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A dry lease allows an aircraft owner to lease an aircraft without providing a pilot or crew, but simply calling an agreement a “dry lease” does not make it compliant with FAA regulations. The terms of the agreement, how the aircraft is operated, and how the parties conduct themselves all affect whether the FAA may view the arrangement as a legitimate dry lease or an unauthorized charter operation. Working with an experienced aviation law attorney to draft the agreement can help reduce regulatory and tax risks.
What Is an Aircraft Dry Lease?
Under a dry lease, the aircraft owner provides only the aircraft. The lessee assumes operational control and is responsible for supplying the pilot, directing the flight, and making operational decisions.
This differs from a wet lease or charter arrangement, where the aircraft is provided with a pilot or crew. The distinction matters because FAA rules governing commercial operations are different from those governing private aircraft use. An improperly structured dry lease could raise questions about whether the arrangement is actually a commercial operation requiring additional certifications or compliance.
What Should an FAA-Compliant Dry Lease Agreement Include?
While every transaction should be tailored to the parties involved, a well-drafted dry lease generally addresses several key topics.
These commonly include:
- Identification of the aircraft
- The lease term and renewal provisions
- Payment terms and expenses
- Insurance requirements
- Maintenance responsibilities
- Operational control provisions
- Pilot qualifications
- Scheduling and aircraft availability
- Indemnification and liability provisions
- Default and termination terms
The agreement should also accurately reflect how the aircraft will be used in practice. If day-to-day operations differ from what the contract states, the written agreement may provide little protection during an FAA review.
Operational Control Is the Most Important Issue
One of the most significant concepts in any dry lease is operational control.
The FAA generally expects the lessee, not the owner, to control the aircraft’s operation during the lease period. That includes decisions about when and where flights occur, selecting qualified pilots, and accepting responsibility for operating the aircraft safely.
Problems often arise when owners continue directing flights, assigning pilots, or exercising day-to-day control while calling the arrangement a dry lease. In those situations, regulators may conclude that the agreement does not reflect the parties’ actual relationship.
For that reason, the parties’ conduct should consistently match the language of the lease agreement.
Common Mistakes That Can Create Problems
Many dry lease agreements encounter issues because they rely on generic templates or fail to address the realities of aircraft operations.
Common mistakes include:
- Using a generic lease form that is not tailored to aviation transactions.
- Failing to clearly identify who has operational control.
- Including provisions that conflict with FAA requirements.
- Using pilots selected or controlled by the aircraft owner.
- Overlooking insurance responsibilities.
- Ignoring the tax implications of lease payments and aircraft use.
- Treating the agreement as a substitute for ongoing compliance.
Addressing these issues before the lease begins is generally far easier than responding to regulatory questions after operations have already started.
Don’t Overlook the Tax Consequences
A dry lease agreement has tax implications in addition to regulatory considerations.
Lease payments, state sales or use tax obligations, depreciation planning, and the business or personal use of the aircraft may all affect the overall transaction. The ownership structure can also influence reporting obligations and long-term tax planning.
Considering these issues while drafting the agreement helps ensure the legal and tax aspects of the arrangement work together rather than creating unintended consequences later.
Talk to a Florida Aviation and Tax Law Attorney
At AvTax Advisors, PLLC, we assist aircraft owners, operators, and aviation businesses with drafting and reviewing aircraft dry lease agreements, ownership structures, and aviation tax planning. If you’re considering a dry lease arrangement, we can help you structure the transaction before operations begin. Contact us today to get started.