interference, the FAA concluded that HDOT did not violate Grant Assurance 19, Operations and Maintenance.
Grant Assurance 22, Economic Nondiscrimination—Nonprofit Certification
Complainant alleged that HDOT engaged in unjust discrimination by imposing unreasonable conditions for obtaining and maintaining a hangar lease, strictly enforcing airport rules inconsistently, and failing to make airport facilities and services available on fair terms. (Order, p. 13.) More specifically, Complainant argued that HDOT acted unreasonably by frequently changing its position, failing to communicate clearly, and not adhering to FAA policies. (Order, p. 13.) SPFC stated that HDOT initially granted it a hangar at noncommercial rates but revoked (without warning) its revocable permit (RP) following an unfounded allegation of commercial activity. (Order, p. 13.) Although SPFC was later granted temporary tiedown space and AOA badges for its members, HDOT allegedly revoked these privileges without justification, informing SPFC’s representative that as a Hawaii-registered aircraft owner, she was not considered a transient pilot and could only access her aircraft with an AOA badge. (Order, p. 13.)
Complainant further claimed that HDOT’s requirement that flying clubs prove IRS 501(c)(3) tax-exempt status to qualify as nonprofits was unreasonable and contrary to FAA guidance, as many flying clubs do not meet that standard. (Order, p. 14.) Complainant alleged that HDOT used this requirement to deny approval for its hangar application, despite no legal or policy basis for such a condition. (Order, p. 14.) SPFC also argued that HDOT unfairly refused to provide it with a noncommercial or irrevocable lease while granting other general aviation tenants hangars at lower rates, including those using them for business purposes. (Order, p. 14.) Complainant reported being charged higher fees for a smaller space than those paid by commercial entities with larger hangars and noted that no other tenant had been required to reapply for a permit after eviction and resubmit previously approved information. (Order, p. 14.)
In addition, Complainant accused HDOT of denying its members access to the airport’s South Ramp and hangar facilities prior to the Department of Land and Natural Resources (DLNR) review process, even though other tenants and nontenants were granted early access. (Order, p. 14.) Complainant cited Pacific Flight Academy’s receipt of hangar keys two weeks before its DLNR permit approval and alleged discrimination when HDOT denied its members temporary parking passes while allowing them for others. (Order, p. 14.) Complainant also claimed that HDOT imposed unreasonable restrictions on transient parking, applying rules inconsistently. (Order, p. 14.) Lastly, SPFC stated that HDOT conditioned AOA access solely on possession of an RP for a tiedown or hangar, a process that could take months, even though SPFC members had valid TSA-approved badges and were paying for tiedown parking. (Order, p. 14.)
HDOT responded in detail, arguing that Complainant misrepresented itself as a nonprofit and violated its RP. (Order, p. 14.) SPFC registered as an LLC and applied for a hangar to store a single aircraft, N2122P, but HDOT claimed SPFC stored additional aircraft without providing documentation, including insurance information, violating its permit. (Order, p. 15.) HDOT said it set SPFC’s rent based on its claimed nonprofit status, and DLNR approved the $772-per-month RP in February 2020. (Order, p. 15.) However, inspections uncovered safety issues, unauthorized aircraft parking, and evidence of commercial flight instruction, including a loft being built for a classroom. (Order, p. 15.)
Subsequently, HDOT terminated the permit, giving SPFC 30 days to prove nonprofit status and cease unapproved activity. (Order, p. 16.) SPFC converted to a nonprofit corporation only after receiving the notice. HDOT argued that the creation of Pacific Flight Academy by an SPFC partner and removal of additional aircraft illegally parked in the hangar confirmed the commercial use. (Order, p. 16.) When SPFC reapplied for a permit, HDOT required clarification on membership, revenue allocation, aircraft ownership, and new lease terms. (Order, p. 16.) It demanded proof of IRS 501(c)(7) tax-exempt status before approving hangar access, offering commercial rates in the meantime. (Order, p. 16.) No new hangar application was filed. (Order, p. 16.)
The FAA reviewed whether HDOT’s treatment of SPFC complied with Grant Assurance 22, Economic Nondiscrimination, focusing on whether HDOT’s requirements for flying club access were reasonable and consistent with FAA policy and precedent. (Order, p. 16.) FAA Order 5190.6B, Airport Compliance Manual, defines a flying club as a nonprofit entity organized solely to provide members with aircraft for their personal use and enjoyment, with ownership vested in the club or all members equally, and no earnings benefiting individuals. (Order, p. 16.) While airports may verify compliance by requiring documentation, flying clubs are not subject to fixed-base operator requirements. (Order, p. 17.) Precedent from GFK Flight Support v. Grand Forks Regional Airport Authority (FAA Docket 16-01-05) confirmed that leasing an aircraft exclusively for a flying club’s use is consistent with FAA policy. (Order, p. 17.)
