Rosen 2004

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·, U.S. Departm:ent c·f T 1ar1r>pm4;t1 on Feda:rat Aviation Administtatlon

Memorandum -- -·--·---····------------·--------------- Sut'ject: "Wet lease" Arrangements Proposed in l;:;1FU Air Service Negotiations ~ Andrew B. Steinberg, ChiefCotmsel, ACiC-!

Je crey Rosen. Esq.

(.: ncrnl Co11mel. C-1

Date: May 18, 2004

R&ply to .t>.ltn, of' Brandi Williamson, AGC-220, x77776 The purpuse of this memo is t~1 analyze certain i:ommercial contracts characterized by ind1Jstry as "wet !eases" to dcrcrmine whether they me c(msistent witll the regulatory reqi.,[rcmcnts of pa1i l J 9 of the federal Aviation Regulations ("FARs"). Specifically, we examined ni.~ting and proposed agreements be1wcen foreign and US air carriers under which they provid~ <lir trnnspor1 service> for one another. typically for the carriage of cargo but pol< ntiaily kH passenger carriage as well. 1 We reviewed the agreements as a result of questions ari;;ing cut ofrh-:: U S.!Eui·vpoan I.:ninn air services negotiations. We were asked to consider \vhethcr a~·ee:;ients being contemplated were in fact prohibited by 14C.F.R.§I19.53(b), !llld if so. whether regulatory action wns required by the FAA. to facilitate these agreements. Section I !il.53(h} J13rs \.i.S. air can·iers from w<:t leasing foreign aircraft and crew into their operations. c'\s <'isq1sscd below, our conclusion is that the existing and proposed a.t,'feemenls - lxc:,tcse :he'~' di' ll<ll iiwolve a uansf'cr l)f legal possession or any aircraft - are ;;;mply not leasing thus arc nm prohibited '\ver kascs." Rather, these agreements are really T'1e nmiers include i\1!as Air, lnc ("At],1s·), Fcdnai Express ('·fe<lb"). China Cargo Airlir.es. Ltd .. the lnlemationJl Airline of the t:niled Arab Emirates and Qantas Airways Lid

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chmtcr arrangements, which do not require FAA review, Unfortunately, the FAA has never issued comprehensive guidance to industry on this matter, and has accepted for filing as "wet leases" contracts that in fact are ch;nter agreements and no! leases, As a result, there is comidernble misunderstanding by industry as to which arrangements with foreign carriers arc in fael prnhibite<l under J>art 11 1), Tims, although a fonna! rnlemaking or policy change by the FAA is not requir~d (because we are not altering an established interpretation), should the United States Government decide to take action to facilitate the proposed arrangements, between U.S, and foreign air carriers, it is likely that industry will require a definitive interpretation of Part 119. P2Tt 1l9 ofthc FARs requires that prior to conducting operations under a "wet lease" a C.S air carrier must provide a copy of the wel lease !\J the FAA for review, The regulations then require the FAA to detenninc which party to the lease has operational control and to then make appropriah: changes in the parties' operations specifications, Specifically, the regulations provide as follows:

14 C.F.R. § 119,53 Wei leasing of aircraft <md other arrangements for transportation by azr.

(a) Unless otherwise authorized hy the Administrator. prior to conducting operations involving a wet !ease, each certificate holder under this part authori..:ed lo c•:·nduct comm011 carriage operations under this suhchapter shall provide the Administrator with a copy of the wet lease to be executed which would lease the aircraft to any other person engaged in common carriage operations under this subchapter, including foreign air caniers, or to any other foreign person engaged in common carriage wholly outside the United States, (h) '\o certilkatc hokier under this j)art ma}' wet lease from a foreign air carrier or any other fordgn person or any person not authorized to engage in common carriage.

