Posted on December 29th, 2020
Originally posted by Greg Reigel of Reigel Law Firm, Ltd.
The Legal Interpretation of a Dry Lease was updated by the FAA on December 29, 2020, FAA Latest Leasing Guide
The FAA discussed the regulation of aircraft wet and dry leases. Under a dry lease of an aircraft the lessor provides the aircraft and the lessee supplies his or her own flight crew, retains operational control of the flight and may operate under FAR Part 91. Under a wet lease, the lessor provides both the aircraft and the crew and retains operational control of the flight, but the lessor is usually required to hold an operating certificate because the FAA considers it to be providing air transportation.
According to the Interpretation, “[a] key consideration in differentiating a dry lease from a wet lease is whether the aircraft and flight crew are obtained separately, or provided together as a package.” For example, if the evidence shows that the parties are “acting in concert” to furnish an aircraft and crew, then the FAA would likely consider the arrangement a wet lease. However, whether an aircraft lease is a dry or wet lease is determined on a case-by-case basis.
The Interpretation goes on to state that the regulations do not limit the number of lessees that may lease an aircraft, nor do they establish hourly requirements for aircraft leases. Those issues are “contractual terms negotiated by the owner and the lessee.” Additionally, a lessee may hire the same management company that is used by the owner, provided that the other facts and circumstances do not show that the arrangement is “merely a wet lease in disguise.”
The interpretation also notes that a lessee may contract with the same flight crew that is contracted for by the aircraft owner. But again, only so long as the other evidence does not suggest that the arrangement is really a wet lease. The Interpretation states “[g]enerally the FAA would consider an arrangement where a person leases an aircraft from its owner, and secures the flight crew from another source to be a dry lease. If the aircraft and flight crew are provided as a package, the lease would be a wet-lease.”
Finally, the Interpretation indicates that the FAA “does not have specific requirements regarding collection of payment for the flight crew. However, the method of payment may serve as indicia of whether the parties have entered into a wet- or dry-lease agreement.”
If you enter into aircraft lease arrangements, you should become familiar with this Interpretation. However, the Interpretation only provides a general outline of how the FAA will review such arrangements. Since the “devil is in the detail,” having an aviation attorney review the particular circumstances for each situation and then draft or review an appropriate written lease agreement can protect aircraft lessors, aircraft lessees, and the pilots who operate the aircraft, from FAA enforcement.