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A IRCR A F T OPER AT ING A ND L E ASING GUIDE

D E D I C A T E D T O H E L P I N G B U S I N E S S A C H I E V E I T S H I G H E S T G O A L S .

NBAA AIRCRAFT OPERATING AND LEASING GUIDE 2

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Table of Contents

Guidelines for Aircraf t Support Services Agreements ……………..2
Guidelines for Dry Lease Agreements………………………………………..6
Guidelines for Interchange Agreements…………………………………..10
Guidelines for Joint Owner Agreements ………………………………….13
Guidelines for Time Sharing Agreements …………………………………16

These guidelines are based on FAA and IRS regulations and
statutes and are not to be considered as an opinion or an inter-
pretation of these rules. No document can fully cover all of the
possible variations that arise in individual circumstances. These
guidelines are not intended to be a substitute for the advice
and counsel of an attorney experienced in aviation law.

Introduction
NBAA offers these guidelines as an aid to its members who
are considering entering into arrangements such as aircraft
support services agreement, dry lease agreements, inter-
change agreements, joint ownership agreements and time
sharing agreements.

The NBAA Aircraft Operating and Leasing Guide contains
guidelines for aircraft support services agreements, dry
lease agreements, interchange agreements, joint ownership
agreements and time sharing agreements.

Of these arrangements, interchange, joint ownership and
time sharing agreements are all regulated under Federal
Aviation Regulations (“FAR”) Part 91 Subpart F. This subpart
provides operating rules, in addition to those prescribed in
other subparts of Part 91, governing the operation of large
airplanes of U.S. registry, turbojet-powered multiengine civil
airplanes of U.S. registry, and fractional ownership program
aircraft of U.S. registry that are operating under subpart K
of Part 91 in operations not involving common carriage. The
operating rules in Subpart F do not apply to those aircraft
when they are required to be operated under parts 121, 125,
129, 135, and 137 of the FAR. FAR § 91.501(a) states that
the inspection program in §91.409 applies to large airplanes,
turbine multi-engine airplanes and turbine helicopters. There
are many other regulations in Subpart F that will need to be
complied with (i.e., §§ 91.503 – 91.535).

For NBAA members who are operators of small civil air-
planes and helicopters of U.S. registry not covered under
FAR Part 91, Subpart F, interchange, joint ownership and
time sharing agreements are available under the NBAA

Small Aircraft Exemption (Exemption No. 7897). There are
conditions and requirements associated with operations
under the exemption. For more information, visit www.nbaa.
org/exemption.

Please note that if an aircraft operator is not a “citizen of the
United States” as defined in 49 USC §40102(a)(15), then ad-
ditional Department of Transportation rules apply for inter-
change, joint ownership and time sharing arrangements.

Guidelines for Aircraft Support

Services Agreements

T Y P E S O F S U P P O R T S E R V I C E S A G R E E M E N T S 1

Part 91 Only: The aircraft owner, or an entity that dry leases
the aircraft from the owner, operates the aircraft under Fed-
eral Aviation Regulations (“FAR”) Part 91 (non-commercial)
and the aircraft is not also operated by an air carrier under
FAR Part 135. The aircraft owner, or the dry lessee, enters
into an agreement with a third party to provide support ser-
vices (e.g., flight crew, maintenance, scheduling, etc.) to the
owner or dry lessee for their operation of the aircraft.

• FAR Part 91 operations generally do not permit a party
to obtain reimbursement from other parties for their use
of an aircraft with flight crew. FAR § 91.501 provides
aircraft owners some limited exceptions to this gen-
eral rule, including time sharing, interchange and joint
ownership arrangements. If one of these arrangements
is contemplated, refer to the applicable NBAA guideline
below that discusses this specific type of agreement.

Part 91 and 135: The aircraft owner, or an entity that dry
leases the aircraft from the owner, operates the aircraft
under FAR Part 91 (non-commercial) and the aircraft is also
operated by a licensed air carrier under FAR Part 135 (com-
mercial) for other passenger- and cargo-carrying flights. The
air carrier also provides support services to the owner or dry
lessee for the operation of the aircraft by the owner or dry
lessee under FAR Part 91.

