Aircraft Leasing Legalities

bcso48

bcso48

Filing Flight Plan
Joined
Mar 23, 2010
Messages
18
Location
Paradise CA.
Display Name
Display name:
George Mahon
Hey Good morning everyone,
I had an issue come up I wanted to kick around in here. I fly part time for a local company in their P210 for their company business. It is all part 91 local flying easy stuff. An issue came up where another local company showed interest in leasing some block time on the plane. They were wanting around 20 hours per month on a lease. The numbers are fairly easy but what about legalities. I have heard of these types of leases in the past but have no experience. They obviously wanted me to do the flights and would be paid by them . Could I get some of you to chime in here with some advice. I want to be careful I don't slide into any 135 infringements.
 
Find a good Aviation lawyer. Then find a good Contracts lawyer.
 
bcso48 said:
Hey Good morning everyone,
I had an issue come up I wanted to kick around in here. I fly part time for a local company in their P210 for their company business. It is all part 91 local flying easy stuff. An issue came up where another local company showed interest in leasing some block time on the plane. They were wanting around 20 hours per month on a lease. The numbers are fairly easy but what about legalities. I have heard of these types of leases in the past but have no experience. They obviously wanted me to do the flights and would be paid by them . Could I get some of you to chime in here with some advice. I want to be careful I don't slide into any 135 infringements.
Click to expand...

This can be done and is not so uncommon. To stay out of part 135 land, the paperwork has to be structured in a way that doesn't have company A provide 'plane + pilot' to company B.

There have to be two separate agreements. The dry-lease between company A and B to deal with the aircraft and a either independent contractor or employe relationship between whoever flies the plane and company B. Issues that need to be addressed are:

- operational control (company 'B' has to take on teh responsibility of being the operator of the flight with all its consequences)
- no provision of plane+pilot or transportation but a permission /license to use the plane
- lease cannot specify you as the pilot but must allow any reasonably qualified pilot provided by company B to fly the plane.

Your agreement with company B has to specify that you work at the direction of company B and that you don't provide transportation services to them but only your services as a pilot.

Other issues that need to be addressed are:
- does company B become an insured party under the aircrafts policy or do they buy their own policy to cover the third party liability risk and hull-loss risk.
- taxes. Does company A maintain the plane in a separate entity, does the state require sales-tax to be charged on aircraft rental proceeds.

Recently talked to someone who set something like this up. He used Advocate to handle the tax and ownership stuff and some attorney affiliated with them to do the 'FAA kosher' contracting language. Depending on what state you are in, this can be more or less complicated.
 
Even if you get the paperwork right, if it comes to the FAA's attention, it still has to pass the "duck test." That means being very careful in how you operate and do business with each of the parties so it doesn't become a de facto charter operation with sham paperwork. Make sure you have your own aviation attorney involved in this, not just one who works for that "local company" so that your interests as well as the company's are properly represented, because the two may conflict.
 
I've seen this done successfully, and in both of those operations Company B leased company A's airplane (with Company A providing maintenance), and that was the the only aviation business between the two companies. Company B found their own flight crew and insurance. In one case the same independent contractor provided pilot services to both airplanes, but it was crystal clear that Company A got no benefit from the fact that they used the same independent pilot.

If Company B wants "easy" access to an airplane for their needs, where all they do is pay for the service, then they're probably better off with the Fractionals or a straight 135 operator.
 
bcso48 said:
Hey Good morning everyone,
I had an issue come up I wanted to kick around in here. I fly part time for a local company in their P210 for their company business. It is all part 91 local flying easy stuff. An issue came up where another local company showed interest in leasing some block time on the plane. They were wanting around 20 hours per month on a lease. The numbers are fairly easy but what about legalities. I have heard of these types of leases in the past but have no experience. They obviously wanted me to do the flights and would be paid by them . Could I get some of you to chime in here with some advice. I want to be careful I don't slide into any 135 infringements.
Click to expand...

As well as consulting an Attorney I would suggest you discuss this with your local FSDO. I'm aware many will cringe with this suggestion but you will be operating in their district. Some legwork and questions now could save some grief later.
 
Rotor&Wing said:
As well as consulting an Attorney I would suggest you discuss this with your local FSDO. I'm aware many will cringe with this suggestion but you will be operating in their district. Some legwork and questions now could save some grief later.
Click to expand...

No cringing here - the examples I mentioned earlier both were aided by the local FSDO. They went in saying what they wanted to do and asked for help in making sure it was legit, and they got the help they needed.
 
Thanks everyone for your insights. Everything with aviation sometimes seems convoluted and with attorneys involved gets complicated. I think I will drop the idea and move on. Plus I believe this other corporation would pony up some $$$ for their own airplane and I could fly for them that way.
 
George,

Are you considered an part-time employee of the company that owns the plane or a contractor? If you are an employee, I think it would be very difficult to fly for the other company and not be considered 134.5 operation by the FAA.
 
bcso48 said:
Plus I believe this other corporation would pony up some $$$ for their own airplane and I could fly for them that way.
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:wink2: Got to find a way to get them hooked on the concept. The problem is if you hook them up with the local 135 outfit, the charter company will try to get them to buy the plane they need and you get cut out of the loop. Just don't offer to 'fly them for free' in expectation of future business as the FAA has crucified a couple of people over the years for doing so.
 
I think this subject was covered at a NBAA tax and risk conference. IIIRC, the IRS employee vs. contractor ruling doesn't necessarily mean the guy is an employee for FAA purposes. I started to look up the reference for another board earlier in the week but lost interest in the discussion.

In any event, the revenue generated by occasional rental of a little airplane may not be worth farting around with the associated issues.

kkoran said:
George,

Are you considered an part-time employee of the company that owns the plane or a contractor? If you are an employee, I think it would be very difficult to fly for the other company and not be considered 134.5 operation by the FAA.
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kkoran said:
George,

Are you considered an part-time employee of the company that owns the plane or a contractor? If you are an employee, I think it would be very difficult to fly for the other company and not be considered 134.5 operation by the FAA.
Click to expand...

I think I could me considered a part time employee. I do around 2 to 3 flights per month for this small local company. This all came up because company B saw me parking the plane one afternoon and inquired about a lease rate.

What I may do is hook them up with one of those leasing companies I see in "Controller" and let them put it together and try to become their primary pilot. This would seem to eliminate any conflict that could arise with company A . I appreciate everyone taking their time to input here. This board is a great resource for all of us....George
 
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