All Aviation Articles By Greg Reigel

The Difference Between "Wet" and "Dry" Aircraft Leases

Many times an aircraft owner who is not fully utilizing the owner’s aircraft will lease the aircraft to maximize the use of the aircraft and to recover some of the aircraft owner’s expenses. One of the areas about which aircraft owners and operators are frequently confused is the difference between a “wet” lease and a “dry” lease. I’ll give you a hint: It’s not about the fuel.

The “Wet” lease

14 C.F.R. §110.2 defines a “wet lease” as “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember.” (Note no reference to fuel)

Ordinarily, the parties entering into wet lease arrangements are certificated air carriers such as airlines operating under 14 C.F.R. Part 121 and charter operators conducting operations under 14 C.F.R. Part 135. This makes sense since these air carriers have the authority to use aircraft and crew to carry passengers and property for compensation or hire. Non-air carrier aircraft operators conducting operations under Part 91 are prohibited from carrying passengers and property for compensation or hire except in very limited circumstances.

However, 14 C.F.R. § 91.501(c) does provide for certain timesharing and interchange arrangements in which both the aircraft and crew are provided together. And although these arrangements are considered wet leases because they include both aircraft and crew, they are Part 91 operations in which the parties to the transactions do not need to be air carriers.

The “Dry” lease

In a dry lease arrangement, the aircraft owner is providing the aircraft to the lessee without crew. (Here again, whether the aircraft is provided with or without fuel has no bearing on the type of lease) Neither the lessor nor the lessee is required to hold an air carrier certificate in a dry lease arrangement, although nothing prohibits either party from being an air carrier.

Operational control

One of the key issues that distinguishes a “wet” lease from a “dry” lease is “who has operational control.” 14 C.F.R §1.1 defines operational control as “the exercise of authority over initiating, conducting or terminating a flight.” In a “wet” lease situation, since the lessor is providing both aircraft and crew, the lessor maintains operational control of all flights. In a “dry” lease situation, the lessee provides its own crew and the lessee exercises operational control of its flights.

If the lease is for private use or commercial, non-Part 135 use, typically each party will have operational control of the aircraft when it is in that party’s possession. Oftentimes in this situation, operational control will revert to the lessor during the times when the lessee is not using or possessing the aircraft.

What’s The Issue?

So, why is this distinction between “wet” and “dry” leases so important? Well, in the absence of a specific exemption (such as under 14 C.F.R. § 91.501(c)) the lessor who is operating an aircraft under a wet lease will need to have an air carrier certificate and operate under the regulations that govern air carriers (e.g. Part 121 or Part 135). This means the lessor will have to comply with regulations that are stricter than Part 91 including regulations relating to the types of airports the lessor may utilize, crew qualifications, crew rest and duty times, maintenance requirements etc. And those regulations increase the lessor’s cost to operate. Additionally, the lessor under a wet lease is required to remit federal excise tax (“FET”) on the amount charged to the lessee.

A lessee operating under a dry lease is permitted to operate under Part 91 and is not required to comply with many of the more restrictive and costly requirements of Parts 121 or 135. And federal excise tax is not due on the amounts paid by the lessee to the lessor, although sales tax is often assessed on the lease rate. For private operators, these are significant advantages. However, they also need to be weighed against the responsibilities, and potential liability, that goes along with having operational control of a Part 91 dry lease operation.

The situation may get confusing when parties decide they want the best of both worlds. Unfortunately, these Part 134 ½ operations, as I call them, are usually FAA enforcement actions waiting to happen. For example, if the lessor provides the lessee with the aircraft under a dry lease and that same lessor also supplies the crew under a separate agreement the FAA will likely view that as a wet lease arrangement since the lessor is providing both aircraft and crew. If the lessor does not hold an air carrier certificate then the FAA will consider those flights to be illegal charter flights. Additionally, the IRS would also probably assess FET on those flights.

