In business aviation, like many other aspects of business, the details matter. When buying an aircraft, take the time to check the ownership and operational details. Review it again periodically to identify whether anything changed.
Aircraft Ownership
Is the entity that owns the aircraft:
- The entity that will operate or lease the aircraft?
- The entity that you want to take the tax deductions for the aircraft?
- An entity that meets the FAA regulatory requirements to register an aircraft?
Aircraft Operations
Is the entity that operates the aircraft:
- An entity that doesn’t have a business purpose other than operating the aircraft?
- Charging for flights on the aircraft?
Risk analysis in aviation never stops. Periodic reviews of the ownership and operational details of the aircraft can save time and money by identifying and correcting regulatory compliance issues before they become a larger risk.
A perfectly structured aircraft operation at the time of purchase can evolve into an aircraft operation with regulatory compliance problems if changes occur. Review the facts regarding the ownership and operation of the aircraft as well as whether the current facts match the initial structure and whether the current facts match the documentation in effect for the aircraft. Overlooked items now can create painful headaches later.
Possible changes which can impact the regulatory compliance of aircraft operations are:
- New accounting personnel
- Restructuring ownership of any entity in the chain of ownership of aircraft
- Restructuring management of any entity in the chain of ownership of aircraft
- New management company
- New individuals or entities using the aircraft for personal or business use
- New regulations or interpretations issued by government agencies
FAA civil penalties exceed $16,000 per violation for many types of violations by small businesses, and that amount is adjusted for inflation each year. Many civil penalties are imposed on a per-flight basis, resulting in hundreds of thousands of dollars in penalties. The FAA issues press releases about some significant proposed civil penalties. Reputational risk can result, especially if local and industry publications report the information in the FAA’s press release.
Michelle M. Wade is 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.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.