A Legitimate Lease Or an Illegal Charter?

Aviation
February 9, 2021
 

The Calfee Flyer is published by Jerry Eichenberger, Senior Counsel, Aviation Law, with assistance from other members of that practice group and sometimes draws in lawyers from across the firm to cover areas of interest.


The FAA has recently increased its scrutiny of flights conducted by individuals who lease aircraft. Last week they proposed a $1 million fine against an operator who was flying passengers under what it called a series of dry leases. FAA took a different view of the operation and considered it to be a charter program, not a leasing concept.

In the general aviation world, there are two basic types of leases for aircraft. The first is a “wet lease," where a person leases an aircraft that comes with a flight crew, fuel and other services. The lessee, or customer, simply gets aboard and is taken to his or her destination without any contribution to the conduct of the flight beyond the payment of a fee. The operator of flights under a wet lease is required by the Federal Aviation Regulations (FARs) to possess an Air Carrier Certificate and to conduct the flights under FAR Part 135, assuming that the flights are flown as "on-demand" passenger-carrying trips. Thousands of safe and legitimate charter flights are flown every week by scrupulous Part 135 operators. These companies are required to have stringent pilot training, maintenance, and operational standards and controls. FAA and the FARs take the position that a person who is paying another for air transportation in entitled to these tight controls to ensure the passenger’s safety.

The second type of lease, a “dry lease,” is entirely different. This type of lease is a common method to acquire the use of an asset, such as an airplane, with the lessee furnishing the flight crew, fuel, and usually the maintenance, insurance, storage, and other needs to be able to operate the airplane. A dry lease is similar to the type of lease that most of us have used to acquire an automobile or a truck, for example. The lessee leases the vehicle from the lessor, which is often a bank or financial services arm of the vehicle’s manufacturer or the dealer from which the vehicle was obtained. The lessor has nothing to do with the daily operation of the leased property. The lessee furnishes the driver, gets the vehicle maintained, puts fuel in it, obtains and pays for the insurance, and operates the vehicle in every practical sense as if the lessee were the owner. The lease is really just a financing tool to obtain the car or truck.

Think of a legitimate airplane dry lease in the same way. The lessee assumes what FAA calls “operational control” of the airplane and its flights, meaning the lessee has control of the flight from beginning to end. Operational control also includes the authority to begin a flight, conduct it, conclude it, and terminate it early if circumstances – such as bad weather or a mechanical situation with the airplane – arise that makes it wise to land at some unplanned destination or take a diversionary route to the planned destination.

Since the COVID-19 crisis arose, we’ve all seen a drastic drop off in scheduled airline operations. Many of those who can justify the increased expense have turned to private flights to accommodate their travel needs. Unfortunately, dishonest operators have been ignoring the FARs and the expense that comes with obeying the rules and have been selling potential customers on using a dry lease to operate their flights. Honest business people have become targets of these dishonest operators, who may be aggressive in proposing the use of a dry lease as the best way to get a private jet to transport them from point A to point B.

If you are approached by anyone offering you anything less than a plain and transparent charter agreement, please call a competent aviation attorney to review the situation. If you do take an illegal charter flight, the FAA may not charge you with doing anything illegal, unless you are complicit and know that the flight will be illegal. What you may face can be even worse. In the case of illegal charter flights, whatever, if any, insurance that the operator of the flight has will very likely not be in force due to the illegal nature of the flight. If an accident does happen, there is a high probability that there will be no insurance coverage in force, and any damage that you suffer will not be covered by insurance.

Illegal charter is a thriving cottage industry because it costs a legitimate charter service a lot of money to provide the enhanced level of service and safety that the FARs require. The constant training of flight crews, frequent and in-depth maintenance of the airplanes, and proper dispatching all are expensive. An unscrupulous illegal operator can undercut legitimate operators’ pricing. If you are presented with a lease for using another person’s airplane, please call us or your regular aviation attorney to look at the situation.

This past month, a firm client asked our Aviation Law group to review an airplane lease, and upon review, we advised the client against signing the lease due to a number of red flag issues. In these instances, we prescribe to the old adage about being cautious when a deal seems too good to be true.


For additional information on this topic, please contact your regular Calfee attorney or one of the attorneys listed below.

 
 
 
 
 
 
 
 
 

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