A similarly improper arrangement occurs if the lessor leases the aircraft to the lessee and then requires that the lessee obtain the crew for the flights either from a specified source, usually affiliated with or controlled by the lessor. If the lessor does not hold an air carrier certificate, the FAA would also consider this a wet lease arrangement. Since the aircraft and crew are coming from closely related or affiliated sources, the FAA views them as both coming from the lessor.

It is important to keep in mind that the FAA will look beyond the actual written agreements to determine the relationships between the parties and how the arrangement is actually being conducted. Although a lease is written as a dry lease and says “Dry Lease” at the top of the agreement, for example, that doesn’t mean that the FAA can’t take the position that the arrangement is really being conducted as a wet lease. And if the FAA takes that position when the lessor who is actually operating the aircraft for the lessee does not have an air carrier certificate, then that will be a problem for the lessor, and potentially for the lessee as well.

Conclusion

The distinction between “wet” and “dry” leases isn’t always clear to aircraft owners and operators. However, it is important to understand the difference because each situation has separate regulatory obligations and requirements. Failure to comply with the legal requirements applicable to the chosen lease structure can result in problems for both the lessor and the lessee.

Additionally, as with all written agreements, it is essential that you carefully review all of the provisions of any aircraft lease before you sign. Consultation with an experienced aviation attorney beforehand can help you protect yourself, whether lessor or lessee. By taking the time to understand the terms of the aircraft lease and the applicable regulatory requirements, both parties can ensure that their expectations are met and their interests protected.

Drone Operators Beware: Drone Operations Are Subject To FAA Enforcement

So, you just purchased a fancy new drone (“unmanned aircraft system” or “UAS”) and you have been flying it around. About a week later, you receive a phone call from an FAA inspector in which the inspector tells you that you have been operating your drone in violation of the Federal Aviation Regulations (“FARs”). And now you are wondering what’s going on and what can you expect?

As you may be aware, the FAA considers both UAS and model aircraft subject to regulation (although two civil lawsuits are pending disputing the FAA’s position, at least as it relates to “model aircraft”). And with that regulation also comes the responsibility for compliance and enforcement of the FARs applicable to UAS and their operation.

With the proliferation of UAS operations within the United States, the FAA is concerned about the safety risk posed by UAS operations that may be contrary to the FARs. To address these concerns, the FAA has stated that it “will use its resources to educate UAS operators about regulatory compliance and, when appropriate, use administrative and legal enforcement action to gain compliance.”

How Does a UAS Operator Violate the Regulations?

What does this mean for UAS operators? It means the operator of a UAS is now subject to the FAA’s compliance and enforcement procedures in the event that the UAS operator violates applicable FARs or other statutory requirements when the operator is operating its UAS. For example, if the UAS is being operated for hobby or recreational purposes and the operation “endangers the safety of the National Airspace”, the FAA may cite the operator for violation of operational FARs such as §§ 91.13-91.15, 91.113, 91.126-135, 91.137-145, and 14 C.F.R. Part 73.

If the UAS is operated for commercial purposes (e.g. other than for hobby and recreational purposes) and the operator does not have FAA authorization for the operation in the form of a Certificate of Authorization (“COA”), an exemption or an airworthiness certificate and civil aircraft COA, then the FAA could cite the operator for lack of the appropriate authorizations such as pilot and aircraft certification as well as any applicable operational FARs. Or if the UAS operator does have a COA or exemption but operates contrary to the operational requirements associated with the authorizations then the operator could be cited for violating those requirements.

How Will the FAA Respond to Violations?

In order to determine what type of action the FAA will take to respond to violations by a UAS operator, the FAA will analyze

  • Whether the violation was a first-time and inadvertent violation;

  • Whether the violation involves repeated or intentional violations; and

  • Whether the safety risk resulting from the operation in terms of actual or potential endangerment to the National Airspace was low/medium/high.

