Sky's the liability limit: using personal aircraft for business purposes saves time but exposes an employer to soaring liability and higher insurance costs, many risk managers say.

Each day millions of middle managers scurry to airports, board commercial jets and fly off on business. Thousands of others, instead of boarding a commercial aircraft, fly their own plane for business. Or, they sometimes rent.

As part of the general aviation sector, which numbers about 211,000 airplanes carrying 166 million passengers per year, employee pilots can easily and safely put themselves in the right place at the right time.

These employees fly single-engine, piston-powered airplanes to management meetings, inspect factories or projects, call on customers, suppliers, dealers, distributors, and deliver goods and services.

Most employee business flying covers vast regions stretching over many states, often hundreds of miles of the employee's home base. Flying their own planes enable key employees to have point-to-point access to more than 19,000 public and private airports and heliports, often conveniently located near a company facility. Commercial airlines, however, serve only 550 larger airports.

Even considering that commercial jets fly at close to 500 mph, and most general aviation planes rarely go above 200 mph, the majority of business trips can take less time to complete with general aviation than using commercial air carriers because of the convenience of more direct flights and easier accessibility to final destinations.

Business travelers on commercial airlines have to get to a major airport, clear security, possibly make connecting flights and waste time in takeoff or landing delays, rent a car, and then drive an hour or more to the destination. And after the meeting is over, reverse the trip home, or stay over and return the next day, an added expense. Without being tied to a fixed airline schedule, employees with their own planes can visit several customers or business locations in one day and be home at night.

According to the Aircraft Owners and Pilots Association, general aviation's greatest role in the U.S. economy is its ability to enhance the profitability and competitive strength of U.S. businesses and industries.

Employers who take advantage of the speed and flexibility offered by general aviation, according to the A.O.P.A., perform better than businesses that rely solely upon commercial airlines for travel. The majority of businesses where employees fly their own or a rented plane are small to midsized. Fortune 500 companies, if they have a corporate aircraft fleet, employ or hire professional full-time pilots. There is no reliable estimate of how many employees fly their own or rented planes for their organizations.

John Goble, president of Sectra North America Inc., says, "Often our customers are not always located in large metropolitan areas so we fly into smaller airports to make service and sales calls, generally, to take care of customers." Sectra supplies radiology image management systems to hospitals and clinics.

Depending on the season and the weather, he flies once, sometimes two or three times a week. Based in Shelton, Conn., he flies mostly in the Northeastern region of the United States.

"There is a great advantage to flying a private plane rather than using commercial airlines," he says. "For example, we have several customers in Rochester, N.Y. For us to get to Rochester by commercial jet would mean going to LaGuardia and flying to Rochester at a cost of $ 700 or $800 per ticket. Since there are only three or four flights a day to and from that city, we are eager to get done and back to the airport. With our own aircraft we can leave when we want, even bring along one or two engineers, which makes it very cost effective. The cost of flying my plane for four hours is $500 to $600."

INCREASING LIABILITY

Though the advantages of having employees fly their own planes or rented ones are convincing to some, many risk managers feel allowing this practice opens a company to more liability and higher insurance costs. Injury or death of an employee while flying his plane on company business would normally be excluded from a company's travel accident policy and group life insurance program. Would a hold harmless and indemnity agreement with a waiver of claims for workers' compensation and health insurance be valid if there was an accident? What would the company's liability be for injury to a nonemployee in an employee's plane on business?

Kenneth Breyley, director of risk management, Omnova Solutions Inc, located in Fairlawn, Ohio, says the company does not permit employees to fly their own or rented planes on company business.

"I have coverage just in ease we hire a charter aircraft and the charter company doesn't have coverage, or it is less than we want to protect us," he says. "By design we want to protect ourselves." He remembered one employee who had his own plane and flew a trip or two on company business without telling anyone. Once the controller found out, "that person was stopped practically in midair."

KeyCorp's policy is not to allow employees to fly their own aircraft on company business or to permit employees to engage charters directly. Barbara W. Munch, assistant vice president, corporate insurance and risk management, KeyCorp, based in Cleveland, says, "We look at everything from the perspective of deep pockets, and very much want to control, or in this scenario, avoid, risk factors that could lead to significant suits against the company. And beyond considering injury to the occupants of the aircraft, the company could he held liable for injury or damages on the ground if the aircraft goes down while on company business. What if it hits a school during class hours--that kind of thing?"

