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JULY 2013
Legal Focus
101
changes in the area, the first dealing with the use of Non-Citizen Trusts. The FAA is an owner-registry (as opposed to an operator- registry), which requires that aircraft can only be registered by the FAA in the name of a United States citizen (special citizenship tests exist for corporations, LLCs and partnerships). For non-US citizens, the FAA regulations permit registration of aircraft in the name of an owner trustee, which holds legal title to aircraft for the benefit of the non-US citizen beneficiary under a written trust agreement (a “non-citizen trust” or “NCT”). The FAA has recently concluded a 3-year review of NCTs and on June 18, 2013 published a Notice of Policy Clarification (Fed. Reg. Volume 78, Number 117, Tuesday, June 18, 2013, pgs 36412-36424)clarifying the role of the owner trustee in these transactions. The use of NCTs in the domestic and world-wide aircraft industry is critical to the continued economic health of the industry due to the flexible nature of NCTs and the variety of reasons for using NCTs, such as (i) permitting US companies to register aircraft with the FAA where the president of the company is a non-US citizen; (ii) permitting foreign manufacturers and foreign sellers to register aircraft with the FAA for sale; (iii) permitting aircraft companies owned in part by non-US investors to register aircraft with the FAA; (iv) permitting companies to register aircraft for maintenance or conversion work so that the work can be performed under FAA regulations; and (v) permitting lenders to register aircraft with the FAA for lease to users, or when repossessing aircraft.
The Policy Clarification expands the duties and obligations of owner trustees and creates new FAA filing requirements. The scope of the Policy Clarification may cause some institutional owner trustees to discontinue this service and/or increase their costs, all to the detriment of the aircraft industry. The full impact of the Policy Clarification is not yet known, but curtailing the use of NCTs, either through fewer owner trustees or increased cost, will cause a negative impact on the aircraft industry.
The second change is the 3-Year Re-Registration Rule (the “Rule”), which came into effect on October 1, 2010 (14 C.F.R. §47 as amended by the Final Rule, Re-Registration and Renewal of Aircraft Registration, Federal Register / Vol. 75, No. 138 / Tuesday, July 20, 2010). Prior to the Rule, an FAA aircraft registration certificate was valid until affirmatively revoked, the aircraft was sold, exported or removed from service, or the registered owner ceased to qualify as a US citi- zen (as defined by the FAA). The Rule changed that by requiring that all aircraft be re-registered every three years and, if such re-registration is not made in a timely manner, the aircraft
registration certificate will automatically expire. The implications of this Rule can be dramatic: grounding of aircraft; possible gap in perfection of a lender’s security interest; loss of the FAA N-number for the aircraft; and impact on FAA airworthiness during a gap period. While the majority of aircraft owners have been able to comply with the Rule with little impact, there are substantial risks to non-compliance and ways to minimize the risks. Aircraft lenders and lessors in particular should institute and maintain procedures for tracking renewal schedules for certificates, and lenders should update their documentation to provide for remedies in the event of lapse of the aircraft registration by its borrowers.
If not, do you see a need for any and if so, what?
There is a critical need for the industry to strengthen the statutory liability protection to lenders, lessors and owners of aircraft equipment, from actions (or inaction) by the operators of the equipment.
In the recent case
of Vreeland v. Ferrer, 71 So.2d 70 (Fla. 2011), the statutory protection from liability afforded to lenders and lessors by 49 U.S.C. § 44112 was substantially eroded. The statute is designed to protect lenders and lessors from potential liability for personal injury, death or damage to property resulting from the use of aircraft over which they have no actual possession or operational control. The Vreeland case was appealed to United States Supreme Court, which declined to hear the case. The aircraft industry cannot withstand erosion from solid statutory protection from liability. Without the protection, financing for a robust aircraft industry would falter, ultimately affecting our economy and growth. LM
Contact:
Erin M. Van Laanen 405 552 2208
Email: Erin.vanlaanen@mcafeetaft.com McAfee & taft, A P.C.