If the UAS operator’s violation is a first-time, inadvertent violation and education or counseling by the FAA will ensure future compliance, then the case will be resolved as a “compliance action” using education or informal counseling. When a situation involves a first-time, inadvertent violation by a UAS operator that poses a low actual or potential risk to safety but the FAA determines compliance cannot be gained through education, then the FAA will pursue administrative action using a warning notice or letter of correction with possible remedial training. And if the FAA determines that a UAS operator’s violation poses a medium or high actual or potential risk to safety, then the FAA will pursue legal enforcement action through a certificate or civil penalty action.

So, when will a UAS operator’s conduct subject the operator to legal enforcement action? One example would be when a UAS operator’s conduct has a medium or high risk of endangering the operation of another aircraft or endangering persons or property on the ground. Another example would be when the UAS operator’s conduct involves repeated or intentional violations.

What Type of Sanction Will the FAA Impose?

Once the FAA decides that legal enforcement action is necessary or appropriate, it must next determine what sanction it should impose for the violation. The sanction will vary depending upon whether the operator is an individual or an entity and, if an entity, what size of entity. FAA Order 2150.3B, Appendix B (the sanction guidance table) identifies a range of sanctions.

If a UAS operator’s violation poses a medium actual or potential risk to safety then the FAA may seek to impose a civil penalty in the minimum to moderate range. Alternatively, a violation by a UAS operator that poses a high actual or potential risk to safety would likely result in assessment of a civil penalty in the maximum range. And, not surprisingly, if a UAS operator repeatedly or intentional violates the regulations then the FAA would impose a civil penalty in the applicable maximum range.

UAS operators who also hold airman certificates (e.g. a pilot, mechanic or other certificate) are at even greater risk. The FAA has stated “[f]or a deliberate, egregious violation by a certificate holder, regardless of whether the certificate holder is exercising the privileges of the certificate in connection with the violations associated with a UAS operation, certificate action, may be appropriate. Such certificate action may be in addition to a civil penalty.” So, not only could an airman operating a UAS be subject to a civil penalty, but his or her airman certificate could also be at risk if the FAA thinks the airman’s UAS violation was serious enough.

Conclusion

For the operator of the shiny new UAS I mentioned above, my advice is to proceed with caution. How the operator was operating the UAS as well as what the operator tells the FAA will have a significant impact upon how the FAA views the case and what action it feels is necessary to deal with any regulatory violations. Knowing what to expect can help UAS operators be prepared to respond to the FAA appropriately.

D.C. Circuit Court of Appeals Grounds Flytenow & AirPooler Private Pilot Flight-Sharing Concept

As you may know, one of the ways a private pilot is permitted to reduce the cost of a particular flight is to share that expense with the passenger(s) on the flight. The applicable regulation, 14 CFR 61.113(a), provides that "no person who holds a private pilot certificate may act as pilot in command of an aircraft that is carrying passengers or property for compensation or hire; nor may that person, for compensation or hire, act as pilot in command of an aircraft." However, Paragraph (c) of the regulation states "[a] private pilot may not pay less than the pro rata share of the operating expenses of a flight with passengers, provided the expenses involve only fuel, oil, airport expenditures, or rental fees." This creates an exception to the prohibition on private pilots receiving compensation for flying.

Using this exception, and presumably with the Uber and Airbnb ride sharing concepts in mind, two companies, Flytenow and AirPooler, created websites that would allow a private pilot to offer his or her planned flight to potential passengers who would be willing to share the expenses of the flight under Section 61.113(c). However, before the concepts really took flight, both AirPooler and Flytenow requested legal interpretations from the FAA regarding whether their business concept was in compliance with federal aviation regulations. The FAA responded to both requests with a resounding “no.”

The FAA concluded that a private pilot using a web-based service to offer flights to potential passengers would be holding himself or herself out as a common carrier to transport persons from place to place for compensation. The regulations prohibit that type of operation by a private pilot. Rather, under the proposed scenario the FAA stated that the pilot would need to have both a commercial pilot certificate and also an air carrier certificate. The FAA’s decision relied upon the FAA’s previous interpretations of the terms “compensation” and “holding out” as they are used in the regulations.

