Page 49 - Volume 14 Number 4

The Flight Company Department
A common ownership structure for aircraft is the Limited Liability Company (LLC). Often, the LLC “leases out” the aircraft to its members, which is sometimes another business entity that is its sole member – so far, so good. Leasing out the aircraft, and only the aircraft (aka, “dry”) is fine. Be careful about “leasing” an aircraft from a sole purpose entity that has no other real operations besides the aircraft. If the aircraft is provided “wet” (meaning with at least one crew member), the FAA will deem the LLC owner to be a flight company department. Unless the LLC has a valid Part 135 Air Taxi Certificate, bad things will happen. In addition to the FAA certificate action against the pilot(s) and owners, the IRS will
levy a 7.5 percent federal excise tax on all such flights.
How can LLC owners avoid this? With a two-part defense:
1. Make it crystal clear, in the form of a written lease that the LLC is only leasing the aircraft “dry.” The LLC does not provide any crew, nor even suggest where the lessee should find them.
2. Ensure the lessee hires the pilot(s) and pays for them from a source different from the LLC.
As an example, ParentCo, Inc. is a tech business that forms SubsidCo Aviation, LLC to buy a Cirrus SR22. The LLC can lease the aircraft to ParentCo, but ParentCo must hire the pilot and pay for the pilot either as a staff pilot or as an independent contractor. Similarly, if one of ParentCo’s executives wants to fly the Cirrus for personal use, the executive must rent the plane and then either: a) pilot the aircraft themselves, if qualified to do so; or b) hire a professional pilot and pay for the pilot personally.
Keeping Out of Part 135
There are many mechanisms for pilots to legally share expenses. Comply with both the letter and spirt of §61.113, and most FSDOs will leave you alone. However, if you charge too much, or don’t have a common purpose with your passengers, it won’t pass the smell test.
LLCs are a perfectly acceptable way to own an aircraft. Just remember to keep the aircraft rental completely separate from any pilot services and you can avoid inadvertent flight into Part 135.
Volume 14, Number 4
Scott Williams, Esq. represents buyers and sellers in aircraft transactions, and provides FAA certificate enforcement defense to all pilots. He is a panel attorney for AOPA’s Pilot Protection Services. Scott is also a COPA Board member and serves as our vice president. He can be reached at SWilliams@SmallBusinessLaw.Org.
1 https://www.faa.gov/about/office_org/headquarters_offices/agc/ practice_areas/regulations/interpretations/data/interps/2009/ mangiamele%20-%20(2009)%20legal%20interpretation.pdf
2 https://www.cadc.uscourts.gov/internet/opinions.nsf/77E3D4B73D FDB22685257F1F005456E8/%24file/14-1168-1589331.pdf
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