Ir '1 tp<Vl receiving a topy of a wet lease, the Administrator dctcrminGS which party to the agreemem has operational control of the aircrali and i;;sues amendments to the operations spcci!k;itions or each party w :he il!,'TecmenL as needed. Tbc lessor must provide the

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following infonuat!on to be incorporated into the operations spec11ications of both parties, as needed.

(I } The names of 1hc parties to 1hc agreement and !he duration thercor. (2) The nationality and registration markings of each a.ircraft involved in the agremcnt. (3) The kind of op...>ration {e.g., d<>tnestic. fl•tg, supplemental, conmmter, or on-demand). (4) The airpons or areas of operation.

(5} A s!atL'111e111 specifying.the party deemed 10 have operational control o.nd the times, uiJl)()l1S, or areas under which s uch operational control is exerc ised. (d ) In making the determination of paragraph (c) of this sec tio11, the Admin istrator will co11side1· the following:

( l) Crcwmembers and training.

(2) Airwotthiness arid ~rformam::e of m~i n tc:nanc e.

())Dispatch.

14) S lT>' icin~ the aircraft t 5J Scheduling.

(6} An y other i<?ctor the Administralor considers relevant Elsewhere, the regulations define a wet lea~ :l1i "any leasmg arrungeme111 whereby a per~on agrees to pro\·1dc an entire aircraft and at least one crewmember." (cm1)has1s supplicd)3 The most cri tical factor in determining whether an agreement constinues a lease :IS o pμo ~rd to :t mr.rc char:crl is whether or not the lessee ttets e,rd11~ /\ 'll legal po.tJcssion of the 1 (\1J C$lH1re •trm ngemenls are specifically excluded from the wei lenst defin ition. 14 C.F.R. § I l':l ..>(2004 ).

i .<\charier in the FAA 's view is an agreemem whereby,\ pcmm provides lift c ~p~city (in tcnus of cor~o 1<1 be ~h ipped or pa.<sengers to be lranspo1ied) to another person for a defined period of tum' or mu11lx:r "f flights. See Cmnpariso11 o/Aircraft l.eaus and Cltuners, FA A International Affair:, anJ Leg.ul Policy Swff, Apr. 21, 1999.

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aircraft.• If the grantor never transfers legal possession U1c aircraft, 1hen 1hc agrccmC11t is not a .. ~~, l ci1s ~ . L1kcw1se, if the agreement makes it clear that acrulll pos.~essio n is never transferred, the ·~· ng:<"cmcnt 1s not a lease. Instead. as staled nbovc, such an urrangemmt might acrually be a chartcr.s In the 1ypica! charter, a customer :m angi:-s 10 have an air carrier transport passengers or cmg('I fr<1m <:>ne point lo another. Howevr:r, 1he charier agreement does not invo lve any le.gal Lransfer <> f the P<'SSessory rights t~ the aircrafl used in the transportation, and it would be unusual to refer to the ch:irter ;igreement as ti "lease" of1he aircraft from the charter operalor to the cus1omer. 111 other words, the charter is a services agreemen1--for the provision of a flight ser.1icc -- and possession of the aircraft doe.~ noLlrdnsfer to the customer 6 Simply pu1, the FAA 's concepl of an airm1~ lease is consisle nt wi th traditional leasing :1mmgcments found in other commercial cont.cxts.l ·When a person leases a car, for example, it is• • 4 .,·· ,. ~ • l,lCn<.r811) uno.Jer•tood th at the poSSCSSOry righLS to the Car arc being ltaJlSfCm:d for the period of ·Ste Feb. 5, 1998Letter10 E. Driscoll, National Air Canier Associanon from J. Conte, Manager, Operations Law Brunch. SeeaL•o Jun. Ii, 19i S Lener to C. Reid from K. Geier, Regional Cou.1sd ("A le.He implies that the Jessee has cuslody of the p roperty for a dcfiacd period"), 1S1.·.. Apr. 29. 1999 Letter to D. Wocrtb, Air Linc Pilots Associa1ion, Inf! , from N. ~ra11 fis . FAA Chief Counsel {a lease involves the transfer of a piece o f cquipmcn l while a charte~ involves inc p1ov1sion ofa !light sel"\> ic ~} .

