Aircraft leasing lets an individual or company use a plane without buying it outright, and the structure you pick determines who flies it, who maintains it, and which federal rules apply. Most private and corporate users lease under one of two frameworks: a dry lease, where you take the aircraft and supply everything else, or a wet lease, where the lessor provides the plane along with crew, maintenance, and insurance. The distinction matters because the FAA treats the two very differently, and a lease that looks fine on paper can trigger enforcement if the wrong party is actually running the flights.
Dry Leases and Wet Leases
A dry lease gives you the aircraft and nothing else. You hire the pilots, arrange maintenance, buy fuel, and secure insurance. The FAA generally treats a dry-lease operation as a private flight under Part 91, meaning you’re the operator and bear full responsibility for regulatory compliance.1Federal Aviation Administration. Leasing Guide
A wet lease works more like hiring a complete aviation department. The lessor provides the aircraft along with crew, maintenance, and insurance, and because they retain operational control, they must hold the appropriate operating certificate. Before any wet lease operation begins, the FAA reviews the agreement to determine which party actually controls the flights and amends each party’s operations specifications accordingly.2eCFR. 14 CFR 119.53 – Wet Leasing of Aircraft and Other Arrangements for Transportation by Air
The choice is partly financial and partly operational. If you already have qualified pilots and a maintenance provider, a dry lease gives you flexibility and lower monthly costs. If you want turnkey access without managing crew or airworthiness, a wet lease removes that burden but costs considerably more. Most private and corporate lessees start with a dry lease because Part 91 is simpler than the commercial standards a wet lessor must meet.
Operating, Capital, and Synthetic Leases
Beyond dry versus wet, leases differ in how they treat ownership for tax and accounting purposes. A capital lease, sometimes called a finance lease, functions more like buying the plane in installments. If the agreement gives you the right to take title at the end for a nominal amount, the IRS and accounting standards treat you as the effective owner. You claim depreciation on the aircraft, and the lease obligation appears as debt on your balance sheet.3NBAA. Lease Options for Financing Aircraft
A standard operating lease works the opposite way. The lessor remains the tax owner, claims depreciation, and absorbs the risk that the aircraft loses value faster than expected. Your lease payments are simply an operating expense. This is the most common structure for lessees who want defined-term use without committing to long-term ownership. Operating leases for business aircraft typically run six to twelve years.
Some corporate lessees use synthetic leases, which are structured so the company claims depreciation for tax purposes while keeping the obligation off its balance sheet for financial reporting. These arrangements require careful structuring and experienced aviation tax counsel, because the IRS and accounting standards evaluate them under different criteria.
What Lessors Require Before They Sign
Lessors evaluate two things: your financial capacity and your operational qualifications. On the financial side, expect to provide at least two years of tax returns and financial statements showing income or revenue sufficient to cover the lease payments. A clear picture of assets and liabilities helps the lessor size the transaction and set the security deposit. For newly formed entities or special-purpose companies with no operating history, lessors almost always require a personal guarantee from the principals.
The deposit itself varies. For operating leases, deposits commonly equal two to three months of lease payments. For finance leases structured more like purchases, an upfront payment of 15 to 20 percent of the total lease value is more typical. These figures are negotiable, especially with strong financials or an existing lessor relationship.
On the operational side, a dry lease means qualified pilots. The lessor will want copies of FAA pilot certificates and current medical certificates for anyone flying the aircraft. Many lessors also request flight-hour logs and check for FAA enforcement history. If you plan to hire contract pilots rather than fly yourself, you still need to identify them and confirm they meet the aircraft’s type-rating requirements.
Insurance is the final hurdle. The lessor will require hull coverage protecting the aircraft’s value and liability coverage protecting against third-party claims. Minimum liability requirements climb steeply for turbine-powered aircraft. The lessor is typically named as an additional insured and loss payee, and many require a breach-of-warranty endorsement that keeps their coverage intact even if you do something that would otherwise void the policy.
How the Closing Process Runs
Once your financial records, pilot credentials, and insurance documentation are assembled, you submit the full package to the lessor or an aviation broker managing the transaction. Credit review on a complete application typically takes a few business days for straightforward deals involving individuals or small companies with clean financials. Larger transactions involving special-purpose entities or unusual structures take longer.
After credit approval, the deal moves to technical acceptance. A pre-lease inspection verifies the aircraft’s mechanical condition against the delivery standards outlined in the letter of intent. An independent mechanic or your own maintenance provider examines the airframe, engines, avionics, and logbooks. Any discrepancies either get resolved by the lessor before closing or become negotiating points that adjust the lease terms. Skipping a thorough pre-delivery inspection is one of the costliest mistakes a lessee can make, because once you sign the delivery receipt, the aircraft’s condition becomes your baseline.
At closing, you sign the final lease agreement, pay the security deposit and first month’s rent, and take physical possession.
Truth-in-Leasing Rules for Aircraft Over 12,500 Pounds
If the aircraft is a U.S.-registered large civil aircraft (maximum certificated takeoff weight above 12,500 pounds), federal law imposes additional requirements that don’t apply to smaller planes. These rules live in 14 CFR 91.23, and violating them can ground the aircraft before its first flight under the lease.4eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts
The lease must include a truth-in-leasing clause printed in large type immediately before the signature lines. That clause has to identify which FAA regulations governed the aircraft’s maintenance and inspections during the preceding 12 months, name the person responsible for operational control, and certify that person understands their compliance obligations.4eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts
You also cannot operate the aircraft until three things happen. A copy of the signed lease must be mailed to the FAA Aircraft Registration Branch in Oklahoma City within 24 hours of execution. A copy must be carried aboard the aircraft at all times and produced on request. And the lessee must notify the responsible Flight Standards office by phone or in person at least 48 hours before the first flight, providing the departure airport, departure time, and the aircraft’s registration number.4eCFR. 14 CFR 91.23 – Truth-in-Leasing Clause Requirement in Leases and Conditional Sales Contracts
These requirements are waived for certain certificate holders operating under Parts 121, 125, 135, or 141. For the typical corporate or private lessee of a large aircraft, they are mandatory and the FAA enforces them.