Flytenow disagreed with the FAA’s interpretations and its application of both the definitions of “compensation” and “holding out” as they applied to its business model. It then filed a petition asking the D.C. Circuit Court of Appeals to set aside the FAA’s legal interpretations. In a not-so-surprising decision, the D.C. Circuit Court of Appeals in Flytenow, Inc. v. Federal Aviation Administration rejected Flytenow’s petition in its entirety and confirmed the FAA’s interpretations.

First, the court confirmed that a private pilot’s receipt of any reimbursement of expenses is compensation. Thus, given the FAA’s broad view of “compensation,” a private pilot’s receipt of a pro-rata share of a flight’s expenses from passengers would be compensation, albeit permitted compensation under Section 61.113(c).

Next, the court had no trouble determining that private pilots using the Flytenow website to offer flights would be “holding out” as the FAA interpreted that term. The court observed that any potential passenger could arrange for a flight by simply using Flytenow’s website. And although use of the website was limited to members, in order to become a member a potential passenger merely needed to sign up. Further, the court did not think that a member pilot’s authority to decide not to accept particular passengers limited the “holding out” by that pilot. Thus, the court agreed with the FAA’s position that a private pilot’s sharing of flight expenses with passengers obtained through the Flytenow website would be contrary to the regulations.

However, the court went on to note that “pilots communicating to defined and limited groups remain free to invite passengers for common purpose expense-sharing flights.” It confirmed a previous opinion by the FAA that a private pilot’s posting of a flight on a bulletin board may be permitted in certain circumstances. The court also stated that “[o]ther kinds of internet-based communications, such as e-mail among friends, for example, seem unlikely to be deemed ‘holding out’ under the FAA’s Interpretation.” Finally, perhaps in fear that its decision would be misinterpreted, the court concluded by stating “[p]rivate pilots continue to enjoy the right to share expenses with their passengers, so long as they share a common purpose and do not hold themselves out as offering services to the public.”

So, what does this mean? Well, for starters, it means that offering flights through a broadly based flight-sharing system or website open to anyone (e.g. John Q. Public) is likely going to be interpreted as “holding out.” However, the court’s language does suggest that making flight-sharing available to a more limited or defined pool of potential passengers may not be considered “holding out.”

Unfortunately, the court did not provide any further guidance on where the “holding out” threshold would be crossed. Somewhere between “communications between friends” and “communications to the public at large” is neither specific, nor is it helpful. Finding the sweet-spot where the pool of potential passengers is large enough to justify the business model for flight-sharing, yet still small enough that it is not “holding out,” may be difficult. But for those who may want to pursue or revisit this type of flight-sharing arrangement, it is better than a complete ban.

Drone Registration: Just In Time For The Holidays?

As you may know, the FAA is working on regulations that will govern the operation of unmanned aircraft systems ("UAS"), more commonly and colloquially referred to as "drones."  Unfortunately, it doesn't look like the FAA will have a final drone regulation ready until next year, at the earliest.

With the concern that thousands of drones will be flying off the shelves this Christmas, the concern and, in some circles panic, has gotten the FAA's attention. Despite its efforts to educate the public regarding drone do's and do not's, the FAA came to the conclusion that registration of drones would be a good idea. Why, you might ask? Well, first, since the FAA considers drones to be aircraft, and under 49 U.S.C. 44101(a) a person may only operate an aircraft in the National Air Space ("NAS") if it is registered with the FAA's aircraft registration branch. Additionally, and perhaps more in response to the anticipated post-holiday proliferation of drones, the FAA feels drone registration will "promote a culture of accountability while achieving a maximum level of compliance."

So, what did the FAA do? It formed a Task Force to develop recommendations for the creation of a drone registration process which the FAA would ultimately use to promulgate drone registration rules. The Task Force was comprised of a number of individuals from a variety of groups and organizations representing both aviation and non-aviation perspectives on drones. After meeting several times, on November 21, 2015 the Task Force issued recommendations to the FAA addressing (1) minimum requirements for drones that would need to be registered; (2) a recommended registration process; and (3) methods for proving registration and marking of drones. Let's take a closer look at these recommendations.