" On lhe ot h ~ r hand, 1hc- ch.srtet operator providing 1he night 5ervices described above may have leased an aircrall from an owner (e.g. a bank) for use in ils t haner b usin:~s . Jn chat case, the own~r hus Lrn ns feri·ed legal and aciual possession of the aircrnft to the charter operator. The c h~ r1 er operator wou ld liave exclusil'e legal poss.,ssion of !he ai rcrafl for the tcnn of !he lease. <1110 llu·ough it.; pilot>, \\ OulJ op a a1e the airt:rafl The aircrnfl owner (the b<111k) would not b-.:- ponnitted 111 use: the ai r<,ruft during the lease 1ern1.

Th ~ FA.A '> approach 1hus d iffers from that of 1hc OL'p(tr!menl wi th rCS)X'Ct to its ni lcs co1.ce1 J1i11g lcosc by foreign ai; cu n-icrs or other ror1:ign -pt"r"Sons of aircrafi with ercw. 14 C.F.R.. 218 , pro\'idcs. that " For purposes of this part the term !e11se shall mean an arrangement under whic!J an aircran b fumishe::d by one party 10 the agreement to 1hc other μan y. iro:spes:tivc of ~~~ tn er !~e aiQ.'.~~1~1cnt constitutes a t rue.k.~_<;lt~rtMJ!Il'fill!tllZDsml. or some other arrangement." (<'lllp ha~ i s supplic<l)

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the lease. The lessor retains title !Ind ownership to the vehicle. bui the posscssory rights aod the corresponding authority h:> use the car, arc transferred to the lessee. Likewise. in a tn1e aircraft leasing arrangement, Jor purposes ofapplying the FAA rules in§ 119.53, lhe lessee is granted an cxd u.sive legal possessory i1iteresi ii1 an aircraft for a speci tied period. ln l)e(ernber 19951 the FAA defined wet lease for the first time when it adopted the "Commuicr Rule" in part 119 of the. FARs. The Fl\.'\ has long·maintai11ed lhat a wet I.ease is n com mer~ ial ainmgemenl whereby a.n aircraft owner lea~ both the aircraft and at least one. crewmemher 10 another person for ·hisfhcr exclusive use for a specified pericxl or. a defined nun\hcr o f nights. T<> "provide an em ire aircrnft" means 10 grant the right of exclusive Jl(lSSeS$)on and use of a speci fically ioenlified aircnilUo anoiher person for a specified period of time ot a defined number o f flights. Thus, a wet lease, as the FAA tiscs the tcnn, must contain the follo wing charac1eristi.cs:

Identification of a s.pccitit· airtrafl.

• Grant of exch1sive possession and \tse of tll& aircraft 10 the lessee. Defined d1::a1ion for.the grant ofpossessioo Jnd use.

•· Prc visioi1 by the lessor of.at lea~t ~me: crewmember8 "~th the aircraft. :Wct~.~ses v. Drv Leases 111ere are two basic distinctions between wet and dry leases for pu rpo~es of applying the FA A·s rules. fim, in a wet lease, the aircran ru1d crew are provided by the same person. whereas " Ti t~ c re1~'111embt'r does not have i0 be a pilot in order for the agreement' IO b~ considered a wet le3se. SN 60 FR l 6259 (Mar, 29. ·!995i (If.a p<:;mm leases an airplane wilh any c rew~mber, including !1lgh1nttClldMts and Oight .:ogineers, the ugreement would still be considered a wet leas~ ).

