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

REGISTERING AN AIRCRAFT IN THE UNITED STATES – PART 2 OF 2 — Originally published in BusinessAir Magazine, January 2016, Volume 26, No. 1.

In the first part of this two-part series, I described in detail the citizenship requirements for an aircraft registered in the United States. However, when a prospective aircraft owner cannot satisfy the citizenship test, the most common way to register an aircraft in the U.S. is through the use of an owner trust.

Owner trusts serve two main purposes: (i) allowing a person or entity that does not meet the U.S. citizenship requirements to own a U.S.-registered aircraft and (ii) preserving confidentiality. Several well-known and often-used websites allow the public to track the movements of most general aviation aircraft on an Instrument Flight Rules (“IFR”) flight plan. Since Federal Aviation Administration (“FAA”) aircraft registration information is a matter of public record, it’s relatively easy to find out who owns any given aircraft, and then monitor their travels. This information can be used by the media or business competitors to the disadvantage of the aircraft owner.

Owners concerned about confidentiality can protect their anonymity by registering the aircraft with a trustee. Under an owner trustee ownership structure, the trustee takes title to the aircraft and gives the beneficiary or “trustor” the right to operate it. Some aircraft owners create the trust agreement with an existing entity. However, if the trustor can be traced back to the underlying owner of the aircraft, the goal of confidentially has not been achieved. If anonymity of the ownership is the objective, then the trust should be independent of any entity that can be linked back to the underlying owner. David Wall of TVPX ARS Inc. states, “Over the past several years we have seen an increasing number of clients choosing a trust structure to help provide an additional layer of confidentiality, especially in the finance and technology sectors.”

Regardless of whether the owner trust is being used to resolve citizenship issues or to protect confidentiality, the structure of the trust is the same. When the aircraft is placed in trust, legal title to the aircraft is registered in the name of the owner trustee as the owner of the aircraft while the trustor retains a beneficial interest in the aircraft. Title 14, Section 47.7 of the Code of Federal Regulations (“CFR”) codifies the requirements for aircraft registration in the name of owner trustees.

In 2013, the FAA issued a Notice of Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations Involving Non-U.S. Citizen Trustors and Beneficiaries (“Clarification”). 78 Fed. Reg. 36412 (June 18, 2013). Under the Clarification, the FAA requires that all operating agreements that transfer possession and use of an aircraft held in trust from the owner trustee to the trustor be submitted to the FAA in conjunction with all other instruments submitted for registration purposes pursuant to 14 C.F.R. § 47.7(c)(2)(i). The operating agreements will generally be afforded confidential treatment. If confidentiality is of the utmost importance, the parties should submit their registration package to the FAA Aeronautical Center Counsel (“ACC”) for review prior to filing with the FAA Registry and request that their operating agreement remain confidential and be returned to the parties. This procedure should allow the parties to protect any proprietary information in the agreements.

There are several institutions throughout the country that regularly serve as owner trustee for aircraft registered in the U.S., including a number of trust companies and banks. When adding a trustee to the buying team, the aircraft purchaser should make certain that the trustee has substantial and proven experience in the field of aircraft owner trusts.

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