The company is changing, whether it is due to industry changes, re-alignment or re-organization. Don’t add a problem by reorganizing your way out of regulatory compliance with the FAA regulations governing the ownership and operation of the aircraft.
How can Company Change Affect FAA Regulatory Compliance of the Jet
Ownership of the Jet
The FAA has specific requirements regarding which entities can own a plane and how those entities are owned and managed. If any entity in the chain of entities that own the company jet is changing, whether that change is an ownership change or a management change, talk with aviation counsel before any change is made to avoid reorganizing the company jet out of regulatory compliance. Even if the chain of entities includes eight levels of entities, check each one for any changes. A few hours now can save you Hundreds of Thousands of dollars later. Do you want to discover on the day you are finally to depart to fly to Europe that the jet is not properly registered and that you are at risk of not having any insurance coverage?
Operation of the Jet
In addition to looking at the ownership entity, also look at the entities which operate the aircraft. Are there any lessees? Has their business changed? Do they still need to lease the aircraft? Do other entities now need to lease the aircraft? Have the business changes inadvertently created a sole purpose flight department company? Change is a regular part of the business cycle. Reviewing the impact of business changes on the registration and operation of the corporate jet should also be a regular part of the business cycle. Do you want to discover on the day you are to depart to fly to an important meeting that the lessee has been re-organized out of business, a new aircraft dry lease was never signed with the entity now performing this business function so the jet is not properly operated and you are at risk of not having insurance coverage, in addition to possibly incurring FAA civil penalties and owing additional taxes?
Specific Company Change that Affects the Company Plane
- Did you hire a President who is not a US citizen as the head of the company that owns the jet or as the head of any entity in the chain of entities that own the company jet?
- Did you add a foreign investor who will own more than 25% of the company that owns the jet or of any entity in the chain of entities that own the company jet?
- For any entity in the chain of entities that own the company jet did you convert an LLC to an LLP?
- Did you sell part of the aircraft to another entity?
- Did you change the primary hangar location of the aircraft? This can affect sales tax on the aircraft. The financing on the aircraft probably requires that you at least notify the lender before you change the primary hangar location of the aircraft.
- Are you adding several lessees to the point that you risk exceeding the number of dry leases that are acceptable by the FAA?
How Will I know What Changes are Made by the C- Suite
If you are in the flight department, the legal department or handle corporate compliance and have heard rumblings of re-organizing or other changes, ask questions. Even if you don’t hear rumblings of change – ask questions. A few well-placed questions now can save you many hours of later explaining why the jet operations were not changed to match the corporate changes. Explaining that regulatory requirements are behind these questions will help you educate others, including executives and accounting on risks for the aircraft that may be unintentionally created if the FAA regulations are not followed.
An aviation attorney experienced in business aviation can contribute to solutions to companies planning re-alignment or re-organization, while maintaining the new business goals, tax goals and compliance with the FAA regulations for the ownership and operation of the company jet.
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.
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.