Minimum Requirements
The Task Force recommended that all drones with a maximum take-off weight under 55 pounds and above 250 grams (approximately ½ a pound) and that are operated outdoors in the NAS be subject to registration. The 250 gram minimum was apparently derived from safety studies and risk probability calculations. Drones weighing in excess of 55 pounds are already subject to registration with the FAA. Thus, if you don't intend to ever operate your drone outside, you wouldn't need to register. But that would probably only apply to a very small segment of drone operators. Otherwise, most drones would be subject to registration under the Task Force's recommendation.


The Registration Process

For those drones subject to registration, the registration process recommended by the Task Force would require the drone operator to complete, at no cost to the drone operator, an electronic registration form through the web or using a yet-to-be-developed application ("App"). The drone operator would need to provide the FAA with the operator's name and street address. The Task Force suggested that an operator could also provide its mailing address, email address, telephone number, and serial number of the operator's drones, but that disclosure of this additional information should not be mandatory.

According to the recommendations, a drone operator would not need to register each individual drone, although the web-portal or App that would be used for registration would allow registration of individual drones. Rather, the Task Force has recommended that the drone registration system be owner/operator based. Thus, the drone operator would receive a single registration number that would be used with all drones that the operator wants or needs to register. (Sounds like "drone operator registration" to me, not "drone registration").

The Task Force recommended that drone operators registering drones must be at least 13 years old to register, but drone operators are not subject to the U.S. citizenship requirements that apply to registration of other aircraft with the FAA. Unfortunately, the Task Force does not address how this age-limit impacts the ability of an individual younger than 13 to operate a drone in the NAS. Since the recommendation requires registration for operation in the NAS, this raises a question as to whether individuals younger than 13 will be permitted to operate a drone in the NAS at all.

Once the drone operator completes the registration process, the drone operator would then immediately receive an electronic certificate of registration, via download, or, if the drone operator requests a paper copy or registers directly with the FAA Registry, a paper copy will be sent to the drone operator. The drone operator would also receive a personal universal registration number for use on all drones owned by that drone operator (another reason this is more like "drone operator registration"). Also, the Task Force suggests that the drone operator would have to produce the certificate of registration for inspection anytime the operator is operating a drone in the NAS, although it doesn't suggest to whom the drone operator would need to produce the certificate of registration. Presumably the FAA, law enforcement, and, perhaps, others?

Marking The Drone

Finally, the Task Force recommended that drone operators would have to place the registration number on all applicable drones before the operator could operate the drones in the NAS. Alternatively, if the drone operator provided the FAA with the serial numbers for any of the operator's drones during the registration process, the drone operator would need to ensure that the serial number was actually affixed to each drone.

The Task Force suggests that the registration or serial number marking must be readily accessible and maintained in a way so that it will be legible and readable by someone visually inspecting the drone. And the marking does not necessarily need to be on the outside of the drone. If the registration or serial number is in an enclosed compartment, such as a battery compartment, the Task Force felt that would be considered “readily accessible” so long as the compartment can be accessed without the use of tool.

Conclusions

So, those are the Task Force's recommendations regarding drone registration. Are they binding upon the FAA? No. Will they become part of the FAA's final drone registration rulemaking? Maybe. Will they be the only requirements in the FAA's rulemaking? Probably not.  The FAA is under a lot of pressure on this issue, so it is possible we will see some rulemaking before Christmas.  But for now, we will have to wait and see.  Ho, Ho, Ho.

When Is A Touch-And-Go Landing Not A Landing?

As pilots, we all know that with every takeoff we perform, at some point after that takeoff a landing will occur, some better than others. This is true whether we are flying to a destination or simply performing touch-and-go takeoffs and landings in the local pattern. However, the term "landing" may mean different things in different contexts.

