Wet leasing? Get a Part 135 certificate

Aviation International News » September 2009
September 2, 2009, 11:01 AM

The fear is palpable at corporate flight departments that have put their aircraft on someone else’s Part 135 OpSpecs. Those who do by-the-book dry leases can sleep peacefully at night. The ones with the oh-so-clever wet leases in disguise will have more trouble. The burning question that keeps them up is, “Are we legal?” These corporate flight departments have paid exorbitant legal fees to top names in aviation to write convoluted gobbledygook documents; they’ve gotten “agency” agreements for their pilots, their mechanics, their management companies, their brokers, themselves. But do all these pages of dense legalese make them legal? Are they bulletproof if the feds come after them? And who will these feds be? The FAA, the IRS or the big guns from the U.S. Attorney’s Office, packing scary criminal sanctions like jail terms? The real nightmare scenario is all of them at one time.

These issues should keep corporate flight operators up at night. Since aviation began–or at least since I’ve been involved in aviation (which sometimes feels like one and the same thing)–wet leasing your aircraft and carrying passengers for compensation or hire has required a Part 135 certificate. That hasn’t changed. Yes, the FAA gave incoherent signals under pressure from some of the alphabet groups to allow corporate pilots to fly their employer’s aircraft when it was on a Part 135’s OpSpecs. To the extent I understand the legal underpinnings of this FAA theory, somehow if the corporate pilot became an agent of the Part 135– while remaining an employee of the corporation whose aircraft he was flying–an illegal wet lease would be transformed to a legal arrangement. Well, guess what? When the FAA directed its fine enforcement light onto these arrangements in the case of TAG/AMI, the agreements didn’t pass muster and the arrangements fell apart like a house of cards. So much for trusting a wink and a nod from the government.

Given how easy it was for the FAA to see through these questionable arrangements, I fail to comprehend why corporate operators don’t opt to rest easy rather than live with all this agita. (Isn’t the stock market enough of a roller coaster for these guys?) Of course, they can’t just yank their aircraft off these OpSpecs; there is too much pressure from their corporate parents to generate revenue to offset the cost of operating their jets. But the AMI/TAG ordeal–and now the Platinum indictments four years after the fateful accident at Teterboro set off this seemingly endless flurry of federal interest–has made some of them nervous.

Of the people I’ve spoken with, some of the most concerned are the corporate owners of the aircraft listed in the various publicly available FAA orders. AMI/TAG was not alone. There’s American Flight Group and American Air Network, to name two others that were the subject of FAA scrutiny. The AMI order alone lists more than 70 N-numbered aircraft. That’s a lot of corporate titans worrying themselves sick about when the next shoe is going to drop. 

If you happen to scrutinize those orders, you won’t see too many corporate entities that are household names. But a number of them are. They’re just cleverly concealed behind cutely named LLCs or listed as owned by banks as trustees. (Why does the FAA’s Aircraft Registry allow this obvious ploy to conceal true ownership?)
I guess some high-priced lawyer told them they could avoid liability by incorporating their aircraft as separate entities. But I doubt that ruse will work; even the FAA at its operational-control seminars talked about piercing the corporate veil. And I know U.S. Attorneys routinely do that.

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