NAFA member Nel Stubbs, Principal of Stubbs Aviation Advisors, explains the differences of wet and dry leases, who may have operational control of the aircraft, and the possibility of illegal charter.
For many years there has been significant attention paid to aircraft leases. This does not include finance leases. The type of leases we are talking about are wet and dry leases, who may have operational control of the aircraft, and the possibility of illegal charter.
The FAA defines a wet lease in the Truth-in-Leasing Advisory Circular 91-37B as “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember”. Leasing of an aircraft without any crew is normally considered a dry lease. In the case of a dry lease, the lessee exercises operational control of the aircraft, whereby, in the case of a wet lease the lessor normally retains operational control.
From the perspective of the Internal Revenue Service (“IRS”) the commercial Federal Excise Tax (FET) is imposed on wet leases, whereby the noncommercial Federal fuel tax applies to dry leases. This may sound relatively simple, but there are still some questions among operators as to where the lines may be drawn. In addition, an operation may pass the test for FAR Part 91 but still be considered a commercial activity for FET purposes.
This brief was originally published by Nel Stubbs with Stubbs Aviation Advisors on August 14, 2026.