Gray Market "Charter"

Aviation
August 23, 2021
 

Every so often, the FAA does a rerun of their emphasis on the enforcement of selective sections of the Federal Aviation Regulations (FARs). We are entering one of those times now, as currently the push is to clamp down on illegal charter flying.

The Covid-19 pandemic has had several effects on all parts of the aviation industry. As far as general aviation goes, we have seen a dramatic increase in private jet flying – from charter flights, through jet cards and fractional ownership, to outright purchases of airplanes. Another segment of private aviation that has grown significantly is aircraft leasing and the use of what is known as the "dry lease."

Parts 119 and 135 of the federal regulations require the provider of charter services to have an Air Carrier Certificate issued by the FAA. Like all governmental licenses, having what is known as a "135 certificate" and operating under it bring substantial additional costs. Such things as increased maintenance, pilot training, and general overhead accompany operating with a 135 certificate, as compared to the lesser burdens of flying in the environment of non-commercial transportation. The government has long held the belief that an operator that holds itself out to the public to provide air transportation for hire ought to be held to a higher safety standard than the person who is flying just himself or herself.

When an operator provides the airplane and flight crew to a customer, that operator is probably coming under the Part 135 requirements. However,  there are several exceptions to those Part 135 requirements, and one of them is the use of a dry lease.

A dry lease is a transaction where a customer leases an airplane and furnishes the customer’s own flight crew, fuel, insurance, maintenance, and everything else except the airplane itself. One of the easiest ways to envision a legal dry lease is the transaction that many of us use to lease cars. The dealer provides just the vehicle, and the customer, called the lessee, provides the driver, fuel, insurance, and maintenance.

In the aviation world, dry leasing has caught on, not only as a legitimate form of financing the acquisition and use of an airplane, but dry leases also are being used by unscrupulous operators to try to avoid having a Part 135 certificate.

If you are approached to lease an airplane and are provided a document entitled “dry lease,” or the document in any other fashion appears to transfer the operational control of a flight to you, look out; for it may not be a legal dry lease. You are probably becoming involved in what is really an illegal charter flight. Be watchful for such signs of an illegal charter as being told that you need to pay the flight crew separately from the charge for the airplane and that you need to put fuel charges on your own credit card – again separate from the charge for “renting” the airplane. As you (the lessee under a so-called dry lease) are also employing a flight crew, be suspicious when an airplane owner gives you a name or list of names of a pilot(s) for you to hire. Also, your suspicions should also be aroused when an operator offers a dry lease to several lessees for the same airplane.

The unscrupulous operator is splitting out these charges in an attempt to show that you aren’t chartering the flight but just renting the airplane under a dry lease and paying all of these costs of operation yourself.

The civil penalties that the FAA can assess for illegal charter flights can get immense – often tens or even hundreds of thousands of dollars. While the FAA typically goes after the airplane operator and not the unsuspecting customer, the customer can get embroiled in FAA enforcement actions by being subjected to lengthy interviews, audits of financial records, giving depositions, and potential trial testimony; and, the customer is subject to direct liability for civil penalties if the customer is culpable in the illegal scheme.

A legitimate charter is a very simple arrangement. You tell the operator where and when you want to travel, and you receive a quote for a one-time, all-inclusive fee for the trip, and that’s it. 

Legitimate charter flying is a very convenient way to travel. Just be sure that you are dealing with a legal operator, and one of the best ways to do that is to ask to see the Part 135 air carrier operating certificate that the operator is required to have. If there is any hesitancy in producing it, or worse yet, a litany of excuses why it can’t be shown to you, run, don’t walk away from that operator.

Our Aviation Law practice deals with these, and most all other questions of interpretation and application of the Federal Aviation Regulations to business transactions. If you have any question about leasing an aircraft or other aviation transactions, please contact us.


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