Dictionary Definition: A flight department is the collection of qualified people and associated manuals and management procedures required to support the operation of an aircraft. Its role may include aircraft scheduling, crew management, maintenance and repair coordination and flight planning. In general usage, it refers to the group within a corporate structure managing the use of the corporate aircraft.
Aviation Usage: The term "flight department" is as stated above, and is entirely innocuous unless it is joined by the word "company." The phrase "flight department company" is used by the Federal Aviation Administration (FAA) to describe any special-purpose company set up solely and exclusively to manage and operate corporate aircraft. The only "legal" flight department company is one that holds regulatory authority and certification (Parts 135 or 121). Quite often, unsavvy Part 91 aircraft owners will choose to buy, hold and operate their corporate aircraft in a separate entity, and allow the corporate affiliates and officers to use the aircraft, with allocation of aircraft costs being made to those affiliates as needed. This violates federal law as an uncertificated charter operation and should be remedied. In short, there is nothing wrong with having a separate entity own the aircraft, but the operation of the aircraft should be an activity within and incidental to an existing business.
Playing it Smart: Part 91 aircraft operations require that the operations be incidental to a company's business and not its primary business. If a special-purpose entity needs to own the aircraft (e.g., for financing or other reasons), then it should be dry leased (i.e., leased bare, without crew) to the operating company affiliate(s). The flight department should be within an operating affiliate because if the flight department is within the special-purpose entity, you run the risk of having an unlawful charter operation.