s

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in a dry lease, a person provides an aircraf\ \Vithout any crewmcmbers. Second, with a wet lease, the ie;;sor surrenders legal possession of the aircraft to the lessee, but retains actMl possession (and. nl'}re oikn than Mt, operational control)9 oflhe aircraft by virtue of providing and contro!ling the crewmembers. In contrast, the lessor in a dry lease iransfcrs legal and actual possession of (]Jc aircran to the lessee. Consequently, the "dry lessor" does not have operational con'rnl of the ain:mft and bears no responsibility for the safe operation of the aircrnfi. 10 In a wet lease the party exercising operational control is held responsible for the safety and rcgula!my compliance of the tlights. 1' Accordingly, under part l 19, after receiving a copy of a wet lease between lwo U.S. air carriers, the FAA determines which party has operational control ufthe aircraft an<l issues amendments to the operation specifications of each party a~ appropriate. As noted earlier, the FAA considers a variety of factors when making its threshol<l tleterminatii'n regarding operational control. They include who provides the crewmembers and lrai~ii;g, who is responsible for ainvorthincss and perfonnancc of maintenance, who handles <lisp 1lch, who services Ille aircraft, and who schedules night operations. ~-'------- ------- Operational control is defined as the exercise of authority over initiating, conducting or tcrmim1ting a 'light. ! 4 CTR. § l .1 (2004).

'"-'The !dry', 'csfiee, as the operator of the aircraft, must hold the necessary i::conomic and opc1"Hins1 cutl:ori:y for the aircrnti and Jllll$t provide the necessary flight anJ <1abin crcwmcmbers, ground personnd, dispatchers and ground facilities for the aircraft. Se.e FAA Order 8400. J0, vol 2. chor. 4 (2004 \.

11 Jn rh~ v,,.,, n1ajorie\· cf cases involving a wet kasc, rhc FAA will find that ..the lessor has oper.nioml comm! and dinxlion of the aircraft 1hrough its employees ;md is in substance the oμtrnwr oi';lic mrrran for purposes of safety regulation." See Dec. 16, 1%8 1.etter to lnter.:on1:11211tul !\ 1r-J.ease Operation from A. W La!le, FAA Office of the Chief Counsel.

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\Vhen part 119 was codified, the FAA prohibited wet lease arrangements in which a fore1gn air carr!er is the k:ssor and a U.S. carrier is a lessee, to avoid creating<Confusion over 1,vhich regulatory regime govemed the operations -- those of the United Slat~. or those of the foreign country ce11ificating the foreign carrier's operations. 12 For example, if a foreign carrier \vel !eased an aircraft to a US. carrier, it might be argued that the U.S. carrier's legal possession of the ~ircrail should be equated •Nith its having control of the aircraft. At the same time, however- the U.S. carrier's control of the aircraft operation would be questionable because the. foreign c<i1rier would be directing and controlling the crew it provides. Thus, the U.S. carrier's legal 1x1ssession of the aircraft could make ibe foreign carrier a "putative lessor", 13 because the foreign carrier most likely retains actual possession and control of the aircraft operation by virtue of co1trolling tbt• cr~wmembers. Moreover, the foreign air carrier and its pilots may have ohE,e:ations to a foreign civil aviation authority that are inconsistent with FAA standards. For tbest' reasons. th(' FAA prohibits aircraft wet leases from a foreign lessor to a U.S. aircarrier. 1" 12 S;:::cifically. ·~ 119.53(b) prohibits foreign air carriers, foreign persons or any person not authori1.cJ to in common carriage from acting as k:ssors in wet lease arrangements with U.S. hir c:on'Jers. p;·ovision simpiy codified existing FAA policy on wet leasing. "The fA_A,. reqmres operators conducting wet leasing operations lo hold operations specifications for the sarn( kmci ofoprrntion as that being conducted in order to be sure that the operator is qualified to conduct that kind of operation. Since foreign caniers may conduct operations only under part 129, they do not hold op<:rations spcciflcalions for current part 12 l or parl 135 certificate holders, ana therefore. mav not conduct wet leasing operations for part 12 l or part 135 c<.'Tlificatc IJoJd,;rs." 60 FR 65884 (Dec. 20, 1995).