Greg Sterling, general manager, AOPA Insurance Agency, Wichita, Kan., says "A company's risk management has to make a decision early on to allow employees to fly general aviation aircraft. It generates an advantage for the company as there are good economic reasons to allow employees to fly on company business--availability and accessibility. Every business operation invites exposures, so a risk manager has to sit back and balance risk with reward. If there is a good business reason, what do you do with the risk? The first step in transferring the risk is via the insurance policy on the aircraft itself. My advice, it is wise for a risk manager to talk to a broker who can help place that type of nonowned aircraft insurance."

RENT OR BUY?

Employees can either own a plane or acquire the use of one through chartering, long-term leasing, short-term rental, fractional ownership, timesharing agreements, interchange agreements, partnerships, and aircraft management contracts. With fractional ownership, instead of owning an entire airplane, an individual owns a share of it, typically one-eighth, and it is a low-cost means to have access to a plane without having to buy one. Renting a plane can run from $75 to $225 per hour.

Mac Little, vice president, strategic operations, Atlanta-based AirShares Elite, one of the largest fractional airline firms in the country, says that most of its clients are small to medium sized companies, whose senior executives and owners are pilots and have a share in a plane. "General aviation is filling a niche that makes any region of a company so much smaller," he says. "Firms that buy a share of a small airplane can get to their locations and suppliers and vendors much faster." He admitted it costs a little more to fly than to drive, but with AirShares Elite's fractional ownership, "you gain all the convenience, access, and time advantages of owning an aircraft without the hassles of managing the plane yourself and at a fraction of the cost of sole ownership."

Top-of-the-line new aircraft can cost as much as $500,000, but used single-engine planes can be bought for $40,000 or less depending on the model and year. Operating and maintenance costs for the airplane typically run between $2,000 and $8,000 per year, depending upon the amount of flying done and the complexity of the aircraft.

Kate Dougherty, public relations manager, Cirrus Aircraft, a leader in the manufacturing of personal aircraft based, in Duluth, Minn., says its planes sell for $200,000 to $450,000. Safety has always been of the highest concern for the company's planes. In fact, she says, "two of our models have a unique parachute system."

And of course, Cirrus employees are encouraged to fly, especially the 27 regional sales people who each has a demonstration plane. "The object is to never have them on the ground," commented Dougherty. "We fly thousands of demonstration flights per year."

SKY-HIGH LIABILITY LIMITS

A number of companies and a few institutions do allow employees to fly in private planes, but restrict use of personal planes. One is the University of Illinois in Urbana-Champagne. Its regulations state that it provides aircraft liability insurance covering the university's liability arising out of the use of aircraft the university owns and operates. But, "the University does not cover any employee's legal responsibility or liability when using personal planes, even if such use is for University business" nor is the university liable for bodily injuries to passengers in personal or chartered planes that are not on university business. Employees using private airplanes for university business must carry aircraft liability insurance in varying degrees of limits from $500,000 to $25,000,000 depending on how many university and state employees are aboard.

Generally, when an employee uses his or her own aircraft, the company should be named as an additional insured on the employee's liability policy and should obtain a 30-day notice of cancellation. There should be no increased premium for this accommodation. Risk managers may want to raise the limits of liability on the employee's policy and may want to carry a higher limit than normal. Finally, the company can buy a non-owned liability aircraft policy. The policy is written in the name of the company and will respond as excess above the regular policy limits.

Among the leading insurance companies providing aviation coverage are AIG Aviation Inc., Global Aerospace Inc., London Aviation Underwriters Inc., Phoenix Aviation Managers Inc., U.S. Specialty Insurance Company, United States Aviation Insurance Group, and W. Brown & Associates Insurance Services. Most aviation insurers offer substantial limits for physical damage, third party and passenger liability coverage including hull all risks, hull war, liabilities to passengers and third parties, cargo liability, aviation products liability, airports, hangar keepers, premises, spares and also loss of use insurance.

General aviation is one of the world's safest means of transportation. Since 1950, the accident rate per 100,000 flying hours has dropped 86 percent, while the number of hours flown has skyrocketed.

"We've had no fatal accidents," Little says. "Once, flying back from a repair on a plane, it caught fire in the air. We were fortunate to be near the airport and landed without too much of an incident."

AOPA's Sterling says how risk managers transfer the risk of an employee pilot can be an effective part of their business plan, "so long as they can identify and manage the risk properly. It is a win for the employee, a win for the company which gets an additional business tool, and a plus for the company's clients who get the benefits of faster responses."

RONALD GIFT MULLINS, a former insurance editor, lives in New York. He can be reached at [e-mail].