CPAsOperating RegulationsPilots

Regulatory Issues in Sharing Your Aircraft

By February 13, 2018 June 21st, 2020 No Comments
jetstream law - A law firm handling domestic and international business jet transactions.

Do you own a jet and want to let your friends use the aircraft and pay you to cover costs (not to make a profit)?  There are several options to help meet your goals.  Regulatory compliance must be part of the initial analysis to determine the best option based on your facts.  Business aircraft are regulated by many governmental agencies, as well as the requirements of your insurance company.  Remaining in regulatory compliance should be a factor anytime you consider changing how the aircraft is owned or operated.

Placing Aircraft on a Charter Certificate

Many aircraft owners want to offset the costs of owning and operating an aircraft, but do not want to incur the significant time and expense of obtaining their own charter certificate.  Charter companies often add private aircraft to their charter certificate to charter the aircraft to third parties.  This allows the aircraft owner to take advantage of the operating experience and marketing connections of the charter company while receipts from charter operations may help the owner offset costs.

Some of the initial factors to consider include the cost of increased governmental oversight for maintenance and operations and cost of any increased training requirements for the crew. Your aircraft must also have all of the required equipment and burn certification documentation for the Federal Aviation Administration (FAA) to allow it to be added to a charter certificate. A charter company must have operational control over the aircraft and control over the crew for charter flights. The charter company is responsible for and must have control over issues such as maintenance decisions and crew rest and duty information at all times, even if the aircraft is operated by the owner much of the time.  State sales tax issues for the lease of the aircraft to the charter company and potential federal excise tax on amounts paid by the owner to the charter company should be considered.

Dry Leasing

With a dry lease, the aircraft can be leased to a third party. The FAA defines a dry lease as the lease of an aircraft without crew, and a wet lease as the lease of an aircraft with at least one crewmember.  This is an important distinction.  Under a dry lease structure, a lessee can lease an aircraft from the owner and the lessee must hire pilots from an independent entity, which is not owned by the shareholders/members of the owner of the aircraft,  The owner/lessor cannot require that the lessee use any specific pilot or pilot provider.  If your flight department owns the aircraft and employs the crew and you do not want other flight crews operating the aircraft for your lessee, then this is not the best option for you.

Possession, command and control and operational control must be addressed to ensure that the flights are not subject to the federal excise tax and that they are operated in compliance with the Federal Aviation Regulations (FARs).

The Truth-In-Leasing requirements in FAR 91.23 apply to a dry lease.  Each state may have different state sales and use tax laws and regulations for a dry lease. Federal tax issues such as passive activity losses need to be considered.

Timesharing

Timeshare is defined in FAR 91.501(c) as “an arrangement whereby a person leases his airplane with flight crew to another person, and no charge is made for the flights conducted under that arrangement other than those specified in paragraph (d) of this section”.    This option is generally available only to large aircraft, however an owner may still utilize a timeshare arrangement if it complies with the NBAA exemption to FAR 91.501 which is available to NBAA members who also otherwise meet the requirements of the exemption.

FAR 91.501(d) limits the amount that can be charged for a timeshare flight. The charge is limited to a list of ten items, which usually does not reimburse the owner for the full cost of the flight.  Basically, the owner can charge two times the cost of fuel for that flight plus some miscellaneous trip expenses.  The Truth-In-Leasing requirements in FAR 91.23 will also apply to a timeshare.

Issues which are not written in FAR 91.501 can also trip-up an unsuspecting owner.  A company that’s only business purpose is to operate the aircraft cannot timeshare an aircraft to another person or entity.  Generally, timeshare flights will be subject to the federal excise tax.  Each state may have different state sales/use tax results for this operation.

Structuring the ownership and operation of corporate aircraft can be very complex and varies greatly from one aircraft to the next, often resulting in inefficient, and sometimes illegal, operation of an aircraft.  Utilizing an attorney experienced in business aviation can help reduce costs, ensure regulatory compliance, and add value by creating a tailored corporate aircraft operational structure.

 

Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (mwade@jetstreamlaw.com)

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