The ;.,·:rn puutivc ksH.1r descrihe;; a grantor i11 a situation where something le~~ 1han exclusiv<: 2crnal possession o Cthe aircratl is conveyed.

1• llw pn)l·Jibition is ah.o aimed at preventing cahotagc under 49 U.S.C § 41703 (2004). See aiso ; 4 C LR. ~~ I2 . l 53(c). and I35.25(d) (A ccrt!fi<:atc holder may opL'ratc in common carriage, 2;id tor the cinia3e of mail, a civil aircraft which is leased or chartered to i! without crew and is reg1~·~red Ill a rn11ntry wbich is a pany to the Convention on lmcrna!ional Civil Aviation) (e111ph;1s1s azlt\er..i).

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!J: June 2003, Atlas entered into an agreement with Fed Ex by which it agreed to provide Fed Ex with t1ircrafl to be used for a specific period in its cargo operations. Labeling the agrcrnwnt a •·wc1 kasc," Atlas and Fed Ex provided copies to the FAA, in apparent compliance with § l l 9Sl(a) of the FAR;;. According to the explicit terms of!he agreement, however, Atlas retai11eJ ex1.1usivc possession, direction and operational comroi ofthe aircrafi. 15 Atlas's retention ofhoth leg'.ll and actual possession ofthe aircraft means that, at least from the persp~r live or mtr regulations, the agreement is not a wet lease, Jnstcad, the FAA would charnctcrizc it as ~ charter. The FAA 's determination that the agreement is not a lease affects the air carriers' compliance obligations with part 119 of the FARs, as well as the FAA's assessment of the f,ictors regarding operational control of the aircraft \Ve ex2mi11ed several of these: contracts styled as "wet leases" hctwcen Atlas (as "lessor") and its vuricl'Js airline customers that were fikd with the FAA They all follow a similar pattern. As i·1 the Fed Ex agreement, for example, the contract terms typically provide that the "Aircraft shali ;,.11.:1 1 times he under the exclusive posscssinn, direction, and operational control of Atlas." Under tile agrccrncms, Atlas provides and trains the crewmembers and performs maintenance to ensue ti,c airworthiness ofthe aircraft, while the customer schedules the times that it needs the use or the aircraft, and, although nor entirely clear from the agreements, may be involved in dispJ1d1ins !he c;ircrnft for its flightfi. In any event, the agreement> do not crcat<e ambiguities 2bnu op~rntio:1a! control because they clearly provide that Atlas retains pos~es~ion of the aircraft at al rimes. Therefore. Atlas has openuional rnntrol oftht: aircrall primarily because !I controls Ag,teenu::nl henveen Federal E:rpress Corp. and Atlas /J.ir. Jnc.~ Article 4.1, June 24~ 20().'

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the ere''. b\n aiso because it never surrenders legal or actual possession of the aircraft. and because it has resμons ibiliiics·for aircraft mP.intcnance and airworthiness .'~ The I· AA considered chic.fly the contraet terms l'l.~arding possession and operational control of t h ~ aircrafl in determining whethe,- or not the agreements were io foct leases. The specific terms that directly influenced the agency's decision are below: Article 4.1 o( the Atlas/Fed Ex agreement states that "the Aircraft shall at all times be under the exclusive possession, direction, and operations·control of Atlas. whose Captain or Disvntchcr shall have complete di~retioii concerning prcpar~tion of the Aircraf\ for flight and Hight of the Aircraft, the load carried and bow distributed. whether or not a ni ght shall he undertaken, the route to be flown, whether and where landings shall be made, and all other matters relating lo th<: operation of th~ Aircraft. nnd the decision of A ll(i &'s Captain or Dispatcher shall be binding upon the Parties. The Aircraft shall at all 1 imc~ be operated in accordance with Atlas's FAA approved standard air carrier security prosram."

