Closed & Funded Tecnam P2008 MkII
April 13, 2026
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FLYING Finance and Tecnam Aircraft partnership delivers a new P2008 MkII for an airline pilot and his family.
If you are diving into the world of private aviation, you may have heard the terms “dry leasing” and “wet leasing”. In this article, we’re breaking down the meaning behind dry leasing and wet leasing and giving you the lowdown on what they entail and how they differ. Whether you’re a seasoned jetsetter or just dipping your toes into the skies, this crash course in aircraft leasing secrets will benefit you.
Disclaimer: A good rule of thumb before you make any purchases or leases in aviation is to retain a tax consultant and an aviation attorney. This can accidentally go sideways very quickly, and for the price of an hour in your aircraft, you can save yourself a headache, legal fees, or even jail time.
Wet and Dry leasing is commonly confused for “with or without fuel”.
A dry lease transfers the aircraft to a lessee without crew, shifting operational control (and regulatory responsibility) to the lessee. A wet lease provides both aircraft and crew, keeping operational control with the lessor. This distinction determines whether you operate under FAR Part 91 or require Part 135 certification, and has major implications for Federal Excise Tax (FET) liability.
For the owner-pilot, your aircraft is more than a line item, it is a symbol of freedom and a high-stakes tax vehicle. However, in 2026, the line between a "private flight" and an "illegal charter" has never been thinner.
With the restoration of 100% Bonus Depreciation (OBBBA) and aggressive new FAA ramp checks, the way you structure your dry lease determines more than just your tax refund. It determines the safety of your pilot certificate. Whether you are offsetting costs by leasing to a peer or housing your jet in an LLC, understanding who truly has "operational control" is the difference between a smart investment and a seven-figure regulatory disaster.
Under 14 CFR Part 110, §110.2, a wet lease is “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember.”
If you’ve ever chartered an airplane on demand, you’ve entered in to a “wet lease” agreement. There are two major exceptions to this rule. You can fly Part 91 (in layman’s terms, fly it like you own it) under “time sharing” and “interchange agreements.”
“…the lease of an aircraft without any crewmembers… Under a dry lease, the compensation being paid is typically in the form of a rental payment in exchange for the lessee’s own use (whether the lessee is a pilot or a passenger who has hired a pilot) of the equipment being rented, analogous to obtaining a rental car for one’s ground transportation needs.”
Think of it as leasing a car vs. renting. A dry lease is usually best served for pilots or individuals who need to fly an aircraft type occasionally but not frequently. A risk here is that the crew may not be as familiar with that airplane or you will have to contract pilots. Keep in mind there can be nuanced insurance implications on a dry lease as well. Traditionally, a dry lease is executed between an aircraft owner (you) and a part 135 operator (the lessee) where the part 135 operator provides pilots. When you fly in the plane, the aircraft would operate under part 91 (less restrictions.) We’ll break down the financials on that later.
For aircraft owners holding an aircraft in a stand along LLC, a dry lease can generate tax benefits as long as the owner (or usually the owner’s operating company) pays the pilot or crew separately from the lease payment to the LLC for use of the aircraft. The owner or operating company should also pay the fuel distinct from the LLC lease payment. This allows the aircraft LLC to stand alone as a leasing company.
Operational control means “the exercise of authority over initiating, conducting or terminating a flight” (FAR §1.1). The party with operational control bears ultimate responsibility for flight safety and regulatory compliance.
The FAA breaks operational control into three components:
Warning: You cannot contract away operational control through lease language alone. The FAA will examine the “totality of circumstances”—how the arrangement actually operates in practice.
The FAA uses several questions to determine which party truly has operational control:
Pro-Tip: If you answer “the lessor” to most of these questions, you likely have a wet lease regardless of what your contract says.
An exclusive dry lease transfers custody and control of an aircraft to a single lessee for the entire lease term. These arrangements rarely face FAA scrutiny because the lessee clearly operates, maintains, insures, and controls the aircraft.
Common Examples:
Non-exclusive dry leases allow multiple parties to use the same aircraft at different times, with operational control transferring between parties. These arrangements require significantly more documentation and attention to detail.
Red Flags That May Trigger FAA Scrutiny:
Warning: FAA guidance explicitly states that “if an aircraft is on numerous leases, dry or wet, the office should give greater consideration to conducting a ramp inspection, as a large number of leases may indicate that a lessor is attempting to circumvent part 119 requirements.”
For non-exclusive arrangements to survive FAA scrutiny, address:
The single most important factor in classifying a lease as wet or dry is who provides the flight crew. If the lessor provides, requires, or effectively controls the crew selection, the arrangement is a wet lease.
Questions the FAA Will Ask:
There is no absolute prohibition, but the arrangement must demonstrate that the lessee independently selected the crew without lessor direction or control.
Acceptable scenarios include:
The Key Test: Did the lessee “knowledgably and intentionally” select the crew of its own volition, understanding it has assumed responsibility for that selection?
