On February 9, 2012, guided by its concerns over its ability to carry out its State of Registry responsibilities, , the Federal Aviation Administration (“FAA”) published a Notice of Proposed Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations Involving Non-U.S. Citizen Trustors and Beneficiaries (the “Notice”). The Notice suggested that: (1) trustees be responsible for providing certain information upon FAA request within a limited period of time; (2) operating agreements between owners of aircraft, and the trustor or beneficiaries of the trust be filed with the FAA; and (3) stricter restrictions on the ability of non-U.S. citizens or resident aliens to remove the trustee be imposed.
The Aviation Working Group Industry Consultative Group (“AWG”) has now submitted an extensive comment (the “Comment”) responding to this Notice. The Comment first emphasizes that AWG believes that trustees, investors, lessors, and lenders are not in a position to respond to any FAA requests for information regarding aircraft. Instead, the FAA should look to the aircraft operator to achieve its goals of “expeditiously receiving requested safety information”. In the event that the FAA insists on requiring the trustee to provide this information, the Non-Citizen Trust, Trust Agreement (“NCT TA”) should be amended to include covenants by the trustee and trustor “that such party will respond as expeditiously as reasonably practicable to any request by the FAA . . . .” Furthermore, in the event that the trustor decides to transfer its beneficial interest in the aircraft, it must provide the trustee with the identity and contact information of the new trustor.
Second, the Comment also addressed the submission of Operating Agreements to the FAA as part of the aircraft registration application. AWG suggests that submission could be accomplished in one of three ways: (1) an Operating Agreement could be filed with the Trust Agreement in the ancillary files, public files maintained by the FAA in support of the aircraft registration; (2) in accordance with the truth-in-leasing requirements in 14 C.F.R. § 91.23; or (3) as a filing for recordation under 14 C.F.R. § 49.17. AWG expressed the following two concerns in regards to these submission options: (1) that if the Operating Agreement is made a part of the ancillary files, it will become a cloud on the title of the aircraft without an established means for removal upon termination or expiration; and (2) the Operating Agreements may contain confidential information.
Finally, the Comment addresses the removal of a Trustee for cause. Specifically, the FAA had asked whether there is any way to involve a third party U.S. citizen in the removal process. In the Comment, AWG noted that adding a third party into the trust for purposes of removal adds a layer of expense and bureaucracy that will be difficult to bear, and depending on whether the Trustee or the Trustor selects the third party, could grant additional “power” to either side in the removal process.
While the process of the FAA’s review of the use of NCT’s for U.S.-registered aircraft is ongoing, it appears from current activities that the use of NCT’s will continue to be a valid approach for N-registering aircraft, but that the documentation and logistics for doing so will be fairly substantially modified in order to address the FAA’s concerns. It remains to be seen whether the FAA mandates an entire conforming trust agreement, or simply requires certain provisions be included in trust agreements, but at this stage it appears that the concept overall will survive the review, albeit with modifications of forms and procedures. Operators of U.S.-registered aircraft that do not, or might not, meet U.S. citizenship requirements are encouraged to contact The Wicks Group to obtain assistance in compliance with these evolving and increasingly complex requirements. Please contact Michael Fleming at (202) 457-7790.