Agrec11:1m1 between liuerna1io11J1/ Air/i11e o(;lre United Arah Emirote,r ("U.AE"J and Ar/a5 Air. f ile.

Arllcle 5. ! of the Atl!WUAE agreement states that "lhe Aircraft shall at 1111 timcs be under the exclusive possession, direction, and operatioll!I control of Atlas, whose Captain and d1s?atcher shall have complete discretion concemins preparation of the Aircraft for flight and flight of the Aircraft, the load carried and its dis1ribution; whether or not a Flight shall b~ undenaken, the route to be flo,•11, wbclher and where landings shall be niadc.. and all other maH~-rs relating 10 the operation of the Aire.raft. and Customer and subscrvice carri ~rs shall accept such decisions as final and binding."

tJJ:.!:ff.mem becween China Cargo Airlines Ltd. ("Q1i11t1 Cargo") all(l 1J1/qs Ajr. /J1c Anick 4. 1 of the AtlaslChma Cargo agreement stat~s thal "the Aircraft shall at all times be und ~r the exclusive possession, din:ctio11, and operations control of Atlas, whose C!tpt~ i n or Disp~tc her shall ha\•c coinμJe1c discretion conceming preparation of the ..~ ircrafi for Flight(s), the load carried (as wclf as the distribution thereof), whether a FJigh1 shall be m1derta1en, the rout.e to be flown, wh~ther landings sholl be made. and all olhcr 111mttrs rcla1ir1£ to or .aiising out ,~fop-::1-.1tio11 of 1he A l r~rnn . Such dccision(s) ~'fthc C ap 1 ~in or dispatcher sl1all be final and bi nding upon the Parties." 1• SN lf°t'I Lt•os,~'Opumio11<1I Control FJ~ckgrow;d Puper, FA.A. Operations Law 13rdnch, Jan. 18. 1999

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.'1~r<emtt11t f>sNecm Polar Air Cargo t "f>olar") and Qamas 4 jnvavs. ltd. ("Qantas" ) Article 4. 1 of the PolariQantas agreement states that "the Ain:rafl shall at all ti roes be ui:dcr the exclusive possession, direction, and operational control of Polar, whose Captain and <lisp~tch er ~h all have complete discretion concerning preparation of th~ Aircraft for Flight(s). lhc load carried (as well as the distribution thereof); whether a Flight shall be under14ken. the route 10 be nown, whether landings shall be made, and all other matters rcl:lling to 01· ari sing out of operntion of the Aircraft. Such decision(s) of the Captain or dispatcher shall be fmal and binding upon the Parties."

The r."-A docs not con.sider any agreement to be 0 lease if ii contains l11nguagc that provides that the granter retains possession. direction and control of the aircraft. Therefore. these a{lrc~me nt s, though lobe lee.! wet leases. contain tcnns lhat are incompatible with the FAA 's concept <> f Dn nircra ft lea~e Accordingly, the FAA detennined that the ngrcemcmts were not l~:IS•!~ because the grantor never transfers legal and actual possession of the nirtrafl to the purTnrtetl Jessee.':

In ..ddition 10 the provisions quoted above, the FAA also considered other factors such as lhl' IKSor's ability to substitute aircrnfi used in the lessee ·~ operations. an<i the lessor's right 10 use th~ lea,...d airer.in for purposes other than the lessee's nights. Again, the FAA found that th cs~ ~c-ntr~ct1>al tcrms were inconsistc11! with i L~ dclinttion of 11 lcase, which is an agreement 17 Onl y if thG contrncts 1ransferrcd legal and acmal possession tn Fed Ex ~ml if Atlas pilot~, or arty othc1 ;\!las ~ mployccs, served as crcwmemhcrs 011 the aircraft, would the ~gre~~ mcn.t b~ a "wet leas•:" •1111ler § 119 53 re<11;1iring FAA ~ppl'Ovu l prior to Alias c.r:wJucting opern1ions. It i.s imponam U• note. however, !hat m issue of opcrati(lnnl control would exist because although Fed fa h:1d n rios ~es~(1ry imcres1 in !hc a ircr~O. Alias employl'CS would be se1ving as crewmembcrs r.•111111:· ;1it ~r.i ft . The Flv\only m1alyzcs whidt carrier his opcrmional control inn wet lease betwren two U.S air carriers..~ true wet lease from a foreign canit:r 1s prohibited by the r<:g \.l~t ion• 2nd ihi; FAA does not engage in a ms.: by case ann lysis <>I' which carrier mi1;;ht h11ve c<'Jmrol.

