Corporate Aircraft Ownership and Operations: The Key Legal Issues to Know

While corporate aircraft offer flexibility, security, and efficiency for companies and executives, they also present a complex web of regulatory, compliance, and governance considerations across such areas as aviation, tax, employment, and SEC reporting, among others, that can create material exposure if not managed carefully.

In a recent Global Public Company Academy webinar, our lawyers outlined the principal legal and regulatory issues facing corporate flight departments and offered practical guidance for mitigating risk while preserving operational value. Due to the complexity of this area and overlapping requirements, companies should always consult qualified counsel regarding their flight operations and structuring. The information below is only a snapshot of relevant requirements.

STRUCTURING AND FLEET STRATEGY

Ownership and operational structures vary widely, spanning full ownership, joint ownership, fractional programs, leasing, charter, jet card programs, management company arrangements, and more. Each model carries distinct implications for capital investment, depreciation and other tax treatment, residual value risk, maintenance and other regulatory compliance obligations, and operational flexibility.

Periodic reassessment of fleet strategy is prudent, particularly in light of technological advancements, evolving lift needs, and regulatory developments.

Two additional structuring options available for aircraft owners are the use of noncitizen trusts to facilitate FAA citizenship requirements, as detailed below, and the use of double-blind trusts to enhance privacy of aircraft owners and address security concerns.

FAA CITIZENSHIP AND REGISTRATION REQUIREMENTS

To register an aircraft on the US registry as a corporation, companies must comply with stringent citizenship requirements relating to the company’s leadership, organization, governance, and control by US citizens. These include a self-certification that the company’s CEO/president and at least two-thirds of its board members are US citizens and that no more than 25% of its voting stock is held by non-US citizens.

These requirements are ongoing and do not include a grace period for noncompliance. Consequently, changes in board composition, executive leadership, or upstream ownership can inadvertently jeopardize compliance.

For companies that cannot or are unable to certify that they meet these requirements, the FAA provides other options for registration: either as a non-US citizen or more commonly by placing the aircraft in noncitizen trusts. Both of these options come with operational restrictions and considerations.

OPERATIONAL COMPLIANCE UNDER PART 91

Most in-house flight departments operate under the noncommercial rules set out in 14 CFR Part 91, where the company retains full operational control and responsibility for the flight. When a company charters an aircraft, those flights are operated under the commercial rules in 14 CFR Part 135, whereby the charter company assumes operational control and responsibility.

Part 91 generally prohibits flights for any type of compensation—even business goodwill—absent an exception. Most companies operating under Part 91 rely on the exception in 14 CFR § 91.501(b)(5) for flights within the scope of and incidental to the business of the company operating the aircraft. There are several other restrictions and limitations in Part 91 with which companies must comply.

Improper cost-sharing arrangements or guest carriage outside regulatory limits can create significant liability and FAA enforcement and insurance risks. Flight departments and legal teams should review policies governing intercompany and third-party use.

SEC DISCLOSURE OF AIRCRAFT PERQUISITES

For public companies, personal use of corporate aircraft is generally treated as a perquisite under SEC guidance and must be disclosed in the Summary Compensation Table when applicable thresholds are met.

Perquisites must be valued based on aggregate incremental cost. For aircraft usage, this typically means variable costs such as fuel, crew, catering, landing fees, and maintenance attributable to the flight.

Recent SEC Enforcement actions have focused on failure to treat aircraft use as a perquisite, misclassification of personal travel as business travel, and understatement of incremental costs.

Companies should ensure tight coordination across flight operations, finance, tax, legal, and compensation teams, with clear processes for documenting travel purposes and passengers at the time of flight.

SECTION 162(M) AND PUBLIC COMPANY CONSIDERATIONS

For publicly held corporations, Section 162(m) limits deductibility of certain executive compensation above $1 million. However, depreciation and cost-recovery deductions related to aircraft are not treated as “compensation expenses” under applicable regulations.

While this framework can mitigate incremental exposure, companies must ensure consistent treatment of imputed income, depreciation, and cost recovery across tax and executive compensation reporting.

EXECUTIVE SECURITY AND WORKING CONDITION FRINGE BENEFITS

Corporate aircraft are frequently justified on executive security grounds. To exclude security-related travel as a “working condition fringe” under Internal Revenue Code Section 132, the employer must demonstrate a bona fide business-oriented security concern, typically supported by an independent security study.

Generalized concerns are insufficient. Companies should update security studies periodically and apply recommended protocols consistently. Failure to substantiate the security rationale can result in additional imputed income and tax exposure.

BUSINESS VS. PERSONAL TRAVEL

Under Section 132, flights that qualify as a working condition fringe may be excluded from taxable income if they relate directly to the employer’s business and are properly substantiated.

Personal travel—including vacations, commuting, and travel by family members without a bona fide business purpose—must be treated as taxable compensation and reported accordingly.

Mixed-purpose trips are governed by “primary purpose” rules, and international travel may trigger additional allocation requirements.

For public companies, personal aircraft use is generally treated as a perquisite and must be disclosed at aggregate incremental cost under SEC rules, which often differs significantly from tax valuation.

VALUATION AND CONTROL EMPLOYEE STATUS

For tax purposes, personal flights are generally valued under the Standard Industry Fare Level rules, which apply different rates depending on whether the traveler is a “control employee.”

Certain security-related travel may qualify for reduced valuation if supported by an independent security study demonstrating a bona fide business-oriented security concern.

A separate 50% seating capacity rule may reduce taxable value in limited circumstances, but does not eliminate disclosure obligations.

COORDINATED COMPLIANCE

Given the divergence between tax valuation rules and SEC disclosure requirements—and heightened regulatory scrutiny—companies should adopt a coordinated compliance framework linking flight operations, tax, payroll, finance, and legal teams. Clear policies, contemporaneous documentation, periodic review of control employee status, and updated security studies are critical to mitigating risk.

Because of the technical and overlapping requirements in this area, companies should consult qualified counsel when structuring, documenting, and reporting aircraft use.

LOOKING AHEAD

Corporate aircraft sit at the intersection of tax policy, aviation regulation, executive compensation disclosure, and governance oversight. Regulatory scrutiny in these areas remains elevated.

A coordinated, cross-functional compliance framework—connecting legal, tax, finance, and flight operations—can reduce exposure while preserving the operational advantages that corporate aviation is intended to deliver.