• Contracting to allow the aircraft to be placed on an air
carrier’s FAR Part 135 charter certificate allows the
air carrier to exercise operational control over certain

¹ Previous versions of these Guidelines have referred to these types
of agreements as Aircraft Management Agreements.

A IRCR A F T OPER AT ING A ND L E ASING GUIDE
Feb. 5, 2016

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flights and provide revenue-generating charter flights
to the air carrier’s customers. Generally the air carrier
pays the owner, or the dry lessee of the aircraft, either
a fixed fee or a percentage of the charter revenue for
this use, which helps to offset some of the fixed costs
associated with owning the aircraft. In addition, there
may be positive tax implications or other reasons for
the aircraft to be engaged in charter activity.

Part 135 Only: The aircraft is operated exclusively by the
air carrier under FAR Part 135 for passenger- and cargo-
carrying flights.

T E R M S A N D C O N D I T I O N S
F O R S U P P O R T S E R V I C E S A G R E E M E N T S

Identity of the Parties:

• Include each party’s name and address and, if the
party is not acting in an individual capacity, its place
of incorporation or organization. Generally there is a
“Provider,” which provides the support services, and a
“Customer,” which may be the aircraft owner or a dry
lessee of the aircraft. A Customer may also be referred
to in the agreement as an owner, client, operator,
lessee or lessor, depending on the circumstances of
the structure. The Provider must be an air carrier if the
support services agreement calls for the aircraft to be
operated under Part 135.

• Ensure that the parties understand the different regula-
tory and tax consequences of their choice of entity.

• Ensure that the correct entity is listed as the Customer.
If the aircraft owner is dry leasing the aircraft to a les-
see who will conduct Part 91 operations, that lessee
may be the proper party to the support services agree-
ment instead of the aircraft owner.

Recitals:

• The “Whereas” clauses at the beginning of the support
services agreement are traditionally used to describe
what each party brings to the deal and its intention.

• The “Whereas” clauses, as well as the remainder of
the support services agreement, should emphasize
that the Provider is simply providing aircraft services
and not commercial air transportation to the Customer.
There can be substantial adverse FAA and IRS conse-
quences if the Provider is determined to be providing
commercial transportation services to the Customer,
as opposed to services in support of the Customer’s
operation of the aircraft and preservation of the value
of the aircraft.

• Include a description of the aircraft by make, model and
serial number of the airframe and engine(s) as well as
the aircraft’s FAA registration number.

Subject Matter/Terms: Describe what is being provided
by whom and to whom, on what basis and for how long
(e.g., the third party support services provider is providing
certain services to the aircraft owner or dry lessee of the
aircraft for the period defined in the support services agree-
ment).

Provider Support Services: Each of the support services
to be provided should be noted in the support services
agreement. The Provider may provide some or all of the
following services:

• Flight Crew

• Employment, training and administration of the
flight personnel.

• Delineate the rights of both the Provider and
the Customer for hiring, reviewing and assign-
ing flight personnel to the different types of
flights.

• Specify experience and training requirements.

• Indicate whether or not the personnel are
exclusively assigned to the Customer’s aircraft
and what procedures are used for assigning
substitute crew members.

Note: If the Provider will operate the aircraft under Part
135, the Provider must have the authority to select and as-
sign flight crew to those flights in its sole discretion. If the
Customer will operate the aircraft under Part 91, the Cus-
tomer should also have the authority to select and assign
flight crew to those flights in its sole discretion and should
acknowledge that the flight crew members are the Cus-
tomer’s agents during those Part 91 flights. How flight crew
is addressed in the support services agreement will impact
how the relationship is viewed for the purposes of Federal
Excise Tax (“FET”).

• Maintenance and Authorizations.

• Employment, training and administration of the
maintenance personnel.

• Delineate the rights of both the Provider and
the Customer for hiring and reviewing mainte-
nance personnel.

