that the lease is covered under the insurance policy and that probably means talking with your insurance broker about it,” Barbera said. “Additionally, a lease is a transfer of possession of an aircraft, which has tax implications. So, from a state sales-and-use-tax standpoint, the leasing may be subject to sales tax, and it has potential federal tax implications as well.” Also, lessors should be careful about considering dry leasing a “money-making” opportunity, said Norton. “If you’re setting something up where you’re thinking you’re going to dry lease it and make money to mitigate costs, especially if you start doing a lot of third-party dry leasing…even if theoretically it looks like you’re crossing t’s and dotting i’s, at some point you may have now entered into the regime of holding the aircraft out to the public. Once you do that, you become a charter operator again.” FOUR ESSENTIAL TIPS TO MANAGE DRY LEASE RISK Given the complexities of dry leasing, Norton offered these tips to help owners and operators manage the risk: • Hire a qualified aviation attorney who intimately understands the regulations of dry leasing to set up a structure that will pass regulatory muster. • Conduct the due diligence that’s required of a non-commercial operator. “If you’re going to use a management company, check them out, especially if they are hiring pilots,” Norton advised.“Take that extra step to confirm that their pilots are current and are doing what they’re supposed to do.” • Buy as much insurance as you can afford to cover passengers, pilots and crew.“If you are flying yourself, and it’s just you and maybe your family members, there’s really very little liability,” Norton said. “Conversely, if you like to load up the airplane with all of your super high-net-worth individual friends, you better have a really robust liability policy that covers everyone.” • Hire a qualified aviation attorney to set up a legal structure. “Because everybody in this industry is very fearful that at some point somebody’s going to have an insurance policy that appears to be correct, and then they go out and they don’t use a proper structure,” said Norton.“And, if there’s a crash, and the FAA determines that it was an illegal charter with a whole bunch of regulatory violations, the insurance company could walk away from the claim.” • Compliance with regulations: Dry leases, when structured correctly, can allow operators to operate under Part 91, which is the general operating rule for non-commercial aviation. Tax benefits: In some cases, dry leases may offer tax advantages, such as avoiding federal excise tax on lease payments. BUSINESS AVIATION TAX EXPERT: THIS FACTOR IS IMPERATIVE If a dry lease is not set up properly, it’s easy to run afoul of the FAA, which in recent years has increased monitoring of dry leases, especially targeting so-called sham dry leases where the lessor provides crew or services outside the legal scope of the agreement, thus implementing a wet lease. So, it’s imperative that the lessor has no operational control during the lessee’s use of the aircraft under the dry lease. In addition, dry leases should be in writing, and must be for large aircraft, according to Barbera, who said insurance requirements also must be considered. “From an insurance standpoint, you want to make sure 14 BUSINESS VIEW MAGAZINE VOLUME 12, ISSUE 08
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