!O

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!hat: l) identifies a specific am:raft; and 2) grams exclusive possession and use of that aircraft to the ksst:c· for a opecified period. 1& for exampie, in the Polar/Qantas agreement, a specific aircraft (N450PA) is identified in the cot'1ract, but Polar, as the "lessor," is permitted to substitlltc as many as five other aircraft in its fkc-1 for Qantas' operations. l'l Moreover, the parties agree that throughout the "lease" term, Pola: has the right to use the aircral1 for its own purposes a:; long as that use does not interfere with the scheduled weekly ilights20 that Polar opernws for Qantas. 21 Similar provisions are found in th,; Atlas agn~emcms with Fc<l Ex." UAE2J and China Cargo. 24 However, as stated above, an i:; fis exp lamed above, the agreement is a wer lease if a crewmcmber is also provided with the aircraft 1'' /\ri;ck i .1 <Jf 1\nncx A provides that "the A.ircrnft referred to in Article l. I of the Agreement shall be aircraft N450PA or such other substitute B747-400F aircraft from Polar's fleet including: N45 l PA, N452P J\. N453PA, N454PA and N4%MC. This list of Aircraft may be modified, if necessary, subject to nNice to the FA.A and upon the mutual agreement of the Parties." The nmion of scl1eduleJ weekly flights between specific city pairs is also more consistent with a charter (ffran;:;cmcnt, than with a lease aJTang,cmcnt.

i· P:irngrnph 41 oflhe Polar!Q;;ntas agreement states that "Polar shall have the right in its sole Ji:>crdnm to u1.ili/.c the Aircraft for hs own pmvoscs during periods of Customer's scheduled or unscheduled downtimes provided such use does not intcrforc with Customer's scheduled operations under this Agreement. Pofar's use of the Aircraft under this section shall be without comprnsa:ion. c;redit or offset to Customer, and shall not rc'<luc<: Customer's Monthly Minimum Blod; !four Guarantee hereunder."

"P<irn[:rnpli 4.1 of the J\tlasiFed Ex agreement sates that "Atlas rnay ~ubstitute for operation of the Fiights any B74 7 freighter aircra.ft listed in the Atlas Air Operations Specificatio11s or use any Sl\d' sub;;tnutc aircraft for the operation of additional Flights within the <1.uthorized operating lln:ch bted ii; the Alias Air Operation Sμccific:;t1ons: provided that all nircraft osed and all such uirc1cdt sh2li meet all govemmemal and regulmory requirements established in this Agreement.,, See ,·1isc Paragraph 4. l I "Atlas shall have the right, subjecr 10 Customer's consent which shall not be unre.1sombly ""Ith.held, to utilize: :he Aircra!i for its own purposes during periods of Cus:om1:;: -, sch;;dulcd or unscheduled d1m111imes. nmvidcd such use docs not interfere with Cuswmer' s scheduled operations under this l\~,'Tee~wnt. Atlas' use orthc Aircraft under this sccticn slmil he withc,Ut compensation, cre<lit or off,;ct to Customer, and shall not reduce Cuoif'l1111r s n1iuirnum hlod; hour guarantee;; ht:rcurnkL"

