One of the greatest benefits of owning an aircraft is avoiding flying on commercial airlines. Yet, according to the FAA, many owners inadvertently (and illegally!) run their own commercial flight operations. Most owners are likely aware of the general rule against accepting payment or reimbursement for Part 91 flights. An owner can fly any friends or colleagues, but generally may not accept compensation for doing so. Like good law-abiding citizens, these owners only fly their aircraft for themselves, and never charge anyone else when they fly friends or colleagues.
However, most owners often reflexively register their aircraft in a Limited Liability Company (LLC), and run all costs and operating expenses through this LLC. Principals then make capital contributions to pay the bills. But without an operational agreement in place, such as a dry lease from the LLC to the principal or their business, the FAA would consider the LLC an illegal “flight department company” providing illegal charter. The holding company LLC’s sole purpose would be to provide transportation by air to the principal, and the principal capital contributions are “compensation” to the LLC for the flights. In other words, the principal is paying the LLC for flights—something that cannot be done unless the LLC has a charter certificate. This puts the LLC, principal and pilots at risk for FAA fines and action against the pilot’s license.
Potentially worse, since insurance policies typically require compliance with all FAA regulations, it could also provide an insurer a reason to deny coverage in the event of a loss.
The good news? You can absolutely avoid illegal charter. With a bit of planning and guidance from an aviation attorney, you can establish an FAA-compliant ownership and operational structure. Even better, this often aligns with effective state tax planning, helping you stay out of trouble while potentially lowering your tax bill.
About the Author
An attorney and owner of InFlight Law, John Farrish guides clients on the legal side of aircraft sales and acquisitions from start to finish. At InFlight Law, he represents international and publicly traded companies to family businesses, entrepreneurs and ultra-high-net-worth individuals, including owner-pilots. He is experienced in new and pre-flown aircraft transactions, ranging from large cabin to turboprops and has coordinated transactions in every continent—except Antarctica.