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The Flight Department Company Trap
September 17, 2012
When a company makes the decision to purchase a business aircraft, there are a number of factors to be considered in determining the optimal ownership structure. Designing a structure that manages the liability associated with aircraft ownership is typically an important consideration. The establishment of a new corporation, such as a subchapter S corporation (S-Corp) or limited liability company (LLC) to own (or lease) and operate the aircraft is commonly viewed as one method to reduce liability exposure.
In its most basic form, a flight department company is a single purpose entity that both owns and operates an aircraft under Part 91 of the FARs. The major business enterprise of the flight department company is providing transportation by air. In many cases, the flight department company also employs pilots and other staff members that are involved in flight operations.
However, this could be an illegal structure. While this may seem to be a logical ownership structure, it is extremely important to avoid creating a flight department company which could violate FAR Part 91, endanger your financing agreements, and possibly void your aviation insurance policy.
This article provides details on how to identify the flight department company trap, understand the consequences of creating a flight department company, and take steps to avoid falling into the trap in the first place.
About the Author
Jeff Wieand is senior vice president and general counsel of Boston JetSearch, Inc., a company engaged in advising clients in the acquisition of business jets. He can be reached at [email protected]. He is a member of the NBAA Tax Committee, which provides information for Association Members about taxes affecting business aircraft and the impact of Internal Revenue Service rules, Securities and Exchange Commission rules, and Federal Aviation Regulations.