According to the Director, SPFC’s application for hangar space covered only one aircraft—N2122P, a Piper Sport Sportcruiser—but HDOT alleged that SPFC stored additional, undocumented aircraft and engaged in commercial flight training, supported by inspections revealing safety violations and an unapproved classroom loft. (Order, p. 17.) On December 2, 2020, HDOT issued a 30-day termination notice, citing misrepresentation of nonprofit status and unpermitted activity. (Order, p. 18.) SPFC converted to a nonprofit corporation later that month, but HDOT maintained concerns about commercial use. (Order, p. 18.)
The Director agreed that HDOT had sufficient evidence to revoke the permit, noting that a lease granting exclusive aircraft use to a flying club but allowing nonexclusive operations violates FAA standards and justifies enforcement. (Order, p. 18.) Ultimately, the Director found that HDOT’s actions were reasonable and did not—in this instance—violate Grant Assurance 22 through its revocation of SPFC’s permit and hangar access. (Order, p. 18.) “The Director cautions HDOT that lease revocation ‘without cause’ could itself be an unreasonable term and condition of airport access if unreasonably or inequitably applied, but in this case SPFC’s actions were sufficiently egregious to warrant enforcement action, including termination of the permit.” (Order, p. 18.)
Notwithstanding, the Director found HDOT’s subsequent actions problematic under Grant Assurance 22. (Order, p. 19.) HDOT’s insistence on IRS tax-exempt status for SPFC to regain hangar access was arbitrary, discriminatory, and inconsistent with Grant Assurance 22. (Order, p. 22.) While SPFC alleged that HDOT imposed unreasonable documentation requirements and denied its hangar application solely for lacking IRS 501(c)(3) or 501(c)(7) status, the record confirmed these claims. (Order, p. 22.) HDOT argued that state law does not recognize nonprofits formed under the LLC statute and cited IRS rules prohibiting private benefit, but the FAA emphasized that “nonprofit” is a state-law designation distinct from “tax-exempt” status. (Order, p. 22.)
SPFC had converted to a nonprofit corporation and provided a state-issued Certificate of Conversion, along with tax clearance certificates required in its RP application. (Order, p. 20.) Neither FAA policy nor HDOT’s then-applicable flying club procedures required tax exemption, and the FAA confirmed that demanding it as a condition of access was unjustly discriminatory. (Order, p. 20.) Although HDOT acted reasonably in revoking SPFC’s permit for prior violations, its prolonged insistence on IRS tax exemption—despite clear state recognition of nonprofit status—created an unjust barrier to access and effectively excluded SPFC from HNL. (Order, p. 20.) The FAA concluded that HDOT’s approach violated its federal obligation to provide reasonable, nondiscriminatory access, and that state-level nonprofit certification is sufficient under FAA policy. (Order, p. 22.)
The Director also expressed concern about SPFC’s restricted AOA access and accruing parking fees during the dispute, citing conflicting communications and possible intentional delays. (Order, p. 22.) While not making a final determination on those allegations, the FAA warned that overly burdensome or inequitable security procedures could violate Grant Assurance 22. (Order, p. 22.)
Altogether, the FAA held that HDOT was justified in revoking SPFC’s permit due to evidence of unauthorized activity but found HDOT’s insistence on IRS tax-exempt status an unlawful barrier to airport access. (Order, p. 22.) The Director reaffirmed that state-level nonprofit certification satisfies FAA requirements and that sponsors may request additional documentation to verify nonprofit status, but they may not impose tax-exempt status as a condition of aeronautical access. HDOT’s policy was deemed arbitrary and a violation of Grant Assurance 22. (Order, p. 22.)
Grant Assurance 22, Economic Nondiscrimination—Procedures and Standards for Flying Clubs
Complainant argued that HDOT delayed and denied access to HNL due to confusion over the concept of flying clubs and a lack of clear procedures or guidance. (Order, p. 23.) SPFC also alleged that HDOT’s standards, which prohibit paying club-member mechanics or instructors beyond flight time or dues credits, conflicted with FAA Order 5190.6B, Change 1, FAA Airport Compliance Manual, and unfairly restricted club operations. (Order, p. 23.)
HDOT denied discrimination, stating that its policies are outlined in “Procedure No. 6.27 Criteria for Flying Club Status,” effective 2021, and were consistent with FAA Order 5190.6B. (Order, p. 23.) HDOT asserted its right to limit payments to ensure clubs remain nonprofit and not commercial entities, emphasizing that these limits align with FAA policy and serve to distinguish flying clubs from businesses. (Order, p. 23.)
