Flying an LLC owned aircraft

FL350

FL350

Well-Known Member
I have an opportunity to fly part 91 as a pilot in an aircraft that is owned by an LLC, just for the purpose of owning the aircraft. The LLC name is the same as the tail number of the plane, so it's not out doing other business purposes.

How does it legally work to get compensation for this since it will be operated part 91? I've read some articles online that have really confused the situation.

I will be getting paid by a separate company than the LLC, they have the same owner, and that is who uses the aircraft.

Appreciate any simple explanation of how it all works without being considered 135
 
My (arm-chair lawyer) view is that if the flight department LLC only has a single contract that is between it and the holding company LLC, it is executing private carriage vice holding out as defined in AC 120-12A and thus part 91 applies.
 
qflyer said:
I love how everyone jumps into the "Ask an Aviation Attorney" forum like they're an aviation attorney. Isn't this supposed to be like the ask an AME forum, where we generally stay quiet and let the expert answer?
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Operative words...

@FL350, great question. I read the article you posted and would like to tack my situation on to yours; My company formed an "Ltd" company whose sole purpose is to operate, under Part 91, two aircraft owned under the same "LLC" (that was formed to purchase the aircraft). Mine is the same question as the OP.
 
Okay, I just read the article posted by FL350 and in a word, it is not wrong... but, the thing to remember here is that when a corporation or LLC (or similar structure is set up) it becomes a separate and distinct legal entity (a new person in a sense). Therefore, the "nature of the operation" can be also be changed. The "holding out" test in AC120-12A has been variously interpreted and has a number of potential pitfalls. Consider the following scenario: Company A buys an airplane (and employs the pilot) and contracts exclusively with company B to fly Company B people around (no advertising or other evidence of "holding out" by company B). But, then it turns out that Company B is actually making transportation available, one way or another, to anyone who comes along. Clearly, one company or the other is going to be in violation. And, even though Company A was not "holding out" (and the pilot was working for Company A) you can rest assured that the pilot will take the fall - perhaps along with others. So, how does this relate to a more legitimate corporate scenario. It depends. How many other affiliated companies are riding along on the airplane? How is the cost of operating the aircraft allocated among those other "affiliates?" Are they sent a bill? How affiliated are they (who owns each company and in what form)? What is the primary business of the holding company? ...the primary company? ...the affiliates? What about vendors or contractors who might ride along? Do they participate in the expense of the airplane? Are they working for or with the primary company or an affiliate? This is only a sample of some of the questions and issues that can arise when the FAA or a plaintiff's attorney comes knocking. The fact is, they rarely do unless there is some sort of complaint or event. But that doesn't mean you shouldn't take the consequences seriously. As the article pointed out, it is possible to do it right and still maintain a level of liability protection but because of the FAR/FAA issues involved it is not always as easy as the corporate "accountant" or non aviation lawyer might think. Most likely, it is going to be the pilot who will have to question the legality of the operation (and, sometimes, part of the challenge is that corporate doesn't want to hear about it). One solution - as to the FAA piece of the puzzle - is to have the details of your particular situation evaluated BEFORE YOU BEGIN OPERATION by the FAA themselves. The Advisory Circular suggests:

"Persons who have questions concerning intended operation of their aircraft are encouraged to discuss their proposed operation with the Regional Counsel of the FAA region in which it intends to establish its principal
business office. Such early interviews will materially assist the applicant in avoiding many of the "pitfalls" which could result in illegal common carriage operations."

Taking this path for an existing operation, however, could open a can of worms you can't close. Another solution is to engage an attorney with aviation and business experience to evaluate your operation and, if necessary, suggest necessary modifications and/or restructuring.

Sorry this wasn't the simple answer you were looking for but, hey, it's aviation - nothing's simple! Good luck.
 
follow up...
Let's say I have a company aircraft that we use to move our employees around. I want to impress some clients, so I move them around once in a while. I don't bill them, but it's clearly used as a perk...one that obviously "greases the wheels" of commerce.

We appreciate deeply your willingness to educate and keep us out of trouble.
 
This is where it can be easy to get in trouble... and, keep in mind that each situation will be very fact specific. The information I provide here is always subject to official interpretation (by the FAA) and often evolves over time. So, the best way to know for sure - or nearly for sure - is to inquire as I indicated above, before you embark on a particular flight. That said, I believe that if the flight is directly in support of your primary business - such as showing customers your manufacturing facilities you are probably okay. On the other hand, if you take customers to a football game the question can be a bit more complicated. If the purpose of the flight is to go to the football game to entertain customers, solicit business, plan projects, etc. and you accompany them to the football game, I think the FAA is likely to consider that a legitimate 91 use of the airplane (although this is by no means a slam dunk - remember, fact specific). On the other hand, if the company sends the airplane to pick up the customers and take them to the game (and does not accompany them to the game) you may find it more difficult to justify the operation as falling under part 91 (the primary purpose of the flight may be considered too remote from a legitimate business purpose and the FAA may consider any future business as a quid pro quo - compensation for the flight). As to the holding out part - well, how many customers do you have. Again, no simple answers. I haven't had time to go back and review the FAA's legal interpretations on this issue recently so, again, the best way to stay out of trouble is to get an official opinion before you start making any flights that seem questionable. As to keeping you out of trouble, like Smokey the Bear says, "Only you can prevent forest fires!"
 
