In the first two articles of this series we outlined the FAA's recent enforcement focus on illegal charters and the special problems that arise from ownership of aircraft through corporations (and LLCs).  That kind of ownership is considered ownership by a flight department company and subjects the owner to the requirements of Parts 119 or 135. This is far beyond the intention or compliance capability of most pilots who simply seek the protection from liability that a corporate form of ownership might provide.  In this installment we consider how to avoid these problems.

First, an obvious answer is simply to own the aircraft individually, without the intervention of either a company in the form of a corporation or an LLC.  In this scenario the pilot relies exclusively upon liability insurance coverage for protection from lawsuits.

A second option allows corporate ownership by a company when ownership of the aircraft is not the company’s sole purpose. For instance, if an incorporated construction company has projects in a number of states, a private aircraft is a sensible form of transportation to visit those sites. The company, under the same corporate umbrella, can own the aircraft without running afoul of the flight department company regulations because aircraft ownership and operation are used to support the construction business.  One note of caution here: this is true as a general statement but be sure to check with experienced aviation counsel to make sure that you have the arrangement properly implemented, before you rely on the general principle.

A third possibility is to go forward with Joe’s plan to own the aircraft through a closely held corporation.  Let's assume that My Cool Plane Inc. has Joe as its only member, Joe also serves as its manager.  Joe wants to operate the aircraft under FAR Part 91. This can be done legally if structured correctly.  The solution is to enter into a “dry lease” arrangement in which My Cool Plane Inc. leases the aircraft to Joe Pilot.  What is a dry lease?  A dry lease is a lease of the aircraft only, without a pilot.  (By contrast a wet lease includes a pilot along with the aircraft, and requires a Part 135 certificate.)

In short, Joe Pilot, the manager of My Cool Plane Inc., has the corporation lease the aircraft to himself as an individual operator.  As long as Joe is not compensated by My Cool Plane for the operation of the aircraft this circumvents the problem and the aircraft can be operated under Part 91.  Remember, Joe and My Cool Plane are separate legal persons.  As long as the separation is recognized, properly documented, and honored in practice, the arrangement should fall within the regulations.

You may ask whether all of this amounts to little more than semantic game playing.  It’s a fair question.  However, if you don’t play the game the risk is there (see Part 2 of this series) and, as noted in Part 1, the FAA is paying particular attention to eliminating illegal charter arrangements. If you purchase an aircraft through a corporation, without a dry lease, then hop in and fly, you are in the FAA’s view chartering the aircraft to yourself. And you just violated an important regulation.  

This puts everyone who owns an aircraft through an LLC or closely held corporation at significant risk.  As illogical as it may appear on the surface, the FAA has taken this position consistently for many years. With respect to simple ownership for personal use it was seldom enforced.  Now the times have changed and the prudent aircraft owner will think twice before owning his aircraft through a corporation without ensuring that the deal is structured to avoid the problem.  The pilot who wants corporate ownership should get professional legal before signing the purchase documents to ensure that the structure allows for operation under Part 91.

Feel free to contact aviation attorney Frank Steinberg if you have questions or would like more information.

Frank Steinberg
Committed to helping clients with employment litigation, business litigation, and aviation law throughout NJ.
Be the first to comment!
Post a Comment