For example, in a recent decision issued by the National Transportation Safety Board, Administrator v. Boylan, the Board determined that a touch-and-go landing did not qualify as a "landing" for purposes of determining compliance with 14 C.F.R. § 91.151(a)(1). The case involved a round-trip flight in which the airman departed from his home-airport with the intention of performing touch-and-go's at two other airports before returning to his home-airport. Unfortunately, after performing the touch-and-go's at those two airports, the airman was unable to make it back to his home-airport due to fuel exhaustion and the flight terminated in an off-airport landing.

Naturally, the FAA was not pleased. The FAA initiated an enforcement action to suspend the airman's ATP certificate for a period of 120 days for the airman's alleged violation of 14 C.F.R. §§ 91.103(a) (failure to become familiar with all information regarding the proposed flight), 91.151(a)(1) (day VFR fuel minimums requiring enough fuel to fly to the "first point of intended landing" and for another 30 minutes) and 91.13(a) (careless and reckless). The airman appealed the order of suspension and after a hearing, the Administrative Law Judge ("ALJ") determined that the airman failed to adequately preflight the aircraft because he did not ensure the aircraft contained sufficient fuel for the flight. As a result, the ALJ found the airman violated §§ 91.103(a) and 91.13(a).

However, in a surprise decision, the ALJ concluded the airman did not violate § 91.151(a)(1) because his touch-and-go landing at the first airport was a landing that occurred at the airman's "first point of intended landing." As a result, the ALJ reduced the suspension of the airman's ATP certificate to 105 days. Not surprisingly, the FAA appealed the ALJ's decision to the full Board.

On appeal, the FAA argued the ALJ's determination that a touch-and-go qualified as a landing for purposes of § 91.151(a)(1) was in error. The FAA also argued the ALJ should have deferred to the FAA's interpretation of the regulation. The Board agreed with the FAA and concluded “first point of intended landing” in § 91.151(a)(1) is "the point at which the aircraft finally comes to rest."

In support of its decision, the Board stated:

The Administrator could not achieve the safety purpose of reducing the risk of fuel exhaustion accidents if an operator only needed to have sufficient fuel to conduct a touch-and-go, as well as fly for an additional 30 minutes, notwithstanding the duration of the remaining flight before the aircraft finally comes to rest.

The Board also rejected the ALJ's reliance upon 14 C.F.R. § 61.57 (recent flight experience: pilot in command) and observed that "[w]hat constitutes a “landing” or “landing to a full stop” under § 61.57 does not define what would constitute the “first point of intended landing” under § 91.151(a)." It further disagreed with the ALJ's finding that a touch-and-go landing marks the end of one flight and the beginning of a new one. Rather the Board found such an interpretation would be illogical because a pilot performing a touch-and-go doesn't have a chance to perform a preflight checklist or visually inspect the fuel tanks before the aircraft takes off again.

Additionally, the Board observed that if the ALJ's interpretation were correct, then § 91.151(a)(1)'s fuel requirement would begin anew with each touch-and-go takeoff. As a result, even under the ALJ's interpretation, in the case before it the evidence still supported the airman's violation of § 91.151(a)(1) because the off-airport landing due to fuel exhaustion showed that he did not meet his fuel reserve minimums when he departed his second and third airports. Thus, the Board reversed the ALJ's decision regarding the § 91.151(a)(1) violation and reinstated the 120 day suspension of the airman's ATP certificate.

So, what can we learn from this case? Well, the obvious answer is to make sure you have enough fuel for your intended flight in compliance with the applicable regulations. The not-so-obvious answer is that a "landing" isn't always a "landing." Not particularly helpful, I know.

However, this not-so-obvious answer highlights the importance of understanding not only individual regulations, but also the distinctions between the regulations. Although it may seem reasonable to think that the language of one regulation should mean the same thing in the context of a different regulation, that isn't always the case, unfortunately. As airmen, we all need to understand the meaning of each regulation applicable to our flights in order to operate in compliance with the regulations and safely.

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