VLJ Expo Part II: Getting an Aircraft? First Call a Lawyer

Aircraft ownership, it is clear, is not like buying and insuring a car. Consequently, it is no surprise that the collective wisdom of the speakers at the Second Annual VLJ Expo said before a contract is even signed, hiring a team of aviation professionals is of paramount importance to avoiding many of the...

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Aircraft ownership, it is clear, is not like buying and insuring a car. Consequently, it is no surprise that the collective wisdom of the speakers at the Second Annual VLJ Expo said before a contract is even signed, hiring a team of aviation professionals is of paramount importance to avoiding many of the common mistakes first time, and even some veteran, aviators make.
Certainly, avoiding the pitfalls is what 600+attendees at last year’s expo indicated they wanted to hear about along with how they can minimize ownership costs through shared ownership or operating it as part of a management firm that hires aircraft out in Part 135 operations.
Consequently, Jetpool President Ryan Stone gathered a lawyer, an insurance broker, an underwriter, a financier, an aircraft tax specialist and an aircraft management firm – Jetpool, of course – to provide this year’s attendees with VLJ Ownership 101. The first part of this series was covered in last week’s issue when Stone provided a peek at some of the questions facing buyers. Related Story While this week’s issue discusses the legal implications of ownership, courtesy of Andrew Riola, the principal behind Riola Law, subsequent issues will cover the rest of the topics.
The message was very clear during the two-day expo that first you hire a lawyer, then an insurer who hires and underwriter. Then you hire a tax man to tell you how to minimize your taxes and then a financier to help you pay for it all. If that doesn’t sound daunting, said the collection of professionals, then you don’t want to see what happens if you don’t hire them and try flying solo without their expertise.
Andrew Riola provided a peak at some of the implications of aircraft ownership and why so many professionals were necessary. Riola has so much experience working through the vagaries of aircraft ownership he has boiled it all down to a checklist, similar to those he uses when he flies. The checklist, he said, unravels the mysteries of VLJ selection, financing, the FAA, insurance, management, maintenance
“Checklists are made for a challenge and response,” he said, “The challenge on the VLJ owner checklist’s is to develop a simplified approach to VLJ ownership and the response is a satisfied customer. There is no cookie cutter approach, however. The selection process is based on your user profile. Your user profile is the basis of your criteria for speed, range and seats. What is the flight purpose of the aircraft?”
Questions include who will fly this jet? “Is the owner a pilot,” he asked. “If so, what is the experience of the pilot? Pilots count their lives in flight hours whereas the rest of civilization counts their lives in years. The FAA has ruled, if you fly solo in a VLJ you need an ATP, Airline Transport Pilot type rating. Insurance companies may want to see the training the pilot intends to do or whether or not he or she hires a mentor pilot.”
The next questions revolve around certification. “How will we certify the VLJ? What equipment will it have? Do we accept the standard one size fits all baseball cap? Or do we customize to the pilot profile? i.e. do we need an HF Radio, enhanced weather radar, RVSM capabilities? What type of multi function display? Or is the owner more comfortable with the standard flight directors? What about the comm and nav displays? Do we get the extended range option and boosted braking for short field operations? Most importantly, does the honey bucket have privacy?”
Riola ran through the questions related to the FARs, all of which could impact the choice of aircraft.
“The correct selection of the rules that we fly under, the FAR standards that we apply for and are in compliance with will answer also answer other questions,” he said. “Can I fly my jet if I do not have a pilot’s license? Can I rent out my jet for hire? Can I loan it to a friend for a trip to the Super Bowl at no cost? Can I loan out my jet for costs only? Do I want my jet in shared ownership with Jetpool?”
Riola noted that costs also dictate aircraft selection. “The cost question can be broken down into four ownership categories,” he said. “Under the first two, individual owner and shared owner, we can change the name from VLJ to PJ…Personal Jet. The individual owner can be a pilot owner operator or a student pilot owner operator. Shared ownership shares the cost and the time.”
The third ownership category is fleet ownership while the fourth is corporate ownership. “The mantra is,” he said. “The VLJ is a revolution in business travel. There are 5,000 airports in the US that commercial airlines do not serve. Three thousand of these have runways too short for conventional jets but not for the VLJs. Therefore, your travel time is minimal and the competition is marginalized.”
The next consideration, said Riola, is whether or not it should be operated as a business and, if so, what type – an inc, limited liability corporation, general partnership, limited partnership, limited liability partners, professional limited liability corporation, or sole proprietor? Each requires numerous legal decisions. “For added liability protection, place the jet in its own corporation or LLC so that the only asset the corporation or LLC has is the jet,” he advised. “That protects your personal property and your family. How you incorporate will also have tax implications. Incorporating an aircraft and complete liability comes with double taxation. An LLC, does not have the formalities of a corporation but still carriers the liability and flow-through taxation.” He strongly recommended against a general partnership, saying the owners is still liable for what happens for him or herself and others. He also said the first question to ask before entering shared ownership or partnership is what happens if one of the parties leaves. Provisions for this must be set own before hand as to how to buy or sell a partner’s share.
“Limited Partnership is better,” he said, adding an LLP is much better. He also explained that Profesional Limited Liability Corporation is reserved for doctors, lawyers, architects and others who use the aircraft in their professions.

The FARs
In discussing federal regulations he recounted the varying parts that apply. “Part 91 is the most liberal,” said Riola. “It sets the flight rules for general aviation. 91K, a subpart of 91 was originally thought to apply only to fractional jet ownership. But what we are finding now is that 91K is not just for fractional jet ownership but for shared ownership, as well. Part 119, is the forerunner, the basis for larger aircraft rules and jets, and applicable to 121, 125, and 135. Part 121 governs scheduled air carrier service whereas Part 125 is waiver heaven. “If you have one jet seating over 20 you can park your VLJ here. Part 135 governs for hire on demand carriers. So where do you fit?”
The next consideration, said Riola, is taxation. “The force of the FAA is opposed by the force exerted by the IRS,” he said. “The most recent example of this is an Excise Tax – specifically a federal transportation tax of 7.5 percent. The IRS demands a collection of the 7.5 percent federal transportation tax that should only apply to Part 121 – airlines and Part 135 – charter operators, even if the owners have been approved to operate under the General Aviation Rules of Part 91 – not 121 or 135. They are attempting to collect 7.5 percent from part 91 operators, which is basically everyone, even the owners. So if you place your aircraft in an Inc or LLC the IRS will look to collect and that is why you need a tax specialist.
Next Week: Taxes