Operational Control and the Illegal-Charter Trap
The single most consequential legal issue in aircraft leasing is operational control. The FAA uses Advisory Circular 91-37B to evaluate who really controls a flight, regardless of what the lease paperwork says.5Federal Aviation Administration. AC 91-37B – Truth in Leasing
The FAA looks at seven questions to determine who holds operational control:
- Who assigns crewmembers and aircraft, accepts flight requests, and decides when flights happen?
- Who employs the pilots, either directly or as agents?
- Who maintains the aircraft, and where?
- Who ensures the flight, aircraft, and crew comply with regulations before departure?
- Who decides when and where maintenance happens, and who pays for it directly?
- Who determines weather and fuel requirements, and who pays for fuel?
- Who pays for airport fees, hangar costs, and ground services?
If the answers point to the lessor rather than you, the FAA considers the arrangement a charter operation that requires a Part 135 certificate. A “sham dry lease” is the most common form of illegal charter the FAA encounters. The contract says dry lease, but the lessor still picks the pilots, schedules the flights, and handles every operational decision. The lessee’s name is on the paperwork, but the lessor is running the show.6FAASafety.gov. The Importance of Investigating Illegal Air Charter Operations
The consequences reach beyond paperwork. Part 135 operators must meet stricter maintenance standards, pilot duty-time limits, and crew training requirements. If the FAA identifies an illegal charter arrangement, it can ground the aircraft, impose civil penalties, and pursue certificate action against the pilots involved.
Maintenance Duties During the Lease
Under a dry lease, you take on the same maintenance obligations as an owner. Federal regulations require detailed records of all maintenance performed, including a description of the work, the date completed, and the certificate number of the mechanic who approved the aircraft for return to service. You must also track total time in service for the airframe, each engine, and each propeller.7eCFR. 14 CFR Part 91 – General Operating and Flight Rules – Section 91.417
Every aircraft needs an annual inspection regardless of how it’s used. If you carry passengers for hire or provide flight instruction for hire in the leased aircraft, you also need 100-hour inspections. The 100-hour requirement applies to those commercial-type uses, not to purely private flying.8eCFR. 14 CFR 91.409 – Inspections
Airworthiness Directives are mandatory FAA safety corrections, and you must comply regardless of cost. Who pays for AD compliance during a lease is a negotiation point, not a given. The work benefits the aircraft’s long-term value, which ultimately favors the lessor, but most standard lease agreements place the cost on the lessee unless the parties negotiate otherwise. Address AD cost-sharing explicitly in the lease, especially for older aircraft where expensive directives are more likely.
The penalties for letting maintenance records lapse are real. The FAA can assess civil penalties of up to $75,000 per violation against companies and up to $17,062 per violation against individuals or small businesses, with amounts adjusted periodically for inflation.9Federal Register. Revisions to Civil Penalty Amounts, 2025 Beyond fines, an aircraft with incomplete maintenance records can be deemed unairworthy and grounded until the records are reconstructed.
Return Conditions and End-of-Term Costs
Returning an aircraft at the end of a lease is where many lessees get surprised. Every lease specifies return conditions defining the minimum acceptable state of the airframe, engines, landing gear, and avionics. If the aircraft comes back in worse condition than those standards require, you owe a compensation payment to make up the difference.
Many leases also require monthly maintenance reserve payments calculated on flight hours, flight cycles, and calendar time. These reserves accumulate with the lessor and cover scheduled major maintenance events like engine overhauls, landing gear overhauls, and heavy structural inspections. When you perform qualifying maintenance during the lease, you submit documentation and claim reimbursement from the reserve fund. If you default, those reserve funds stay with the lessor as additional financial protection.
The flip side also applies. If you return the aircraft in better condition than the lease requires, the lessor may owe you a payment. It’s less common in practice, but the provision exists in well-drafted agreements. Disputes over the aircraft’s status at redelivery are among the most litigated issues in aircraft leasing, so negotiate a clear, specific return-condition schedule upfront.
Tax Treatment
How you structure the lease directly affects your taxes. Under an operating lease, monthly payments are deductible as an ordinary business expense, but you cannot depreciate the aircraft because you don’t own it for tax purposes. Under a capital or finance lease, you’re treated as the tax owner, so you claim depreciation but must also carry the asset and corresponding liability on your books.
Sales and use tax on aircraft lease payments varies dramatically by state. Some states tax each monthly payment, others tax the full value of the lease upfront, and a few exempt aircraft entirely or offer partial exemptions for business use or common-carrier operations. Any lease negotiation should include a state tax analysis specific to the aircraft’s base of operations.
Federal excise taxes add another layer. The 7.5 percent federal excise tax on air transportation applies to certain charter and commercial operations but generally does not apply to pure dry-lease arrangements where the lessee operates the aircraft for their own use under Part 91. The distinction hinges on whether the arrangement constitutes transportation by air for excise tax purposes, which circles back to the operational control analysis. Structuring the lease incorrectly doesn’t just create FAA enforcement risk; it can also trigger unexpected tax liability.