Entrepreneurship Posted on January 7, 2015 | Goldwater In The News

Plane-Sharing Startup Sues FAA Over Ban on Service

Firm Connects Private Pilots With Passengers for Joint Flights

Originally posted in the Wall Street Journal

A startup that connects private pilots with passengers is challenging the Federal Aviation Administration in federal court over the agency’s effective ban on the flight-sharing service, taking the battle between regulators and the sharing economy to the skies.

Flytenow Inc. connects passengers with private pilots offering a seat on their small planes in exchange for a share of the flight costs.

Flytenow and fellow flight-sharing startup Airpooler Inc. say the dozens of pilots and passengers connected on their websites are operating legally under FAA rules that allow private pilots to share expenses with passengers.

The FAA disagrees. The agency effectively shut down the flight-sharing services in August when it told the companies that private pilots who use their websites are effectively operating commercially because they are accepting compensation and advertising their flights. Federal rules hold commercial flights to a far higher regulatory standard.

Flytenow challenged the FAA’s stance in September in the U.S. Court of Appeals for the District of Columbia. This week, the company filed a 59-page brief that argued that the FAA is violating federal rules that allow private pilots to share expenses with passengers and that it’s violating the company’s First Amendment right to use the Internet to communicate.

The FAA declined to comment on the petition.

The legal petition is the latest dustup between regulators and startups in the “sharing economy,” where private individuals share possessions or services, such as rides, apartments or table saws, for a fee.

The sharing economy has yielded some of the world’s hottest startups, including ride-sharing firm Uber Technologies Inc. and apartment-rental site Airbnb Inc.

But sharing-based business models often don’t jibe with decades-old regulations. Uber is battling taxi regulators in cities around the world, Airbnb is grappling with local hotel laws, and meal-sharing website EatWith is drawing the attention of local health departments.

“These sorts of conflicts are inevitable.… You have new services that no longer fit the regulatory world view that was in place when regulations were enacted,” said Christopher Koopman, a fellow at the Mercatus Center, an economic-research center at George Mason University. “Be it Uber, Airbnb or new flight-sharing services, technology and innovation are always going to outpace regulation.”

Flytenow Chief Executive Matt Voska said the FAA has long allowed private pilots to advertise planned flights in order to attract potential passengers to cut down on expenses. The company produced a 1976 FAA letter that approved a Kansas City, Mo., college student’s request to advertise his flights on a college bulletin board.

On Flytenow’s website, “it’s the same pilots, the same flights. The only thing that’s changed is the medium: We went from an ancient bulletin board to the Internet, and [the FAA is] saying that’s a problem,” said Mr. Voska, a 20-year-old who dropped out of Northeastern University in Boston last year to move Flytenow to Mountain View, Calif.

Airpooler is also challenging the FAA’s position, opting to use congressmen rather than legal challenges.

Rep. Joseph P. Kennedy III (D., Mass.) and Rep. Todd Rotika (R., Ind.) co-wrote a letter to the FAA last month urging the agency to start a formal rule-making process, including public comment, to decide the legality of flight-sharing sites.

“Appropriate regulation of general aviation can maintain safety while creating new jobs, attracting new pilots… and providing more options to travelers,” the congressmen wrote.

Rebecca MacPherson, Airpooler’s attorney and the FAA’s former assistant chief counsel for regulations, said “the FAA is just flat wrong” in its interpretation of rules regarding the flight-sharing services. She said federal rules explicitly allow limited cost-sharing between passengers and private pilots.

“I think they’re very nervous,” said Ms. MacPherson, who left the FAA in 2013 and is now with Jones Day. The FAA “is concerned that people would look at the [flight-sharing] sites and believe it was commercial air service.”

The conservative Goldwater Institute has taken up Flytenow’s case pro bono and is helping to represent the startup against the FAA.

Goldwater attorney Jonathan Riches said the Flytenow petition “could have significant implications for the broader sharing economy” because it argues for the constitutional right to use the Internet to communicate, and many shared-services companies are simply facilitating communication between buyers and sellers via the Internet.

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