You are exploring how you can use private jet aircraft for business and personal trips.
You Have Good Options – Using Private Jets for Business & Personal Trips
First, determine what you want. Do you want to own an aircraft, share an aircraft, or pay to lease or charter someone else’s aircraft?
- Do you want to own an interest in an aircraft?
- Do you want to own an interest in an LLC that owns an aircraft?
- Do you want to lease an aircraft?
- Do you want to buy a fractional share?
- Do you want to buy a jet card?
- Do you want to charter an aircraft?
Even private aviation is highly regulated and violating insurance, tax and legal requirements can result in significant financial liability. Determine how you think you want to enter the world of private aviation and before you act, work with an experienced aviation attorney to understand some of the most significant legal and liability differences in the various private aviation options.
Aircraft Joint Ownership
If each person will own an interest in an aircraft, that is considered “joint ownership” of the plane by the Federal Aviation Administration (FAA). You need to find someone who is financially responsible and reasonably easy to get along with as a joint-owner of the plane. Can each of you pay the overhead, operational costs, and support an unexpected maintenance expense? Think of that kid in kindergarten who always received good marks for “works and plays well with others”. You want that person as a joint-owner of an aircraft. Don’t forget to run this test on yourself. If you do not “work and play well with others”, you may not be a good candidate to be the joint owner of an aircraft.
Aircraft Operation Considerations for Sharing an Aircraft
After you find that person, talk about how you will each use the aircraft. Is he primarily flying for personal trips and you are primarily flying during the week on business? Are you both primarily weekend flyers? Talk about what will happen at Thanksgiving, New Year, and spring break.
Other important issues to discuss with a potential joint owner of an aircraft include:
- How will you handle conflicts in scheduling the aircraft?
- Will there be any limit on the number of annual flight hours for each owner? How will one party’s need for additional hours be addressed?
- Do you anticipate many repositioning flights? If so, how they will be handled.
- What liability insurance coverage will be purchased?
- How will future avionics and interior upgrades be addressed?
- What if an owner fails to pay his share of the costs?
- How will you handle an owner who wants to or must sell his interest?
The owners’ agreement on these and other significant points is important and should be documented at the outset. Six months later, everyone has a different memory of a verbal agreement. The plane is to provide safety and save time, not give you a headache. Don’t forget that whatever you decide as joint owners must comply with the requirements of the insurance policy, the FAA regulations, and federal and state tax law or you may have created potential liability.
Own an LLC that owns an Aircraft
Owning an interest in an LLC that owns an aircraft sounds the same as joint ownership, but it is not the same to the FAA. The same questions about how you will each handle sharing an asset should be discussed. There may be different FAA regulations and interpretations to consider and different tax issues to consider, however, the decision process is similar to that of a jointly owned aircraft. If you set-up a sole purpose entity to own the aircraft, the aircraft must be leased to the various users. The FAA allows the sole purpose entity to own the aircraft, but not operate the aircraft. The sole purpose entity cannot operate the aircraft and charge the users for flights, either as direct charges or as capital contributions. The source of the pilots is critical to remaining in compliance with the FAA regulations. A lessee of an aircraft must comply with the insurance policy requirements, Federal Aviation Regulations (FARs), federal tax laws, and state tax laws.
Lease a Private Jet Aircraft
Leasing an aircraft does not involve ownership, but as lessee, you must know the costs for which you are responsible.
- Do you merely pay an hourly charge and provide the crew? Do you also pay operational costs? What do those operational costs include?
- Do you pay any additional amounts for insurance, maintenance plans, unexpected maintenance, landing fees, ramp fees, hangaring charges, cleaning fees, de-icing, fuel, and catering?