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FAA lea:;c requires the identification ofa specific aircraft, and the lessee's exclusive use and poss:ssion ofihc airtralt Thus, contract tenns that permit substitution of aircraft or that allow the kssoi tr; use the aircnifi during the kase temi. are factors that would weigh heavily against the FAA finding that the agreement is a lea&e. In light of these provisions, the agency determined that clic agrccmcnis simply do not constitute wet leases under part J l 9, and in fact are not leases at a!L they are not wbject to tbe pa11 l l 9 prohibition on U.S. air camera leasing aircrafi and crew from foreign air carriers, and there is no regulatory action required by the FAA for these arrangements.

The FAA ·s vie'.v of a leAsC agreement hinges ()n the possessory interests in the aircraft. An 11g1~~mem i0 nor r1 le~sc if the grnnior retains possession, direction and (;Ol\trol of the aircraft. In these oiruations, the rcrm "wet lease" i' a misnomer because legal and actual possession is not com·cycd LO tlH: purported lessee. Instead. the agreemem is, in essence, a chmter arrangement where !ligln services arc provided to a rns!omer.

Since the ~greements arc not leases. they are not subject to the foreign lessor prohibition found in ~ 1 '9.53(b) oflhc F.'\Rs Thus, a U.S. carrier could engage m this type of charter arrangement w1!h a foreign air canie.r, ln such a situation, 1hc FAA probnbly wonk! find that the :J Parat,"1aph 2.5 of the At!as.!UAE agreement provides that "Atlas' scheduling ofthe aircraft shall he fo: '.he ::ienefa of Customer wirb Customer's scheduled operations as provided berein having fir.st pr1n:-ity. ,,.

!' Par~'..;rnph 5.1.0 oftne A1bsl(:J1im1Cargo ;;grecmcnt states that "Atlas may substitute for \1pe:-:ni<1r nf1he fli~ht> ;iiw B747 Frcightt-r Aircraf! listed in the Atlm; Air Operations Specification en use such Aircraft for the operation M additional Flights within the authorized operating listed in the Atlas Air Operations Specifications; provided that all aircraft used and al: ,.;ucL F'ig'no shall meet ail govemrnental and regulatory requirements." See also l'arngr:iph .J \ 0 which stales that "Atlas shall have the right in its sole discretion to utilize the aircr~il for it' own purposes <luriFg of Customer's scheduled or unscheduled downtimes. prm t.:kd t'iat :ouch us.; dues not with Cwrtomer's scheduled operations under this Atlas' use of the Ain::ran under this section shall be without t:nmpensation, credit or and shall not n:duce Customer's minimum block hour guarantees hereunder." l2

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party providing the crew (whether U.S. or foreign) has operational control of the aircraft and is responsible for complying with the air carrier standards prescribed by the FAA or by that earner's national civil avia!ion authority. Moreover, foreign operators in U.S. airspace must comply with l 4 CF.R § 129. and any aircrali flown in US. airspace must comply with the rules applicable to all unera\or> (c.g l 4 C.F. R. § 91 }.

in the case of true wet leases (trans for oflcgal possession of the aircraft with crcwmcmbcrs). a lLS. air c;;nier could not be a wet lessee with a foreign air carrier lessor since such transactions are ~pecificaHy prohibited by§ l 19.53(b) of the FARs. However, a U.S. carrier cou:zi he \he ieswr in a \vet lease to a foreign air carrier. In this situation, as with the charters described :ihove. the FAA determines operational control based on the party providing the crew (a;; Hell as on :he other factors fo:!<·d in~ 119.53(d)). Thus, in a true wet lease from a U.S. 'arrier to a foreign carrier, the U.S. camer would be deemed to have operational control of the aircraft and •..·ouid be ·~<ponsibl.e for safety and regulatory compliance with FAA standards; and the FAA WOtiid ussert m·crsight responsibi.Jiiy over such an operation.