Contact AerSale today to find out how we`re helping commercial aviation customers achieve healthy fleet growth through world-class aircraft leasing, engine leasing and aircraft purchase programs. If the provisions of the Truth in Lease Act of Section 14 C.F.R. § 91.23 apply to the lease, the lease must include a truth clause in the lease, be sent to the FAA within 24 hours of its execution, and must be carried on board the leased aircraft at all times. The parties must exercise the utmost care in reviewing and complying with the Truth in Lease Act and any other rules that apply to aircraft dry leases. A large company with an intention to make a profit may be a suitable dry lessee if the aircraft serves the operations of the company whose operation generates significantly more revenue than the operating costs of the aircraft. The LLC owner/LLC member may also agree on an “exclusive dry lease” with a lessee/operator or a “non-exclusive lease” with multiple tenants/aircraft operators under their separate non-exclusive leases. As the aircraft leasing market continues to mature, innovative models connect customers with tailor-made solutions tailored to their business needs. But when considering aircraft leasing, it`s important to start with the three predominant models: wet leasing, dry leasing, and leasebacks. In a dry lease agreement, the owner of the aircraft makes the aircraft available to the unmanned lessee. Neither the landlord nor the tenant needs to be in possession of an air operator`s certificate, although an air carrier can be a landlord or tenant under a dry lease. A dry lease tenant is licensed to operate under Part 91 of 14 CFR and is not required to meet many of the most restrictive and costly requirements of Parts 121 or 135. And federal excise tax is not due on the amounts the tenant pays to the landlord, although sales tax is often levied on the rental rate. For private operators, these are significant advantages.

However, they must also be weighed against the responsibilities and potential liability that come with the operational control of a 14 CFR Part 91 dry lease transaction. If the aircraft an operator wishes to provide is leased by a financial institution or an independent party, the operator requires the authorization of the “primary lessor”. The financial world regularly uses exclusive dry leases of various types to allow a lessor to purchase an aircraft and lease it to an unmanned tenant as part of a long-term lease. Here, the lessee also provides the crew and assumes all obligations under the lease for the maintenance, custody and control of the aircraft for the duration, including for maintenance, crew, operation, cost payments, insurance and taxes. When an aircraft is leased, insurance must be carefully coordinated and the tax consequences taken into account. Editor`s Note: The latest developments on this topic can be found in www.aopa.org/news-and-media/all-news/2020/march/pilot/for-the-record-who-is-in-control (February 2020) There is no doubt: buying, owning and operating an aircraft is an expensive undertaking. For this reason, we find our customers looking for cheaper private planes. Most of the time, an aircraft charter or lease agreement aligns more closely with a client`s objectives than direct ownership of an aircraft. To avoid an illegal “dry lease sham” between the parties, it is important that the lessor does not provide or even arrange pilots for a lessee to use the aircraft. The FAA has determined that if the lessor (or related entity) employs the pilots hired by the lessee, it is in fact a wet lease. Sales are different from leases. For example, a sale is made under a “disguised lease,” a contract that can be marked as a lease with terms such as a lease, but the lessee pays the full value or price of the aircraft in rents.

In the words of the FAA, such a lease is a “conditional purchase agreement.” The NBAA offers several resources for dry leases, including the NBAA Operating & Leasing Guide and the NBAA State Aviation Tax Report. Leasing transfers ownership of the aircraft without transferring ownership. A dry lease provides an aircraft, but the lessor does not provide a crew. (A lease that includes the crew is called a “crewed lease” and requires a commercial certificate from the FAA – unless expressly authorized under FAR 91.501 or FAR 91.321.) A “dry lease” contract for private aircraft is subject to fewer operating restrictions and is subject to Part 91 of 14 C.F.R. Under a dry lease, an aircraft owner or lessor leases an aircraft to an unmanned lessee or operator. Neither the landlord nor the tenant is required to have a charter certificate. In a dry lease situation, the tenant provides its own crew and exercises operational control over its flights. The lessee can operate the aircraft without meeting many of the most restrictive and costly charter service requirements. In addition, federal excise duties are generally not due on lease payments from the tenant to the lessor (although VAT is often levied on these payments), which is another advantage over the chartered service.

For these and other reasons, we often find customers who want dry rental contracts. Charter flights are largely regulated by the Federal Aviation Administration (the “FAA”) pursuant to Title 14 of the Code of Federal Regulations, Part 135 (14 C.F.R. Part 135). In order to maintain an active charter certificate, an aircraft operator must comply with regulations that require a high level of maintenance, upkeep and operating procedures for aircraft. For example, chartered aircraft are subject to certain airport runway length requirements and can only conduct instrument approaches to airports with on-site weather reporting facilities. Such restrictions often make chartering the least preferred arrangement over a dry lease. To ensure you have the best deal for your business and operational needs, it`s important to choose a supplier with transparent terms and proven expertise in the legal complexity of leases. When reviewing a lease agreement, the FAA will determine the relationship between the parties beyond the actual written agreements. While a lease can be written as a dry lease and the agreement says “dry lease,” for example, that doesn`t mean the FAA can`t take the position that the agreement is actually like a disguised crewed lease. If the FAA takes this position, if the landlord who actually operates the aircraft for the lessee does not have an aviation certificate, it could be a problem for the landlord and perhaps also for the tenant.

Is it possible that there is a subtle shift from the pervasive and persistent threat of illegal charter operations? For the record, and perhaps just for me, I see more and more aircraft owners, operators, tenants, and lessors asking if they need a lease or other structure to avoid an FAA audit or personal liability. .