• Specify experience and training requirements.

• Indicate whether or not the personnel are
exclusively assigned to the Customer’s aircraft
and what procedures are used for assigning
substitute maintenance personnel.

• If the support services agreement relates to
an aircraft operated under both Part 91 and
135, the procedures relating to maintenance
control should be addressed.

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• Enrollment of the aircraft in an FAA-approved
inspection program.

• Responsibility for obtaining and administering any
necessary Letters of Authorization for an FAA-
approved Minimum Equipment List, RVSM, MNPS
and other authorizations.

• Responsibility for proper maintenance of aircraft
records and for providing access to those records
to the appropriate parties.

• Aircraft Insurance – Support services agreements may
require that the Provider obtain the liability and physi-
cal damage (hull) insurance coverage on the aircraft
by adding the aircraft to the Provider’s fleet insurance
policy.

• Hangar – The Customer may use hangar space pro-
vided by the Provider.

• Recordkeeping – With regard to aircraft recordkeeping,
budgeting and reporting, indicate the types of reports
the Customer will receive.

• Scheduling – Generally the Provider will administer the
schedule for the aircraft and flight crew, however the
Customer will have input and some control. The FAA
operational control requirements relating to scheduling
should be balanced with goals relating to FET.

Economics: Specify how the Provider is compensated for
its services and how aircraft-related expenses are handled.

• The FAA prohibits the Provider from franchising out its
charter certificate, as this is viewed as an indicator of
a loss of operational control. Any fixed fee the Pro-
vider receives should be specifically related to support
services being provided under the support services
agreement, ideally asset preservation services.

• The Customer can directly pay or reimburse the Pro-
vider for aircraft expenses.

“Operational Control” and “Possession, Command,
and Control”:

• FAA Operational Control. The support services agree-
ment should clearly identify each type of flight contem-
plated and which party is in operational control: Cus-
tomer Part 91 (Customer), Provider Part 135 (Provider)
and Provider Part 91 (Provider). The support services
agreement should also contain a section where each
party acknowledges the responsibilities associated
with operational control. The parties should also
consider the process of communicating to the flight
crew which entity has operational control for each
flight.

Note: The Provider may NOT exercise operational control of
a passenger- or cargo-carrying flight under FAR Part 91 for

compensation or hire, which would include any such flight
for the Customer under Part 91. If the Customer wants its
flights to be operated under Part 91, the Customer must
be eligible and willing to exercise operational control of that
flight. The Customer is not eligible to exercise operational
control of a passenger- or cargo-carrying Part 91 flight if the
Customer is a “sole purpose flight department company”
(i.e., the Customer’s primary business is interpreted by the
FAA as providing transportation by air, in which case the
Customer must get an air carrier or operating certificate).

• IRS Possession, Command, and Control/Agency for
FET Purposes – Commercial air transportation is
subject to the 7.5 percent, plus segment fees, FET.
While the FAA deems all Part 91 flights to be non-
commercial, the IRS does not. The IRS looks at which
party has “possession, command, and control” of the
aircraft on a flight-by-flight basis and the nature of the
provision of the services by the Provider. Factors such
as who employs and/or controls the pilots, who con-
trols the scheduling and availability of the aircraft and
who procures the aircraft maintenance and insurance,
are all relevant2. The goal of characterizing the arrange-
ment as non-commercial for IRS purposes should be
balanced with the FAA requirements relating to opera-
tional control.

Taxes:

• Federal Excise Tax – The 7.5 percent, plus segment
fees, FET on commercial air transportation imposed
under Internal Revenue Code § 4261 is generally ap-
plicable to all Part 135 flights3 and may be applicable
to certain Part 91 flights4. Responsibilities for collection
and remittance should be addressed.

• State and Local Taxes and Fees – The Customer is typi-
cally responsible for paying the appropriate state taxes
such as: state sales and use taxes, aircraft registration
fees and local personal property taxes. State sales and
use tax may apply to the support services agreement.

