A single aircraft is a major purchase, and its maintenance, administration, and legal compliance add more expense every year. For many companies and individuals, an aircraft lease is a better choice for business, leisure, or hobby aviation.

However, an aircraft lease is more complicated than a lease on other types of property. Due to FAA regulations, business issues, and tax concerns, leasing an aircraft requires consulting an aviation law attorney to ensure that every move is wise and legally sound.

The Basics: Lease Types and Charters

The two most common types of US aircraft leases are called “dry leases” and “wet leases.”

Dry Leasing

A dry lease involves only the rental of aircraft, no more and no less. The lessee must pay for:

  • Fuel
  • Hangar fees
  • Maintenance
  • Liability and cargo insurance
  • Pilots and cabin crew, as necessary
  • Other necessary expenses, such as airport landing fees or catering for passengers

A dry lease is suited to anyone with an integral air service need. These are generally transportation businesses, whether they belong to a single owner-pilot or a worldwide conglomerate. Major airlines often use dry leases for passenger planes, giving them the flexibility to update their fleets more quickly.

The lessee in a dry lease must be equipped to manage, service, and pay expenses for the aircraft just as an owner would. Unless the lessee is a pilot taking a small craft that they will operate themselves, they will also need to use care and discretion in choosing and directing a reputable crew.

Wet Leasing and Chartering

The FAA defines a wet lease as “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember.” 14 CFR § 110.2. Wet leases are also sometimes described as ACMI services—aircraft, crew, maintenance, and insurance—but an ACMI lease may offer less extensive arrangements than that. They may be priced at an hourly rate, with hours set in blocks. This is often better suited to a business or individual who does not have a permanent or long-term need for the aircraft or service.

Those with a one-time or seasonal need—a traveling band, an athletic team, a group of employees—may choose to charter an aircraft. Technically, a charter is a type of wet lease since the charter company supplies all the needs of the aircraft and the flight. However, the arrangement lasts only for the length of the trip.

There is another key difference between wet and dry leasing: the party that maintains operational control, retaining the rights and legal responsibilities for the aircraft’s flights.

Operational Control: The Law and the Risks

This “means the exercise of authority over initiating, conducting or terminating a flight.” 14 CFR § 1.1. It does not require any literal physical involvement with the craft’s operation. The party with operational control is ultimately responsible to the FAA, carrying the legal duties and liabilities associated with the aircraft.

To maintain safety and legal compliance, operational control must clearly belong to one party or the other. Under a wet lease, operational control generally remains with the lessor—the business that owns the aircraft and manages the flights. Under a dry lease, the lessee takes operational control because it takes possession of the craft and responsibility for its staffing and maintenance.

However, in practice, the lines can become blurred, especially if the lessee “separately” hires crew who also work for the lessor. The FAA is increasingly concerned about sham dry leases, in which lessors create a dry lease and simultaneous separate contracts for engaging their crew and services. These are attempts to avoid liability and compliance with stronger regulations for charters and commercial aircraft, often at the expense of parties without any prior knowledge of the aviation business.

The FAA’s truth-in-leasing regulations require clarity in any lease or conditional purchase of large civil aircraft registered in the US. A leasing contract for an aircraft over 12,500 pounds must contain a clause stating which party “is considered responsible for operational control of all aircraft identified and to be operated under this [contract].” The parties must also submit a copy of the lease to the FAA Aircraft Registration Branch and keep another copy inside the craft for reference. See this FAA advisory circular for more details.

Although small aircraft, such as single-engine planes and very light jets, do not fall under this specific regulation, it is wise to clarify the operational control in any leasing contract.

Taxation Issues

How the lease will affect your taxes will depend on—

  • The type of business, nonprofit, or leisure use involved
  • The type of aircraft and the expenses incurred under your leasing contract
  • The laws of your state and other states involved in the aircraft’s use

Federal excise tax (FET) applies to commercial passenger air transportation, so it is typically due for each passenger’s flight on a wet lease. A dry lease does not incur this tax by itself. However, the dry-leased craft may be subject to state sales tax, property tax, or other fees.

An experienced aviation attorney can advise you of the benefits or pitfalls of your proposed leasing contract, which can help you avoid an unexpected tax bill.

Ask Us About Your Needs

Our Florida aviation attorneys are available to consult with you about your aviation needs and opportunities for leasing or purchase, as well as the regulatory compliance they require. Call us today at 954-869-8950 to schedule your free initial consultation with our Fort Lauderdale staff.