Dry leasing can be a very useful tool in business aviation, but it’s also complex. How can you avoid potential pitfalls, including insurance challenges, as an aircraft lessor or lessee in a dry lease?
A dry lease is one in which the lessor leases the aircraft to a lessee without any pilot or other crewmember or their services.
“There’s been increased awareness of dry leasing best practices in the industry but there’s still a lot of confusion.”
David Norton Partner, Shackelford, Bowen, McKinley & Norton, LLP
“There’s been increased awareness of dry leasing best practices in the industry but there’s still a lot of confusion,” said David Norton, a partner at Shackelford, Bowen, McKinley & Norton, LLP. “The purpose of a dry lease is to transfer operational control. The lessee has to know what operational control means and understand the ramifications of that transfer, not just repeat four bullet points on a slide.”
Operational control, with respect to a flight, means exercising authority over initiating, conducting or terminating a flight. As the entity in operational control of the aircraft, the lessee is responsible for safe operations and complying with all applicable laws and regulations. The lessee may risk FAA enforcement for noncompliance and liability if the operation causes personal injury or property damage.
Experts shared several guidelines:
DO read any leases or contracts presented to you and review them with knowledgeable aviation counsel.
DON’T sign an agreement you don’t understand just because someone tells you to sign it.
DO act with due diligence as a lessee.
DON’T be a passive passenger by treating the agreement as a charter agreement. The point of dry leasing for the lessee is to operate the aircraft under Part 91.
DO, as a lessee, be active in crewmember selection. As Norton explained, in some markets it’s almost impossible to find someone who isn’t already being used by other lessees or the lessors. There may be safety reasons to use someone who’s familiar with the aircraft, but it’s incumbent on lessees to vet pilots and be sure they know they report to the lessee. Document why you chose a pilot who’s already flying the aircraft for the lessor or another lessee.
DON’T sign an agreement requiring you to choose a pilot from a lessor’s “approved” list.
DO, as a lessee, verify that pilots you select meet pilot warranty requirements and, ideally, name them individually in the policy. Confirm the policy covers your operation of the aircraft and territories where you intend to operate.
DON’T use pilots that don’t meet the policy’s pilot warranty clause.
DO, as a lessor, educate yourself on insurance requirements for leased aircraft, consider the added insurance cost and work with your insurance provider.
Insurance expert Doug Bell, Starr Aviation product line manager for industrial aid/managed fleets, said, “You must disclose that it will be dry leased. That activity is typically considered to be commercial. As a lessor, it’s your asset. You have different concerns from the lessee.”
DON’T hide potential uses of the aircraft.
“Honesty is the best policy,” Bell said. “Illegal charter is getting heavy focus.”
NBAA, NATA and the FAA are collaborating to offer the industry information for good decision-making.
“The insurance community is looking to industry and the FAA for more guidance on what questions to ask and where the boundaries are,” said Joanne M. Barbera, partner at Barbera & Watkins, LLC. “We need clarity between the FAA and insurance companies. The initiative NBAA and NATA have taken on can help clear up any miscommunication.”
To learn more, review NBAA’s related resources at nbaa.org/personal-use.
The FAA is cracking down on illegal charter operations, including improper dry leases. Meanwhile, dry leases can be valuable agreements when implemented properly.
NBAA, NATA and the FAA are increasing outreach initiatives to educate aircraft owners and operators, as well as insurance providers.