Business aviation is incredibly safe – you are more likely to be injured in a car accident on the way to the airport than onboard the plane itself. But when accidents do happen, the liability can be catastrophic.
In this multi-part series on liability, we will broadly cover the potential liabilities that lurk out there and what can be done about them.
Who Can Be Liable?
Who could potentially be liable for the consequences of an aircraft incident? Any analysis of liability needs to start here. There are three distinct but intertwined "buckets" of potential liability:
Owner:
Most clients assume the owner of the plane has the most liability. They plan to "isolate" the liability by keeping everything aircraft-related in a special purpose entity for "protection." This is doubly wrong.
Merely owning a plane comes with surprisingly little liability. If you buy a plane, park it in the hangar, and never use it, the plane can't get you into too much trouble. It doesn't crawl out of the hangar at night and bite people; it doesn't taxi around and hit things, and it surely doesn't fly by itself into accidents. Rather, the liability comes from operating the plane.
While the Owner and the Operator are occasionally the same person or entity, they are two distinct and different roles when it comes to liability.
Further, if you operate the plane through the special-purpose Owner entity, you are unwittingly creating even more liability for yourself by likely engaging in illegal charter flights (even if only for yourself). See this article for a refresher.
So if the Owner isn't the party that's primarily liable, who is?
Pilot:
Roughly 70-80% → 70–80% of private aviation accidents are attributed to pilot error. This makes the pilot the clearest target for liability. However, most pilots' pockets aren't as deep as the owners', so personal injury lawyers wouldn’t stop their liability search there. The exception, of course, is owners who fly and operate their own aircraft.
Operator:
The person (or entity) with the lion's share of the liability is the Operator. This is the person with "Operational Control" of the aircraft, defined as "with respect to a flight, means the exercise of authority of initiating, conducting, or terminating a flight." This includes ultimate responsibility for crewing the plane, maintaining it, and deciding where it goes and when. The Operator is typically liable for the pilot’s faults.
Through poor planning, shoddy paperwork, and sloppy implementation, the lines of operational control can become very gray very quickly. This can open the door to even more liability and potential unlicensed charter flights.
The Operator is typically either an individual if the aircraft is essentially only a personal-use plane, or an operating business that uses the plane for principals, employees, and guests. Again, the Operator can never be a special-purpose entity.
Since the Operator will always be a real person or a real business, acknowledging the Operator's liability and planning for it is key when setting up the ownership/operational structure for plane owners. In a later issue of The Plane Truth, we will also analyze what it looks like for a charter company to act as the owner's operator and absorb most of the liability.
(For deeper analysis on Operational Control, I urge you to download the National Business Aviation Association's "Operational Control Handbook," which delves into this nuanced subject.)
While liability can't be ignored by owners, frankly, it is only one consideration when setting up an ownership structure. It should be integrated hand in hand with tax planning, practical operational issues, and real-life facts about who will pay for the plane's use and how it will be used.
Next month, we will cover potential plans to address liability and best practices to keep liability theoretical.
This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, and are purely informational. Each aircraft owner's situation is unique and requires its own thorough discussion and analysis. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.