Insurance and Risk Allocation:

• Insurance – State which party will provide liability and
physical damage (hull) insurance on the aircraft. State
the amounts of insurance to be carried, along with any

² The application of FET with respect to aircraft support services
arrangements is an area of tax policy discussion and enforcement
concern. See www.nbaa.org/taxes/federal/fet/ for more informa-
tion.
³ FET is not applicable to Part 135 flights when a specific exemp-
tion applies such as small non-jet aircraft not on an established line.
See the NBAA Federal Excise Taxes Guide at www.nbaa.org/admin/
taxes/federal/fet/2015-federal-excise-tax-guide.pdf for more informa-
tion.
4 FET is generally applicable to certain Part 91 flights where the
aircraft is leased with crew such as time sharing, interchange and
demonstration flights. See the NBAA Federal Excise Taxes Guide
at www.nbaa.org/admin/taxes/federal/fet/2015-federal-excise-tax-
guide.pdf for more information.

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other required insurance provisions. Address whether
other types of insurance will be required (e.g., hangar-
keepers liability coverage). (See “Insurance Consider-
ations – Support Services Agreements” section below
for additional information.)

• Indemnification – Address any mutually agreed upon
indemnifications in the support services agreement.
Generally support services agreements provide for a
mutual indemnification with certain exclusions. The
parties will want to determine the extent to which any
indemnification language in the support services agree-
ment will be covered by the insurance policy.

Note: Ensure that the indemnification clause does not
violate FAA operational control requirements by shifting the
primary responsibility and liability associated with a flight to
a party that is not in operational control.

• Limitation of Liability – Providers generally seek to
include certain limitations of liability in support services
agreements (e.g., for certain direct damage to the
aircraft and indirect, consequential, punitive and special
damages), which can be one of the most highly negoti-
ated portions of the support services agreement.

Miscellaneous Provisions: Support services agreements
may include some or all of these provisions:

• Notices.

• Further assurances/duty to cooperate.

• Assignment.

• Construction of terms/choice of law/forum selection.

• Severability.

• Force Majeure.

• Compliance with laws.

• Term and termination.

• Confidentiality.

• Default and breach.

• Counterparts.

• Subrogation where the aircraft is subject to financing
agreements.

FAR Part 135 Specific Provisions: In addition to the
terms noted above, if the aircraft is to be operated by the
Provider under FAR Part 135, then the following should be
addressed:

• Provider Responsibilities.

• Performing the conformity inspection and obtain-
ing the necessary certifications and approvals to
operate the aircraft under FAR Part 135. The

Customer normally pays for the inspection and any
repair costs.

• Providing the Customer with notice and the option
to consent to the Provider’s use of the Aircraft.

• Supervising training, certification, checking and
other matters for Part 135 operations for the flight
and maintenance crew.

• Advertising and billing relating to charter flights
and collecting and remitting FET relating to all Part
135 flights.

• Customer Responsibilities.

• Making the aircraft available for certification and
training flights.

• Paying the cost of any aircraft modifications that
may be required to qualify the aircraft for certifica-
tion under FAR Part 135.

• Additional Considerations.

• Payment to the Customer for lease/rental/use of
the aircraft by the Provider for Part 135 flights.
This is normally either a percentage of the charter
revenue or a fixed fee per hour.

• Allocation of risk of non-payment by the Provider’s
charter customers on the various types of Part 135
flights.

I N S U R A N C E C O N S I D E R AT I O N S – S U P P O R T
S E R V I C E S A G R E E M E N T S

Who is Providing the Policy for the Aircraft?: An insur-
ance policy for the aircraft can be obtained either by the
aircraft owner/dry lessor or the Provider. When the Provider
will be using the aircraft for operations under FAR Part 135,
it is customary for the aircraft to be added to the Provider’s
fleet insurance policy. Regardless of who obtains the
insurance policy, the party obtaining the policy should be
required to provide a Certificate of Insurance to the other
party upon execution of the support services agreement
and at each renewal of the policy. The party obtaining the
policy should also be required to provide a certified copy of
the relevant portions of the policy (including all necessary
endorsements) to the other party as soon as possible after
execution of the support services agreement and at each
renewal of the policy.

