As noted in Part 1 of this series, owners of private aircraft will often want to share ownership and/or use of their aircraft with others. In most cases the motivation for sharing ownership and/or use of an aircraft is to defray the significant costs and expenses associated with the purchase and maintenance of the aircraft, purchasing or leasing a hanger for storage of the aircraft, employing a pilot or pilots and other crew to operate the aircraft, insuring the aircraft, and other similar costs and expenses. For these and other reasons, it is common for owners of private aircraft to enter in various types of arrangements to share ownership and/or use of their aircraft with others. However, any such arrangements must comply with the Federal Aviation Administration rules for the operation of private aircraft, namely, Part 91 of the Federal Aviation Regulations (FARs), which were discussed in greater detail in Part 3 of this series. The following are the more typical arrangements for sharing ownership and/or use of a private aircraft permitted under the FARs:
Aircraft Dry Lease Agreement
It is common for a small business or individual owner of a private aircraft to make the aircraft available for use by others at times when the owner is not using the aircraft. This is often accomplished by what is referred to as an “aircraft dry lease.” An aircraft dry lease is an arrangement whereby the owner leases the aircraft to another party (lessee) and the lessee is required to provide its own pilot or pilots and pay the costs of fuel and other expenses incidental to the lessee’s operation of the aircraft. The FARs require that the owner and the lessee enter into an aircraft dry lease agreement, which provides, among other things, that the lessee is to have “operational control” of the aircraft at all times that it is operated by the lessee. This means that the lessee, rather than the owner of the aircraft, is deemed to be responsible for the operation and control of the aircraft while it is being used by the lessee, thereby placing primary liability upon the lessee for any accidents or incidents that occur during the lessee’s use of the aircraft. The financial arrangements under an aircraft dry lease vary from one lease to another but generally include an hourly charge for the operation of the aircraft, a flat fee (daily, weekly or monthly) for the lessee’s possession of the aircraft during the lease term, and reimbursement or sharing of certain costs related to maintenance, repairs and/or insurance.
Time Sharing Agreement
In situations where the owner of a private aircraft would like to make the aircraft available for use by others under a lease arrangement, but the owner prefers that the owner’s pilot(s) operate and control the aircraft while it is being used by the lessee, the owner and lessee may enter into a time sharing agreement. A time sharing arrangement differs from an aircraft dry lease arrangement in that the owner is deemed to retain “operational control” of the aircraft even though it is being leased to and used by the lessee. The two arrangements also differ on account of strict limitations imposed by the FARs on the amount that the owner of the aircraft may charge the lessee for its use of the aircraft. The lease charges under a time sharing arrangement are limited to twice the cost of fuel used in the operation of the aircraft plus the following incidental expenses associated with the operation of the aircraft: (i) travel expenses of the crew, including food, lodging and ground transportation; (ii) hangar tie-downs costs; (iii) insurance obtained for the specific flight(s); (iv) landing fees, airport taxes and similar charges; (v) flight food and beverages; and (vi) other limited incidental costs associated with the flight(s). In contrast, there are no limitations on the amount of rental fees and other charges that an owner may charge a lessee under an aircraft dry lease arrangement. Payments by a lessee to an owner under a time sharing agreement are generally subject to a 7.5 percent federal excise tax.
Aircraft Charter Agreement
Another opportunity for the owner of a private aircraft to generate revenue to defray the expenses associated with ownership and maintenance of an aircraft is to make the aircraft available for charter by others. Because most owners of private aircraft are not authorized to provide charter flights under Part 135 of the FARS (see Part 3 of this series for a discussion of Part 135), an owner will typically contract with an aircraft charter services company (charter operator) to place the aircraft on the charter operator’s Part 135 certificate. This makes it possible for the charter operator to provide charter flights using the owner’s aircraft when the owner is not using the aircraft. The charter operator will typically retain between 15 and 20 percent of the net charter flight revenues and remit the balance to the owner. The charter operator is responsible for all aspects of the operation of the aircraft during any charter flights, including providing the pilot(s) and other crew for the flights.
Joint Ownership Agreement
A joint ownership agreement provides for the ownership of a private aircraft by multiple individuals and/or companies who enter into an agreement regarding their respective ownership of the aircraft, the rights of each owner to use the aircraft, and the manner in which the owners will share the costs and expenses of owning, maintaining, insuring and operating the aircraft. In a joint ownership arrangement, a single owner assumes responsibility for employing and providing the pilot(s) and other flight crew to operate the aircraft for the benefit of all of the owners. The salary, benefits and other costs and expenses incurred by the owner employing the pilot(s) and other flight crew are shared among the owners in the manner provided in the joint ownership agreement.
The forgoing is a general overview of the more common arrangements for the owner of a private aircraft to “share” the aircraft with others and receive compensation for doing so. There are a variety of other arrangements for sharing ownership and/or use of aircraft, including co-ownership, fractional ownership, and interchange arrangements. All such arrangements are governed by and must be conducted in strict accordance with the FARs. The owner of a private aircraft should consult with experienced aviation counsel before entering into any arrangement whereby the owner makes the aircraft available for use by others in exchange for any compensation, reimbursement or other remuneration.