Part 135 Management Agreement

The information contained in this warning is intended for education and the knowledge of our readers. It is not intended as the only source of information in the analysis and resolution of a legal problem and should not be used as a single source of information. In addition, the laws of different jurisdictions are different and constantly evolving. If you have any specific questions about a particular situation, please contact a competent lawyer. An owner often benefits from the fact that he hires his aircraft in the insurance of the fleet of a charter manager. The administrator may have higher liability limits and lower premiums than the owner alone could receive. However, it is essential that the administrative agreement and the effective insurance statements that add the owner to the policy fully cover the owner and all related businesses operating the aircraft and meet the requirements of a financier who has an interest in the safety of the aircraft. As noted above, the owner or related business will often, under a lease agreement, be in the „operational control” of private flights for the business operated under FAR Part 91. However, it is not uncommon for the owner and/or related business to be registered as „additional insured” and to be insured solely for the sole responsibility of the operation of the aircraft by the „designated insured” (i.e. the charter manager).

Therefore, the owner cannot be insured for the operation of the aircraft. There are other safeguards that an insurance broker can add – free of charge – to the insurance confirmation and certificate to ensure that the business is fully covered by this policy. Depending on the specifics of the agreement, a charter management agreement can have tax consequences and your accountant or tax advisor must be part of the planning. In some countries, for example, majority use in chartering may qualify the aircraft as an exemption from sales and user fees. However, federal income tax issues related to charter management agreements are complex and uncertain. For example, the IRS may take the position that a charter management agreement should be identified as a lease from the aircraft to the manager, instead of services provided by the manager to the owner. The use of charter may have an impact on the applicable depreciation method, but a third-party charter can be useful where there is significant personal use of aircraft. If the owner or his affiliates charter the aircraft, this will trigger, among other things, a 7.5 per cent excise duty on air travel on charter payments, which does not apply to most FAR Part 91 flights. In recent years, the IRS has insisted on collecting FET for virtually all payments to a charter manager in some common charter management scenarios.

(The IRS considers that, regardless of how the FAA views „operational control,” a company that provides an aircraft and crew to another company to compensate is subject to taxable air travel.) Although this IRS policy is currently in decline and rejected by industry groups, owners should consider these potential tax effects. When reviewing an aviation management agreement, aircraft owners must carefully analyze both the type of charter management agreement and the specific charter manager who will operate the aircraft.