Aircraft dry leasing has emerged as a compelling alternative to full ownership or charter services for corporations, high-net-worth individuals, and aviation service providers aiming to reduce operational complexity and cost. Governed primarily under 14 C.F.R. Part 91, dry leases differ significantly from charter arrangements regulated under Part 135. In a dry lease, the aircraft is provided without a crew, transferring operational control to the lessee—a feature that both minimizes regulatory obligations and enables customized operations for business or personal use.
Unlike charter operations, which face stringent limitations—such as airport and weather requirements—a dry lease allows more flexibility in flight planning, crew hiring, and scheduling. It also potentially mitigates federal excise tax obligations, presenting a more economically viable model for frequent flyers. However, these benefits come with complex legal and operational nuances. A poorly constructed lease agreement can expose both parties to liability, tax penalties, or FAA enforcement actions. Therefore, we present the essential Aircraft Dry Lease Checklist, an indispensable resource for anyone entering this specialized transaction.
Parties to the Agreement: Legal Identity and Jurisdiction
Every dry lease must begin with a precise identification of the parties involved. Both the lessor (aircraft owner) and the lessee (operator) should be fully named using their legal entity names, not abbreviations or trade names. Furthermore, the place of incorporation or formation and principal business address of each party must be included to establish jurisdictional ties and applicable state laws.
This identification is not merely procedural—it affects tax jurisdiction, dispute resolution, and FAA compliance. For international entities or multi-jurisdictional corporations, additional clarity may be required on the party’s ability to legally contract and operate under U.S. law.
Lease Term and Exclusivity Structure
Clearly define the duration of the lease, which could be fixed (e.g., 6 months or 1 year) or renewable. The agreement should also specify whether the lease is exclusive—granting the lessee sole use of the aircraft—or non-exclusive, allowing shared use among multiple lessees.
In non-exclusive leases, procedures must be detailed regarding aircraft availability, reservation timelines, and flight priority protocols. This prevents conflict between parties and ensures efficient scheduling, particularly when the aircraft has high utilization rates.
Aircraft Delivery, Storage, and Return Conditions
The contract should state where the aircraft will be delivered—typically its home base airport—and the conditions under which it must be returned. Non-exclusive leases often require return after each flight, triggering a need for a well-documented handover process. This includes:
- Location of delivery/return
- Fuel levels
- Flight log reviews
- Damage inspection protocols
Storage conditions should also be stated—whether the aircraft must be hangared, protected against environmental hazards, or maintained at a specific FAA-compliant facility.
Lease Consideration and Payment Structure
The financial terms are central to any dry lease. Define whether the payment is fixed (monthly/quarterly) or variable (hourly/per use). If variable, specify the rate per flight hour, minimum hours required, and payment schedule.
Important to note: while federal excise tax (FET) is usually avoided in dry leases, state sales tax is commonly applied. In some jurisdictions, use tax or personal property tax may also be triggered. Clarifying which party is responsible for these taxes protects against later disputes and surprise liabilities.
Operational Control and FAA Compliance
A core element of a dry lease is that the lessee assumes operational control, per FAA definitions. The agreement must include a declaration that:
“The lessee shall have full operational control over all flight operations, crew hiring, scheduling, and airworthiness compliance during the term of this lease.”
This protects the lessor from liability in the event of an incident and aligns with Truth-in-Leasing rules under 14 C.F.R. § 91.23, which require specific language and notification procedures.
Allocation of Aircraft Operating Expenses
Dry leases must detail which party bears the costs of operation. As a rule, the lessee covers variable costs, including:
- Fuel and oil
- Landing and parking fees
- Crew salaries and training
- Flight planning and dispatching
Conversely, airframe and engine maintenance, insurance, and aircraft storage may be split or negotiated depending on the structure. Each cost center must be itemized to avoid ambiguity.
Maintenance Responsibilities and Regulatory Compliance
Aircraft maintenance is not just a cost issue—it’s a legal obligation. The lease should designate which party arranges for scheduled inspections, airworthiness directives (AD) compliance, and non-routine maintenance.
The party responsible should warrant ongoing compliance with FAA mandates and agree to keep the aircraft in airworthy condition throughout the lease term. Additionally, define how maintenance records will be handled and who can access them.
Aircraft Modifications and Alterations
In cases where the lessee seeks to modify the aircraft—such as installing new avionics or cabin upgrades—the lease must clearly define:
- Whether modifications are permitted
- Ownership of modifications
- FAA approval procedures
- Reversion to original condition at lease end
In most cases, modifications become the property of the lessor, unless otherwise specified.
Insurance Coverage and Named Insureds
The lease must mandate that the aircraft be covered by liability and hull insurance, naming both parties as insureds. Key elements to define include:
- Coverage limits (e.g., $50 million liability, full hull value)
- Deductible responsibilities
- Proof of insurance delivery
- Coverage for both operational and storage risks
Additionally, ensure that the policy covers all intended uses, including business, private, or international operations.
Home Base Designation and Taxation Implications
The aircraft’s home base significantly influences state and local tax obligations. The IRS and local tax authorities use this location to determine where sales tax, use tax, and personal property tax may apply.
Even if the lessee operates flights nationwide, the location where the aircraft is stored, registered, or maintained may create a tax nexus. Therefore, define the home base precisely and consult aviation tax counsel as needed.
Representations, Warranties, and Condition Disclosure
While some lessors provide the aircraft “as is,” others may include limited warranties regarding airworthiness, serviceability, or maintenance history. If any such representations are made, they must be clearly stated and limited in scope and duration.
Common disclaimers include:
- No warranty of merchantability or fitness for a particular purpose
- Lessee assumes all operational risks
- No liability for downtime or performance issues
Logbook Custody and Record Keeping
FAA compliance mandates meticulous record keeping. The lease should assign responsibility for:
- Maintaining logbooks and inspection records
- Logging all flight operations
- Storing records at a specific location
- Providing access to both parties and regulators
Lessee flight crews must ensure that logs are updated per FAA Part 91.417 standards.
Indemnification and Legal Liability Protections
Strong indemnification clauses protect both parties from third-party claims. A standard clause might include:
“Each party agrees to indemnify and hold harmless the other from any loss, liability, or claim arising from its own negligence or operational control.”
These provisions should be reviewed by aviation counsel, especially in multi-jurisdictional leases, where state laws on indemnity vary significantly.
Truth-in-Leasing Act Compliance Requirements
If applicable, the Truth-in-Leasing clause under 14 C.F.R. § 91.23 must be incorporated. This entails:
- Including FAA-required wording in the lease
- Submitting a copy to the FAA Registry within 24 hours of execution
- Keeping a copy on board the aircraft at all times
Non-compliance may result in FAA penalties or enforcement actions.
Boilerplate Provisions and Legal Formalities
Finally, the lease must include boilerplate clauses covering:
- Governing law and jurisdiction
- Force majeure events
- Severability and assignment restrictions
- Confidentiality agreements
- Dispute resolution methods (e.g., arbitration, venue selection)
These clauses ensure the lease holds up in court and remains enforceable in unforeseen circumstances.
In conclusion, crafting a legally sound and operationally efficient aircraft dry lease requires precision, foresight, and full regulatory compliance. Each clause must be tailored to reflect the aircraft’s usage, tax exposure, and control responsibilities. With the growing popularity of private aviation, a robust checklist is more essential than ever to protect both lessors and lessees from avoidable risks.
