Navigating the Skies: Understanding FAA Rules for Aircraft Leasing and Loan Arrangements
For aircraft owners and operators, understanding the intricacies of Federal Aviation Administration (FAA) regulations concerning aircraft leasing and loan arrangements is paramount. Beyond simply getting your aircraft airborne, compliance ensures safety, avoids legal pitfalls, and protects your investment. This article delves into the core principles, types of leases, and critical responsibilities that every pilot and owner of single-engine and twin-piston aircraft should know.
THE IMPORTANCE OF OPERATIONAL CONTROL
At the heart of FAA regulations for aircraft leasing is the concept of “operational control.” This refers to the authority to initiate, conduct, or terminate a flight. The FAA’s primary concern is safety, and clearly defining who holds operational control is crucial for assigning responsibility for regulatory compliance, maintenance, and flight safety. Misunderstanding or misrepresenting operational control can lead to serious penalties, including substantial civil fines and certificate suspension or revocation. We’ve seen many cases where seemingly innocent arrangements have led to significant legal headaches simply because the parties involved didn’t fully grasp this fundamental principle.
DRY LEASE VS. WET LEASE: A CRUCIAL DISTINCTION
The FAA classifies aircraft leases into two primary categories: dry leases and wet leases. The distinction hinges on whether the aircraft is provided with or without a crew.
DRY LEASE
In a dry lease, the aircraft owner (lessor) provides only the aircraft, without any flight crew members. The lessee is responsible for providing their own crew, fuel, maintenance, and all other operational aspects. Under a properly structured dry lease, the lessee assumes full operational control of the aircraft. This arrangement is commonly used for general aviation operations under Part 91 of the Federal Aviation Regulations (FARs). For aircraft weighing 12,500 pounds or less, a written lease is not explicitly required by the FAA, but it is highly recommended to clearly define responsibilities and avoid disputes. For larger aircraft, a written “truth-in-leasing” clause, as specified in FAR 91.23, is mandatory and must be filed with the FAA within 24 hours of execution. This clause clearly identifies the parties responsible for operational control and compliance with maintenance and inspection requirements.
The benefits of a dry lease often include greater flexibility for the lessee in terms of scheduling, crew selection, and operational costs. It also allows owners to generate some revenue from their aircraft when not in personal use. However, the lessee takes on significant responsibility for regulatory compliance, airworthiness, and all aspects of the flight. As experienced mechanics, we consistently advise our clients to ensure their dry lease agreements explicitly detail maintenance responsibilities to prevent unexpected issues.
WET LEASE
Conversely, a wet lease involves the lessor providing the aircraft with at least one crew member. In a wet lease, the lessor retains operational control of the aircraft. This type of arrangement is typically considered commercial air transportation and usually requires the lessor to hold an FAA Air Carrier Operating Certificate (Part 135 or Part 121), which comes with far more stringent regulations regarding maintenance, crew training, and operational procedures. Exceptions do exist under Part 91, such as specific time-sharing or interchange agreements for large and turbine-powered multiengine aircraft, but these are narrowly defined.
The key takeaway is that if an owner provides both the aircraft and a pilot, even for a single flight for compensation, the FAA will likely consider it a wet lease, triggering Part 135 requirements. Unwittingly operating as an uncertificated charter service can lead to severe penalties. We’ve seen owners caught off guard by this distinction, facing significant fines for what they believed was a simple cost-sharing arrangement.
RESPONSIBILITIES OF OWNER-OPERATORS AND LESSEES
Whether you are an owner-operator, a lessor, or a lessee, understanding your responsibilities is paramount.
OWNER-OPERATOR RESPONSIBILITIES
When you own and operate your aircraft, you are solely responsible for ensuring its airworthiness, proper maintenance, and compliance with all FARs. This includes adhering to inspection schedules, maintaining accurate logbooks, and ensuring your pilot certificates and medicals are current. The FAA presumes the registered owner is the operator unless a documented lease agreement clearly states otherwise.
LESSEE RESPONSIBILITIES (DRY LEASE)
Under a dry lease, the lessee assumes operational control and, with it, the primary responsibility for the safe operation and regulatory compliance of the aircraft during their use. This includes:
- Ensuring the aircraft is maintained in an airworthy condition.
- Providing properly qualified and certificated flight crew members.
- Adhering to all operating limitations.
- Carrying required documents, including a copy of the lease (for large aircraft).
It is vital for lessees to be fully aware of the aircraft’s maintenance status and inspection history. At The Aero Center, we routinely work with lessees to ensure their aircraft are meticulously maintained and compliant, providing peace of mind and reducing the risk of unexpected issues.
LOAN ARRANGEMENTS AND OPERATIONAL CONTROL
While less common than formal leases, informal loan arrangements of aircraft can also fall under FAA scrutiny, particularly if any form of compensation or hire is involved. Even seemingly innocuous “cost-sharing” or “reimbursement” can be misinterpreted by the FAA as a commercial operation, leading to regulatory action if the proper certifications are not in place. The FAA emphasizes that any agreement to furnish an aircraft to another person for compensation or hire, with or without crew, constitutes a lease. It’s crucial to document any such arrangement clearly and ensure it aligns with the intended operational control and regulatory framework.
CHOOSING THE RIGHT PATH: COMPLIANCE AND SAFETY
The complexities of FAA regulations on aircraft leasing and loan arrangements demand careful consideration. Many aircraft owners and operators have found themselves in difficult situations due to a lack of understanding or improper documentation. The key to avoiding these pitfalls lies in proactively educating yourself and, when in doubt, seeking expert guidance.
Our commitment at The Aero Center is not only to provide unparalleled maintenance services but also to empower our clients with the knowledge they need to operate safely and legally. We’ve built our reputation on trust and transparency, understanding that a well-informed client is a safe client. Our team has helped countless aircraft owners and operators in California, Arizona, and Nevada navigate these very regulations. We pride ourselves on being the only 24/7 maintenance center in the area, significantly reducing airplane downtime and keeping you flying with confidence. When it comes to the airworthiness of your single-engine or twin-piston aircraft, consistency in maintenance and adherence to regulations are non-negotiable. Our certified technicians provide the social proof of our expertise through their dedicated work, ensuring every aircraft leaves our facility in peak condition. We operate with the authority of extensive experience and a deep understanding of FAA mandates.
FOOTNOTES
- Federal Aviation Administration. (2016). AC 91-37B – Truth in Leasing. https://www.faa.gov/documentLibrary/media/Advisory_Circular/AC_91-37B.pdf
- National Business Aviation Association. (n.d.). Aircraft Leasing. https://nbaa.org/flight-department-administration/aircraft-operating-ownership-options/aircraft-leasing/
- Cornell Law School, Legal Information Institute. (n.d.). 14 CFR § 91.23 – Truth-in-leasing clause requirement in leases and conditional sales contracts. https://www.law.cornell.edu/cfr/text/14/91.23
- Federal Aviation Administration. (2020). General Aviation Dry Leasing Guide. https://www.faa.gov/sites/faa.gov/files/2021-11/GADryLeasingGuide.pdf
The Aero Center is located at William J. Fox Airfield KWJF | Lancaster, CA. Contact us at 209.885.6950 for questions or appointments.