Liability and Physical Damage (Hull) Insurance: The
support services agreement should state the minimum
liability and physical damage (hull) coverage amounts to be
carried on the policy insuring the aircraft, including whether
or not war risks liability and hull insurance is required. If
there is a deductible, the agreement should address which
party is responsible for paying it. The parties will want the
policy to have an adequate liability coverage limit to ensure

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a sufficient amount if the coverage has to be shared by the
parties. If international travel is contemplated, the parties
will want adequate liability coverage to comply with interna-
tional requirements (e.g., the EU).

Other Insurance: At a minimum, the following types of
other insurance should be addressed: workers compen-
sation, employer’s liability insurance and hangarkeepers
liability coverage.

Customer:

• If the insurance is obtained by adding the aircraft onto
the Provider’s fleet insurance policy, the Customer will
want the following:

• To be a Named Insured on the policy. If the Cus-
tomer is a dry lessee, the registered owner will
also want to be named as an insured for both
liability and physical damage (hull) coverage.

• Coverage for all uses of the aircraft by both the
Provider and the Customer.

• With respect to liability coverage, an invalidation
of interest clause in the Customer’s favor as to the
Provider’s acts or omissions.

• To be named as a loss payee with respect to physi-
cal damage (hull) coverage. If the Customer is a
dry lessee, typically the owner will be named as a
loss payee.

• A breach of warranty endorsement with respect to
physical damage (hull) coverage as to the Pro-
vider’s acts or omissions. If the Customer is a dry
lessee, the registered owner will also want to have
a breach of warranty endorsement.

• If the aircraft is financed, any endorsements (e.g.,
loss payee, breach of warranty) required by the
financing company.

• A severability of interest provision in the policy.

• To be provided with prior written notice by the
insurer in the event of cancellation of, or adverse
material change in, the policy.

• If the Customer deems the limit of liability coverage
carried on the Provider’s policy to be insufficient to
protect the interests of both the Customer and the Pro-
vider, the Customer may want to ask for a higher limit
of liability coverage for itself only or, if such higher limit
is not available, consider purchasing excess aircraft
liability coverage from the Provider’s insurer.

Provider:

• If the insurance is provided by adding the aircraft onto
the Provider’s fleet insurance policy, the Provider will
want the following:

• Coverage for all uses of the aircraft by both the
Provider and the Customer.

• With respect to liability coverage, an invalidation
of interest clause in the Provider’s favor as to the
Customer’s acts or omissions.

Note: Prior to signing a support services agreement, the
party who is to obtain the insurance should submit a copy
of the agreement to its insurance provider and request that
the insurer confirm that the contemplated agreement and
its insurance provisions will be covered under the policy.

Guidelines for Dry Lease Agreements

E L I G I B I L I T Y C H E C K L I S T

Dry Lease Defined: An arrangement whereby an aircraft is
leased to a lessee without crew (i.e., no pilot in command,
second in command, flight attendant, etc.) and the les-
see exercises operational control of the aircraft. (See FAA
Advisory Circular AC No. 9l-37A for additional discussion of
dry leases.)

Without Crew: The aircraft and the crew absolutely must
be separate and distinct. This means that the aircraft lessor
should not employ, or own/control the entity that employs,
the crew members for the lessee’s flights. The aircraft
lessor may not direct or require the lessee to use certain
crew members, but the lessor may impose certain gen-
eral requirements (e.g., that any pilot used has all required
FAA certificates and experience for the type of flights
contemplated and meets the minimum requirements in
the insurance policy). Situations involving multiple lessees
of an aircraft using the same source of crew should be
approached with caution, as the FAA has routinely stated
that it can disregard what is said in the leases and look at
the totality of the circumstances to determine whether the
leases are truly “dry.”

