Aircraft leases are used for many different reasons, and all aircraft leasing structures should be examined to confirm each aircraft lease is being used correctly to ensure that the aircraft operations are conducted in compliance with FAA rules and regulations without incurring unnecessary tax obligations. Central to how an aircraft lease structures the operations of the aircraft is the type of lease used. All aircraft leases can be put into one of two categories for FAA purposes. From the FAA perspective, an aircraft lease is either a “wet lease” or a “dry lease.”
An aircraft dry lease is the term used to describe a leasing arrangement in which an aircraft is leased without crew. For all intents and purposes, a dry lease is just an equipment lease which transfers possession and control of the aircraft to the lessee. Under an aircraft dry leasing arrangement, the lessee is responsible for hiring crew and operating the aircraft for its flights and generally the lessee’s flights can usually be flown under the Federal Aviation Regulations (FARs) which govern private, non-commercial operators.
An aircraft wet lease is the term used to describe an aircraft leasing arrangement in which an aircraft is leased with at least one crew member to operate that aircraft. Under an aircraft wet lease the lessor is considered by the FAA to be providing air transportation, not just the aircraft, to the lessee. With an aircraft wet lease, the lessor has (1) operational control of the aircraft, (2) is responsible for the safety and operation of the aircraft, and (3) unless the operations fall under a FARs’ exception, such as those found in Part 91.501(b), the lessor is subject to the operating rules of the FARs which govern air carriers and commercial operators.
Improperly structured aircraft leasing arrangements and poorly drafted aircraft leases can cause aircraft lessees and lessors to unwittingly violate the FARs and can result in unexpected fines, interest, and penalties.