An aircraft dry lease is an arrangement where the owner hands over the airplane without a crew, and you as the lessee become the operator in the FAA’s eyes. The core FAA requirements for an aircraft dry lease of a large civil aircraft are a written truth-in-leasing clause inside the agreement, a copy mailed to the FAA Aircraft Registration Branch within 24 hours of signing, and a notification to the local Flight Standards District Office at least 48 hours before the first flight. Miss the substance of those rules and the arrangement can be reclassified as an illegal charter, with civil penalties reaching $75,000 per violation for entities and certificate action against the pilots involved.
Operational Control Is the Whole Test
The FAA defines operational control as the authority to initiate, conduct, and terminate a flight.1eCFR. 14 CFR 1.1 – General Definitions In a dry lease, that authority shifts entirely to you. You pick the pilots, set the schedule, decide when to fly and when to cancel, and answer to the FAA for every regulatory requirement during the lease term. The owner walks away from flight decisions once the lease takes effect.
A wet lease works the opposite way. The owner provides the aircraft and at least one crewmember and keeps operational control on their side of the arrangement.2eCFR. 14 CFR 110.2 – Definitions The distinction is not cosmetic. Because a dry lease puts you in the operator’s seat, your pilots need the correct certificates and current medicals, your maintenance program must satisfy the applicable rules, and if something goes wrong, federal inspectors look at you first.
When the Truth-in-Leasing Rule Applies
The mandatory filing and clause requirements under 14 CFR 91.23 apply to leases and conditional sales contracts involving U.S.-registered large civil aircraft, meaning aircraft with a maximum certificated takeoff weight over 12,500 pounds.3eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts If your aircraft falls below that threshold, the filing steps described below are not required by regulation.
The operational control obligation is a different matter. Advisory Circular 91-37B was written to prevent situations where lease wording obscures who actually runs the flight operation.4Federal Aviation Administration. AC 91-37B – Truth in Leasing A badly structured lease on a light piston twin can still be treated as an illegal charter even though no 91.23 filing was required. The filing threshold and the duty to hold genuine operational control are two separate things.
What the Lease Must Contain
The lease has to identify the aircraft by type, model, and registration number, and give the full legal names and addresses of both parties so the FAA can reach whoever is responsible. Those identification details belong inside the truth-in-leasing clause, not only in the body of the contract.
The truth-in-leasing clause itself must appear as a concluding paragraph in large print, placed immediately before the signature lines.3eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts The regulation calls for three things inside that clause:
- Identification of the Federal Aviation Regulations the aircraft has been maintained and inspected under during the 12 months before the lease was signed, together with a certification that the aircraft complies with the applicable maintenance and inspection requirements for the operation being conducted.
- The name of the party responsible for operational control, making clear who the FAA treats as the operator.
- A signed statement from the lessee certifying that they understand their responsibilities under the applicable FARs.
A workable lease also spells out duration, geographic limits, delivery condition, and return condition, and it confirms that the pilots are employed or contracted by the lessee rather than furnished by the owner. If the owner is providing the pilot list, selecting the crew, or keeping scheduling authority, the FAA will likely view the arrangement as a wet lease no matter what the paperwork says.4Federal Aviation Administration. AC 91-37B – Truth in Leasing
The Two Filings and Their Deadlines
Once both parties sign, two clocks start. Missing either can ground the aircraft or trigger enforcement.
Within 24 hours of execution, a copy of the signed lease with the truth-in-leasing clause has to be mailed to the FAA Aircraft Registration Branch, Attn: Technical Section, P.O. Box 25724, Oklahoma City, OK 73125.3eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts The 24-hour clock starts when both signatures hit the page, not when someone gets around to making copies.
At least 48 hours before the first flight under the lease, the lessee must notify the Flight Standards District Office nearest the airport where that flight will originate.3eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts The notification can be made by phone or in person.4Federal Aviation Administration. AC 91-37B – Truth in Leasing The FSDO may ask questions to confirm the lessee genuinely holds operational control, so treat the call as a compliance check rather than a formality.
If the lessee is not a U.S. citizen, the registered owner takes on the notification responsibility. Both the mailing and the FSDO notice apply to every lease and conditional sale of a large civil aircraft, with no carve-out for short-term deals.
