A Flight Department manages pilots and airplanes on behalf of an aircraft owner. The means by which a person or corporation can recuperate the costs associated with owning and operating that aircraft through their business is a fairly narrow one-way street. Furthermore, stepping outside of the lines set in place by the FAA puts the PIC’s license at risk, and sets a company on a collision course with federal fines and a nullification of any realized tax advantages.<\/p>\n\n\n\n
Part 91 of the Federal Aviation Regulations dictates that passengers and flight guests cannot contribute to the cost associated with owning and operating an aircraft in most every case, and not more than their pro rata share in certain qualified ride-sharing situations. The idea is that each occupant voluntarily assumes their risk of passage in that aircraft.<\/em><\/p>\n\n\n\n The information presented here does not address acceptable incidental cost sharing where the owner and passenger(s) share the same destination. Instead, it assumes that an aircraft was purchased for business and personal use. As such, if employees, or friends, or business partners have or intend to contribute to the cost of the flight in any way, shape, or form\u2014the FAA considers that flight a charter activity. Charter flights are governed under Part 135 of the Federal Aviation Regulations.<\/p>\n\n\n\n The FAA\u2019s distinction is based on the idea that from the moment something of value is exchanged, the passenger is entitled to a regulated standard of safety.<\/strong><\/p>\n<\/blockquote>\n\n\n\n A basic FAA principle is that every flight needs an operator. By default, the operator is the entity listed on the Airworthiness Certificate and Registration documents stored onboard the airplane. As such, if an owner creates a holding company for tax purposes, that entity becomes the legal owner and operator of that aircraft\u2014under Part 91, it cannot accept compensation from anyone other than the owner of the holding company.<\/p>\n\n\n\n Many businesses use dry leases to avoid the trap of illicit operations while recouping legitimate costs. A dry lease defines the relationship between entities, outlines responsibilities, and satisfies regulatory requirements set forth by the FAA. Once a dry lease is in place, the lessee assumes all responsibilities as the operator of the aircraft for the duration of the lease, and all passengers fly as non-paying guests of the lessee. <\/strong><\/p>\n\n\n\n While the holding company remains the owner of the aircraft, it cannot furnish pilots to the parent company, or provide fuel, or cover any of the direct operating costs (DOC). It is the sole responsibility of the lessee to provide (hire) their own pilot and provide for the costs and coordination of fuel purchases, aircraft insurance, storage and maintenance\u2014including all costs and fees associated with flight operations, such as airport and FBO fees.<\/p>\n\n\n\n It is acceptable for the lessor<\/span> (legal owner) to require an hourly rate from the lessee (aircraft operator) to satisfy the costs of ownership, including paying on the airplane loan, the aircraft insurance policy, and aircraft maintenance and storage; it is expected for the lessee<\/span> to oversee and coordinate those same processes.<\/p>\n\n\n\n Companies that lease an aircraft often delegate these duties to an aircraft manager. Sometimes, that manager is also the person they have hired to be the company pilot. However, for the sake of transparency, it is recommended that pilots are engaged as independent contractors.<\/p>\n\n\n\n While there is no specified limit for the number of dry leases on a single aircraft, the FAA frowns on having more than a couple and emphasizes that these are longstanding agreements that anticipate regular activity by each lessee. To avoid the appearance of fly-by-night charter operations, it is helpful if dry leases are limited to situations where pre-established relationships exist. For example, to legitimately distribute operational costs, a person who owns multiple companies would establish internal<\/em> dry leases for each company that intends to make use of the aircraft.<\/p>\n\n\n\n In such instances, a primary lessee is named to ensure effective management of the aircraft. Like a rental car, the airplane is delivered to one operator at a time: from preflight to post-flight, each flight leg will only have one lessee as the operator.<\/em> Once the airplane lands, it remains under the operational control of that operator until it is delivered (or redelivered) to another lessee. Current copies of all dry leases must be onboard the aircraft\u2014leases for airplanes weighing over 12,500 pounds must also be on file with the FAA.<\/p>\n\n\n\n Lastly, each lessee has the individual right and responsibility to hire the pilot. Provided a pilot meets the requirements of the insurance policy, the owner or other lessee(s) cannot prohibit the use of a qualified pilot or dictate the use of a specific pilot. In instances where multiple companies use a cost sharing agreement to retain the services of the same pilot, it is imperative that the pilot can prove he has been directly hired by the operator (lessee) of a given flight.<\/p>\n\n\n\n In summary, a Part 91 flight department is a misleading term at best. In actuality, corporations maintain a number of segregated airplane leasing and pilot employment agreements that satisfy the regulatory requirements of the FAA and the IRS.<\/strong> <\/p>\n\n\n\n Given that each situation is unique, the information presented on this page cannot be considered legal guidance. It is your responsibility to adequately address your specific set of circumstances. For further reference, please review these articles from the NBAA and Baker Donelson:<\/em><\/p>\n\n\n\n\n
NBAA: Part 91 Trap<\/summary>\n\n