SF bay area car rental startup faces lawsuit

SF bay area startup taking aim at airport car rental business faces city lawsuit

BURLINGAME, Calif. (AP) -- Out of a tiny, green shack on a parking lot in an industrial area south of San Francisco International Airport, three teenagers are trying to change the airport car rental business. To do it, all they need are your cars, and strangers to drive them.

Their company, FlightCar, rents out people's cars while they are traveling, and gives them a share of the proceeds, free airport parking and a car wash in exchange. And their lot has had a few unusual rentals, including a 2001 Porsche Boxster and even a Lotus.

"How does it make sense that there's one parking lot at the airport where there are thousands of cars sitting there and people are paying for them to sit there and do nothing, and there's another parking lot with thousands of cars owned by Hertz?" 18-year-old FlightCar CEO Rujul Zaparde said.

Zaparde and co-founders, Kevin Petrovic and Shri Ganeshram, both 19, created FlightCar, passing on elite colleges in the Northeast and joining others in what has been dubbed the "sharing economy." These new businesses are trying to make it easy for people to share their property — such as cars or houses — and earn some money.

These companies are, however, also running up against government regulations. In FlightCar's case, San Francisco city officials and those at the airport say the company is undercutting rental car companies at the airport by acting like a rental company but ignoring the regulations that govern them.

"We're simply trying to enforce a consistent standard," said Doug Yakel, an airport spokesman.

The city has filed a lawsuit against FlightCar, hoping to shut it down until it complies with the regulations, including conducting pick-ups and drop-offs at a special area, paying 10 percent of gross profits to the airport and paying a $20 per rental transaction.

Such conflicts nationwide are creating challenges for governments.

"It's happening so fast, practically at breakneck speeds and it's constantly challenging these assumptions cities have made up to this point," said Yassi Eskandari-Qajar, who studies legal issues in the sharing economy at the Sustainable Economies Law Center, an Oakland-based nonprofit that supports such industries.

Last year, the California Public Utilities Commission issued cease-and-desist orders and $20,000 fines to San Francisco-based ride-sharing companies Lyft and Sidecar for operating illegally, stating the companies need permits certifying their drivers are properly screened, licensed and insured. It lifted the orders this year in exchange for certain safeguards, such as driver records checks.

Residence-sharing companies, such as Airbnb, have also run afoul of existing laws. A judge ruled last month that Airbnb rentals violated a 2010 New York City law disallowing short-term rentals.

The central question in the lawsuit against FlightCar is to define exactly what type of company it is.

FlightCar's founders say they are not a traditional rental car company. Yakel said FlightCar is like Hertz or Avis because it caters to the airport's customers and draws most of its revenue from passengers flying into the airport. That means FlightCar needs to follow airport regulations for rental companies, he said.

As the lawsuit proceeds, FlightCar's business is growing. Since the company's operations started, the number of car drop-offs has climbed from 600 in mid-May to 1,000 a month later, said Rosally Sapla, a FlightCar spokeswoman. The number of rentals went from 1,000 to 1,400 in the same span.

The company — which attracted private investors — employs about 30 in San Francisco and Boston and while it has not yet become profitable, Sapla said, she expects it to be in a couple of years.

Yury Trushkov, 31, was on his way to Russia for a family vacation when he drove his gray 2007 Hyundai Sonata onto the company's parking lot Tuesday. Trushkov, a software engineer, will make $10 each time his vehicle is rented, which would beat the $200 to $300 in parking he said he has paid on previous trips.

Within five minutes of pulling into the lot, attendants had packed his five suitcases into an idling Lincoln Town Car that would drop him off at the airport. Like all cars left with FlightCar, Trushkov's Sonata would be fully insured for mechanical damage, dents or dings caused by the renter. It also carries $1 million in liability insurance, in case someone drives his car into a building, for example.

It was Trushkov's first time using FlightCar's service.

"So far, so good," he said.

The company, which usually has about 80 cars on its lot, recently expanded its services to Logan International Airport in Boston.

Matthew Brelis, a spokesman for MassPort, the public agency that runs Logan, said companies doing business with the airport and its customers are required to have an operating agreement that would encompass financial and insurance requirements and compliance with airport and security regulations.

But FlightCar has no such contract, he said.

"We want to know who's working at the airport and interacting with our customers," Brelis said. He said Boston airport officials are aware of San Francisco's lawsuit and are watching the situation.

Zaparde said the lawsuit does not faze him and FlightCar will continue to work on the business. "It doesn't help us to start worrying about what the airport thinks and what these guys think," he said.

The service keeps Walt French coming back for more. The 65-year-old Oakland resident is planning to leave his white 2002 Acura RSX at the company's Burlingame lot —which he has done a half dozen times— while he's out of town. He said any worries about damage to his car have faded away.

"I really appreciate the savings of $60," French said. "It comes out of my pocket otherwise."