If you or your client is thinking about owning an aircraft in a limited liability company or other entity, think again. While an individual aircraft owner can operate an aircraft for personal use, this is not the case when that same aircraft is owned by an LLC, even one that is disregarded for tax purposes. The Federal Aviation Administration has consistently viewed these entities as "flight department companies," which require commercial registration. The following is from a Legal Interpretation to James W. Dymond from Rebecca MacPherson, Assistant Chief Counsel, Regulations Division, dated March 9, 2007:
A company whose sole purpose is transportation by air and receives compensation (amounts paid by the Client needed to pay the costs of owning and operating the aircraft) must obtain certification under Part 119… Section 91.501(b)(4) is drafted to permit an individual owner, not a company, to operate an airplane for his own personal transportation and guests without charge. Thus section 91.501(b)(4) cannot be used by a flight department company.Jeff Wieand, an expert in this area, explains as follows:
Unfortunately, few business lawyers are well versed in arcane FAA rules and regulations, especially ones as counterintuitive as the flight department company trap. Suppose I buy a business jet and own and operate it in my own name. Since I’m flying myself around in my own aircraft, the FAA says I can follow the non-commercial Part 91 Federal Aviation Regulations. Now suppose I create a wholly owned LLC to own and operate my jet, the company’s only business. I may regard the LLC as a kind of alter ego; after all, I’m the sole owner, and it’s doing only what I could do myself—operating the aircraft. But the FAA doesn’t look at it that way. It considers my LLC a completely separate legal entity. Now I’m not flying myself around anymore; the LLC is flying me around. Put differently, my LLC is providing air transportation to a different person—me. And providing air transportation to others for compensation or hire requires, according to the FAA, a commercial certificate, which the LLC doesn’t have.As this runs somewhat contrary to conventional asset protection wisdom, it is important to be familiar with these and other FAA regulations when dealing with aircraft.