Aircraft Ownership Options

Aircraft leasing can be an alternative to outright purchase for a variety of reasons ranging from practicality to cash flow. There are a wide variety of leasing options available, each with specific advantages and disadvantages. In general terms, a lease is a transfer of an aircraft without transfer of title. The owner of the aircraft, or lessor, retains legal title to the aircraft, but transfers possession of the aircraft to the lessee. It is important to note that due to the broad range of options available, not all aircraft leases will meet the above definition.

Aircraft leasing is also regulated by the FAA in the Federal Aviation Regulations (FARs). The FAA classifies aircraft leases as either “dry leases” or “wet leases.” Under a dry lease, the aircraft owner provides only the aircraft and no crew. If at least one crew member is provided in the lease arrangement, this becomes a wet lease as defined in the FARs. A wet lease is an exception to the simple definition of a lease because it does not involve transferring possession of the aircraft. The lessor maintains operational control of the aircraft under a wet lease. Without a specific exemption, such as a time sharing agreement, or other options found under FAR 91.501, a wet lease requires an FAA commercial operating certificate.

“True” Dry Lease – as was stated before, a dry lease is an aircraft lease without a crew. Typically in a dry lease the lessee is responsible for hiring the flight crew and has operational control of the aircraft. In these cases the lease is considered to be non-commercial and the lessee and the lessor are not required to hold an FAA-issued operator’s certificate as long as the lessee is not carrying persons or property for compensation or hire. The IRS agrees with the FAA on dry leases and the commercial FET is not due on the lease payments between the lessee and lessor.

“Sham” Dry Lease – would be an example of someone trying to confuse the issue as to who has control of the aircraft. The typical case is where the lessor is providing the aircraft under a dry lease and is also providing the crew under a separate agreement. Another example would be where the lessor is leasing you the aircraft, but you have to get your crew from the lessor or a specified source. In both cases the plane and the crew are too closely connected. In the case of a “sham” dry lease or “damp” lease the FAA may take the position that the lessor should hold a commercial operating certificate. The IRS would more than likely consider the lessor to have possession, command and control and the commercial FET would be due on the lease and pilot service payments.