T E R M S A N D C O N D I T I O N S F O R D RY
L E A S E A G R E E M E N T S

Identity of the Parties: Include each party’s name and
address and, if the party is not acting in an individual capac-
ity, the party’s place of incorporation or organization. The
parties are generally identified as the “lessor” (i.e., the
entity that is providing the aircraft) and the “lessee” (i.e.,
the entity that is receiving use of the aircraft).

Recitals:

• The “Whereas” clauses at the beginning of the dry
lease are traditionally used to describe what each party
brings to the deal and its intention.

• Include a description of the leased aircraft by make,
model and serial number of the airframe and engine(s)
as well as the aircraft’s FAA registration number.

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Subject Matter/Terms: Describe what is being provided
by whom and to whom, on what basis and for how long
(e.g., the lessor is dry leasing its aircraft to the lessee, on an
exclusive or non-exclusive basis, for the period defined in
the lease).

Consideration:

• Rent or Lease Payments – Terms of the rent or lease
payments may vary considerably. The payments may
be a fixed amount per month/quarter/year or specified
on an hourly basis.

• Other Payments – The parties may attempt to treat
other payments/reimbursements as something other
than rent, but beware that state taxing authorities may
not agree with this approach and may tax all amounts
paid by the lessee to the lessor.

Expenses: The lessee must pay for its own crew members
directly, but which party pays for all other aircraft expenses
is subject to negotiation.

Taxes:

• Federal Excise Tax – Ideally, dry leases are subject to
fuel taxes rather than the 7.5 percent, plus segment
fees, Federal Excise Tax (“FET”) on commercial air
transportation imposed under Internal Revenue Code
§ 4261. However, if the lessor is found by the IRS to
have retained “possession, command and control” of
the aircraft, the lease payments may be subject to FET.

• State and Local Sales/Use/Excise Taxes – In states and
municipalities that have sales/use or excise taxes, dry
leases of aircraft are typically viewed as sales subject
to the tax unless otherwise exempt. The lessor
typically has the statutory responsibility to collect the
tax from the lessee and remit it to the appropriate tax-
ing authority. Sales tax is typically due on all amounts
paid under a lease regardless of how they are charac-
terized.

• Personal Property Taxes/Ad Valorem Taxes/State
Aircraft Registration Fees – Aircraft are typically sub-
ject to personal property or ad valorem tax unless
otherwise exempt. In some cases, aircraft are assigned
special rates or are subject to a state aircraft registra-
tion requirement similar to motor vehicles instead of
the normal personal property tax. The lessor is typically
responsible for paying personal property/ad valorem/
state registration tax or fee.

Delivery/Return: Specify the time and place of delivery
and return of the aircraft to the lessor. With exclusive dry
leases, typically the aircraft is not returned until the end
of the lease term and there may be return conditions with
which the aircraft must conform. These return conditions
can be very specific and the subject of a great deal of
negotiation. With non-exclusive dry leases, the aircraft may

be returned to the lessor after each flight or series of flights
and then redelivered to the lessee prior to the next flight.
The process for this return and redelivery should be ad-
dressed in the lease. Typically the condition of the aircraft at
return is also addressed (e.g., in as good condition as when
it was delivered, normal wear and tear excepted).

Operational Control: Identify the lessee as the party
exercising operational control (as defined in FAR § 1.1) of
each of its flights and include a statement in which the
lessee acknowledges its responsibility and potential liability
associated with exercising operational control. If the aircraft
is used by both the lessor and the lessee or by more than
one lessee, the parties should also consider the process of
communicating to the flight crew which entity has opera-
tional control for each flight.

Representations and Warranties Regarding the Air-
craft: Specify the condition of the aircraft at the lease’s
commencement and what warranties and representations
are made by the lessor to the lessee, if any.

Title to the Aircraft:

• Include a statement regarding the fact that title to, and
ownership of, the aircraft will remain with the regis-
tered owner. If this is a sublease, name the registered
owner and include a representation by the lessor that
it has a dry lease in place with the registered owner
allowing it to sublease the aircraft to the lessee.

• The lessee should represent and …