A company may, for a number of reasons, establish a lease agreement between related parties, including FAA rules, VAT planning, risk management and aircraft sharing. We have an incredibly safe air transportation system in the U.S., but owning and operating an aircraft is not cheap. Added to this is the high level of public confidence in this system, which faces the desire to pay the lowest possible price for these flights, and conditions are ripe for a significant increase in operations, which the Federal Aviation Administration (FAA) considers an illegal charter – and the FAA has responded accordingly. Sometimes lenders or other business stakeholders set up the types of assets a company can hold a limit. «Similarly, regulations in some highly regulated sectors, such as utilities, banks and insurance, can prevent direct ownership of an aircraft,» Barbera said. «In these cases, it may be necessary for the aircraft to be in a separate business and leased to the company that uses it.» If your dry lease agreements (timeshare or interchange agreements) have been verified for a few years, now is the time to complete this audit and confirm that the documents are in compliance with FAR Part 91 requirements. To plan or discuss a review, contact the following members of Husch Blackwell`s aviation team: David C. Agee, Michael A. Cosby, Chris C. Sundberg or Amanda E.
Tummons. One of the most common strategies that companies use to avoid this trap is for a separate corporation to take over the aircraft. This unit then leases the aircraft to the existing company, but does not employ or hire the flight crew. This is called «dry rent.» The tenant has complete operational control of the aircraft. As a general rule, Part 91 operators should not be subject to the federal excise for payments made under a dry lease. When an aircraft is used by more than one party, leasing can be the most effective way to spread ownership and operating responsibility among different users. NOTE: Operators may enter into valid leases, but do not comply with the aircraft`s operating conditions and restrictions. Inspectors should check the scope of the transaction to determine if the transaction complies with applicable regulatory requirements.