How a Dry Lease Turns Into an Illegal Charter
The most common enforcement problem is the sham dry lease, where the paper says one thing and the operation looks like something else. The FAA reads past the contract and asks who actually controls the flights. AC 91-37B lists the questions inspectors use, and the FAA has stated plainly that if a lessor provides the aircraft along with the flight crew, fuel, and maintenance, the lessor is the operator.4Federal Aviation Administration. AC 91-37B – Truth in Leasing The key facts are who chooses and pays the pilots, who provides maintenance, who controls scheduling, and who pays for insurance and other operating costs. When the answers all point back to the lessor, the FAA calls it a wet lease. A wet lease operated without Part 119 certification is an illegal charter.5eCFR. 14 CFR 119.1 – Applicability
The consequences reach everyone in the arrangement. Pilots face suspension or revocation of their certificates. Civil penalties run up to $75,000 per violation for companies and up to $17,062 per violation for individuals and small businesses.6eCFR. 14 CFR 13.301 – Inflation Adjustments of Civil Monetary Penalties Each flight can count as a separate violation, so a handful of trips under a defective lease can generate six-figure exposure quickly. Insurers may also deny coverage entirely if the aircraft was being used in an unauthorized commercial operation.
The Flight Department Company Trap
A common structural mistake is to set up an LLC to own or lease the aircraft and then have that LLC provide flight services to its owner or parent. The FAA calls this a flight department company and treats it as an illegal commercial operation unless the entity holds Part 119 certification.7Federal Aviation Administration. Operations Carried Out by Limited Liability Companies Under 14 CFR 91.501(b)(4)
The reasoning: the LLC is a separate legal person from its member. When the LLC’s only business is operating an aircraft for that member, the FAA views the LLC as furnishing air transportation to another party for compensation. Even when the money moving in is described as capital contributions to cover operating costs, the FAA treats it as payment for transportation. Because flying is the LLC’s sole business, the carriage is not incidental to any other activity.8eCFR. 14 CFR 91.501 – Applicability
The trap catches people who think they are being legally careful. An owner forms an LLC to hold the aircraft and hire the pilots, dry-leases the plane back to themselves or their operating company, and assumes Part 91 rules apply. The FAA disagrees. Because the LLC exists only to fly the airplane, it needs a commercial operator certificate under Part 135. Without one, every flight was illegal, every pilot’s certificate is at risk, and insurance claims arising from those flights may be denied. Loan agreements often require compliance with applicable laws, so an FAA enforcement action can also trigger a loan default.
Maintenance Falls to the Lessee
A dry lease shifts day-to-day airworthiness responsibility to you. At a minimum, every aircraft needs an annual inspection within the preceding 12 calendar months.9eCFR. 14 CFR 91.409 – Inspections Carrying passengers for hire or giving flight instruction for hire adds a 100-hour inspection. Large and turbine-powered aircraft can follow a progressive inspection program or a manufacturer’s recommended program instead of the standard annual, but the chosen program has to be selected and documented in the maintenance records.
The truth-in-leasing clause requires a certification about the aircraft’s maintenance history for the preceding 12 months.3eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts Before signing, verify what inspection program the aircraft has been following and check for overdue airworthiness directives or open squawks. Inheriting someone else’s deferred maintenance is a quick route to a grounded airplane or an enforcement letter.
Logbooks and maintenance records stay with the aircraft, not the owner. As the lessee-operator, you are responsible for making sure entries are accurate and current. If a ramp check turns up missing or incomplete records, the aircraft can be deemed unairworthy on the spot.
Insurance Points to Nail Down Before the First Flight
Most dry lease agreements require the lessee to carry hull insurance for physical damage to the aircraft and liability insurance for third-party injury and property damage. The lessor will typically insist on being named as an additional insured and as a loss payee on the hull policy, protecting the owner’s financial interest if the aircraft is damaged or destroyed.
Two endorsements deserve attention. A waiver of subrogation on the hull policy stops the lessee’s insurer from paying a claim and then suing the lessor to recover it. A breach of warranty endorsement preserves the lessor’s coverage even if the lessee does something that would otherwise void the policy, such as operating outside approved geographic limits or letting an unqualified pilot fly.
Regardless of the premium, coverage must be in place before the first flight under the lease. A gap during the switch from the lessor’s policy to the lessee’s policy is one of the more common and easily avoidable mistakes in aircraft leasing.
What Happens to the Excise Tax If the Structure Fails
When a genuine dry lease transfers possession, command, and control to the lessee, the IRS treats the lease payments as rental income and does not impose the 7.5% transportation-of-persons excise tax on them.10Internal Revenue Service. Air Transportation Audit Techniques Guide The IRS looks at the same facts the FAA does: who selects and pays the pilots, who provides maintenance, who controls scheduling, and who pays for insurance and operating costs.
If the arrangement later falls apart under FAA scrutiny and the agency finds that the lessor actually retained operational control, the IRS can reclassify those lease payments as taxable air transportation, creating a retroactive excise tax bill on top of the FAA enforcement action. The tax exposure and the certificate exposure ride together on the same set of operational facts, which is why the structure has to match the paperwork from day one.