PilotDefenseAttorney said:
Okay, I just read the article posted by FL350 and in a word, it is not wrong... but, the thing to remember here is that when a corporation or LLC (or similar structure is set up) it becomes a separate and distinct legal entity (a new person in a sense). .
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Great post! There is even FAA Legal opinions on the subject of "Flight Departments" and the interplay of Parts 91 and 119/135. A pretty good starting point that shows some of the complexity of what transactional aviation attorneys have to deal with is the 2007 Dymond letter. The simple (and simplistic) bottom line is that when Company A sets up Company B to provide Company A with transportation services, it is one "person" providing transportation services for compensation to another. That always triggers a Part 119 inquiry.

Another key point is that "private carriage" does not mean you are under Part 91. Part 135 covers private carriage transportation. There's even a "private carriage" part 135 certificate. Here's an example of one. The FSIMS chapter that deals with it is here.

For @FL350 one of the keys in your post is that
FL350 said:
I will be getting paid by a separate company than the LLC, they have the same owner, and that is who uses the aircraft.
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Generally (keeping PilotDefenseAttorney's admonition about not applying general information to a specific situation in mind) here's the way it's supposed to work. OwnerCo (which owns the airplane) leases the airplane to TravelCo (the one that uses the airplane in flight). Under the lease agreement, TravelCo always has what the FAA refers to as "operational control" - when to fly, who to fly, where to fly and who the pilots will be. The pilot is employed by TravelCo, not by OwnerCo. The form of lease is what the FAA refers to as "dry lease" - simplistically, leasing an aircraft without a pilot. The leases are long and complex in an attempt to allow TravelCo as much leeway as possible, protect OwnerCo's interest as an owner, and make sure the aircraft is always operated under Part 91.

It's the "operational control" over the airplane that TravelCo has that keeps the flights under Part 91 (without getting into the completely separate issue of who the passengers are for what reason).

If that sounds complicated, it is. And most pilots are not in a position to understand the lease agreements and make the determination on every level. So, unless the pilot is willing to take the step of asking for the lease agreements to be reviewed by his or her own attorney, the pilot is pretty much relying on the fact that OwnerCo and FlightCo have a lot of skin in the game and don't want to face the potential monetary penalties of violating the FAR either.
 
@MidlifeFlyer and @PilotDefenseAttorney thank you very much for your input! This was very helpful. My plan is to suggest OwnerCo (owner llc of airplane) lease airplane to TravelCo (traveling company) on a Dry Lease basis. Thanks again for the help, and I like the idea of talking with the FAA to make sure they approve of the idea before it gets started.
 
FL350 said:
@MidlifeFlyer and @PilotDefenseAttorney thank you very much for your input! This was very helpful. My plan is to suggest OwnerCo (owner llc of airplane) lease airplane to TravelCo (traveling company) on a Dry Lease basis. Thanks again for the help, and I like the idea of talking with the FAA to make sure they approve of the idea before it gets started.
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Wrong result of reading our posts:

A far better plan is to suggest the principals of the related companies talk to a qualified aviation attorney about the best way to go about this. That is, if they haven't already. The very fact thay are separating ownership from use- typicaly to aleviate certan liability concerns and possible some tax ones - suggests they have considered at least some of the technicalities.
 
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MidlifeFlyer said:
If that sounds complicated, it is. And most pilots are not in a position to understand the lease agreements and make the determination on every level. So, unless the pilot is willing to take the step of asking for the lease agreements to be reviewed by his or her own attorney, the pilot is pretty much relying on the fact that OwnerCo and FlightCo have a lot of skin in the game and don't want to face the potential monetary penalties of violating the FAR either.
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Do you know of any cases where the pilot was caught up in enforcement action where the agreements/contracts between OwnerCo and FlightCo were not executed properly?
 
mojo6911 said:
Do you know of any cases where the pilot was caught up in enforcement action where the agreements/contracts between OwnerCo and FlightCo were not executed properly?
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Great question. I don't. But that doesn't mean they don't exist. I suspect, but can't confirm, this is an area where the pilot would need to be an active participant in the set up and continue to participate after a warning that the operation is in violation of the regs before the FAA would exercise its discretion to take certificate action.
 
On a related subject, just last week the Chief Counsel issued another opinion on fight management companies. In this one, the company bought an airplane and sold 1/8 shares to other companies (in this case unrelated) along with mandatory pilot services. IOW, the 1/8 owners had to use the management company's pilots. Chief Counsel said must have a 135 certificate. PDF: http://goo.gl/7oNXXa
 
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