Aircraft Inspection 101: Don’t Let the Fox Guard the Henhouse

Legal
Published on Issue #
2
in
2024 November

Attorney John Farrish dives into why choosing the right aircraft inspection team is crucial when buying your dream jet. Discover how a misstep could leave you vulnerable, especially if you let the fox guard the henhouse.

Go Deeper
2 min. read

Many buyers are so excited to start flying their new dream machine that they’ll often fly right past some key aspects of the critical aircraft inspection process. 

Two key requirements exist during a pre-buy process.

The first key is determining who will perform the pre-buy inspection. Sellers typically prefer their local shop, often the same team who maintained the plane during their ownership. 

The challenge? What are the chances that the inspection facility will genuinely critique its own work? The more squawks they find, the more the seller might blame them for past oversights. 

Instead, it’s wise to have a fresh set of eyes inspect the aircraft. Ideally, this would be the facility the buyer plans to use for future maintenance. 

This gives the new facility an opportunity to familiarize itself with the plane, review logs and honestly assess the aircraft’s condition. They’ll also be motivated to perform a thorough inspection, avoiding blame down the road if something fails soon after. They’ll also have an incentive to find issues they can fix – and charge for.

Secondly, often overlooked, the purchase agreement should specify the “delivery condition,” outlining the standard for repairs. To avoid disputes and keep things positive, it’s best to agree on “delivery conditions” in advance, even if it requires extra negotiation. Consider these scenarios:

  • Should all systems be functional, or just the flight-related systems? 
  • What if the air conditioning or lavatory isn’t working? 
  • Should the aircraft be current with a Part 91 annual inspection or follow all manufacturer-recommended hourly and calendar inspections?
  • What if the buyer and seller disagree on necessary repairs? 

Why shouldn’t a buyer let the fox guard the hen house? Because they need certainty about the plane’s true condition and agreed-upon results. Hiring an independent aircraft inspection facility provides this assurance, so they can confidently fly their dream machine upon closing.

Congratulations – You’re Unknowingly Running an Illegal Charter Operation

Legal
Published on Issue #
1
in
2024 October

Many aircraft owners unknowingly run illegal charter operations due to improper LLC structures. Learn how to avoid FAA violations and insurance issues with proper planning.

Go Deeper
2 min. read

One of the greatest benefits of owning an aircraft is avoiding flying on commercial airlines. Yet, according to the FAA, many owners inadvertently (and illegally!) run their own commercial flight operations. Most owners are likely aware of the general rule against accepting payment or reimbursement for Part 91 flights. An owner can fly any friends or colleagues, but generally may not accept compensation for doing so. Like good law-abiding citizens, these owners only fly their aircraft for themselves, and never charge anyone else when they fly friends or colleagues.

However, most owners often reflexively register their aircraft in a Limited Liability Company (LLC), and run all costs and operating expenses through this LLC. Principals then make capital contributions to pay the bills. But without an operational agreement in place, such as a dry lease from the LLC to the principal or their business, the FAA would consider the LLC an illegal “flight department company” providing illegal charter. The holding company LLC’s sole purpose would be to provide transportation by air to the principal, and the principal capital contributions are “compensation” to the LLC for the flights. In other words, the principal is paying the LLC for flights—something that cannot be done unless the LLC has a charter certificate. This puts the LLC, principal and pilots at risk for FAA fines and action against the pilot’s license.

Potentially worse, since insurance policies typically require compliance with all FAA regulations, it could also provide an insurer a reason to deny coverage in the event of a loss.

The good news? You can absolutely avoid illegal charter. With a bit of planning and guidance from an aviation attorney, you can establish an FAA-compliant ownership and operational structure. Even better, this often aligns with effective state tax planning, helping you stay out of trouble while potentially lowering your tax bill.

About the Author

An attorney and owner of InFlight Law, John Farrish guides clients on the legal side of aircraft sales and acquisitions from start to finish. At InFlight Law, he represents international and publicly traded companies to family businesses, entrepreneurs and ultra-high-net-worth individuals, including owner-pilots. He is experienced in new and pre-flown aircraft transactions, ranging from large cabin to turboprops and has coordinated transactions in every continent—except Antarctica.

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