The FAA determined that HDOT’s Procedure No. 6.27, which restricts compensation for club-member flight instructors and mechanics solely to credits against dues or flight time, conflicted with federal policy and violated Grant Assurance 22, Economic Nondiscrimination. (Order, pp. 23–24.)
The procedure states that a club may use a qualified mechanic who is both a registered member and part-owner of club aircraft to perform maintenance, but that payment may only be in the form of credit toward dues or flight time. (Order, p. 24.) Similarly, the policy prohibits flight instruction in club-owned aircraft unless given by a lessee based on the airport, and even then, instructors who are club members may only receive credit rather than monetary compensation. (Order, p. 23.) According to the Director, this approach is inconsistent with the FAA’s revised flying club policy in the Federal Register (81 Fed. Reg. 13719, March 15, 2016). (Order, p. 24.)
The 2016 policy explicitly allows club aircraft to be used for flight instruction when either instructor and student are both club members or instruction is provided by an airport-based flight school tenant to a club member. (Order, p. 24.) Instructors may be compensated either monetarily or through club credits, though not simultaneously, and airport sponsors are authorized to set limits on the amount of compensated instruction, not on the type of compensation. (Order, p. 24.) For example, an airport could require that flight instruction represent only a certain percentage of total monthly flight hours in club aircraft, but it cannot dictate that compensation be credits rather than payment. (Order, p. 24.)
The Director noted that the same principle applied to mechanics: FAA policy permits club-member mechanics who are performing maintenance on club-owned aircraft to receive either monetary compensation or credits, not both concurrently. (Order, p. 25.) While there was no provision extending this restriction to outside tenant mechanics, the Director affirmed that airports may set limits on the total amount of compensated maintenance work and may require flying clubs to document compliance. (Order, p. 25.)
The FAA concluded that HDOT’s restrictive approach contravened FAA policy by substituting a categorical ban on monetary payment for instructors and mechanics, rather than setting reasonable limits on activity levels. (Order, p. 25.) By doing so, HDOT imposed unreasonable and discriminatory terms on flying club operations at HNL, creating barriers inconsistent with federal grant obligations. (Order, p. 25.) The Director therefore held that HDOT’s policy violated Grant Assurance 22, Economic Nondiscrimination.
Grant Assurance 23, Exclusive Rights
Complainant argued that HDOT’s confusion over flying clubs and lack of clear procedures effectively excluded clubs from operating at HNL, citing FAA policy and the case Rick v. County of San Diego (FAA Docket 16-98-19), which held that unreasonable or discriminatory requirements could amount to a constructive grant of exclusive rights. (Order, p. 25.)
HDOT denied any violation, stating SPFC was the only nonprofit applicant for hangar space and that no other flying clubs were similarly situated. HDOT argued that SPFC had to prove that exclusive rights were granted to a comparable user, which SPFC could not do. (Order, p. 25.)
The Director referenced earlier findings (shown earlier) determining that HDOT’s tax-exempt requirement and compensation restrictions were unreasonable and unjustly discriminatory. (Order, p. 26.) However, the record showed no evidence of another similarly situated flying club receiving preferential treatment, and SPFC’s permit was initially granted before being revoked due to evidence of commercial activity inconsistent with FAA flying club policy. (Order, p. 26.) SPFC could not meet its burden of proving HDOT applied standards inequitably or excluded it to the benefit of others. (Order, p. 26.)
The FAA concluded that while HDOT’s actions imposed unreasonable standards, they did not amount to granting exclusive rights to another user under Grant Assurance 23.
Conclusion
The Director found that HDOT was not in violation of Grant Assurance 19, Operations and Maintenance, but was in violation of Grant Assurance 22, Economic Nondiscrimination, for unreasonably requiring SPFC to demonstrate IRS tax-exempt status as a condition of aeronautical access to HNL and for adopting flying club policies that unlawfully restricted compensation for flight instruction and mechanic services. (Order, p. 27.) These policies conflicted with FAA guidance and created unreasonable terms of access. The Director also found that HDOT was not in violation of Grant Assurance 23, Exclusive Rights. (Order, p. 27.)
The FAA ordered HDOT to submit a corrective action plan (CAP) within 30 days detailing steps to bring HNL into compliance with Grant Assurance 22 by providing reasonable access, including updates to “Procedure No. 6.27 Criteria for Flying Club Status,” to reflect the aforementioned Federal Register Notice. (Order, p. 28.) Until the FAA approves the CAP, the Director would recommend withholding approval of HDOT’s Airport Improvement Program funding applications for discretionary projects under the Airport and Airway Improvement Act of 1982. (Order, p. 28.)