NBAA-BACE Session Offers Tips to Avoid Dry Leasing Pitfalls

Oct. 18, 2023

The concept behind leasing a business aircraft is not inherently complex, but leases can contain potential traps for those not up to speed on the vagaries. That could lead to significant penalties from the FAA should the agency determine a purported Part 91 lease arrangement is actually an illegal charter operation.

So, how does that happen? It comes down to who holds operational control of the aircraft, noted attorney David Norton with the firm of Shackelford, Bowen, McKinley & Norton during an education session at the 2023 NBAA Business Aviation Convention & Exhibition (NBAA-BACE).

In a wet lease, the lessor provides the aircraft and at least one crew member (though not necessarily a pilot) and, under the FARs, maintains that authority to determine where the aircraft is going, and who holds ultimate responsibility for the safe conduct of the flight.

Things become murkier when an aircraft is dry leased. “There’s been a proliferation of dry leasing – and, in many cases, what the FAA views to be improper or illegal dry leasing – that really picked up after the Great Recession,” Norton said. “People didn’t want to get rid of their airplanes but did [want to reduce] costs.”

Under a dry lease, the lessee holds operational control, not the lessor or even the pilot. That is an important distinction, as dry leases can easily lead to situations where it’s unclear which entity holds operational control, or that – deliberately or not – the aircraft is being held out for commercial purposes.

“You can have everything set up perfectly on paper [but] if you’re not doing it the right way, that’s bad,” said Greg Reigel, an aviation attorney with the same firm. “For example, if the lessee is getting an invoice from the pilot for their pilot services, but who’s also managing the airplane.”

Even if the pilot is unaware of the operating structure behind the aircraft they’ve been hired to fly, “they’re still the low-hanging fruit,” Norton said. “They’re the first person [the FAA sees] during a ramp check. They know who the owner is, because they can pull it up on the registration, but it’s usually more difficult to find them.

“But the real focus is on the illegal charter,” he continued. “Although they’ll start with the pilots, it’s ultimately on the operator – or the party who’s effectively become the operator.”

And while it’s not the pilot’s responsibility to educate lessees about their responsibilities, “it’s important for professional pilots to perform due diligence,” Reigel said. “If you’re talking to somebody that’s going to hire you to fly and they don’t want to give you that information, it’s the first [red] flag. That’s a big problem.”

Possible actions the FAA may take include a letter of possible deviation that doesn’t carry legal ramifications, or a compliance action requiring the pilot to take certain steps to resolve the agency’s concerns.

However, due to the FAA’s particular interest in dry leases and its Special Emphasis Investigations Team tasked with investigating reports of illegal charter operations, certificate suspension or revocation are also possible in extreme cases, as are criminal investigations and steep civil penalties.

‘That requires some unique circumstances,” Reigel said. “But if they’re going enforcement, they’re going full bore.”