In choosing the appropriate operator for your aircraft’s operations under Part 91, you need to consider FAA rules, state and federal tax laws and liability issues. This article focuses on the FAA concerns regarding operators of aircraft under Part 91.
A common misconception that we frequently encounter is that the best operator for an aircraft under Part 91 is a sole purpose entity. The argument that we frequently hear is that a sole purpose entity, such as a single member LLC, provides liability protection for the operator of the aircraft. This is standard operating practice for both lawyers and accountants in non-aviation settings. However, per FAA regulations, an operator under Part 91 must be either an individual or a real, live operating company in which the use of the aircraft is within the scope of and incidental to its business. In other words, the operation of the aircraft cannot be the sole purpose of the company.
If the sole purpose of the company is to operate an aircraft, the company will fall under the definition of “air carrier” in FAR 1.1. An air carrier is not allowed to operate an aircraft under Part 91 and typically is required to operate under the higher safety standards of Part 135. If the FAA discovers that a sole purpose entity is operating under Part 91, this will be deemed to be a violation of Part 135.
A finding of a Part 135 violation has multiple consequences. The FAA has broad subpoena authority and may review the flight logs for the aircraft and impose a fine on each flight that the FAA determines should have been conducted under Part 135. The FAA may also penalize the pilots for each flight in violation of Part 135 by either suspending or revoking their license. In addition, a finding of a Part 135 violation may invalidate the aircraft insurance policy and other agreements related to the aircraft.
In summary, a sole purpose entity, such as a single member LLC, does not provide additional liability protection for aircraft operations and may in fact lead to a number of fines and penalties as well as FAA enforcement actions against the operator and the pilots.
Overall, there are numerous factors to consider when determining the appropriate operating structure for your aircraft. This article is intended to highlight the FAA’s operating rules for Part 91. For additional information and to determine the best operational structure for your aircraft, please contact the attorneys at Aero Law Group PC and they will be happy to assist you.