Legal Lease – Illegal Charter?

Leases have been used for decades as alternative forms of financing the use of many different kinds of property, from real estate through office equipment, automobiles, construction equipment and of course, aircraft.  In recent times, leases have also been used to acquire less than full-time use of some of these items. 

The concept of a dry lease has arisen, particularly in the aviation industry, to enable a lessee to acquire the use of an aircraft, typically on a part-time basis, and not actually acquire the legal ownership of that aircraft.

The COVID pandemic certainly changed many perspectives and practices of the business world.  Among them has been a rapid increase in the number of aircraft being leased, and the number of individuals and businesses interested in leasing aircraft on less than a full-time basis.  In the last three years, we also saw a huge increase in the number of fractional ownership positions that were offered and purchased.

A dry lease is a lease that gives the use of the aircraft to the lessee, and in addition to that, transfers the operational control of flights to that same lessee.  On the other hand, a wet lease is more akin to a typical charter type flight, where the lessor retains the operational control of the flight, provides the flight crew, sees to the maintenance of the aircraft, and provides insurance for the aircraft. 

The concept of what constitutes operational control is not entirely defined in the Federal Aviation Regulations.  While FAR 1.1 states that operational control concerning a flight means the exercise of authority to initiate, terminate, or continue a particular flight, there is certainly more to it than that.  Operational control also means that the person purportedly exercising it is also the person who is presumed to be in charge of the entire operation and not merely a passenger.  Therefore, a dry lease requires that the lessee, in addition to maintaining the operational control of each flight, also has some level of control over other aspects of leasing the aircraft.  Among other things a dry lease requires that the lessee arrange for, pay for, and provide the flight crew.  The flight crew can be directly employed by the lessee, or in certain instances, if the operation is well thought out and the documents are well crafted, flight crews can be subcontracted from a flight management concern.

Also, the lessee under a dry lease should be the person or entity who pays for the fuel and other consumables used during the flight and pays for such incidentals as landing fees, parking fees, catering, and any particular insurance that is required for a specific flight.

Historically, the FAA has been watchful for less than scrupulous operators who are actually flying charter flights under the guise of dry leases.  Because of different treatments for insurance premiums, required maintenance, crew duty limitations, and federal excise tax payments, typically a charter flight operated under Part 135 will be a more expensive and onerous endeavor than a dry lease operation conducted under Part 91.  These operators try to scam the system and operate flights as Part 91 dry lease operations rather than charter flights under Part 135.  Doing so, they can operate at a lesser cost and therefore, at a smaller price to the ultimate consumer.

Legitimate Part 135 operators have a burden, both economic and regulatory, that the shade tree operators do not.  The FAA realizes that adherence to Part 135 standards, limitations, and certificate specifications generally offer a higher standard of safety than the flights conducted under Part 91.

We have seen a significant increase in FAA enforcement actions related to alleged illegal charter in the past few years, and particularly since the effects of the COVID pandemic have hit the aviation industry.  If you are approached by anyone to engage in a dry lease, you should seek the services of a qualified aviation attorney to look into the situation, examine the paperwork, and most importantly, examine the actual deal itself.  Several operators have tried simply shoving a lease in front of a customer with a “sign here” attitude and have told the customer that such a document makes the flight a lease operation rather than a charter.

There has been an old saying in the law for decades that substance controls over form.  And the substance of the deal is what will control once the FAA investigation has begun.  The paperwork helps, but obviously it is not a be all end all.

There are several red flags that should pique one’s interest before signing a document that purports to be a dry lease.  Find out how many other lessees there are for this particular aircraft.  While there is no specific limitation as to how many persons or entities can co-lease an aircraft, the more leases there are, the more the deal looks like a charter operation rather than a legitimate dry lease.

Be careful when the owner of the aircraft coaches you on how to handle an FAA ramp check if you are so checked while on a flight.  Be careful if you are simply introduced to the pilot(s) prior to departure and told that they are going to be working for you for the duration of the flight.  In a true dry lease, the lessee employs or otherwise arranges the flight crew, and therefore it makes sense that the ramp is not the place where you are going to meet the crew for the very first time.

There certainly is a place for dry leasing and a dry lease is a very valuable and legitimate way to acquire the use of an aircraft, either full time or part time.  But to be sure, and to protect yourself and those who will be riding on any trips with you, seek the services of a competent aviation attorney to look at the lease paperwork, ask the right questions, and come to some reasonable opinion as to whether the transaction is a sham to avoid the charter requirements, or is in fact, a legitimate dry lease.

As an Aviation lawyer, Jerry Eichenberger devotes the majority of his practice to various sectors of the aviation industry. He routinely litigates aircraft accident cases as well as business disputes and administrative proceedings. 

He is a current member of the Experimental Aircraft Association, the Ohio Aviation Association, the Aircraft Owners and Pilots Association (where he serves on the legal services panel), National Business Aviation Association, Aviation Insurance Association and is a past president of the Professional Pilots Association. He has published four books and hundreds of magazine articles on various legal and aviation topics.


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