This article investigates unstable tiltrotor in hover system identification from flight test data. The aircraft dynamicswas described by a linear model defined in Body-Fixed-Coordinate System. Output Error Method was selected in order to obtain stability and control derivatives in lateral motion. For estimating model parameters both time and frequency domain formulations were applied. To improve the system identification performed in the time domain, a stabilization matrix was included for evaluating the states. In the end, estimates obtained from various Output Error Method formulations were compared in terms of parameters accuracy and time histories. Evaluations were performed in MATLAB R2009b environment.