Warning: If the lessor provides a list of “approved” pilots and it’s implied the lessee must choose from that list, the FAA may classify this as a wet lease.
A lessee with operational control can delegate performance of tasks to pilots, management companies, or other parties—but cannot delegate the ultimate responsibility.
Permissible delegations include:
Critical Distinction: The person in operational control need not personally perform every function but must understand they remain responsible for ensuring those functions are properly performed.
Direct Answer: FAR §91.23 truth-in-leasing requirements apply to leases of large aircraft (over 12,500 lbs. MTOW) unless the lessor or lessee is a foreign air carrier or certificate holder under FAR Parts 121, 125, 135, or 141.
Required Elements:
Truth-in-leasing requirements do not apply to small aircraft, but written leases are strongly recommended.
Why Written Leases Matter for Small Aircraft:
While the FAA uses “operational control” to determine regulatory responsibility, the IRS uses “possession, command, and control” to determine FET liability—and these tests can produce different results.
IRS Factors Include:
Warning: A lease classified as a dry lease for FAA purposes may still trigger the 7.5% Franchise & Estate Tax (FET), plus segment fees, if the IRS determines the lessor retained “possession, command, and control.”
Certain Part 91 flights are subject to FET when the aircraft is leased with crew, including time sharing, interchange, and demonstration flights conducted under FAR §91.501.
Pro-Tip: The goal of avoiding FET through dry lease characterization must be balanced against FAA requirements for operational control. Working with both aviation counsel and tax advisors is essential.
Dry leases may trigger:
Warning: While the federal OBBBA (2025) has restored 100% bonus depreciation, many states have moved in the opposite direction for 2026. High-tax jurisdictions like California (under SB 711) and New York have officially “decoupled” from the new federal rules, meaning you must add back the 100% federal deduction and calculate state depreciation using much slower, traditional schedules. Furthermore, be wary of new regional surcharges, such as Washington State’s 10% “Luxury Aircraft Tax” on non-commercial aircraft valued over $500,000. If your dry lease structure doesn’t account for the state where the aircraft is “habitually situated,” you could be looking at a surprise seven-figure tax bill despite your federal compliance.
When multiple parties may operate an aircraft, it’s common, and often preferable, to cover all operations under a single insurance policy to prevent coverage conflicts.
Requirements for Single-Policy Coverage:
Warning: If the policy states that only the lessor (or its management company) operates the aircraft, the lessee appears to be a mere passenger—evidence against effective operational control transfer.
The FAA actively targets “sham” or “devious” dry lease arrangements that disguise commercial operations as private aviation, particularly web-based dry lease advertising and programs that package aircraft with crew through related entities.
Enforcement Consequences:
An entity whose sole function is operating an aircraft for its affiliates is considered a “flight department company” and must obtain commercial certification—it cannot operate under Part 91.
Common Mistake: A company forms an LLC solely to own and operate an aircraft, then provides flights to its parent company while receiving capital contributions to cover costs. The FAA views this as commercial operation requiring Part 135 certification.
Proper Structure: The LLC can dry lease the aircraft to related entities, but each lessee must assume operational control and independently obtain crew.
Many aviation liability policies cover only private aviation flights. Inadvertent commercial operations through improper leasing may void insurance coverage entirely.
For Dry Lease Structuring
☐ Written Agreement: Signed by both parties (required for large aircraft; recommended for all)
☐ Operational Control Acknowledgment: Lessee explicitly accepts authority and responsibility
☐ Crew Independence: Lessee selects and contracts for crew without lessor involvement
☐ Delivery/Redelivery Documentation: Clear process for transferring control between parties
☐ Insurance Coordination: Insurer acknowledges all operations and operators
☐ LOAs in Lessee’s Name: Required Letters of Authorization issued to the party with operational control
☐ Truth-in-Leasing Compliance: If applicable (>12,500 lbs. MTOW), all filing and notification requirements met
☐ Tax Advisor Review: Structure analyzed for FET and state tax implications
Documentation to MaintainExecuted lease agreementsCrew services agreements (separate from aircraft lease)Certificates of delivery/redelivery for each use periodInsurance certificates showing all parties as named insuredsFAA notification records (if truth-in-leasing applies)Maintenance records accessible to party with operational control
The distinction between wet and dry leasing is not merely academic. It determines your regulatory obligations, potential liability, and tax treatment. In 2026’s enforcement environment, the FAA is actively investigating leasing arrangements that don’t match their documentation.
The safest approach combines proper legal structure with consistent operational practice. Your lease documents must accurately reflect how the arrangement actually works, and every party must understand their role and responsibilities.
Final Warning: If your arrangement involves the lessor providing any form of crew, scheduling assistance, or operational support beyond asset preservation, consult with aviation counsel before proceeding. The consequences of improper classification, regulatory enforcement, insurance gaps, and tax liability, far exceed the cost of proper structuring.
FLYING Finance and Tecnam Aircraft partnership delivers a new P2008 MkII for an airline pilot and his family.
Understanding a common term and the common misconceptions surrounding it.
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