As lessee of an aircraft, you must be aware of your potential liabilities. If someone else is responsible for the insurance, you still must follow-up to make sure the policy is in effect and whether you and your pilots are covered by their policy. You cannot avoid liability by setting up a sole purpose entity to be the lessee of the aircraft and if you do have a sole purpose entity as a lessee that is operating the aircraft you may have increased your potential liability. For a non-commercial operation, the lease must be a dry lease. Leasing an aircraft does not give you carte blanche to charge your company, employees, friends, or passengers for a flight, even if you only recoup a portion of the costs and do not make a profit. As with an LLC that owns an aircraft, the source of the pilots will be critical to remaining in compliance with the FAA regulations. Failure to meet all legal requirements for operating a leased aircraft can result in significant financial liability for the lessee.
Timeshare a Private Jet From a Friend
Time sharing an aircraft from a friend may be a good option if you have infrequent trips. Generally, only a close friend will timeshare their aircraft to you because the FAA limits the consideration that you can be charged for the time share flight and it is usually not enough to cover the friend’s costs of the flight. Paying for additional costs can result in significant financial liability as the FAA does not allow operators to make any charges beyond those charges listed in the regulation FAR 91.501(d).
Buy a Fractional Share
Although people say you are “buying 50 hours” in a Challenger 350, you are really buying an interest in a specific Challenger 350 aircraft and then you follow the program rules to be able to fly on all of the fractional program’s Challenger 350 aircraft as well as smaller and larger aircraft in the program. Check on the economic health of the fractional operator. You do not know your co-owners and they will be hard to locate if your fractional operator abruptly goes out of business. Do you fly distances that are under an hour’s flight time? Do you need to use multiple aircraft on the same day? When heading to Thanksgiving at your second home, you may need your two kids to fly there from separate colleges, your wife to fly from your home and you may need to fly there directly from your business meeting. You may have the hours for these flights and the return trips, but does the program allow simultaneous use on a peak day? Do you have operational control under Part 91, subpart K? Violating the FAA regulations governing a fractional operation can result in financial liability.
Buy a Jet Card
A jet card generally involves buying charter hours in advance. As you know, some companies took hundreds of thousands of dollars of deposits by customers into bankruptcy with them so check on the economic health of the jetcard program.
- Do they own the jets?
- How many jets do they have in their program?
- Are your destinations within their primary service area?
- Do you usually fly on peak days?
Know the rules for using the hours, advance scheduling, and any additional costs. The documents should identify the name of the Part 135 charter operator operating each flight. Violating legal requirements of a jet card operation can result in financial liability.
Charter an Aircraft
Chartering an aircraft is more ad hoc than the other ways to use private aviation. You charter an aircraft whenever you need to fly. If you call on Tuesday to charter a flight on Wednesday the day before Thanksgiving, then you will have few, if any options, no guarantees, and high prices. Know if you are talking with the charter operator or a charter broker. The FAA now regulates charter brokers, but you need to do your homework to make sure you are dealing with a reputable charter broker or charter operator.
If you buy an aircraft, you can also lease your aircraft to a charter operator for others to utilize and to help cover the costs of the aircraft. Work with a reputable charter company to identify a realistic budget and identify which type of aircraft are frequently chartered from your area.
Do Your Homework Before Trying Private Aviation
Some individuals may tell you they are representing you in dry leasing you an aircraft or acting as your charter broker. Consider obtaining a written agreement and identify their economic incentive in the transaction. Are they representing your best interests or their best interests?
People may flow aviation words past you, words like dry lease, commercial operator, charter, or operational control. Even if they sound like they know what they are talking about, do a brief internet search and find official FAA guidance or articles written by lawyers with experience in business aviation to double-check that what they are telling you seems to be correct.
If it sounds like a lot of work to ask these questions, it is. An aviation broker can help you narrow your options to only those that best fit your needs. After you narrow your options, an experienced aviation attorney can help identify the legal issues involved with your selected methods of utilizing a private jet, advise you on FAA regulatory and tax issues, and review the documentation for the option you select. Your broker and lawyer will work together to obtain the option which you decide best fits your needs.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.