Business Aviation Insider nameplate
Regulatory Hot Topics

Dry Leasing Do’s and Don’ts

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.

INDUSTRY CHALLENGE

The FAA is cracking down on illegal charter operations, including improper dry leases. Meanwhile, dry leases can be valuable agreements when implemented properly.

NBAA RESPONSE

NBAA, NATA and the FAA are increasing outreach initiatives to educate aircraft owners and operators, as well as insurance providers.

January 25, 2024

Industry Professionals Discuss Bizav Challenges at NBAA, AIA Workshop

More than 70 aviation professionals met Jan. 23, 2024, for an engaging, interactive workshop, hosted by NBAA and the Aviation Insurance Association, to focus on the issues most important to today’s business aviation industry.
Read More

July 17, 2023

Tips for Ensuring Your Aircraft is Insurable

A diverse group of experts from the insurance, legal and aviation fields gathered July 14, 2023, to discuss ways to mitigate the continued misuse of dry leasing and what responsibility brokers and underwriters have when issuing aviation insurance policies for dry leases.
Read More

Nov/Dec 2021

Management: Beware the Pitfalls of Dry Leasing

You must to view this content.
Read More

December 21, 2020

Industry Groups Release Guidance on Aircraft Leasing Best Practices

NBAA and other leading industry groups announced the publication of the General Aviation Dry Leasing Guide.
Read More