During the last year, the FAA undertook a review of its policies on aircraft ownership by non-citizens, resulting in the publication of a “Policy Clarification”[i] which took effect on September 16, 2013. The review specifically addressed requirements for non-U.S. citizens who own FAA registered aircraft under a trust arrangement (such ownership known as a “Non-Citizen Trust” or “NCT”) with a qualified trustee. While the results impose new requirements on NCTs, it may also set a precedent for all owners of FAA registered aircraft. The new rules are detailed, but boil down to a few key requirements:
Requirement of Immediate Contact Information on Short Notice
For all non-U.S. citizens utilizing an NCT for FAA registration purposes, the trustee must now, on demand, provide (1) within 2 business days, the identity and residence or principal place of business of the operator or manager of the aircraft, and the location where the aircraft is normally based and operated and (2) within 5 business days, information about the operator, crew and aircraft operations on specific dates, maintenance and other aircraft records, and current airworthiness status of the aircraft.
Required Filing of all Relevant Trust Documents and Operating Agreements
Existing law already required the filing of a trust agreement for NCT and all trust owners, but the FAA now wants more. NCT owners are required to file all trust agreements, operating agreements, and other documents that affect a relationship under the trust when registering the aircraft. In most cases, these documents will be retained in the FAA Registry files and become public information. If the documents are requested returned by the applicant, prior to their return, FAA registry counsel will create a brief summary of the review that will be retained in the FAA Registry’s ancillary aircraft file. These summaries will not be in the public files, but may be subject to Freedom of Information Act requests.
In the event of a registration rejection due to the operating agreement adversely affecting the trust agreement, regardless of whether the applicant has requested the return of the materials or not, the FAA will retain the operating agreement for inclusion in the administrative record in the event litigation arises out of the rejection.
Trustee’s Ownership Responsibilities and Removal of a Trustee
Trustees are considered owners for regulatory compliance in all respects, including those participating as owners in fractional ownership programs. While trustees may contractually obligate operators to provide and maintain current information to satisfy the new response deadlines, the trustee will ultimately remain liable for regulatory compliance.
While they may own the entire beneficial interest of a trust, non-citizens may not have more than 25% of the power to direct or remove a trustee. Foreign bodies may not preside over a dispute between a trustor and trustee.
Do other owners, through a trust or otherwise, need to be concerned, as well? Maybe.
Though the Policy Clarification was directed ostensibly at newly registering NCTs only, the FAA makes clear that with regard to regulatory compliance, no distinction is made between different types of aircraft owners. The FAA reserves the right to seek information from the registered owner of an aircraft on the U.S. registry, no exceptions.
For existing NCTs, while there are no explicit statements regarding the enforcement of these new rules, we expect the FAA will require all owners to be held to the response time guidelines. There is no requirement that existing NCTs file additional paperwork, at this time; however, we anticipate that in the future, the FAA may require that additional documents be provided.
The document filing requirements will likely affect fewer owners. Owners leasing to airlines, for instance, will likely not be affected as the commercial operator is reflected in lease documents registered with the FAA on the public record. Likewise, Part 91 leases of Large Civil Aircraft (i.e. aircraft of over 12,500 lbs MOTW) are already filed with the FAA Technical Center under the FAA’s Truth-in-Leasing rules such that the FAA may already have good information as to the operator of the aircraft. Any other owners should be aware that the FAA now may one day expect further documentation filings, but this does not appear to be a priority at this time.
Planning Concerns for Aircraft Owners
Deliberate care should be taken when registering an aircraft to pay attention to the drafting of the trust and any operating agreements or other documents requiring filing. When such documents are filed or recorded with the FAA, they will permanently become part of the public record unless deliberate steps are taken to exclude them from it. Further, such documents on the record will now act as a cloud on the title of the aircraft unless terminated or subject to self-executing automatic termination language.
Whether or not you expect the documents to become part of the record, caution is appropriate in the drafting of the documents themselves to limit potential disclosure of confidential or sensitive information. Any intentionally or unintentionally filed documents are part of the public record and possibly subject to freedom of information act requests.
[i] Notice of Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations Involving Non-U.S. Citizen Trustors and Beneficiaries, 78 Fed. Reg. 36412, (to be codified at 14 C.F.R. ch. 1) (“Policy Clarification”).