Registering an Aircraft in the United State (Part 1 of 2)

REGISTERING AN AIRCRAFT IN THE UNITED STATES – PART 1 OF 2 — Originally published in BusinessAir Magazine, December 2015, Volume 25, No. 12.

During the acquisition process, the specific aircraft selected for purchase is the main focus of the buying team. However, before the transaction is ready to close, the buyer needs to have a registration plan for the aircraft.

In order to register an aircraft in the United States with the Federal Aviation Administration (“FAA”), the ownership entity must be a “citizen of the United States” as defined in 49 U.S.C. §40102(a)(15). This deceptively simple definition has been frustrating for many first-time buyers because it can seem counterintuitive. For example, most people assume that a partnership whose partners are all U.S. citizens would qualify to own an aircraft, but if the partner is not a living human being, the partnership fails the citizenship test. Under the statutory definition, each type of entity has its own set of requirements that must be met to qualify to own the aircraft. For example, when registering ownership in the name of an individual, the person must be either a U.S. citizen or a resident alien of the United States, and resident aliens must provide a copy of their green card as part of the aircraft registration process.

Instead of owning an aircraft individually and subjecting oneself to the potential liability of such ownership, most buyers elect to put the aircraft into a business entity. If ownership is to be vested in a corporation, then all of the following must be true: (i) The president must be an individual citizen of the United States; (ii) at least two-thirds (2/3) of the board of directors must be composed of individual citizens of the United States; (iii) at least two-thirds (2/3) of the managing officers must be individual citizens of the United States; (iv) the Company must be under the control of citizens of the United States; and (v) at least seventy-five percent (75%) of the voting interest must be owned or controlled by citizens of the United States. Many wonder how any corporation which is publically traded can confirm it meets this definition on a continuing basis. The requirements for a limited liability company (“LLC”) are similar to the requirements listed above for a corporation, but for an LLC, an additional statement in support of registration also must be filed with the FAA at the time of closing. This statement declares that all of the requirements are met. Further, if any of the members of the LLC are also LLCs, then an additional statement in support of registration must be completed for each LLC member.

For a partnership to own an aircraft, the applicant for registration must be a partnership organized and existing under the laws of one of the states of the United States. The partnership must be composed entirely of living individual citizens of the United States. If any of the partners are corporations, limited liability companies, partnerships or resident aliens, the partnership fails the citizenship test. This requirement includes all general and limited partners of the partnership.

There are two main exceptions to the citizenship requirements. Provided that an aircraft is not registered under the laws of a foreign country, it may be registered in the United States by “a corporation, not a citizen of the United States when the corporation is organized and doing business under the laws of the United States or a state, and the aircraft is based and is primarily used in the United States.” 49 U.S.C. §44102(a)(1)(C). The regulation promulgated by the FAA in the furtherance of this statutory authority requires that at least sixty percent of the total flight hours of the aircraft during each six-month reporting period shall be in the United States. 14 CFR §47.9(b)(1)(2).

The second, more common way to register an aircraft when the citizenship test cannot be met is by way of an owner trust. The owner trust is also one way to register an aircraft to protect confidentiality and will be discussed in Part Two of this series on U.S. aircraft registration.

It is important to note that selecting the entity to use for aircraft registration cannot be done in isolation. The ownership entity must not only meet the registration requirements, but it also must make sense from a tax planning perspective and be in regulatory compliance. If a sole purpose entity is formed to own an aircraft, additional structuring must take place because, while a sole purpose entity can own an aircraft, it cannot operate an aircraft under Federal Aviation Regulations (“FAR”) Part 91. In order to operate under FAR Part 91, the primary business purpose of the company must be something other than owning an aircraft. Again, with ownership structure planning, solutions are available. But remember that complying with U.S. citizenship requirements for owning an aircraft is only the beginning of formulating a plan which must also consider tax planning and compliance.

Please contact Amanda Applegate at 310-392-5200 or aapplegate@aerlex.com.